PHOENIX - In a move heralded as bringing choice and lower prices to customers of the state's largest investor-owned utility, a settlement agreement between Arizona Public Service and a broad-based coalition of customers and industry associations was approved today (Sept. 23) by the Arizona Corporation Commission.

The settlement agreement continues a current pattern of annual price reductions for customers, resolves issues related to deregulation while accelerating the opening of the market for customer choice and allows the company to recover the costs of changing from a highly regulated industry to a deregulated market.

"With today's agreement, the future has a new clarity," said Bill Post, Chief Executive Officer of APS and its parent company. "It represents a significant step forward for the company, its customers, its shareholders and all Arizona consumers. The company can now intensify its focus on the innovation, superior service and lower prices that are part of a truly competitive and deregulated marketplace."

Under the agreement, APS will reduce its prices for customers. For residential and small business customers, prices will be reduced by a total of 7.5 percent from 1999 to 2003 (1.5 percent per year). The first price reduction takes effect Oct. 1 and is retroactive to July 1. The average residential customer, under terms of the agreement, will save $101 a year when all of the proposed price reductions are implemented in 2003.

For larger customers who use 3 megawatts or more, price reductions will total five percent from 1999 to 2002 (1.5 percent in 1999 and 2000, 1.25 percent in 2001, and 0.75 percent in 2002).

These contemplated price reductions, combined with the reductions APS customers have already received since 1994, will bring total reductions for residential and small business customers to approximately 16 percent over a 10-year period.

APS will make 20 percent of its peak demand in 1995 available to competitors during the phase-in. Approximately 35,000 APS residential customers will be able to choose when competition begins; that number will increase by 8,750 each subsequent quarter.

In earlier Commission filings, APS calculated that it had $533 million net present value in stranded costs resulting from the change to a competitive market from a regulated industry. The company will have the opportunity to recover $350 million of these costs through a competitive transition charge, in place through Dec. 31, 2004. The agreement also calls for a regulatory disallowance of $234 million pretax, which will be recorded as a net reduction of regulatory assets.

In addition, APS also will maintain its low-income assistance programs and continue to act as a full-service supplier for customers who do not wish to participate in the competitive market.

Upon receipt of a final order from the Commission approving this agreement that is not subject to judicial review, the parties have agreed to withdraw their various court appeals of the Commission's competition orders.

The agreement was proposed by APS, the Residential Utility Consumer Office, Arizona Community Action Association, and Arizonans for Electric Choice and Competition, representing small and large business customers and several industry associations.

APS, Arizona's largest and longest-serving electric utility, serves approximately 805,000 customers in 11 of the state's 15 counties. With headquarters in Phoenix, APS is the largest subsidiary of Pinnacle West Capital Corporation (NYSE:PNW).

NOTE: (A megawatt is 1,000,000 watts)

Contacts

This press release contains forward-looking statements that involve risks and uncertainties, which include, but are not limited to, the ongoing restructuring of the electric industry; the outcome of the regulatory proceedings relating to the restructuring; regional economic and market conditions, which could affect customer growth and the cost of power supplies; the cost of debt and equity capital; weather variations affecting customer usage; and the strength of the real estate market. These factors and the other matters discussed above may cause future results to differ materially from historical results, or from results or outcomes currently expected or sought by the Company.