a powerful tomorrow starts...

Barclays CapitalCEO Energy/Power Conference

September 10, 2009

A Powerful TomorrowStarts Today

Forward-Looking StatementsForward-Looking StatementsThis presentation contains forward-looking statements based on current expectations, and neither Pinnacle West nor APS assumes any obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forward-looking statements are often identified by words such as “estimate,” “predict,” “hope,” “may,” “believe,” “anticipate,” “plan,” “expect,” “require,” “intend,”“assume” and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from results or outcomes currently expected or sought by Pinnacle West or APS. In addition to the Risk Factors described in Item 1A of the 2008 Form 10-K, these factors include, but are not limited to: state and federal regulatory and legislative decisions and actions, including the outcome or timing of the pending rate case of APS; increases in our capital expenditures and operating costs and our ability to achieve timely and adequate rate recovery of these increased costs; our ability to reduce capital expenditures and other costs while maintaining reliability and customer service levels, and unexpected developments that would limit us from achieving all or some of our planned capital expenditure reductions; volatile fuel and purchased power costs, including fluctuations in market prices for natural gas, coal, uranium and other fuels used in our generating facilities, availability of supplies of such commodities, and our ability to recover the costs of such commodities; the outcome and resulting costs of regulatory, legislative and judicial proceedings, both current and future, including those related to environmental matters and climate change; the availability of sufficient water supplies to operate our generation facilities, including as the result of drought conditions; the potential for additional restructuring of the electric industry, including decisions impacting wholesale competition and the introduction of retail electric competition in Arizona; regional, national and international economic and market conditions, including the strength of the real estate, credit and financial markets; the potential adverse impact of current economic conditions on our results of operations; the cost of debt and equity capital and access to capital markets; changes in the market price of our common stock; restrictions on dividends or other burdensome provisions in new or existing credit agreements; our ability, or the ability of our subsidiaries, to meet debt service obligations; current credit ratings remaining in effect for any given period of time; the performance of the stock market and the changing interest rate environment, which affect the value of our nuclear decommissioning trust, pension, and other postretirement benefit plan assets, the amount of required contributions to Pinnacle West’s pension plan and contributions to APS’ nuclear decommissioning trust funds, as well as the reported costs of providing pension and other postretirement benefits and our ability to recover such costs; volatile market liquidity, any deteriorating counterparty credit and the use of derivative contracts in our business (including the interpretation of the subjective and complex accounting rules related to these contracts); changes in accounting principles generally accepted in the United States of America, the interpretation of those principles and the impact of the adoption of new accounting standards; customer growth and energy usage; weather variations affecting local and regional customer energy usage; power plant performance and outages; transmission outages and constraints; the completion of generation and transmission construction in the region, which could affect customer growth and the cost of power supplies; risks inherent in the operation of nuclear facilities, such as environmental, regulatory, health and financial risks, risk of terrorist attack, planned and unplanned outages, and unfunded decommissioning costs; the ability of our power plant participants to meet contractual or other obligations; technological developments in the electric industry; the results of litigation and other proceedings resulting from the California and Pacific Northwest energy situations; the performance of Pinnacle West’s subsidiaries and any resulting effects on its cash flow; the strength of the real estate and credit markets and economic and other conditions affecting the real estate and credit markets in SunCor’s market areas, which include Arizona, Idaho, New Mexico and Utah; and other uncertainties, all of which are difficult to predict and many of which are beyond the control of Pinnacle West and APS.

1

Who We AreWho We Are

NYSE Ticker: PNWMarket Cap: $3 BillionEnterprise Value: $7 Billion

Competitive Energy Services Provider$75 Million

Venture Investments$21 Million

EL DORADO INVESTMENT COMPANY

Real Estate Developer$292 Million

Vertically Integrated Electric Utility$11.3 Billion

Assets June 30, 2009

$12 Billion

At our core, we are an electric utility.

2

A Leadership Team of Industry VeteransA Leadership Team of Industry VeteransOur top executives have more than 160 combined years

of creating shareholder value in the energy industry.

Jim Hatfield

SVP &CFO

Don Robinson

APSPresident

& COO

Randy Edington

EVP & Chief Nuclear

Officer

Don BrandtChairman & CEO

Steve Wheeler

EVPCustomer Service &

Regulation

MarkSchiavoni

SVPFossil

Generation

DaveFalckEVP,

GeneralCounsel &Secretary

3

PNW: Our Value PropositionPNW: Our Value Proposition

Delivering SuperiorShareholder Returns

StrengtheningFinancial andRisk Profiles

ImprovingRegulatory

Environment

Compelling Capital Investment

Opportunities

Capitalizing on Attractive

Fundamentals

• $2.10 per share annual dividend• Investment-grade credit ratings and adequate liquidity• Convert growth into superior ROE• Risk reduction• Opportunities for multiple expansion

• Retail rate settlement filed June 12, 2009• Progress on many issues over last four years• Shared values• Building collaborative relationships

• Distribution system growth • Transmission expansion – timely rate recovery• Abundant solar conditions in Arizona• Nuclear expansion option – leveraging our experience

• Vertically integrated electric utility• High growth service territory • Diversified energy mix• Operational excellence• Strong, energetic leadership

4

Retail Rate and Financial Stability Plan Proposed SettlementRetail Rate and Financial Stability Plan Proposed Settlement

The proposed settlement has a number of benefits from investors’ perspective.

Strengthens APS’ financial condition and supports common dividend

Provides greater level of cost recovery and return on investment

Demonstrates cooperation among APS, ACC Staff and other intervenors

Allows opportunity to help shape Arizona’s energy future outside continual rate cases

5

Base Retail Rates –Annualized revenue increases ($ millions):

Non-fuel $ 196 $ 264Net fuel-related 11 14

Net increase $ 207 $ 278Allowed ROE (%) 11 11.5Equity ratio (%) 54 54Rate base ($ billions) $5.6 $5.4Base fuel rate (¢ per kWh) 3.76 3.88Effective date 1/1/2010 10/1/2009

Line Extension Fees – 2010-2012 payments received to be recorded as revenues instead of contributions in aid of construction (CIAC) (pretax estimates):• 2010 $23 million• 2011 $25 million• 2012 $49 million

ProposedSettlement

APSRequest

The proposed revenue increases total $230 million in 2010 and will improve APS’ financial condition.


6

Future rate case processAPS to file general base rate cases on or after June 1, 2011 and June 1, 2013Base rate increase from APS’ next rate case to be effective on or after July 1, 2012Settling parties intend to process future cases within 12 months of sufficiency findings

Other key provisionsProvides rate stability for APS customersProvides for significant increase in energy efficiency programsExpands renewable energy requirements and programs

The settling parties have agreed to expedite processing future rate cases and to other non-financial provisions.


7

The proposed schedule should allow a final decision by year-end 2009.

Term sheet filed May 4, 2009

Definitive settlement agreement filed June 12, 2009

Supporting parties’ testimony due July 1, 2009

Opposing parties’ testimony due July 22, 2009

Supporting parties’ reply testimony due August 6, 2009

Hearing began August 19, 2009

Rate increase effective January 1, 2010


8

Opportunities to Build on Improving Regulatory DialogueOpportunities to Build on Improving Regulatory Dialogue

State economic vitality

Federal and stateenergy policy

Long-term resource plan

Solar and renewables

Environmental stewardship

Creating a Sustainable

Energy Future for Arizona

Creating a Sustainable

Energy Future for Arizona

APS

ACC

OtherStakeholders

Customers

Communities

Governor &Legislature

9

0%

1%

2%

3%

4%

5%

6%

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08

APS Customer GrowthArizona Population GrowthU.S. Population Growth

AnnualGrowth

0.0

0.5

1.0

1.5

2.0

2009 2025

Millions

1.1

1.7

55%

Arizona has ranked in the top five for population growth over the last 20 years.In spite of economic slowdown, APS expects 55% customer growth by 2025.

APS Customer Growth

Positive Long-Term DemographicsPositive Long-Term Demographics

Superior Historical Growth

10

A Balanced and Strategic Resource PlanA Balanced and Strategic Resource PlanWe have competitive advantages to capitalize on renewableand nuclear resources to provide a diversified energy mix.

Provides flexibility to incorporate renewablesMaintains gas consumption near 2009 levels

Excellent and reliable base load resourceLess exposure to carbon and climate pressures relative to industry peers

Experienced operator of largest nuclear plant in U.S.New capacity options being explored

Abundant solar resources in ArizonaHigh customer interest and incentivesApproved recovery mechanisms

CoalCoal

Nuclear

Nuclear

Natural Gas

Natural Gas

0%

20%

40%

60%

80%

100%

2009 2025

Renewables & Energy Efficiency

Renewables & EE

Energy Mix (MWh)

11

Germany

Renewable Energy Rises With the SunRenewable Energy Rises With the SunWe intend to make Arizona the “Solar Capital of the World.”

Japan

Solar Insolation Comparison (kWh/year)

Japan’s solar insolation is

comparable to Florida, ranked 11th in the U.S.

Arizona

Germany - one of countries with highest installed capacities despite

Seattle-like weather conditions

12

Arizona: Solar “Hot Spot”Arizona: Solar “Hot Spot”

20132013Planned CommercialOperation Date

Starwood Energy / Lockheed MartinAbengoa SolarSponsor / Engineering,

Procurement & Construction Firm

30-Year PPA30-Year PPAAPS Agreement

75 miles west of Phoenix

(Harquahala Valley)

70 miles southwest of Phoenix (Gila Bend)

Location

290280Capacity (Gross MW)

Starwood Solar ISolana

With Solana and Starwood Solar I, APS will provide more solar electricity per customer than any other U.S. utility.

13

100 MW100 MW

970 MW

1032 MW

350 MW

4300 MW

1005 MW

Legend

NORTH

SAGUARO

N.GILA

PALO VERDE -HASSAYAMPA

YUCCA

GILA BEND

REDHAWK

KYRENE

WESTWING

BAGDAD

2016PINNACLE

PEAK

CHOLLA

NAVAJO

2014

.

2014

2009

CORONADO

FLAGSTAFF(APS)

2012

2010

2009

SUNDANCE

2013

HARQUAHALA

FOURCORNERS

DESERTBASIN

TBD

Line Relocation

2010

Transmission Investment is KeyTransmission Investment is Key

10-Year Transmission Plan:$1 billion of new transmission investmentOver 280 miles of new linesIncreases import capability by 22% to metro Phoenix and 39% to Yuma

Working with regulators to identify transmission projects for renewables

FERC formula rates and retail adjustor

100 MW

970 MW

1032 MW

350 MW

4300 MW

1005 MW

Planned linesExisting linesSolar potential areaWind potential areaBiomass potential areaGeothermal potential area

Strategic investment is needed to maintain reliability and bring diversified resources to our customers.

14

Progressive Federal Rate RegulationProgressive Federal Rate Regulation

FERC Formula Rates adopted in 2008Based on FERC Form 1 and certain projectionsRetail portion flows through ACC Transmission Cost AdjustorAdjusted annually with 10.75% allowed ROE

2009 FERC Formula Rate update - May 15, 2009 $23 million total annual revenue increase effective June 1, 2009$21 million from retail customers through TCA requested effective 7/1/09$1.1 billion rate base

We have achieved constructive transmission rate treatment.

15

Palo Verde: Energy Cornerstone of the SouthwestPalo Verde: Energy Cornerstone of the Southwest

50%

75%

100%

APS

Industry

Capacity Factors Accomplishments & Goals

March 2009 NRC returned plant to routine inspection and oversight December 2008 20-year license extension requestedGoals by 2013

Consistent site capacity factor greater than 88%Refueling outages 30 days or lessProduction cost less than $0.02/kWh Top quartile safety

The envy of the nuclear industry for more than a decade, Palo Verde is back on track toward top performance.

88%88%

12 MonthsEnded6/30/09

‘03 ‘04 ‘05 ‘06 ‘07 ‘08

16

Continuing Superior Operating PerformanceContinuing Superior Operating Performance

50%

75%

100%

APS

Industry

Our coal plants are consistently strong performers.

Capacity FactorsSolid capacity factors (12 months ended June 30, 2009)

Four Corners: 89%Cholla: 82%

Performance Drivers:Conservative operating practicesRigorous testing and maintenanceHighly experienced plant management

73%

84%


‘03 ‘04 ‘05 ‘06 ‘07 ‘08

17

APS Continually Ranks in Top Quartilein Residential Customer SatisfactionAPS Continually Ranks in Top Quartilein Residential Customer Satisfaction

Our employees take pride in providing top-tier customer service.

500

525

550

575

600

625

650

675

700

APSAPS

2009 J.D. Power Residential Customer Survey

IndustryAverage

Rating

Outstanding ResidentialCustomer Satisfaction Rating

OutageMinutes/Year

Projected

0

25

50

75

100

125

'05 '06 '07 '08 '09

Lowering Average Annual Outage TimePer Customer

APS Industry Top Quartile

18

0

200

400

600

800

1,000

1,200

'07 '08 '09 '10 '11

$ Millions

Generation

Transmission

Distribution

Other

Deferrals/Reductions

Projected

APS Capital Expenditures

0

2,000

4,000

6,000

8,000

'07 '08 '09 '10 '11 '12

5% Compound Annual Growth Rate

APS Rate Base

We have reduced capex based on current slowed growth –yet still expect strong rate base growth.

$ Millions

APS CapEx Drives Strong Rate Base GrowthAPS CapEx Drives Strong Rate Base Growth

Projected

19

Adequate Liquidity ResourcesAdequate Liquidity Resources

CapacityBorrower ($ Millions) MaturesPNW $ 283 Dec. ’10APS 377 Dec. ’10APS 489 Sep. ’11

$1,149

• Solid bank group• No MAC clauses or

“clean down” provisions

We have sufficient liquidity and access to credit.

0

200

400

600

800

1,000

1,200

1,400

1,600

CreditFacilities

Cash*

STDebt

Available Liquidity

$765

Liquidity

FFO

CapEx

Dividend

Cushion$407

June 30, 2009Available Liquidity

Est. 2009 CashSources & Uses

$ Millions

Credit Facilities

CurrentLT Debt*

* Includes $164 million related to bondsredeemed in July 2009

20

Cost Savings Initiatives UnderwayCost Savings Initiatives Underway

Engaged and highlymotivated workforce

Effective and efficient execution

Optimize assets and resources

Better leverage technology

Supply Chain Transformation Process

• Collaborative, enterprise-wide process

• New technology platform• Common performance metrics• Significant annual

savings expected • Phased implementation

21

Impacts of SunCor RestructuringImpacts of SunCor Restructuring

Eliminate SunCor’s debt

Produce $80 million of cash tax benefits (estimated to be received late 2010)

Reduce pretax G&A burn from $44 million in 2008 to negligible amount after restructuring

Eliminate future real estate earnings volatility

Our plan maximizes the value of SunCor’s remaining assets and eliminates its outstanding debt.

IDAHO

UTAH

NEW MEXICOARIZONA

Boise

St. George

Santa FeSedona

Prescott

Phoenix

22

Guidance Estimates*

2009 2010APS $ 2.35 $ 3.00

Parent and allother, net (0.05) -

Estimated EPS $ 2.30 $ 3.00

Key Assumptions

2009• Full-year interim base rates• No additional

base rate increases• Includes identified cost

savings and mild first quarter weather impacts

2010• Rate settlement as proposed

effective entire year• Includes identified cost savings

2009 - 2010 Earnings GuidanceAs of August 4, 20092009 - 2010 Earnings GuidanceAs of August 4, 2009

* Within a reasonable range around specified amount

Excluding any SunCor impact

Majority of SunCor’s operations expected to be reclassified to discontinued operations during 2009

We estimate our consolidated EPS will be within a reasonable range around $2.30 in 2009 and $3.00 in 2010.

23

Top-Tier Dividend YieldTop-Tier Dividend Yield

0%

3%

5%

8%

10%

PNW Electric Industry Average

Jul. 31,2008

Sep. 30,2008

Dec. 31,2008

6.6%6.6%

5.0%

July 31,2009

Pinnacle West’s annual dividend is $2.10 per share.

Mar. 31,2009

Jun. 30,2009

24

PNW: Our Value PropositionPNW: Our Value Proposition

Capitalizing on Attractive Fundamentals

Compelling Capital Investment Opportunities

StrengtheningFinancial andRisk Profiles

ImprovingRegulatory Environment

Delivering SuperiorShareholder Returns$2.10 per share annual dividendInvestment-grade credit ratingsAdequate liquidity and access to capitalConvert growth into superior ROEOpportunities for multiple/valuation expansion

25

Appendix

26

Ratings Pinnacle West APSSenior Unsecured Debt

Moody’s Baa3 Baa2S&P BB+ BBB-Fitch - BBB

OutlookMoody’s Stable StableS&P Stable StableFitch Negative Stable

Commercial PaperMoody’s P3 P2S&P A3 A3Fitch F3 F3

Investment-Grade Credit RatingsInvestment-Grade Credit Ratings

27

Managing Costs and EfficiencyManaging Costs and Efficiency

Long-term Coal & Nuclear Fuel Supply Contracts

Hedging ProgramAPS manages price volatility risk for fuel and power purchases through rolling 36-month hedge

Workforce ReductionAbout 550 positions eliminated in 2008

Cost Reduction Review Cost savings of at least $20 millionAdditional $10 million to be identified as part of settlement process

We are focused on reducing costs and mitigating volatility exposure.

28

Service Territory1.1 million customer accounts34,646 square miles

Customer Growth1.4% in 20081% average annual growth expected through 20113-4% historically – well above industry average

Resources6,274 MW owned/leased capacity1,958 MW contracted conventional resources in operation502 MW contracted renewables in operation or under development

2008 Peak Demand – 7,026 MW

Arizona’s Largest and Longest-Serving Electric UtilityArizona’s Largest and Longest-Serving Electric Utility

Serving Arizona customers since 1887 – 15 years before statehood.

29

2008 Retail Customer, Sales And Revenue Mixes2008 Retail Customer, Sales And Revenue Mixes

Residential Commercial Industrial Other

CustomersYear-End1.1 Million

RetailSales

28,794 Gwh

OperatingRevenues

$2.9 Billion

30

Kristin MayesChairman (Rep)

Gary Pierce (Rep)

Terms Through January 2011

Elected November 2008, Terms Through January 2013

Sandra Kennedy (Dem) Paul Newman (Dem) Bob Stump (Rep)

Arizona Corporation CommissionersArizona Corporation Commissioners

31

Influencing National Energy PoliciesInfluencing National Energy Policies

• Stimulus PackageTax Provisions

• Solar projects under construction by end of 2010 and in service by end of 2016 • Treasury Grant: 30% of capital cost; at commercial operation date, or• ITC: 30% of capital cost; available during construction• Bonus depreciation extension

Selected Appropriations• Renewables / Transmission: $6 billion for cost of LGP guarantees• Transmission / Distribution: $4.5 billion for modernizing grid (Smart Grid)• Energy Efficiency: $11.3 billion for state grants, weatherization and energy programs• Fossil Energy: $3.4 billion for clean coal and carbon capture research

• 2008 Legislation allows utilities to use the ITC• Carbon/Environmental Legislation• National Renewable Portfolio Standard

We are actively working with our Regulators and Legislators on initiatives important to the industry.

32

ACC Approved Interim RatesACC Approved Interim Rates

Approved by ACC December 18, 2008

Base rate surcharge effective until general rate case decision$65.2 million annual pretax retail revenuesEffective for customer bills after December 31, 2008Subject to refund, with interest, pending general rate case outcome

APS to target additional cost reductions of at least $20 million

Revenues and cost savings will be used to:Fund infrastructure and technologyReduce need for external debt financing

The interim rate decision supports APS’ financial strength while providing customers rate stability.

33

Other key financial provisions add value to the proposed settlement terms.

Expense Reduction CommitmentBeginning in 2010, identify additional $10 million pretax expense reductions above $20 million identified March 2009$30 million average annual expense reductions to be sustained through 2014

Pension and OPEB Deferrals – 2011-2012 defer for future rate recovery differences in costs from 2007 test year ($24 million) as follows (pretax):

2011 deferral not to exceed lower of $13.5 million or 50% of cost above 2007 level2012 deferral not to exceed $29 million

(continued)


34

Other key financial provisions add value to the proposed settlement terms.

Palo Verde Life ExtensionExtension of operating licenses to 60 years from 40 years requested December 2008• Process expected to take about two years

Effective later of NRC approval, or January 1, 2012:• Adjust Palo Verde depreciation rates to reflect life extension

─ Estimated pretax annual depreciation decrease $34 million• Reduce retail revenues to reflect any reduction of

decommissioning trust funding obligations related to extension ─ Rate adjustment will be earnings neutral to APS

Equity InfusionsAPS to obtain at least $700 million of equity infusions in 2010 through 2014

(continued)


35

Our Regulatory MixOur Regulatory Mix

Transmission

20%

Transmission

20%

Generation &Distribution

80%

Generation &Distribution

80%

ACC FERC

Effective Date 7/1/2007 6/1/2009

Test Year Ending 9/30/2005 12/31/2008

Rate Base $4.4 B $1.1 B

Equity Layer 55% 55%

Allowed ROE 10.75% 10.75%

The bulk of APS’ revenues come from our regulated retail rate base;we also have a meaningful transmission business.

$5.5 BillionTotal Approved Rate Base

Most Recent Rate Decisions

36

APS Revenues by Recovery MechanismsAPS Revenues by Recovery MechanismsWe have received supportive regulatory decisions

providing more timely recovery.

Test YearHistorical Forecasted

PSA

TCA

RES

DSM*

EIS*

Base Rates

Other**0

500

1,000

1,500

2,000

2,500

3,000

3,500

2004 2005 2006 2007 2008

$ Millions

Regulated Electricity Revenue by Recovery Mechanism

* Minimal amounts provided by these mechanisms in 2008; future contributions expected.** Includes revenues from wholesale electricity and transmission sales, electricity and other commodity sales and other miscellaneous services.

37

DescriptionAdopted /Last Adj.Mechanism

Recovers transmission costs based on historical costs per FERC Form 1 and certain projected data Resets annually

2008 /June 2009

FERC Formula Rates

“Pay as you go” mechanism collects dollars spent for new construction at beginning of projectBetter protects existing customers by allocating cost of expansion to developers

July 2007 / February 2008

Retail Line Extension Fees

Recovers retroactive costs related to environmental upgrades notfully covered under base ratesAllows for cost recovery of ACC-approved projects

July 2007 / July 2007

Environmental Improvement Surcharge (“EIS”)

Recovers retroactively costs related to conservation and DSM programs above $10 million in base ratesProvides 10% performance incentive to APS for net benefits achievedProvides rebates and incentives to participating customers

April 2005 / April 2009

Demand-Side Management Adjustor (“DSM”)

Recovers costs related to renewable initiativesCollects projected dollars to meet RES targetsProvides incentives to customers to install distributed renewable energy

May 2008 / January 2009

Renewable Energy Surcharge (“RES”)

Recovers FERC-approved transmission costs related to retail customersResets annually as a result of the FERC Formula Rate process (see below)

April 2005 / July 2009

Transmission Cost Adjustor (“TCA”)

Recovers 90% of variance between actual fuel and purchased power costs and base fuel rateIncludes forward-looking, historical and transition components

April 2005 / February 2009

Power Supply Adjustor (“PSA”)

We have made progress towards a supportive regulatory structure and improvement in the timing of cost recovery.

Significant Regulatory Progress Since 2005Significant Regulatory Progress Since 2005

38

E-01345A-09-0338In July 2009, APS submitted for approval its 2010 RES implementation plan; Distributed Energy Administration plan; and its RES adjustor rate schedule

RES Compliance Filing

E-01345A-09-0261In May 2009, APS filed application for approval of purchased power agreement.

Concentrating Solar Power Contract (Starwood Solar I)

E-01345A-08-0265In July 2009, ACC approved TCA increase to reflect changes in FERC transmission rates. APS collected $31.5 million through TCA mechanism in 2008.

Transmission Cost Adjustor

E-01345A-08-0106In September 2008, ACC approved APS participation in Solana project.

Concentrating Solar Power Contract (Solana)

E-01345A-08-0569As ordered in 2007 rate decision, APS has requested approval of Commercial & Industrial Load Management Program. Annual budget for this program ramps up to $8.5 million by 2013.

Demand Response Program

E-00000J-08-0314 G-00000C-08-0314

ACC Staff has begun workshop process to explore encouragement ofenergy efficiency through use of regulatory and rate incentives,including decoupling and performance-based utility incentives.

Energy Efficiency Rate Incentives forElectric and Gas Utilities'

E-01345A-09-0037APS has filed for approval of its resource plan. Suggested financial recovery mechanisms included in report.

Resource Plan

E-01345A-03-0437 E-01345A-05-0526

APS was authorized to recover $25.5 million per year. Demand Side ManagementPrograms 2008-2010

E-01345A-08-0172As part of 2008 rate request, APS received $65.2 million interim base rate surcharge effective January 1, 2009.

2008 Interim Rate Approval

E-01345A-08-0172Announced settlement May 4, 2009. Hearings in progress.

2008 General Rate Case

Docket NumberDescriptionCase

Key ACC Regulatory ProceedingsKey ACC Regulatory Proceedings

39

Transmission Revenue IncreasesTransmission Revenue Increases

200820072006Test Year$1.1B$1.0B$0.8BRate Base55%53%53%Equity Ratio

10.75%10.75%10.75%Allowed ROE

3rd Increase2nd Increase1st Increase

$15M$ 2M$13M

AnnualRevenue

6/1/20087/3/2008

Effective Date

$23M$28MTotal Increase6/1/2009$ 2M3/1/2008$ 1MWholesale Portion8/1/2009$21M3/1/2008$27MRetail Portion (TCA)

Effective Date

AnnualRevenue

Effective Date

Annual Revenue

40

Our Natural Gas Fleet Provides FlexibilityOur Natural Gas Fleet Provides FlexibilityA flexible and cost-effective natural gas fleet helps us diversify our energy mix

and deliver electricity when it’s needed most.

Efficient Intermediate FleetProvides Flexibility*

Peaking FleetThere When We Need Them

0%

50%

100%

50%

75%

100%

'03 '04 '05 '06 '07 '08

Capacity Factor Availability

Factor

37%

* Includes Redhawk, West Phoenix and merchant toll agreement.2008 average heat rate for West Phoenix and Redhawk combined-cycle units 7,400 Btu/kWh.

Summer

Annual

96%92%


‘03 ‘04 ‘05 ‘06 ‘07 ‘08

41

1,000

2,500

4,000

5,500

7,000

8,500

10,000

11,500

13,000

2009 2011 2013 2015 2017 2019 2021 2023 2025

MW

Load Requirements (15% RM) Owned - OperatingContracted - Operating Contracted - Planned

Planning for New Energy ResourcesPlanning for New Energy ResourcesTomorrow’s energy needs require a flexible and responsive approach

to changing industry dynamics.

Resource planning fills the gapResource planning fills the gap

42

A Diversified, Balanced Resource PlanA Diversified, Balanced Resource Plan

43

Solana: A “Sunny Place”Solana: A “Sunny Place”

280-MW concentrating solar trough 30-year PPA for all output(~900 GWh/year)Planned commercial operation in 2013Near existing transmission lines70 miles southwest of PhoenixThermal storage capability with summer on-peak capacity factor over 90%To be built, owned and operated by Abengoa Solar

Solana will generate enough clean, renewable electricity to meet the needs of about 70,000 Arizona homes.

44

Starwood Solar I: A Major ResourceStarwood Solar I: A Major ResourceStarwood Solar I is another meaningful step in making Arizona

the “Solar Capital of the World.”

290 MW concentrating solar trough

30-year PPA for all output

Planned commercial operation in 2013

75 miles west of Phoenix

Thermal storage capability

To be owned by Starwood Energy and built and operated by Lockheed Martin

45

A Well-Balanced Generation Portfolio`A Well-Balanced Generation Portfolio`

Fuel / Plant Location Units DispatchCommercialOps. Date Operator

Ownership /Interest1

Net Capacity (MW)

NuclearPalo Verde Wintersburg, AZ 1,2,3 Base 1986 - 1989 APS 29.1 1,147Total Nuclear 1,147

CoalCholla Joseph City, AZ 1,2,3 Base 1962 - 1980 APS 100 641Four Corners Farmington, NM 1,2,3 Base 1963 - 1964 APS 100 560Four Corners Farmington, NM 4,5 Base 1969 - 1970 APS 15 225Navajo Page, AZ 1,2,3 Base 1974 - 1976 SRP 14 315Total Coal 1,741

Gas/Oil - Combined CycleRedhawk Arlington, AZ 1,2 Intermediate 2002 APS 100 984West Phoenix Phoenix, AZ 1,2,3,4,5 Intermediate 1976 - 2003 APS 100 878Total Gas/Oil - Combined Cycle 1,862

Gas/Oil - Steam TurbinesOcotillo Tempe, AZ 1,2 Peaking 1960 APS 100 220Saguaro Red Rock, AZ 1,2 Peaking 1954 - 1955 APS 100 210Total Gas/Oil - Steam Turbines 430

Gas/Oil - Combustion TurbinesSundance Casa Grande, AZ 10 Peaking 2002 APS 100 420Yucca Yuma, AZ 6 Peaking 1971 - 2008 APS 100 243Saguaro Red Rock, AZ 1,2,3 Peaking 1972 - 2002 APS 100 189West Phoenix Phoenix, AZ 1,2 Peaking 1972 - 1973 APS 100 110Ocotillo Tempe, AZ 1,2 Peaking 1972 - 1973 APS 100 110Douglas Douglas, AZ 1 Peaking 1972 APS 100 16Total Gas/Oil - Combustion Turbines 1,088

SolarSolar - CSP Trough Red Rock, AZ -- Variable 2005 APS 100 1.0Solar - PV Prescott, AZ -- Variable 2002 - 2006 APS 100 3.0Solar - PV STAR Center -- Variable 1999 - 2004 APS 100 0.3Solar - PV Various -- Variable 1996 - 2005 APS 100 1.5Total Solar 5.8

Total Generation Capacity 6,274Note: As of December 31, 20081 Includes leased generating plants.

46

Renewable Contracts Provide BridgeRenewable Contracts Provide Bridge

COD/

Fuel / Contract LocationDeveloper/Operator Status* PPA Signed

ExpectedCOD

Term(years)

Capacity, Net (MW)

Solar

Solana (CSP Trough) Gila Bend, AZ Abengoa AD Feb-2008 2013 30 280

Total Solar 570

Wind

Aragonne Mesa Santa Rosa, NM Babcock & Brown IO Dec-2005 Dec-2006 20 90

High Lonesome Mountainair, NM Foresight / EME UC Feb-2008 Jul-2009 30 100

Total Wind 190

Geothermal

CE Turbo - Salton Sea Imperial County, CA CalEnergy IO Jan-2006 Jan-2006 23 12

Total Geothermal 12

Biomass

Snowflake Snowflake, AZ Renegy Holdings IO Jun-2008 Apr-2008 15 14

Total Biomass 14

Biogas

Landfill Gas Project AZ Developer AD Jul-2008 Aug-2009 20 3

Landfill Gas Project AZ Developer AD Jul-2008 Sep-2009 20 3

Total Biogas 6Total Renewable Contracted Capacity 792Note: As of June 30, 2009.* Advanced Development (AD), Under Construction (UC), or In Operation (IO).

Starwood Solar I (CSP Trough) Harquahala, AZ Starwood Energy/Lockheed Martin

AD May-2009 2013 30 290

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• Innovest’s highest rating (AAA) and ranked #2 electric utility

• Dow Jones Sustainability Index

• Global 100 Most Sustainable Corporations in World by Corporate Knights

• Storebrand’s Social Responsibility Index “best in class” distinction

• Social Responsibility Reporting Highest Overall Score of U.S. utilities

• EPA Climate Protection Award

• SEPA Top 10 Utility Solar Ranking

• Top 10 in U.S. in Technology Innovation and #1 utility

Environmental, Sustainability and Technology RecognitionEnvironmental, Sustainability and Technology Recognition

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“APS’ new system for monitoring transformer performance (TOAN) is a remarkable achievement and could potentially benefit electric utilities everywhere…. This system represents a significant step forward in managing and monitoring the electric grid.”

Thomas Kuhn Edison Electric Institute President

June 2008

27 U.S. patents issued since 1997State-of-the-art solar technology advancementsUnderground piping system inspections & maintenanceNuclear safety & maintenance

Additional patents pending inU.S. and abroad

Remote transformer monitoring (TOAN)Solar technology advancements

Other innovative projectsCoal conversion to Substitute Natural GasCO2 emission capture using algae

We’re not just an energy company, we embrace technological innovation in our industry.

Recipient of 2008 EEI Award

Employee Innovation Supports Customer ReliabilityEmployee Innovation Supports Customer Reliability

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