Pinnacle West Reports 2012 Fourth-Quarter and Full-Year Results

  Pinnacle West Reports 2012 Fourth-Quarter and Full-Year Results

  *Increased electricity sales in fourth quarter, cost management and strong
    operational performance benefit bottom line
  *2012 regulatory settlement contributes to improved financial results while
    moderating average residential customer bill impacts
  *2012 results at top of earnings guidance range

Business Wire

PHOENIX -- February 22, 2013

Pinnacle West Capital Corporation (NYSE: PNW) today reported consolidated
on-going earnings of $26.9 million, or $0.24 per diluted share of common
stock, for the quarter ended December 31, 2012. This result compares with
on-going earnings of $12.1 million, or $0.11 per share, in the same 2011
period. The Company’s net income attributable to common shareholders for the
2012 fourth quarter was $22.6 million, or $0.20 per diluted share, compared
with net income of $12.6 million, or $0.11 per share, for the same quarter a
year ago.

For full-year 2012, Pinnacle West reported consolidated on-going earnings of
$387.4 million, or $3.50 per share, as compared to $328.1 million, or $2.99
per share, a year ago. Consolidated net income attributable to common
shareholders for 2012 was $381.5 million, or $3.45 per diluted share, compared
with 2011 net income of $339.5 million, or $3.09 per diluted share.

On-going earnings exclude results of previously discontinued operations. A
reconciliation of reported earnings to on-going earnings is provided at the
end of this release.

“Superior operational performance by our dedicated employees – particularly in
the areas of customer service, reliability and safety – combined with cost
management and economic improvement in our market area produced full-year
financial results at the top of our expectations,” said Pinnacle West
Chairman, President and Chief Executive Officer Don Brandt.

Looking forward, Brandt said the Company and its employees cannot rest on
recent accomplishments. “We must maintain our focus on operational improvement
and cost management, while maintaining strong service reliability at fair
prices for our customers, and producing solid financial results for
shareholders.”

Brandt cited additional examples of the Company’s 2012 achievements:

  *APS provided its 1.1 million customers with record levels of service
    reliability, maintained superior power plant performance, and continued
    its top-tier customer satisfaction rating – all of which compare favorably
    with the best performers in the electric utility industry.
  *The Company experienced its safest year ever as the number of recordable
    employee injuries decreased for the fifth straight year, besting 2011’s
    prior record by 20 percent.
  *Pinnacle West’s total return to shareholders in 2012 was 10.3 percent,
    which compared favorably with a 0.1 percent return for the S&P 1500
    Electric Utility Index.
  *For the second time in as many years, Standard & Poor's Corporation (S&P)
    upgraded its credit ratings for both Pinnacle West and Arizona Public
    Service (APS) from BBB to BBB+, thus reducing borrowing costs for needed
    infrastructure investments. The Company believes these upgrades reflect
    effective management of regulatory risk, an improvement in Arizona’s
    economy, continued improvement in cash flow measures and decreased
    leverage in recent years. Earlier in 2012, the other two primary credit
    rating agencies — Moody's Investors Service and Fitch Ratings — also
    upgraded Pinnacle West and APS to the BBB+ level.

The fourth-quarter on-going results comparison was positively impacted by the
following major items:

  *The Company’s 2012 regulatory settlement, which included a retail non-fuel
    base rate increase,  improved earnings by $0.13 per share. The settlement
    became effective July 1, 2012.
  *Higher transmission revenues improved earnings by $0.06 per share,
    primarily because of  a retail transmission rate increase implemented in
    August 2012.
  *Lower infrastructure-related costs increased earnings by $0.06 per share,
    related to lower depreciation and amortization, primarily attributable to
    the operating license extensions at the Palo Verde Nuclear Generating
    Station in 2011; and decreased interest expense due to lower debt balances
    and interest rates. These lower costs were partially offset by higher
    property taxes.
  *Higher retail electricity sales – excluding the effects of weather
    variations, but including effects of customer conservation, energy
    efficiency programs and distributed renewable generation – improved
    earnings by $0.06 per share. The increase was primarily related to
    customer growth of 1.4 percent in the quarter compared to the same period
    a year ago.

These factors were offset in part by the following factors:

  *Higher operations and maintenance expenses impacted earnings by $0.08 per
    share compared with the prior-year quarter. The expense increase primarily
    consisted of the beginning of amortization of pension and other
    post-retirement benefits in 2012 compared with deferral of such costs in
    2011 pursuant to the Company’s retail regulatory settlements; increased
    employee benefit costs; and higher information technology costs, partially
    offset by lower fossil generation costs as a result of less planned
    maintenance being completed in the current-year quarter than in the same
    quarter a year ago. The O&M variance excludes costs associated with
    renewable energy, energy efficiency and similar regulatory programs, which
    are largely offset by comparable amounts of operating revenues.
  *The effects of weather variations decreased the Company’s earnings by
    $0.03 per share.
  *Higher fuel and purchased power costs, net of higher mark-to-market
    valuations as a result of changes in commodity prices, reduced earnings by
    $0.03 per share.
  *The net effect of miscellaneous items decreased earnings $0.04 per share.

APS, the Company’s principal subsidiary, recorded 2012 fourth-quarter net
income attributable to common shareholder of $26.8 million versus net income
of $14.3 million for the comparable 2011 quarter. For 2012 as a whole, APS net
income attributable to common shareholder was $395.5 million compared with
$336.2 million for 2011.

Financial Outlook

Pinnacle West continues to expect its 2013 consolidated on-going earnings will
be in the range of $3.45 to $3.60 per diluted share. Key factors and
assumptions underlying the outlook are:

  *Normal weather patterns for the year;
  *Weather-normalized retail electricity sales volumes about the same as the
    prior year, in part due to the effects of customer conservation and
    initiatives associated with energy efficiency and distributed renewable
    generation;
  *Retail customer growth of about 1.5 percent;
  *Total electricity gross margin (operating revenues, net of fuel and
    purchased power expenses, excluding retail rate adjustment mechanisms
    associated with renewable energy and energy efficiency programs) of about
    $2.17 billion to $2.22 billion, which was previously estimated to be about
    $2.20 billion to $2.25 billion;
  *Anticipated operating expenses (operations and maintenance, excluding
    costs for Renewable Energy Standard and similar regulatory programs;
    depreciation and amortization; and taxes other than income taxes) have
    been reduced to a range of $1.34 billion to $1.37 billion, a decrease from
    the previous range of $1.36 billion to $1.39 billion;
  *Anticipated interest expense, net of allowances for borrowed and equity
    funds used for construction, have been reduced to a range of about $175
    million to $185 million, from the previous estimated range of about $190
    million to $200 million; and
  *An effective income tax rate of about 35 percent.

Longer term, the Company’s goal is to achieve a consolidated earned return on
average common equity of at least 9.5 percent annually in 2013 through 2015.
Key factors and assumptions underlying the outlook can be found in the
earnings presentation slides for the fourth-quarter and full-year 2012 on the
Company’s website at pinnaclewest.com/investors.

Conference Call and Webcast

Pinnacle West invites interested parties to listen to the live webcast of
management’s conference call to discuss the Company’s 2012 fourth-quarter and
full-year results, as well as recent developments, at 12 noon (ET) today,
February 22. The webcast can be accessed at pinnaclewest.com/presentations and
will be available for replay on the website for 30 days. To access the live
conference call by telephone, dial (877) 407-8035 or (201) 689-8035 for
international callers. A replay of the call also will be available until 11:59
p.m. (ET), Friday, March 1, 2013, by calling (877) 660-6853 in the U.S. and
Canada or (201) 612-7415 internationally and entering conference ID number
407220.

General Information

Pinnacle West Capital, an energy holding company based in Phoenix, has
consolidated assets of about $13.4 billion, more than 6,300 megawatts of
generating capacity and about 6,600 employees in Arizona and New Mexico.
Through its principal subsidiary, Arizona Public Service, the Company provides
retail electricity service to more than 1.1 million Arizona homes and
businesses. For more information about Pinnacle West, visit the Company’s
website at pinnaclewest.com.

Dollar amounts in this news release are after income taxes. Earnings per share
amounts are based on average diluted common shares outstanding. For more
information on Pinnacle West’s operating statistics and earnings, please visit
pinnaclewest.com/investors.


PINNACLE WEST CAPITAL CORPORATION
NON-GAAP FINANCIAL MEASURE RECONCILIATION
                                                          
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
(GAAP MEASURE) TO ON-GOING EARNINGS (NON-GAAP FINANCIAL MEASURE)
                                                                     
                                                                     
                         Three Months Ended           Three Months Ended
                         December 31, 2012            December 31, 2011
                         Dollars in     Diluted       Dollars in     Diluted
                         Millions       EPS           Millions       EPS
                                                                     
Net Income
Attributable to          $   22.6       $  0.20       $  12.6        $ 0.11
Common
Shareholders
Adjustments:
Loss (Income) from
Discontinued                4.3          0.04         (0.5  )      --    
Operations
On-going Earnings        $   26.9       $  0.24       $  12.1       $ 0.11  
                                                                     
                                                                     
                         Twelve Months Ended          Twelve Months Ended
                         December 31, 2012            December 31, 2011
                         Dollars in     Diluted       Dollars in     Diluted
                         Millions       EPS           Millions       EPS
                                                                     
Net Income
Attributable to          $   381.5      $  3.45       $  339.5       $ 3.09
Common
Shareholders
Adjustments:
Loss (Income) from
Discontinued                5.9          0.05         (11.4 )      (0.10 )
Operations
On-going Earnings        $   387.4      $  3.50       $  328.1      $ 2.99  
                                                                     

                        NON-GAAP FINANCIAL INFORMATION

In this press release, we refer to “on-going earnings.” On-going earnings is a
“non-GAAP financial measure,” as defined in accordance with SEC rules. We
believe on-going earnings provide investors with a useful indicator of our
results that is comparable among periods because it excludes the effects of
unusual items that may occur on an irregular basis. Investors should note that
these non-GAAP financial measures involve judgments by management, including
whether an item is classified as an unusual item. We use on-going earnings, or
similar concepts, to measure our performance internally in reports for
management.

                          FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements based on our current
expectations, including statements regarding our earnings guidance and
financial outlook and goals. These forward-looking statements are often
identified by words such as “estimate,” “predict,” “may,” “believe,” “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 outcomes
currently expected or sought by Pinnacle West or APS. These factors include,
but are not limited to:

  *our ability to manage capital expenditures and operations and maintenance
    costs while maintaining reliability and customer service levels;
  *variations in demand for electricity, including those due to weather, the
    general economy, customer and sales growth (or decline), and the effects
    of energy conservation measures and distributed generation;
  *power plant and transmission system performance and outages;
  *volatile fuel and purchased power costs;
  *fuel and water supply availability;
  *our ability to achieve timely and adequate rate recovery of our costs,
    including returns on debt and equity capital;
  *regulatory and judicial decisions, developments and proceedings;
  *new legislation or regulation including those relating to environmental
    requirements and nuclear plant operations;
  *our ability to meet renewable energy and energy efficiency mandates and
    recover related costs;
  *risks inherent in the operation of nuclear facilities, including spent
    fuel disposal uncertainty;
  *competition in retail and wholesale power markets;
  *the duration and severity of the economic decline in Arizona and current
    real estate market conditions;
  *the cost of debt and equity capital and the ability to access capital
    markets when required;
  *changes to our credit ratings;
  *the investment performance of the assets of our nuclear decommissioning
    trust, pension, and other postretirement benefit plans and the resulting
    impact on future funding requirements;
  *the liquidity of wholesale power markets and the use of derivative
    contracts in our business;
  *potential shortfalls in insurance coverage;
  *new accounting requirements or new interpretations of existing
    requirements;
  *generation, transmission and distribution facility and system conditions
    and operating costs;
  *the ability to meet the anticipated future need for additional baseload
    generation and associated transmission facilities in our region;
  *the willingness or ability of our counterparties, power plant participants
    and power plant land owners to meet contractual or other obligations or
    extend the rights for continued power plant operations;
  *technological developments affecting the electric industry; and
  *restrictions on dividends or other provisions in our credit agreements and
    Arizona Corporation Commission orders.

These and other factors are discussed in Risk Factors described in Part 1,
Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal
year ended December 31, 2012, which readers should review carefully before
placing any reliance on our financial statements or disclosures. Neither
Pinnacle West nor APS assumes any obligation to update these statements, even
if our internal estimates change, except as required by law.

                                                                
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)
                                                                           
                                                                           
                       THREE MONTHS ENDED                TWELVE MONTHS ENDED
                       DECEMBER 31,                      DECEMBER 31,
                       2012          2011              2012            2011
                                                                           
Operating              $ 693,122       $ 667,892         $ 3,301,804       $ 3,241,379
Revenues
                                                                           
Operating
Expenses
Fuel and                 210,864         215,512           994,790           1,009,464
purchased power
Operations and           237,141         228,632           884,769           904,286
maintenance
Depreciation and         103,268         107,504           404,336           427,054
amortization
Taxes other than         39,052          35,406            159,323           147,408
income taxes
Other expenses          1,508         2,123           6,831           6,659     
Total                   591,833       589,177         2,450,049       2,494,871 
                                                                           
Operating Income        101,289       78,715          851,755         746,508   
                                                                           
Other Income
(Deductions)
Allowance for
equity funds             6,797           5,010             22,436            23,707
used during
construction
Other income             249             565               1,606             3,111
Other expense           (7,409  )      (2,614  )        (19,842   )      (10,451   )
Total                   (363    )      2,961           4,200           16,367    
                                                                           
Interest Expense
Interest charges         52,407          58,744            214,616           241,995
Allowance for
borrowed funds          (4,543  )      (3,987  )        (14,971   )      (18,358   )
used during
construction
Total                   47,864        54,757          199,645         223,637   
                                                                           
Income From
Continuing
Operations               53,062          26,919            656,310           539,238
Before Income
Taxes
                                                                           
Income Taxes            18,157        7,375           237,317         183,604   
                                                                           
Income From
Continuing               34,905          19,544            418,993           355,634
Operations
                                                                           
Income (Loss)
From
Discontinued
Operations
Net of Income           (4,234  )      446             (5,829    )      11,306    
Taxes
                                                                           
Net Income               30,671          19,990            413,164           366,940
                                                                           
Less: Net income
attributable to          8,040           7,426             31,622            27,467
noncontrolling
interests
                                                                        
Net Income
Attributable To        $ 22,631       $ 12,564         $ 381,542        $ 339,473   
Common
Shareholders
                                                                           
                                                                           
Weighted-Average
Common Shares            109,693         109,202           109,510           109,053
Outstanding -
Basic
                                                                           
Weighted-Average
Common Shares            110,776         110,077           110,527           109,864
Outstanding -
Diluted
                                                                           
Earnings Per
Weighted-Average
Common Share
Outstanding
Income from
continuing
operations
attributable to        $ 0.24          $ 0.11            $ 3.54            $ 3.01
common
shareholders -
basic
Net income
attributable to
common                 $ 0.21          $ 0.12            $ 3.48            $ 3.11
shareholders -
basic
Income from
continuing
operations
attributable to        $ 0.24          $ 0.11            $ 3.50            $ 2.99
common
shareholders -
diluted
Net income
attributable to
common                 $ 0.20          $ 0.11            $ 3.45            $ 3.09
shareholders -
diluted
                                                                           
Amounts
Attributable To
Common
Shareholders
Income from
continuing             $ 26,865        $ 12,109          $ 387,380         $ 328,110
operations, net
of tax
Discontinued
operations, net         (4,234  )      455             (5,838    )      11,363    
of tax
Net income
attributable to        $ 22,631       $ 12,564         $ 381,542        $ 339,473   
common
shareholders

Contact:

Pinnacle West Capital Corporation
Media Contact:
Alan Bunnell, 602-250-3376
Analyst Contact:
Rebecca Hickman, 602-250-5668
Website: pinnaclewest.com