Pinnacle West Capital Corporation · NYSE:PNW

Pinnacle West Capital — Lehman Brothers CEO Energy/Power Conference 2008

50 slides from Pinnacle West Capital's conference presentation, Sep 4, 2008

1. Slide 1: Lehman Brothers CEO Energy/Power Conference

   Lehman Brothers CEO Energy/Power Conference September 4, 2008

2. Slide 2: Forward-Looking Statements

   Forward-Looking Statements This 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. Because act

3. Slide 3: Corporate Overview

   Corporate Overview $12 $12 Billion Billion Assets Assets ƒ $3.5 billion market cap June June 30, 30, 2008 2008 ƒ Arizona’s largest investor- owned electric utility with 1.1 million customers ƒ $586 million real estate assets APS SunCor APSES El Dorado

4. Slide 4: Value Proposition

   Value Proposition ƒ Integrated, regulated electric utility • Attractive economic fundamentals • Operational excellence emphasis • Environmental and sustainability leadership • Regulatory improvement focus ƒ Real estate asset optimization ƒ Financial performance enhancement ƒ Valuation • Strong divid

5. Slide 5: Attractive Economic Fundamentals

   Attractive Economic Fundamentals 6% 5% 4% 3% 2% 1% 0% '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 Projected APS Customer Growth Arizona Population Growth U.S Population Growth Capitalizing Capitalizing on on attractive attractive economic economic fundamentals fundamentals

6. Slide 6: APS Customer Growth Rebounds After Recessions

   APS Customer Growth Rebounds After Recessions 6% 5% 4% 3% 2% 1% 0% '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 Projected APS Customer Growth Arizona Population Growth U.S Population Growth Capitalizing Capitalizing on on attractive attractive economic economic fundamentals fundamentals

7. Slide 7: APS Customer Satisfaction High Among Western Electric IOUs

   APS Customer Satisfaction High Among Western Electric IOU’s Residential Residential Customers Customers Commercial Commercial Customers Customers Rating Rating Rating Rating 750 750 750 750 APS APS APS APS 700 700 700 700 650 650 650 650 600 600 600 600 550 550 550 550 500 500 500 500 J.D. Power 200

8. Slide 8: Generation Performance Highlights

   Generation Performance Highlights Top-Tier Top-Tier Coal Coal Improving Improving Nuclear Nuclear Capacity Capacity Factors Factors Capacity Capacity Factors Factors 100% 100% 100% 100% 75% 75% 75% 75% 50% 50% 50% 50% 25% 25% 25% 25% 0% 0% 0% 0% '03 '03 '04 '04 '05 '05 '06 '06 '07 '07 YTD YTD '03 '0

9. Slide 9: Top Quartile Reliability Reducing Average Customer Outage Time

   Top Quartile Reliability Reducing Average Customer Outage Time System System Average Average Interruption Interruption Duration Duration Index Index (SAIDI) (SAIDI) Minutes 140 140 Top Top Quartile Quartile Performance Performance 120 120 100 100 80 80 60 60 40 40 20 20 00 1998 1998 1999 1999 2000 2

10. Slide 10: APS Receives Electric Industry's Most Prestigious Honor

    APS Receives Electric Industry ’s Industry’s Most Prestigious Honor “APS’ new system for monitoring transformer performance is a remarkable achievement and could potentially benefit electric utilities everywhere…. This system represents a significant step forward in managing and monitoring the elect

11. Slide 11: Environmental and Sustainability Leadership

    Environmental and Sustainability Leadership ƒƒ Innovest’s Innovest’s highest highest rating rating (AAA) (AAA) and and ranked ranked #2 #2 electric electric utility utility ƒƒ Dow Dow Jones Jones Sustainability Sustainability Index Index ƒƒ Global Global 100 100 Most Most Sustainable Sustainable Cor

12. Slide 12: APS Major New Solar Resource

    APS Major New Solar Resource Solana Solana Generating Generating Station Station ƒƒ 280 280 MW MW concentrating concentrating solar solar plant plant 70 70 miles miles southwest southwest of of Phoenix Phoenix ƒƒ One One of of world’s world’s largest largest solar solar facilities facilities ƒƒ APS

13. Slide 13: Regulatory Progress Since 2005

    Regulatory Progress Since 2005 ƒ Retail adjustors and surcharges • Fuel and purchased power adjustor (PSA) • Transmission cost adjustor (TCA) • Renewables surcharge (RES) • Demand-side management adjustor (DSM) • Environmental improvement surcharge (EIS) ƒ Retail line extension fees ƒ FERC “formula”

14. Slide 14: Regulatory Improvement Focus

    Regulatory Improvement Focus ƒ Partner with regulators to meet infrastructure needs in rising cost environment ƒ Pursue timely, constructive regulatory treatment • Address earnings attrition • Implement mechanisms for “growth to pay for itself” ƒ Promote renewables and energy efficiency programs Foc

15. Slide 15: APS Capital Expenditures Since Last Retail Test Year

    APS Capital Expenditures Since Last Retail Test Year $1.8 Billion Distribution Generation Other September 30, 2005 – June 30, 2008 Focusing Focusing on on regulatory regulatory improvements improvements

16. Slide 16: APS Interim Base Rate Request

    APS Interim Base Rate Request ƒ Request filed with ACC June 6, 2008 ƒ $0.004 per kWh base rate surcharge ƒ $115 million annual pretax retail revenues ƒ Provides cash flow and strengthens credit metrics and earnings ƒ Subject to refund pending final outcome of 2008 retail rate case ƒ Hearings to begi

17. Slide 17: APS Retail Rate Case Summary

    APS Retail Rate Case Summary Net base rate increase $ 278 million 10.5 % Proposed growth impact fee (53) million (2.0)% Increase for existing customers $ 225 million 8.5 % ƒ Reflect 2007 cost levels and $1.8 billion of capital expenditures since last test year ƒ Earnings attrition adjustments ƒ New

18. Slide 18: SunCor Overview

    SunCor Overview ƒ Commercial and residential IDAHO real estate developer in Boise Western U.S. ƒ Total assets = $586 million ƒ Equity = $303 million UTAH ƒ Diverse geographic and St. George business mix •• 66 master-planned master-planned communities communities Sedona Prescott Santa Fe •• 22 major

19. Slide 19: 2008 Earnings Guidance

    2008 Earnings Guidance As of July 30, 2008 ƒ Consolidated on-going earnings expected to be within reasonable range around $2.50 per share • Excludes $0.30 per share of prior-year tax credits recorded second quarter 2008 • APS will contribute substantially all of the earnings • SunCor’s contribution

20. Slide 20: APS Significant Capital Investment to Support Long-Term Growth

    APS Significant Capital Investment to Support Long-Term Growth $ Millions 1,200 1,200 1,000 1,000 APS APS Distribution Distribution 800 800 APS APS Transmission Transmission 600 600 APS APS Generation Generation 400 400 200 Other Other 200 00 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 20

21. Slide 21: Reducing Capital Expenditures

    Reducing Capital Expenditures ƒ Phase 1: $200 million in 2008 - 2012 • Slower projected customer growth $130 million • Improved planning, logistics and scheduling $ 60 million • Deferral of system upgrades and projects $ 20 million ƒ Phase 2: At least $500 million additional over next three years St

22. Slide 22: Active Management of Operating Costs

    Active Management of Operating Costs APS APS O&M O&M Per Per Customer Customer Below Below Industry Industry Average Average $400 $400 $350 $350 $300 $300 $250 $250 $200 $200 $150 $150 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 APS APS Industr

23. Slide 23: Attractive Common Stock Dividend

    Attractive Common Stock Dividend Pinnacle Pinnacle West West Annual Annual Dividend Dividend Yield $2.10 $2.10 Per Per Share Share 8% 8% PNW PNW 6.0% 6.0% 6% 6% Industry Industry Average Average 4.1% 4.1% 4% 4% 2% 2% 0% 0% Pinnacle Pinnacle West West Electric Electric Utilities Utilities As As of of

24. Slide 24: Value Proposition

    Value Proposition ƒ Integrated, regulated electric utility • Attractive economic fundamentals • Operational excellence • Experienced management and workforce • Focus on regulatory improvements ƒ Real estate asset optimization ƒ Financial performance focus ƒ Valuation • $2.10 per share annual dividen

25. Slide 25: Pinnacle West Capital Corporation

    e POON PINNACLE WEST CAPITAL CORPORATION

26. Slide 26: Appendix

    Appendix

27. Slide 27: Pinnacle West Asset Breakdown

    $12B Assets Pinnacle West Marketing & Trading $11B Assets $586M Assets $99M Assets $51M Assets $27M Assets June 30, 2008

28. Slide 28: Consolidated EPS Summary

    Consolidated EPS Summary 2nd 2nd Quarter Quarter Year-to-Date Year-to-Date June June Per Per Share Share Per Per Share Share $1.50 $1.50 $1.50 $1.50 $1.33 $1.33 $1.28 $1.28 $1.25 $1.25 $1.25 $1.25 $1.03 $1.03 $1.00 $1.00 $0.98 $0.98 $0.95 $1.00 $0.95 $1.00 $1.00 $1.00 $0.84 $0.84 $0.78 $0.78 $0.75 $

29. Slide 29: Consolidated On-Going EPS Summary of Major Variances

    Consolidated On-Going EPS Summary of Major Variances 2nd 2nd Quarter Quarter 2008 2008 vs vs 2nd 2nd Quarter Quarter 2007 2007 $$ 0.15 0.15 Retail Retail rate rate increases increases $$ 0.14 0.14 SunCor SunCor $$ 0.10 0.10 Mark-to-market Mark-to-market onon hedges, hedges, net net of of deferrals d

30. Slide 30: Consolidated On-Going EPS Summary of Major Variances

    Consolidated On-Going EPS Summary of Major Variances Year-to-Date Year-to-Date June June 2008 2008 vs vs Year-to-Date Year-to-Date June June 2007 2007 $$ 0.16 0.16 Mark-to-market Mark-to-market onon hedges, hedges, net net of of deferrals deferrals $$ 0.15 0.15 Retail Retail rate rate increases incr

31. Slide 31: Non-GAAP Financial Measure Reconciliation Net Income To On-Going Earnings

    Pinnacle West Capital Corporation Non-GAAP Financial Measure Reconciliation Net Income To On-Going Earnings Three Months Ended Three Months Ended June 30, 2008 June 30, 2007 Diluted Diluted $ Millions EPS $ Millions EPS Net Income $ 134 $ 1.33 $ 79 $ 0.78 Adjustments: Income tax credits related to p

32. Slide 32: Non-GAAP Financial Measure Reconciliation Net Income To On-Going Earnings

    Pinnacle West Capital Corporation Non-GAAP Financial Measure Reconciliation Net Income To On-Going Earnings Six Months Ended Six Months Ended June 30, 2008 June 30, 2007 Diluted Diluted $ Millions EPS $ Millions EPS Net Income $ 129 $ 1.28 $ 95 $ 0.95 Adjustments: Income tax credits related to prior

33. Slide 33: Ample Liquidity Resources

    Ample Liquidity Resources APS ƒ $400 million revolver through December 2010 ƒ $500 million revolver through September 2011 ƒ Next long-term debt maturity 2011 ƒ As of June 30, 2008 •• Short-term Short-term borrowing borrowing approximately approximately $100 $100 million million •• Cash Cash and and

34. Slide 34: Investment-Grade Credit Ratings

    Investment-Grade Credit Ratings S&P S&P Moody’s Moody’s Fitch Fitch Pinnacle Pinnacle West West (Parent) (Parent) Senior Senior Unsecured Unsecured Debt* Debt* BB+ BB+ Baa3 Baa3 N/A N/A Commercial Commercial Paper Paper A3 A3 P3 P3 F3 F3 Outlook Outlook Stable Stable Stable Stable Negative Negative

35. Slide 35: Strong APS Equity Ratios

    Strong APS Equity Ratios 60% 60% 55% 55% 50% 50% 40% 40% 30% 30% 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 6/30/2008 6/30/2008

36. Slide 36: Arizona Corporation Commissioners

    Arizona Corporation Commissioners Party Party Commissioner Commissioner Term Term Commissioner Commissioner Affiliation Affiliation Since Since Expires Expires Mike Mike Gleason, Gleason, Chairman Chairman Republican Republican Jan. Jan. 2003 2003 Jan. Jan. 2009 2009 Jeff Jeff Hatch-Miller Hatch-Mil

37. Slide 37: Arizona Corporation Commission 2008 Candidates

    Arizona Corporation Commission 2008 Candidates Party Party Party Party Candidate Candidate Affiliation Affiliation Candidate Candidate Affiliation Affiliation John John Allen Allen Republican Republican Marian Marian McClure McClure Republican Republican Rick Rick Fowlkes Fowlkes Republican Republic

38. Slide 38: APS Retail Rate Case Details of Request

    APS Retail Rate Case Details of Request Annual Annual base base rate rate increase increase Fuel-related Fuel-related $$ 13.9 13.9 M M Non-fuel Non-fuel 264.3 264.3 M M Net Net rate rate increase increase 278.2 278.2 M M Impact Impact fees fees for for new new connections connections (53.0)M (53.0)M

39. Slide 39: APS Retail Rate Case Composition of Annual Increase

    APS Retail Rate Case Composition of Annual Increase Components Components $$ Millions Millions Attrition Attrition adjustment adjustment $$ 79.3 79.3 Miscellaneous Miscellaneous post post test-year test-year CWIP CWIP 33.6 33.6 Large Large projects projects post post test-year test-year CWIP CWIP 25

40. Slide 40: APS Retail Rate Case Schedule

    APS Retail Rate Case Schedule ACC ACC Staff Staff and and intervenors’ intervenors’ testimony testimony due due (all (all issues issues except except for for rate rate design design and and cost cost of of service) service) December December 19, 19, 2008 2008 ACC ACC Staff Staff and and intervenors’

41. Slide 41: APS Retail Adjustors and Surcharges

    APS Retail Adjustors and Surcharges Annual Annual Revenue Revenue Type Type Effective Effective Dates Dates $$ Millions Millions %% Change Change TCA TCA Adjustor Adjustor March March 1, 1, 2008 2008 30 30 1.1 1.1 TCA TCA Adjustor Adjustor July July 3, 3, 2008 2008 13 13 0.5 0.5 PSA PSA Annual Annua

42. Slide 42: Transmission Rate Updates

    Transmission Rate Updates ƒ Annual formula-based rate adjustments ƒ Retail transmission cost adjustor (TCA) ƒ Key implementation dates • APS FERC request filing July 10, 2007 • Initial increases (wholesale and retail) March 1, 2008 • Second increase ƒƒ Wholesale June 1, 2008 ƒƒ Retail July 3, 2008 •

43. Slide 43: Transmission Revenue Increases

    Transmission Revenue Increases 1st Increase 2nd Increase Annual Revenue Effective Annual Effective Request Settlement Date Revenue Date Retail Portion (TCA) $30M $27M 3/1/2008 $13M 7/3/2008 Wholesale Portion $ 7M $ 1M 3/1/2008 $ 2M 6/1/2008 Total Increase $37M $28M $15M

44. Slide 44: APS 2007 Retail Customer and Sales Mix

    APS 2007 Retail Customer and Sales Mix 1.1 1.1 Million Million Customers Customers 29,172 29,172 GWh GWh Sales Sales 89% 47% 44% 11% 9% Residential Residential Commercial Commercial Industrial Industrial

45. Slide 45: Diverse Energy Fuel Mix

    Diverse Energy Fuel Mix 2007 Consolidated Consolidated Native Native Load Load Coal Coal 30% 30% 40% 40% Nuclear 17% 17% 15% 15% Gas 38% Nuclear 24% 24% 19% 19% 38% Gas 17% 17% Purchased Power Purchased Power

46. Slide 46: Arizona Renewable Resource Requirements

    Arizona Renewable Resource Requirements ƒ Arizona Renewable Energy Standard (RES) ƒ Sets minimum renewable energy amounts • 1.5% of energy for retail sales in 2007 • 5% of energy for retail sales by 2015 • 15% of energy for retail sales by 2025 ƒ Includes distributed energy component • 5% of total i

47. Slide 47: SunCor Gross Margin Contribution by Business Line

    SunCor Gross Margin Contribution by Business Line $$ Millions Millions Pretax Pretax 175 175 150 150 Home Home Sales Sales 125 125 Condo Condo Sales Sales 100 100 Land Land Sales Sales 75 75 Commercial Commercial Property Property 50 50 & & Management Management 25 25 Sale Sale of of Assets Assets**

48. Slide 48: SunCor Project Diversity by Type

    SunCor Project Diversity by Type Legacy Legacy Properties Properties Post-1990 Post-1990 Properties Properties $$ Millions Millions $$ Millions Millions 500 500 500 500 400 400 400 400 300 300 300 300 200 200 200 200 100 100 100 100 00 00 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2

49. Slide 49: SunCor Geographic Project Diversity

    SunCor Geographic Project Diversity Legacy Legacy Properties Properties Post-1990 Post-1990 Properties Properties $$ Millions Millions $$ Millions Millions 400 400 500 500 400 400 300 300 300 300 200 200 200 200 100 100 100 100 0 0 00 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2002

50. Slide 50: SunCor Active Projects

    SunCor Active Projects Year Original 12/31/07 Acquired Acreage Acreage Master-Planned Communities Palm Valley (Phoenix, AZ) 1987 11,300 2,600 Rancho Viejo Phase I (Santa Fe, NM)* 1996 2,500 1,500 Coral Canyon (St. George, UT)* 1998 2,500 750 StoneRidge (Northern AZ)* 2001 1,840 1,100 Avimor (Boise,

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