Pinnacle West Reports Second-Quarter Results

Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated on-going earnings of $123.1 million, or $1.12 per diluted share of common stock, for the quarter ended June 30, 2012. This result compares with on-going earnings of $86.0 million or $0.78 per share, in the same 2011 period. The Company’s consolidated net income attributable to common shareholders for the 2012 second quarter was $122.3 million, or $1.11 per diluted share, compared with net income of $86.7 million, or $0.79 per share, for the same quarter a year ago.

On-going earnings exclude results of discontinued operations related to the Company’s former real estate activities and energy services business. A reconciliation of reported earnings to on-going earnings is provided at the end of this release.

“Temperatures well above normal during the quarter – combined with temperatures significantly below historical averages a year ago – positively impacted our second-quarter results,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt. “The quarter-over-quarter swing in weather produced an 8.1 percent increase in retail electricity sales over the same period a year ago as people used their air-conditioners more to combat the early summer heat.

“Looking forward, we continue to create value by achieving operational excellence, investing in Arizona’s sustainable energy future, and remaining focused on disciplined cost-management. Sticking with this approach provides us the opportunity to maintain high levels of reliability and customer satisfaction, while achieving our financial goals for investors through the duration of the four-year base-rate stay-out period agreed to in our 2012 retail regulatory settlement.”

The second-quarter on-going results comparison was positively impacted by the following factors:

• Hotter-than-normal weather improved the Company’s earnings by $0.23 per share compared to the 2011 second quarter, during which abnormally mild weather adversely affected earnings by $0.15 per share compared with historically normal conditions. In the 2012 second quarter, there were 568 residential cooling degree-days (a proxy for the effects of weather) – 14 percent more than normal and 51 percent more than the year-ago second quarter.
• 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 transmission revenues augmented results by $0.05 per share, primarily because of a retail transmission rate increase implemented in July 2011.
• Lower fuel costs and improved mark-to-market valuations of fuel contracts, net of regulatory deferrals, raised results by $0.04 per share.
• The net effect of other miscellaneous items increased earnings $0.02 per share.

These positive factors were offset in part by the following items:

• Increased operations and maintenance expenses, due largely to stock compensation costs resulting from an improved company stock price and estimated performance, decreased earnings by $0.05 per share. The variance excludes costs associated with renewable energy, demand side management and similar regulatory programs, which are offset by comparable amounts of operating revenues.
• Lower retail electricity sales – excluding the effects of weather variations – reduced results $0.01 per share. The sales decrease, which was substantially offset by modest customer growth of about 1 percent, was primarily related to the impacts of customer conservation and energy efficiency and distributed renewable generation initiatives.

Arizona Public Service Co. (APS), the Company’s principal subsidiary, reported 2012 second-quarter net income attributable to common shareholder of $124.9 million versus earnings of $87.7 million in the similar 2011 period.

Financial Outlook

Pinnacle West expects its 2012 consolidated on-going earnings will be in the range of $3.35 to $3.50 per diluted share. Key factors and assumptions underlying the outlook are:

• Actual weather for the first six months of the year and normal weather patterns for remainder of the year;
• Weather-normalized retail electricity sales volume slightly below the prior year, in part due to the effects of customer conservation and energy efficiency and distributed renewable generation initiatives;
• Retail customer growth of about 1 percent;
• Total electricity gross margin (operating revenues, net of fuel and purchased power expenses, excluding Renewable Energy Surcharge and similar rate adjustors) of about $2.13 billion to $2.18 billion;
• Operating expenses (operations and maintenance, excluding costs for Renewable Energy Standard and similar regulatory programs; depreciation and amortization; and taxes other than income taxes) of about $1.33 billion to $1.36 billion;
• Interest expense, net of allowances for borrowed and equity funds used for construction, of about $180 million to $190 million; and
• An effective tax rate of about 35 percent.

The Company’s goal is to achieve a consolidated earned return on average common equity of 9.5 percent on average annually in 2012 through 2015. Key factors and assumptions underlying the outlook can be found in the second quarter 2012 earnings presentation slides on the Company’s website at pinnaclewest.com/investors.

Conference Call and Web Cast

Pinnacle West invites interested parties to listen to the live webcast of management’s conference call to discuss the Company’s 2012 second-quarter results, as well as recent developments, at 12 noon (ET) today, August 2. 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 [phone] or [phone] for international callers. A replay of the call also will be available until 11:59 p.m. (ET), Thursday, August 9, 2012, by calling [phone] in the U.S. and Canada or [phone] internationally and entering account number 286, followed by conference ID number 396789.

General Information

Pinnacle West Capital, an energy holding company based in Phoenix, has consolidated assets of about $13.2 billion, more than 6,300 megawatts of generating capacity and about 6,700 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 EndedJune 30, 2012											Three Months EndedJune 30, 2011
				Dollars inMillions					DilutedEPS						Dollars inMillions				DilutedEPS
Net Income Attributable to Common Shareholders				$	122.3				$	1.11					$	86.7			$	0.79
Less: Income (loss) from discontinued operations					(0.8	)				(0.01	)					0.7				0.01
On-going Earnings				$	123.1				$	1.12					$	86.0			$	0.78

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.

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