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Press release from Business Wire

APS to ACC: Maintain Working System

<p class='bwalignc'> <i>Current Regulated System Provides Reliable and Affordable Electricity</i> </p>

Friday, July 19, 2013

APS to ACC: Maintain Working System

13:32 EDT Friday, July 19, 2013

PHOENIX (Business Wire) -- Citing long-standing benefits of reliability, affordability and accountability in the current system, APS told the Arizona Corporation Commission in a filing earlier this week that deregulation of the state's energy market would create uncertainty in the electricity delivery system.

APS, along with other stakeholders, was asked to provide information as the ACC reviews whether it should actively consider the possibility of changing the way Arizona customers receive their electric service with a move to a deregulated market.

In its filing, APS noted:

  • Arizona's electricity rates are below market. Electricity rates in the state are lower than the national average and are lower than rates in nearly all deregulated states, according to the U.S. Energy Information Administration.
  • APS is reliable. The company ranks in the top quartile for keeping the power on and minimizing unexpected outages.
  • APS delivers high-quality customer service. In 2013, APS ranked fifth out of 54 large investor-owned utilities for customer satisfaction by J.D. Power & Associates, an independent market research company.
  • APS keeps jobs and tax payments in Arizona. APS employs 6,500 and is the state's largest taxpayer, paying state and local taxes surpassing $500 million. With deregulation, these jobs and taxes may go to companies located in other states.

“APS's mission – to safely and efficiently generate and deliver reliable electric power and related services to our customers – is one we embrace with gravity,” said Don Brandt, President and Chief Executive Officer of APS. “We are proud to be stewards of Arizona's communities. It is no coincidence that APS is a national leader in every aspect of service reliability and customer service.”

APS's filing underscores eight core reasons why preserving the system today is in the best interest of customers:

  1. Customers demand affordability Residential rates in deregulated states are 26 percent higher than those in regulated states and in 13 of the 17 states that are restructured, rates exceed the national average, according to the U.S. Energy Information Administration.
  2. Arizona should remain in control of its energy future In a deregulated market, the ACC will have to surrender some of its jurisdiction, which by default would go to federal regulators.
  3. Customers demand reliability Ina deregulated market, no one entity is held accountable for making sure there is enough generation to meet the energy needs of customers. Restructured markets have not provided enough financial incentives to spur investment in new generation, increasing the risk of unreliable electric service.
  4. Resource planning is vital – Deregulation eliminates the integrated resource planning process, which is the only time generation, transmission and fuel supply issues are folded together into one comprehensive analysis and subject to public input.
  5. Wholesale markets are not working in other areas Wholesale markets are rife with examples of manipulation. Just this month, the Federal Energy Regulatory Commission levied a record $435 million fine against British bank Barclays and, according to the Wall Street Journal, is weighing an even greater fine against JP Morgan Chase for alleged manipulation of the California and Midwest energy markets. These cases are reminiscent of the California Enron scandal of 2001.
  6. Arizona will face unique challenges – Along with overcoming the 2004 court decision stating that certain parts of Arizona's first attempt at deregulation were unconstitutional, any plan to deregulate would require a revamping of the current transmission system.
  7. Restructuring is expensive – APS estimates restructuring costs would exceed $1 billion, which would eventually be paid for by customers.
  8. Regulation has stood the test of time – The national trend for those states that previously deregulated is to reverse course, with 26 states either re-regulating or cancelling plans to deregulate.

“Electricity is fundamental to all advanced economies, but in Arizona – the hottest state in America – reliable electric service is literally a life or death necessity,” said Brandt. “APS has proudly accepted responsibility for reliably serving our customers and communities since before Arizona was a state.”

In Arizona's regulated market, the state and customers hold APS accountable for making sure there is enough energy generation to meet customer needs. In a deregulated market, energy needs go unfulfilled. This has led to rolling blackouts and higher prices in several deregulated states.

One of the most famous examples occurred in California in early 2000. Companies like Enron were allowed to manipulate the market and limit the amount of energy available to customers. A severe energy crisis led then-California Governor Gray Davis to declare a state of emergency in order to restore reliability, affordability and accountability to the system.

Today, Texans are under a constant possibility of rolling blackouts because the deregulated market has not created enough incentives for anyone to build new power plants. So while the state has seen a population increase, the amount of energy available has remained stagnant.

These types of problems do not occur in Arizona because APS and other state utilities are held responsible by the ACC to ensure the state has enough back-up energy.

APS, Arizona's largest and longest-serving electricity utility, serves more than 1.1 million customers in 11 of the state's 15 counties. With headquarters in Phoenix, APS is the principal subsidiary of Pinnacle West Capital Corp. (NYSE: PNW).

APS
Media Contacts:
Steven Gotfried, 602-250-3040
Jim McDonald, 602-250-3704
Analyst Contact:
Paul Mountain, 602-250-4952
Website: aps.com/newsroom

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