ACC Open Meeting – November 18, 2010 Four Corners Power Plant 1

Background Plant comprised of 5 generating units (2,100 MW) Units 1, 2 & 3 solely owned by APS – Total of 560 MW Placed in service in Units 4-5 jointly owned – Each unit is 770 MW Participants: – Southern California Edison (SCE)* (48%) – Arizona Public Service (15%) – Public Service of New Mexico (13%) – Salt River Project (10%) – Tucson Electric Power (7%) – El Paso Electric (7%) Placed in service in MW 231 MW 200 MW 154 MW 108 MW * SCE limited in ability to fund capital investment after 2011 is disallowed if “life extension” by virtue of CPUC May 2010 decision 2

Challenges Environmental Considerations – NOx and PM – BART compliance required mid 2016 (all FC units) – Ash – Implementation starting 2013 (all FC units) – Mercury – Compliance late 2014 (FC units 1-3) Lease Renewal & Right-of-Way Agreement – Tribal Council vote expected soon BHP contract renewal– negotiations underway Ownership/Participant Considerations – Southern California Edison (“SCE”) must exit ownership of Units 4-5 3

4 Environmental Considerations - BART Issues – EPA will be requiring the installation of additional pollution controls at Four Corners for particulate and NOx to improve regional haze in Class I Areas Status – On October 19, 2010, EPA published a proposed Regional Haze FIP – The proposed determination would require: SCRs on Units 1-5 Electrostatic Precipitators or Baghouses on Units 1-3 Opacity limits for the stacks and on fugitive dust Timing – Public Hearings: December 2010 – Final Regional Haze FIP, Summer 2011 – Compliance required, Summer 2016 Cost Impact – ~$585M Units 1-3 (baghouses + SCR) – ~$75M Units 4-5 (APS current share) – ~$240M Units 4-5 (SCE share)

Environmental Considerations - Ash Issues – In June 2010 EPA proposed a rule to regulate ash as either non-hazardous waste or hazardous waste; Either proposal will phase out the use of ash ponds for the disposal of ash Status – The public comment period ends on November 19, 2010 Timing – Final rule expected in mid 2012 – Implementation could begin within six months following the rule. Certain disposal requirements may not be required for two to five years Cost Impact 5 Non-HazardousHazardous ~$22M Units 1-3~$30M Units 1-3 ~$20M Units 4-5 (APS & SCE)~$58M Units 4-5 (APS & SCE)

Environmental Considerations - Mercury Issues – EPA will be requiring mercury reductions from coal fired power plants Status – EPA is gathering technical information to be used in writing these requirements; Four Corners has submitted their input Timing – Proposed mercury rule, late 2010 – Final mercury rule, late 2011 – Compliance will be required by late 2014 Cost Impact – ~$235M Units 1-3 (baghouses, included in BART values) – Units 4-5 are not impacted by this rule 6

APS Four Corners Proposal Purchase SCE’s share of Units 4 & 5 Retire Units 1,2 & 3 Benefits of the proposal: 1) Good for APS customers – Low-cost generating resource – Maintains a diverse portfolio 2) Good for the community – Preserves jobs & tax revenue for the Navajo Nation and local community 3) Good for the environment – Significant emissions reductions…. lowers overall site emissions with no increased APS carbon risk Proposal contingent upon ACC, CPUC, FERC approval, fuel agreement and lease renewal 7

Resource Alternative Cost Comparison 8

APS Customer Benefit NPV Savings ($M) CC Capital Cost 1 CO 2 Price 2 Gas Prices 3 $750/kW $1,253/kW $50/ton $0/ton $4.00/mmBtu $7.50/mmBtu $ SAVINGS/BENEFITSCOST 1)Combined cycle cost is for the generation only, i.e., excludes transmission 2)CO 2 price shown is in Prices escalate at 2.5% per year over the study period 3)Gas prices shown are in 2015 $/MMBtu. Sensitivity represents +/- 30% stress test $5.75/mmBtu $20/ton 9

10 Portfolio Diversity COAL 14%

Community Benefits Four Corners & BHP Navajo Mine (annually): – Payroll – Local Vendor Support – Taxes, fees, & royalties to Navajo Nation – State, local, and federal taxes LocationTotal Native American % Native American Power Plant % BHP Mine % Total % Four Corners contributes to over 1/3 of the Navajo Nation General Fund $100M $20M $65M $40M Total $225M Native American hiring preference at Four Corner Power Plant and BHP Navajo Mine Employees 11

Site Emission Reductions w/ Approval 12

Closing Comments The APS proposal is advantageous. It provides: Benefits to our customers….lowest cost resource alternative Benefits to the community….preserving jobs & tax revenue Benefits to the environment…. lowers overall site emissions 13