ARIZONA PUBLIC SERVICE CO 10-K (Annual Reports) 2009-02-20

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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
˛ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934
For the fiscal year ended December 31, 2008
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrants; State of Incorporation; IRS Employer

File Number Addresses; and Telephone Number Identification No.
1-8962 PINNACLE WEST CAPITAL CORPORATION 86-0512431
(An Arizona corporation)
400 North Fifth Street, P.O. Box 53999
Phoenix, Arizona 85072-3999
(602) 250-1000
1-4473 ARIZONA PUBLIC SERVICE COMPANY 86-0011170
(An Arizona corporation)
400 North Fifth Street, P.O. Box 53999
(602) 250-1000
Securities registered pursuant to Section 12(b) of the Act:

Title Of Each Class Name Of Each Exchange On Which Registered
PINNACLE WEST CAPITAL CORPORATION Common Stock, New York Stock Exchange
No Par Value
ARIZONA PUBLIC SERVICE COMPANY None None
Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
PINNACLE WEST CAPITAL CORPORATION Yes ˛ No o
ARIZONA PUBLIC SERVICE COMPANY Yes ˛ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
PINNACLE WEST CAPITAL CORPORATION Yes o No ˛
ARIZONA PUBLIC SERVICE COMPANY Yes o No ˛
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
PINNACLE WEST CAPITAL CORPORATION Yes ˛ No o
ARIZONA PUBLIC SERVICE COMPANY Yes ˛ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
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contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or in any amendment to this Form 10-K. ˛
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
PINNACLE WEST CAPITAL CORPORATION
Large accelerated filer ˛ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
ARIZONA PUBLIC SERVICE COMPANY
Large accelerated filer o Accelerated filer o Non-accelerated filer ˛ Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ˛
State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of each
registrant’s most recently completed second fiscal quarter:
PINNACLE WEST CAPITAL CORPORATION $3,085,816,962 as of June 30, 2008

ARIZONA PUBLIC SERVICE COMPANY $0 as of June 30, 2008
The number of shares outstanding of each registrant’s common stock as of February 16, 2009
PINNACLE WEST CAPITAL CORPORATION 100,990,779 shares

ARIZONA PUBLIC SERVICE COMPANY Common Stock, $2.50 par value, 71,264,947 shares. Pinnacle West
Capital Corporation is the sole holder of Arizona Public Service
Company’s Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE

Portions of Pinnacle West Capital Corporation’s definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on
May 20, 2009 are incorporated by reference into Part III hereof.
Arizona Public Service Company meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing
this form with the reduced disclosure format allowed under that General Instruction.
This combined Form 10-K is separately filed by Pinnacle West Capital Corporation and Arizona Public Service Company. Each registrant is
filing on its own behalf all of the information contained in this Form 10-K that relates to such registrant and, where required, its subsidiaries.
Except as stated in the preceding sentence, neither registrant is filing any information that does not relate to such registrant, and therefore
makes no representation as to any such information.
TABLE OF CONTENTS
P age
GLOSSARY 1
PART I 3
Item 1. Business 3
Item 1A. Risk Factors 24
Item 1B. Unresolved Staff Comments 35
Item 2. Properties 35
Item 3. Legal Proceedings 37
Item 4. Submission of Matters to a Vote of Security Holders 37
Supplemental Item 38
Executive Officers of Pinnacle West 38
PART II 41
Item 5. Market for Registrants’ Common Equity, Pinnacle West Related Stockholder Matters and Issuer Purchases of Equity
Securities 41
Item 6. Selected Financial Data 43
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 45
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 77
Item 8. Financial Statements and Supplementary Data 78
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 164
Item 9A. Controls and Procedures 164
Item 9B. Other Information 165
PART III 165

Item 10. Directors, Executive Officers and Corporate Governance of Pinnacle West 165
Item 11. Executive Compensation 165
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 165
Item 13. Certain Relationships and Related Transactions, and Director Independence 167
Item 14. Principal Accountant Fees and Services 167
PART IV 169
Item 15. Exhibits and Financial Statement Schedules 169
SIGNATURES 208
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GLOSSARY
ACC – Arizona Corporation Commission
ADEQ – Arizona Department of Environmental Quality
AFUDC – Allowance for Funds Used During Construction
ALJ – Administrative Law Judge
ANPP – Arizona Nuclear Power Project, also known as Palo Verde
APS – Arizona Public Service Company, a subsidiary of the Company
APSES – APS Energy Services Company, Inc., a subsidiary of the Company
Base Fuel Rate – the portion of APS’ retail base rates attributable to fuel and purchased power costs
Cholla – Cholla Power Plant
Clean Air Act – Clean Air Act, as amended
Company – Pinnacle West Capital Corporation
DOE – United States Department of Energy
EITF – FASB’s Emerging Issues Task Force
El Dorado – El Dorado Investment Company, a subsidiary of the Company
EPA – United States Environmental Protection Agency
ERMC – Energy Risk Management Committee
FASB – Financial Accounting Standards Board
FERC – United States Federal Energy Regulatory Commission
FIN – FASB Interpretation Number
FIP – Federal Implementation Plan
Fitch – Fitch, Inc.
Four Corners – Four Corners Power Plant
GAAP – accounting principles generally accepted in the United States of America
IRS – United States Internal Revenue Service
kW – kilowatt, one thousand watts
kWh – kilowatt-hour, one thousand watts per hour
Moody’s – Moody’s Investors Service
MW – megawatt, one million watts
MWh – megawatt-hour, one million watts per hour
Native Load – retail and wholesale sales supplied under traditional cost-based rate regulation
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Note – a Note to Pinnacle West’s Consolidated Financial Statements in Item 8 of this report (references to the Supplemental Notes to APS’
Financial Statements are preceded by an “S,” e.g., Note S-1)
NPC – Nevada Power Company
NRC – United States Nuclear Regulatory Commission
OCI – other comprehensive income
Off-System Sales – sales of electricity from generation owned or contracted by the Company that is over and above the amount required to
serve APS’ retail customers and traditional wholesale contracts
Palo Verde – Palo Verde Nuclear Generating Station
Pinnacle West – Pinnacle West Capital Corporation, the Company
Pinnacle West Energy (PWEC) – Pinnacle West Energy Corporation, a subsidiary of the Company, dissolved as of August 31, 2006
Pinnacle West Marketing & Trading – Pinnacle West Marketing & Trading Co., LLC, a subsidiary of the Company
PRP – potentially responsible parties under Superfund
PSA – power supply adjustor approved by the ACC to provide for recovery or refund of variations in actual fuel and purchased power costs
compared with the Base Fuel Rate
PWEC Dedicated Assets – the following power plants, each of which was transferred by Pinnacle West Energy to APS on July 29, 2005:
Redhawk Units 1 and 2, West Phoenix Units 4 and 5 and Saguaro Unit 3
Salt River Project – Salt River Project Agricultural Improvement and Power District
SEC – United States Securities and Exchange Commission
Secured Revolver – SunCor’s principal loan facility, which is secured primarily by an interest in land, commercial properties, land contracts and
homes under construction
SFAS – Statement of Financial Accounting Standards
Silverhawk – Silverhawk Power Station
Standard & Poor’s – Standard & Poor’s Corporation
SunCor – SunCor Development Company, a subsidiary of the Company
Superfund – Comprehensive Environmental Response, Compensation and Liability Act
TCA – transmission cost adjustor
TEP – Tucson Electric Power Company
VIE – variable-interest entity
West Phoenix – West Phoenix Power Plant
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INTRODUCTION
Filing Format
This Annual Report on Form 10-K is a combined report being filed by two separate registrants: Pinnacle West and APS. The information
required with respect to each company is set forth within the applicable items.
The Management’s Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of this report is
divided into the following two sections:
• Pinnacle West Consolidated—This section describes the financial condition and results of operations of Pinnacle West and its
subsidiaries on a consolidated basis. It includes discussions of Pinnacle West’s regulated utility and non-utility operations. A
substantial part of Pinnacle West’s revenues and earnings is derived from its regulated utility, APS.
• APS—This section includes a detailed description of the results of operations and contractual obligations of APS.
Item 8 of this report includes Consolidated Financial Statements of Pinnacle West and Financial Statements of APS. Item 8 also includes
Notes to Pinnacle West’s Consolidated Financial Statements, the majority of which also relates to APS, and Supplemental Notes to APS’
Financial Statements.
PART I
ITEM 1. BUSINESS
OVERVIEW
General
Pinnacle West was incorporated in 1985 under the laws of the State of Arizona and owns all of the outstanding equity securities of APS, its
major subsidiary. APS is a vertically-integrated electric utility that provides either retail or wholesale electric service to most of the State of
Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in
northwestern Arizona.
Pinnacle West’s other principal subsidiary is SunCor, which is engaged in real estate development activities in the western United States.
See “Business of SunCor Development Company” in this Item 1. Pinnacle West’s other first-tier subsidiaries, APSES and El Dorado are
discussed in “Business of Other Subsidiaries” in this Item 1.
Pinnacle West Energy, which owned and operated unregulated generating plants, transferred the PWEC Dedicated Assets to APS on
July 29, 2005 and sold its 75% ownership interest in Silverhawk to NPC on January 10, 2006. As a result, Pinnacle West Energy no longer
owned any generating plants and was dissolved as of August 31, 2006.
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Business Segments
Pinnacle West has two principal business segments (determined by products, services and the regulatory environment):
• the regulated electricity segment (accounting for 93% of operating revenues in 2008), which consists of traditional regulated retail and
wholesale electricity businesses (primarily electric service to Native Load customers) and related activities, and includes electricity
generation, transmission and distribution; and
• the real estate segment (accounting for 4% of operating revenues in 2008), which consists of SunCor’s real estate development and
investment activities.
Electric power demand is generally a seasonal business. In Arizona, demand for power peaks during the hot summer months. See Note 17
for financial information about the business segments.
APS ACC Proceedings

The key issue affecting Pinnacle West’s and APS’ financial outlook is adequate and timely retail rate treatment by the ACC. See “2008
General Rate Case” in Note 3 for a discussion of APS’ pending retail rate case before the ACC.
Employees
At December 31, 2008, Pinnacle West employed approximately 7,500 people, including the employees of its subsidiaries. Of these
employees, approximately 6,900 were employees of APS, including employees at jointly-owned generating facilities (approximately 3,300
employees) for which APS serves as the generating facility manager. Approximately 600 people were employed by Pinnacle West and its other
subsidiaries. Pinnacle West’s principal executive offices are located at 400 North Fifth Street, Phoenix, Arizona 85004 (telephone 602-250-1000).
Available Information
Pinnacle West makes available free of charge on or through its website, (www.pinnaclewest.com) the following filings as soon as
reasonably practicable after they are electronically filed with, or furnished to, the SEC: its Annual Report on Form 10-K, its Quarterly Reports
on Form 10-Q, its Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”), and its proxy statement filed pursuant to Section 14(a) of the Exchange Act.
Pinnacle West also has a Corporate Governance webpage. You can access Pinnacle West’s Corporate Governance webpage through its
internet site, www.pinnaclewest.com, by clicking on the “About Us” link to the heading “Corporate Commitments.” Pinnacle West posts the
following on its Corporate Governance webpage:
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• Corporate Governance Guidelines;

• Board Committee Summary;
• Charters for Pinnacle West’s Audit Committee, Corporate Governance Committee, Finance, Nuclear and Operating Committee and
Human Resources Committee;
• Code of Ethics for Financial Professionals;
• Ethics Policy and Standards of Business Practices;
• Director Independence Standards;
• Executive Officer Stock Ownership Guidelines; and
• Restricted Stock Retention Policy.
Pinnacle West will post any amendments to the Code of Ethics and Ethics Policy and Standards of Business Practices, and any waivers that
are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, on its website. The information on Pinnacle
West’s website is not incorporated by reference into this report.
You can request a copy of these documents, excluding exhibits, by contacting Pinnacle West at the following address: Pinnacle West
Capital Corporation, Office of the Secretary, Station 9068, P.O. Box 53999, Phoenix, Arizona 85072-3999 (telephone 602-250-3252).
Forward-Looking Statements
This document 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. These
forward-looking statements are often identified by words such as “estimate,” “predict,” “hope,” “may,” “believe,” “anticipate,” “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 results or outcomes currently expected or sought by Pinnacle West or APS. In addition to the Risk Factors described in Item 1A of this
report, these factors include, but are not limited to:
• state and federal regulatory and legislative decisions and actions, including the outcome or timing of the pending rate case of APS;
• increases in our capital expenditures and operating costs and our ability to achieve timely and adequate rate recovery of these
increased costs;
• our ability to reduce capital expenditures and other costs while maintaining reliability and customer service levels, and unexpected
developments that would limit us from achieving all or some of our planned capital expenditure reductions;
• volatile fuel and purchased power costs, including fluctuations in market prices for natural gas, coal, uranium and other fuels used in
our generating facilities, availability of supplies of such commodities, and our ability to recover the costs of such commodities;
• the outcome and resulting costs of regulatory, legislative and judicial proceedings, both current and future, including those related to
environmental matters and climate change;
• the availability of sufficient water supplies to operate our generation facilities, including as the result of drought conditions;
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• the potential for additional restructuring of the electric industry, including decisions impacting wholesale competition and the
introduction of retail electric competition in Arizona;
• regional, national and international economic and market conditions, including the strength of the housing, credit and financial
markets;
• the potential adverse impact of current economic conditions on our results of operations;
• the cost of debt and equity capital and access to capital markets;
• changes in the market price of our common stock;
• restrictions on dividends or other burdensome provisions in new or existing credit agreements;
• our ability, or the ability of our subsidiaries, to meet debt service obligations;
• current credit ratings remaining in effect for any given period of time;
• the performance of the stock market and the changing interest rate environment, which affect the value of our nuclear
decommissioning trust, pension, and other postretirement benefit plan assets, the amount of required contributions to Pinnacle
West’s pension plan and contributions to APS’ nuclear decommissioning trust funds, as well as the reported costs of providing
pension and other postretirement benefits and our ability to recover such costs;
• volatile market liquidity, any deteriorating counterparty credit and the use of derivative contracts in our business (including the
interpretation of the subjective and complex accounting rules related to these contracts);
• changes in accounting principles generally accepted in the United States of America, the interpretation of those principles and the
impact of the adoption of new accounting standards;
• customer growth and energy usage;
• weather variations affecting local and regional customer energy usage;
• power plant performance and outages;
• transmission outages and constraints;
• the completion of generation and transmission construction in the region, which could affect customer growth and the cost of power
supplies;
• risks inherent in the operation of nuclear facilities, such as environmental, regulatory, health and financial risks, risk of terrorist attack,
planned and unplanned outages, and unfunded decommissioning costs;
• the ability of our power plant participants to meet contractual or other obligations;
• technological developments in the electric industry;
• the results of litigation and other proceedings resulting from the California and Pacific Northwest energy situations;
• the performance of Pinnacle West’s subsidiaries and any resulting effects on its cash flow;
• the strength of the real estate market and economic and other conditions affecting the real estate market in SunCor’s market areas,
which include Arizona, Idaho, New Mexico and Utah; and
• other uncertainties, all of which are difficult to predict and many of which are beyond the control of Pinnacle West and APS.
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REGULATION AND COMPETITION
Retail
The ACC regulates APS’ retail electric rates and its issuance of securities. The ACC must also approve any transfer or encumbrance of
APS’ property used to provide retail electric service and approve or receive prior notification of certain transactions between Pinnacle West,
APS and their respective affiliates.
APS is subject to varying degrees of competition from other investor-owned utilities in Arizona (such as Southwest Gas Corporation), as
well as cooperatives, municipalities, electrical districts and similar types of governmental or non-profit organizations. In addition, some
customers, particularly industrial and large commercial customers, may own and operate generation facilities to meet their own energy
requirements.
In 1999, the ACC approved rules for the introduction of retail electric competition in Arizona. As a result, as of January 1, 2001, all of APS’
retail customers were eligible to choose alternate energy suppliers. However, there are currently no active retail competitors offering
unbundled energy or other utility services to APS’ customers. In 2000, an Arizona Superior Court found that the rules were in part
unconstitutional and in other respects unlawful, the latter finding being primarily on procedural grounds, and invalidated all ACC orders
authorizing competitive electric services providers to operate in Arizona. In 2004, the Arizona Court of Appeals invalidated some, but not all of
the rules and upheld the invalidation of the orders authorizing competitive electric service providers. In 2005, the Arizona Supreme Court
declined to review the Court of Appeals decision.
To date, the ACC has taken no final or substantive action on either the rules or the prior orders authorizing competitive electric service
providers in response to the final Court of Appeals decision. However, as a result of a new request for authorization to provide competitive
retail electric service by Sempra Energy Solutions, LLC, the ACC directed the ACC staff to investigate whether such retail competition was in
the public interest and what legal impediments remain to competition in light of the Court of Appeals decision referenced above. The ACC
staff’s report on the results of its investigation is due to be filed with the ACC on December 31, 2009. At present, only limited electric retail
competition exists in Arizona and only with certain entities not regulated by the ACC. APS cannot predict when, and the extent to which,
additional competitors will re-enter APS’ service territory.
Wholesale
General
The FERC regulates rates for wholesale power sales and transmission services. See “Formula Transmission Tariff” in Note 3 for information
regarding APS’ transmission rates. During 2008, approximately 6.3% of APS’ electric operating revenues resulted from such sales and services.
APS’ wholesale activity primarily consists of managing fuel and purchased power risks in connection with the costs of serving retail customer
energy requirements. APS also sells, in the wholesale market, its generation output that is not needed for APS’ Native Load and, in doing so,
competes with other utilities, power marketers and independent power producers. Additionally, subject to specified parameters, APS markets,
hedges and trades in electricity and fuels.
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BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
General
APS was incorporated in 1920 under the laws of the State of Arizona and currently has approximately 1.1 million customers. APS does not
distribute any products. During 2008, no single purchaser or user of energy accounted for more than 1.8% of electric revenues. See
“Overview” and “Regulation and Competition” above for additional background information about APS.
At December 31, 2008, APS employed approximately 6,900 people, including employees at jointly-owned generating facilities for which APS
serves as the generating facility manager. APS’ principal executive offices are located at 400 North Fifth Street, P.O. Box 53999, Phoenix,
Arizona 85072-3999 (telephone 602-250-1000).
Portfolio Resources
APS’ sources of energy during 2008 were: coal – 37.4%; nuclear – 24.2%; purchased power – 20.3%; and gas – 18.1%. In accordance with
GAAP, a substantial portion of APS’ purchased power expense is netted against wholesale sales on the Consolidated Statements of Income.
See Note 18. The disclosure below provides a more detailed description of each of APS’ current sources of energy.
Generation Facilities
APS’ portfolio of owned or leased generating capacity is provided in the table below:
Capacity (kW)
Coal:
Units 1, 2 and 3 at Four Corners 560,000
15% owned Units 4 and 5 at Four Corners 225,000
Units 1, 2 and 3 at Cholla 641,000
14% owned Units 1, 2 and 3 at the Navajo Generating Station 315,000
Subtotal 1,741,000
Gas or Oil:
Two steam units at Ocotillo and two steam units at Saguaro 430,000
Twenty-four combustion turbine units 1,088,000
Seven combined cycle units 1,862,000
Subtotal 3,380,000
Nuclear:
29.1% owned or leased Units 1, 2 and 3 at Palo Verde 1,147,122
Solar 5,816
Total 6,273,938
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Coal Fueled Generating Facilities

Four Corners – Four Corners is a coal-fired power plant located in the northwestern corner of New Mexico. APS operates the plant and
owns 100% of Four Corners Units 1, 2 and 3 and 15% of Units 4 and 5. APS purchases all of Four Corners’ coal requirements from a supplier
with a long-term lease of coal reserves with the Navajo Nation. The Four Corners coal contract runs through 2016, with options on APS’ part
to extend the contract for five to fifteen additional years. The Four Corners plant site is leased from the Navajo Nation and is also subject to an
easement from the federal government. See “Plant and Transmission Line Leases and Easements on Indian Lands” below for additional
information.
Cholla – Cholla is a coal-fired power plant located in northeastern Arizona. APS operates the plant and owns 100% of Cholla Units 1, 2 and
3. PacifiCorp owns Cholla Unit 4 and APS operates that unit for PacifiCorp. Cholla’s common facilities are jointly owned by APS and
PacifiCorp. APS purchases most of Cholla’s coal requirements from coal suppliers that mine all of the coal under long-term leases of coal
reserves with the Navajo Nation, the federal government and private landholders. There are currently two coal contracts in place with two
separate suppliers for Cholla. One supplier is ramping down its supply to the plant, which will be complete in 2009, and the other is ramping up
its supply to the plant to provide Cholla’s full coal requirement by 2010. This agreement runs through 2024. Additionally, APS may purchase a
portion of Cholla’s coal requirements on the spot market to take advantage of competitive pricing options and to supplement coal required for
increased operating capacity. APS believes that the current fuel contracts and competitive fuel supply options ensure the continued operation
of Cholla for its useful life. In addition, APS has a long-term coal transportation contract.
Navajo Generating Station – The Navajo Generating Station is a coal-fired power plant located in northern Arizona. Salt River Project
operates the plant and APS owns a 14% interest in Navajo Units 1, 2 and 3. The Navajo Generating Station’s coal requirements are purchased
from a supplier with long-term leases from the Navajo Nation and the Hopi Tribe. The Navajo Generating Station is under contract with its coal
supplier through 2011, with options to extend through 2019. The Navajo Generating Station plant site is leased from the Navajo Nation and is
also subject to an easement from the federal government. See “Plant and Transmission Line Leases and Easements on Indian Lands” below for
additional information.
See Note 11 for information regarding APS’ coal mine reclamation obligations.
Natural Gas Fueled Generating Facilities
APS has seven natural gas power plants located throughout Arizona, consisting of Redhawk, located near the Palo Verde Nuclear
Generating Station; Ocotillo, located in Tempe; Sundance, located in Coolidge; West Phoenix, located in southwest Phoenix; Saguaro, located
north of Tucson; Douglas, located in the town of Douglas; and Yucca, located near Yuma. APS owns and operates each plant with the
exception of one combustion turbine unit and one steam unit at Yucca that are operated by APS and owned by the Imperial Irrigation District.
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Nuclear Generating Facility

Palo Verde Nuclear Generating Station – Palo Verde is a nuclear power plant located about 50 miles west of Phoenix, Arizona. APS
operates the plant and owns 29.1% of Palo Verde Units 1 and 3 and about 17% of Unit 2. In addition, APS leases about 12.1% of Unit 2,
resulting in a 29.1% combined interest in that Unit. See “Palo Verde Leases” below for additional information regarding the Palo Verde Unit 2
sale leaseback transactions.
Palo Verde Fuel Cycle – The fuel cycle for Palo Verde is comprised of the following stages:
• mining and milling of uranium ore to produce uranium concentrates;
• conversion of uranium concentrates to uranium hexafluoride;
• enrichment of uranium hexafluoride;
• fabrication of fuel assemblies;
• utilization of fuel assemblies in reactors; and
• storage and disposal of spent nuclear fuel.
The Palo Verde participants are continually identifying their future resource needs and negotiating arrangements to fill those needs. The
Palo Verde participants have contracted for all of Palo Verde’s requirements for uranium concentrates and conversion services through 2011.
The participants have also contracted for all of Palo Verde’s enrichment services through 2013 and all of Palo Verde’s fuel assembly fabrication
services until at least 2015.
Spent Nuclear Fuel and Waste Disposal – See “Palo Verde Nuclear Generating Station” in Note 11 for a discussion of spent nuclear fuel
and waste disposal.
Palo Verde Leases – In 1986, APS sold about 42% of its share of Palo Verde Unit 2 and certain common facilities in three separate sale
leaseback transactions. APS accounts for these leases as operating leases. The leases, which have terms of 29.5 years, contain options to
renew the leases or to purchase the property for fair market value at the end of the lease terms. We are analyzing this matter, and will continue
to do so as we approach the end of the lease terms, to determine which option or options to pursue. See Notes 9 and 20 for additional
information regarding the Palo Verde Unit 2 sale leaseback transactions.
Regulatory – Operation of each of the three Palo Verde units requires an operating license from the NRC. The NRC issued full power
operating licenses for Unit 1 in June 1985, Unit 2 in April 1986 and Unit 3 in November 1987. The full power operating licenses, each valid for a
period of approximately 40 years, authorize APS, as operating agent for Palo Verde, to operate the three Palo Verde units at full power. APS
applied for renewed operating licenses for Palo Verde Unit 1, Unit 2 and Unit 3 on December 15, 2008 for a period of 20 years beyond the
expirations of the current licenses. The NRC is currently reviewing the application.
NRC Inspection – On February 22, 2007, the NRC issued a “white” finding (low to moderate safety significance) due to electrical output
issues with the Unit 3 emergency diesel generator that occurred in 2006. Under the NRC’s Action Matrix, this finding, coupled with a previous
NRC “yellow” finding relating to a 2004 matter involving Palo Verde’s safety injection systems, resulted in Palo Verde Unit 3 being placed in
the “multiple/repetitive degraded cornerstone” column of the NRC’s Action Matrix (“Column 4”), which has resulted in an enhanced NRC
inspection regime.
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Although only Palo Verde Unit 3 is in NRC’s Column 4, in order to adequately assess the need for improvements, APS’ management
conducted site-wide assessments of equipment and operations.
On June 21, 2007, the NRC issued an initial confirmatory action letter confirming APS’ commitments regarding specific actions APS will take
to improve Palo Verde’s performance. From October 1, 2007 through November 2, 2007, a team of NRC inspectors performed on-site in-depth
inspections of Palo Verde’s equipment and operations. The NRC’s inspection results were documented in an NRC letter to APS dated
February 1, 2008 (the “Inspection Report”). The Inspection Report indicated that the facility is being operated safely, but also identified certain
performance deficiencies. Based on its review of the APS Palo Verde improvement plan, the NRC issued a revised confirmatory action letter
(the “Revised CAL”) on February 15, 2008 that outlines the actions APS must take in order for the NRC to return the Palo Verde site to the
NRC’s routine inspection and assessment process. This Revised CAL was anticipated as part of the NRC’s inspection procedure and a
substantial majority of the actions required therein was contained in APS’ improvement plan.
The NRC has continued to provide increased oversight at Palo Verde. The Palo Verde management team has implemented a substantial
majority of its improvement plan and has been subject to routine periodic NRC inspections throughout 2008. On February 5, 2009, APS
submitted a letter to the NRC stating that it has completed a substantial majority of the actions contained in the Revised CAL and believes the
Revised CAL can be closed. APS will continue cooperating fully with the NRC throughout this process and anticipates receiving a response
from the NRC within the next several months related to the closure of the Revised CAL.
Nuclear Decommissioning Costs – The NRC rules on financial assurance requirements for the decommissioning of nuclear power plants
provide that a licensee may use a trust as the exclusive financial assurance mechanism if the licensee recovers estimated total
decommissioning costs through cost-of-service rates or through a “non-bypassable charge.” The “non-bypassable systems benefits” charge
is the charge that the ACC has approved for APS’ recovery of certain types of costs. “Non-bypassable” means that if a customer chooses to
take energy from an “energy service provider” other than APS, the customer will still have to pay this charge as part of the customer’s APS
electric bill.
Other mechanisms are prescribed, including prepayment, if the requirements for exclusive reliance on an external sinking fund mechanism
are not met. APS currently relies on an external sinking fund mechanism to meet the NRC financial assurance requirements for its interests in
Palo Verde Units 1, 2 and 3. The decommissioning costs of Palo Verde Units 1, 2 and 3 are currently included in APS’ ACC jurisdictional rates.
Decommissioning costs are recoverable through a non-bypassable system benefits charge, which allows APS to maintain its external sinking
fund mechanism. See Note 12 for additional information about APS’ nuclear decommissioning costs.
Palo Verde Liability and Insurance Matters – See “Palo Verde Nuclear Generating Station” in Note 11 for a discussion of the insurance
maintained by the Palo Verde participants, including APS, for Palo Verde.
Alternative Generation Sources
In connection with its ongoing resource planning efforts, APS continues to focus on increasing the percentage of its energy that is
produced by renewable resources. On November 1,
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2006, the ACC approved the Arizona Renewable Energy Standard and Tariff (the “Renewable Energy Standard”). Under the Renewable Energy
Standard, electric utilities that are regulated by the ACC must supply an increasing percentage of their retail electric energy sales from eligible
renewable resources, including solar, wind, biomass, biogas and geothermal technologies. The renewable energy requirement increases from
1.5% in 2007 to 15% in 2025. The requirement for 2009 is 2.0%. In addition, an increasing percentage of that requirement must be supplied from
distributed resources (generally speaking, small-scale renewable technologies that are located on customers’ properties). The distributed
resource requirement increases from 5% of the overall renewable energy requirement in 2007 to 30% in 2012 and subsequent years. The
requirement for 2009 is 15%. APS currently has a diverse portfolio of renewable resources including wind, geothermal, solar and biomass,
which collectively generate over 120 MW of renewable energy for our customers. All of the current renewable generation projects, except for
solar, are acquired through long-term purchased power agreements.
On February 8, 2008, APS entered into a Renewable Energy Purchase and Sale Agreement under which APS agreed to purchase the energy
and related renewable energy credits from a concentrated solar power plant for a period of thirty years after the plant begins commercial
operation. The plant, which will have a nameplate rating of 280 MW and a projected annual output of 900,000 MWh, will be located near Gila
Bend, Arizona, which is about 70 miles southwest of Phoenix. The agreement is subject to various conditions, including the developer
obtaining project financing. If these conditions are met, commercial operation is expected in 2012.
On February 28, 2008, APS signed a Renewable Energy Purchase and Sale Agreement under which APS agreed to purchase the energy and
related renewable energy credits from a wind power plant located in New Mexico for a period of thirty years after the plant begins commercial
operation in 2009. The plant has a nameplate rating of 100 MW and a projected annual output of 300,000 MWh.
APS continues to actively consider opportunities to enhance its renewable energy portfolio, both to ensure its compliance with the
Renewable Energy Standard and to meet the needs of its customer base.
Purchased Power Agreements
In addition to its own available generating capacity, APS purchases electricity under various arrangements. APS’ purchased power
capacity under long-term contracts, as of December 31, 2008, is summarized in the table below. APS also purchases power through short-term
markets to supplement its long-term resources and hedge its energy requirements.
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C apacity
Purchase d Powe r Agre e m e n t Date s Available (MW )
Purchase Agreement (a) Year-round through February 2013 Up to 90
Purchase Agreement (b) Year-round through June 15, 2010 238
Exchange Agreement (c) May 15 to September 15 annually through 2020 480
Tolling Agreement June 2007 through May 2017 500
Tolling Agreement June 2010 through October 2019 560
Day-Ahead Call Option Agreement June 2007 through September 2015 (summer seasons) 500
Day-Ahead Call Option Agreement June 2007 through summer 2016 150
Wind Agreement December 2006 through December 2026 90
Wind Agreement July 19, 2009 through April 2039 100
Landfill Gas Agreement Deliveries expected to commence in 2009; expires 2029 3
Landfill Gas Agreement Deliveries expected to commence in September 2009; 3
expires 2029
Solar Agreement (d) Deliveries expected to commence in 2012; expires 2042 250
Geothermal Agreement January 2006 through 2029 12
Biomass Agreement July 2008; expires 2023 14
(a) The capacity under this agreement varies by month, with a maximum capacity of 90 MW.
(b) The amount of electricity available to APS under this agreement is based in large part on customer demand
and is adjusted annually. Effective June 16, 2007, the seller, Salt River Project, reduced the capacity available
to APS by 150 MW. Additionally, Salt River Project has elected to cancel this contract effective June 15,
2010.
(c) This is a seasonal capacity exchange agreement with PacifiCorp. Under this agreement, APS receives
electricity from PacifiCorp during the summer peak season (from May 15 to September 15) and APS returns a
like amount of electricity to PacifiCorp during the winter season (from October 15 to February 15). Until 2020,
APS and PacifiCorp each has 480 MW of capacity and a related amount of energy available to it under the
agreement for its respective seasons. Additionally, under a supplemental energy sales agreement, APS must
also make additional offers of energy to PacifiCorp each year through October 31, 2020.
(d) See “Alternative Generation Sources” above for more information.
APS continually assesses its need for additional capacity resources to assure system reliability, although APS does not expect to need new
capacity, beyond current plans, until around 2015. APS remains committed to seeking proposals from the competitive wholesale market for
filling its future resource needs, including renewable resource capacity.
Reserve Margin
APS’ 2008 peak one-hour demand on its electric system was recorded on August 1, 2008 at 7,025,900 kW, compared to the 2007 peak of
7,545,100 kW recorded on August 13, 2007. Taking into account additional capacity then available to APS under long-term purchase power
contracts, as well as APS’ generating capacity, APS’ capability of meeting system demand on August 1, 2008, amounted to 6,883,000 kW, for
an installed reserve margin of negative 2.3%. The power actually available to APS from its resources fluctuates from time to time due in part to
planned and unplanned
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plant and transmission outages and technical problems. The available capacity from sources actually operable at the time of the 2008 peak
amounted to 5,831,000 kW, for a margin of negative 21.9%. Firm purchases totaling 2,626,000 kW, including short-term seasonal purchases and
unit contingent purchases, were in place at the time of the peak, ensuring the ability to meet the load requirement with an actual reserve margin
of 20.6%.
Resource Plan
On January 29, 2009, APS submitted a Resource Plan Report to the ACC proposing a diverse portfolio of generation resources to address
the projected 60% increase in customer peak demand by 2025, which equates to approximately 6,500 MW of new capacity resources and
accounts for both new resources needed to meet growing customers loads as well as resources that will be needed to replace expiring long-
term purchases. The primary components of the Resource Plan include:
• Energy efficiency initiatives;
• The acceleration of renewable energy sources by doubling the Renewable Energy Standard Requirement in 2015, resulting in the
addition of over 1,650 MW of renewable resources by 2025;
• The potential for an addition of new baseload nuclear capacity after 2020 of up to 800 MW of capacity; and
• Peaking resources based on gas-fired resources, whether through wholesale purchases or the construction or acquisition of peaking
capacity and/or potential additional deployment of demand response opportunities.
The Resource Plan would allow Arizona to increase its commitment to non-fossil fuel resources because it does not include new coal-fired
generation resources. The Resource Plan states that the risk of future climate change legislation and the resulting potential for significant
increases in cost currently make coal-fired generation an unattractive resource choice. The Resource Plan also addresses the transmission
infrastructure expansion that will be required to accommodate the new resources.
Under the Resource Plan, APS’ energy mix would change. Nuclear energy would increase to 32% of its mix, renewable energy sources
would increase to 16%, and energy efficiency would increase to 7%. Coal-fired energy would decrease to 24% and gas-fired generation would
decrease to 21%.
APS has requested the ACC to (a) either formally approve the Resource Plan or acknowledge that APS has considered all relevant
resources, risks and uncertainties and that the Resource Plan is reasonable and in the public interest; (b) determine that the pursuit of
renewable resources above the Renewable Energy Standard is in the public interest; (c) determine that taking the initial steps to preserve APS’
ability to pursue a new nuclear baseload resource is in the public interest; and (d) determine that it is appropriate for APS to proceed to
implement the Resource Plan. APS cannot predict the outcome of this matter.
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Transmission and Distribution Facilities

APS’ transmission facilities consist of approximately 5,825 pole miles of overhead lines and approximately 45 miles of underground lines,
5,601 miles of which are located in Arizona. APS’ distribution facilities consist of approximately 11,392 miles of overhead lines and
approximately 16,630 miles of underground primary cable, all of which are located in Arizona. APS shares ownership of some of its
transmission facilities with other companies. The following table shows APS’ jointly-owned interests in those transmission facilities recorded
on the Consolidated Balance Sheets at December 31, 2008:
Pe rce n t O wn e d
(W e ighte d Ave rage )
Palo Verde – Estrella 500KV System 55.5%
ANPP 500KV System 35.8%
Navajo Southern System 31.4%
Four Corners Switchyards 27.5%
Palo Verde – Yuma 500KV System 23.9%
Phoenix – Mead System 17.1%
Plant and Transmission Line Leases and Easements on Indian Lands

The Navajo Generating Station and Four Corners are located on land held under leases from the Navajo Nation and also under easements
from the federal government. The easement and lease for the Navajo Generating Station expire in 2019 and the easement and lease for Four
Corners expire in 2016. Each of the leases contains an option to extend for an additional 25-year period from the end of the existing lease term,
for a rental amount tied to the original rent payment adjusted based on an index. The easements do not contain an express renewal option and
it is unclear what conditions to renewal or extension of the easements may be imposed. The ultimate cost of renewal of the Navajo Generating
Station and Four Corners leases and easements is uncertain. As noted above under “Portfolio Resources – Coal Fueled Generating Facilities,”
the coal contracted for use in these plants is also located on Indian reservations.
Certain portions of the transmission lines that carry power from several of our power plants are located on Indian lands pursuant to
easements or other rights-of-way that are effective for specified periods. Some of these rights-of-way have expired and our renewal
applications have not yet been acted upon by the appropriate Indian tribes. Other rights expire at various times in the future and renewal
action by the applicable tribe will be required at that time. The majority of our transmission lines residing on Indian lands are on the Navajo
Nation. The Four Corners and Navajo Generating Station plant leases provide Navajo Nation consent to certain of the rights-of-way for
transmission lines related to those plants at a specified rental rate for the original term of the rights-of-way and for a like payment in any
renewal period. In addition, a 1985 amendment to the leases provides a formula for calculating payments for certain new and renewal rights-of-
way. However, some of our rights-of-way are not covered by the leases, or are granted by other Indian tribes. In recent negotiations with other
utilities or companies for renewal of similar rights-of-way, certain of the affected Indian tribes have required payments substantially in excess
of amounts that we have paid in the past for such rights-of-way or that are typical for similar permits across non-Indian lands; however, we are
unaware of the underlying agreements and/or specific circumstances surrounding these renewals. The ultimate cost of renewal of the rights-
of-way for our transmission lines is
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uncertain. We are monitoring these rights-of-way and easement issues and have initiated discussions with the Navajo Nation regarding them.
We are currently unable to predict the outcome of this matter.
Environmental Matters
EPA Environmental Regulation
Regional Haze Rules On April 22, 1999, the EPA announced final regional haze rules. These regulations required states to submit state
implementation plans (SIPs) by December 2007 to demonstrate “reasonable progress” towards achieving natural visibility conditions in certain
“Class I Areas,” including several on the Colorado Plateau. SIPs are required to consider and potentially apply “best available retrofit
technology” (BART) for certain older major stationary sources. The rules allow nine western states and Indian tribes to follow an alternate
implementation plan and schedule for the Class I Areas. This alternate implementation plan is known as the Annex Rule.
On June 15, 2005, the EPA issued the Clean Air Visibility Rule, which amends the 1999 regional haze rules by providing guidelines, known
as the BART guidelines, for states to use in determining which facilities must install controls and the type of controls the facilities must use.
The EPA also issued a Revised Annex Rule on October 13, 2006 to address a previous challenge and court remand of that rule.
ADEQ is currently undertaking a rulemaking process to amend its SIP to reconcile it with the Revised Annex Rule and to implement the
Clean Air Visibility Rule requirements. ADEQ’s Regional Haze SIPs were due to EPA Region 9 in December 2007, but are actually expected to
be submitted during 2009. As part of the rulemaking process, ADEQ is requiring certain sources in the state to conduct BART analyses. Cholla
and West Phoenix received letters from ADEQ asserting that the plants are potentially subject to BART and requesting that we either perform
a BART analysis on each plant or provide information demonstrating that we are not subject to BART. We completed a BART analysis for
Cholla and submitted our BART recommendations to ADEQ on February 4, 2008. Our recommendations include the installation of certain
pollution control equipment that we believe constitutes BART. Once we receive ADEQ’s final determination as to what constitutes BART for
Cholla, we will have five years to complete the installation of the equipment and to achieve the emission limits established by ADEQ. However,
in order to coordinate with the plant’s other scheduled activities, we are currently implementing portions of our recommended plan for Cholla
on a voluntary basis. Costs related to the implementation of these portions of our recommended plan are included in our environmental
expenditure estimates (see “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Capital Expenditures”
in Item 7).
Because we believed that ADEQ’s baseline modeling for West Phoenix may have contained some errors, we re-performed the baseline
modeling using correct input and have determined that West Phoenix is not subject to BART. We submitted these findings for West Phoenix
to ADEQ, and ADEQ has verbally informed us that West Phoenix is not subject to BART.
In addition, EPA Region 9 requested us to perform a BART analysis for Four Corners. We completed the analysis and submitted it to the
EPA on January 30, 2008. In December 2008, we provided additional data in response to a request from the EPA. Our recommendations include
the installation of certain pollution control equipment that we believe constitutes BART. Once we
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receive the EPA’s final determination as to what constitutes BART for Four Corners, we will have five years to complete the installation of the
equipment and to achieve the emission limits established by EPA Region 9. However, in order to coordinate with the plant’s other scheduled
activities, we will begin implementing initial portions of our recommended plan later this year for Four Corners on a voluntary basis. Costs
related to the implementation of these portions of our recommended plan are included in our environmental expenditure estimates (see
“Management’s Discussion and Analysis of Financial Condition and Results of Operation – Capital Expenditures” in Item 7).
While we continue to monitor this matter, at the present time we cannot predict whether the agencies will agree with our BART
recommendations or, if the agencies disagree with our recommendations, the nature of the BART controls the agencies may ultimately
mandate and the resulting financial or operational impact.
Mercury On March 15, 2005, the EPA issued the Clean Air Mercury Rule (CAMR) to control mercury emissions from coal-fired power
plants. This rule establishes performance standards limiting mercury emissions from coal-fired power plants and establishes a two phased
market-based emissions trading program. Under the trading program, the EPA has assigned each state a mercury emissions “budget” and each
state must submit to the EPA a plan detailing how it will meet its “budget.”
In November 2006, ADEQ submitted a SIP to the EPA to implement the CAMR. ADEQ’s SIP generally incorporates the EPA’s model cap-
and-trade program, but it includes additional requirements, including the requirement to meet a 90% mercury removal control level or 0.0087
lbs/GWh, whichever is greater, the requirement to obtain mercury allowances at a 2:1 ratio for any emissions that fall below the specified
control level, and the requirement, beginning in 2013, to consider clean coal technologies as part of permitting any new generation.
On February 8, 2008, the U.S. Court of Appeals for the D.C. Circuit vacated the CAMR and the EPA rule that allowed for the creation of the
CAMR, and on March 14, 2008, the court issued the mandate to vacate these rules. On May 20, 2008, the D.C. Circuit denied the EPA’s request
to reconsider its decision. On October 17, 2008, the U.S. Solicitor General, on behalf of the EPA, petitioned the Supreme Court for a writ of
certiorari to review the judgment of the D.C. Circuit Court of Appeals’ vacatur of the CAMR. In filing the petition, the U.S. contended, among
other things, that the Court of Appeals’ decision “effectively divests EPA of the discretion that Congress conferred on the agency to consider
alternative regulatory approaches to combating air pollution from power plants.” Unless and until this decision is overturned, the law in effect
prior to the adoption of the CAMR becomes the applicable law, and requires the EPA to develop an emission limit for mercury that represents
the maximum achievable control technology. It is expected to take the EPA several years to establish its standard, followed by a period of
several years during which existing plants would implement any controls needed to comply with the standard.
The court’s ruling also invalidates CAMR-based portions of ADEQ’s mercury rule (the trading provisions of the rule), although the state-
only emission limits remain in effect. On July 25, 2008, the Arizona Utilities Group (comprised of APS, Arizona Electric Power Cooperative, Salt
River Project, Tucson Electric Power Company, and Tri-State Generation and Transmission Association) filed with ADEQ a Petition for
Reconsideration and Repeal of the state mercury rule. The petition asserts that ADEQ does not have statutory authority to administer and
enforce the state mercury rule, in light of the vacatur of the CAMR and the requirement that EPA promulgate a Maximum Achievable Control
Technology (“MACT”) standard. ADEQ granted the petition in part
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and agreed to begin rulemaking efforts to repeal those portions of ADEQ’s mercury rule that are no longer valid in light of the vacatur of the
federal CAMR. However, ADEQ denied the petition with respect to certain compliance deadlines and, unless the Arizona Utilities Group
reaches an agreement with ADEQ on revisions to the state mercury rule, APS and others will have to comply with the 90% mercury removal or
0.0087 lbs/GWh levels discussed above by 2013. On February 17, 2009, APS signed a consent order with ADEQ under which APS will strive to
achieve 50% mercury removal commencing in 2011 and will fully comply with the ADEQ mercury rule by 2016, rather than by 2013 as the rule
currently prescribes.
While we continue to monitor this matter, we cannot predict the final outcome of the petition to the Supreme Court, additional actions by
ADEQ resulting from the federal court’s decision or the Arizona Utilities Group petition, or the scope, timing or impact of any alternate rules
that may be enacted to address mercury emissions.
We have installed, and continue to install, certain of the equipment necessary to meet the current mercury standards. However, due to the
U.S. Court of Appeals decision described above, we will monitor the type and timing of any necessary equipment installation. The estimated
costs expected to be incurred over the next three years for such equipment are included in our environmental expenditure estimates (see
“Management’s Discussion and Analysis of Financial Condition and Results of Operation – Capital Expenditures” in Item 7).
Federal Implementation Plan In September 1999, the EPA proposed FIPs to set air quality standards at certain power plants, including Four
Corners and the Navajo Generating Station. On September 12, 2006, the EPA proposed revised FIPs to establish air quality standards at both
of these plants.
Four Corners FIP
On April 30, 2007, the EPA adopted a source specific FIP to set air quality standards at Four Corners. The FIP essentially federalizes the
requirements contained in the New Mexico State Implementation Plan, which Four Corners has historically followed. The FIP also includes a
requirement to maintain and enhance dust suppression methods. On July 2, 2007, APS filed a petition for review in the United States District
Court of Appeals for the Tenth Circuit seeking revisions to the FIP to clarify certain requirements and allow operational flexibility. The Sierra
Club intervened in this action. On July 6, 2007, the Sierra Club and other parties filed a petition for review with the same court challenging the
FIP’s compliance with the Clean Air Act and we have intervened in their action. In our lawsuit, we challenge two key provisions of the FIP: a
20% opacity limit on certain fugitive dust emissions, which the EPA filed a motion to remand and vacate in early December 2007, and a 20%
stack opacity limit on Units 4 and 5. Briefing in this case is now complete, and oral arguments as requested by the EPA were completed in
May 2008. After briefing was completed, the EPA voluntarily moved to vacate the fugitive dust provisions of the FIP. The court has not yet
ruled on that motion; however, in light of that motion, APS asked for, and the EPA granted, an administrative stay of the fugitive dust
provisions, and the Navajo Nation EPA amended our Four Corners permit to specify that those requirements do not apply unless and until the
court denies the EPA’s motion. Although we cannot predict the outcome or the timing of these matters, we do not believe that they will have a
material adverse impact on our financial position, results of operations or cash flows.
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Navajo Generating Station FIP

The proposed FIP for the Navajo Generating Station is still pending. APS cannot currently predict the effect of this proposed FIP on its
financial position, results of operations or cash flows, or whether the proposed FIP will be adopted in its current form.
Superfund Superfund establishes liability for the cleanup of hazardous substances found contaminating the soil, water or air. Those who
generated, transported or disposed of hazardous substances at a contaminated site are among those who are PRPs. PRPs may be strictly, and
often jointly and severally, liable for clean-up. On September 3, 2003, the EPA advised APS that the EPA considers APS to be a PRP in the
Motorola 52nd Street Superfund Site, Operable Unit 3 (OU3) in Phoenix, Arizona. APS has facilities that are within this Superfund site. APS and
Pinnacle West have agreed with the EPA to perform certain investigative activities of the APS facilities within OU3. Because the investigation
has not yet been completed and ultimate remediation requirements are not yet finalized, at the present time neither APS nor Pinnacle West can
accurately estimate the expenditures that may be required.
By letter dated April 25, 2008, the EPA informed APS that it may be a PRP in the Gila River Indian Reservation Superfund Site in Maricopa
County, Arizona. APS, along with three other electric utility companies, owns a parcel of property on which a transmission pole and a portion
of a transmission line are located. The property abuts the Gila River Indian Community boundary and, at one time, may have been part of an
airfield where crop dusting took place. Currently, the EPA is only seeking payment from APS and four other PRPs for past cleanup-related
costs involving contamination from the crop dusting. Based upon the total amount of cleanup costs reported by the EPA in its letter to APS,
we do not expect that the resolution of this matter will have a material adverse impact on our financial position, results of operations, or cash
flows.
Manufactured Gas Plant Sites APS is currently investigating properties, which it now owns or which were previously owned by it or its
corporate predecessors, that were at one time sites of, or sites associated with, manufactured gas plants. APS is taking action to voluntarily
remediate these sites. APS does not expect these matters to have a material adverse effect on its financial position, results of operations, cash
flows or liquidity.
Navajo Nation Environmental Issues
Four Corners and the Navajo Generating Station are located on the Navajo Reservation and are held under easements granted by the federal
government as well as leases from the Navajo Nation. See “Portfolio Resources – Coal Fueled Generating Facilities” above for additional
information regarding these plants.
In July 1995, the Navajo Nation enacted the Navajo Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe Drinking
Water Act and the Navajo Nation Pesticide Act (collectively, the “Navajo Acts”). The Navajo Acts purport to give the Navajo Nation
Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water and pesticide activities, including
those activities that occur at Four Corners and the Navajo Generating Station. On October 17, 1995, the Four Corners participants and the
Navajo Generating Station participants each filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, challenging the
applicability of the Navajo Acts as to Four Corners and the Navajo Generating
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Station. The Court has stayed these proceedings pursuant to a request by the parties, and the parties are seeking to negotiate a settlement.
In April 2000, the Navajo Tribal Council approved operating permit regulations under the Navajo Nation Air Pollution Prevention and
Control Act. APS believes the regulations fail to recognize that the Navajo Nation did not intend to assert jurisdiction over Four Corners and
the Navajo Generating Station. On July 12, 2000, the Four Corners participants and the Navajo Generating Station participants each filed a
petition with the Navajo Supreme Court for review of the operating permit regulations. Those proceedings have been stayed, pending the
settlement negotiations mentioned above. APS cannot currently predict the outcome of this matter.
On May 18, 2005, APS, Salt River Project, as the operating agent for the Navajo Generating Station, and the Navajo Nation executed a
Voluntary Compliance Agreement (“VCA”) to resolve their disputes regarding the Navajo Nation Air Pollution Prevention and Control Act. On
March 21, 2006, the EPA determined that the Navajo Nation was eligible for “treatment as a state” for the purpose of entering into a
supplemental delegation agreement with the EPA to administer the Clean Air Act Title V, Part 71 federal permit program over Four Corners and
the Navajo Generating Station. The EPA entered into the supplemental delegation agreement with the Navajo Nation on the same day.
Because the EPA’s approval was consistent with the requirements of the VCA, APS sought dismissal of the pending litigation in the Navajo
Nation Supreme Court, as well as the pending litigation in the Navajo Nation District Court to the extent the claims relate to the Clean Air Act,
and the Courts have dismissed the claims accordingly. The agreement does not address or resolve any dispute relating to other Navajo Acts.
APS cannot currently predict the outcome of this matter.
Water Supply
Assured supplies of water are important for APS’ generating plants. At the present time, APS has adequate water to meet its needs.
However, conflicting claims to limited amounts of water in the southwestern United States have resulted in numerous court actions.
Both groundwater and surface water in areas important to APS’ operations have been the subject of inquiries, claims and legal proceedings,
which will require a number of years to resolve. APS is one of a number of parties in a proceeding, filed March 13, 1975, before the Eleventh
Judicial District Court in New Mexico to adjudicate rights to a stream system from which water for Four Corners is derived. An agreement
reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo
Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.
A summons served on APS in early 1986 required all water claimants in the Lower Gila River Watershed in Arizona to assert any claims to
water on or before January 20, 1987, in an action pending in Maricopa County, Arizona, Superior Court. Palo Verde is located within the
geographic area subject to the summons. APS’ rights and the rights of the other Palo Verde participants to the use of groundwater and
effluent at Palo Verde are potentially at issue in this action. As operating agent of Palo Verde, APS filed claims that dispute the court’s
jurisdiction over the Palo Verde participants’ groundwater rights and their contractual rights to effluent relating to Palo Verde. Alternatively,
APS seeks confirmation of such rights. Five of APS’ other power plants are also located within the geographic area subject to the summons.
APS’ claims dispute the court’s jurisdiction over its groundwater rights with respect to these plants. Alternatively, APS seeks
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confirmation of such rights. In November 1999, the Arizona Supreme Court issued a decision confirming that certain groundwater rights may
be available to the federal government and Indian tribes. In addition, in September 2000, the Arizona Supreme Court issued a decision affirming
the lower court’s criteria for resolving groundwater claims. Litigation on both of these issues has continued in the trial court. In
December 2005, APS and other parties filed a petition with the Arizona Supreme Court requesting interlocutory review of a September 2005 trial
court order regarding procedures for determining whether groundwater pumping is affecting surface water rights. The Court denied the
petition in May 2007, and the trial court is now proceeding with implementation of its 2005 order. No trial date concerning APS’ water rights
claims has been set in this matter.
APS has also filed claims to water in the Little Colorado River Watershed in Arizona in an action pending in the Apache County, Arizona,
Superior Court, which was originally filed on September 5, 1985. APS’ groundwater resource utilized at Cholla is within the geographic area
subject to the adjudication and, therefore, is potentially at issue in the case. APS’ claims dispute the court’s jurisdiction over its groundwater
rights. Alternatively, APS seeks confirmation of such rights. A number of parties are in the process of settlement negotiations with respect to
certain claims in this matter. Other claims have been identified as ready for litigation in motions filed with the court. No trial date concerning
APS’ water rights claims has been set in this matter.
Although the above matters remain subject to further evaluation, APS does not expect that the described litigation will have a material
adverse impact on its financial position, results of operations, cash flows or liquidity.
The Four Corners region, in which Four Corners is located, has been experiencing drought conditions that may affect the water supply for
the plants if adequate moisture is not received in the watershed that supplies the area. APS is continuing to work with area stakeholders to
implement agreements to minimize the effect, if any, on future operations of the plant. The effect of the drought cannot be fully assessed at
this time, and APS cannot predict the ultimate outcome, if any, of the drought or whether the drought will adversely affect the amount of
power available, or the price thereof, from Four Corners.
Climate Change
Legislative and Regulatory Initiatives. In the past several years, the United States Congress has considered bills that would regulate
domestic greenhouse gas emissions, but such bills have not yet received sufficient Congressional approval to become law; however, there is
growing consensus that some form of regulation or legislation is likely to occur in the near future at the federal level with respect to
greenhouse gas emissions. In 2007, the United States Supreme Court ruled that greenhouse gases fit within the Clean Air Act’s broad
definition of “air pollutant” and, as a result, the EPA has the authority to regulate greenhouse gas emissions of new motor vehicles under the
Clean Air Act. The court held that the only way the EPA can avoid regulating greenhouse gases is if it determines that the emissions do not
contribute to climate change, or if the EPA provides a reasonable explanation for why it cannot or will not exercise its discretion to regulate
these emissions. While this decision applies only to emissions from new motor vehicles, if the EPA determines that greenhouse gas emissions
can reasonably be anticipated to endanger public health or welfare, this determination will likely impact other Clean Air Act programs as well,
and could potentially result in new regulatory requirements for our power plants.
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In addition to federal legislative initiatives, state specific initiatives may also impact our business. While Arizona has not yet enacted any
state specific legislation regarding greenhouse gas emissions, AB 32 is a California statute mandating the reduction of greenhouse gas
emissions to 1990 levels by 2020. In December 2008, the California Air Resources Board issued a final scoping plan which is intended to form
the basis of rules required under AB 32. On January 1, 2012, the regulations based on the 2009 scoping plan will become effective. We are
monitoring this and other state legislative developments to evaluate whether, and the extent to which, any resulting statutes or rules in
California or other states may affect our business, including our sales into the impacted states or the ability of our out-of-state power plant
participants to meet their obligations.
If any emission reduction legislation or regulations are enacted, we will assess our compliance alternatives, which may include replacement
of existing equipment, installation of additional pollution control equipment, purchase of allowances, curtailing certain operations, or other
actions. Although associated capital expenditures or operating costs resulting from greenhouse gas emission regulations or legislation could
be material, we believe that we would be able to recover the costs of these environmental compliance initiatives through our rates.
Regional Initiative. In 2007, six western states (Arizona, California, New Mexico, Oregon, Utah and Washington) and two Canadian
provinces (British Columbia and Manitoba) entered into an accord, the Western Climate Initiative (the “Initiative”), to reduce greenhouse gas
emissions from automobiles and certain industries, including utilities. Montana, Quebec and Ontario have also joined the Initiative. In
August 2007, the Initiative participants set a goal of reducing greenhouse gas emissions 15% below 2005 levels by 2020. Since May 2008,
several draft documents have been issued for public comment. We are reviewing the recommendations and requirements in these documents,
which currently provide only a general framework for the proposed program. Over the next year, the Initiative participants intend to develop
detailed rules to more fully establish and define the program. Since details are not yet available, such as the number of allowances each source
may receive, we are unable to quantify the potential financial and operational impacts on our business. In addition, we believe that the
implementation of any such program in Arizona would require legislative action. As a result, while we continue to monitor the progress and
impact of the Initiative, at the present time we cannot predict what detailed form it will ultimately take, whether it will be implemented or, if it is
implemented, what impact it will have on our operations.
Company Response to Climate Change Initiatives. We have undertaken a number of initiatives to address emission concerns, including
renewable energy procurement and development, promotion of programs and rates related to energy conservation, renewable energy use and
energy efficiency, and implementation of an active technology innovation effort to evaluate potential emerging new technologies. APS
currently has a diverse portfolio of renewable resources including wind, geothermal, solar and biomass and we are focused on increasing the
percentage of our energy that is produced by renewable resources. (See “Portfolio Resources – Alternative Generation Sources” above.) In
January 2009, we submitted a Resource Plan Report to the ACC proposing our future plans for additional diverse resources. See “Portfolio
Resources – Resource Plan” above for information regarding the Resource Plan Report, which was designed, in part, to increase Arizona’s
commitment to non-fossil resources.
In addition, we are currently developing a Climate Management Report to comply with an ACC order that directed APS to undertake a
climate management plan, carbon emission reduction study and commitment and action plan with public input and ACC review. We expect to
complete the report in early 2009.
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In January 2008, APS joined the Climate Registry as a Founding Reporter. Founding Reporters are companies that voluntarily joined the
non-profit organization before May 2008 to measure and report greenhouse gas emissions in a common, accurate and transparent manner
consistent across industry sectors and borders. Pinnacle West has also reported, and will continue to report, greenhouse gas emissions in its
annual Corporate Responsibility Report, which is available on our website (www.pinnaclewest.com). In addition to emissions data, the report
provides information related to the Company, its approach to sustainability and its workplace and environmental performance. The information
on Pinnacle West’s website, including the Corporate Responsibility Report, is not incorporated by reference into this report.
BUSINESS OF SUNCOR DEVELOPMENT COMPANY

SunCor was incorporated in 1965 under the laws of Arizona and is a developer of residential, commercial and industrial real estate projects
in Arizona, Idaho, New Mexico and Utah. The principal executive offices of SunCor are located at 80 East Rio Salado Parkway, Suite 410,
Tempe, Arizona 85281 (telephone 480-317-6800). SunCor and its subsidiaries had approximately 480 employees at December 31, 2008.
At December 31, 2008, SunCor had total assets of about $547 million. SunCor’s assets consist primarily of land with improvements,
commercial buildings, golf courses and other real estate investments. SunCor focuses on real estate development of master-planned
communities, and mixed-use residential, commercial, office and industrial projects.
SunCor projects include six master-planned communities and several commercial and residential projects. Four of the master-planned
communities and the commercial and residential projects are in Arizona. Other master-planned communities are located in Idaho, New Mexico
and Utah.
SunCor’s operating revenues were approximately $131 million in 2008, $213 million in 2007 and $400 million in 2006. SunCor’s net loss was
approximately $26 million in 2008. SunCor’s net loss in 2008 included a $53 million (pre-tax) real estate impairment charge. SunCor’s net income
was approximately $24 million in 2007 and $61 million in 2006. Certain components of SunCor’s real estate sales activities, which are included in
the real estate segment, are required to be reported as discontinued operations on Pinnacle West’s Consolidated Statements of Income in
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” See Notes 22 and 23.
See “Liquidity and Capital Resources – Other Subsidiaries – SunCor” in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in Item 7 for a discussion of SunCor’s long-term debt, liquidity and capital requirements.
BUSINESS OF OTHER SUBSIDIARIES

APSES was incorporated in 1998 under the laws of Arizona and provides energy-related products and services (such as energy master
planning, energy use consultation and facility audits, cogeneration analysis and installation, and project management) and competitive
commodity-related energy services (such as direct access commodity contracts, energy procurement and energy supply consultation) to
commercial and industrial retail customers in the western United States. Recently, APSES has discontinued its commodity-related energy
services (see Note 22). APSES had
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approximately 60 employees as of December 31, 2008. APSES’ principal offices are located at 60 E. Rio Salado Parkway, Suite 1001, Tempe,
Arizona 85281 (telephone 602-744-5060).
APSES had a net loss of $1 million in 2008, a net loss of $4 million in 2007 and a net loss of $3 million in 2006. At December 31, 2008, APSES
had total assets of $70 million.
El Dorado was incorporated in 1983 under the laws of Arizona. El Dorado owns minority interests in several energy-related investments and
Arizona community-based ventures. El Dorado’s short-term goal is to prudently realize the value of its existing investments. On a long-term
basis, Pinnacle West may use El Dorado, when appropriate, for investments that are strategic to the business of generating, distributing and
marketing electricity. El Dorado’s offices are located at 400 North Fifth Street, Phoenix, Arizona 85004 (telephone 602-250-3517).
El Dorado had a net loss of $10 million in 2008, a net loss of $6 million in 2007 and a net loss of $4 million in 2006. Income taxes related to El
Dorado are recorded by Pinnacle West. At December 31, 2008, El Dorado had total assets of $28 million.
ITEM 1A. RISK FACTORS

In addition to the factors affecting specific business operations identified in connection with the description of these operations contained
elsewhere in this report, set forth below are risks and uncertainties that could affect our financial results. Unless otherwise indicated or the
context otherwise requires, the following risks and uncertainties apply to Pinnacle West and its subsidiaries, including APS.
APS is subject to comprehensive government regulation by several federal, state and local regulatory agencies that could have a material
adverse impact on its business, liquidity and results of operations.
APS is subject to comprehensive regulation by several federal, state and local regulatory agencies that significantly influence its business,
liquidity and results of operations. The ACC regulates APS’ retail electric rates and APS’ issuance of securities. The ACC must also approve
any transfer of APS’ property used to provide retail electric service and approve or receive prior notification of certain transactions between
us, APS and our respective affiliates. While approved electric rates are intended to permit APS to recover its costs of service and earn a
reasonable rate of return, the profitability of APS is affected by the rates it may charge. Consequently, our financial condition and results of
operations are dependent upon the satisfactory resolution of APS’ retail rate proceedings and ancillary matters which are before or which may
come before the ACC. Decisions made by the ACC could have a material adverse impact on our results of operations, financial position or
liquidity.
APS is required to have numerous permits, approvals and certificates from the agencies that regulate APS’ business. The FERC, the NRC,
the EPA, and the ACC regulate many aspects of our utility operations, including siting and construction of facilities, customer service and, as
noted in the preceding paragraph, the rates that APS can charge customers. We believe the necessary permits, approvals and certificates have
been obtained for APS’ existing operations and that APS’ business is conducted in accordance with applicable laws in all material respects.
However, changes in regulations or the imposition of additional regulations could have an adverse impact on our results of operations. We are
also unable to predict the impact on our business and operating results from pending or future regulatory activities of any of these agencies.
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The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation
facilities. In the event of noncompliance, the NRC has the authority to impose monetary civil penalties or a progressively increased inspection
regime that could ultimately result in the shut down of a unit, or both, depending upon the NRC’s assessment of the severity of the situation,
until compliance is achieved. In early 2007, the NRC placed Palo Verde Unit 3 in the “multiple/repetitive degraded cornerstone” column of the
NRC’s Action Matrix (“Column 4”), which has resulted in an enhanced NRC inspection regime, including on-site in-depth inspections of Palo
Verde equipment and operations. Although only Palo Verde Unit 3 is in NRC’s Column 4, in order to adequately assess the need for
improvements, APS management has been conducting site-wide assessments of equipment and operations. APS continues to cooperate fully
with the NRC throughout this process. The enhanced NRC inspection regime and APS’ ongoing commitment to the conservatively safe
operation of Palo Verde could result in NRC action or an APS decision to shut down one or more units in the event of noncompliance with
operating requirements or in light of other operational considerations.
APS is subject to numerous environmental laws and regulations that may increase its cost of operations, impact its business plans, or
expose it to environmental liabilities.
APS is subject to numerous environmental laws and regulations affecting many aspects of its present and future operations, including air
emissions, water quality, wastewater discharges, solid waste, hazardous waste, and coal combustion products, which consist of bottom ash,
fly ash and air pollution control wastes. These laws and regulations can result in increased capital, operating, and other costs, particularly with
regard to enforcement efforts focused on power plant emissions obligations. These laws and regulations generally require APS to obtain and
comply with a wide variety of environmental licenses, permits, inspections and other approvals. If there is a delay in obtaining any required
environmental regulatory approval, or if APS fails to obtain, maintain or comply with any such approval, operations at affected facilities could
be suspended or subject to additional expenses. In addition, failure to comply with applicable environmental laws and regulations could result
in civil liability or criminal penalties. Both public officials and private individuals may seek to enforce applicable environmental laws and
regulations. We cannot predict the outcome (financial or operational) of any related litigation that may arise.
In addition, we may be a responsible party for environmental clean up at sites identified by a regulatory body. We cannot predict with
certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean-up
costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially
responsible parties.
We cannot be sure that existing environmental regulations will not be revised or that new regulations seeking to protect the environment
will not be adopted or become applicable to us. Revised or additional regulations that result in increased compliance costs or additional
operating restrictions, particularly if those costs incurred by APS are not fully recoverable from APS’ customers, could have a material adverse
effect on our financial position, results of operations or cash flows.
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Concern over climate change could result in significant legislative and regulatory efforts to limit greenhouse gas emissions or related
litigation, which may increase APS’ cost of operations.
Concern over climate change, deemed by many to be induced by rising levels of greenhouse gases in the atmosphere, has led to significant
legislative and regulatory efforts to limit CO2 , which is a major byproduct of the combustion of fossil fuel, and other greenhouse gas
emissions. In addition, lawsuits have been filed against companies that emit greenhouse gases, including a lawsuit filed against us and several
other utilities, seeking damages related to climate change. In the past several years, the United States Congress has considered bills that
would regulate domestic greenhouse gas emissions, but such bills have not received sufficient Congressional approval to date to become law;
however, there is growing consensus that some form of regulation or legislation is likely to occur in the near future at the federal level with
respect to greenhouse gas emissions. In addition, in 2007, the United States Supreme Court ruled that greenhouse gases fit within the Clean
Air Act’s broad definition of “air pollutant” and, as a result, the EPA has the authority to regulate greenhouse gas emissions of new motor
vehicles under the Clean Air Act. If the United States Congress, or individual states or groups of states in which we operate, ultimately pass
legislation regulating the emissions of greenhouse gases, any resulting limitations on generation facility CO2 and other greenhouse gas
emissions could result in the creation of substantial additional capital expenditures and operating costs in the form of taxes, emissions
allowances or required equipment upgrades and could have a material adverse impact on all fossil fuel fired generation facilities (particularly
coal fired facilities, which constitute approximately 28% of our generation capacity). If the EPA determines that greenhouse gas emissions can
reasonably be anticipated to endanger public health or welfare, this determination may impact other Clean Air Act Programs and could
potentially result in new regulatory requirements for our power plants, which could also result in substantial additional costs. Excessive costs
to comply with future legislation or regulations could force APS and other similarly-situated electric power generators to close some coal-fired
facilities.
There are inherent risks in the ownership and operation of nuclear facilities, such as environmental, health, regulatory and financial
risks and the risk of terrorist attack.
Through APS, we have an ownership interest in and operate, on behalf of a group of owners, Palo Verde, which is the largest nuclear
electric generating facility in the United States. Palo Verde is subject to environmental, health and financial risks such as the ability to dispose
of spent nuclear fuel; the ability to maintain adequate reserves for decommissioning; potential liabilities arising out of the operation of these
facilities; the costs of securing the facilities against possible terrorist attacks; and unscheduled outages due to equipment and other problems.
APS maintains nuclear decommissioning trust funds and external insurance coverage to minimize its financial exposure to some of these risks;
however, it is possible that damages could exceed the amount of insurance coverage.
The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation
facilities. In the event of noncompliance, the NRC has the authority to impose monetary civil penalties or a progressively increased inspection
regime, which could ultimately result in the shut down of a unit, or both, depending upon its assessment of the severity of the situation, until
compliance is achieved. See the first risk factor above for a discussion of the enhanced NRC inspection regime currently in effect at Palo Verde
and the related operational and regulatory implications. In addition, although we have no reason to anticipate a serious nuclear incident at Palo
Verde, if an incident did occur, it could materially and
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adversely affect our results of operations and financial condition. A major incident at a nuclear facility anywhere in the world could cause the
NRC to limit or prohibit the operation or licensing of any domestic nuclear unit.
The operation of Palo Verde requires licenses that need to be periodically renewed and/or extended. In December 2008, we applied for
renewed operating licenses for all three Palo Verde units for 20 years beyond the expirations of the current licenses. We do not anticipate any
problems renewing these licenses. However, as a result of potential terrorist threats and increased public scrutiny of utilities, the licensing
process could result in increased licensing or compliance costs that are difficult or impossible to predict.
The operation of power generation facilities involves risks that could result in unscheduled power outages or reduced output, which could
materially affect our results of operations.
The operation of power generation facilities involves certain risks, including the risk of breakdown or failure of equipment, fuel interruption,
and performance below expected levels of output or efficiency. Unscheduled outages, including extensions of scheduled outages due to
mechanical failures or other complications occur from time to time and are an inherent risk of our business. If APS’ facilities operate below
expectations, we may lose revenue or incur additional expenses, including increased purchased power expenses.
The ownership and operation of power generation and transmission facilities on Indian lands could result in uncertainty related to
continued easements and rights-of-way, which could have a significant impact on our business.
Certain portions of the transmission lines that carry power from several of our power plants are located on Indian lands pursuant to
easements or other rights-of-way that are effective for specified periods. We are currently unable to predict the outcome of discussions with
the appropriate Indian tribes with respect to future renewal of these easements and rights-of-way.
Deregulation or restructuring of the electric industry may result in increased competition, which could have a significant adverse impact
on our business and our results of operations.
In 1999, the ACC approved rules for the introduction of retail electric competition in Arizona. Retail competition could have a significant
adverse financial impact on APS due to an impairment of assets, a loss of retail customers, lower profit margins or increased costs of capital.
Although some very limited retail competition existed in APS’ service area in 1999 and 2000, there are currently no active retail competitors
offering unbundled energy or other utility services to APS’ customers. As a result, we cannot predict when, and the extent to which, additional
competitors will re-enter APS’ service territory.
As a result of changes in federal law and regulatory policy, competition in the wholesale electricity market has greatly increased due to a
greater participation by traditional electricity suppliers, non-utility generators, independent power producers, and wholesale power marketers
and brokers. This increased competition could affect APS’ load forecasts, plans for power supply and wholesale energy sales and related
revenues. As a result of the changing regulatory environment and
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the relatively low barriers to entry, we expect wholesale competition to increase, which could adversely affect our business.
Changes in technology may adversely affect our business.
Research and development activities are ongoing to improve alternative technologies to produce power, including fuel cells, micro turbines,
clean coal and coal gasification, photovoltaic (solar) cells and improvements in traditional technologies and equipment, such as more efficient
gas turbines. Advances in these, or other technologies could reduce the cost of power production, making APS’ generating facilities less
competitive. In addition, advances in technology could reduce the demand for power supply, which could adversely affect APS’ business.
Our results of operations can be adversely affected by weather conditions.
Weather conditions directly influence the demand for electricity and affect the price of energy commodities. Electric power demand is
generally a seasonal business. In Arizona, demand for power peaks during the hot summer months, with market prices also peaking at that
time. As a result, our overall operating results fluctuate substantially on a seasonal basis. In addition, APS has historically sold less power,
and consequently earned less income, when weather conditions are milder. As a result, unusually mild weather could diminish our results of
operations and harm our financial condition.
Higher temperatures may decrease the snowpack, which might result in lowered soil moisture and an increased threat of forest fires. Forest
fires could threaten our communities and electric transmission lines. Any damage caused as a result of forest fires could negatively impact our
results of operations.
Our results of operations can be adversely affected by current economic conditions.
Customer growth in APS’ service territory was 1.4% during 2008. Customer growth averaged 3% a year for the three years 2006 through
2008. We currently expect customer growth to decline, averaging about 1% per year for 2009 through 2011 due to factors reflecting the
economic conditions both nationally and in Arizona. We currently expect our retail sales growth in 2009 to be below average because of
potential effects on customer usage from the economic conditions mentioned above and retail rate increases, which would adversely affect our
results of operations.
The lack of access to sufficient supplies of water could have a material adverse impact on our business and results of operations.
Assured supplies of water are important for APS’ generating plants. Water in the southwestern United States is limited and various parties
have made conflicting claims regarding the right to access and use such limited supply of water. Both groundwater and surface water in areas
important to APS’ generating plants have been the subject of inquiries, claims and legal proceedings. In addition, the Four Corners region, in
which Four Corners is located, has been experiencing drought conditions that may affect the water supply for the plants if adequate moisture
is not received in the watershed that supplies the area. Our inability to access sufficient supplies of water could have a material adverse impact
on our business and results of operations.
Our cash flow largely depends on the performance of our subsidiaries.
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We conduct our operations primarily through subsidiaries. Substantially all of our consolidated assets are held by such subsidiaries.
Accordingly, our cash flow is dependent upon the earnings and cash flows of these subsidiaries and their distributions to us. The subsidiaries
are separate and distinct legal entities and have no obligation to make distributions to us.
The debt agreements of some of our subsidiaries may restrict their ability to pay dividends, make distributions or otherwise transfer funds
to us. An ACC financing order requires APS to maintain a common equity ratio of at least 40% and does not allow APS to pay common
dividends if the payment would reduce its common equity below that threshold. The common equity ratio, as defined in the ACC order, is
common equity divided by the sum of common equity and long-term debt, including current maturities of long-term debt.
Our ability to meet our debt service obligations could be adversely affected because our debt securities are structurally subordinated to
the debt securities and other obligations of our subsidiaries.
Because we are structured as a holding company, all existing and future debt and other liabilities of our subsidiaries will be effectively
senior in right of payment to our debt securities. None of the indentures under which we or our subsidiaries may issue debt securities limits
our ability or the ability of our subsidiaries to incur additional debt in the future. The assets and cash flows of our subsidiaries will be
available, in the first instance, to service their own debt and other obligations. Our ability to have the benefit of their assets and cash flows,
particularly in the case of any insolvency or financial distress affecting our subsidiaries, would arise only through our equity ownership
interests in our subsidiaries and only after their creditors have been satisfied.
Our inability to reduce capital expenditures could materially and adversely affect our business, financial condition and results of
operation.
Unexpected developments that may prevent us from reducing capital expenditures and other costs while maintaining reliability and
customer service levels could have a material adverse impact on our financial position, results of operations, cash flows or liquidity.
Financial market disruptions may increase our financing costs or limit our access to the credit markets, which may adversely affect our
liquidity and our ability to implement our financial strategy.
We rely on access to short-term money markets, longer-term capital markets and the bank markets as a significant source of liquidity and for
capital requirements not satisfied by the cash flow from our operations. We believe that we will maintain sufficient access to these financial
markets. However, certain market disruptions may increase our cost of borrowing or adversely affect our ability to access one or more financial
markets. Such disruptions could include:
• continuation of the current economic downturn;
• the bankruptcy of an unrelated energy company;
• increased market prices for electricity and gas;
• terrorist attacks or threatened attacks on our facilities or those of unrelated energy companies;
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• changes in technology;
• mergers among financial institutions and the overall health of the banking industry; or
• the overall health of the utility or real estate industry.
In addition, the credit commitments of our lenders under our bank facilities may not be satisfied for a variety of reasons, including
unexpected periods of financial distress, which could materially adversely affect the adequacy of our liquidity sources.
Changes in economic conditions could result in higher interest rates, which would increase our interest expense on our debt and reduce
funds available to us for our current plans. Additionally, an increase in our leverage could adversely affect us by:
• increasing the cost of future debt financing;
• increasing our vulnerability to adverse economic and industry conditions;
• requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce funds
available to us for operations, future business opportunities or other purposes; and
• placing us at a competitive disadvantage compared with our competitors that have less debt.
Recent sub-prime mortgage issues, the collapse of the credit markets, the weak housing market and the overall weakening of the economy
have adversely affected the financial markets, generally resulting in increased interest rates for corporate debt, reduced access to the capital
markets, and actual or potential downgrades of bond insurers and banks, among other negative matters. In general, the Company and APS
have been unable to access the commercial paper markets since September 2008. As a result, existing bank lines have been used as a source of
liquidity on which we depend. In addition, the interest rates on certain issues of APS’ pollution control bonds that are periodically reset
through auction processes have recently increased. These bonds are supported by bond insurance policies provided by Ambac Assurance
Corporation (“Ambac”), and the interest rates on those bonds are directly affected by the rating of the bond insurer. We do not expect,
however, that any such increase will have a material adverse impact on our financial position, results of operations, cash flows or liquidity.
The 2007 and 2008 financial results of SunCor, our real estate subsidiary, reflect the weak real estate market and current economic
conditions. SunCor’s principal loan facility is secured primarily by an interest in land, commercial properties, land contracts and homes under
construction (the “Secured Revolver”). At December 31, 2008, SunCor had borrowings of approximately $120 million under this facility. The
Secured Revolver matures on January 30, 2010. In addition to the Secured Revolver, at December 31, 2008, SunCor had approximately $68
million of outstanding debt under other credit facilities that mature at various dates and also contain certain loan covenants. The majority of
this indebtedness is due in 2009, and SunCor is in the process of renegotiating these facilities.
If SunCor is unable to meet its financial covenants under the Secured Revolver or its other outstanding credit facilities, SunCor could be
required to immediately repay its outstanding indebtedness under all of its credit facilities as a result of cross-default provisions. Such a debt
acceleration would have a material adverse impact on SunCor’s business and its financial position. The Company has not guaranteed any
SunCor indebtedness. As a result, the Company does not believe that SunCor’s inability to meet its financial covenants under the Secured
Revolver or its other outstanding credit facilities would have a material adverse impact on Pinnacle West’s cash flows or liquidity, although
any resulting SunCor losses would be reflected in Pinnacle West’s consolidated financial statements.
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A reduction in our credit ratings could materially and adversely affect our business, financial condition and results of operations.
We cannot be sure that any of our current ratings will remain in effect for any given period of time or that a rating will not be lowered or
withdrawn entirely by a rating agency if, in its judgment, circumstances in the future so warrant. Any downgrade or withdrawal could
adversely affect the market price of Pinnacle West’s and APS’ securities, limit our access to capital and increase our borrowing costs, which
would diminish our financial results. We would be required to pay a higher interest rate in future financings, and our potential pool of
investors and funding sources could decrease. In addition, borrowing costs under certain of our existing credit facilities depend on our credit
ratings. A downgrade would also require us to provide substantial additional support in the form of letters of credit or cash or other collateral
to various counterparties. If our short-term ratings were to be lowered, it could completely eliminate any possible future access to the
commercial paper market. We note that the ratings from rating agencies are not recommendations to buy, sell or hold our securities and that
each rating should be evaluated independently of any other rating.
The use of derivative contracts in the normal course of our business could result in financial losses that negatively impact our results of
operations.
Our operations include managing market risks related to commodity prices and, subject to specified risk parameters, engaging in marketing
and trading activities intended to profit from market price movements. We are exposed to the impact of market fluctuations in the price and
transportation costs of electricity, natural gas and coal, to the extent that unhedged positions exist. We have established procedures to
manage risks associated with these market fluctuations by utilizing various commodity derivatives, including exchange-traded futures and
options and over-the-counter forwards, options, and swaps. As part of our overall risk management program, we enter into derivative
transactions to hedge purchases and sales of electricity and fuels. The changes in market value of such contracts have a high correlation to
price changes in the hedged commodity. To the extent that commodity markets are illiquid, we may not be able to execute our risk management
strategies, which could result in greater unhedged positions than we would prefer at a given time.
We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We use a risk management process to assess
and monitor the financial exposure of all counterparties. Despite the fact that the majority of trading counterparties are rated as investment
grade by the rating agencies, there is still a possibility that one or more of these companies could default, which could result in a material
adverse impact on our earnings for a given period.
Changing interest rates and market conditions could result in financial losses that negatively impact our results of operations.
Changing interest rates affect interest paid on variable-rate debt and interest earned on variable-rate securities in our pension plan, other
postretirement benefit plan and nuclear decommissioning trust funds. Our policy is to manage interest rates through the use of a combination
of fixed-rate and floating-rate debt. The pension plan and other postretirement benefit liabilities are also impacted by the discount rate, which
is the interest rate used to discount future pension and other postretirement benefit obligations. Declining interest rates impact the discount
rate, and may result in increases in pension and other postretirement benefit costs, cash contributions, regulatory assets, and charges to other
comprehensive income. The pension plan, other postretirement benefit and
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nuclear decommissioning trust funds also have risks associated with changing market values of fixed income and equity investments. A
significant portion of the pension costs and other postretirement benefit costs and all of the nuclear decommissioning costs are recovered in
regulated electricity prices.
The market price of our common stock may be volatile.
The market price of our common stock could be subject to significant fluctuations in response to factors such as the following, some of
which are beyond our control:
• variations in our quarterly operating results;
• operating results that vary from the expectations of management, securities analysts and investors;
• changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
• developments generally affecting industries in which we operate, particularly the energy distribution and energy generation
industries;
• announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital
commitments;
• announcements by third parties of significant claims or proceedings against us;
• favorable or adverse regulatory or legislative developments;
• our dividend policy;
• future sales by the Company of equity or equity-linked securities; and
• general domestic and international economic conditions.
In addition, the stock market in general has experienced volatility that has often been unrelated to the operating performance of a particular
company. These broad market fluctuations may adversely affect the market price of our common stock.
Our stock price could be affected because a substantial number of shares of our common stock could be available for sale in the future.
Sales in the public market of a substantial number of shares of common stock could depress the market price of the common stock and
could impair our ability to raise capital through the sale of additional equity securities. Because of the number of shares of our common stock
that we are authorized to issue under our articles of incorporation, a substantial number of shares of our common stock could be available for
future sale.
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We may enter into credit and other agreements from time to time that restrict our ability to pay dividends.
Payment of dividends on our common stock may be restricted by credit and other agreements entered into by us from time to time. There are
currently no material restrictions on our ability to pay dividends under any such agreement.
Certain provisions of our articles of incorporation and bylaws and of Arizona law make it difficult for shareholders to change the
composition of our board and may discourage takeover attempts.
These provisions, which could preclude our shareholders from receiving a change of control premium, include the following:
• restrictions on our ability to engage in a wide range of “business combination” transactions with an “interested shareholder”
(generally, any person who owns 10% or more of our outstanding voting power or any of our affiliates or associates) or any affiliate
or associate of an interested shareholder, unless specific conditions are met;
• anti-greenmail provisions of Arizona law and our bylaws that prohibit us from purchasing shares of our voting stock from beneficial
owners of more than 5% of our outstanding shares unless specified conditions are satisfied;
• a requirement that shareholder action be taken only at an annual or special meeting or by unanimous written consent, and bylaws that
require that only a majority of our Board of Directors, the Chairman of our Board of Directors, or our President may call a special
meeting of shareholders;
• advance notice procedures for nominating candidates to our Board of Directors or presenting matters at shareholder meetings;
• shareholders may only remove a director with or without cause by a majority vote at a special meeting of shareholders;
• the ability of the Board of Directors to increase the size of the Board and fill vacancies on the Board, whether resulting from such
increase, or from death, resignation, disqualification or otherwise; and
• the ability of our Board of Directors to issue additional shares of common stock and shares of preferred stock and to determine the
price and, with respect to preferred stock, the other terms, including preferences and voting rights, of those shares without
shareholder approval.
In addition, we have adopted a shareholder rights plan that may have the effect of discouraging unsolicited takeover proposals, including
takeover proposals that could result in a premium over the market price of our common stock. The shareholder rights plan will expire on
March 26, 2009.
While these provisions have the effect of encouraging persons seeking to acquire control of us to negotiate with our Board of Directors,
they could enable the Board to hinder or
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frustrate a transaction that some, or a majority, of our shareholders might believe to be in their best interests and, in that case, may prevent or
discourage attempts to remove and replace incumbent directors.
SunCor’s business and financial performance could continue to be adversely affected by a variety of factors affecting the real estate
market.
SunCor’s business and financial performance could continue to be adversely affected by a variety of factors affecting the real estate market,
including:
• downward changes in general economic, real estate construction or other business conditions;
• the current economic down cycle for the homebuilding industry;
• the increase in foreclosures;
• reductions in mortgage availability, future increases in interest rates or increases in the effective costs of owning a home, which could
prevent potential customers from buying homes in SunCor’s developments;
• future increases in interest rates which could limit future sales of commercial property and land;
• competition for homebuyers or commercial customers or partners, which could reduce SunCor’s profitability;
• supply shortages and other risks related to the demand for skilled labor and building materials, which could increase costs and delay
deliveries; and
• government regulations, which could increase the cost and limit the availability of SunCor’s development, homebuilding and
commercial projects.
As noted above (see the Risk Factor relating to “financial market disruptions”), at December 31, 2008, SunCor had borrowings of
approximately $120 million under its principal loan facility, the Secured Revolver. The Secured Revolver matures on January 30, 2010. In
addition to the Secured Revolver, at December 31, 2008, SunCor had approximately $68 million of outstanding debt under other credit facilities
that mature at various dates and also contain certain loan covenants. The majority of this indebtedness is due in 2009, and SunCor is in the
process of renegotiating these facilities.
During 2008 the real estate market weakened significantly resulting in lower land and home sales and depressed real estate prices. As a
result, in 2008 we recognized certain impairment charges. If conditions in the broader economy or the real estate markets worsen, or as a result
of a change in SunCor’s strategy, we may be required to record additional impairements.
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ITEM 1B. UNRESOLVED STAFF COMMENTS

Neither Pinnacle West nor APS has received written comments regarding its periodic or current reports from the SEC staff that were issued
180 days or more preceding the end of its 2008 fiscal year and that remain unresolved.
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ITEM 2. PROPERTIES
Information Regarding Our Properties

See “Business of Arizona Public Service Company – Portfolio Resources” in Item 1 for the location and a description of our principal
properties.
See “Business of Arizona Public Service Company – Environmental Matters” and “Water Supply” in Item 1 with respect to matters having a
possible impact on the operation of certain of APS’ power plants.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in
Item 7 for a discussion of APS’ construction program.
Real Estate Segment Properties

See “Business of SunCor Development Company” in Item 1 for information regarding SunCor’s properties. Substantially all of SunCor’s
debt is collateralized by interests in certain real property.
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(MAP)
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ITEM 3. LEGAL PROCEEDINGS

See “Business of Arizona Public Service Company – Environmental Matters” and “Water Supply” in Item 1 with regard to pending or
threatened litigation and other disputes.
See Note 3 with respect to retail rate proceedings before the ACC.
See Note 11 with regard to a lawsuit against APS and the other Navajo Generating Station participants, for information relating to the FERC
proceedings on California and Pacific Northwest energy market issues, and for information regarding a billing dispute with SRP.
ITEM 4. SUBMISSION OF MATTERS TO A

VOTE OF SECURITY HOLDERS
Not applicable.
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SUPPLEMENTAL ITEM.
EXECUTIVE OFFICERS OF PINNACLE WEST
Pinnacle West’s executive officers are as follows:
Name Age at February 20, 2009 P osition(s) at February 20, 2009

William J. Post 58 Chairman of the Board and Chief Executive Officer (1)
Donald E. Brandt 54 President and Chief Operating Officer, and Chief Executive
Officer of APS (1)
James R. Hatfield 51 Senior Vice President and Chief Financial Officer
John R. Denman 66 Senior Vice President, Fossil Operations, APS
Randall K. Edington 55 Executive Vice President and Chief Nuclear Officer, APS
Chris N. Froggatt 51 Vice President and Treasurer
Barbara M. Gomez 54 Vice President, Controller and Chief Accounting Officer
Nancy C. Loftin 55 Senior Vice President, General Counsel and Secretary
Donald G. Robinson 55 President and Chief Operating Officer, APS
Lori S. Sundberg 45 Vice President, Human Resources, APS
Steven M. Wheeler 60 Executive Vice President, Customer Service and

Regulation, APS
(1) Member of the Board of Directors.

The executive officers of Pinnacle West are elected no less often than annually and may be removed by the Board of Directors at any time.
The terms served by the named officers in their current positions and their principal occupations (in addition to those stated in the table) of
such officers for the past five years have been as follows:
Mr. Post was elected Chairman of the Board effective February 2001, and Chief Executive Officer effective February 1999. He has served as
an officer of Pinnacle West since 1995 in the following capacities: from August 1999 to February 2001 as President; from February 1997 to
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February 1999 as President; and from June 1995 to February 1997 as Executive Vice President. Mr. Post is also Chairman of the Board (since
February 2001) of APS. He was President of APS from February 1997 until October 1998 and he was Chief Executive Officer from February 1997
until October 2002. Mr. Post has announced that he will retire effective April 30, 2009. He will remain a member of the Company’s Board of
Directors and APS’ Board of Directors.
Mr. Brandt was elected to the Board of Directors of the Company and APS in January 2009. Effective April 30, 2009, Mr. Brandt will
continue to serve as President of Pinnacle West and will also assume the positions of Pinnacle West’s Chairman of the Board and Chief
Executive Officer. Also effective April 30, 2009, Mr. Brandt will continue to serve as Chief Executive Officer of APS and will assume the
position of APS’ Chairman of the Board. Mr. Brandt was elected President and Chief Operating Officer of Pinnacle West in March 2008. Prior
to that time, he was Executive Vice President of Pinnacle West (September 2003 – March 2008) and Senior Vice President of Pinnacle West
(December 2002 – September 2003). He was also elected Chief Financial Officer of Pinnacle West in December 2002. Mr. Brandt was also
elected Chief Executive Officer of APS in March 2008. Mr. Brandt was elected President of APS in December 2006, a position he held until
January 2009. Prior to that time, he was Executive Vice President of APS (September 2003 – December 2006) and Senior Vice President of APS
(January 2003 – September 2003). He was also elected Chief Financial Officer of APS in January of 2003.
Mr. Hatfield was elected to his present position effective July 2008. Prior to that time, he was Senior Vice President and Chief Financial
Officer of OGE Energy Corp. since 1999. His previous experience includes nearly 14 years with OGE Energy Corp. in a variety of financial and
management leadership roles, including serving as Vice President and Treasurer, and more than 28 years of electric and gas industry
experience.
Mr. Denman was elected to his present position effective November 2007. Prior to that time, he was Vice President, Fossil Generation of
APS (April 1997 – November 2007).
Mr. Edington was elected to his present position effective November 2007. Prior to that time, he was Senior Vice President and Chief
Nuclear Officer of APS (January 2007 – November 2007). He was previously with Entergy Corporation, serving as Site Vice President and Chief
Nuclear Officer of Cooper Generating Station (2003 – January 2007).
Mr. Froggatt was elected to his present position for APS and Pinnacle West in December 2008. Prior to that time, he was Vice President and
Controller of APS (October 2002 – December 2008), Vice President and Controller of Pinnacle West (August 1999 – October 2002), Controller of
Pinnacle West (July 1999 – August 1999) and Controller of APS (July 1997 – July 1999).
Ms. Gomez was elected to her present position in December 2008. Prior to that time, she was Vice President and Treasurer of Pinnacle West
and APS (February 2004 – December 2008), Treasurer of Pinnacle West (August 1999 – February 2004) and Manager, Treasury Operations of
APS (1997 – 1999). She was also elected Treasurer of APS in October 1999 and Vice President of APS in February 2004.
Ms. Loftin was elected to her present position effective November 2007. Prior to that time, she was Vice President, General Counsel and
Secretary of Pinnacle West (October 2002 – November 2007) and Vice President and General Counsel (July 1999 – October 2002). She was also
elected Vice President and General Counsel of APS in July 1999 and Secretary of APS in October 2002.
Mr. Robinson was elected to his present position effective January 2009. Prior to that time, he was Senior Vice President, Planning and
Administration of APS (November 2007 – January 2009), Vice President, Planning of APS (September 2003 – November 2007), Vice President,
Finance and Planning of APS (October 2002 – September 2003) and Vice President, Regulation and Planning of Pinnacle West (June 2001 –
October 2002).
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Ms. Sundberg was elected Vice President, Human Resources of APS effective November 2007. Prior to that time, she was with American
Express Company, serving as Vice President, Employee Relations, Safety, Compliance & Embrace (January 2007 – November 2007) and Vice
President, HR Relationship Leader, Global Corporate Travel Division (August 2003 – January 2007).
Mr. Wheeler was elected to his present position in September 2003. Prior to that time, he was Senior Vice President, Regulation, System
Planning and Operations of APS (October 2002 – September 2003) and Senior Vice President, Transmission, Regulation and Planning of
Pinnacle West and APS (June 2001 – October 2002).
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PART II
ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Pinnacle West’s common stock is publicly held and is traded on the New York Stock Exchange. At the close of business on February 16,
2009, Pinnacle West’s common stock was held of record by approximately 29,295 shareholders.
QUARTERLY STOCK PRICES AND DIVIDENDS PAID PER SHARE

STOCK SYMBOL: PNW
Dividends
2008 High Low Close P er Share
1st Quarter $42.92 $34.08 $35.08 $0.525
2nd Quarter 37.39 30.26 30.77 0.525
3rd Quarter 37.88 30.34 34.41 0.525
4th Quarter 35.83 26.27 32.13 0.525
Dividends
2007 High Low Close P er Share
1st Quarter $51.67 $46.43 $48.25 $0.525
2nd Quarter 50.68 39.38 39.85 0.525
3rd Quarter 41.76 36.79 39.51 0.525
4th Quarter 44.50 39.04 42.41 0.525
APS’ common stock is wholly-owned by Pinnacle West and is not listed for trading on any stock exchange. As a result, there is no
established public trading market for APS’ common stock.
The chart below sets forth the dividends paid on APS’ common stock for each of the four quarters for 2008 and 2007.
Common Stock Dividends

(Dollars in Thousands)
Q u arte r 2008 2007

1st Quarter $42,500 $42,500
2nd Quarter 42,500 42,500
3rd Quarter 42,500 42,500
4th Quarter 42,500 42,500
The sole holder of APS’ common stock, Pinnacle West, is entitled to dividends when and as declared out of funds legally available therefor.
As of December 31, 2008, APS did not have any outstanding preferred stock.
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Issuer Purchases of Equity Securities

The following table contains information about our purchases of our common stock during the fourth quarter of 2008.
Total Total Num be r of

Nu m be r of S h are s Purchase d Maxim u m Nu m be r of
S h are s Ave rage as Part of Pu blicly S h are s that May Ye t Be
Purchase d Price Paid An n ou n ce d Plans Purchase d Un de r the
Pe riod (1) pe r S h are or Program s Plan s or Program s
October 1 – October 31, 2008 24 $ 29.61 — —
November 1 – November 30, 2008 — — — —
December 1 – December 31, 2008 — — — —
Total 24 $ 29.61 — —
(1) Represents shares of common stock withheld by Pinnacle West to satisfy tax withholding obligations upon
the vesting of restricted stock.
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ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA
2008 2007 2006 2005 2004

(dollars in thousands, except per share amounts)
OPERATING RESULTS
Operating revenues:
Regulated electricity segment $ 3,127,383 $ 2,918,163 $ 2,635,036 $ 2,237,145 $ 2,035,247
Real estate segment 131,067 212,586 399,798 338,031 350,315
Marketing and trading (a) 66,897 138,247 136,748 179,895 227,040
Other revenues 41,729 48,018 36,172 61,221 42,816
Total operating revenues $ 3,367,076 $ 3,317,014 $ 3,207,754 $ 2,816,292 $ 2,655,418
Income from continuing operations (b) $ 213,557 $ 298,744 $ 316,265 $ 227,288 $ 242,887
Discontinued operations – net of income
taxes (c) 28,568 8,399 10,990 (51,021) 308
Net income $ 242,125 $ 307,143 $ 327,255 $ 176,267 $ 243,195
COMMON STOCK DATA

Book value per share – year-end $ 34.16 $ 35.15 $ 34.48 $ 34.58 $ 32.14
Earnings (loss) per weighted-average
common share outstanding:
Continuing operations – basic $ 2.12 $ 2.98 $ 3.18 $ 2.36 $ 2.66
Net income – basic $ 2.40 $ 3.06 $ 3.29 $ 1.83 $ 2.66
Continuing operations – diluted $ 2.12 $ 2.96 $ 3.16 $ 2.35 $ 2.65
Net income – diluted $ 2.40 $ 3.05 $ 3.27 $ 1.82 $ 2.66
Dividends declared per share $ 2.10 $ 2.10 $ 2.025 $ 1.925 $ 1.825
Weighted-average common shares
outstanding – basic 100,690,838 100,255,807 99,417,008 96,483,781 91,396,904
Weighted-average common shares
outstanding – diluted 100,964,920 100,834,871 100,010,108 96,589,949 91,532,473
BALANCE SHEET DATA

Total assets $ 11,620,093 $ 11,162,209 $ 10,817,900 $10,588,485 $ 9,875,456
Liabilities and equity:
Current liabilities $ 1,505,928 $ 1,344,449 $ 923,338 $ 1,608,863 $ 1,590,460
Long-term debt less current maturities 3,031,603 3,127,125 3,232,633 2,608,455 2,584,985
Deferred credits and other 3,636,583 3,159,024 3,215,813 2,946,203 2,749,815
Total liabilities 8,174,114 7,630,598 7,371,784 7,163,521 6,925,260
Common stock equity 3,445,979 3,531,611 3,446,116 3,424,964 2,950,196
Total liabilities and equity $ 11,620,093 $ 11,162,209 $ 10,817,900 $10,588,485 $ 9,875,456
(a) Reflects reclassifications of APSES’ discontinued commodity-related energy services revenue for the years
2004 through 2008. See Note 22.
(b) Includes a $32 million after tax real estate impairment charge in 2008. (See Note 23.) Also includes regulatory
disallowance of $8 million after tax in 2007 and $84 million after tax in 2005. (See Note 3.)
(c) Amounts primarily related to Silverhawk, SunCor and APSES discontinued operations. See Note 22.
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SELECTED FINANCIAL DATA

2008 2007 2006 2005 2004

(dollars in thousands)
OPERATING RESULTS
Electric operating revenues $ 3,133,496 $ 2,936,277 $2,658,513 $2,270,793 $2,197,121
Fuel and purchased power costs 1,289,883 1,151,392 969,767 688,982 763,254
Other operating expenses 1,408,213 1,358,890 1,290,804 1,200,198 1,104,886
Operating income 435,400 425,995 397,942 381,613 328,981
Other income (deductions) 836 20,870 27,584 (69,171) 15,328
Interest deductions – net of AFUDC 173,892 162,925 155,796 141,963 144,682
Net income $ 262,344 $ 283,940 $ 269,730 $ 170,479 $ 199,627
BALANCE SHEET DATA

Total assets $10,963,577 $10,321,402 $9,948,766 $9,143,643 $8,069,564
Liabilities and equity:

Common stock equity $ 3,339,150 $ 3,351,441 $3,207,473 $2,985,225 $2,232,402
Long-term debt less current maturities 2,850,242 2,876,881 2,877,502 2,479,703 2,267,094
Total capitalization 6,189,392 6,228,322 6,084,975 5,464,928 4,499,496
Current liabilities 1,267,768 1,055,706 806,556 1,021,084 1,154,702
Deferred credits and other 3,506,417 3,037,374 3,057,235 2,657,631 2,415,366
Total liabilities and equity $10,963,577 $10,321,402 $9,948,766 $9,143,643 $8,069,564
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with Pinnacle West’s Consolidated Financial Statements and APS’ Financial
Statements and the related Notes that appear in Item 8 of this report.
OVERVIEW
Pinnacle West owns all of the outstanding common stock of APS. APS is a vertically-integrated electric utility that provides retail and
wholesale electric service to most of the state of Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the
Tucson metropolitan area and Mohave County in northwestern Arizona. APS has historically accounted for a substantial part of our revenues
and earnings, and is expected to continue to do so.
While customer growth in APS’ service territory has been an important driver of our revenues and earnings, it has significantly slowed,
reflecting recessionary economic conditions both nationally and in Arizona. Customer growth averaged 3% a year for the three years 2006
through 2008. We currently expect customer growth and retail electricity sales growth (excluding the effects of weather variations) to average
about 1% per year during 2009 through 2011. We currently project that our customer growth will begin to accelerate as the economy recovers.
The near-term economic conditions are reflected in the recent volatility and disruption of the credit markets, as discussed in detail under
“Liquidity and Capital Resources – Pinnacle West Consolidated” below. Despite these conditions, Pinnacle West and APS currently have
ample borrowing capacity under their respective credit facilities and have been able to access these facilities, ensuring adequate liquidity for
each company.
Our cash flows and profitability are affected by the electricity rates APS may charge and the timely recovery of costs through those rates.
APS’ retail rates are regulated by the ACC and its wholesale electric rates (primarily for transmission) are regulated by the FERC. APS’ capital
expenditure requirements, which are discussed below under “Liquidity and Capital Resources – Pinnacle West Consolidated,” are substantial
because of increased costs related to environmental compliance and controls and system reliability, as well as continuing, though slowed,
customer growth in APS’ service territory.
APS needs timely recovery through rates of its capital and operating expenditures to maintain adequate financial health. See “Factors
Affecting Our Financial Outlook” below. On March 24, 2008, APS filed a rate case with the ACC, which it updated on June 2, 2008, requesting,
among other things, an increase in retail rates to help defray rising infrastructure costs, approval of an impact fee and approval of new
conservation rates. See Note 3 for details regarding this rate case, including the ACC’s approval of an interim base rate surcharge pending the
outcome of the case.
The 2007 and 2008 financial results of SunCor, our real estate subsidiary, reflect the weak real estate market and current economic
conditions, which have adversely affected SunCor’s ability to access capital. SunCor’s net loss in 2008 included a $53 million (pre-tax) real
estate impairment charge. If conditions in the broader economy or the real estate markets worsen, or as a result of a change in SunCor’s
strategy, we may be required to record additional impairments (see Note 23). In addition to SunCor’s Secured Revolver, under which
approximately $120 million in borrowings were outstanding at December 31, 2008, SunCor had approximately $68 million of outstanding debt
under other credit facilities that mature at various dates and also contain certain loan covenants. The majority of this indebtedness, except for
the Secured Revolver, is due in 2009, and SunCor is in the process of renegotiating these facilities. If SunCor is unable to meet its financial
covenants under the Secured Revolver or its other outstanding credit facilities, SunCor could be required to immediately repay its outstanding
indebtedness under all of its credit facilities as a result of cross-default provisions. Such a debt acceleration would have a material adverse
impact on SunCor’s business and its financial position. The Company has not guaranteed any SunCor indebtedness. As a result, the
Company does not believe that SunCor’s inability to meet its financial covenants under the Secured Revolver or its other outstanding credit
facilities would have a material adverse impact on Pinnacle West’s cash flows or liquidity, although any resulting SunCor losses would be
reflected in Pinnacle West’s consolidated financial statements.
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Our other principal first tier subsidiaries, El Dorado and APSES, are not expected to have any material impact on our financial results, or to
require any material amounts of capital, over the next three years.
We continue to focus on solid operational performance in our electricity generation and delivery activities. In the delivery area, we focus on
superior reliability and customer satisfaction. We plan to expand long-term energy resources and our transmission and distribution systems to
meet the electricity needs of our growing retail customer base and to sustain reliability.
See “Factors Affecting Our Financial Outlook” below for a discussion of several factors that could affect our future financial results.
PINNACLE WEST CONSOLIDATED –

EARNINGS CONTRIBUTION BY BUSINESS SEGMENT
Pinnacle West’s two reportable business segments are:
• our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily electric
service to Native Load customers) and related activities and includes electricity generation, transmission and distribution; and
• our real estate segment, which consists of SunCor’s real estate development and investment activities.
The following table presents income from continuing operations for our regulated electricity and real estate segments and reconciles those
amounts to net income in total for the years ended 2008, 2007, and 2006 (dollars in millions):
2008 2007 2006

Regulated electricity segment $ 256 $ 274 $ 259
Real estate segment (a) (49) 14 50
All other (b) 7 11 7
Income from continuing operations 214 299 316
Income (loss) from discontinued operations – net of tax:
Real estate segment (c) 23 9 10
All other (b) 5 (1) 1
Net income $ 242 $ 307 $ 327
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(a) SunCor’s net loss in 2008 included a $32 million after-tax real estate impairment charge (see Note 23).
(b) Includes activities related to marketing and trading, APSES, Silverhawk and El Dorado. Income from
discontinued operations for 2008 is primarily related to the resolution of certain tax issues associated with
the sale of Silverhawk in 2005. The 2007 loss is primarily related to an APSES project. None of these
segments is a reportable segment.
(c) Primarily relates to sales of commercial properties.
PINNACLE WEST CONSOLIDATED – RESULTS OF OPERATIONS
2008 Compared with 2007

Our consolidated net income decreased approximately $65 million, to $242 million in 2008 from $307 million in 2007. The major factors that
increased (decreased) our net income for the year ended December 31, 2008 compared with the prior year are summarized in the following table
(dollars in millions):
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Increase (Decrease)
P retax After T ax
Regulated electricity segment:
Impacts of retail rate increase effective July 1, 2007 and transmission rate increases:
Retail revenue increase primarily related to higher Base Fuel Rate $ 156 $ 95
Decreased deferred fuel and purchased power costs related to higher Base Fuel Rate (141) (86)
Transmission rate increases (including related retail rates) 31 19
Lower mark-to-market valuations of fuel and purchased power contracts related to changes in market
prices, net of related PSA deferrals (14) (9)
Regulatory disallowance in 2007 14 8
Higher retail sales primarily due to customer growth, excluding weather effects, partially offset by lower
average usage 21 13
Effects of weather on retail sales (43) (26)
Operations and maintenance expense increases primarily due to:
Customer service and other costs, including distribution system reliability (30) (18)
Generation costs, including more planned maintenance (18) (11)
Employee severance costs (9) (5)
Higher depreciation and amortization primarily due to increased utility plant in service (18) (11)
Income tax benefits related to prior years resolved in 2008 — 30
Income tax benefits related to prior years resolved in 2007 — (13)
Higher interest expense, net of capitalized financing costs, primarily due to higher rates on certain APS
pollution control bonds and higher short-term debt balances (15) (9)
Miscellaneous items, net 1 5
Decrease in regulated electricity segment net income (65) (18)
Lower real estate segment income from continuing operations primarily due to:
Real estate impairment charge (Note 23) (53) (32)
Lower land parcel sales resulting from the weak real estate market (40) (24)
Lower sales of residential property resulting from the weak real estate market (4) (2)
Higher other costs (7) (5)
Lower marketing and trading contribution primarily due to lower sales volumes (16) (10)
Other miscellaneous items, net 14 6
Decrease in income from continuing operations $ (171) (85)
Increase in real estate segment income from discontinued operations primarily related to a 2008 commercial
property sale 14
Increase in other income from discontinued operations primarily related to the resolution in 2008 of certain
tax issues associated with the sale of Silverhawk in 2005 6
Decrease in net income $ (65)
Regulated Electricity Segment Revenues

Regulated electricity segment revenues were $209 million higher for the year ended December 31, 2008 compared with the prior year
primarily because of:
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• a $156 million increase in retail revenues due to a rate increase effective July 1, 2007;
• a $38 million increase in revenues from Off-System Sales due to higher prices and volumes;
• a $31 million increase due to transmission rate increases (including related retail rates);
• a $29 million increase in retail revenues primarily related to customer growth, excluding weather effects;
• a $26 million increase in revenues related to long-term traditional wholesale contracts;
• a $14 million increase in renewable energy surcharges which are offset by operations and maintenance expense;
• a $63 million decrease in retail revenue due to the effects of weather;
• a $47 million decrease in retail revenues related to recovery of PSA deferrals, which had no earnings effect because of lower
amortization of the same amount recorded as fuel and purchased power expense; and
• a $25 million net increase due to miscellaneous factors.
Real Estate Segment Revenues

Real estate segment revenues were $82 million lower for the year ended December 31, 2008 compared with the prior year primarily because
of:
• a $62 million decrease primarily due to lower sales of land parcels as a result of the weak real estate market;
• a $14 million decrease primarily due to lower residential property sales as a result of the weak real estate market; and
• a $6 million net decrease due to miscellaneous factors.
All Other Revenues

All other revenues were $78 million lower for the year ended December 31, 2008 compared with the prior year primarily because of planned
reductions of marketing and trading activities.

Our consolidated net income decreased approximately $20 million, from $327 million for 2006 to $307 million for 2007. The major factors that
increased (decreased) net income for the year ended December 31, 2007 compared with the prior year are summarized in the following table
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Increase (Decrease)
P retax After T ax
Regulated electricity segment:
Higher retail sales primarily due to customer growth, excluding weather effects $ 46 $ 28
Effects of weather on retail sales 37 23
Impacts of retail rate increase effective July 1, 2007:
Revenue increase related to higher Base Fuel Rate 185 113
Non-fuel rate increase 6 4
Net changes in fuel and purchased power costs related to price:
Higher fuel and purchased power costs related to increased commodity prices (121) (74)
Increased deferred fuel and purchased power costs related to increased prices 115 70
Mark-to-market fuel and purchased power costs, net of related deferred fuel and purchased power
costs 18 11
Regulatory disallowance (see Note 3) (14) (8)
Operations and maintenance increases primarily due to:
Increased generation costs, including increased maintenance and overhauls and Palo Verde
performance improvement plan (25) (15)
Customer service and other costs (21) (13)
Lower other income, net of expense, primarily due to lower interest income as a result of lower
investment balances and miscellaneous asset sales in prior year (15) (9)
Income tax benefits resolved in 2007 related to prior years — 13
Income tax credits resolved in 2006 related to prior years — (14)
Miscellaneous items, net 6 (3)
Increase in regulated electricity segment net income 34 15
Lower real estate segment income from continuing operations primarily due to:
Lower sales of residential property resulting from the continued slowdown in the western United States
real estate markets (47) (29)
Lower sales of land parcels (12) (7)
Higher other costs (1) —
Higher marketing and trading contribution primarily due to higher mark-to-market gains resulting from
changes in forward prices and higher unit margins 6 3
Other miscellaneous items, net (2) 1
Decrease in income from continuing operations $ (22) (17)
Discontinued operations:
Increased commercial property real estate sales (1)
Other discontinued operations (2)
Decrease in net income $ (20)
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Regulated Electricity Segment Revenues

Regulated electricity segment revenues were $283 million higher for the year ended December 31, 2007 compared with the prior year
primarily because of:
• a $50 million increase in retail revenues due to the effects of weather;
• a $35 million decrease in retail revenues related to recovery of PSA deferrals, which had no earnings effect because of amortization of
the same amount recorded as fuel and purchased power expense (see Note 3); and
Real Estate Segment Revenues

Real estate segment revenues were $187 million lower for the year ended December 31, 2007 compared with the prior year primarily because
of:
• a $167 million decrease in residential property sales due to the continued slowdown in western United States real estate markets; and
• a $20 million decrease primarily due to lower sales of land parcels.
All Other Revenues

Other revenues were $13 million higher for the year ended December 31, 2007 compared with the prior year primarily as a result of increased
sales by APSES of energy-related products and services.
LIQUIDITY AND CAPITAL RESOURCES – Pinnacle West Consolidated
Cash Flows
The following table presents net cash provided by (used for) operating, investing and financing activities for the years ended December 31,
2008, 2007 and 2006 (dollars in millions):
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2008 2007 2006

Net cash flow provided by operating activities $ 814 $ 658 $ 394
Net cash flow used for investing activities (815) (873) (569)
Net cash flow provided by financing activities 51 185 108
Net Increase (decrease) in cash and cash equivalents $ 50 $ (30) $ (67)

The increase of approximately $156 million in net cash provided by operating activities is primarily due to lower current income taxes; lower
real estate investments resulting from the weak real estate market; and increased retail revenue related to higher Base Fuel Rates, partially
offset by increased collateral and margin cash provided as a result of changes in commodity prices.
The decrease of approximately $58 million in net cash used for investing activities is primarily due to a real estate commercial property sale
in 2008; lower levels of capital expenditures (see table and discussion below); and increased contributions in aid of construction related to
changes in 2008 in APS’ line extension policy (see Note 3), partially offset by lower cash proceeds from the net sales and purchases of
investment securities.
The decrease of approximately $134 million in net cash provided by financing activities is primarily due to the use of the proceeds from the
sale of a real estate commercial property to pay down long-term debt in 2008, partially offset by higher levels of short-term debt borrowings.
The increase of approximately $264 million in net cash provided by operating activities is primarily due to a decrease in 2007 in the amount
of cash collateral and margin cash returned to counterparties as a result of changes in commodity prices.
The increase of approximately $304 million in net cash used for investing activities is primarily due to the proceeds of $208 million received
in 2006 from the 2005 sale of Silverhawk and an increase in cash used for capital expenditures and capitalized interest (see table and discussion
below), partially offset by higher cash proceeds from the net sales and purchases of investments.
The increase of approximately $77 million in net cash provided by financing activities is primarily due to higher levels of short-term
borrowings, partially offset by a decrease in net new long-term debt (issuances net of redemptions and refinancing).
Liquidity
Capital Expenditure Requirements
The following table summarizes the actual capital expenditures for 2006, 2007 and 2008 and estimated capital expenditures, net of
contributions in aid of construction, for the next three years:
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CAPITAL EXPENDITURES
(dollars in millions)
Actual Estimated
2006 2007 2008 2009 2010 2011
APS
Distribution $ 357 $ 372 $ 340 $ 276 $ 266 $ 356
Generation (a) 176 353 310 288 274 319
Transmission 113 138 163 275 99 185
Other (b) 16 37 43 44 37 50
Subtotal 662 900 856 883 676 910
SunCor (c) 201 161 41 14 70 175
Other 7 3 7 7 3 3
Total $ 870 $ 1,064 $ 904 $ 904 $ 749 $ 1,088
(a) Generation includes nuclear fuel expenditures of approximately $60 million to $80 million per year for 2009,
2010 and 2011.
(b) Primarily information systems and facilities projects.
(c) Consists primarily of capital expenditures for residential, land development and retail and office building
construction reflected in “Real estate investments” and “Capital expenditures” on the Consolidated
Statements of Cash Flows.
Distribution and transmission capital expenditures are comprised of infrastructure additions and upgrades, capital replacements, new
customer construction and related information systems and facility costs. Examples of the types of projects included in the forecast include
power lines, substations, line extensions to new residential and commercial developments and upgrades to customer information systems,
partially offset by contributions in aid of construction in accordance with APS’ line extension policy.
Generation capital expenditures are comprised of various improvements to APS’ existing fossil and nuclear plants. Examples of the types of
projects included in this category are additions, upgrades and capital replacements of various power plant equipment such as turbines, boilers
and environmental equipment. Environmental expenditures differ for each of the years 2009, 2010 and 2011, with the lowest year estimated at
approximately $25 million, and the highest year estimated at approximately $80 million. We are also monitoring the status of certain
environmental matters, which, depending on their final outcome, could require modification to our environmental expenditures. (See “Business
of Arizona Public Service Company – Environmental Matters – EPA Environmental Regulation – Regional Haze Rules” and “Environmental
Matters – EPA Environmental Regulation – Mercury” in Item 1.)
In early 2008, we announced and began implementing a cost reduction effort that included the elimination of approximately $200 million of
capital expenditures for the years 2008 – 2012. These capital expenditure reductions are reflected in the estimates provided above. Due
primarily to our reduced customer growth outlook as well as the deferral of upgrades and other capital projects, we have identified additional
capital expenditure reductions of over $500 million at APS (net of the
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change in amounts collected for projected line extensions) over the years 2009 – 2011. These reductions are across all areas – distribution,
generation, transmission and general plant, and are reflected in the estimates provided above. (See “Pinnacle West Consolidated – Factors
Affecting Our Financial Outlook – Customer and Sales Growth” below for additional information on our growth outlook.)
Capital expenditures will be funded with internally generated cash and/or external financings, which may include issuances of long-term
debt and Pinnacle West common stock.
Pinnacle West (Parent Company)
Our primary cash needs are for dividends to our shareholders and principal and interest payments on our long-term debt. The level of our
common stock dividends and future dividend growth will be dependent on a number of factors including, but not limited to, payout ratio
trends, free cash flow and financial market conditions.
On January 21, 2009, the Pinnacle West Board of Directors declared a quarterly dividend of $0.525 per share of common stock, payable on
March 2, 2009, to shareholders of record on February 2, 2009.
Our primary sources of cash are dividends from APS, external debt and equity financings and cash distributions from our other subsidiaries,
primarily SunCor. For the years 2006 through 2008, total distributions from APS were $510 million and total distributions received from SunCor
were $15 million. For 2008, cash distributions from APS were $170 million and there were no distributions from SunCor. An existing ACC order
requires APS to maintain a common equity ratio of at least 40% and prohibits APS from paying common stock dividends if the payment would
reduce its common equity below that threshold. As defined in the ACC order, the common equity ratio is common equity divided by the sum
of common equity and long-term debt, including current maturities of long-term debt. At December 31, 2008, APS’ common equity ratio, as
defined, was approximately 54%.
The credit and liquidity markets experienced significant stress beginning the week of September 15, 2008. While Pinnacle West’s and APS’
ability to issue commercial paper has been negatively impacted by the market stress, they have both been able to access existing credit
facilities, ensuring adequate liquidity. Cash on hand is being invested in money market funds consisting of U.S. Treasury and government
agency securities and repurchase agreements collateralized fully by U.S. Treasury and government agency securities.
At December 31, 2008, Pinnacle West’s outstanding long-term debt, including current maturities, was $175 million. Pinnacle West has a
$300 million revolving credit facility that terminates in December 2010. Credit commitments totaling approximately $17 million from Lehman
Brothers are no longer available due to its September 2008 bankruptcy filing. The remaining $283 million revolver is available to support the
issuance of up to $250 million in commercial paper (see discussion above) or to be used as bank borrowings, including issuances of letters of
credit of up to $94 million. At December 31, 2008, Pinnacle West had outstanding $144 million of borrowings under its revolving credit facility
and approximately $7 million of letters of credit. Pinnacle West had no commercial paper outstanding at December 31, 2008. In general, the
Company and APS have been unable to access the commercial paper markets since September 2008. At December 31, 2008, Pinnacle West had
remaining capacity available
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under its revolver of approximately $132 million and had cash and investments of approximately $6 million.
Pinnacle West sponsors a qualified defined benefit and account balance pension plan and a non-qualified supplemental excess benefit
retirement plan for the employees of Pinnacle West and our subsidiaries. IRS regulations require us to contribute a minimum amount to the
qualified plan. We contribute at least the minimum amount required under IRS regulations, but no more than the maximum tax-deductible
amount. The minimum required funding takes into consideration the value of plan assets and our pension obligation. The assets in the plan are
comprised of fixed-income, equity and short-term investments. Future year contribution amounts are dependent on plan asset performance and
plan actuarial assumptions. We contributed $35 million to our pension plan in 2008. On a cash funded basis, which is based on Internal
Revenue Code regulations, our preliminary estimate of the qualified plan’s funded status (market value of assets to liabilities) as of January 1,
2009 is 98.6%. The plan’s IRS cash funded status was 94.3% as of January 1, 2008. Most of the increase from the prior year was due to gains in
the long-duration bonds and interest rate swaps that we utilized in 2008 to better match the interest rate sensitivity of the plan’s assets to that
of the plan’s liabilities. The required minimum contribution to our pension plan is estimated to be approximately $36 million in 2009 and
approximately $25 million in 2010. The expected contribution to our other postretirement benefit plans in 2009 is estimated to be approximately
$15 million. APS and other subsidiaries fund their share of the contributions. APS’ share is approximately 96% of both plans.
See Note 3 for information regarding Pinnacle West’s approval from the ACC regarding a potential equity infusion into APS of up to
$400 million.
In May 2007, Pinnacle West infused approximately $40 million of equity into APS, consisting of proceeds of stock issuances in 2006 under
Pinnacle West’s Investors Advantage Plan (direct stock purchase and dividend reinvestment plan) and employee stock plans.
APS
APS’ capital requirements consist primarily of capital expenditures and mandatory redemptions of long-term debt. APS pays for its capital
requirements with cash from operations and, to the extent necessary, equity infusions from Pinnacle West and external financings. APS has
historically paid its dividends to Pinnacle West with cash from operations. See “Pinnacle West (Parent Company)” above for a discussion of
the common equity ratio that APS must maintain in order to pay dividends to Pinnacle West.
APS’ outstanding long-term debt, including current maturities, was approximately $2.9 billion at December 31, 2008. APS has two committed
revolving credit facilities totaling $900 million, of which $400 million terminates in December 2010 and $500 million terminates in
September 2011. Credit commitments totaling about $34 million from Lehman Brothers are no longer available due to its September 2008
bankruptcy filing. The remaining $866 million is available either to support the issuance of up to $250 million in commercial paper or to be used
for bank borrowings, including issuances of letters of credit up to $583 million. At December 31, 2008, APS had borrowings of approximately
$522 million and no letters of credit under its revolving lines of credit. APS had no commercial paper outstanding at December 31, 2008. In
general, the Company and APS have been unable to access the commercial paper markets since September 2008. At December 31, 2008, APS
had remaining capacity available under its revolvers of $344 million and had cash and investments of approximately $72 million.
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The interest rates on eleven issues of APS’ pollution control bonds, in the aggregate amount of approximately $343 million, are reset every
seven days through auction processes. These bonds are supported by bond insurance policies provided by Ambac, and the interest rates on
the bonds can be directly affected by the rating of the bond insurer. Certain bond insurers, including Ambac, have had downgrades of their
credit ratings. Downgrades of bond insurers result in downgrades of the insured bonds, which increases the possibility of a “failed auction”
and results in higher interest rates during the failed auction periods. When auctions of APS bonds fail, the APS bondholders receive the
maximum 14% annual interest rate for the week of the failed auction. For the twelve months ended December 31, 2008, we had ninety-nine failed
auctions, which represented about 17% of all of our auctions. The average interest rate at December 31, 2008 on the auction rate securities was
12.4%. Bond auctions continued to fail through mid-January; however, since that time, we have had only one failure. The average interest rate
at February 18, 2009 on the auction rate securities was 5.7%. We continue to closely monitor this market and, if market and business
conditions allow, we are planning on refunding and reissuing these bonds during 2009. We do not expect, however, that our auction rate
interest exposure will have a material adverse impact on our financial position, results of operations, cash flows or liquidity.
On September 11, 2008, APS repurchased at par two series of pollution control bonds that had no credit enhancements. The repurchase
included $7 million of its 1996 Series A Coconino County Pollution Control Bonds and $20 million of its 1999 Series A Coconino County
Pollution Control Bonds. APS borrowed funds under its revolving lines of credit to re-purchase the bonds as permitted under the bond
indenture. APS intends to keep the $27 million outstanding until we complete our planned refunding and reissuance of these bonds, if market
and business conditions allow, in 2009.
Although provisions in APS’ articles of incorporation and ACC financing orders establish maximum amounts of preferred stock and debt
that APS may issue, APS does not expect any of these provisions to limit its ability to meet its capital requirements. On October 30, 2007, the
ACC issued a financing order in which it approved APS’ request, subject to specified parameters and procedures, to increase (a) APS’ short-
term debt authorization from 7% of APS’ capitalization to (i) 7% of APS’ capitalization plus (ii) $500 million (which is required to be used for
purchases of natural gas and power) and (b) APS’ long-term debt authorization from approximately $3.2 billion to $4.2 billion in light of the
projected growth of APS and its customer base and the resulting projected financing needs. This financing order expires December 31, 2012;
however, all debt previously authorized and outstanding on December 31, 2012 will remain authorized and valid obligations of APS.
Other Financing Matters – See Note 3 for information regarding the PSA approved by the ACC. Although APS defers actual retail fuel and
purchased power costs on a current basis, APS’ recovery of the deferrals from its ratepayers is subject to annual and, if necessary, periodic
PSA adjustments.
See Note S-5 for information regarding an ACC order permitting Pinnacle West to infuse up to $400 million of equity into APS, on or before
December 31, 2009, if Pinnacle West deems it appropriate to do so to strengthen or maintain APS’ financial integrity.
See “Cash Flow Hedges” in Note 18 for information related to the change in our margin account.
Other Subsidiaries
SunCor – The weak real estate market and current economic conditions have adversely affected SunCor’s financial results and its ability to
access capital. During the past three years,
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SunCor funded its cash requirements with cash from operations and its own external financings. SunCor’s capital needs consist primarily of
capital expenditures for land development and retail and office building construction. See the capital expenditures table above for actual capital
expenditures during 2008 and projected capital expenditures for the next three years.
SunCor’s principal loan facility, the Secured Revolver, is secured primarily by an interest in land, commercial properties, land contracts and
homes under construction. On February 19, 2009, SunCor and the Secured Revolver lenders extended the maturity date of the Secured
Revolver to January 30, 2010 (classified as current maturities of long-term debt at December 31, 2008). SunCor is required to repay amounts
under the Secured Facility in order to reduce the lenders’ commitments to a balance of $100 million by December 31, 2009. The Secured
Revolver requires compliance with certain loan covenants pertaining to debt to net worth, debt service, liquidity, cash flow coverage and
restrictions on debt. In addition to the Secured Revolver, at December 31, 2008, SunCor had approximately $68 million of outstanding debt
under other credit facilities that mature at various dates and also contain certain loan covenants. The majority of this indebtedness is due in
2009, and SunCor is in the process of renegotiating these facilities.
SunCor entered into a secured construction loan on April 13, 2007, in the amount of $60 million which was subsequently repaid in
June 2008.
On July 31, 2007, SunCor borrowed $12 million under a new secured construction loan. The loan matures on July 31, 2009, and may be
extended annually up to two years.
SunCor’s total outstanding debt was approximately $188 million as of December 31, 2008, including $120 million of debt classified as current
maturities of long-term debt under revolving lines of credit totaling $150 million. SunCor’s long-term debt, including current maturities, was
$183 million and total short-term debt was $5 million at December 31, 2008. See Notes 5 and 6. SunCor had cash and investments of
approximately $27 million at December 31, 2008.
El Dorado – El Dorado expects minimal capital requirements over the next three years and intends to focus on prudently realizing the value
of its existing investments.
APSES – APSES expects minimal capital expenditures over the next three years.
Debt Provisions
Pinnacle West’s and APS’ debt covenants related to their respective bank financing arrangements include debt to capitalization ratios.
Certain of APS’ bank financing arrangements also include an interest coverage test. Pinnacle West and APS comply with these covenants and
each anticipates it will continue to meet these and other significant covenant requirements. For both Pinnacle West and APS, these covenants
require that the ratio of consolidated debt to total
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consolidated capitalization not exceed 65%. At December 31, 2008, the ratio was approximately 51% for Pinnacle West and 49% for APS. The
provisions regarding interest coverage require minimum cash coverage of two times. The interest coverage was approximately 4.5 times under
APS’ bank financing agreements as of December 31, 2008. Failure to comply with such covenant levels would result in an event of default
which, generally speaking, would require the immediate repayment of the debt subject to the covenants and could cross-default other debt.
See further discussion of “cross-default” provisions below.
Neither Pinnacle West’s nor APS’ financing agreements contain “rating triggers” that would result in an acceleration of the required
interest and principal payments in the event of a rating downgrade. However, our bank financial agreements contain a pricing grid in which the
interest costs we pay are determined by our current credit ratings.
All of Pinnacle West’s loan agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of
payment under these loan agreements if Pinnacle West or APS were to default under certain other material agreements. All of APS’ bank
agreements contain cross-default provisions that would result in defaults and the potential acceleration of payment under these bank
agreements if APS were to default under certain other material agreements. Pinnacle West and APS do not have a material adverse change
restriction for revolver borrowings.
See Note 6 for further discussions.
Credit Ratings
The ratings of securities of Pinnacle West and APS as of February 18, 2009 are shown below. The ratings reflect the respective views of the
rating agencies, from which an explanation of the significance of their ratings may be obtained. There is no assurance that these ratings will
continue for any given period of time. The ratings may be revised or withdrawn entirely by the rating agencies if, in their respective judgments,
circumstances so warrant. Any downward revision or withdrawal may adversely affect the market price of Pinnacle West’s or APS’ securities
and serve to increase the cost of and limit access to capital. It may also require substantial additional collateral related to certain derivative
instruments, natural gas transportation, fuel supply, and other energy-related contracts.
Moody’s Standard & P oor’s Fitch

Pinnacle West
Senior unsecured (a) Baa3 (P) BB+ (prelim) N/A
Commercial paper P -3 A-3 F3
Outlook Stable Stable Negative
APS
Senior unsecured Baa2 BBB- BBB
Secured lease obligation bonds Baa2 BBB- BBB
Commercial paper P -2 A-3 F3
Outlook Stable Stable Stable
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(a) Pinnacle West has a shelf registration under SEC Rule 415. Pinnacle West currently has no outstanding,
rated senior unsecured securities. However, Moody’s assigned a provisional (P) rating and Standard &
Poor’s assigned a preliminary (prelim) rating to the senior unsecured securities that can be issued under
such shelf registration.
Off-Balance Sheet Arrangements
In 1986, APS entered into agreements with three separate VIE lessors in order to sell and lease back interests in Palo Verde Unit 2. The
leases are accounted for as operating leases in accordance with GAAP. We are not the primary beneficiary of the Palo Verde VIEs and,
accordingly, do not consolidate them (see Note 9).
APS is exposed to losses under the Palo Verde sale leaseback agreements upon the occurrence of certain events that APS does not
consider to be reasonably likely to occur. Under certain circumstances (for example, the NRC issuing specified violation orders with respect to
Palo Verde or the occurrence of specified nuclear events), APS would be required to assume the debt associated with the transactions, make
specified payments to the equity participants, and take title to the leased Unit 2 interests, which, if appropriate, may be required to be written
down in value. If such an event had occurred as of December 31, 2008, APS would have been required to assume approximately $174 million of
debt and pay the equity participants approximately $162 million.
Guarantees and Letters of Credit
We have issued parental guarantees and letters of credit and obtained surety bonds on behalf of our subsidiaries. Our parental guarantees
for Pinnacle West Marketing & Trading relate to commodity energy products. As required by Arizona law, Pinnacle West has also obtained a
$10 million bond on behalf of APS in connection with the interim base rate surcharge approved by the ACC in December 2008. See “2008
General Rate Case — Interim Rate Surcharge” in Note 3. Our credit support instruments enabled APSES to offer energy-related products and
commodity energy. Non-performance or non-payment under the original contract by our subsidiaries would require us to perform under the
guarantee or surety bond. No liability is currently recorded on the Consolidated Balance Sheets related to Pinnacle West’s current
outstanding guarantees on behalf of our subsidiaries. At December 31, 2008, we had no guarantees that were in default. Our guarantees have
no recourse or collateral provisions to allow us to recover amounts paid under the guarantees. We generally agree to indemnification
provisions related to liabilities arising from or related to certain of our agreements, with limited exceptions depending on the particular
agreement. See Note 21 for additional information regarding guarantees and letters of credit.
Contractual Obligations
The following table summarizes Pinnacle West’s consolidated contractual requirements as of December 31, 2008 (dollars in millions):
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2010- 2012-
2009 2011 2013 T hereafter T otal
Long-term debt payments, including interest: (a)
APS $ 182 $ 957 $ 646 $ 3,549 $ 5,334
SunCor 178 4 2 — 184
Pinnacle West 10 187 — — 197
Total long-term debt payments, including interest 370 1,148 648 3,549 5,715
Short-term debt payments, including interest (b) 672 — — — 672
Purchased power and fuel commitments (c) 449 651 777 6,053 7,930
Operating lease payments 82 147 132 135 496
Nuclear decommissioning funding requirements 22 49 49 185 305
Purchase obligations (d) 69 76 33 172 350
Minimum pension funding requirement (e) 36 25 — — 61
Total contractual commitments $ 1,700 $ 2,096 $ 1,639 $ 10,094 $ 15,529
(a) The long-term debt matures at various dates through 2036 and bears interest principally at fixed rates.
Interest on variable-rate long-term debt is determined by using average rates at December 31, 2008 (see Note
6).
(b) The short-term debt is primarily related to bank borrowings at Pinnacle West, APS and SunCor under their
respective revolving lines of credit (see Note 5).
(c) Our purchased power and fuel commitments include purchases of coal, electricity, natural gas, renewable
energy and nuclear fuel (see Note 11).
(d) These contractual obligations include commitments for capital expenditures and other obligations.
(e) Future pension contributions are not determinable for plan years 2010 and beyond.
This table excludes $69 million in unrecognized tax benefits because the timing of the future cash outflows in uncertain.
CRITICAL ACCOUNTING POLICIES

In preparing the financial statements in accordance with GAAP, management must often make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the
reporting period. Some of those judgments can be subjective and complex, and actual results could differ from those estimates. We consider
the following accounting policies to be our most critical because of the uncertainties, judgments and complexities of the underlying
accounting standards and operations involved.
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Regulatory Accounting
Regulatory accounting allows for the actions of regulators, such as the ACC and the FERC, to be reflected in our financial statements. Their
actions may cause us to capitalize costs that would otherwise be included as an expense in the current period by unregulated companies. If
future recovery of costs ceases to be probable, the assets would be written off as a charge in current period earnings. A major component of
our regulatory assets is the retail fuel and power costs deferred under the PSA. APS defers for future rate recovery 90% of the difference
between actual retail fuel and power costs and the amount of such costs currently included in base rates. We had $795 million, including
$8 million related to the PSA, of regulatory assets on the Consolidated Balance Sheets at December 31, 2008.
Also included in the balance of regulatory assets at December 31, 2008 is a regulatory asset of $473 million in accordance with SFAS
No. 158 for pension and other postretirement benefits. This regulatory asset represents the future recovery of these costs through retail rates
as these amounts are charged to earnings. If these costs are disallowed by the ACC, this regulatory asset would be charged to OCI and result
in lower future earnings.
In addition, we had $588 million of regulatory liabilities on the Consolidated Balance Sheets at December 31, 2008, which primarily are related
to removal costs. See Notes 1 and 3 for more information.
Pensions and Other Postretirement Benefit Accounting

Changes in our actuarial assumptions used in calculating our pension and other postretirement benefit liability and expense can have a
significant impact on our earnings and financial position. The most relevant actuarial assumptions are the discount rate used to measure our
liability and net periodic cost, the expected long-term rate of return on plan assets used to estimate earnings on invested funds over the long-
term, and the assumed healthcare cost trend rates. We review these assumptions on an annual basis and adjust them as necessary.
The following chart reflects the sensitivities that a change in certain actuarial assumptions would have had on the December 31, 2008
reported pension liability on the Consolidated Balance Sheets and our 2008 reported pension expense, after consideration of amounts
capitalized or billed to electric plant participants, on Pinnacle West’s Consolidated Statements of Income (dollars in millions):
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Increase (Decrease)
Impact on Impact on
P ension P ension
Actuarial Assumption (a) Liability Expense
Discount rate:
Increase 1% $(241) $ (8)
Decrease 1% 277 14
Expected long-term rate of return on plan assets:
Increase 1% — (7)
Decrease 1% — 7
(a) Each fluctuation assumes that the other assumptions of the calculation are held constant while the rates are
changed by one percentage point.
The following chart reflects the sensitivities that a change in certain actuarial assumptions would have had on the December 31, 2008
reported other postretirement benefit obligation on the Consolidated Balance Sheets and our 2008 reported other postretirement benefit
expense, after consideration of amounts capitalized or billed to electric plant participants, on Pinnacle West’s Consolidated Statements of
Income (dollars in millions):
Increase (Decrease)
Impact on Other Impact on Other
P ostretirement Benefit P ostretirement
Actuarial Assumption (a) Obligation Benefit Expense
Discount rate:
Increase 1% $ (90) $ (5)
Decrease 1% 104 5
Health care cost trend rate (b):
Increase 1% 103 9
Decrease 1% (83) (7)
Expected long-term rate of return on plan assets – pretax:
Increase 1% — (2)
Decrease 1% — 2
(a) Each fluctuation assumes that the other assumptions of the calculation are held constant while the rates are
changed by one percentage point.
(b) This assumes a 1% change in the initial and ultimate health care cost trend rate.
See Note 8 for further details about our pension and other postretirement benefit plans.
Derivative Accounting
Derivative accounting requires evaluation of rules that are complex and subject to varying interpretations. Our evaluation of these rules, as
they apply to our contracts, determines whether we
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use accrual accounting (for contracts designated as normal) or fair value (mark-to-market) accounting. Mark-to-market accounting requires that
changes in the fair value are recognized periodically in income unless certain hedge criteria are met. For cash flow hedges, the effective portion
of changes in the fair value of the derivative is recognized in common stock equity (as a component of other comprehensive income (loss)).
See “Market Risks – Commodity Price Risk” below for quantitative analysis. See “Fair Value Measurements” below for additional
information on valuation. See Note 1 for discussion on accounting policies and Note 18 for a further discussion on derivative and energy
trading accounting.
Fair Value Measurements

We apply fair value measurements to derivative instruments, nuclear decommissioning trusts and cash equivalents. We adopted SFAS
No. 157, “Fair Value Measurements,” for our financial assets and liabilities on January 1, 2008. SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
SFAS No. 157 establishes criteria to be considered when measuring fair value and expands disclosures about fair value measurements. In
accordance with SFAS No. 157 we use inputs, or assumptions that market participants would use, to determine fair market value, and the
significance of a particular input determines how the instrument is classified in the fair value hierarchy. We utilize valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs. The determination of fair value sometimes requires
subjective and complex judgment. Our assessment of the inputs and the significance of a particular input to fair value measurement may affect
the valuation of the instruments and their placement within the fair value hierarchy. Actual results could differ from our estimates of fair value.
See Note 14 for further fair value measurement discussion, Note 1 for discussion on accounting policies and Note 18 for a further discussion
on derivative and energy trading accounting.
Our nuclear decommissioning trusts invest in fixed income securities and equity securities. The fair values of these securities are based on
observable inputs for identical or similar assets. See Note 12 for further discussion of our nuclear decommissioning trusts.
Real Estate Investment Impairments

We had real estate investments of $415 million and home inventory of $51 million on our consolidated balance sheets at December 31, 2008.
We assess impairment of these assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
For purposes of evaluating impairment, we classify our real estate assets, such as land under development, land held for future development,
and commercial property, as “held and used.” When events or changes in circumstances indicate that the carrying value of real estate assets
considered held and used may not be recoverable, we compare the undiscounted cash flows that we estimate will be generated by each asset
to its carrying amount. If the carrying amount exceeds the undiscounted cash flows, we adjust the asset to fair value and recognize an
impairment charge. The adjusted value becomes the new book value (carrying amount) for held and used assets. We may have real estate
assets classified as held and used with fair values that are lower than their carrying amounts, but are not deemed to be impaired because the
undiscounted cash flows exceed the carrying amounts.
Real estate home inventory is considered to be held for sale for the purposes of evaluating impairment in accordance with the provisions of
SFAS No. 144. Home inventories are reported at
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the lower of carrying amount or fair value less cost to sell. Fair value less cost to sell is evaluated each period to determine if it has changed.
Losses (and gains not to exceed any cumulative loss previously recognized) are reported as adjustments to the carrying amount.
We determine fair value for our real estate assets primarily based on the future cash flows that we estimate will be generated by each asset
discounted for market risk. Our impairment assessments and fair value determinations require significant judgment regarding key assumptions
such as future sales prices, future construction and land development costs, future sales timing, and discount rates. The assumptions are
specific to each project and may vary among projects. The discount rates we used to determine fair values at December 31, 2008 ranged from
17% to 27%. Due to the judgment and assumptions applied in the estimation process, with regard to impairments, it is possible that actual
results could differ from those estimates. If conditions in the broader economy or the real estate markets worsen, or as a result of a change in
SunCor’s strategy, we may be required to record additional impairments.
OTHER ACCOUNTING MATTERS

See Note 14 for a discussion of SFAS No. 157, “Fair Value Measurements,” which we adopted effective January 1, 2008, and the following
related accounting guidance:
• FASB Staff Position, No. 157-2, “Effective Date of FASB Statement No. 157”
• FASB Staff Position, No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”
See Notes 18 and S-3 for discussions of FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts” (FIN 39-1), which we adopted January 1, 2008.
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” was effective for us on January 1, 2008. This guidance
provides companies with an option to report selected financial assets and liabilities at fair value. We did not elect the fair value option for any
of our financial assets or liabilities. Therefore, SFAS No. 159 did not have an impact on our financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This guidance
requires enhanced disclosures about derivative instruments and hedging activities. The Statement is effective for us on January 1, 2009. It did
not have a material impact on our financial statements.
In December 2008, the FASB issued FASB Staff Position No. 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.”
This guidance requires enhanced employer disclosures about plan assets of a defined benefit pension or other postretirement plan. The
guidance is effective for us on December 31, 2009. We do not expect it to have a material impact on our financial statements.
See Note 4 for a discussion of FIN 48 on accounting for uncertainty in income taxes, which was adopted January 1, 2007.
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FACTORS AFFECTING OUR FINANCIAL OUTLOOK
Factors Affecting Operating Revenues, Fuel and Purchased Power Costs

General Electric operating revenues are derived from sales of electricity in regulated retail markets in Arizona and from competitive retail
and wholesale power markets in the western United States. For the years 2006 through 2008, retail electric revenues comprised approximately
91% of our total electric operating revenues. Our electric operating revenues are affected by electricity sales volumes related to customer
growth, variations in weather from period to period, customer mix, average usage per customer, electricity rates and tariffs and the recovery of
PSA deferrals. Off-System Sales of excess generation output, purchased power and natural gas are included in regulated electricity segment
revenues and related fuel and purchased power because they are credited to APS’ retail customers through the PSA. These revenue
transactions are affected by the availability of excess economic generation or other energy resources and wholesale market conditions,
including demand and prices. Competitive retail sales of energy and energy-related products and services are made by APSES in certain
western states that have opened to competition.
Rate Proceedings Our cash flows and profitability are affected by the rates APS may charge and the timely recovery of costs through those
rates. APS’ retail rates are regulated by the ACC and its wholesale electric rates (primarily for transmission) are regulated by the FERC. APS’
capital expenditure requirements, which are discussed below under “Liquidity and Capital Resources – Pinnacle West Consolidated,” are
substantial because of environmental compliance and controls, system reliability, and continuing, though slowed, customer growth in APS’
service territory. APS needs timely recovery through rates of its capital and operating expenditures to maintain adequate financial health. On
March 24, 2008, APS filed a rate case with the ACC, which it updated on June 2, 2008, requesting, among other things, an increase in retail
rates to help defray rising infrastructure costs, approval of an impact fee and approval of new conservation rates. See Note 3 for details
regarding this rate case, including the ACC’s approval of an interim base rate surcharge pending the outcome of the case.
Fuel and Purchased Power Costs Fuel and purchased power costs included on our Consolidated Statements of Income are impacted by our
electricity sales volumes, existing contracts for purchased power and generation fuel, our power plant performance, transmission availability or
constraints, prevailing market prices, new generating plants being placed in service in our market areas, our hedging program for managing
such costs and, since April 1, 2005, PSA deferrals and the amortization thereof. See Note 3 for information regarding the PSA. APS’ recovery
of PSA deferrals from its ratepayers is subject to annual and, if necessary, periodic PSA adjustments.
Customer and Sales Growth The customer and sales growth referred to in this paragraph apply to Native Load customers and sales to
them. Customer growth in APS’ service territory was 1.4% during 2008. Customer growth averaged 3% a year for the three years 2006 through
2008. We currently expect customer growth to decline, averaging about 1% per year for 2009 through 2011 due to factors reflecting the
economic conditions both nationally and in Arizona. For the three years 2006 through 2008, APS’ actual retail electricity sales in kilowatt-hours
grew at an average annual rate of 2.9%; adjusted to exclude the effects of weather variations, such retail sales growth averaged 2.9% a year.
We currently estimate that total retail electricity sales in kilowatt-hours will grow 1% on average per year during 2009 through 2011, excluding
the effects of weather variations. We currently expect our retail sales growth in 2009 to be below average because of potential effects on
customer usage from the economic conditions mentioned above and retail rate increases (see Note 3).
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Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic
conditions, customer growth, usage patterns and responses to retail price changes. Our experience indicates that a reasonable range of
variation in our kilowatt-hour sales projection attributable to such economic factors under normal business conditions can result in increases
or decreases in annual net income of up to $10 million.
Weather In forecasting retail sales growth, we assume normal weather patterns based on historical data. Historical extreme weather
variations have resulted in annual variations in net income in excess of $20 million. However, our experience indicates that the more typical
variations from normal weather can result in increases or decreases in annual net income of up to $10 million.
Wholesale Market Our marketing and trading activities focus primarily on managing APS’ risks relating to fuel and purchased power costs
in connection with its costs of serving Native Load customer demand. Our marketing and trading activities include, subject to specified
parameters, marketing, hedging and trading in electricity and fuels. See “Formula Transmission Tariff” in Note 3 for information regarding APS’
recent filing with the FERC requesting a change to the formula rate.
Other Factors Affecting Financial Results

Operations and Maintenance Expenses Operations and maintenance expenses are impacted by growth, power plant operations,
maintenance of utility plant (including generation, transmission, and distribution facilities), inflation, outages, higher-trending pension and
other postretirement benefit costs and other factors.
Depreciation and Amortization Expenses Depreciation and amortization expenses are impacted by net additions to utility plant and other
property (such as new generation, transmission, and distribution facilities), and changes in depreciation and amortization rates. See “Capital
Expenditures” above for information regarding planned additions to our facilities.
Property Taxes Taxes other than income taxes consist primarily of property taxes, which are affected by the value of property in-service and
under construction, assessment ratios, and tax rates. The average property tax rate for APS, which currently owns the majority of our property,
was 7.8% of the assessed value for 2008, 8.3% of the assessed value for 2007 and 8.9% of assessed value for 2006. We expect property taxes to
increase as we add new utility plant (including new generation, transmission and distribution facilities) and as we improve our existing
facilities. See “Capital Expenditures” above for information regarding planned additions to our facilities.
Interest Expense Interest expense is affected by the amount of debt outstanding and the interest rates on that debt. (See Note 6.) The
primary factors affecting borrowing levels are expected to be our capital expenditures, long-term debt maturities, and internally generated cash
flow. Capitalized interest offsets a portion of interest expense while capital projects are under construction. We stop accruing capitalized
interest on a project when it is placed in commercial operation.
Climate Change Recent concern over climate change could have a significant impact on our capital expenditures and operating costs in the
form of taxes, emissions allowances or required equipment upgrades. The timing and type of compliance measures and related costs are
impacted by current and future regulatory and legislative actions, which we are closely monitoring. See “Business of Arizona Public Service
Company – Climate Change” in Item 1 for more information regarding climate change initiatives.
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Retail Competition Although some very limited retail competition existed in Arizona in 1999 and 2000, there are currently no active retail
electric service providers providing unbundled energy or other utility services to APS’ customers. We cannot predict when, and the extent to
which, additional electric service providers will re-enter APS’ service territory.
Subsidiaries SunCor’s net loss was approximately $26 million in 2008. SunCor’s net loss in 2008 included a $53 million (pre-tax) real estate
impairment charge. SunCor’s net income was approximately $24 million in 2007 and $61 million in 2006. See Note 23 for further discussion. This
estimate reflects continuation of the slowdown in the western United States real estate markets. See “Liquidity and Capital Resources – Other
Subsidiaries – SunCor” and Note 6 for a discussion of SunCor’s long-term debt, liquidity, and capital requirements.
The historical results of APSES and El Dorado are not indicative of future performance.
General Our financial results may be affected by a number of broad factors. See “Forward-Looking Statements” and “Risk Factors” above
for further information on such factors, which may cause our actual future results to differ from those we currently seek or anticipate.
Market Risks
Our operations include managing market risks related to changes in interest rates, commodity prices and investments held by our nuclear
decommissioning trust fund.
Interest Rate and Equity Risk
We have exposure to changing interest rates. Changing interest rates will affect interest paid on variable-rate debt and the market value of
fixed income securities held by our nuclear decommissioning trust fund (see Note 12). The nuclear decommissioning trust fund also has risks
associated with the changing market value of its investments. Nuclear decommissioning costs are recovered in regulated electricity prices.
The tables below present contractual balances of our consolidated long-term and short-term debt at the expected maturity dates as well as
the fair value of those instruments on December 31, 2008 and 2007. The interest rates presented in the tables below represent the weighted-
average interest rates as of December 31, 2008 and 2007 (dollars in thousands):
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Pinnacle West – Consolidated
Variable-Rate Fixed-Rate
Short-T erm Debt Long-T erm Debt Long-T erm Debt
Interest Interest Interest
2008 Rates Amount Rates Amount Rates Amount
2009 2.24% $670,469 3.88% $173,619 4.62% $ 4,027
2010 — — 3.99% 2,042 5.66% 1,137
2011 — — 6.22% 2,259 6.23% 576,250
2012 — — 6.00% 16 6.50% 376,338
2013 — — 6.00% 1,864 6.00% 231
Years thereafter — — 8.30% 539,145 5.64% 1,540,229
Total $670,469 $718,945 $2,498,212
Fair value $670,469 $718,945 $2,107,635
2008 5.54% $340,661 7.33% $159,337 4.65% $ 4,436
2009 — — 7.20% 71,054 5.76% 1,050
2010 — — 9.20% 201 5.71% 1,104
2011 — — 8.91% 2,284 6.23% 576,218
2012 — — 9.50% 103 6.50% 376,293
Total $340,661 $800,218 $2,499,563
Fair value $340,661 $800,218 $2,414,301
The tables below present contractual balances of APS’ long-term debt at the expected maturity dates as well as the fair value of those
instruments on December 31, 2008 and 2007. The interest rates presented in the tables below represent the weighted-average interest rates as
of December 31, 2008 and 2007 (dollars in thousands):
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APS
2009 2.09% $521,684 — $ — 5.62% $ 874
2010 — — — — 5.60% 1,012
2011 — — — — 6.37% 401,208
2012 — — — — 6.50% 376,325
2013 — — — — 6.00% 231
Total $521,684 $539,145 $2,319,879
Fair value $521,684 $539,145 $1,935,160
2008 5.36% $218,000 — $ — 5.66% $ 978
2009 — — — — 5.60% 934
2010 — — — — 5.59% 1,012
2011 — — — — 6.37% 401,208
2012 — — — — 6.50% 376,293
Total $218,000 $565,855 $2,320,887
Fair value $218,000 $565,855 $2,235,624
Commodity Price Risk

We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural gas. Our
energy risk management committee, consisting of officers and key management personnel, oversees company-wide energy risk management
activities and monitors the results of marketing and trading activities to ensure compliance with our stated energy risk management and
trading policies. We manage risks associated with these market fluctuations by utilizing various commodity instruments that qualify as
derivatives, including exchange-traded futures and options and over-the-counter forwards, options and swaps. As part of our risk
management program, we use such instruments to hedge purchases and sales of electricity and fuels. The changes in market value of such
contracts have a high correlation to price changes in the hedged commodities.
The following tables show the net pretax changes in mark-to-market of our derivative positions in 2008 and 2007 (dollars in millions):
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2008 2007
Mark-to-market of net positions at beginning of year $ 40 $ 15
Recognized in earnings:
Change in mark-to-market losses for future period deliveries (4) (2)
Mark-to-market gains realized including ineffectiveness during the period (5) (15)
Decrease (increase) in regulatory asset (111) 55
Recognized in OCI:
Change in mark-to-market losses for future period deliveries (a) (138) (1)
Mark-to-market gains realized during the period (64) (12)
Change in valuation techniques — —
Mark-to-market of net positions at end of year $ (282) $ 40
(a) The changes in mark-to-market recorded in OCI are due primarily to changes in forward natural gas prices.
The tables below show the fair value of maturities of our derivative contracts (dollars in millions) at December 31, 2008 by maturities and by
the type of valuation that is performed to calculate the fair values. See Note 1, “Derivative Accounting” and “Fair Value Measurements,” for
more discussion of our valuation methods.
T otal
fair
Source of Fair Value 2009 2010 2011 2012 2013 Years thereafter value
Prices actively quoted $ (50) $ (4) $ — $ — $ — $ — $ (54)
Prices provided by other
external sources (122) (53) (43) (3) — — (221)
Prices based on models and
other valuation methods — (1) 5 4 (3) (12) (7)
Total by maturity $ (172) $ (58) $ (38) $ 1 $ (3) $ (12) $ (282)
The table below shows the impact that hypothetical price movements of 10% would have on the market value of our risk management and
trading assets and liabilities included on Pinnacle West’s Consolidated Balance Sheets at December 31, 2008 and 2007 (dollars in millions):
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December 31, 2008 December 31, 2007

Gain (Loss) Gain (Loss)
P rice Up 10% P rice Down 10% P rice Up 10% P rice Down 10%
Mark-to-market changes reported in:
Earnings
Electricity $ 2 $ (2) $ 3 $ (3)
Natural gas 3 (3) 4 (4)
Regulatory asset (liability) or OCI (a)
Electricity 20 (20) 45 (45)
Natural gas 64 (64) 85 (85)
Total $ 89 $ (89) $ 137 $ (137)
(a) These contracts are hedges of our forecasted purchases of natural gas and electricity. The impact of these
hypothetical price movements would substantially offset the impact that these same price movements would
have on the physical exposures being hedged. To the extent the amounts are eligible for inclusion in the
PSA, the amounts are recorded as either a regulatory asset or liability.
Credit Risk
We are exposed to losses in the event of non-performance or non-payment by counterparties. See Note 1, “Derivative Accounting” for a
discussion of our credit valuation adjustment policy. See Note 18 for further discussion of credit risk.
ARIZONA PUBLIC SERVICE COMPANY – RESULTS OF OPERATIONS
Regulatory Matters
See Note 3 for information about rate matters affecting APS.

APS’ net income decreased approximately $22 million, to $262 million in 2008 from $284 million in 2007. The major factors that increased
(decreased) net income for the year ended December 31, 2008 compared with the prior year are summarized in the following table (dollars in
millions):
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Increase (Decrease)
P retax After T ax
Impacts of retail rate increase effective July 1, 2007 and transmission rate increases:
Retail revenue increase primarily related to higher Base Fuel Rate $ 156 $ 95
Transmission rate increases (including related retail rates) 31 19
Lower mark-to-market valuations of fuel and purchased power contracts related to changes in market prices,
net of related PSA deferrals (14) (9)
Regulatory disallowance in 2007 14 8
Higher retail sales primarily due to customer growth, excluding weather effects, partially offset by lower
average usage 21 13
Effects of weather on retail sales (43) (26)
Operations and maintenance expense increases primarily due to:
Customer service and other costs, including distribution system reliability (31) (19)
Generation costs, including more planned maintenance (18) (11)
Employee severance costs (9) (5)
Income tax benefits related to prior years resolved in 2008 — 29
Income tax benefits related to prior years resolved in 2007 — (11)
Higher interest expense, net of capitalized financing costs, primarily due to higher rates on certain APS
pollution control bonds and higher short-term debt balances (11) (6)
Other miscellaneous items, net (2) (2)
Decrease in net income $ (65) $ (22)
Electric operating revenues were $197 million higher for the year ended December 31, 2008 compared with the prior year primarily because
of:
• a $31 million increase due to transmission rate increases (including related retail rates);
• a $26 million increase in revenues related to long-term traditional wholesale contracts;
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• a $14 million increase in renewable energy surcharges which are offset by operations and maintenance expense;
• a $63 million decrease in retail revenue due to the effects of weather;
• a $47 million decrease in retail revenues related to recovery of PSA deferrals, which had no earnings effect because of lower
amortization of the same amount recorded as fuel and purchased power expense; and

Our net income increased approximately $14 million, to $284 million for 2007 from $270 million for 2006. The major factors that increased
(decreased) net income for the year ended December 31, 2007 compared with the prior year are contained in the following table (dollars in
millions):
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Increase (Decrease)
P retax After T ax
Higher retail sales primarily due to customer growth, excluding weather effects $ 46 $ 28
Effects of weather on retail sales 37 23
Impacts of retail rate increase effective July 1, 2007:
Revenue increase related to higher Base Fuel Rate 185 113
Non-fuel rate increase 6 4
Net changes in fuel and purchased power costs related to price:
Higher fuel and purchased power costs related to increased commodity prices (121) (74)
Increased deferred fuel and purchased power costs related to increased prices 115 70
Mark-to-market fuel and purchased power costs, net of related deferred fuel and purchased power costs 18 11
Regulatory disallowance (14) (8)
Operations and maintenance increases primarily due to:
Increased generation costs, including increased maintenance and overhauls and Palo Verde performance
improvement plan (25) (15)
Customer service and other costs (19) (11)
Lower other income, net of expense, primarily due to lower interest income as a result of lower investment
balances and miscellaneous asset sales in prior year (7) (4)
Income tax benefits resolved in 2007 related to prior years — 11
Income tax credits resolved in 2006 related to prior years — (11)
Higher interest expense, net of capitalized financing costs, primarily due to higher debt balances and
higher rates (7) (4)
Lower marketing and trading contribution primarily due to lower mark-to-market gains because of
changes in forward prices (7) (4)
Other miscellaneous items, net 2 (4)
Increase in net income $ 26 $ 14
Electric operating revenues were $278 million higher for the year ended December 31, 2007 compared with the prior year primarily because
of:
• a $50 million increase in retail revenues due to the effects of weather;
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• a $35 million decrease in retail revenues related to recovery of PSA deferrals, which had no earnings effect because of amortization of
the same amount recorded as fuel and purchased power expense (see Note 3); and
LIQUIDITY AND CAPITAL RESOURCES – ARIZONA PUBLIC SERVICE COMPANY
Cash Flows
The following table presents APS’ net cash provided by (used for) operating, investing and financing activities for the years ended
December 31, 2008, 2007 and 2006 (dollars in millions):
2008 2007 2006

Net cash flow provided by operating activities $ 785 $ 766 $ 394
Net cash flow used for investing activities (879) (881) (714)
Net cash flow provided by financing activities 114 86 352
Net increase (decrease) in cash and cash equivalents $ 20 $ (29) $ 32

The increase of approximately $19 million in net cash provided by operating activities is primarily due to lower current income taxes and
increased retail revenue related to higher Base Fuel Rates, partially offset by increased collateral and margin cash provided as a result of
changes in commodity prices.
The decrease of approximately $2 million in net cash used for investing activities is primarily due to lower levels of capital expenditures (see
table and discussion above) and increased contributions in aid of construction related to changes in 2008 in our line extension policy (see
Note 3), substantially offset by lower cash proceeds from the net sales and purchases of investment securities.
The increase of approximately $28 million in net cash provided by financing activities is primarily due to higher levels of short-term
borrowings, partially offset by decreased equity infusions from Pinnacle West and the repurchase of pollution control bonds (see Note 6).
The increase of approximately $372 million in net cash provided by operating activities is primarily due to a decrease in 2007 in the amount
of cash collateral and margin cash returned to counterparties as a result of changes in commodity prices.
The increase of approximately $167 million in net cash used for investing activities is primarily due to an increase in cash used for capital
expenditures (see table and discussion above) and
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increased allowance for borrowed funds used during construction, partially offset by higher cash proceeds from the net sales and purchases
of investment securities.
The decrease of approximately $266 million in net cash provided by financing activities is primarily due to a decrease in net new long-term
debt (issuances net of redemptions and refinancing) and a decrease in equity infusions from Pinnacle West, partially offset by higher levels of
short-term borrowings to fund day-to-day operations and liquidity needs.
Liquidity
For additional discussion see “Liquidity and Capital Resources – Pinnacle West Consolidated.”
Contractual Obligations
The following table summarizes contractual requirements for APS as of December 31, 2008 (dollars in millions):
2010- 2012-
2009 2011 2013 T hereafter T otal
Long-term debt payments, including interest (a) $ 182 $ 956 $ 646 $ 3,549 $ 5,333
Short-term debt payments, including interest 523 — — — 523
Purchased power and fuel commitments (b) 449 651 777 6,053 7,930
Operating lease payments 76 135 122 121 454
Nuclear decommissioning funding requirements 22 49 49 185 305
Purchase obligations (c) 69 76 33 172 350
Minimum pension funding requirement (d) 35 24 — — 59
Total contractual commitments $ 1,356 $ 1,891 $ 1,627 $ 10,080 $ 14,954
(a) The long-term debt matures at various dates through 2036 and bears interest principally at fixed rates.
Interest on variable-rate long-term debt is determined by using average rates at December 31, 2008 (see Note
6).
(b) APS’ purchased power and fuel commitments include purchases of coal, electricity, natural gas, renewable
energy and nuclear fuel (see Note 11).
(c) These contractual obligations include commitments for capital expenditures and other obligations.
(d) Future pension contributions are not determinable for plan years 2010 and beyond.
This table excludes $68 million in unrecognized tax benefits because the timing of the future cash outflows is uncertain.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK
See “Factors Affecting Our Financial Outlook” in Item 7 above for a discussion of quantitative and qualitative disclosures about market
risk.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
P age
Management’s Report on Internal Control Over Financial Reporting (Pinnacle West Capital Corporation) 79
Report of Independent Registered Public Accounting Firm 80
Pinnacle West Consolidated Statements of Income for 2008, 2007 and 2006 82
Pinnacle West Consolidated Balance Sheets as of December 31, 2008 and 2007 83
Pinnacle West Consolidated Statements of Cash Flows for 2008, 2007 and 2006 85
Pinnacle West Consolidated Statements of Changes in Common Stock Equity for 2008, 2007 and 2006 86
Notes to Pinnacle West’s Consolidated Financial Statements 87
Management’s Report on Internal Control Over Financial Reporting (Arizona Public Service Company) 142
Report of Independent Registered Public Accounting Firm 143
APS Statements of Income for 2008, 2007 and 2006 145
APS Balance Sheets as of December 31, 2008 and 2007 146
APS Statements of Cash Flows for 2008, 2007 and 2006 148
APS Statements of Changes in Common Stock Equity for 2008, 2007 and 2006 149
Supplemental Notes to APS’ Financial Statements 151
Financial Statement Schedules for 2008, 2007 and 2006

Pinnacle West Schedule I – Condensed Statements of Income for 2008, 2007 and 2006 159
Pinnacle West Schedule I – Condensed Balance Sheets as of December 31, 2008 and 2007 160
Pinnacle West Schedule I – Condensed Statements of Cash Flows for 2008, 2007 and 2006 161
Pinnacle West Schedule II – Reserve for Uncollectibles for 2008, 2007 and 2006 162
APS Schedule II – Reserve for Uncollectibles for 2008, 2007 and 2006 163
See Note 13 and S-2 for the selected quarterly financial data (unaudited) required to be presented in this Item.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING
(PINNACLE WEST CAPITAL CORPORATION)
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f), for Pinnacle West Capital Corporation. Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated
Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2008. The
effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which is included herein and also relates to the Company’s
consolidated financial statements.
February 19, 2009
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Pinnacle West Capital Corporation
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Pinnacle West Capital Corporation and subsidiaries (the “Company”) as
of December 31, 2008 and 2007, and the related consolidated statements of income, changes in common stock equity, and cash flows for each
of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedules listed in the Index at
Item 15. We also have audited the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these
financial statements and financial statement schedules and an opinion on the Company’s internal control over financial reporting based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive
and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
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Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
As reflected in the consolidated statements of changes in common stock equity, the Company adopted Statement of Financial Accounting
Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Phoenix, Arizona
February 19, 2009
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CONSOLIDATED STATEMENTS OF INCOME
(dollars and shares in thousands, except per share amounts)
Year Ended December 31,

2008 2007 2006
OPERATING REVENUES
Regulated electricity segment $3,127,383 $2,918,163 $2,635,036
Real estate segment 131,067 212,586 399,798
Marketing and trading 66,897 138,247 136,748
Other revenues 41,729 48,018 36,172
Total 3,367,076 3,317,014 3,207,754
OPERATING EXPENSES
Regulated electricity segment fuel and purchased power 1,284,116 1,140,923 960,649
Real estate segment operations 149,125 192,972 324,861
Real estate impairment charge (Note 23) 53,250 — —
Marketing and trading fuel and purchased power 45,572 100,462 105,415
Operations and maintenance 807,852 728,340 684,020
Depreciation and amortization 390,358 372,102 358,605
Taxes other than income taxes 125,336 128,210 128,395
Other expenses 34,171 38,925 28,415
Total 2,889,780 2,701,934 2,590,360
OPERATING INCOME 477,296 615,080 617,394
OTHER
Allowance for equity funds used during construction 18,636 21,195 14,312
Other income (Note 19) 12,078 24,694 44,028
Other expense (Note 19) (31,576) (25,857) (27,777)
Total (862) 20,032 30,563
INTEREST EXPENSE
Interest charges 216,290 208,521 196,826
Capitalized interest (18,820) (23,063) (20,989)
Total 197,470 185,458 175,837
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 278,964 449,654 472,120
INCOME TAXES (Note 4) 65,407 150,910 155,855
INCOME FROM CONTINUING OPERATIONS 213,557 298,744 316,265
INCOME FROM DISCONTINUED OPERATIONS
Net of income tax expense of $18,489, $5,582 and $7,133 (Note 22) 28,568 8,399 10,990
NET INCOME $ 242,125 $ 307,143 $ 327,255
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING – BASIC 100,691 100,256 99,417
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING – DILUTED 100,965 100,835 100,010
EARNINGS PER WEIGHTED – AVERAGE COMMON SHARE OUTSTANDING

Income from continuing operations – basic $ 2.12 $ 2.98 $ 3.18
Net income – basic 2.40 3.06 3.29
Income from continuing operations – diluted 2.12 2.96 3.16
Net income – diluted 2.40 3.05 3.27
DIVIDENDS DECLARED PER SHARE $ 2.10 $ 2.10 $ 2.025
See Notes to Pinnacle West’s Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEETS
December 31,
2008 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 105,245 $ 56,321
Customer and other receivables 292,682 349,134
Accrued utility revenues 100,089 106,873
Allowance for doubtful accounts (3,383) (4,782)
Materials and supplies (at average cost) 173,252 149,759
Fossil fuel (at average cost) 29,752 27,792
Deferred income taxes (Note 4) 79,729 31,510
Home inventory (Notes 1 and 23) 50,688 98,729
Assets from risk management and trading activities (Note 18) 32,581 57,605
Other current assets 21,847 33,988
Total current assets 882,482 906,929
INVESTMENTS AND OTHER ASSETS

Real estate investments – net (Notes 1, 6 and 23) 415,296 532,600
Assets from long-term risk management and trading activities (Note 18) 33,675 48,928
Nuclear decommissioning trust (Note 12) 343,052 379,347
Other assets 117,935 117,941
Total investments and other assets 909,958 1,078,816
PROPERTY, PLANT AND EQUIPMENT (Notes 1, 6, 9 and 10)

Plant in service and held for future use 12,264,805 11,640,739
Less accumulated depreciation and amortization 4,141,546 4,004,944
Net 8,123,259 7,635,795
Construction work in progress 572,354 625,577
Intangible assets, net of accumulated amortization of $282,196 and $252,122 131,722 105,746
Nuclear fuel, net of accumulated amortization of $55,343 and $68,375 89,323 69,271
Total property, plant and equipment 8,916,658 8,436,389
DEFERRED DEBITS
Deferred fuel and purchased power regulatory asset (Notes 1, 3 and 4) 7,984 110,928
Other regulatory assets (Notes 1, 3 and 4) 787,506 514,353
Other deferred debits 115,505 114,794
Total deferred debits 910,995 740,075
TOTAL ASSETS $11,620,093 $11,162,209
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CONSOLIDATED BALANCE SHEETS
December 31,
2008 2007
LIABILITIES AND COMMON STOCK EQUITY
CURRENT LIABILITIES
Accounts payable $ 261,029 $ 323,346
Accrued taxes 109,798 269,628
Accrued interest 40,741 39,836
Short-term borrowings (Note 5) 670,469 340,661
Current maturities of long-term debt (Note 6) 177,646 163,773
Customer deposits 78,745 80,010
Liabilities from risk management and trading activities (Note 18) 69,585 24,510
Other current liabilities 97,915 102,685
Total current liabilities 1,505,928 1,344,449
LONG-TERM DEBT LESS CURRENT MATURITIES (Note 6) 3,031,603 3,127,125
DEFERRED CREDITS AND OTHER

Deferred income taxes (Note 4) 1,403,318 1,243,743
Regulatory liabilities (Notes 1, 3 and 4) 587,586 642,564
Liability for asset retirements (Note 12) 275,970 281,903
Liabilities for pension and other postretirement benefits (Note 8) 675,788 504,603
Liabilities from risk management and trading activities (Note 18) 126,532 4,701
Other 567,389 481,510
Total deferred credits and other 3,636,583 3,159,024
COMMITMENTS AND CONTINGENCIES (SEE NOTES)
COMMON STOCK EQUITY (Note 7)

Common stock, no par value; authorized 150,000,000 shares; issued 100,948,436 at end of 2008 and
100,525,470 at end of 2007 2,151,323 2,135,787
Treasury stock at cost; 59,827 shares at end of 2008 and 39,505 at end of 2007 (2,854) (2,054)
Total common stock 2,148,469 2,133,733
Accumulated other comprehensive income (loss):
Pension and other postretirement benefits (Note 8) (47,547) (39,336)
Derivative instruments (99,151) 23,473
Total accumulated other comprehensive loss (146,698) (15,863)
Retained earnings 1,444,208 1,413,741
Total common stock equity 3,445,979 3,531,611
TOTAL LIABILITIES AND COMMON STOCK EQUITY $11,620,093 $11,162,209
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CONSOLIDATED STATEMENTS OF CASH FLOWS

2008 2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 242,125 $ 307,143 $ 327,255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization including nuclear fuel 423,969 403,896 386,760
Deferred fuel and purchased power (80,183) (196,136) (252,849)
Deferred fuel and purchased power amortization 183,126 231,106 265,337
Deferred fuel and purchased power regulatory disallowance — 14,370 —
Allowance for equity funds used during construction (18,636) (21,195) (14,312)
Real estate impairment charge 53,250 — —
Deferred income taxes 158,024 (58,027) 27,738
Change in mark-to-market valuations 9,074 17,579 28,464
Changes in current assets and liabilities:
Customer and other receivables 80,834 62,850 9,189
Materials, supplies and fossil fuel (25,453) (29,776) (9,094)
Other current assets 8,734 (10,040) (890)
Accounts payable (69,439) (42,004) (46,055)
Home inventory 48,041 (56,883) 11,563
Other current liabilities (18,279) 43,421 (566)
Expenditures for real estate investments (21,168) (121,316) (126,229)
Other changes in real estate assets 18,211 82,521 34,990
Change in margin and collateral accounts – assets 17,450 (37,371) (249,792)
Change in margin and collateral accounts – liabilities (132,416) 19,284 (46,444)
Change in unrecognized tax benefits (94,551) 25,178 —
Change in other long-term assets 6,104 (23,826) 17,541
Change in other long-term liabilities 24,751 47,162 30,896
Net cash flow provided by operating activities 813,568 657,936 393,502
CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures (935,577) (960,390) (788,982)
Contributions in aid of construction 60,292 41,809 51,203
Capitalized interest (18,820) (23,063) (20,990)
Proceeds from the sale of Silverhawk — — 207,620
Proceeds from sale of investment securities — 69,225 1,406,704
Purchases of investment securities — (36,525) (1,439,404)
Proceeds from nuclear decommissioning trust sales 317,619 259,026 254,651
Investment in nuclear decommissioning trust (338,361) (279,768) (275,393)
Proceeds from sale of commercial real estate investments 94,171 58,139 39,621
Other 5,517 (1,807) (3,763)
Net cash flow used for investing activities (815,159) (873,354) (568,733)
CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of long-term debt 96,934 230,571 757,636
Repayment and reacquisition of long-term debt (181,491) (162,060) (527,864)
Short-term borrowings – net 331,741 304,911 9,911
Dividends paid on common stock (204,247) (210,473) (201,220)
Common stock equity issuance 3,687 24,089 39,548
Other 3,891 (2,509) 30,427
Net cash flow provided by financing activities 50,515 184,529 108,438
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48,924 (30,889) (66,793)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 56,321 87,210 154,003
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 105,245 $ 56,321 $ 87,210

Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes, net of refunds $ 24,233 $ 204,643 $ 157,245
Interest, net of amounts capitalized $ 191,085 $ 193,533 $ 153,503
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CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Ye ar En de d De ce m be r 31,
2008 2007 2006
COMMON STOCK (Note 7)
Balance at beginning of year $2,135,787 $2,114,550 $2,067,377
Issuance of common stock 10,845 24,089 39,420
Other 4,691 (2,852) 7,753
Balance at end of year 2,151,323 2,135,787 2,114,550
TREASURY STOCK (Note 7)

Balance at beginning of year (2,054) (449) (1,245)
Purchase of treasury stock (1,387) (1,964) (229)
Reissuance of treasury stock used for stock compensation, net 587 359 1,025
Balance at end of year (2,854) (2,054) (449)
RETAINED EARNINGS
Balance at beginning of year 1,413,741 1,319,747 1,193,712
Net income 242,125 307,143 327,255
Common stock dividends (211,405) (210,473) (201,220)
Cumulative effect of change in accounting for income taxes (Note 4) — (2,676) —
Other (253) — —
Balance at end of year 1,444,208 1,413,741 1,319,747
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Balance at beginning of year (15,863) 12,268 165,120
Pension and other postretirement benefits (Note 8):
Unrealized actuarial loss, net of tax benefit of ($7,801) and ($13,573) (11,053) (21,976) —
Prior service cost, net of tax benefit of ($495) — (769) —
Amortization to income:
Actuarial loss, net of tax expense of $1,578 and $1,670 2,437 2,214 —
Prior service cost, net of tax expense of $222 and $252 343 391 —
Transition obligation, net of tax expense of $40 and $43 62 67 —
Minimum pension liability adjustment, net of tax expense (benefit) of $28,425 — — 44,086
Adjustment to reflect a change in accounting (SFAS No. 158), net of tax expense of
$22,412 — — 33,928
Derivative instruments:
Net unrealized gain (loss), net of tax expense (benefit) of ($54,490), ($414) and
($137,606) (83,093) (785) (214,777)
Reclassification of net realized gain to income, net of tax benefit of ($24,786),
($4,679) and ($10,308) (39,531) (7,273) (16,089)
Balance at end of year (146,698) (15,863) 12,268
TOTAL COMMON STOCK EQUITY $3,445,979 $3,531,611 $3,446,116
COMPREHENSIVE INCOME
Net income $ 242,125 $ 307,143 $ 327,255
Other comprehensive loss (130,835) (28,131) (186,780)
Comprehensive income $ 111,290 $ 279,012 $ 140,475
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies

Consolidation and Nature of Operations
Pinnacle West’s Consolidated Financial Statements include the accounts of Pinnacle West and our subsidiaries: APS, SunCor, APSES, El
Dorado, Pinnacle West Marketing & Trading and Pinnacle West Energy (dissolved as of August 31, 2006). Intercompany accounts and
transactions between the consolidated companies have been eliminated.
APS is a vertically-integrated electric utility that provides either retail or wholesale electric service to substantially all of the state of
Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in
northwestern Arizona. SunCor is a developer of residential, commercial and industrial real estate projects in Arizona, New Mexico, Idaho and
Utah. APSES provides energy-related projects and competitive commodity energy to commercial and industrial retail customers in competitive
markets in the western United States. Recently, APSES has discontinued its commodity-related energy services (see Note 22). El Dorado is an
investment firm. Pinnacle West Marketing & Trading began operations in early 2007. These operations were previously conducted by a
division of Pinnacle West through the end of 2006. By the end of 2008, substantially all the contracts were transferred to APS or expired.
Accounting Records and Use of Estimates

Our accounting records are maintained in accordance with accounting principles generally accepted in the United States of America
(GAAP). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Derivative Accounting
We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural gas. We
manage risks associated with these market fluctuations by utilizing various instruments that qualify as derivatives, including exchange-traded
futures and options and over-the-counter forwards, options and swaps. As part of our overall risk management program, we use such
instruments to hedge purchases and sales of electricity and fuels. The changes in market value of such contracts have a high correlation to
price changes in the hedged transactions.
We account for our derivative contracts in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended. SFAS No. 133 requires that entities recognize all derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair value. Changes in the fair value of derivative instruments are either recognized periodically in income or, if
certain hedge criteria are met, in common stock equity (as a component of other comprehensive income (loss)). To the extent the amounts that
would otherwise be recognized in income are eligible to be recovered through the PSA, the amounts will be recorded as either a regulatory
asset or liability and have no effect on earnings. SFAS No. 133 provides a scope
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exception for contracts that meet the normal purchases and sales criteria specified in the standard. Contracts that do not meet the definition of
a derivative are accounted for on an accrual basis with the associated revenues and costs recorded at the time the contracted commodities are
delivered or received.
Under fair value (mark-to-market) accounting, derivative contracts for the purchase or sale of energy commodities are reflected at fair market
value, net of valuation adjustments, as current or long-term assets and liabilities from risk management and trading activities on the
Consolidated Balance Sheets.
We determine fair value in accordance with SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value as the price that
would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in
an orderly transaction between willing market participants on the measurement date. Inputs to fair value include observable and unobservable
data. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
We determine fair market value using actively-quoted prices for identical instruments when available. When actively quoted prices are not
available for the identical instruments we use prices for similar instruments or other corroborative market information or prices provided by
other external sources. Quarterly and calendar year quotes from independent brokers are converted into monthly prices using historical
relationships. We consider broker quotes observable inputs when the quote is binding on the broker, we can validate the quote with market
transactions, or we can determine that the inputs the broker used to arrive at the quoted price are observable.
For options, long-term contracts and other contracts for which price quotes are not available, we use unobservable inputs, such as models
and other valuation methods, to determine fair market value. The valuation models we employ utilize spot prices, forward prices, historical
market data and other factors to forecast future prices. The primary valuation technique we use to calculate the fair value of contracts where
price quotes are not available is based on the extrapolation of forward pricing curves using observable market data for more liquid delivery
points in the same region and actual transactions at the more illiquid delivery points. We also value option contracts using a variation of the
Black-Scholes option-pricing model.
For non-exchange traded contracts, we calculate fair market value based on the average of the bid and offer price, discounted to reflect net
present value. We maintain certain valuation adjustments for a number of risks associated with the valuation of future commitments. These
include valuation adjustments for liquidity and credit risks based on the financial condition of counterparties. The liquidity valuation
adjustment represents the cost that would be incurred if all unmatched positions were closed-out or hedged.
The credit valuation adjustment represents estimated credit losses on our overall exposure to counterparties, taking into account netting
arrangements, expected default experience for the credit rating of the counterparties and the overall diversification of the portfolio.
Counterparties in the portfolio consist principally of major energy companies, municipalities, local distribution companies and financial
institutions. We maintain credit policies that management believes minimize overall credit risk. Determination of the credit quality of
counterparties is based upon a number of factors, including credit ratings, financial condition, project economics and collateral requirements.
When
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applicable, we employ standardized agreements that allow for the netting of positive and negative exposures associated with a single
counterparty.
The use of models and other valuation methods to determine fair market value often requires subjective and complex judgment. Actual
results could differ from the results estimated through application of these methods. Our marketing and trading portfolio includes structured
activities hedged with a portfolio of forward purchases that protects the economic value of the sales transactions. Our practice is to hedge
within timeframes established by the ERMC.
See Note 14 for additional information about fair value measurements. See Note 18 for additional information about our derivative and
energy trading accounting policies.
Regulatory Accounting
APS is regulated by the ACC and the FERC. The accompanying financial statements reflect the rate-making policies of these commissions.
For regulated operations, we prepare our financial statements in accordance with SFAS No. 71, “Accounting for the Effects of Certain Types
of Regulation.” SFAS No. 71 requires a cost-based, rate-regulated enterprise to reflect the impact of regulatory decisions in its financial
statements. As a result, we capitalize certain costs that would be included as expense in the current period by unregulated companies.
Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in customer rates. Regulatory
liabilities generally represent expected future costs that have already been collected from customers.
Management continually assesses whether our regulatory assets are probable of future recovery by considering factors such as applicable
regulatory environment changes and recent rate orders to other regulated entities in the same jurisdiction. This determination reflects the
current political and regulatory climate in the state and is subject to change in the future. If future recovery of costs ceases to be probable, the
assets would be written off as a charge in current period earnings.
A component of our regulatory assets is the retail fuel and power costs deferred under the PSA. APS defers for future rate recovery or
refund 90% of the difference between actual retail fuel and purchased power costs and the amount of such costs currently included in base
rates, subject to specified parameters. (See Note 3).
Also included in the balance of regulatory assets at December 31, 2008 is a regulatory asset for pension and other postretirement benefits in
accordance with SFAS No. 158. This regulatory asset represents the future recovery of these costs through retail rates as these amounts are
charged to earnings. If these costs are disallowed by the ACC, this regulatory asset would be charged to OCI and result in lower future
earnings.
The detail of regulatory assets is as follows (dollars in millions):
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December 31,
2008 2007
Pension and other postretirement benefits $ 473 $ 338
Deferred fuel and purchased power – mark-to-market 118 7
Regulatory asset for deferred income taxes 51 40
Deferred compensation 30 30
Transmission vegetation management 20 6
Demand side management 17 3
Coal reclamation 17 18
Competition rules compliance charge (a) 16 25
Loss on reacquired debt 16 16
Deferred fuel and purchased power (a) (Note 3) 8 111
Other 29 31
Total regulatory assets (b) $ 795 $ 625
(a) Subject to a carrying charge.

(b) There are no regulatory assets for which regulators have allowed recovery of costs but not allowed a return
by exclusion from rate base.
The detail of regulatory liabilities is as follows (dollars in millions):
December 31,
2008 2007
Removal costs (a) $ 388 $ 392
Regulatory liability related to asset retirement obligations 103 153
Tax benefit of Medicare subsidy 16 35
Deferred gains on utility property 20 20
Spent nuclear fuel 22 11
Renewable energy standard 22 10
Deferred interest income (b) 8 13
Other 9 9
Total regulatory liabilities $ 588 $ 643
(a) In accordance with SFAS No. 71, APS accrues for removal costs for its regulated assets, even if there is no
legal obligation for removal.
(b) Subject to a carrying charge.
Utility Plant and Depreciation

Utility plant is the term we use to describe the business property and equipment that supports electric service, consisting primarily of
generation, transmission and distribution facilities. We report utility plant at its original cost, which includes:
• material and labor;
• contractor costs;
• capitalized leases;
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• construction overhead costs (where applicable); and
• capitalized interest or an allowance for funds used during construction.
We expense the costs of plant outages, major maintenance and routine maintenance as incurred. We charge retired utility plant to
accumulated depreciation. Liabilities associated with the retirement of tangible long-lived assets are recognized at fair value as incurred and
capitalized as part of the related tangible long-lived assets. Accretion of the liability due to the passage of time is an operating expense and the
capitalized cost is depreciated over the useful life of the long-lived asset. See Note 12.
APS records a regulatory liability for the asset retirement obligations related to its regulated assets. This regulatory liability represents the
difference between the amount that has been recovered in regulated rates and the amount calculated under SFAS No. 143 “Accounting for
Asset Retirement Obligations,” as interpreted by FIN 47. APS believes it can recover in regulated rates the costs calculated in accordance with
SFAS No. 143.
We record depreciation on utility plant on a straight-line basis over the remaining useful life of the related assets. The approximate
remaining average useful lives of our utility property at December 31, 2008 were as follows:
• Fossil plant – 16 years;
• Nuclear plant – 18 years;
• Other generation – 31 years;
• Transmission – 42 years;
• Distribution – 33 years; and
• Other – 7 years.
For the years 2006 through 2008, the depreciation rates ranged from a low of 1.11% to a high of 12.46%. The weighted-average rate was
3.08% for 2008, 3.11% for 2007 and 3.14 % for 2006. We depreciate non-utility property and equipment over the estimated useful lives of the
related assets, ranging from 3 to 34 years.
Investments
El Dorado accounts for its investments using either the equity method (if significant influence) or the cost method (if less than 20%
ownership).
Our investments in the nuclear decommissioning trust fund are accounted for in accordance with SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities.” See Note 12 for more information on these investments.
Capitalized Interest
Capitalized interest represents the cost of debt funds used to finance non-regulated construction projects. The rate used to calculate
capitalized interest was a composite rate of 5.2% for 2008, 5.8% for 2007 and 6.8% for 2006. Capitalized interest ceases when construction is
complete.
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Allowance for Funds Used During Construction

AFUDC represents the approximate net composite interest cost of borrowed funds and an allowed return on the equity funds used for
construction of regulated utility plant. APS’ allowance for borrowed funds is included in capitalized interest on the Consolidated Financial
Statements. Plant construction costs, including AFUDC, are recovered in authorized rates through depreciation when completed projects are
placed into commercial operation.
AFUDC was calculated by using a composite rate of 7.0% for 2008, 8.2% for 2007 and 8.0% for 2006. APS compounds AFUDC monthly and
ceases to accrue AFUDC when construction work is completed and the property is placed in service.
Electric Revenues
We derive electric revenues from sales of electricity to our regulated Native Load customers and sales to other parties from our marketing
and trading activities. Revenues related to the sale of electricity are generally recorded when service is rendered or electricity is delivered to
customers. The billing of electricity sales to individual Native Load customers is based on the reading of their meters, which occurs on a
systematic basis throughout the month. Unbilled revenues are estimated by applying an average revenue/kWh to the number of estimated
kWhs delivered but not billed. Differences historically between the actual and estimated unbilled revenues are immaterial. We exclude sales
taxes and franchise fees on electric revenues from both revenue and taxes other than income taxes.
Revenues from our Native Load customers and non-derivative instruments are reported on a gross basis on Pinnacle West’s Consolidated
Statements of Income. In the electricity business, some contracts to purchase energy are netted against other contracts to sell energy. This is
called a “book-out” and usually occurs for contracts that have the same terms (quantities and delivery points) and for which power does not
flow. We net these book-outs, which reduces both revenues and purchased power and fuel costs.
All gains and losses (realized and unrealized) on energy trading contracts that qualify as derivatives are included in marketing and trading
revenues on the Consolidated Statements of Income on a net basis.
Real Estate Revenues

SunCor recognizes revenue from land, home and qualifying commercial operating assets sales in full, provided (a) the income is
determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will not be collectible can be estimated, and
(b) the earnings process is virtually complete, that is, SunCor is not obligated to perform significant activities after the sale to earn the income.
Unless both conditions exist, recognition of all or part of the income is postponed under the percentage of completion method per SFAS
No. 66, “Accounting for Sales of Real Estate.” SunCor recognizes income only after the asset title has passed. Commercial property and
management revenues are recorded over the term of the lease or period in which services are provided. In addition, see Note 22 – Discontinued
Operations.
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Real Estate Investments

Real estate investments primarily include SunCor’s land, home inventory, commercial property and investments in joint ventures. Land
includes acquisition costs, infrastructure costs, capitalized interest and property taxes directly associated with the acquisition and
development of each project. Home inventory consists of construction costs, improved lot costs, capitalized interest and property taxes on
homes and condos under construction. Homes under construction are classified as “real estate investments” on the Consolidated Balance
Sheets; upon completion of construction they are transferred to “home inventory” with the expectation that they will be sold in a timely
manner.
For the purposes of evaluating impairment in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal
of Long-Lived Assets,” we classify our real estate assets, including land under development, land held for future development, and
commercial property as “held and used.” When events or changes in circumstances indicate that the carrying values of real estate assets
considered held and used may not be recoverable, we compare the undiscounted cash flows that we estimate will be generated by each asset
to its carrying amount. If the carrying amount exceeds the undiscounted cash flows, we adjust the asset to fair value and recognize an
impairment charge. The adjusted value becomes the new book value (carrying amount) for held and used assets.
Real estate home inventory is considered to be held for sale for purposes of evaluating impairment in accordance with the provisions of
SFAS No. 144. Home inventories are reported at the lower of carrying amount or fair value less costs to sell. Fair value less costs to sell is
evaluated each period to determine if it has changed. Losses (and gains not to exceed any cumulative loss previously recognized) are reported
as adjustments to the carrying amount.
Investments in joint ventures for which SunCor does not have a controlling financial interest are not consolidated, but are accounted for
using the equity method of accounting. In addition, see Note 22 – Discontinued Operations and Note 23 – Real Estate Impairment Charge.
Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less at acquisition to be cash equivalents.
Nuclear Fuel
APS amortizes nuclear fuel by using the unit-of-production method. The unit-of-production method is based on actual physical usage. APS
divides the cost of the fuel by the estimated number of thermal units it expects to produce with that fuel. APS then multiplies that rate by the
number of thermal units produced within the current period. This calculation determines the current period nuclear fuel expense.
APS also charges nuclear fuel expense for the interim storage and permanent disposal of spent nuclear fuel. The DOE is responsible for the
permanent disposal of spent nuclear fuel and charges APS $0.001 per kWh of nuclear generation. See Note 11 for information on spent nuclear
fuel disposal and Note 12 for information on nuclear decommissioning costs.
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Income Taxes
Income taxes are provided using the asset and liability approach prescribed by SFAS No. 109, “Accounting for Income Taxes” and FIN 48,
“Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109.” We file our federal income tax return on a
consolidated basis and we file our state income tax returns on a consolidated or unitary basis. In accordance with our intercompany tax
sharing agreement, federal and state income taxes are allocated to each first-tier subsidiary as though each first-tier subsidiary filed a separate
income tax return. Any difference between that method and the consolidated (and unitary) income tax liability is attributed to the parent
company. The income tax liability accounts reflect the tax and interest associated with management’s estimate of the largest amount of tax
benefit that is greater than 50% likely of being realized upon settlement for all known and measurable tax exposures. See Note 4.
Intangible Assets
We have no goodwill recorded and have separately disclosed other intangible assets, primarily APS’ software, on Pinnacle West’s
Consolidated Balance Sheets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The intangible assets are amortized
over their finite useful lives. Amortization expense was $33 million in 2008, $37 million in 2007 and $39 million in 2006. Estimated amortization
expense on existing intangible assets over the next five years is $29 million in 2009, $27 million in 2010, $21 million in 2011, $18 million in 2012
and $13 million in 2013. At December 31, 2008, the weighted average remaining amortization period for intangible assets was 8 years.
2. New Accounting Standards

See Note 14 for a discussion of SFAS No. 157, “Fair Value Measurements,” which we adopted effective January 1, 2008, and the following
related accounting guidance:
• FASB Staff Position, No. 157-2, “Effective Date of FASB Statement No. 157”
• FASB Staff Position, No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”
See Notes 18 and S-3 for discussions of FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39, Offsetting of
Amounts Related to Certain Contracts” (FIN 39-1), which we adopted January 1, 2008.
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” was effective for us on January 1, 2008. This guidance
provides companies with an option to report selected financial assets and liabilities at fair value. We did not elect the fair value option for any
of our financial assets or liabilities. Therefore, SFAS No. 159 did not have an impact on our financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This guidance
requires enhanced disclosures about derivative instruments and hedging activities. The Statement is effective for us on January 1, 2009. It did
not have a material impact on our financial statements.
In December 2008, the FASB issued FASB Staff Position No. 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.”
This guidance requires enhanced employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The
guidance
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is effective for us on December 31, 2009. We do not expect it to have a material impact on our financial statements.
See Note 4 for a discussion of FIN 48 on accounting for uncertainty in income taxes, which was adopted January 1, 2007.
3. Regulatory Matters
2008 General Rate Case
APS Request – On June 2, 2008, APS filed with the ACC updated financial statements, testimony and other data in the general rate case
originally filed on March 24, 2008. As requested by the ACC staff, the updated information reflects a test year ended December 31, 2007, rather
than the September 30, 2007 test year used in APS’ original filing. As a result of the updated filing, APS is requesting a net retail rate increase
of $278.2 million effective no later than October 1, 2009, which represents a base rate increase of $448.2 million less the reclassification of
$170 million of fuel and purchased power revenues from the existing PSA to base rates. As proposed by APS, the updated request would
result in an average rate increase of 8.5% for existing customers plus the establishment of a new growth-related impact fee to be charged to
new connections.
The key financial provisions of the updated request include:
• an increase of $264.3 million in non-fuel base rates and a net increase of $13.9 million for fuel and purchased power costs reflected in
base rates, and recovery of up to $53 million of such increases through the impact fee;
• a rate base of $5.4 billion, which approximates the ACC-jurisdictional portion of the book value of utility assets, net of accumulated
depreciation and other credits, as of December 31, 2007, which includes certain adjustments, such as the inclusion of Units 5 and 6 of
the Yucca Power Plant (near Yuma in southwestern Arizona), the steam generator replacement at Palo Verde Unit 3, environmental
upgrades to APS coal plants, and other plant additions under construction at the end of the test year that are currently in service or
expected to go into service before the proposed rates are requested to become effective;
• the following proposed capital structure and costs of capital:
Capital Structure Cost of Capital

Long-term debt 46.2% 5.77%
Common stock equity 53.8% 11.50%
Weighted-average cost of capital 8.86%
• a Base Fuel Rate of $0.0388 per kWh based on estimated 2010 prices (compared to the current Base Fuel Rate of $0.0325 per kWh);
• an attrition adjustment of $79.3 million to address erosion in APS’ earnings and return on equity through 2010; and
• a new super-peak residential time-of-use rate and a commercial and industrial critical peak pricing proposal to allow eligible customers
additional options to manage their electric bills, as well as other conservation-related rate design proposals.
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The update also requests that the ACC adopt certain goals for APS to improve its financial strength, which include: allowing APS’ internal
cash flow generation to cover its operating and capital costs of providing service; stabilizing and improving APS’ credit ratings; and providing
a meaningful and ongoing opportunity for APS to achieve a reasonable return on the fair value of its property.
In addition, APS requested various modifications to the Environmental Improvement Surcharge and the Demand Side Management
Adjustment Clause that would allow APS to expand its conservation and demand-side management programs and support environmental
upgrades to APS facilities in response to and in anticipation of future environmental requirements.
Interim Rate Surcharge – On December 18, 2008, the ACC approved an emergency interim base rate surcharge for APS. This surcharge
became effective for retail customer bills issued after December 31, 2008 and will continue in effect until a decision in the general rate case
becomes effective. This surcharge is expected to increase annual pretax retail revenues approximately $65.2 million, and is subject to refund
with interest pending the final outcome of APS’ general retail rate case. In June 2008, APS had requested an interim increase of approximately
$115 million in annual pretax retail revenues.
The decision requires that APS (a) examine its operations and expenses, targeting additional cuts of at least $20 million, report the results of
its study to the ACC no later than March 18, 2009, and reinvest the savings and surcharge revenues “in infrastructure and technology
necessary to serve APS customers and reduce the need for external debt financing”; (b) file with the ACC periodic reports of communications
with credit ratings agencies; and (c) post a $10 million bond or letter of credit until the ACC issues a final order in APS’ general retail rate case.
ACC Staff Rate Case Recommendation – On December 19, 2008, the ACC staff and other intervenors filed their initial written testimony with
the ACC in the general retail rate case. In its filed testimony, the ACC staff recommends a number of cost disallowances and test-year
adjustments that decrease APS’ base rate request by $141.6 million. The principal components of the revenue increase recommended by the
ACC staff are $155.1 million for non-fuel increases and $11.4 million for fuel and purchased power costs reflected in base rates (net of the
reclassification of $140.1 million of existing PSA revenues to base rates).
In its recommendations, the ACC staff also proposed, among other things:
• A Base Fuel Rate of $0.0377 per kWh;
• A weighted-average cost of capital of 8.58%, based on a return on common equity of 11.0% and APS’ proposed capital structure;
• A reduction to APS’ proposed rate base of $57 million, the majority of which ($45 million) results from the exclusion of post test-year
plant placed into service after December 31, 2008;
• Exempting low income customers from any rate increase;
• That APS engage in a dialogue with the ACC concerning opportunities to expand the use of renewable energy beyond current ACC
mandated requirements; and
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• That APS should propose in its rebuttal testimony a means to provide customers with greater rate stability, such as the use of a three-
year interval between base rate filings.
The ACC staff also recommended that the ACC reject the following APS proposals:
• The $79.3 million attrition adjustment; and
• Modifications to APS’ line extension policy that would have resulted in the establishment of the growth-related impact fee referenced
above.
Other Intervenors’ Recommendations – Other intervenors in the rate case include the Arizona Residential Utility Consumer Office
(“RUCO”), an office established by the Arizona legislature to represent the interests of residential utility consumers before the ACC; and
Arizonans for Electric Choice and Competition (“AECC”), a coalition that advocates on behalf of commercial and industrial utility customers.
These other intervenors’ testimony includes the following recommendations:
• RUCO recommends no net rate change after reclassification of $170.0 million of PSA revenues to base rates, based on a rate base of
$4.9 billion, a base fuel rate of $0.0388 per kWh, APS’ proposed capital structure, and a return on common equity of 9.6%.
• AECC recommends that APS’ request be reduced by $101.4 million (of which $42.5 million was a reduction in fuel and purchased
power expense).
Settlement Discussions and Procedural Schedule – On January 30, 2009, APS began settlement discussions with the parties to the general
rate case. An ACC ALJ has issued a procedural order staying the procedural schedule in the rate case for thirty days to allow the parties to
participate in settlement discussions. While it is in effect, the stay vacates previously established dates for testimony filings and the discovery
process. Additional stays may be requested by the parties, depending on the settlement discussions. Hearings in the rate case were
previously scheduled to begin on April 2, 2009.
2007 Retail Rate Order
In June 2007, the ACC issued an order in a general retail rate case that APS filed in late 2005. The order approved a $322 million increase in
APS’ annual retail base revenues, effective July 1, 2007, which included a $315 million fuel-related increase and a $7 million non-fuel related
increase. The order also authorized APS’ recovery of approximately $34 million of 2005 PSA deferrals through a temporary PSA surcharge over
a twelve-month period beginning July 1, 2007, disallowed approximately $14 million in 2007 of 2005 PSA deferrals because it found the Palo
Verde outage costs giving rise to those amounts resulted from APS’ imprudence, modified the PSA in various respects and increased the Base
Fuel Rate. In addition, the order provided that the 2007 PSA adjustor, which took effect on February 1, 2007 and that was scheduled to expire
on January 31, 2008, remain in effect as long as necessary to allow APS to collect $46 million of PSA deferrals resulting from the mid-2007
implementation of the new Base Fuel Rate. The 2007 PSA adjustor expired as of the last billing cycle in July 2008.
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PSA Mechanism
The PSA, which the ACC initially approved in 2005 as a part of APS’ 2003 rate case, and which was modified by the ACC in 2007, provides
for the adjustment of retail rates to reflect variations in retail fuel and purchased power costs. The PSA is subject to specified parameters and
procedures, including the following:
• APS records deferrals for recovery or refund to the extent actual retail fuel and purchased power costs vary from the Base Fuel Rate;
• under a 90/10 sharing arrangement, APS defers 90% of the difference between retail fuel and purchased power costs (excluding certain
costs, such as renewable energy resources and the capacity components of long-term purchase power agreements acquired through
competitive procurement) and the Base Fuel Rate; APS absorbs 10% of the retail fuel and purchased power costs above the Base Fuel
Rate and retains 10% of the benefit from the retail fuel and purchased power costs that are below the Base Fuel Rate;
• an adjustment is made annually each February 1st and goes into effect automatically unless suspended by the ACC;
• the PSA uses a forward-looking estimate of fuel and purchased power costs to set the annual PSA rate, which will be reconciled to
actual costs experienced for each PSA Year (February 1 through January 31) (see the following bullet point); and
• the PSA rate includes (a) a “Forward Component,” under which APS recovers or refunds differences between expected fuel and
purchased power costs for the upcoming calendar year and those embedded in the Base Fuel Rate; (b) an “Historical Component,”
under which differences between actual fuel and purchased power costs and those recovered through the combination of the Base
Fuel Rate and the Forward Component are recovered during the next PSA Year; and (c) a “Transition Component,” under which APS
may seek mid-year PSA changes due to large variances between actual fuel and purchased power costs and the combination of the
Base Fuel Rate and the Forward Component.
PSA Balance
The following table shows the changes in the deferred fuel and purchased power regulatory asset for the year ended December 31, 2008 and
2007 (dollars in millions):
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Year Ended
December 31,
2008 2007
Beginning balance $ 111 $ 160
Deferred fuel and purchased power costs-current period 78 189
Regulatory disallowance — (14)
Interest on deferred fuel and purchased power 2 7
Amounts recovered through revenues (183) (231)
Ending balance $ 8 $ 111
The PSA annual adjustor rate is reset for a “PSA Year” effective for a twelve-month period beginning February 1 each year. The PSA rate
for the PSA Year that began February 1, 2008 was set at $0.004 per kWh. The PSA rate for the PSA year that began February 1, 2009 was set at
$0.0053 per kWh. The PSA rate may not be increased more than $0.004 per kWh in a year without permission of the ACC. Any uncollected
deferrals during the 2009 PSA Year resulting from this limit will be included in the historical component of the PSA rate for the PSA Year
beginning February 1, 2010.
Formula Transmission Tariff
In July 2008, the FERC approved an Open Access Transmission Tariff for APS to move from fixed rates to a formula rate-setting
methodology in order to more accurately reflect the costs that APS incurs in providing transmission services. The formula rate is updated each
year effective June 1 on the basis of APS’ actual cost of service, as disclosed in APS’ FERC Form 1 report for the previous fiscal year, and
projected capital expenditures. A large portion of the rate represents charges for transmission services to serve APS’ retail customers (“Retail
Transmission Charges”). In order to recover the Retail Transmission Charges, APS must file an application with the ACC under the
transmission cost adjustor (“TCA”) mechanism, by which changes in Retail Transmission Charges can be reflected in APS’ retail rates.
In 2008, APS was authorized to implement increases in its annual transmission revenues based on calculations filed with the FERC using
data for its 2006 and 2007 fiscal years. Increases in APS’ annual transmission revenues of $28 million became effective March 1, 2008 and
$15 million became effective June 1, 2008. The ACC allowed APS to reflect the related increased Retail Transmission Charges in its retail rates
through the TCA resulting in increases of annual retail revenues of $27 million effective March 1, 2008 and $13 million effective July 3, 2008.
Equity Infusion Approval
On May 2, 2008, Pinnacle West filed a notice with the ACC that would allow Pinnacle West to infuse up to $400 million of equity into APS
in the event Pinnacle West deems it appropriate to do so to strengthen or maintain APS’ financial integrity. Under Arizona law and
implementing regulatory decisions, Pinnacle West is required to give such notice at least 120 days prior to an equity infusion into APS that
exceeds $150 million in a single calendar year. On August 6, 2008, the ACC issued an order permitting the infusion to occur on or before
December 31, 2009.
On November 8, 2005, the ACC approved Pinnacle West’s request to infuse more than $450 million of equity into APS during 2005 or 2006.
These infusions consisted of about $250 million of the proceeds of Pinnacle West’s common equity issuance on May 2, 2005 and about
$210 million of the proceeds from the sale of Silverhawk in January 2006. In May 2007, Pinnacle West infused
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approximately $40 million of equity into APS, consisting of proceeds of stock issuances in 2006 under Pinnacle West’s Investors Advantage
Plan (direct stock purchase and dividend reinvestment plan) and employee stock plans.
Federal
FERC Order
On August 11, 2004, Pinnacle West, APS, Pinnacle West Energy, and APSES (collectively, the “Pinnacle West Companies”) submitted to
the FERC an update to their three-year market-based rate review pursuant to the FERC’s order implementing a new generation market power
analysis. On December 20, 2004, the FERC issued an order approving the Pinnacle West Companies’ market-based rates for control areas other
than those of APS, Public Service Company of New Mexico (“PNM”) and Tucson Electric Power Company (“TEP”). The FERC staff required
the Pinnacle West Companies to submit additional data with respect to these control areas, and the Pinnacle West Companies did so.
On April 17, 2006, the FERC issued an order revoking the Pinnacle West Companies’ authority to make sales at market-based rates in the
APS control area (the “April 17 Order”). The FERC found that the Pinnacle West Companies failed to provide the necessary information about
the calculation of transmission imports into the APS control area to allow the FERC to make a determination regarding FERC’s generation
market power “screens” in the APS control area. The FERC found that the Pinnacle West Companies may charge market-based rates in the
PNM and TEP control areas.
On August 13, 2007, the FERC issued an order on rehearing, reinstating the authority of the Pinnacle West Companies to make sales at
market-based rates in all seasons for sales outside of the Phoenix Valley, and in all seasons except the summer for sales within the Phoenix
Valley. The Pinnacle West Companies submitted a compliance filing implementing this order to the FERC on October 12, 2007. This compliance
filing was accepted conditionally by the FERC in an order issued January 17, 2008. In compliance with the January 17, 2008 order, the Pinnacle
West Companies filed a revised mitigation plan to implement cost-based rates for sales in the Phoenix Valley during the summer months. On
May 30, 2008, the FERC issued a letter order accepting our mitigation plan. The first summer period under this cost-based mitigation began on
June 1, 2008. This proceeding is now concluded.
4. Income Taxes
Certain assets and liabilities are reported differently for income tax purposes than they are for financial statements purposes. The tax effect
of these differences is recorded as deferred taxes. We calculate deferred taxes using the current income tax rates.
APS has recorded a regulatory asset and a regulatory liability related to income taxes on its Balance Sheets in accordance with SFAS
No. 71. The regulatory asset is for certain temporary differences, primarily the allowance for equity funds used during construction. The
regulatory liability relates to deferred taxes resulting primarily from pension and other postretirement benefits. APS amortizes these amounts as
the differences reverse.
As a result of a change in IRS guidance, we claimed a tax deduction related to an APS tax accounting method change on our 2001 federal
consolidated income tax return. The accelerated deduction resulted in a $200 million reduction in the current income tax liability and a
corresponding increase in the plant-related deferred tax liability. Our 2001 federal consolidated income tax return was the subject of an IRS
review and the IRS finalized its examination in the second quarter of 2008,
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which included a settlement on the tax accounting method change and favorable resolution of other various tax matters. As a result of this
settlement and the lapse of federal statutes prior to 2005, we recognized net income tax benefits of approximately $30 million, including
approximately $23 million related to interest.
We adopted FIN 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109,” on January 1, 2007. The
effect of applying the new guidance was not significantly different in terms of tax impacts from the application of our previous policy.
Accordingly, the impact to retained earnings upon adoption was immaterial. In addition, the guidance required us to reclassify certain tax
benefits, which had the effect of increasing accrued taxes and deferred debits by approximately $50 million to better reflect the expected timing
of the payment of taxes and interest. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding
interest and penalties, at the beginning and end of the period that are included in accrued taxes and other deferred credits on the Consolidated
Balance Sheets (dollars in thousands):
2008 2007
Total unrecognized tax benefits, January 1 $157,869 $132,691
Additions for tax positions of the current year 12,923 —
Additions for tax positions of prior years 32,510 65,022
Reductions for tax positions of prior years for:
Changes in judgment (4,454) (37,419)
Settlements with taxing authorities (35,812) (2,425)
Lapses of applicable statute of limitations (99,718) —
Total unrecognized tax benefits, December 31 $ 63,318 $157,869
Included in the balance of unrecognized tax benefits at December 31, 2008 and 2007 were approximately $16 million and $5 million,
respectively, of tax positions that, if recognized, would decrease our effective tax rate.
We reflect interest and penalties, if any, on unrecognized tax benefits in the consolidated statement of income as income tax expense. The
amount of interest recognized in the consolidated statement of income related to unrecognized tax benefits was a pre-tax benefit of $51 million
for 2008 and pre-tax expense of $3 million for 2007.
The total amount of accrued liabilities for interest recognized in the consolidated balance sheets related to unrecognized tax benefits as of
December 31, 2008 and 2007 was $6 million and $57 million, respectively. To the extent that matters are settled favorably, this amount could
reverse and decrease our effective tax rate. Additionally, as of December 31, 2008, we have recognized $1 million of interest expense to be paid
on the underpayment of income taxes for certain adjustments that we have filed, or will file, with the IRS.
The tax year ended December 31, 2005 and all subsequent tax years remain subject to examination by the IRS. With few exceptions, we are
no longer subject to state income tax examinations by tax authorities for years before 1999. We do not anticipate that there will be any
significant increases or decreases in our unrecognized tax benefits within the next 12 months.
The components of income tax expense are as follows (dollars in thousands):
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2008 2007 2006
Current:
Federal $ (85,866) $183,547 $110,029
State 11,738 30,972 21,507
Total current (74,128) 214,519 131,536
Deferred:
Income from continuing operations 158,024 (56,147) 31,452
Discontinued operations — (1,880) —
Total deferred 158,024 (58,027) 31,452
Total income tax expense 83,896 156,492 162,988
Less: income tax expense (benefit) on discontinued operations 18,489 5,582 7,133
Income tax expense – continuing operations $ 65,407 $150,910 $155,855
The following chart compares pretax income from continuing operations at the 35% federal income tax rate to income tax expense –
continuing operations (dollars in thousands):

2008 2007 2006
Federal income tax expense at 35% statutory rate $ 97,637 $157,379 $165,242
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit 9,601 16,801 17,250
Credits and favorable adjustments related to prior years resolved in current year (28,873) (13,205) (14,028)
Medicare Subsidy Part-D (1,993) (3,236) (3,156)
Allowance for equity funds used during construction (see Note 1) (5,755) (6,899) (4,679)
Other (5,210) 70 (4,774)
Income tax expense – continuing operations $ 65,407 $150,910 $155,855
The following table shows the net deferred income tax liability recognized on the Consolidated Balance Sheets (dollars in thousands):
December 31,
2008 2007
Current asset $ 79,729 $ 31,510
Long-term liability (1,403,318) (1,243,743)
Accumulated deferred income taxes – net $(1,323,589) $(1,212,233)
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The components of the net deferred income tax liability were as follows (dollars in thousands):
December 31,
2008 2007
DEFERRED TAX ASSETS
Risk management and trading activities $ 132,383 $ 13,958
Regulatory liabilities:
Asset retirement obligation 194,326 214,607
Federal excess deferred income taxes 9,428 11,091
Tax benefit of Medicare subsidy 4,197 11,727
Other 9,789 26,579
Pension and other postretirement liabilities 281,053 211,192
Deferred gain on Palo Verde Unit 2 sale leaseback 12,665 14,408
Other 92,251 112,209
Total deferred tax assets 736,092 615,771
DEFERRED TAX LIABILITIES
Plant-related (1,709,872) (1,538,183)
Risk management and trading activities (20,732) (29,531)
Regulatory assets:
Deferred fuel and purchased power (3,157) (43,661)
Deferred fuel and purchased power – mark-to-market (46,593) (2,782)
Pension and other postretirement benefits (186,916) (133,120)
Other (92,411) (80,727)
Total deferred tax liabilities (2,059,681) (1,828,004)
5. Lines of Credit and Short-Term Borrowings

Pinnacle West had a committed line of credit with various banks totaling $300 million at December 31, 2008 and December 31, 2007 due to
terminate in December 2010. Credit commitments totaling approximately $17 million from Lehman Brothers are no longer available due to its
September 2008 bankruptcy filing. The remaining $283 million revolver is available to support the issuance of up to $250 million in commercial
paper or to be used as bank borrowings, including issuances of letters of credit of up to $94 million. At December 31, 2008 Pinnacle West had
$144 million of borrowings under its revolving credit facility and approximately $7 million of letters of credit. Pinnacle West had no commercial
paper outstanding at December 31, 2008. In general, the Company and APS have been unable to access the commercial paper markets since
September 2008. Pinnacle West had remaining capacity available under its revolver of approximately $132 million and had cash and
investments of approximately $6 million. At December 31, 2007, Pinnacle West had no borrowings under the line of credit and approximately
$5 million of letters of credit and commercial paper borrowings of $115 million. The commitment fees were 0.15 % in 2008 and 2007. The
weighted average interest rates were 2.713% at December 31, 2008 and 5.73% at December 31, 2007. All Pinnacle West and APS bank lines of
credit and commercial paper agreements are unsecured.
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APS had two committed revolving credit facilities totaling $900 million at December 31, 2008 and December 31, 2007, of which $400 million
terminates in December 2010 and $500 million terminates in September 2011. Credit commitments totaling about $34 million from Lehman
Brothers are no longer available due to its September 2008 bankruptcy filing. The remaining $866 million is available either to support the
issuance of up to $250 million in commercial paper or to be used for bank borrowings, including issuances of letters of credit of up to
$583 million. At December 31, 2008, APS had borrowings of approximately $522 million and no letters of credit under its revolving lines of
credit. APS had no commercial paper outstanding as of December 31, 2008. In general, the Company and APS have been unable to access the
commercial paper markets since September 2008. At December 31, 2008, APS had remaining capacity available under its revolvers of
$344 million and had cash and investments of approximately $72 million. At December 31, 2007, APS had borrowings of $218 million under its
$500 million line of credit and $4 million of letters of credit issued under its $400 million line of credit. APS had no commercial paper
outstanding at December 31, 2007. The commitment fees for the $500 million line of credit were 0.10% at December 31, 2008 and December 31,
2007. The commitment fees for the $400 million line of credit were 0.11% at December 31, 2008 and December 31, 2007. The weighted average
interest rates were 2.09% at December 31, 2008 and 5.36% at December 31, 2007.
Although provisions in APS’ articles of incorporation and ACC financing orders establish maximum amounts of preferred stock and debt
that APS may issue, APS does not expect any of these provisions to limit its ability to meet its capital requirements. On October 30, 2007, the
ACC issued a financing order in which it approved APS’ request, subject to specified parameters and procedures, to increase (a) APS’ short-
term debt authorization from 7% of APS’ capitalization to (i) 7% of APS’ capitalization plus (ii) $500 million (which is required to be used for
purchases of natural gas and power) and (b) APS’ long-term debt authorization from approximately $3.2 billion to $4.2 billion in light of the
projected growth of APS and its customer base and the resulting projected financing needs. This financing order expires December 31, 2012;
however, all debt previously authorized and outstanding on December 31, 2012 will remain authorized and valid obligations of APS.
SunCor had two revolving lines of credit totaling $170 million at December 31, 2008, and December 31, 2007. The $150 million credit facility is
secured and matures January 30, 2010 and the $20 million unsecured loan facility matured January 31, 2009. See Note 6 for additional
information on the secured credit facility. The unsecured loan facility includes approximately $5 million in borrowings. SunCor is currently in
the process of renegotiating this facility and, if unable to do so, will repay the amounts outstanding. At December 31, 2008 and December 31,
2007 Suncor had borrowings of $120 million and $85 million under the $150 million credit facility. At December 31, 2008 and December 31, 2007
Suncor had borrowings of $5 million and $9 million under the $20 million credit facility. The commitment fees ranged from 0.125% to 0.250% in
2008 and were 0.125% in 2007 for the $150 million line of credit. The commitment fees for the $20 million line of credit were 0.50% in 2008 and
2007. The weighted-average interest rate was 4.11% at December 31, 2008 and 7.27% at December 31, 2007. Interest was based on LIBOR plus
2.0% for 2008 and 2007. SunCor had other short-term borrowings of $5 million at December 31, 2008 and $8 million at December 31, 2007. These
loans are made up of multiple notes primarily with variable interest rates based on LIBOR plus 2.5% at December 31, 2008 and 2007.
6. Long-Term Debt and Liquidity Matters

Substantially all of APS’ debt is unsecured. SunCor’s short and long-term debt is collateralized by interests in certain real property and
Pinnacle West’s debt is unsecured. The following table presents the components of long-term debt on the Consolidated Balance Sheets
outstanding at December 31, 2008 and 2007 (dollars in thousands):
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December 31,
Maturity Interest
Dates (a) Rates 2008 2007
APS
Pollution control bonds 2024-2034 (b) $ 539,145 $ 565,855

Pollution control bonds with senior notes 2029 5.05% 90,000 90,000
Unsecured notes 2011 6.375% 400,000 400,000
Unsecured notes 2012 6.50% 375,000 375,000
Unsecured notes 2033 5.625% 200,000 200,000
Unsecured notes 2015 4.650% 300,000 300,000
Unsecured notes 2014 5.80% 300,000 300,000
Unsecured notes 2035 5.50% 250,000 250,000
Unsecured notes 2016 6.25% 250,000 250,000
Unsecured notes 2036 6.875% 150,000 150,000
Secured note 2014 6.00% 1,258 1,430
Unamortized discount and premium (7,908) (8,883)
Capitalized lease obligations 2009-2012 (c) 3,621 4,457
Subtotal (d) 2,851,116 2,877,859
SUNCOR
Notes payable 2009-2013 (e) 182,804 237,671
Capitalized lease obligations 2009-2012 (f) 329 368
Subtotal 183,133 238,039
PINNACLE WEST
Senior notes 2011 5.91% 175,000 175,000
Total long-term debt 3,209,249 3,290,898
Less current maturities 177,646 163,773
TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES $3,031,603 $3,127,125
(a) This schedule does not reflect the timing of redemptions that may occur prior to maturity.
(b) The weighted-average rate was 8.3% at December 31, 2008 and 3.76% at December 31, 2007. Changes in
short-term interest rates would affect the costs associated with this debt. In addition, these amounts include
$343 million of auction rate debt securities backed by insurance at December 31, 2008 and 2007. On
September 11, 2008, APS repurchased at par two series of pollution control bonds that had no credit
enhancements. The repurchase included $7 million of its 1996 Series A Coconino County Pollution Control
Bonds and $20 million of its 1999 Series A Coconino County Pollution Control Bonds. APS borrowed funds
under its revolving lines of credit to re-purchase the bonds, as permitted under the bond indenture. APS
intends to keep the $27 million outstanding until we complete our planned refunding and reissuance of these
bonds, if market and business conditions allow, in 2009.
(c) The weighted-average interest rate was 5.51% at December 31, 2008 and December 31, 2007.
(d) APS’ long-term debt less current maturities was $2.850 billion at December 31, 2008 and $2.877 billion at
December 31, 2007. APS’ current maturities of long-term debt were $1 million at December 31, 2008 and 2007.
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(e) SunCor had

$125 million
outstanding at
December 31,
2008 under its
revolving lines of
credit. The
weighted-average
interest rate was
4.11% at
December 31,
2008. The
remaining amount
of approximately
$58 million at
December 31,
2008 was made up
of multiple notes
with variable
interest rates
based on the
lenders’ prime
rates plus 1.75%
and 2.0% or
LIBOR plus 1.7%,
2.0%, 2.25% and
2.5%. SunCor had
$94 million
outstanding at
December 31,
2007 under its
revolving lines of
credit. The
weighted-average
interest rate was
7.27% at
December 31,
2007. The
remaining amount
of approximately
$143 million at
December 31,
2007 was made up
of multiple notes
with variable
interest rates
based on the
lenders’ prime
rates plus 1.75%
and 2.0% or
LIBOR plus 1.7%,
2.0% and 2.25%.
There is also a
note at a fixed
rate of 4.25% at
December 31,
2008 and 2007.
(f) The weighted-
average interest
rate was 6.2% at
December 31,
2008 and 7.0% at
December 31,
2007.
The credit and liquidity markets experienced significant stress beginning the week of September 15, 2008. While Pinnacle West’s and APS’
ability to issue commercial paper has been negatively impacted by the market stress, they have both been able to access existing credit
facilities, ensuring adequate liquidity. Cash on hand is being invested in money market funds consisting of U.S. Treasury and government
agency securities and repurchase agreements collateralized fully by U.S. Treasury and government agency securities.
The interest rates on eleven issues of APS’ pollution control bonds, in the aggregate amount of approximately $343 million, are reset every
seven days through auction processes. These bonds are supported by bond insurance policies provided by Ambac, and the interest rates on
the bonds can be directly affected by the rating of the bond insurer. Certain bond insurers, including Ambac, have had downgrades of their
credit ratings. Downgrades of bond insurers result in downgrades of the insured bonds, which increases the possibility of a “failed auction”
and results in higher interest rates during the failed auction periods. When auctions of APS bonds fail, the APS bondholders receive the
maximum 14% annual interest rate for the week of the failed auction. For the twelve months ended December 31, 2008, we had ninety-nine failed
auctions, which represented about 17% of all of our auctions. The average interest rate at December 31, 2008 on the auction rate securities was
12.4%. Bond auctions continued to fail through mid-January; however, since that time, we have had only one failure. The average interest rate
at February 18, 2009 on the auction rate securities was 5.7%. We continue to closely monitor this market and, if market and business
conditions allow, we are planning on refunding and reissuing these bonds during 2009. We do not expect, however, that our auction rate
interest exposure will have a material adverse impact on our financial position, results of operations, cash flows or liquidity.
Pinnacle West’s and APS’ debt covenants related to their respective bank financing arrangements include debt to capitalization ratios.
Certain of APS’ bank financing arrangements also include an interest coverage test. Pinnacle West and APS comply with these covenants and
each anticipates it will continue to meet these and other significant covenant requirements. For both Pinnacle West and APS, these covenants
require that the ratio of consolidated debt to total consolidated capitalization cannot exceed 65%. At December 31, 2008, the ratio was
approximately 51% for Pinnacle West and 49% for APS. The provisions regarding interest coverage require a minimum cash coverage of 2
times. The interest coverage was approximately 4.5 times under APS’ bank financing agreements as of December 31, 2008. Failure to comply
with such covenant levels would result in an event of default which, generally speaking, would require the immediate repayment of the debt
subject to the covenants and could cross-default other debt. See further discussion of “cross-default” provisions below.
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Neither Pinnacle West’s nor APS’ financing agreements contain “rating triggers” that would result in an acceleration of the required
interest and principal payments in the event of a rating downgrade. However, our bank financing agreements contain a pricing grid in which
interest costs we pay are determined by our current credit ratings.
All of Pinnacle West’s loan agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of
payment under these loan agreements if Pinnacle West or APS were to default under certain other material agreements. All of APS’ bank
agreements contain cross-default provisions that would result in defaults and the potential acceleration of payment under these bank
agreements if APS were to default under certain other material agreements. Pinnacle West and APS do not have a material adverse change
restriction for revolver borrowings.
An existing ACC order requires APS to maintain a common equity ratio of at least 40%. As defined in the ACC order, the common equity
ratio is common equity divided by the sum of common equity and long-term debt, including current maturities of long-term debt. At
December 31, 2008, APS’ common equity ratio, as defined, was 54%. Its total common equity was approximately $3.3 billion, and total
capitalization was approximately $6.2 billion. APS would be prohibited from paying dividends if the payment would reduce its common equity
below approximately $2.5 billion, assuming APS’ total capitalization remains the same.
SunCor’s principal loan facility, the Secured Revolver, is secured primarily by an interest in land, commercial properties, land contracts and
homes under construction. The Secured Revolver matures on January 30, 2010 (classified as current maturities of long-term debt at December
31, 2008). SunCor is required to repay amounts under the Secured Facility in order to reduce the lenders’ commitments. The Secured Revolver
requires compliance with certain loan covenants pertaining to debt to net worth, debt service, liquidity, cash flow coverage and restrictions on
debt. In addition to the Secured Revolver, at December 31, 2008, SunCor had approximately $68 million in borrowings under other credit
facilities that mature at various dates and also contain certain loan covenants. The majority of this indebtedness is due in 2009, and SunCor is
in the process of renegotiating these facilities.
As of December 31, 2008, the amount of SunCor’s net assets that could not be transferred to Pinnacle West in the form of cash dividends as
a result of the covenants mentioned above was approximately $224 million out of a total of approximately $263 million. As a result of the
restrictions under the ACC order referenced above and contained in the SunCor loan facilities, as of December 31, 2008, the restricted net
assets of our subsidiaries exceeded 25% of our consolidated net assets (at December 31, 2008, our consolidated net assets were approximately
$3.4 billion). These restrictions do not materially affect Pinnacle West’s ability to meet its ongoing capital requirements.
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The following table shows principal payments due on Pinnacle West’s and APS’ total long-term debt and capitalized lease requirements
P innacle West-
Year Consolidated AP S
2009 $ 178 $ 1
2010 199 197
2011 578 401
2012 376 376
2013 2 —
Thereafter 1,884 1,884
Total $ 3,217 $ 2,859
7. Common Stock and Treasury Stock

Our common stock and treasury stock activity during each of the three years 2008, 2007 and 2006 is as follows (dollars in thousands):
C om m on S tock Tre asu ry S tock

S h are s Am ou n t S h are s Am ou n t
Balance at December 31, 2005 99,077,133 $2,067,377 (20,058) $ (1,245)
Common stock issuance 883,933 39,420 — —
Purchase of treasury stock (a) — — (5,505) (229)
Reissuance of treasury stock for stock compensation (net) — — 23,144 1,025
Other — 7,753 — —
Balance at December 31, 2006 99,961,066 2,114,550 (2,419) (449)

Purchase of treasury stock (a) — — (47,218) (1,964)
Reissuance of treasury stock for stock compensation (net) — — 10,132 359
Other — (2,852) — —
Balance at December 31, 2007 100,525,470 2,135,787 (39,505) (2,054)

Purchase of treasury stock (a) — — (39,022) (1,387)
Reissuance of treasury stock for stock compensation (net) — — 18,700 587
Other — 4,691 — —
Balance at December 31, 2008 100,948,436 $2,151,323 (59,827) $ (2,854)
(a) Represents shares of common stock withheld from certain stock awards for tax purposes.
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8. Retirement Plans and Other Benefits

Pinnacle West sponsors a qualified defined benefit and account balance pension plan and a non-qualified supplemental excess benefit
retirement plan for the employees of Pinnacle West and its subsidiaries. All new employees participate in the account balance plan. Defined
benefit plans specify the amount of benefits a plan participant is to receive using information about the participant. The pension plan covers
nearly all employees. The supplemental excess benefit retirement plan covers officers of the Company and highly compensated employees
designated for participation by the Board of Directors. Our employees do not contribute to the plans. Generally, we calculate the benefits
based on age, years of service and pay.
We also sponsor other postretirement benefits for the employees of Pinnacle West and our subsidiaries. We provide medical and life
insurance benefits to retired employees. Employees must retire to become eligible for these retirement benefits, which are based on years of
service and age. For the medical insurance plans, retirees make contributions to cover a portion of the plan costs. For the life insurance plan,
retirees do not make contributions. We retain the right to change or eliminate these benefits.
Pinnacle West uses a December 31 measurement date each year for its pension and other postretirement benefit plans. The market-related
value of our plan assets is their fair value at the measurement date. The fair market value of investments in our retirement and postretirement
plans is determined using actively-quoted prices when available. When actively-quoted prices are not available, we use prices provided by
external sources, models or other valuation methods. The use of models and other valuation methods to determine fair market value often
requires subjective and complex judgment. Actual results could differ from the results estimated through the application of these methods.
A significant portion of the changes in the actuarial gains and losses of our pension and postretirement plans is attributable to APS and
therefore is recoverable in rates. Accordingly, these changes are recorded as a regulatory asset.
The following table provides details of the plans’ net periodic benefit costs and the portion of these costs charged to expense (including
administrative costs and excluding amounts capitalized as overhead construction or billed to electric plant participants) (dollars in thousands):
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P ension Other Benefits

2008 2007 2006 2008 2007 2006
Service cost-benefits earned during
the period $ 54,576 $ 51,803 $ 47,287 $ 17,793 $ 18,491 $ 19,968
Interest cost on benefit obligation 110,207 100,736 92,196 37,897 35,284 34,653
Expected return on plan assets (118,309) (107,165) (95,912) (43,609) (42,177) (36,930)
Amortization of:
Transition (asset) obligation — — (645) 3,005 3,005 3,005
Prior service cost (credit) 2,455 2,957 2,401 (125) (125) (125)
Net actuarial loss 11,145 16,331 23,366 2,372 3,929 8,662
Net periodic benefit cost $ 60,074 $ 64,662 $ 68,693 $ 17,333 $ 18,407 $ 29,233
Portion of cost charged to expense $ 28,854 $ 28,063 $ 30,912 $ 8,325 $ 7,989 $ 13,155
APS share of cost charged to expense $ 27,491 $ 26,548 $ 29,203 $ 7,932 $ 7,557 $ 12,428
The following table shows the plans’ changes in the benefit obligations and funded status for the years 2008 and 2007 (dollars in
thousands):

2008 2007 2008 2007
Change in Benefit Obligation
Benefit obligation at January 1 $1,720,844 $1,670,274 $ 605,125 $ 616,985
Service cost 54,576 51,803 17,793 18,491
Interest cost 110,207 100,736 37,897 35,284
Benefit payments (62,058) (52,168) (17,566) (17,763)
Actuarial (gain) loss 61,087 (52,227) 12,016 (47,872)
Plan amendments — 2,426 — —
Benefit obligation at December 31 1,884,656 1,720,844 655,265 605,125
Change in Plan Assets

Fair value of plan assets at January 1 1,318,939 1,214,229 499,764 480,638
Actual return on plan assets 132,449 101,138 (64,364) 26,952
Employer contributions 35,000 52,000 10,972 18,407
Benefit payments (56,016) (48,428) (17,066) (26,233)
Fair value of plan assets at December 31 1,430,372 1,318,939 429,306 499,764
Funded Status at December 31 $ (454,284) $ (401,905) $(225,959) $(105,361)
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The following table shows the projected benefit obligation and the accumulated benefit obligation for the pension plan in excess of plan
assets as of December 31, 2008 and 2007 (dollars in thousands):
2008 2007
Projected benefit obligation $1,884,656 $1,720,844
Accumulated benefit obligation 1,631,909 1,484,444
Fair value of plan assets 1,430,372 1,318,939
The following table shows the amounts recognized on the Consolidated Balance Sheets as of December 31, 2008 and 2007 (dollars in
thousands):

2008 2007 2008 2007
Current asset $ — $ — $ 1,221 $ 1,321
Current liability (5,676) (3,984) — —
Noncurrent liability (448,608) (397,921) (227,180) (106,682)
Net amount recognized $(454,284) $(401,905) $(225,959) $(105,361)
The following table shows the details related to accumulated other comprehensive loss as of December 31, 2008 and 2007 (dollars in
thousands):

2008 2007 2008 2007
Net actuarial loss $ 304,335 $ 268,532 $ 224,624 $ 106,407
Prior service cost (credit) 9,946 12,401 (920) (1,045)
Transition obligation — — 12,019 15,024
APS’ portion recorded as a regulatory asset (245,235) (221,787) (227,490) (116,425)
Income tax benefit (27,239) (23,233) (2,493) (538)
Accumulated other comprehensive loss $ 41,807 $ 35,913 $ 5,740 $ 3,423
The following table shows the estimated amounts that will be amortized from accumulated other comprehensive loss and regulatory assets
into net periodic benefit cost in 2009 (dollars in thousands):
Other
P ension Benefits
Net actuarial loss $ 11,064 $ 11,094
Prior service cost (credit) 2,080 (125)
Transition obligation — 3,004
Total amounts estimated to be amortized from accumulated other comprehensive income and regulatory
assets in 2009 $ 13,144 $ 13,973
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The following table shows the weighted-average assumptions used for both the pension and other benefits to determine benefit obligations
and net periodic benefit costs:
Benefit Costs
Benefit Obligations For the Years Ended
As of December 31, December 31,
2008 2007 2008 2007 2006
Discount rate-pension 6.11% 6.25% 6.25% 5.90% 5.66%
Discount rate-other benefits 6.13% 6.31% 6.31% 5.93% 5.68%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00% 4.00%
Expected long-term return on plan assets N/A N/A 9.00% 9.00% 9.00%
Initial health care cost trend rate 8.00% 8.00% 8.00% 8.00% 8.00%
Ultimate health care cost trend rate 5.00% 5.00% 5.00% 5.00% 5.00%
Number of years to ultimate trend rate 4 4 4 4 4
In selecting the pretax expected long-term rate of return on plan assets we consider past performance and economic forecasts for the types
of investments held by the plan. For the year 2009, we are assuming a 8.25% long-term rate of return on plan assets, which we believe is
reasonable given our asset allocation in relation to historical and expected performance.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point
change in the assumed initial and ultimate health care cost trend rates would have the following effects (dollars in millions):
1% Increase 1% Decrease
Effect on other postretirement benefits expense, after consideration of amounts capitalized or billed to
electric plant participants $ 9 $ (7)
Effect on service and interest cost components of net periodic other postretirement benefit costs 11 (8)
Effect on the accumulated other postretirement benefit obligation 103 (83)
Plan Assets
Pinnacle West’s qualified pension plan and other postretirement benefit plans’ asset allocation at December 31, 2008 and 2007 is as follows:
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Asse t C ate gory: 2008 2007 T arget Range 2008 2007 T arget Range
Equity securities 40% 68% 40%-55% 52% 70% 40%-55%
Fixed income 54 25 40%-55% 46 28 40%-55%
Other 6 7 5%-10% 2 2 2%-5%
Total 100% 100% 100% 100%
The Board of Directors has delegated oversight of the plans’ assets to an Investment Management Committee, which has adopted an
investment policy. The investment policy sets forth the objective of providing for future pension benefits by maximizing return consistent with
acceptable levels of risk. The primary investment strategies are diversification of assets, stated asset allocation targets and ranges, prohibition
of investments in Pinnacle West securities, and external management of plan assets.
During 2008, Pinnacle West began utilizing long-duration bonds and interest-rate swaps to better match the interest-rate sensitivity of the
plans’ assets to that of the plans’ liabilities. The actual return on plan assets for the year ending December 31, 2008, included the impact of
unrealized gains related to our pension plan of approximately $495 million and unrealized gains related to our postretirement plan of
approximately $65 million due to the strong performance of the U.S. Treasury bond market. In late 2008 and early 2009, we closed out the swap
contracts and reinvested the proceeds into long-term bonds.
Contributions
The required minimum contribution to our pension plan is estimated to be approximately $36 million in 2009 and approximately $25 million in
2010. The contribution to our other postretirement benefit plans in 2009 is estimated to be approximately $15 million. APS and other
subsidiaries fund their share of the contributions. APS’ share is approximately 96% of both plans.
Estimated Future Benefit Payments

Benefit payments, which reflect estimated future employee service, for the next five years and the succeeding five years thereafter are
estimated to be as follows (dollars in thousands):
Year P ension Other Benefits (a)

2009 $ 68,795 $ 19,709
2010 75,553 22,039
2011 84,022 24,549
2012 94,205 27,135
2013 105,717 30,132
Years 2014-2018 702,148 196,470
(a) The expected future other benefit payments take into account the Medicare Part D subsidy.
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Employee Savings Plan Benefits

Pinnacle West sponsors a defined contribution savings plan for eligible employees of Pinnacle West and its subsidiaries. In 2008, costs
related to APS’ employees represented 96% of the total cost of this plan. In a defined contribution savings plan, the benefits a participant
receives result from regular contributions participants make to their own individual account, the Company’s matching contributions and
earnings or losses on their investments. Under this plan, the Company matches a percentage of the participants’ contributions in cash which
is then invested in the same investment mix as participants elect to invest their own future contributions. At December 31, 2008, approximately
14% of total plan assets were in Pinnacle West stock. Pinnacle West recorded expenses for this plan of approximately $8 million for 2008,
$7 million for 2007 and $6 million for 2006. APS recorded expenses for this plan of approximately $8 million in 2008, $6 million in 2007 and
$6 million in 2006.
9. Leases
In 1986, APS sold about 42% of its share of Palo Verde Unit 2 and certain common facilities in three separate sale leaseback transactions.
APS accounts for these leases as operating leases. The gain resulting from the transaction of approximately $140 million was deferred and is
being amortized to operations and maintenance expense over 29.5 years, the original term of the leases. There are options to renew the leases
or to purchase the property for fair market value at the end of the lease terms. We are analyzing this matter, and will continue to do so as we
approach the end of the lease terms, to determine which option or options to pursue. Rent expense is calculated on a straight-line basis. See
Note 20 for a discussion of VIEs, including the VIE’s involved in the Palo Verde sale leaseback transactions.
In addition, we lease certain land, buildings, equipment, vehicles and miscellaneous other items through operating rental agreements with
varying terms, provisions and expiration dates.
Total lease expense recognized in the Consolidated Statements of Income was $74 million in 2008, $73 million in 2007 and $72 million in 2006.
APS’ lease expense was $67 million in 2008, $66 million in 2007 and $64 million in 2006.
The amounts to be paid for the Palo Verde Unit 2 leases are approximately $49 million per year for the years 2009 to 2016.
Estimated future minimum lease payments for Pinnacle West’s and APS’ operating leases, excluding purchase power agreements, are
approximately as follows (dollars in millions):
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P innacle West
Year Consolidated AP S
2009 $ 82 $ 76
2010 76 70
2011 71 65
2012 67 62
2013 65 60
Thereafter 135 121
Total future lease commitments $ 496 $ 454
10. Jointly-Owned Facilities

APS shares ownership of some of its generating and transmission facilities with other companies. Our share of operations and maintenance
expense and utility plant costs related to these facilities is accounted for using proportional consolidation. The following table shows APS’
interests in those jointly-owned facilities recorded on the Consolidated Balance Sheets at December 31, 2008 (dollars in thousands):
C on stru ction
Pe rce n t Plan t in Accum u late d W ork in
O wn e d S e rvice De pre ciation Progre ss
Generating facilities:
Palo Verde Units 1 and 3 29.1% $1,989,210 $1,032,195 $ 51,621
Palo Verde Unit 2 (see Note 9) 17.0% 670,204 309,143 26,693
Four Corners Units 4 and 5 15.0% 167,152 102,218 2,633
Navajo Generating Station Units 1, 2 and 3 14.0% 256,304 149,201 5,102
Cholla common facilities (a) 63.9%(b) 130,454 42,483 3,548
Transmission facilities:
ANPP 500KV System 35.8%(b) 82,470 25,246 3,620
Navajo Southern System 31.4%(b) 41,690 12,998 559
Palo Verde – Yuma 500KV System 23.9%(b) 9,408 3,994 368
Four Corners Switchyards 27.5%(b) 3,459 1,339 —
Phoenix – Mead System 17.1%(b) 36,032 5,577 —
Palo Verde – Estrella 500KV System 55.5%(b) 78,078 5,044 —
(a) PacifiCorp owns Cholla Unit 4 and APS operates the unit for PacifiCorp. The common facilities at Cholla are
jointly-owned.
(b) Weighted average of interests.
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11. Commitments and Contingencies

Palo Verde Nuclear Generating Station
Spent Nuclear Fuel and Waste Disposal
Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE, and the DOE is required to accept and
dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste
Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE has
announced that the repository cannot be completed before at least 2017. In November 1997, the United States Court of Appeals for the District
of Columbia Circuit (D.C. Circuit) issued a decision preventing the DOE from excusing its own delay, but refused to order the DOE to begin
accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other
Palo Verde owners), filed damages actions against the DOE in the Court of Federal Claims. APS is currently pursuing that damages claim. In
August 2008, the United States Court of Appeals for the Federal Circuit issued decisions in three damages actions brought by other nuclear
utilities that could result in a decrease in the amount of our recoverable damages; however, additional appeals in those actions are possible
and APS continues to monitor the status of those actions. The trial in the APS matter began on January 28, 2009. Testimony and evidence
have been presented by both sides. The trial court has set a post-trial briefing schedule and is expected to hear closing arguments in the early
summer of 2009.
APS currently estimates it will incur $132 million (in 2008 dollars) over the life of Palo Verde for its share of the costs related to the on-site
interim storage of spent nuclear fuel. At December 31, 2008, APS had a regulatory liability of $22 million that represents amounts recovered in
retail rates in excess of amounts spent for on-site interim spent fuel storage.
Nuclear Insurance
The Palo Verde participants have insurance for public liability resulting from nuclear energy hazards to the full limit of liability under federal
law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $300 million
and the balance by an industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed
the accumulated funds, APS could be assessed retrospective premium adjustments. The maximum assessment per reactor under the program
for each nuclear incident is approximately $118 million, subject to an annual limit of $18 million per incident, to be periodically adjusted for
inflation. Based on APS’ interest in the three Palo Verde units, APS’ maximum potential assessment per incident for all three units is
approximately $103 million, with an annual payment limitation of approximately $15 million.
The Palo Verde participants maintain “all risk” (including nuclear hazards) insurance for property damage to, and decontamination of,
property at Palo Verde in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and
decontamination. APS has also secured insurance against portions of any increased cost of generation or purchased power and business
interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The property damage, decontamination, and
replacement power coverages are provided by Nuclear Electric Insurance Limited (NEIL). APS is subject to retrospective assessments under all
NEIL policies if NEIL’s losses in any policy year exceed
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accumulated funds. The maximum amount of retrospective assessments APS could incur under the current NEIL policies totals approximately
$21 million. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions.
Fuel and Purchased Power Commitments

Pinnacle West and APS are parties to various fuel and purchased power contracts with terms expiring between 2009 and 2042 that include
required purchase provisions. Pinnacle West and APS estimate the contract requirements to be approximately $449 million in 2009; $364 million
in 2010; $287 million in 2011; $397 million in 2012; $380 million in 2013; and $6.1 billion thereafter. However, these amounts may vary
significantly pursuant to certain provisions in such contracts that permit us to decrease required purchases under certain circumstances.
Of the various fuel and purchased power contracts mentioned above, some of those contracts have take-or-pay provisions. The contracts
APS has for its coal supply include take-or-pay provisions. The current take-or-pay coal contracts have terms that expire in 2024.
The following table summarizes our actual and estimated take-or-pay commitments (dollars in millions):
Actual Estimated (a)

2006 2007 2008 2009 2010 2011 2012 2013 T hereafter
Coal take-or-pay
commitments $67 $70 $81 $103 $83 $84 $86 $88 $ 421
(a) Total take-or-pay commitments are approximately $865 million. The total net present value of these
commitments is approximately $595 million.
Coal Mine Reclamation Obligations

APS must reimburse certain coal providers for amounts incurred for coal mine reclamation. APS’ coal mine reclamation obligation was
approximately $91 million at December 31, 2008 and December 31, 2007 and is included in Deferred Credits and Other on the Consolidated
Balance Sheets.
California Energy Market Issues and Refunds in the Pacific Northwest

FERC
In July 2001, the FERC ordered an expedited fact-finding hearing to calculate refunds for spot market transactions in California during a
specified time frame. APS was a seller and a purchaser in the California markets at issue and, to the extent that refunds are ordered, APS should
be a recipient as well as a payor of such amounts. In addition, on March 19, 2002, the State of California filed a complaint with the FERC
alleging that wholesale sellers of power and energy, including APS, failed to properly file rate information at the FERC in connection with sales
to California from 2000 to March 2002 under market-based rates. Since 2004, the Ninth Circuit and the FERC have issued various decisions and
orders involving the aforementioned issues, including decisions related to: entities subject to FERC jurisdiction and, therefore, potentially
owing refunds; applicable refund methodologies; the temporal scope and types of transactions that are properly
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subject to the refund orders; and the appropriate standard of review at the FERC on wholesale power contracts in the refund proceedings. A
settlement, resolving APS’ issues with certain California parties for the current refund period, was approved by the FERC in an order issued on
June 30, 2008. The resolution of the claims related to the parties involved in this settlement had no material adverse impact on our financial
position, results of operations or cash flows. We currently believe the refund claims at the FERC related to the parties not involved in this
settlement will have no material adverse impact on our financial position, results of operations or cash flows.
On March 26, 2003, the FERC made public a Final Report on Price Manipulation in Western Markets, prepared by its staff and covering spot
markets in the West in 2000 and 2001. The report stated that a significant number of entities who participated in the California markets during
the 2000-2001 time period, including APS, may potentially have been involved in arbitrage transactions that allegedly violated certain
provisions of the Independent System Operator tariff. After reviewing the matter, along with the data supplied by APS, the FERC staff moved
to dismiss the claims against APS and to dismiss the proceeding. The motion to dismiss was granted by the FERC on January 22, 2004. Certain
parties sought rehearing of this order; however, under the settlement agreement mentioned above, these parties withdrew their request for
rehearing on July 22, 2008.
On July 25, 2001, the FERC also ordered an evidentiary proceeding to discuss and evaluate possible refunds for wholesale sales in the
Pacific Northwest. The FERC affirmed the ALJ’s conclusion that the prices in the Pacific Northwest were not unreasonable or unjust and
refunds should not be ordered in this proceeding. This decision was appealed to the U.S. Court of Appeals for the Ninth Circuit. On
August 24, 2007, the Ninth Circuit issued an opinion that remanded the proceeding to the FERC for further consideration. Petitions for
rehearing of this opinion were filed. Although the FERC has not yet determined whether any refunds will ultimately be required, we do not
expect that the resolution of these issues will have a material adverse impact on our financial position, results of operations or cash flows.
Navajo Nation Litigation

In June 1999, the Navajo Nation served Salt River Project with a lawsuit filed in the United States District Court for the District of Columbia
(the “D.C. Lawsuit”) naming Salt River Project, several Peabody Coal Company entities (collectively, “Peabody”), Southern California Edison
Company and other defendants, and citing various claims in connection with the renegotiations of the coal royalty and lease agreements
under which Peabody mines coal for the Navajo Generating Station and the Mohave Generating Station. APS is a 14% owner of the Navajo
Generating Station, which Salt River Project operates. The D.C. Lawsuit alleges, among other things, that the defendants obtained a favorable
coal royalty rate by improperly influencing the outcome of a federal administrative process under which the royalty rate was to be adjusted.
The suit seeks $600 million in damages, treble damages, punitive damages of not less than $1 billion, and the ejection of defendants “from all
possessory interests and Navajo Tribal lands arising out of the [primary coal lease].” In July 2001, the court dismissed all claims against Salt
River Project.
In January 2005, Peabody served APS with a lawsuit filed in the Circuit Court for the City of St. Louis naming APS and the other Navajo
Generating Station participants and seeking, among other things, a declaration that the participants “are obligated to reimburse Peabody for
any royalty, tax, or other obligation arising out of the D.C. Lawsuit.” Based on APS’ ownership interest in the Navajo Generating Station, APS
could be liable for up to 14% of any such obligation. On July 10,
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2008, Peabody agreed to dismiss this litigation without prejudice. APS cannot currently predict whether the lawsuit will be refiled based upon
the final outcome of the D.C. Lawsuit.
Superfund
Superfund establishes liability for the cleanup of hazardous substances found contaminating the soil, water or air. Those who generated,
transported or disposed of hazardous substances at a contaminated site are among those who are PRPs. PRPs may be strictly, and often are
jointly and severally, liable for clean-up. On September 3, 2003, the EPA advised APS that the EPA considers APS to be a PRP in the Motorola
52nd Street Superfund Site, Operable Unit 3 (OU3) in Phoenix, Arizona. APS has facilities that are within this Superfund site. APS and Pinnacle
West have agreed with the EPA to perform certain investigative activities of the APS facilities within OU3. Because the investigation has not
yet been completed and ultimate remediation requirements are not yet finalized, at the present time neither APS nor Pinnacle West can
accurately estimate the expenditures that may be required.
Salt River Project

Salt River Project has notified APS that Salt River Project allegedly failed to bill APS for (a) energy losses under certain service schedules of
a power contract between the parties and (b) certain other charges under the contract. Salt River Project asserts that certain of these failures to
bill APS for such losses and charges may extend back to 1996 and, as a result, claims that APS owes it approximately $29 million. APS disputes
that it is required to pay these amounts. No lawsuit or litigation has been initiated in the matter at this time. We do not expect that resolution of
this matter will have a material adverse impact on our financial position, results of operations or cash flows.
Litigation
We are party to various other claims, legal actions and complaints arising in the ordinary course of business, including but not limited to
environmental matters related to the Clean Air Act, Navajo Nation issues and EPA and ADEQ issues. In our opinion, the ultimate resolution of
these matters will not have a material adverse effect on our financial position, results of operations or cash flows.
12. Asset Retirement Obligations

APS has asset retirement obligations for its Palo Verde nuclear facilities and certain other generation, transmission and distribution assets.
The Palo Verde asset retirement obligation primarily relates to final plant decommissioning. This obligation is based on the NRC’s
requirements for disposal of radiated property or plant and agreements APS reached with the ACC for final decommissioning of the plant. The
non-nuclear generation asset retirement obligations primarily relate to requirements for removing portions of those plants at the end of the
plant life or lease term.
Some of APS’ transmission and distribution assets have asset retirement obligations because they are subject to right of way and easement
agreements that require final removal. These agreements have a history of uninterrupted renewal that APS expects to continue. As a result,
APS cannot reasonably estimate the fair value of the asset retirement obligation related to such distribution and transmission assets.
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Additionally, APS has aquifer protection permits for some of its generation sites that require the closure of certain facilities at those sites.
The generation sites are strategically located to serve APS Native Load customers. Management expects to continuously use the sites and,
thus, cannot estimate a potential closure date. The asset retirement obligations associated with our non-regulated assets are immaterial.
The following schedule shows the change in our asset retirement obligations for 2008 and 2007 (dollars in millions):
2008 2007
Asset retirement obligations at the beginning of year $ 282 $ 268
Changes attributable to:
Liabilities settled (2) (2)
Accretion expense 19 20
Estimated cash flow revisions (23) (4)
Asset retirement obligations at the end of year $ 276 $ 282
In accordance with SFAS No. 71, APS accrues removal costs for its regulated utility assets, even if there is no legal obligation for removal.
See detail of regulatory liabilities in Note 1.
To fund the costs APS expects to incur to decommission Palo Verde, APS established external decommissioning trusts in accordance with
NRC regulations. APS invests the trust funds in fixed income securities and domestic equity securities. APS applies the provisions of SFAS
No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” in accounting for investments in decommissioning trust funds,
and classifies these investments as available for sale. As a result, we record the decommissioning trust funds at their fair value on our
Consolidated Balance Sheets. Because of the ability of APS to recover decommissioning costs in rates and in accordance with the regulatory
treatment for decommissioning trust funds, we have recorded the offsetting amount of gains on investment securities in other regulatory
liabilities or assets. The following table summarizes the fair value of APS’ nuclear decommissioning trust fund assets at December 31, 2008 and
December 31, 2007 (dollars in millions):
T otal T otal
Unrealized Unrealized
Fair Value Gains Losses
2008
Equity securities $ 113 $ 18 $ (18)
Fixed income securities 228 10 (5)
Net payables (a) 2 — —
Total $ 343 $ 28 $ (23)
2007
Equity securities $ 175 $ 68 $ —
Fixed income securities 204 5 (1)
Total $ 379 $ 73 $ (1)
(a) Net payables relate to pending securities sales and purchases.
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The costs of securities sold are determined on the basis of specific identification. The following table sets forth approximate gains and
losses and proceeds from the sale of securities by the nuclear decommissioning trust funds (dollars in millions):

2008 2007 2006
Realized gains $ 7 $ 3 $ 9
Realized losses (8) (4) —
Proceeds from the sale of securities 318 259 255
The fair value of fixed income securities, summarized by contractual maturities, at December 31, 2008 is as follows (dollars in millions):
Fair Value
Less than one year $ 11
1 year - 5 years 41
5 years - 10 years 47
Greater than 10 years 129
Total $ 228
See Note 14 for a discussion of SFAS No. 157, “Fair Value Measurements,” which we adopted January 1, 2008.
13. Selected Quarterly Financial Data (Unaudited)

Consolidated quarterly financial information for 2008 and 2007 is as follows (dollars in thousands, except per share amounts):
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2008 Quarter Ended 2008

March 31, June 30, September 30, December 31, T otal
As originally reported:
Operating revenues $736,738 $926,193 $1,079,975
Operating income 38,798 178,875 273,913
Income taxes (557) 17,076 75,970
Income from continuing operations (4,668) 114,433 150,503
Net income (4,473) 133,862 151,586
APSES reclassifications (see Note 22):

Operating revenues $ (27,006) $(28,165) $ (7,074)
Operations and maintenance (1,101) (1,209) (995)
Operating income 1,643 (385) 1,978
Income taxes 650 (148) 789
Income from continuing operations 1,005 (229) 1,219
Net income — — —
After APSES reclassifications:

Operating revenues $709,732 $898,028 $1,072,901 $686,415 $3,367,076
Operations and maintenance 193,023 193,700 211,332 209,797 807,852
Operating income 40,441 178,490 275,891 (17,526) 477,296
Income taxes 93 16,928 76,759 (28,373) 65,407
Income from continuing operations (3,663) 114,204 151,722 (48,706) 213,557
Net income (4,473) 133,862 151,586 (38,850) 242,125
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2007 Quarter Ended 2007

As originally reported:
Income taxes 9,041 40,713 92,055 10,638 152,447
Income from continuing operations 16,464 79,237 201,718 3,713 301,132
Net income 16,530 78,994 208,708 2,911 307,143
APSES reclassifications (see Note 22):

Operating revenues $ (44,501) $(52,898) $ (57,814) $ (48,911) $ (204,124)
Operations and maintenance (1,509) (1,466) (1,571) (1,819) (6,365)
Operating income (3,264) 275 (2,188) 1,226 (3,951)
Income taxes (1,277) 106 (852) 486 (1,537)
Income from continuing operations (1,984) 165 (1,324) 755 (2,388)
Net income — — — —
After APSES reclassifications:

Income taxes 7,764 40,819 91,203 11,124 150,910
Income from continuing operations 14,480 79,402 200,394 4,468 298,744
Net income 16,530 78,994 208,708 2,911 307,143
Earnings per share:
2008 Quarter Ended

March 31, June 30, September 30, December 31,
As originally reported – Basic earnings per share:
Income from continuing operations $(0.05) $1.14 $ 1.49 $
Net income (0.04) 1.33 1.50
After APSES reclassifications – Basic earnings per share:

Income from continuing operations $(0.04) $1.13 $ 1.51 $ (0.48)
Net income (0.04) 1.33 1.50 (0.39)
As originally reported – Diluted earnings per share:

Income from continuing operations $(0.05) $1.13 $ 1.49 $
Net income (0.04) 1.33 1.50
After APSES reclassifications – Diluted earnings per share:

Income from continuing operations $(0.04) $1.13 $ 1.50 $ (0.48)
Net income (0.04) 1.33 1.50 (0.39)
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2007 Quarter Ended

March 31, June 30, September 30, December 31,
As originally reported – Basic earnings per share:
Income from continuing operations $ 0.16 $0.79 $ 2.01 $ 0.04
Net income 0.17 0.79 2.08 0.03
After APSES reclassifications – Basic earnings per share:

Net income 0.17 0.79 2.08 0.03
As originally reported – Diluted earnings per share:

Net income 0.16 0.78 2.07 0.03
After APSES reclassifications – Diluted earnings per share:

Net income 0.16 0.78 2.07 0.03
14. Fair Value Measurements

We adopted SFAS No. 157, “Fair Value Measurements,” on January 1, 2008. This new standard defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair value measurements. The adoption of SFAS No. 157 did not have a material impact
on our financial statements.
In February 2008 the FASB issued FASB Staff Position No. 157-2 (FSP 157-2), “Effective Date of FASB Statement No. 157,” which delayed
the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities by one year. In
accordance with FSP 157-2 we delayed the adoption of SFAS No. 157 for our nonfinancial assets and liabilities, except those items recognized
or disclosed at fair value on a recurring basis, until January 1, 2009. The adoption of SFAS No. 157 for our nonfinancial assets and liabilities
did not have a material impact on our financial statements.
In October 2008, the FASB issued FASB Staff Position No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for
That Asset Is Not Active.” This guidance clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active
and provides guidance on key considerations in determining the fair value of a financial asset when the market for the asset is not active. This
guidance did not have a material impact on our financial statements.
SFAS No. 157 requires companies to disclose the fair value of certain assets and liabilities according to a fair value hierarchy. This hierarchy
ranks the quality and reliability of the inputs used to determine fair values, which are then classified and disclosed in one of three categories.
The three levels of the fair value hierarchy are:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or
liability occur in sufficient frequency and volume to provide information on an ongoing basis. This category includes our derivative
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instruments that are exchange traded such as futures, cash equivalents invested in exchange traded money market funds, and nuclear
decommissioning asset investments in Treasury securities.
Level 2 – Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived
valuations whose inputs are observable. Derivative instruments in this category include non-exchange traded contracts such as forwards,
options, and swaps. This category also includes our nuclear decommissioning trust assets in bonds and commingled equity funds.
Level 3 – Model-derived valuations with unobservable inputs that are supported by little or no market activity. Instruments in this category
include long dated derivative transactions where models are required due to the length of the transaction, options, and transactions in
locations where observable market data does not exist.
As required by SFAS No. 157, assets and liabilities are classified based on the lowest level of input that is significant to the fair value
measurement. We maximize the use of observable inputs and minimize the use of unobservable inputs. Our assessment of the significance of a
particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their
placement within the fair value hierarchy levels. We assess whether a market is active by obtaining observable broker quotes, reviewing actual
market transactions, and assessing the volume of transactions.
Some of our derivative instrument transactions are valued based on unobservable inputs due to the long-term nature of contracts or the
unique location of the transactions. Our long-dated energy transactions, consist of observable valuations for the near term portion and
unobservable valuations for the long-term portions of the transaction. When the unobservable portion is significant to the overall valuation of
the transaction, the entire transaction is classified as Level 3. Our classification of instruments as Level 3 is primarily reflective of the long term
nature of our energy transactions, and is not reflective of material inactive markets. For further discussion of how our derivative instruments
are valued see Note 1.
The nuclear decommissioning trust invests in fixed income securities directly and equity securities indirectly through commingled funds.
Commingled funds are valued based on the fund share price and are classified within Level 2. The commingled funds’ underlying investments
would be Level 1 if the investments were held directly by the trust. Our trustee provides valuation of our nuclear decommissioning trust assets
by using pricing services to determine fair market value. We assess these valuations and verify pricing that can be supported by actual market
transactions. The trust fund investments have been established to satisfy APS’ nuclear decommissioning obligations (see Note 12).
The following table presents the fair value at December 31, 2008 of our assets and liabilities that are measured at fair value on a recurring
basis for Pinnacle West Consolidated and APS (dollars in millions):
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Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable Counterparty Balance at
Assets Inputs Inputs Netting & December 31,
P innacle West: (Level 1) (Level 2) (Level 3) Other (a) 2008
Assets
Cash Equivalents $ 75 $ — $ — $ — $ 75
Risk management and trading activities 31 76 51 (92) 66
Nuclear decommissioning trust 33 308 — 2 343
Total $ 139 $ 384 $ 51 $ (90) $ 484
Liabilities
Risk management and trading activities $ (85) $ (297) $ (58) $ 244 $ (196)
(a) Primarily represents netting under master netting arrangements including margin and collateral. See Notes
12, 18 and S-3.
The following table shows the changes in fair value for assets and liabilities that are measured at fair value on a recurring basis using Level
3 inputs for the twelve months ended December 31, 2008 for Pinnacle West Consolidated and APS (dollars in millions):
T welve Months Ended

December 31, 2008
Net derivative asset balance at beginning of period $ 8
Total net gains (losses) realized/unrealized:
Included in earnings 6
Included in OCI (8)
Deferred as a regulatory asset or liability (39)
Purchases, issuances, and settlements 10
Level 3 transfers (a) 16
Net derivative liability balance at end of period $ (7)
Net unrealized losses included in earnings related to instruments still held as of December 31, 2008 $ 7
(a) Transfers reflect fair market value as of the period prior to transfer.
We did not have any non-recurring fair value measurements during the period that required disclosure.
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On December 31, 2008, the carrying value of our long-term debt for Pinnacle West, excluding capitalized lease obligations, was $3.21 billion,
with an estimated fair value of $2.81 billion. The carrying value of our long-term debt for Pinnacle West excluding capitalized lease obligations
was $3.29 billion on December 31, 2007, with an estimated fair value of $3.20 billion. On December 31, 2008, the carrying value of APS’ long-
term debt, excluding capitalized lease obligations, was $2.85 billion, with an estimated fair value of $2.46 billion. The carrying value of APS’
long-term debt, excluding capital lease obligations, was $2.87 billion on December 31, 2007, with an estimated fair value of $2.79 billion. The fair
value estimates are based on quoted market prices of the same or similar issues.
15. Earnings Per Share

The following table presents earnings per weighted-average common share outstanding for the years ended December 31, 2008, 2007 and
2006:
2008 2007 2006

Basic earnings per share:
Income from continuing operations $ 2.12 $ 2.98 $ 3.18
Income (loss) from discontinued operations 0.28 0.08 0.11
Earnings per share – basic $ 2.40 $ 3.06 $ 3.29
Diluted earnings per share:
Income from continuing operations $ 2.12 $ 2.96 $ 3.16
Income (loss) from discontinued operations 0.28 0.09 0.11
Earnings per share – diluted $ 2.40 $ 3.05 $ 3.27
Dilutive stock options and performance shares (which are contingently issuable) increased average common shares outstanding by
approximately 274,000 shares in 2008, 579,000 shares in 2007 and 593,000 shares in 2006. Total average common shares outstanding for the
purposes of calculating diluted earnings per share were 100,964,920 shares in 2008, 100,834,871 shares in 2007 and 100,010,108 shares in 2006.
Options to purchase 687,375 shares of common stock were outstanding at December 31, 2008 but were not included in the computation of
diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares. Options to
purchase shares of common stock that were not included in the computation of diluted earnings per share were 114,213 at December 31, 2007
and 437,401 at December 31, 2006.
16. Stock-Based Compensation

Pinnacle West offers stock-based compensation plans for officers and key employees of Pinnacle West and our subsidiaries.
The 2007 Long-Term Incentive Plan (“2007 Plan”) allows Pinnacle West to grant incentive and nonqualified stock options, stock
appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, performance cash awards, dividend
equivalents and
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stock to eligible individuals. We have reserved 8 million shares of common stock for issuance under the 2007 Plan plus additional shares that
become available for issuance under prior stock plans (“Prior Plans”). Under the 2007 Plan, any shares of stock that are potentially deliverable
under any award granted under a Prior Plan will be added to the number of shares of stock available for grant under the 2007 Plan if the award
expires or is cancelled or terminated without a delivery of such shares to the participant. In addition, any shares of stock that have been issued
in connection with any award granted under a Prior Plan will be added to the number of shares available for grant under the 2007 Plan if the
award is cancelled, forfeited, or terminated such that those shares are returned to the Company. No more than 500,000 shares of stock may be
granted to any one participant during a calendar year. The maximum performance-based award (other than a performance cash award) payable
to any one participant during a performance period is 500,000 shares of stock or the cash equivalent. The plan also provides for the granting of
new incentive and non-qualified stock options at a price per share equal to at least 100% of the fair market value of the common stock at the
time of grant. The terms of the options cannot be longer than 10 years and the options cannot be repriced during their terms.
The 2002 Long-Term Incentive Plan (“2002 Plan”) relates to outstanding performance shares and stock options but no new awards may be
granted under the plan. Performance share awards under the 2002 Plan contain performance criteria that affect the number of shares that
ultimately vest.
The 1994 Long-Term Incentive Plan (“1994 Plan”) relates to outstanding options and restricted stock but no new awards may be granted
under the plan. Options vested by thirds over a three-year period beginning one year after the date the option was granted and expire ten
years from the date of the grant. The release of the restricted stock is based on employee holdings of our common stock.
In 2006, Retention Unit Awards (“Retention Units”) were granted to key employees. Each Retention Unit represents the right to receive a
cash payment equal to the fair market value of one share of Pinnacle West’s common stock, determined on pre-established valuation dates.
The Company is required to redeem one-fourth of the Retention Units on the first business day of calendar years 2007, 2008, 2009 and 2010. In
addition, the employee will receive a cash payment equal to the amount of dividends that the employee would have received if the employee
had owned the stock from the date of grant to the date of payment plus interest. The Retention Units will fully vest on January 2, 2010; for any
employee that was eligible to retire before that date, the employee’s Retention Units immediately vested and the compensation expense was
immediately recognized as of the date of retirement eligibility. As this award is accounted for as a liability award, compensation costs, initially
measured based on the Company’s stock price on the grant date, are remeasured at each balance sheet date, using Pinnacle West’s closing
stock price. The amount of cash to settle the payment on the first business day of 2008 was $1.3 million and in 2007 was $1.6 million.
In 2008 and 2007 under the 2007 Plan, Restricted Stock Unit Awards (“Restricted Stock Units”) were granted to officers and key employees.
Each officer and key employee had to elect to receive payment for the vested Restricted Stock Units in cash or in fully transferable shares of
stock. The fair value of the stock election is estimated on the date of the grant using the Company’s closing stock price on the date of grant.
Each Restricted Stock Unit cash election represents the right to receive a cash payment equal to the fair market value of one share of Pinnacle
West’s common stock, determined on pre-established valuation dates. One-fourth of the Restricted Stock Units will be redeemed
February 20th for four years following the year of the grant. In addition, the employee will receive a cash payment equal to the amount of
dividends that the employee would have received if
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the employee had owned the Restricted Stock Unit from the date of grant to the date of payment plus interest. Restricted Stock Units vest over
a four-year period for the 2007 and the 2008 grant, unless the employee is eligible to retire, in which case the employee’s Restricted Stock Units
are immediately vested (with the same redemption dates) and the compensation expense is immediately recognized; however, the Restricted
Stock Units will be redeemed on the pre-established redemption dates. As the Restricted Stock Unit cash election award is accounted for as a
liability award, the fair market value of the outstanding Restricted Stock Unit cash election is re-measured at each balance sheet date, using
Pinnacle West’s closing stock price. The amount of cash required to settle the payment for the 2007 grant on February 20, 2008 was $1 million.
In 2008 under the 2007 Plan, performance shares were granted to officers and key employees. Performance share awards under the 2007 Plan
contain performance criteria that affect the number of shares that ultimately vest. Generally, each recipient of performance shares is entitled to
receive shares of common stock shortly after the end of a three-year performance period. The number of shares each recipient ultimately
receives, if any, is based upon the percentile ranking of Pinnacle West’s earnings per share growth rate at the end of the three-year period as
compared with the earnings per share growth rate of all relevant companies in a specified utilities index. The fair value of the grant is estimated
on the date of the grant using the Company’s closing stock price on the date of the grant. Management evaluates the probability of meeting
the performance criteria at each balance sheet date and related compensation cost is amortized over the performance period on a straight-line
basis. If the goals are not achieved, no compensation cost is recognized and any previously recognized compensation cost is reversed.
In 2008 under the 2007 Plan, restricted stock unit awards and performance shares were granted to a selected set of key employees of
Pinnacle West on October 21, 2008. This award of performance shares follows the same vesting schedule as the performance shares awarded
in 2006, 2007 and 2008. The award of the restricted stock units follows the same vesting schedule as the 2007 and 2008 restricted stock units
for the payment dates on February 20th .
On January 21, 2009 under the 2007 Plan, the Human Resources Committee approved payment of 2008 incentive awards to officers in the
form of Pinnacle West common stock pursuant to the 2007 Plan. This incentive award is included in stock compensation expense in 2008.
The compensation cost that has been charged against Pinnacle West’s income for share-based compensation plans was $8 million in 2008,
$6 million in 2007 and $13 million in 2006. The compensation cost that Pinnacle West has capitalized was immaterial in 2008, 2007 and 2006.
Pinnacle West’s total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation arrangements
was $3 million in 2008, $2 million in 2007 and $5 million in 2006. APS’ share of compensation cost that has been charged against income was
$7 million in 2008, $6 million in 2007 and $12 million in 2006.
The following table is a summary of option activity under our equity incentive plans as of December 31, 2008 and changes during the year:
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Weighted-
Average Aggregate
Weighted- Remaining Intrinsic Value
Shares Average Exercise Contractual T erm (dollars in
Options (in thousands) P rice (Years) thousands)
Outstanding at January 1, 2008 861 $ 40.84
Exercised — —
Forfeited or expired 165 45.18
Outstanding at December 31, 2008 696 39.81 2.6 $ —
Exercisable at December 31, 2008 696 39.81 2.6 $ —
There were no options granted during the years 2006 through 2008. The intrinsic value of options exercised was zero for 2008, $2 million for
2007 and $5 million for 2006.
The following table is a summary of the status of stock compensation awards, other than options, as of December 31, 2008 and changes
during the year:
Shares Weighted-Average Grant-Date

Nonvested shares (in thousands) Fair Value
Nonvested at January 1, 2008 379 $ 43.64
Granted 287 36.07
Vested 159 41.64
Forfeited 216 43.62
Nonvested at December 31, 2008 291 39.98
As of December 31, 2008, there was $7 million of total unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 2.3 years. The total fair value
of shares vested during 2008 was $5 million, $6 million for 2007 and $10 million for 2006.
The following table is a summary of the amount and weighted-average grant date fair value of stock compensation awards granted, other
than options, during the years ended December 31, 2008, 2007 and 2006:
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2008 2008 Grant 2007 2007 Grant 2006 Grant

Shares/ Date Fair Shares/ Date Fair 2006 Date Fair
Units Value (a) Units Value (a) Shares Value (a)
Restricted stock award units 42,552 $37.00 27,026 $46.58 — $ —
Restricted cash award units 149,856 37.00 107,891 46.58 — —
Performance share awards 193,192 37.00 134,917 48.42 274,070 41.50
Stock ownership incentive
awards — — — — 12,526 41.50
Retention unit awards — — — — 123,197 49.92
Special grant — — 2,000 41.88 — —
Special award restricted stock
award units 18,500 $31.82 — — — —
Special award restricted cash
award units 13,750 $31.82 — — — —
Special award performance
share awards 33,050 $31.82 — — — —
(a) Restricted stock units, performance shares, special grant and stock ownership incentive awards priced at the
closing market price on the grant date.
Cash received from options exercised under our share-based payment arrangements was zero for 2008, $8 million for 2007 and $22 million for
2006. The tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements was zero for 2008, $1
million for 2007 and $2 million for 2006.
Pinnacle West’s current policy is to issue new shares to satisfy share requirements for stock compensation plans and it does not expect to
repurchase any shares during 2009.
17. Business Segments

Pinnacle West’s two reportable business segments are:
• our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily
electricity service to Native Load customers) and related activities and includes electricity generation, transmission and distribution;
and
• our real estate segment, which consists of SunCor’s real estate development and investment activities.
Financial data for 2008, 2007 and 2006 is provided as follows (dollars in millions):
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Business Segments for the Year Ended December 31, 2008

Regulated
Electricity
Segment Real Estate Segment All other (a) T otal
Operating revenues $ 3,127 $ 131 $ 109 $ 3,367
Purchased power and fuel costs 1,284 — 46 1,330
Other operating expenses 927 203 40 1,170
Operating margin 916 (72) 23 867
Depreciation and amortization 383 5 2 390
Interest expense 189 6 2 197
Other expense (income) (4) (3) 8 1
Income from continuing operations before income taxes 348 (80) 11 279
Income taxes 92 (31) 4 65
Income from continuing operations 256 (49) 7 214
Income from discontinued operations – net of income tax expense
of $18 million (see Note 22) — 23 5 28
Net income $ 256 $ (26) $ 12 $ 242
Total assets $ 10,951 $ 523 $ 146 $11,620
Capital expenditures $ 856 $ 41 $ 7 $ 904

Regulated
Electricity
Segment Real Estate Segment All other (a) T otal
Purchased power and fuel costs 1,141 — 100 1,241
Operating margin 941 19 27 987
Other expense (income) (18) (10) 8 (20)
Income from continuing operations before income taxes 413 21 16 450
Income taxes 139 7 5 151
Income from continuing operations 274 14 11 299
Income from discontinued operations – net of income tax expense
of $6 million (see Note 22) — 9 (1) 8
Net income $ 274 $ 23 $ 10 $ 307
Total assets $ 10,356 $ 661 $ 145 $11,162
Capital expenditures $ 900 $ 161 $ 3 $ 1,064
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Regulated
Electricity Real Estate
Segment Segment All other (a) T otal
Purchased power and fuel costs 960 — 106 1,066
Operating margin 884 75 17 976
Other expense (income) (22) (11) 2 (31)
Income from continuing operations before income taxes 379 82 11 472
Income taxes 120 32 4 156
Income from continuing operations 259 50 7 316
Income from discontinued operations – net of income tax expense of
$7 million (see Note 22) — 10 1 11
Net income $ 259 $ 60 $ 8 $ 327
Capital expenditures $ 662 $ 201 $ 7 $ 870
(a) All other activities relate to marketing and trading, APSES, Silverhawk and El Dorado. Income from
discontinued operations for 2008 is primarily related to the resolution of certain tax issues associated with
the sale of Silverhawk in 2005. None of these segments is a reportable segment.
18. Derivative and Energy Trading Accounting

We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity, natural gas, coal, and in
interest rates. We manage risks associated with these market fluctuations by utilizing various instruments that qualify as derivatives, including
exchange-traded futures and options and over-the-counter forwards, options and swaps. As part of our overall risk management program, we
use such instruments to hedge purchases and sales of electricity and fuels. As of December 31, 2008, we hedged certain exposures to the price
variability of commodities for a maximum of 39 months. The changes in market value of such contracts have a high correlation to price changes
in the hedged transactions.
We recognize all derivatives, except those which qualify for a scope exception, as either assets or liabilities on the balance sheet and
measure those instruments at fair value in accordance with SFAS No. 133, as amended by SFAS No. 149. Derivative commodity contracts for
the physical delivery of purchase and sale quantities transacted in the normal course of business qualify for the normal purchase and sales
exception and are accounted for under the accrual method of accounting. Changes in the fair value of derivative instruments are recognized
periodically in income unless certain hedge criteria are met. For cash flow hedges, the effective portion of changes in the fair value of the
derivative is recognized in common stock equity (as a component of other comprehensive income (loss)). For fair value hedges, the gain or
loss on the derivative as well as the offsetting loss
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or gain on the hedged item associated with the hedged risk are recognized in earnings. We use cash flow hedges to limit our exposure to cash
flow variability on forecasted transactions. We use fair value hedges to limit our exposure to changes in fair value of an asset or liability.
For its regulated operations, APS defers for future rate recovery approximately 90% of gains and losses on derivatives that would otherwise
be recognized in income pursuant to the PSA mechanism. In the following discussion, amounts that would otherwise be recognized in income
will be recorded as either a regulatory asset or liability and have no effect on earnings to the extent these amounts are eligible to be recovered
through the PSA.
We assess hedge effectiveness both at inception and on a continuing basis. Hedge effectiveness is related to the degree to which the
derivative contract and the hedged item are correlated and is measured based on the relative changes in fair value between the derivative
contract and the hedged item over time. We exclude the time value of certain options from our assessment of hedge effectiveness. Any change
in the fair value resulting from ineffectiveness, or the amount by which the derivative contract and the hedged commodity are not directly
correlated, is recognized immediately in net income.
Derivatives that do not qualify for a scope exception are classified as assets and liabilities from risk management and trading activities on
the Consolidated Balance Sheets. Certain of our non-trading derivatives qualify for cash flow hedge accounting treatment. Non-trading
derivatives, or any portion thereof that are not effective hedges, are adjusted to fair value through income. Realized gains and losses related to
non-trading derivatives that qualify as cash flow hedges of expected transactions are recognized in revenue or purchased power and fuel
expense as an offset to the related item being hedged when the underlying hedged physical transaction impacts earnings. If it becomes
probable that a forecasted transaction will not occur, we discontinue the use of hedge accounting and recognize in income the unrealized
gains and losses that were previously recorded in other comprehensive income (loss). In the event a non-trading derivative is terminated or
settled, the unrealized gains and losses remain in other comprehensive income (loss), and are recognized in income when the underlying
transaction impacts earnings.
All gains and losses (realized and unrealized) on trading contracts that qualify as derivatives are included in marketing and trading revenues
on the Consolidated Statements of Income on a net basis. Trading contracts that do not meet the definition of a derivative are accounted for
on an accrual basis with the associated revenues and costs recorded at the time the contracted commodities are delivered or received.
In the electricity business, some contracts to purchase energy are netted against other contracts to sell energy. This is called “book-out”
and usually occurs in contracts that have the same terms (quantities and delivery points) and for which power does not flow. We net these
book-outs, which reduces both revenues and fuel and purchased power costs in our Consolidated Statement of Income, but this does not
impact our financial condition, net income or cash flows.
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Cash Flow Hedges

The changes in the fair value of our hedged positions included in the Consolidated Statements of Income, after consideration of amounts
deferred under the PSA, for the years ended December 31, 2008, 2007 and 2006 are comprised of the following (dollars in thousands):
2008 2007 2006

Gains (losses) on the ineffective portion of derivatives qualifying for hedge
accounting $(1,874) $1,430 $(5,666)
Losses from the change in options’ time value excluded from measurement of
effectiveness — — (10)
Gains from the discontinuance of Cash flow hedges — 320 453
During 2009, we estimate that a net loss of $91 million before income taxes will be reclassified from accumulated other comprehensive
income as an offset to the effect of market price changes for the related hedged transactions. To the extent the amounts are eligible for
inclusion in the PSA, the amounts will be recorded as either a regulatory asset or liability and have no effect on earnings (see Note 3).
We adopted FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain
Contracts” (FIN 39-1) on January 1, 2008. In accordance with this guidance, we elected to offset the fair value amounts for derivative
instruments, including collateral, executed with the same counterparty under a master netting arrangement. The following table summarizes our
assets and liabilities from risk management and trading activities in accordance with FIN 39-1 at December 31, 2008 and 2007 (dollars in
thousands):
Investments Deferred
Current and Other Current Credits and Net Asset
December 31, 2008 Assets Assets Liabilities Other (Liability)
Mark-to-market $ 18,759 $ 33,675 $(190,478) $ (144,331) $(282,375)
Margin account 15,222 — 50,136 4,247 69,605
Collateral provided to counterparties 400 — 71,008 13,552 84,960
Collateral provided from counterparties (1,800) — (251) — (2,051)
Total $ 32,581 $ 33,675 $ (69,585) $ (126,532) $(129,861)
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Current and Other Current Credits and Net Asset
December 31, 2007 Assets Assets Liabilities Other (Liability)
Mark-to-market $ 26,333 $ 48,928 $ (30,786) $ (4,701) $ 39,774
Margin account 30,650 — 6,148 — 36,798
Collateral provided to counterparties 622 — 128 — 750
Collateral provided from counterparties — — — — —
Total $ 57,605 $ 48,928 $ (24,510) $ (4,701) $ 77,322
We maintain a margin account with a broker to support our risk management and trading activities. Cash is deposited with the broker in this
account at the time futures or options contracts are initiated. The change in market value of these contracts (reflected in mark-to-market)
requires adjustment of the margin account balance.
Credit Risk
We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We have risk management and trading
contracts with many counterparties, including one counterparty for which a worst case exposure represents approximately 60% of Pinnacle
West’s $66 million of risk management and trading assets as of December 31, 2008. This exposure relates to a long-term traditional wholesale
contract with a counterparty that has very high credit quality. Our risk management process assesses and monitors the financial exposure of
all counterparties. Despite the fact that the great majority of trading counterparties’ securities are rated as investment grade by the credit rating
agencies, there is still a possibility that one or more of these companies could default, resulting in a material impact on consolidated earnings
for a given period. Counterparties in the portfolio consist principally of financial institutions, major energy companies, municipalities and local
distribution companies. We maintain credit policies that we believe minimize overall credit risk to within acceptable limits. Determination of the
credit quality of our counterparties is based upon a number of factors, including credit ratings and our evaluation of their financial condition.
To manage credit risk, we employ collateral requirements, standardized agreements that allow for the netting of positive and negative
exposures associated with a single counterparty. Valuation adjustments are established representing our estimated credit losses on our overall
exposure to counterparties. See Note 1. “Derivative Accounting,” for a discussion of our credit valuation adjustment policy.
See Note 14 for a discussion of SFAS No. 157, “Fair Value Measurements,” which we adopted January 1, 2008.
19. Other Income and Other Expense

The following table provides detail of other income and other expense for 2008, 2007 and 2006 (dollars in thousands):
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2008 2007 2006

Other income:
Interest income $ 7,602 $ 11,656 $ 18,862
SunCor other income (a) 2,499 10,702 10,881
SO2 emission allowance sales and other — — 10,782
Investment gains – net — — 2,554
Miscellaneous 1,977 2,336 949
Total other income $ 12,078 $ 24,694 $ 44,028
Other expense:
Non-operating costs $ (13,030) $ (13,993) $ (16,200)
Investment losses – net (17,703) (2,341) —
Miscellaneous (843) (9,523) (11,577)
Total other expense $ (31,576) $ (25,857) $ (27,777)
(a) Includes equity earnings from a real estate joint venture that is a pass-through entity for tax purposes.
20. Variable-Interest Entities

In 1986, APS entered into agreements with three separate VIE lessors in order to sell and lease back interests in Palo Verde Unit 2. The
leases are accounted for as operating leases in accordance with GAAP. We are not the primary beneficiary of the Palo Verde VIEs and,
accordingly, do not consolidate them (see Note 9).
APS is exposed to losses under the Palo Verde sale leaseback agreements upon the occurrence of certain events that APS does not
consider to be reasonably likely to occur. Under certain circumstances (for example, the NRC issuing specified violation orders with respect to
Palo Verde or the occurrence of specified nuclear events), APS would be required to assume the debt associated with the transactions, make
specified payments to the equity participants, and take title to the leased Unit 2 interests, which, if appropriate, may be required to be written
down in value. If such an event had occurred as of December 31, 2008, APS would have been required to assume approximately $174 million of
debt and pay the equity participants approximately $162 million.
SunCor has certain land development arrangements that are required to be consolidated under FIN 46R, “Consolidation of Variable Interest
Entities.” The assets and non-controlling interests reflected in our Consolidated Balance Sheets related to these arrangements were
approximately $29 million at December 31, 2008 and $38 million at December 31, 2007.
21. Guarantees
We have issued parental guarantees and letters of credit and obtained surety bonds on behalf of some of our subsidiaries. Our parental
guarantees for Pinnacle West Marketing & Trading and APS relate to commodity energy products. As required by Arizona law, Pinnacle West
has also obtained a $10 million bond on behalf of APS in connection with the interim base rate surcharge approved by the ACC in
December 2008. See “2008 General Rate Case – Interim Rate Surcharge” in Note 3. Our credit support instruments enable APSES to offer
energy-related products and
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commodity energy. Non-performance or non-payment under the original contract by our subsidiaries would require us to perform under the
guarantee or surety bond. No liability is currently recorded on the Consolidated Balance Sheets related to Pinnacle West’s current
outstanding guarantees on behalf of our subsidiaries. At December 31, 2008 we had no guarantees that were in default. Our guarantees have
no recourse or collateral provisions to allow us to recover amounts paid under the guarantees. The amounts and approximate terms of our
guarantees and surety bonds for each subsidiary at December 31, 2008 are as follows (dollars in millions):
Guarantees Surety Bonds

T erm T erm
Amount (in years) Amount (in years)
Parental:
Pinnacle West Marketing & Trading $ 2 1 $ — —
APSES 14 1 11 1
APS — — 11 1
Total $ 16 $ 22
At December 31, 2008, Pinnacle West had approximately $7 million of letters of credit related to workers’ compensation expiring in 2009. We
intend to provide from either existing or new facilities for the extension, renewal or substitution of the letters of credit to the extent required.
APS has entered into various agreements that require letters of credit for financial assurance purposes. At December 31, 2008,
approximately $200 million of letters of credit were outstanding to support existing pollution control bonds of approximately $200 million. The
letters of credit are available to fund the payment of principal and interest of such debt obligations and expire in 2010. APS has also entered
into approximately $78 million of letters of credit to support certain equity lessors in the Palo Verde sale leaseback transactions (see Notes 9
and 20 for further details on the Palo Verde sale leaseback transactions). These letters of credit expire in 2010. APS intends to provide from
either existing or new facilities for the extension, renewal or substitution of the letters of credit to the extent required.
We enter into agreements that include indemnification provisions relating to liabilities arising from or related to certain of our agreements;
most significantly, APS has agreed to indemnify the equity participants and other parties in the Palo Verde sale leaseback transactions with
respect to certain tax matters. Generally, a maximum obligation is not explicitly stated in the indemnification provisions and, therefore, the
overall maximum amount of the obligation under such indemnification provisions cannot be reasonably estimated. Based on historical
experience and evaluation of the specific indemnities, we do not believe that any material loss related to such indemnification provisions is
likely.
22. Discontinued Operations

SunCor (real estate segment) – In 2008, 2007 and 2006, SunCor sold commercial properties, which are required to be reported as
discontinued operations on Pinnacle West’s Consolidated Statements of Income in accordance with SFAS No. 144. As a result of the sales, we
recorded a gain from discontinued operations of approximately $24 million ($40 million pretax) in 2008; $10 million ($17 million pretax) in 2007;
and $9 million ($15 million pretax) in 2006.
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Silverhawk – Includes activities related to the resolution of certain tax issues in 2008 associated with the sale of Silverhawk in 2005.
Other – Includes activities related to the APSES discontinued commodity-related energy services in 2008, and the associated revenues and
costs that were reclassified to discontinued operations in 2008, 2007 and 2006.
The following table provides revenue, income (loss) before income taxes and income (loss) after taxes classified as discontinued operations
in Pinnacle West’s Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006 (dollars in millions):
2008 2007 2006

Revenue:
SunCor – commercial operations $ 1 $ 6 $ 3
Other (primarily APSES) (a) 67 204 195
Total revenue $ 68 $ 210 $ 198
Income (loss) before taxes:

Silverhawk 13 — 1
Other (primarily APSES) (3) (1) —
Total income before taxes $ 47 $ 14 $ 18
Income (loss) after taxes:

Silverhawk 8 — —
Other (primarily APSES) (3) (1) 1
Total income after taxes $ 28 $ 8 $ 11
(a) APSES discontinued its commodity-related energy services in 2008 and the associated revenues and costs
were reclassified to discontinued operations in 2008, 2007 and 2006.
23. Real Estate Impairment Charge

During 2008, particularly late in the year, the real estate market weakened significantly resulting from the severe liquidity shortages in the
financial markets, oversupply of home inventories, tight credit markets and downward pressure on residential and commercial property values.
The effects of these factors have resulted in elevated cancellation rates, low sales absorption rates and overall weak consumer confidence. In
recent months, the overall economy has weakened significantly and fears of a prolonged recession are now pronounced due to rising
unemployment levels, further deterioration in consumer confidence and reduced consumer spending. Also, because of terms of renewal of
SunCor’s Secured Revolver (see Note 6), during the fourth quarter of 2008, we revised forecasts related to potential disposal of certain assets
classified as home inventory and as held and used. These factors resulted in 2008 impairment charges of $24 million related to our home
inventory, which is considered held for sale and $29 million related to our held and used assets. The held and used assets include a project
under development, an office building, a golf course, and completed home lots in Arizona. We determine fair value for our real estate assets
primarily based on the future cash flows that we estimate will be generated by each asset discounted for market risk. Our impairment
assessments and fair value determinations require significant judgment regarding key assumptions such as future sales prices, future
construction and land development costs, future sales timing, and discount rates. The assumptions are specific
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to each project and may vary among projects. The discount rates we used to determine fair values at December 31, 2008 ranged from 17% to
27%. Due to the judgment and assumptions applied in the estimation process, with regard to impairments, it is possible that actual results
could differ from those estimates. If conditions in the broader economy or the real estate markets worsen, or as a result of a change in
SunCor’s strategy, we may be required to record additional impairments.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING
(ARIZONA PUBLIC SERVICE COMPANY)
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f), for Arizona Public Service Company. Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated
Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2008. The
effectiveness of our internal control over financial reporting as of December 31, 2008 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which is included herein and also relates to the Company’s financial
statements.
February 19, 2009
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of
Arizona Public Service Company
Phoenix, Arizona
We have audited the accompanying balance sheets of Arizona Public Service Company (the “Company”) as of December 31, 2008 and 2007,
and the related statements of income, changes in common stock equity, and cash flows for each of the three years in the period ended
December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15. We also have audited the
Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible
for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and financial statement schedule
and an opinion on the Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive
and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
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Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2008, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
As reflected in the statements of changes in common stock equity, the Company adopted Statement of Financial Accounting Standards
No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Phoenix, Arizona
February 19, 2009
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STATEMENTS OF INCOME
2008 2007 2006
ELECTRIC OPERATING REVENUES $3,133,496 $2,936,277 $2,658,513
OPERATING EXPENSES
Fuel and purchased power 1,289,883 1,151,392 969,767
Depreciation and amortization 383,098 365,430 353,057
Income taxes (Notes 4 and S-1) 113,799 155,735 144,127
Other taxes 124,046 127,648 127,989
Total 2,698,096 2,510,282 2,260,571
OPERATING INCOME 435,400 425,995 397,942
OTHER INCOME (DEDUCTIONS)

Income taxes (Notes 4 and S-1) 6,538 4,578 5,200
Allowance for equity funds used during construction 18,636 21,195 14,312
Other income (Note S-4) 6,231 16,727 31,902
Other expense (Note S-4) (30,569) (21,630) (23,830)
Total 836 20,870 27,584
INTEREST DEDUCTIONS
Interest on long-term debt 170,071 161,030 149,240
Interest on short-term borrowings 13,432 9,564 9,529
Debt discount, premium and expense 4,702 4,639 4,363
Allowance for borrowed funds used during construction (14,313) (12,308) (7,336)
Total 173,892 162,925 155,796
NET INCOME $ 262,344 $ 283,940 $ 269,730
See Notes to Pinnacle West’s Consolidated Financial Statements and Supplemental Notes to Arizona Public Service Company’s Financial
Statements.
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BALANCE SHEETS
De ce m be r 31,
2008 2007
ASSETS
UTILITY PLANT (Notes 1, 6, 9 and 10)

Electric plant in service and held for future use $12,198,010 $11,582,862
Less accumulated depreciation and amortization 4,129,958 3,994,777
Net 8,068,052 7,588,085
Construction work in progress 571,977 622,693

Intangible assets, net of accumulated amortization of $280,633 and $250,268 131,243 105,225
Nuclear fuel, net of accumulated amortization of $55,343 and $68,375 89,323 69,271
Total utility plant 8,860,595 8,385,274
INVESTMENTS AND OTHER ASSETS

Nuclear decommissioning trust (Note 12) 343,052 379,347
Assets from risk management and trading activities (Note S-3) 33,675 41,603
Other assets 60,604 69,570
Total investments and other assets 437,331 490,520
CURRENT ASSETS
Cash and cash equivalents 71,544 52,151
Accrued utility revenues 100,089 106,873
Allowance for doubtful accounts (3,155) (4,265)
Materials and supplies (at average cost) 173,252 149,759
Fossil fuel (at average cost) 29,752 27,792
Assets from risk management and trading activities (Note S-3) 32,181 34,087
Deferred income taxes (Notes 4 and S-1) 79,694 38,707
Other 19,866 16,545
DEFERRED DEBITS
Deferred fuel and purchased power regulatory asset (Notes 1, 3, 4 and S-1) 7,984 110,928
Other regulatory assets (Notes 1, 3, 4 and S-1) 787,506 514,353
Unamortized debt issue costs 22,026 24,373
Other 82,735 78,934
Total deferred debits 900,251 728,588
TOTAL ASSETS $10,963,577 $10,321,402
Statements.
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BALANCE SHEETS
De ce m be r 31,
2008 2007
LIABILITIES AND EQUITY
CAPITALIZATION
Common stock $ 178,162 $ 178,162
Additional paid-in capital (Note 3) 2,117,789 2,105,466
Accumulated other comprehensive income (loss):
Pension and other postretirement benefits (Note 8) (26,960) (21,782)
Derivative instruments (98,742) 13,038
Common stock equity 3,339,150 3,351,441
Long-term debt less current maturities (Note 6) 2,850,242 2,876,881
Total capitalization 6,189,392 6,228,322
CURRENT LIABILITIES
Short-term borrowings 521,684 218,000
Current maturities of long-term debt (Note 6) 874 978
Accounts payable 233,529 239,923
Accrued taxes 219,129 374,444
Accrued interest 39,860 38,262
Customer deposits 77,452 71,376
Liabilities from risk management and trading activities (Note S-3) 69,585 19,921
Other 105,655 92,802
Total current liabilities 1,267,768 1,055,706
DEFERRED CREDITS AND OTHER

Deferred income taxes (Notes 4 and S-1) 1,401,412 1,250,028
Regulatory liabilities (Notes 1, 3, 4, and S-1) 587,586 642,564
Liability for asset retirements (Note 12) 275,970 281,903
Liabilities for pension and other postretirement benefits (Note 8) 635,327 469,945
Customer advances for construction 132,023 94,801
Liabilities from risk management and trading activities (Note S-3) 126,532 4,573
Other 347,567 293,560
Total deferred credits and other 3,506,417 3,037,374
COMMITMENTS AND CONTINGENCIES (SEE NOTES)
TOTAL LIABILITIES AND EQUITY $10,963,577 $10,321,402
Statements.
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STATEMENTS OF CASH FLOWS
2008 2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 262,344 $ 283,940 $ 269,730
Depreciation and amortization including nuclear fuel 416,709 395,890 381,173
Deferred fuel and purchased power (80,183) (196,136) (252,849)
Deferred fuel and purchased power amortization 183,126 231,106 265,337
Deferred fuel and purchased power regulatory disallowance — 14,370 —
Allowance for equity funds used during construction (18,636) (21,195) (14,312)
Deferred income taxes 145,157 (44,478) (305)
Change in mark-to-market valuations 7,792 (6,758) 6,893
Changes in current assets and liabilities:
Materials, supplies and fossil fuel (25,453) (29,776) (14,381)
Other current assets 128 (8,056) 3,666
Accounts payable (5,915) (2,797) 5,825
Other current liabilities 8,150 34,033 68,803
Change in margin and collateral accounts – assets 17,850 11,252 (205,752)
Change in margin and collateral accounts – liabilities (132,416) 27,624 (166,088)
Change in unrecognized tax benefits (92,064) 27,773 —
Change in other long-term assets 14,340 (23,577) 2,828
Change in other long-term liabilities 36,765 48,718 22,175
Net cash flow provided by operating activities 785,260 765,815 393,713
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (910,189) (924,166) (699,946)
Contributions in aid of construction 60,292 41,809 51,203
Allowance for borrowed funds used during construction (14,313) (12,308) (7,336)
Proceeds from sale of investment securities — 69,225 1,259,203
Purchases of investment securities — (36,525) (1,291,903)
Proceeds from nuclear decommissioning trust sales 317,619 259,026 254,651
Investment in nuclear decommissioning trust (338,361) (279,768) (275,393)
Other 5,517 1,211 (4,470)
Net cash flow used for investing activities (879,435) (881,496) (713,991)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt — — 395,481
Short-term borrowings – net 303,684 218,000 —
Equity infusion 7,601 39,548 212,820
Repayment and reacquisition of long-term debt (27,717) (1,586) (86,086)
Net cash flow provided by financing activities 113,568 85,962 352,215
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,393 (29,719) 31,937
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 52,151 81,870 49,933
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 71,544 $ 52,151 $ 81,870
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes, net of refunds $ 56,728 $ 186,183 $ 117,831
Interest, net of amounts capitalized $ 167,592 $ 165,279 $ 131,183
Statements.
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STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
2008 2007 2006
COMMON STOCK $ 178,162 $ 178,162 $ 178,162
ADDITIONAL PAID-IN CAPITAL 2,117,789 2,105,466 2,065,918
RETAINED EARNINGS
Balance at beginning of year 1,076,557 960,405 860,675
Net income 262,344 283,940 269,730
Common stock dividends (170,000) (170,000) (170,000)
Cumulative effect of change in accounting for income taxes (Note S-1) — 2,212 —
Balance at end of year 1,168,901 1,076,557 960,405
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Balance at beginning of year (8,744) 2,988 93,290
Pension and other postretirement benefits (Note 8):
Unrealized actuarial loss, net of tax benefit of ($5,075) and ($15,126) (7,597) (23,304) —
Prior service cost, net of tax benefit of ($463) — (713) —
Amortization to income:
Actuarial loss, net of tax expense of $1,393 and $1,238 2,130 1,908 —
Prior service cost, net of tax expense of $189 and $212 289 327 —
Minimum pension liability adjustment, net of tax expense of $27,424 — — 42,731
Adjustment to reflect a change in accounting (SFAS No. 158), net of tax expense of
$27,760 — — 43,401
Derivative instruments:
Net unrealized gain (loss), net of tax expense (benefit) of ($56,149), $1,369, and
($111,367) (85,670) 2,040 (173,872)
Reclassification of net realized (gains) losses to income, net of tax expense
(benefit) of ($16,890), $5,164, and ($1,657) (26,110) 8,010 (2,562)
Balance at end of year (125,702) (8,744) 2,988
TOTAL COMMON STOCK EQUITY $3,339,150 $3,351,441 $3,207,473
COMPREHENSIVE INCOME
Net income $ 262,344 $ 283,940 $ 269,730
Other comprehensive loss (116,958) (11,732) (133,703)
Total comprehensive income $ 145,386 $ 272,208 $ 136,027
Statements.
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Certain notes to Arizona Public Service Company’s financial statements are combined with the notes to Pinnacle West Capital
Corporation’s consolidated financial statements. Listed below are the consolidated notes to Pinnacle West Capital Corporation’s consolidated
financial statements, the majority of which also relate to Arizona Public Service Company’s financial statements. In addition, listed below are
the supplemental notes which are required disclosures for Arizona Public Service Company and should be read in conjunction with Pinnacle
West Capital Corporation’s Consolidated Notes.
Consolidated AP S’ Supplemental
Footnote Reference Footnote Reference
Summary of Significant Accounting Policies Note 1 —
New Accounting Standards Note 2 —
Regulatory Matters Note 3 —
Income Taxes Note 4 Note S-1
Lines of Credit and Short-Term Borrowings Note 5 —
Long-Term Debt and Liquidity Matters Note 6 —
Common Stock and Treasury Stock Note 7 —
Retirement Plans and Other Benefits Note 8 —
Leases Note 9 —
Jointly-Owned Facilities Note 10 —
Commitments and Contingencies Note 11 —
Asset Retirement Obligations Note 12 —
Selected Quarterly Financial Data (Unaudited) Note 13 Note S-2
Fair Value Measurements Note 14 —
Earnings Per Share Note 15 —
Stock-Based Compensation Note 16 —
Business Segments Note 17 —
Derivative and Energy Trading Accounting Note 18 Note S-3
Other Income and Other Expense Note 19 Note S-4
Variable Interest Entities Note 20 —
Guarantees Note 21 —
Discontinued Operations Note 22 —
Related Party Transactions — Note S-5
Real Estate Impairment Charge Note 23 —
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NOTES TO FINANCIAL STATEMENTS
S-1. Income Taxes

APS is included in Pinnacle West’s consolidated tax return. However, when Pinnacle West allocates income taxes to APS, it is done based
upon APS’ taxable income computed on a stand-alone basis, in accordance with the tax sharing agreement.
Certain assets and liabilities are reported differently for income tax purposes than they are for financial statements purposes. The tax effect
of these differences is recorded as deferred taxes. We calculate deferred taxes using the current income tax rates.
APS has recorded a regulatory asset and a regulatory liability related to income taxes on its Balance Sheets in accordance with SFAS
No. 71. The regulatory asset is for certain temporary differences, primarily the allowance for equity funds used during construction. The
regulatory liability relates to deferred taxes resulting primarily from pension and other postretirement benefits. APS amortizes these amounts as
the differences reverse.
As a result of a change in IRS guidance, we claimed a tax deduction related to an APS tax accounting method change on our 2001 federal
consolidated income tax return. The accelerated deduction resulted in a $200 million reduction in the current income tax liability and a
corresponding increase in the plant-related deferred tax liability. Our 2001 federal consolidated income tax return was the subject of an IRS
review and the IRS finalized its examination in the second quarter of 2008, which included a settlement on the tax accounting method change
and favorable resolution of other various tax matters. As a result of this settlement and the lapse of federal statutes prior to 2005, we
recognized net income tax benefits of approximately $30 million, including approximately $23 million related to interest.
We adopted FIN 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109,” on January 1, 2007. The
effect of applying the new guidance was not significantly different in terms of tax impacts from the application of our previous policy.
Accordingly, the impact to retained earnings upon adoption was immaterial. In addition, the guidance required us to reclassify certain tax
benefits, which had the effect of increasing accrued taxes and deferred debits by approximately $50 million to better reflect the expected timing
of the payment of taxes and interest. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding
interest and penalties, at the beginning and end of the period that are included in accrued taxes and other deferred credits on the Balance
Sheets (dollars in thousands):
2008 2007
Total unrecognized tax benefits, January 1 $154,473 $126,700
Additions for tax positions of the current year 12,893 —
Additions for tax positions of prior years 32,481 66,610
Reductions for tax positions of prior years for:
Changes in judgment (4,547) (37,419)
Settlements with taxing authorities (35,812) (1,418)
Lapses of applicable statute of limitations (97,079) —
Total unrecognized tax benefits, December 31 $ 62,409 $154,473
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Included in the balance of unrecognized tax benefits at December 31, 2008 and 2007 were approximately $15 million and $4 million,
respectively, of tax positions that, if recognized, would decrease our effective tax rate.
We reflect interest and penalties, if any, on unrecognized tax benefits in the statement of income as income tax expense. The amount of
interest recognized in the statement of income related to unrecognized tax benefits was a pre-tax benefit of $51 million for 2008 and a pre-tax
expense of $3 million for 2007.
The total amount of accrued liabilities for interest recognized in the balance sheets related to unrecognized tax benefits as of December 31,
2008 and 2007 was $5 million and $56 million, respectively. To the extent that matters are settled favorably, this amount could reverse and
decrease our effective tax rate. Additionally, as of December 31, 2008, we have recognized $1 million of interest expense to be paid on the
underpayment of income taxes for certain adjustments that we have filed, or will file, with the IRS.
The tax year ended December 31, 2005 and all subsequent tax years remain subject to examination by the IRS. With few exceptions, we are
no longer subject to state income tax examinations by tax authorities for years before 1999. We do not anticipate that there will be any
significant increases or decreases in our unrecognized tax benefits within the next 12 months.
The components of APS’ income tax expense are as follows (dollars in thousands):

2008 2007 2006
Current:
Federal $ (54,719) $168,607 $114,971
State 16,823 27,028 21,442
Total current (37,896) 195,635 136,413
Deferred 145,157 (44,478) 2,514
Total income tax expense $107,261 $151,157 $138,927
On the APS Statements of Income, federal and state income taxes are allocated between operating income and other income.
The following chart compares APS’ pretax income at the 35% federal income tax rate to income tax expense (dollars in thousands):
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2008 2007 2006
Federal income tax expense at 35% statutory rate $129,362 $152,284 $143,030
Increases (reductions) in tax expense resulting from:
State income tax net of federal income tax benefit 14,956 17,540 15,684
Credits and favorable adjustments related to prior years resolved in current year (28,873) (11,432) (10,518)
Medicare Subsidy Part-D (1,921) (3,100) (3,036)
Allowance for equity funds used during construction (see Note 1) (5,755) (6,900) (4,656)
Other (508) 2,765 (1,577)
Income tax expense $107,261 $151,157 $138,927
The following table shows the net deferred income tax liability recognized on the APS Balance Sheets (dollars in thousands):
December 31,
2008 2007
Current asset $ 79,694 $ 38,707
Long-term liability (1,401,412) (1,250,028)
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The components of the net deferred income tax liability were as follows (dollars in thousands):
December 31,
2008 2007
DEFERRED TAX ASSETS
Regulatory liabilities:
Asset retirement obligation $ 194,326 $ 214,607
Federal excess deferred income tax 9,428 11,091
Tax benefit of Medicare subsidy 4,197 11,727
Other 9,789 26,579
Risk management and trading activities 132,383 12,112
Deferred gain on Palo Verde Unit 2 sale-leaseback 12,665 14,408
Other 110,019 116,491
Total deferred tax assets 737,963 604,635
DEFERRED TAX LIABILITIES

Plant-related (1,709,872) (1,538,183)
Risk management and trading activities (20,732) (17,483)
Regulatory assets:
Deferred fuel and purchased power (3,157) (43,661)
Deferred fuel and purchased power – mark-to-market (46,593) (2,782)
Pension and other postretirement benefits (186,916) (133,120)
Other (92,411) (80,727)
Total deferred tax liabilities (2,059,681) (1,815,956)
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S-2. Selected Quarterly Financial Data (Unaudited)

Quarterly financial information for 2008 and 2007 is as follows (dollars in thousands):
2008 Quarter Ended, 2008

Net income (6,364) 125,382 159,754 (16,428) 262,344
2007 Quarter Ended, 2007

Net income 4,317 75,090 204,257 276 283,940
S-3. Derivative and Energy Trading Accounting

APS is exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity, natural gas and coal. As
part of its overall risk management program, APS uses various commodity instruments that qualify as derivatives to hedge purchases and
sales of electricity and fuels. As of December 31, 2008, APS hedged certain exposures to these risks for a maximum of 39 months.
Cash Flow Hedges

The changes in the fair value of APS’ hedged positions included in the APS Statements of Income, after consideration of amounts deferred
under the PSA, for the years ended December 31, 2008, 2007 and 2006 are comprised of the following (dollars in thousands):
2008 2007 2006

Gains (losses) on the ineffective portion of derivatives qualifying for hedge
accounting $(1,874) $1,430 $(5,666)
Losses from the change in options’ time value excluded from measurement of
effectiveness — — (10)
Gains from the discontinuance of cash flow hedges — 150 178
During 2009, APS estimates that a net loss of $91 million before income taxes will be reclassified from accumulated other comprehensive
income as an offset to the effect of market price changes for the related hedged transactions. To the extent the amounts are eligible for
inclusion in the PSA, the amounts will be recorded as either a regulatory asset or liability and have no effect on earnings (see Note 3).
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APS adopted FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain
Contracts” (FIN 39-1) on January 1, 2008. In accordance with this guidance, APS elected to offset the fair value amounts for derivative
instruments, including collateral, executed with the same counterparty under a master netting arrangement. The following table summarizes our
assets and liabilities from risk management and trading activities in accordance with FIN 39-1 at December 31, 2008 and 2007 (dollars in
thousands):
and Other Current Credits and Net Asset
December 31, 2008 Current Assets Assets Liabilities Other (Liability)
Mark-to-market $ 18,759 $ 33,675 $(190,478) $ (144,331) $(282,375)
Margin account 15,222 — 50,136 4,247 69,605
Collateral provided to counterparties — — 71,008 13,552 84,560
Collateral provided from counterparties (1,800) — (251) — (2,051)
Total $ 32,181 $ 33,675 $ (69,585) $ (126,532) $(130,261)
and Other Current Credits and Net Asset
December 31, 2007 Current Assets Assets Liabilities Other (Liability)
Mark-to-market $ 2,815 $ 41,603 $ (26,197) $ (4,573) $ 13,648
Margin account 30,650 — 6,148 — 36,798
Collateral provided to counterparties 622 — 128 — 750
Collateral provided from counterparties — — — — —
Total $ 34,087 $ 41,603 $ (19,921) $ (4,573) $ 51,196
We maintain a margin account with a broker to support our risk management and trading activities. Cash is deposited with the broker in this
account at the time futures or options contracts are initiated. The change in market value of these contracts (reflected in mark-to-market)
requires adjustment of the margin account balance.
See Note 18 for discussion of credit risk and see Note 14 for a discussion of SFAS No. 157, “Fair Value Measurements,” which we adopted
January 1, 2008.
S-4. Other Income and Other Expense

The following table provides detail of APS’ other income and other expense for 2008, 2007 and 2006 (dollars in thousands):
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2008 2007 2006

Other income:
Interest income $ 3,863 $ 10,961 $ 16,526
SO2 emission allowance sales and other (a) 392 1,001 10,782
Investment gains – net — 2,429 3,645
Miscellaneous 1,976 2,336 949
Total other income $ 6,231 $ 16,727 $ 31,902
Other expense:
Non-operating costs (a) $ (10,538) $ (12,712) $ (15,415)
Asset dispositions (5,779) (1,981) (1,851)
Investment losses – net (9,438) — —
Miscellaneous (4,814) (6,937) (6,564)
Total other expense $ (30,569) $ (21,630) $ (23,830)
(a) As defined by the FERC, includes below-the-line non-operating utility income and expense (items excluded
from utility rate recovery).
S-5. Related Party Transactions

From time to time, APS enters into transactions with Pinnacle West or Pinnacle West’s other subsidiaries. The following table summarizes
the amounts included in the APS Statements of Income and Balance Sheets related to transactions with affiliated companies (dollars in
millions):

2008 2007 2006
Electric operating revenues:
Pinnacle West Marketing & Trading (a) $4 $ 4 $ 6
Other:
Equity infusion from Pinnacle West $8 $40 $210
(a) Pinnacle West Marketing & Trading ended operations December 2008. These operations were conducted by
a division of Pinnacle West through the end of 2006. By the end of 2008, substantially all the contracts were
transferred to APS or expired.
As of December 31,
2008 2007
Net affiliate receivables (payables):
Pinnacle West Marketing & Trading (a) $ (1) $ 11
Pinnacle West (11) (9)
Total $ (12) $ 2
(a) Pinnacle West Marketing & Trading began operations in early 2007. These operations were conducted by a
division of Pinnacle West through the end of 2006. By the end of 2008, substantially all the contracts were
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Electric revenues include sales of electricity to affiliated companies at contract prices. However, these transactions are settled net and
reported net in accordance with EITF 03-11, “Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB
Statement No. 133 and Not ‘Held for Trading Purposes’ As Defined in EITF Issue No. 02-3.”
On May 2, 2008, Pinnacle West filed a notice with the ACC that would allow Pinnacle West to infuse up to $400 million of equity into APS
in the event Pinnacle West deems it appropriate to do so to strengthen or maintain APS’ financial integrity. Under Arizona law and
implementing regulatory decisions, Pinnacle West is required to give such notice at least 120 days prior to an equity infusion into APS that
exceeds $150 million in a single calendar year. On August 6, 2008, the ACC issued an order permitting the infusion to occur on or before
December 31, 2009.
On November 8, 2005, the ACC approved Pinnacle West’s request to infuse more than $450 million of equity into APS during 2005 or 2006.
These infusions consisted of about $250 million of the proceeds of Pinnacle West’s common equity issuance on May 2, 2005 and about
$210 million of the proceeds from the sale of Silverhawk in January 2006. In May 2007, Pinnacle West infused approximately $40 million of
equity into APS, consisting of proceeds of stock issuances in 2006 under Pinnacle West’s Investors Advantage Plan (direct stock purchase
and dividend reinvestment plan) and employee stock plans.
Intercompany receivables primarily include amounts related to the intercompany sales of electricity. Intercompany payables primarily
include amounts related to the intercompany purchases of electricity. Intercompany receivables and payables are generally settled on a current
basis in cash.
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PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY

SCHEDULE I – CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF INCOME
(in thousands)
2008 2007(a) 2006
Operating revenues $ 52 $ 6,708 $119,224
Operating expenses
Fuel and purchased power (19,970) (35,541) 101,360
Other operating expenses 9,016 5,659 9,607
Total (10,954) (29,882) 110,967
Operating income 11,006 36,590 8,257
Other
Equity in earnings of subsidiaries 226,893 287,078 324,504
Other income 1,248 225 2,208
Total 228,141 287,303 326,712
Interest expense 17,550 17,190 20,522
Income from continuing operations 221,597 306,703 314,447
Income tax benefit (12,374) (440) (12,898)
Income from continuing operations – net of income taxes 233,971 307,143 327,345
Income (loss) from discontinued operations 8,154 — (90)
Net income $242,125 $307,143 $327,255
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CONDENSED BALANCE SHEETS
(in thousands)
Balan ce at De ce m be r 31,
2008 2007 (a)
Assets
Current assets
Cash and cash equivalents $ 6,262 $ 137
Other current assets 367 1,262
Investments and other assets

Investments in subsidiaries 3,661,710 3,711,737
Deferred income taxes — 11,806
Other assets 20,029 23,591
Total investments and other assets 3,681,739 3,747,134
Total Assets $ 3,753,944 $ 3,830,536
Liabilities and Common Stock Equity
Current liabilities
Accounts payable $ 6,310 $ 22,177
Accrued taxes (96,188) (86,081)
Short-term borrowings 144,000 115,000
Deferred income taxes — 7,682
Liabilities from risk management and trading activities — 2
Other current liabilities 8,027 18,019
Total current liabilities 62,149 76,799
Long-term debt less current maturities 175,000 175,000
Deferred credits and other

Deferred income taxes 18,027 —
Other 25,489 24,878
Total deferred credits and other 70,816 47,126
Common stock equity

Common stock 2,148,469 2,133,733
Accumulated other comprehensive income (loss) (146,698) (15,863)
Total common stock equity 3,445,979 3,531,611
Total Liabilities and Common Stock Equity $ 3,753,944 $ 3,830,536
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CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Ye ar En de d De ce m be r 31
2008 2007(a) 2006
Cash flows from operating activities

Net Income $ 242,125 $ 307,143 $ 327,255
Equity in earnings of subsidiaries – net (226,893) (287,078) (324,504)
Depreciation and amortization 210 320 470
Deferred income taxes 31,954 (24,192) 30,384
Change in mark-to-market valuations (19,975) 53,228 21,698
Accounts payable (14,134) (57,978) (55,675)
Accrued taxes (5,230) 25,127 (49,529)
Change in margin and collateral accounts – net — (11,602) 75,605
Other net (7,914) (104,968) (30,718)
Net cash flow (used for) provided by operating activities 39,081 12,543 (2,198)
Cash flows from investing activities

Investments in subsidiaries (18,765) (83,993) (4,677)
Repayments of loans from subsidiaries 10,194 14,996 18,065
Advances of loans to subsidiaries (22,554) (19,796) (15,379)
Dividends received from subsidiaries 170,000 180,000 180,000
Purchases of investment securities — — (147,501)
Proceeds from sale of investment securities — — 147,501
Net cash flow provided by investing activities 138,875 91,207 178,009
Cash flows from financing activities

Issuance of long-term debt — — 175,000
Short-term borrowings and payments – net 28,729 87,371 27,900
Repayment of long-term debt — (115) (298,687)
Common stock equity issuance 3,687 19,593 35,834
Net cash flow used for financing activities (171,831) (103,624) (261,174)
Net increase (decrease) in cash and cash equivalents 6,125 126 (85,363)
Cash and cash equivalents at beginning of year 137 11 85,374
Cash and cash equivalents at end of year $ 6,262 $ 137 $ 11
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SCHEDULE II – RESERVE FOR UNCOLLECTIBLES
Column C
Column B Additions Column E
Balance at Charged to Charged Balance
Column A beginning cost and to other Column D at end of
Description of period expenses accounts Deductions period
Reserve for uncollectibles:
2008 $4,782 $6,177 $— $7,576 $3,383
2007 5,597 4,130 — 4,945 4,782
2006 4,979 4,096 — 3,478 5,597
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SCHEDULE II – RESERVE FOR UNCOLLECTIBLES
Column C
Column B Additions Column E
Balance at Charged to Charged Balance
Column A beginning cost and to other Column D at end of
Description of period expenses accounts Deductions period
Reserve for uncollectibles:
2008 $4,265 $5,924 $— $7,034 $3,155
2007 4,223 5,059 — 5,017 4,265
2006 3,568 4,096 — 3,441 4,223
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures
The term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 (the
“Exchange Act”) (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to a
company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
Pinnacle West’s management, with the participation of Pinnacle West’s Chief Executive Officer and Chief Financial Officer, have evaluated
the effectiveness of Pinnacle West’s disclosure controls and procedures as of December 31, 2008. Based on that evaluation, Pinnacle West’s
Chief Executive Officer and Chief Financial Officer have concluded that, as of that date, Pinnacle West’s disclosure controls and procedures
were effective.
APS’ management, with the participation of APS’ Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of
APS’ disclosure controls and procedures as of December 31, 2008. Based on that evaluation, APS’ Chief Executive Officer and Chief Financial
Officer have concluded that, as of that date, APS’ disclosure controls and procedures were effective.
(b) Management’s Annual Reports on Internal Control Over Financial Reporting
Reference is made to “Management’s Report on Internal Control Over Financial Reporting (Pinnacle West Capital Corporation)” on page 79
of this report and “Management’s Report on Internal Control Over Financial Reporting (Arizona Public Service Company)” on page 142 of this
report.
(c) Attestation Reports of the Registered Public Accounting Firm
Reference is made to “Report of Independent Registered Public Accounting Firm” on page 80 of this report and “Report of Independent
Registered Public Accounting Firm” on page 143 of this report on the internal control over financial reporting of Pinnacle West and APS,
respectively.
(d) Changes In Internal Control Over Financial Reporting
The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to
provide reasonable assurance regarding the reliability of
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financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
No change in Pinnacle West’s or APS’ internal control over financial reporting occurred during the fiscal quarter ended December 31, 2008
that materially affected, or is reasonably likely to materially affect, Pinnacle West’s or APS’ internal control over financial reporting.
ITEM 9B. OTHER INFORMATION

None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE OF PINNACLE WEST
Reference is hereby made to “Information About Our Board, Its Committees and Our Corporate Governance,” “Election of Directors” and to
“Section 16(a) Beneficial Ownership Reporting Compliance” in the Pinnacle West Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 20, 2009 (the “2009 Proxy Statement”) and to the Supplemental Item – “Executive Officers of Pinnacle West” in
Part I of this report.
Pinnacle West has adopted a Code of Ethics for Financial Professionals that applies to professional employees in the areas of finance,
accounting, internal audit, energy risk management, marketing and trading financial control, tax, investor relations, and treasury and also
includes Pinnacle West’s Chief Executive Officer, Chief Financial Officer, Controller, Treasurer, and officers holding substantially equivalent
positions at Pinnacle West’s subsidiaries. The Code of Ethics for Financial Professionals is posted on Pinnacle West’s website at
www.pinnaclewest.com. Pinnacle West intends to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments
to, or waivers from, provisions of the Code of Ethics for Financial Professionals by posting such information on Pinnacle West’s website.
ITEM 11. EXECUTIVE COMPENSATION

Reference is hereby made to “Information About Our Board, Its Committees and Our Corporate Governance – How are directors
compensated?” and “Executive Compensation” in the 2009 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF

CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Reference is hereby made to “Shares of Pinnacle West Stock Owned by Management and Large Shareholders” in the 2009 Proxy Statement.
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Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information as of December 31, 2008 with respect to our compensation plans and individual compensation
arrangements under which our equity securities are authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
remaining available
for future issuance
Number of securities Weighted-average under equity
to be issued upon exercise price of compensation plans
exercise of outstanding (excluding securities
outstanding options, options, warrants reflected in column
warrants and rights and rights (a))
P lan Category (a) 1 (b)2 (c) 3
Equity compensation plans approved by security holders 1,987,375 $ 39.81 7,078,187
Equity compensation plans not approved by security holders — — —
Total 1,987,375 $ 39.81 7,078,187
1 This amount includes shares subject to outstanding options as well as shares subject to outstanding
performance share awards and restricted stock unit awards at the maximum amount of shares issuable under
such awards. However, payout of the performance share awards is contingent on the Company reaching
certain levels of performance during a three-year performance period. If the performance criteria for these
awards are not fully satisfied, the award recipient will receive less than the maximum number of shares
available under these grants and may receive nothing from these grants.
2 The weighted average exercise price in this column does not take performance share awards or restricted
stock unit awards into account, as those awards have no exercise price.
3 Awards can take the form of options, stock appreciation rights, restricted stock, performance shares,
performance share units, performance cash, stock grants, dividend equivalents, and restricted stock units..
Equity Compensation Plans Approved By Security Holders
Amounts in column (a) in the table above include shares subject to awards outstanding under three equity compensation plans that were
approved by our shareholders: (a) the Pinnacle West Capital Corporation 1994 Long-Term Incentive Plan, under which no new stock awards
may be granted; (b) the Pinnacle West Capital Corporation 2002 Long-Term Incentive Plan (the “2002 Plan”), under which no new stock
awards may be granted; and (c) the Pinnacle West Capital
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Corporation 2007 Long-Term Incentive Plan (the “2007 Plan”), which was approved by our shareholders at our 2007 annual meeting of
shareholders. Although we cannot issue additional awards under the 2002 Plan, shares subject to outstanding awards under the 2002 Plan that
expire or are cancelled or terminated will be available for issuance under the 2007 Plan. See Note 16 of the Notes to Consolidated Financial
Statements for additional information regarding these plans.
Equity Compensation Plans Not Approved By Security Holders
The Company does not have any equity compensation plans under which shares can still be issued that have not been approved by
shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND

DIRECTOR INDEPENDENCE
Reference is hereby made to “Information About Our Board, Its Committees and Our Corporate Governance” and to “Related Party
Transactions” in the 2009 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT

FEES AND SERVICES
Pinnacle West
Reference is hereby made to “Audit Matters – What fees were paid to our independent registered public accountants in 2007 and 2008?”
and “What are the Audit Committee’s pre-approval policies?” in the 2009 Proxy Statement.
APS
The following fees were paid to APS’ independent registered public accountants, Deloitte & Touche LLP, for the last two fiscal years:
Type of S e rvice 2007 2008

Audit Fees (1) $1,921,601 $1,935,056
Audit-Related Fees (2) 178,840 233,025
Tax Fees (3) 7,751 8,400
(1) The aggregate fees billed for services rendered for the audit of annual financial statements and for review of
financial statements included in Reports on Form 10-Q.
(2) The aggregate fees billed for assurance services that are reasonably related to the performance of the audit
or review of the financial statements that are not included in Audit Fees reported above, which primarily
consist of fees for employee benefit plan audits.
(3) The aggregate fees billed primarily for tax compliance and tax planning.
Pinnacle West’s Audit Committee pre-approves each audit service and non-audit service to be provided by APS’ independent public
accountants. The Audit Committee has delegated to the Chairman of the Audit Committee the authority to pre-approve audit and non-audit
services to be
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performed by the independent public accountants if the services are not expected to cost more than $50,000. The Chairman must report any
pre-approval decisions to the Audit Committee at its next scheduled meeting. All of the services performed by Deloitte & Touche LLP for APS
were pre-approved by the Audit Committee.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules

See the Index to Financial Statements and Financial Statement Schedule in Part II, Item 8.
Exhibits Filed
The documents listed below are being filed or have previously been filed on behalf of Pinnacle West or APS and are incorporated herein by
reference from the documents indicated and made a part hereof. Exhibits not identified as previously filed are filed herewith.
Exhibit Date
No. Registrant(s) Description Previously Filed as Exhibit: a Filed
3.1 Pinnacle West Articles of Incorporation, restated as 3.1 to Pinnacle West/APS June 30, 2008 8-7-08
of May 21, 2008 Form 10-Q Report, File Nos. 1-8962 and 1-
4473
3.2 Pinnacle West Pinnacle West Capital Corporation

Bylaws, amended as of January 21,
2009
3.3 APS Articles of Incorporation, restated as 4.2 to APS’ Form S-3 Registration Nos. 33- 9-29-93
of May 25, 1988 33910 and 33-55248 by means of
September 24, 1993 Form 8-K Report, File
No. 1-4473
3.4 APS Arizona Public Service Company

Bylaws, amended as of December 16,
2008
4.1 Pinnacle West Specimen Certificate of Pinnacle West 4.12 to Pinnacle West April 29, 2005 5-2-05
Capital Corporation Common Stock, no Form 8-K Report, File No. 1-8962
par value
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Exhibit Date
4.2 Pinnacle West Indenture dated as of January 1, 1995 4.6 to APS’ Registration Statement Nos. 33- 1-11-95
APS among APS and The Bank of New York 61228 and 33-55473 by means of January 1,
Mellon, as Trustee 1995 Form 8-K Report, File No. 1-4473
4.2a Pinnacle West First Supplemental Indenture dated as 4.4 to APS’ Registration Statement Nos. 33- 1-11-95
APS of January 1, 1995 61228 and 33-55473 by means of January 1,
1995 Form 8-K Report, File No. 1-4473
4.3 Pinnacle West Indenture dated as of November 15, 4.5 to APS’ Registration Statements Nos. 11-22-96
APS 1996 between APS and The Bank of 33-61228, 33-55473, 33-64455 and 333- 15379
New York, as Trustee by means of November 19, 1996 Form 8-K
Report, File No. 1-4473
4.3a Pinnacle West First Supplemental Indenture dated as 4.6 to APS’ Registration Statements Nos. 11-22-96
APS of November 15, 1996 33-61228, 33-55473, 33-64455 and 333-15379
by means of November 19, 1996 Form 8-K
4.3b Pinnacle West Second Supplemental Indenture dated 4.10 to APS’ Registration Statement Nos. 4-9-97
APS as of April 1, 1997 33-55473, 33-64455 and 333-15379 by means
of April 7, 1997 Form 8-K Report, File No. 1-
4473
4.3c Pinnacle West Third Supplemental Indenture dated as 10.2 to Pinnacle West’s March 31, 2003 5-15-03
APS of November 1, 2002 Form 10-Q Report, File No. 1-8962
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Exhibit Date
4.4 Pinnacle West Indenture dated as of December 1, 2000 4.1 to Pinnacle West’s Registration 12-21-00
between the Company and The Bank Statement No. 333-52476
of New York, as Trustee, relating to
Senior Unsecured Debt Securities
4.5 Pinnacle West Indenture dated as of December 1, 2000 4.2 to Pinnacle West’s Registration 12-21-00
between the Company and The Bank Statement No. 333-52476
of New York, as Trustee, relating to
Subordinated Unsecured Debt
Securities
4.6 Pinnacle West Indenture dated as of January 15, 1998 4.10 to APS’ Registration Statement Nos. 1-16-98
APS between APS and The Bank of New 333-15379 and 333-27551 by means of
York Mellon Trust Company N.A. January 13, 1998 Form 8-K Report, File
(successor to JPMorgan Chase Bank, No. 1-4473
N.A., formerly known as The Chase
Manhattan Bank), as Trustee
4.6a Pinnacle West Fifth Supplemental Indenture dated as 4.1 to APS’ September 30, 2001 Form 10-Q, 11-6-01
APS of October 1, 2001 File No. 1-4473
4.6b Pinnacle West Sixth Supplemental Indenture dated as 4.1 to APS’ Registration Statement Nos. 2-28-02
APS of March 1, 2002 333-63994 and 333-83398 by means of
February 26, 2002 Form 8-K Report, File
No. 1-4473
4.6c Pinnacle West Seventh Supplemental Indenture dated 4.1 to APS’ Registration Statement No. 333- 5-9-03
APS as of May 1, 2003 90824 by means of May 7, 2003 Form 8-K
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Exhibit Date
4.6d Pinnacle West Eighth Supplemental Indenture dated 4.1 to APS’ Registration Statement No. 333- 6-28-04
APS as of June 15, 2004 106772 by means of June 24, 2004 Form 8-K
4.6e Pinnacle West Ninth Supplemental Indenture dated as 4.1 to APS’ Registration Statements Nos. 8-22-05
APS of August 15, 2005 333-106772 and 333-121512 by means of
August 17, 2005 Form 8-K Report, File
No. 1-4473
4.6f APS Tenth Supplemental Indenture dated 4.1 to APS’ July 31, 2006 Form 8-K Report, 8-2-06
as of August 1, 2006 File No. 1-4473
4.7 Pinnacle West Amended and Restated Rights 4.1 to Pinnacle West’s March 22, 1999 4-19-99
Agreement, dated as of March 26, Form 8-K Report, File No. 1-8962
1999, between Pinnacle West Capital
Corporation and BankBoston, N.A., as
Rights Agent, including (i) as Exhibit A
thereto the form of Amended
Certificate of Designation of Series A
Participating Preferred Stock of
Pinnacle West Capital Corporation, (ii)
as Exhibit B thereto the form of Rights
Certificate and (iii) as Exhibit C thereto
the Summary of Right to Purchase
Preferred Shares
4.7a Pinnacle West Amendment to Rights Agreement, 4.1 to Pinnacle West’s March 31, 2002 5-15-02
effective as of January 1, 2002 Form 10-Q Report, File No. 1-8962
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Exhibit Date
4.8 Pinnacle West Second Amended and Restated 4.4 to Pinnacle West’s June 23, 2004 8-9-04
Investor’s Advantage Plan dated as of Form 8-K Report, File No. 1-8962
June 23, 2004
4.8a Pinnacle West Third Amended and Restated 4.1 to Pinnacle West’s Form S-3 11-25-08
Investors Advantage Plan dated as of Registration Statement No. 333-155641
November 25, 2008
4.9 Pinnacle West Agreement, dated March 29, 1988, 4.1 to Pinnacle West’s 1987 Form 10-K 3-30-88
relating to the filing of instruments Report, File No. 1-8962
defining the rights of holders of long-
term debt not in excess of 10% of the
Company’s total assets
4.9a Pinnacle West Agreement, dated March 21, 1994, 4.1 to APS’ 1993 Form 10-K Report, File 3-30-94
APS relating to the filing of instruments No. 1-4473
defining the rights of holders of APS
long-term debt not in excess of 10% of
APS’ total assets
10.1.1 Pinnacle West Two separate Decommissioning Trust 10.2 to APS’ September 30, 1991 Form 10-Q 11-14-91
APS Agreements (relating to PVNGS Units 1 Report, File No. 1-4473
and 3, respectively), each dated July 1,
1991, between APS and Mellon Bank,
N.A., as Decommissioning Trustee
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Exhibit Date
10.1.1a Pinnacle West Amendment No. 1 to Decommissioning 10.1 to APS’ 1994 Form 10- K Report, File 3-30-95
APS Trust Agreement (PVNGS Unit 1), No. 1-4473
dated as of December 1, 1994
10.1.1b Pinnacle West Amendment No. 1 to Decommissioning 10.2 to APS’ 1994 Form 10-K Report, File 3-30-95
APS Trust Agreement (PVNGS Unit 3), No. 1-4473
dated as of December 1, 1994
10.1.1c Pinnacle West Amendment No. 2 to APS 10.4 to APS’ 1996 Form 10-K Report , File 3-28-97
APS Decommissioning Trust Agreement No. 1-4473
(PVNGS Unit 1) dated as of July 1, 1991
10.1.1d Pinnacle West Amendment No. 2 to APS 10.6 to APS’ 1996 Form 10-K Report, File 3-28-97
APS Decommissioning Trust Agreement No. 1-4473
(PVNGS Unit 3) dated as of July 1, 1991
10.1.1e Pinnacle West Amendment No. 3 to the 10.2 to Pinnacle West’s March 31, 2002 5-15-02
APS Decommissioning Trust Agreement Form 10-Q Report, File No. 1-8962
(PVNGS Unit 1), dated as of March 18,
2002
10.1.1f Pinnacle West Amendment No. 3 to the 10.4 to Pinnacle West’s March 2002 Form 5-15-02
APS Decommissioning Trust Agreement 10-Q Report, File No. 1-8962
(PVNGS Unit 3), dated as of March 18,
2002
10.1.1g Pinnacle West Amendment No. 4 to the 10.3 to Pinnacle West’s 2003 Form 10-K 3-15-04
APS Decommissioning Trust Agreement Report, File No. 1-8962
(PVNGS Unit 1), dated as of
December 19, 2003
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Exhibit Date
10.1.1h Pinnacle West Amendment No. 4 to the 10.5 to Pinnacle West’s 2003 Form 10-K 3-15-04
(PVNGS Unit 3), dated as of
December 19, 2003
10.1.1i Pinnacle West Amendment No. 5 to the 10.1 to Pinnacle West/APS March 31, 2007 5-9-07
APS Decommissioning Trust Agreement Form 10-Q Report, File Nos. 1-8962 and 1-
(PVNGS Unit 1), dated as of May 1, 4473
2007
10.1.1j Pinnacle West Amendment No. 5 to the 10.2 to Pinnacle West/APS March 31, 2007 5-9-07
APS Decommissioning Trust Agreement Form 10-Q Report, File Nos. 1-8962 and
(PVNGS Unit 3), dated as of May 1, 104473
2007
10.1.2 Pinnacle West Amended and Restated 10.1 to Pinnacle West’s 1991 Form 10-K 3-26-92
(PVNGS Unit 2) dated as of January 31,
1992, among APS, Mellon Bank, N.A.,
as Decommissioning Trustee, and
State Street Bank and Trust Company,
as successor to The First National
Bank of Boston, as Owner Trustee
under two separate Trust Agreements,
each with a separate Equity Participant,
and as Lessor under two separate
Facility Leases, each relating to an
undivided interest in PVNGS Unit 2
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Exhibit Date
10.1.2a Pinnacle West First Amendment to Amended and 10.2 to APS’ 1992 Form 10-K Report, File 3-30-93
APS Restated Decommissioning Trust No. 1-4473
Agreement (PVNGS Unit 2), dated as of
November 1, 1992
10.1.2b Pinnacle West Amendment No. 2 to Amended and 10.3 to APS’ 1994 Form 10-K Report, File 3-30-95
APS Restated Decommissioning Trust No. 1-4473
November 1, 1994
10.1.2c Pinnacle West Amendment No. 3 to Amended and 10.1 to APS’ June 30, 1996 Form 10-Q 8-9-96
APS Restated Decommissioning Trust Report, File No. 1-4473
June 20, 1996
10.1.2d Pinnacle West Amendment No. 4 to Amended and APS 10.5 to APS’ 1996 Form 10-K Report, 3-28-97
APS Restated Decommissioning Trust File No. 1-4473
Agreement (PVNGS Unit 2) dated as of
December 16, 1996
10.1.2e Pinnacle West Amendment No. 5 to the Amended and 10.1 to Pinnacle West’s March 31, 2002 5-15-02
APS Restated Decommissioning Trust Form 10-Q Report, File No. 1-8962
June 30, 2000
10.1.2f Pinnacle West Amendment No. 6 to the Amended and 10.3 to Pinnacle West’s March 31, 2002 5-15-02
APS Restated Decommissioning Trust Form 10-Q Report, File No. 1-8962
March 18, 2002
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Exhibit Date
10.1.2g Pinnacle West Amendment No. 7 to the Amended and 10.4 to Pinnacle West’s 2003 Form 10-K 3-15-04
December 19, 2003
10.1.2h Pinnacle West Amendment No. 8 to the Amended and 10.1.2h to Pinnacle West’s 2007 Form 10-K 2-27-08
April 1, 2007
10.2.1b Pinnacle West Arizona Public Service Company 10.4 to APS’ 1988 Form 10-K Report, File 3-8-89
APS Deferred Compensation Plan, as No. 1-4473
restated, effective January 1, 1984, and
the second and third amendments
thereto, dated December 22, 1986, and
December 23, 1987 respectively
10.2.1ab Pinnacle West Third Amendment to the Arizona 10.3A to APS’ 1993 Form 10-K Report, File 3-30-94
APS Public Service Company Deferred No. 1-4473
Compensation Plan, effective as of
January 1, 1993
10.2.1bb Pinnacle West Fourth Amendment to the Arizona 10.2 to APS’ September 30, 1994 Form 10-Q 11-10-94
APS Public Service Company Deferred Report, File No. 1-4473
Compensation Plan effective as of May
1, 1993
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Exhibit Date
10.2.1cb Pinnacle West Fifth Amendment to the Arizona Public 10.3A to APS’ 1996 Form 10-K Report, File 3-28-97
APS Service Company Deferred No. 1-4473
Compensation Plan effective January 1,
1997
10.2.1db Pinnacle West Sixth Amendment to the Arizona Public 10.8A to Pinnacle West’s 2000 Form 10-K 3-14-01
APS Service Company Deferred Report, File No. 1-8962
Compensation Plan effective January 1,
2001
10.2.2b Pinnacle West Directors’ Deferred Compensation 10.1 to APS’ June 30, 1986 Form 10-Q 8-13-86
APS Plan, as restated, effective January 1, Report, File No. 1-4473
1986
10.2.2ab Pinnacle West Second Amendment to the Arizona 10.2A to APS’ 1993 Form 10-K Report, File 3-30-94
APS Public Service Company Directors’ No. 1-4473
Deferred Compensation Plan, effective
as of January 1, 1993
10.2.2bb Pinnacle West Third Amendment to the Arizona 10.1 to APS’ September 30, 1994 Form 10-Q 11-10-94
APS Public Service Company Directors’ Report, File No. 1-4473
as of May 1, 1993
10.2.2cb Pinnacle West Fourth Amendment to the Arizona 10.8A to Pinnacle West’s 1999 Form 10-K 3-30-00
APS Public Service Company Directors Report, File No. 1-8962
as of January 1, 1999
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Exhibit Date
10.2.3b Pinnacle West Trust for the Pinnacle West Capital 10.14A to Pinnacle West’s 1999 Form 10-K 3-30-00
APS Corporation, Arizona Public Service Report, File No. 1-8962
Company and SunCor Development
Company Deferred Compensation
Plans dated August 1, 1996
10.2.3ab Pinnacle West First Amendment dated December 7, 10.15A to Pinnacle West’s 1999 Form 10-K 3-30-00
APS 1999 to the Trust for the Pinnacle West Report, File No. 1-8962
Capital Corporation, Arizona Public
Service Company and SunCor
Development Company Deferred
Compensation Plans
10.2.4b Pinnacle West Pinnacle West Capital Corporation, 10.10A to APS’ 1995 Form 10-K Report, File 3-29-96
APS Arizona Public Service Company, No. 1-4473
SunCor Development Company and El
Dorado Investment Company Deferred
Compensation Plan as amended and
restated effective January 1, 1996
10.2.4ab Pinnacle West First Amendment effective as of 10.7A to Pinnacle West’s 1999 Form 10-K 3-30-00
APS January 1, 1999, to the Pinnacle West Report, File No. 1-8962
Capital Corporation, Arizona Public
Service Company, SunCor
Development Company and El Dorado
Investment Company Deferred
Compensation Plan
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Exhibit Date
No. Registrant(s) Description Previously Filed as Exhibit:a Filed
10.2.4bb Pinnacle West Second Amendment effective January 10.10A to Pinnacle West’s 1999 Form 10-K 3-30-00
APS 1, 2000 to the Pinnacle West Capital Report, File No. 1-8962
Corporation, Arizona Public Service
Company, SunCor Development
Company and El Dorado Investment
Company Deferred Compensation Plan
10.2.4cb Pinnacle West Third Amendment to the Pinnacle 10.3 to Pinnacle West’s March 31, 2003 5-15-03
APS West Capital Corporation, Arizona Form 10-Q Report, File No. 1-8962
Public Service Company, SunCor
Compensation Plan, effective as of
January 1, 2002
10.2.4db Pinnacle West Fourth Amendment to the Pinnacle 10.64 to Pinnacle West/APS 2005 Form 10- 3-13-06
APS West Capital Corporation, Arizona K Report, File Nos. 1-8962 and 1-4473
Public Service Company, SunCor
Compensation Plan, effective January
1, 2003
10.2.5b Pinnacle West Schedules of William J. Post and Jack 10.3A to Pinnacle West 2002 Form 10-K 3-31-03
APS E. Davis to Arizona Public Service Report, File No. 1-8962
Company Deferred Compensation Plan,
as amended
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Exhibit Date
10.2.6b Pinnacle West Deferred Compensation Plan of 2005
APS for Employees of Pinnacle West
Capital Corporation and Affiliates
10.3.1b Pinnacle West Pinnacle West Capital Corporation 10.7A to Pinnacle West’s 2003 Form 10-K 3-15-04
APS Supplement Excess Benefit Retirement Report, File No. 1-8962
Plan, amended and restated as of
January 1, 2003
10.3.1ab Pinnacle West Pinnacle West Capital Corporation 10.48b to Pinnacle West/APS 2005 Form 10- 3-13-06
APS Supplemental Excess Benefit K Report, File Nos. 1-8962 and 1-4473
Retirement Plan, as amended and
restated, dated December 18, 2003
10.3.2b Pinnacle West Pinnacle West Capital Corporation

APS Supplemental Excess Benefit
Retirement Plan of 2005
10.4.1b Pinnacle West Letter Agreement dated December 21, 10.6A to APS’ 1994 Form 10-K Report, File 3-30-95
APS 1993, between APS and William L. No. 1-4473
Stewart
10.4.2b Pinnacle West Letter Agreement dated August 16, 10.8 to APS’ 1996 Form 10-K Report, File 3-28-97
APS 1996 between APS and William L. No. 1-4473
Stewart
10.4.3b Pinnacle West Letter Agreement dated October 3, 10.2 to APS’ September 30, 1997 Form 10-Q 11-12-97
APS 1997 between APS and William L. Report, File No. 1-4473
Stewart
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Exhibit Date
10.4.4b Pinnacle West Letter Agreement dated December 13, 10.9A to Pinnacle West’s 1999 Form 10-K 3-30-00
APS 1999 between APS and William L. Report, File No. 1-8962
Stewart
10.4.4ab Pinnacle West Amendment to Letter Agreement, 10.1 to Pinnacle West’s June 30, 2002 8-13-02
APS effective as of January 1, 2002, Form 10-Q Report, File No. 1-8962
between APS and William L. Stewart
10.4.5b Pinnacle West Letter Agreement dated June 28, 2001 10.4A to Pinnacle West’s 2002 Form 10-K 3-31-03
APS between Pinnacle West Capital Report, File No. 1-8962
Corporation and Steve Wheeler
10.4.6b APS Letter Agreement dated December 20, 10.78 to Pinnacle West/APS 2006 Form 10- 2-28-07
2006 between APS and Randall K. K Report, File Nos. 1-8962 and 1-4473
Edington
10.4.7b APS Letter Agreement dated July 22, 2008 10.3 to Pinnacle West/APS June 30, 2008 8-07-08
between APS and Randall K. Edington Form 10-Q Report, File No. 1-4473
10.4.8b Pinnacle West Letter Agreement dated June 17, 2008 10.1 to Pinnacle West/APS June 30, 2008 8-07-08
APS between Pinnacle West/APS and Form 10-Q Report, File Nos. 1-8962 and 1-
James R. Hatfield 4473
10.4.9b APS Description of 2008 Palo Verde Specific 10.7 to Pinnacle West/APS June 30, 2008 8-07-08
Compensation Opportunity for Randall Form 10-Q Report, File No. 1-4473
K. Edington
10.4.10b APS Supplemental Agreement dated

December 26, 2008 between APS and
Randall K. Edington
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Exhibit Date
10.5.1bd Pinnacle West Key Executive Employment and 10.77 to Pinnacle West/APS 2005 Form 10- 3-13-06
APS Severance Agreement between K Report, File Nos. 1-8962 and 1-4473
Pinnacle West and certain executive
officers of Pinnacle West and its
subsidiaries
10.5.1abd Pinnacle West Form of Amended and Restated Key 10.4 to Pinnacle West/APS September 30, 11-5-07
APS Executive Employment and Severance 2007 Form 10-Q Report, File Nos. 1-8962
Agreement between Pinnacle West and 1-4473
and certain officers of Pinnacle West
and its subsidiaries
10.5.2bd Pinnacle West Form of Key Executive Employment 10.3 to Pinnacle West/APS September 30, 11-5-07
APS and Severance Agreement between 2007 Form 10-Q Report, File Nos. 1-8962
Pinnacle West and certain officers of and 1-4473
Pinnacle West and its subsidiaries
10.6.1b Pinnacle West Pinnacle West Capital Corporation Appendix A to the Proxy Statement for the 4-15-94
APS 1994 Long-Term Incentive Plan, Plan Report for Pinnacle West’s 1994
effective as of March 23, 1994 Annual Meeting of Shareholders, File
No. 1-8962
10.6.1ab Pinnacle West First Amendment dated December 7, 10.12A to Pinnacle West’s 1999 Form 10-K 3-30-00
APS 1999 to the Pinnacle West Capital Report, File No. 1-8962
Corporation 1994 Long-Term Incentive
Plan
10.6.2b Pinnacle West Pinnacle West Capital Corporation 10.5A to Pinnacle West’s 2002 Form 10-K 3-31-03
APS 2002 Long-Term Incentive Plan Report
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Exhibit Date
10.6.2abd Pinnacle West Performance Share Agreement under 10.1 to Pinnacle West/APS December 9, 12-15-05
APS the Pinnacle West Capital Corporation 2005 Form 8-K Report, File Nos. 1-8962 and
2002 Long-Term Incentive Plan 1-4473
10.6.2bbd Pinnacle West Performance Share Agreement under 10.1 to Pinnacle West/APS December 31, 2-1-06
APS the Pinnacle West Capital Corporation 2005 Form 8-K Report, File Nos. 1-8962 and
2002 Long-Term Incentive Plan 1-4473
10.6.2cd Pinnacle West Performance Accelerated Stock Option 10.98 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS Agreement under Pinnacle West K Report, File Nos. 1-8962 and 1-4473
Capital Corporation 2002 Long-Term
Incentive Plan
10.6.2dbd Pinnacle West Stock Ownership Incentive Agreement 10.99 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS under Pinnacle West Capital K Report, File Nos. 1-8962 and 1-4473
Corporation 2002 Long-Term Incentive
Plan
10.6.2ebd Pinnacle West Performance Share Agreement under 10.91 to Pinnacle West/APS 2005 Form 10- 3-13-06
APS the Pinnacle West Capital Corporation K Report, File Nos. 1-8962 and 1-4473
2002 Long-Term Incentive Plan
10.6.3b Pinnacle West Pinnacle West Capital Corporation 99.1 to Pinnacle West’s Registration 7-3-00
2000 Director Equity Plan Statement on Form S-8 (No. 333-40796), File
No. 1-8962)
10.6.4b Pinnacle West Pinnacle West Capital Corporation Appendix B to the Proxy Statement for 4-20-07
2007 Long-Term Incentive Plan Pinnacle West’s 2007 Annual Meeting of
Shareholders, File No. 1-8962
184
Table of Contents
Exhibit Date
10.6.4ab Pinnacle West First Amendment to the Pinnacle West 10.2 to Pinnacle West/APS April 18, 2007 4-20-07
Capital Corporation 2007 Long-Term Form 8-K Report, File No. 1-8962
Incentive Plan
10.6.4bb Pinnacle West Description of Annual Stock Grants to 10.1 to Pinnacle West/APS September 30, 11-5-07
Non-Employee Directors 2007 Form 10-Q Report, File No. 1-8962
10.6.4cb Pinnacle West Description of Stock Grant to W. 10.2 to Pinnacle West/APS September 30, 11-5-07
Douglas Parker 2007 Form 10-Q Report, File No. 1-8962
10.6.4db Pinnacle West Description of Annual Stock Grants to 10.2 to Pinnacle West/APS June 30, 2008 8-07-08
Non-Employee Directors Form 10-Q Report, File No. 1-8962
10.6.5bd Pinnacle West Summary of 2009 CEO Variable

APS Incentive Plan and Officer Variable
Incentive Plan
10.7.1 Pinnacle West Indenture of Lease with Navajo Tribe 5.01 to APS’ Form S-7 Registration 9-1-77
APS of Indians, Four Corners Plant Statement, File No. 2-59644
10.7.1a Pinnacle West Supplemental and Additional 5.02 to APS’ Form S-7 Registration 9-1-77
APS Indenture of Lease, including Statement, File No. 2-59644
amendments and supplements to
original lease with Navajo Tribe of
Indians, Four Corners Plant
10.7.1b Pinnacle West Amendment and Supplement No. 1 to 10.36 to Pinnacle West’s Registration 7-25-85
APS Supplemental and Additional Statement on Form 8-B Report, File No. 1-
Indenture of Lease Four Corners, dated 8962
April 25, 1985
185
Table of Contents
Exhibit Date
10.7.2 Pinnacle West Application and Grant of multi-party 5.04 to APS’ Form S-7 Registration 9-1-77
APS rights-of-way and easements, Four Statement, File No. 2-59644
Corners Plant Site
10.7.2a Pinnacle West Application and Amendment No. 1 to 10.37 to Pinnacle West’s Registration 7-25-85
APS Grant of multi-party rights-of-way and Statement on Form 8-B, File No. 1-8962
easements, Four Corners Power Plant
Site dated April 25, 1985
10.7.3 Pinnacle West Application and Grant of Arizona 5.05 to APS’ Form S-7 Registration 9-1-77
APS Public Service Company rights- of-way Statement, File No. 2-59644
and easements, Four Corners Plant Site
10.7.3a Pinnacle West Application and Amendment No. 1 to 10.38 to Pinnacle West’s Registration 7-25-85
APS Grant of Arizona Public Service Statement on Form 8-B, File No. 1-8962
Company rights-of-way and
easements, Four Corners Power Plant
Site dated April 25, 1985
10.7.4 Pinnacle West Four Corners Project Co-Tenancy 10.7 to Pinnacle West’s 2000 Form 10-K 3-14-01
APS Agreement Amendment No. 6 Report, File No. 1-8962
10.8.1 Pinnacle West Indenture of Lease, Navajo Units 1, 2, 5(g) to APS’ Form S-7 Registration 3-23-70
APS and 3 Statement, File No. 2-36505
10.8.2 Pinnacle West Application of Grant of rights-of-way 5(h) to APS Form S-7 Registration 3-23-70
APS and easements, Navajo Plant Statement, File No. 2-36505
186
Table of Contents
Exhibit Date
10.8.3 Pinnacle West Water Service Contract Assignment 5(l) to APS’ Form S-7 Registration 3-16-71
APS with the United States Department of Statement, File No. 2-394442
Interior, Bureau of Reclamation, Navajo
Plant
10.8.4 Pinnacle West Navajo Project Co-Tenancy Agreement 10.107 to Pinnacle West/APS 2005 Form 10- 3-13-06
APS dated as of March 23, 1976, and K Report, File Nos. 1-8962 and 1-4473
Supplement No. 1 thereto dated as of
October 18, 1976, Amendment No. 1
dated as of July 5, 1988, and
Amendment No. 2 dated as of June 14,
1996; Amendment No. 3 dated as of
February 11, 1997; Amendment No. 4
dated as of January 21, 1997;
Amendment No. 5 dated as of
January 23, 1998; Amendment No. 6
dated as of July 31, 1998
10.8.5 Pinnacle West Navajo Project Participation 10.108 to Pinnacle West/APS 2005 Form 10- 3-13-06
APS Agreement dated as of September 30, K Report, File Nos. 1-8962 and 1-4473
1969, and Amendment and Supplement
No. 1 dated as of January 16, 1970, and
Coordinating Committee Agreement
No. 1 dated as of September 30, 1971
187
Table of Contents
Exhibit Date
10.9.1 Pinnacle West Arizona Nuclear Power Project 10. 1 to APS’ 1988 Form 10-K Report, File 3-8-89
APS Participation Agreement, dated No. 1-4473
August 23, 1973, among APS Salt River
Project Agricultural Improvement and
Power District, Southern California
Edison Company, Public Service
Company of New Mexico, El Paso
Electric Company, Southern California
Public Power Authority, and
Department of Water and Power of the
City of Los Angeles, and amendments
1-12 thereto
10.9.1a Pinnacle West Amendment No. 13, dated as of April 10.1 to APS’ March 31, 1991 Form 10-Q 5-15-91
APS 22, 1991, to Arizona Nuclear Power Report, File No. 1-4473
Project Participation Agreement, dated
August 23, 1973, among APS, Salt
River Project Agricultural Improvement
and Power District, Southern California
Edison Company, Public Service
Company of New Mexico, El Paso
Electric Company, Southern California
Public Power Authority, and
Department of Water and Power of the
City of Los Angeles
188
Table of Contents
Exhibit Date
10.9.1b Pinnacle West Amendment No. 14 to Arizona Nuclear 99.1 to Pinnacle West’s June 30, 2000 8-14-00
APS Power Project Participation Agreement, Form 10-Q Report, File No. 1-8962
dated August 23, 1973, among APS,
Salt River Project Agricultural
Improvement and Power District,
Southern California Edison Company,
Public Service Company of New
Mexico, El Paso Electric Company,
Southern California Public Power
Authority, and Department of Water
and Power of the City of Los Angeles
10.10.1 Pinnacle West Asset Purchase and Power Exchange 10.1 to APS’ June 30, 1991 Form 10-Q 8-8-91
APS Agreement dated September 21, 1990 Report, File No. 1-4473
between APS and PacifiCorp, as
amended as of October 11, 1990 and as
of July 18, 1991
10.10.2 Pinnacle West Long-Term Power Transaction 10.2 to APS’ June 30, 1991 Form 10-Q 8-8-91
APS Agreement dated September 21, 1990 Report, File No. 1-4473
between APS and PacifiCorp, as
amended as of October 11, 1990, and as
of July 8, 1991
189
Table of Contents
Exhibit Date
10.10.2a Pinnacle West Amendment No. 1 dated April 5, 1995 10.3 to APS’ 1995 Form 10-K Report, File 3-29-96
APS to the Long-Term Power Transaction No. 1-4473
Agreement and Asset Purchase and
Power Exchange Agreement between
PacifiCorp and APS
10.10.3 Pinnacle West Restated Transmission Agreement 10.4 to APS’ 1995 Form 10-K Report, File 3-29-96
APS between PacifiCorp and APS dated No. 1-4473
April 5, 1995
10.10.4 Pinnacle West Contract among PacifiCorp, APS and 10.5 to APS’ 1995 Form 10-K Report, File 3-29-96
APS United States Department of Energy No. 1-4473
Western Area Power Administration,
Salt Lake Area Integrated Projects for
Firm Transmission Service dated May
5, 1995
10.10.5 Pinnacle West Reciprocal Transmission Service 10.6 to APS’ 1995 Form 10-K Report, File 3-29-96
APS Agreement between APS and No. 1-4473
PacifiCorp dated as of March 2, 1994
10.11.1 Pinnacle West Amended and Restated 10.100 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS Reimbursement Agreement among K Report, File Nos. 1-8962 and 1-4473
APS, the Banks party thereto, and
JPMorgan Chase Bank, as
Administrative Agent and Issuing
Bank, dated as of July 22, 2002
190
Table of Contents
Exhibit Date
10.11.2 Pinnacle West Three-Year Credit Agreement dated as 10.101 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS of May 21, 2004 between APS as K Report, File Nos. 1-8962 and 1-4473
Borrower, and the banks, financial
institutions and other institutional
lenders and initial issuing banks listed
on the signature pages thereof
10.11.3 Pinnacle West Amended and Restated Five-Year 10.95 to Pinnacle West/APS 2005 Form 10- 3-13-06
APS Credit Agreement dated as of K Report, File Nos. 1-8962 and 1-4473
December 9, 2005 between APS, as
Borrower, Citibank, N.A., as Agent,
and the lenders and other parties
thereto
10.11.4 Pinnacle West $200,000,000 Senior Notes 10.96 to Pinnacle West 2005 Form 10-K 3-13-06
Uncommitted Master Shelf Agreement Report, File No. 1-8962
dated as of February 28, 2006
10.11.5 Pinnacle West Amended and Restated Credit 10.97 to Pinnacle West 2005 Form 10-K 3-13-06
Agreement dated as of December 9, Report, File No. 1-8962
2005 among Pinnacle West Capital
Corporation, as Borrower, JPMorgan
Chase Bank, N.A., as Agent, and the
other agent parties thereto
191
Table of Contents
Exhibit Date
10.11.5a Pinnacle West First Amendment to Amended and 10.1 to Pinnacle West’s June 30, 2006 8-8-06
Restated Credit Agreement, dated as of Form 10-Q Report, File No. 1-8962
May 15, 2006, supplementing and
amending the Amended and Restated
Credit Agreement, dated as of
December 9, 2005, among Pinnacle
West Capital Corporation, as Borrower,
JPMorgan Chase Bank, N.A. as Agent
and the other parties thereto
10.11.6 Pinnacle West Credit Agreement dated as of October 10.1 to Pinnacle West’s September 30, 2004 11-8-04
APS 19, 2004 among Pinnacle West, other Form 10-Q Report, File No. 1-8962
lenders, and JPMorgan Chase Bank, as
Administrative Agent
10.11.7 APS $500,000,000 Five-Year Credit 10.1 to APS’ September 2006 Form 10-Q 11-8-06
Agreement dated as of September 28, Report, File No. 1-4473
2006 among Arizona Public Service
Company as Borrower, Bank of
America, N.A. as Administrative Agent
and Issuing Bank, The Bank of New
York as Syndication Agent and
Issuing Bank and the other parties
thereto
192
Table of Contents
Exhibit Date
10.11.8 Pinnacle West Amended and Restated 99.6 to PinnacleWest/APS June 30, 2005 8-9-05
APS Reimbursement Agreement among Form 10-Q Report, File Nos. 1-8962 and 1-
Arizona Public Service Company, The 4473
Banks party thereto and JPMorgan
Chase Bank, N.A., as Administrative
Agent and Issuing Bank, and Barclays
Bank PLC, as Syndication Agent,
dated as of May 19, 2005
10.12.1c Pinnacle West Facility Lease, dated as of August 1, 4.3 to APS’ Form S-3 Registration 10-24-86
APS 1986, between U.S. Bank National Statement, File No. 33-9480
Association, successor to State Street
Bank and Trust Company, as
successor to The First National Bank
of Boston, in its capacity as Owner
Trustee, as Lessor, and APS, as Lessee
10.12.1ac Pinnacle West Amendment No. 1, dated as of 10.5 to APS’ September 30, 1986 Form 10-Q 12-4-86
APS November 1, 1986, to Facility Lease, Report by means of Amendment No. 1 on
dated as of August 1, 1986, between December 3, 1986 Form 8, File No. 1-4473
U.S. Bank National Association,
successor to State Street Bank and
Trust Company, as successor to The
First National Bank of Boston, in its
capacity as Owner Trustee, as Lessor,
and APS, as Lessee
193
Table of Contents
Exhibit Date
10.12.1bc Pinnacle West Amendment No. 2 dated as of June 1, 10.3 to APS’ 1988 Form 10-K Report, File 3-8-89
APS 1987 to Facility Lease dated as of No. 1-4473
August 1, 1986 between U.S. Bank
National Association, successor to
Bank of Boston, as Lessor, and APS,
as Lessee
10.12.1cc Pinnacle West Amendment No. 3, dated as of March 10.3 to APS’ 1992 Form 10-K Report, File 3-30-93
APS 17, 1993, to Facility Lease, dated as of No. 1-4473
August 1, 1986, between U.S. Bank
as Lessee
10.12.2 Pinnacle West Facility Lease, dated as of 10.1 to APS’ November 18, 1986 Form 8-K 1-20-87
APS December 15, 1986, between U.S. Bank Report, File No. 1-4473
Bank of Boston, in its capacity as
Owner Trustee, as Lessor, and APS, as
Lessee
194
Table of Contents
Exhibit Date
10.12.2a Pinnacle West Amendment No. 1, dated as of August 4.13 to APS’ Form S-3 Registration 8-24-87
APS 1, 1987, to Facility Lease, dated as of Statement No. 33-9480 by means of
December 15, 1986, between U.S. Bank August 1, 1987 Form 8-K Report, File No. 1-
National Association, successor to 4473
as Lessee
10.12.2b Pinnacle West Amendment No. 2, dated as of March 10.4 to APS’ 1992 Form 10-K Report, File 3-30-93
APS 17, 1993, to Facility Lease, dated as of No. 1-4473
December 15, 1986, between U.S. Bank
as Lessee
10.13.1 Pinnacle West Agreement No. 13904 (Option and 10.3 to APS’ 1991 Form 10-K Report, File 3-19-92
APS Purchase of Effluent) with Cities of No. 1-4473
Phoenix, Glendale, Mesa, Scottsdale,
Tempe, Town of Youngtown, and Salt
River Project Agricultural Improvement
and Power District, dated April 23, 1973
195
Table of Contents
Exhibit Date
10.13.2 Pinnacle West Agreement between Pinnacle West 10.102 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS Energy Corporation and Arizona Public K Report, File Nos. 1-8962 and 1-4473
Service Company for Transportation
and Treatment of Effluent by and
between Pinnacle West Energy
Corporation and APS dated as of the
10th day of April, 2001
10.13.3 Pinnacle West Agreement for the Transfer and Use of 10.103 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS Wastewater and Effluent by and K Report, File Nos. 1-8962 and 1-4473
between APS, SRP and PWE dated
June 1, 2001
10.13.4 Pinnacle West Agreement for the Sale and Purchase 10.104 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS of Wastewater Effluent dated K Report, File Nos. 1-8962 and 1-4473
November 13, 2000, by and between
the City of Tolleson, Arizona, APS and
SRP
10.13.5 Pinnacle West Operating Agreement for the Co- 10.105 to Pinnacle West/APS 2004 Form 10- 3-16-05
APS Ownership of Wastewater Effluent K Report, File Nos. 1-8962 and 1-4473
dated November 16, 2000 by and
between APS and SRP
196
Table of Contents
Exhibit Date
10.13.6 Pinnacle West Agreement for the Sale and Purchase 10.4 to APS’ 1991 Form 10-K Report, File 1- 3-19-92
APS of Wastewater Effluent with City of 4473
Tolleson and Salt River Agricultural
Improvement and Power District, dated
June 12, 1981, including Amendment
No. 1 dated as of November 12, 1981
and Amendment No. 2 dated as of
June 4, 1986
10.14.1 Pinnacle West Contract, dated July 21, 1984, with DOE 10.31 to Pinnacle West’s Form S-14 3-13-85
APS providing for the disposal of nuclear Registration Statement, File No. 2-96386
fuel and/or high-level radioactive
waste, ANPP
10.15.1 Pinnacle West Territorial Agreement between APS 10.1 to APS’ March 31, 1998 Form 10-Q 5-15-98
APS and Salt River Project Report, File No. 1-4473
10.15.2 Pinnacle West Power Coordination Agreement 10.2 to APS’ March 31, 1998 Form 10-Q 5-15-98
APS between APS and Salt River Project Report, File No. 1-4473
10.15.3 Pinnacle West Memorandum of Agreement between 10.3 to APS’ March 31, 1998 Form 10-Q 5-15-98
APS APS and Salt River Project Report, File No. 1-4473
10.15.3a Pinnacle West Addendum to Memorandum of 10.2 to APS’ May 19, 1998 Form 8-K 6-26-98
APS Agreement between APS and Salt Report, File No. 1-4473
River Project dated as of May 19, 1998
12.1 Pinnacle West Ratio of Earnings to Fixed Charges
197
Table of Contents
Exhibit Date
12.2 APS Ratio of Earnings to Fixed Charges
12.3 Pinnacle West Ratio of Earnings to Combined Fixed

Charges and Preferred Stock Dividend
Requirements
21.1 Pinnacle West Subsidiaries of Pinnacle West
23.1 Pinnacle West Consent of Deloitte & Touche LLP
23.2 APS Consent of Deloitte & Touche LLP
31.1 Pinnacle West Certificate of William J. Post, Chief

Executive Officer, pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as
amended
31.2 Pinnacle West Certificate of James R. Hatfield, Chief

Financial Officer, pursuant to Rule 13a-
14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended
31.3 APS Certificate of Donald E. Brandt, Chief

Executive Officer, pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as
amended
198
Table of Contents
Exhibit Date
31.4 APS Certificate of James R. Hatfield, Chief
Financial Officer, pursuant to Rule 13a-
14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended
32.1 Pinnacle West Certification of Chief Executive Officer

and Chief Financial Officer, pursuant to
18 U.S.C. Section 1850, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 APS Certification of Chief Executive Officer

and Chief Financial Officer, pursuant to
18 U.S.C. Section 1850, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.1 Pinnacle West Collateral Trust Indenture among 4.2 to APS’ 1992 Form 10-K Report, File 3-30-93
APS PVNGS II Funding Corp., Inc., APS and No. 1-4473
Chemical Bank, as Trustee
99.1a Pinnacle West Supplemental Indenture to Collateral 4.3 to APS’ 1992 Form 10-K Report, File 3-30-93
APS Trust Indenture among PVNGS II No. 1-4473
Funding Corp., Inc., APS and Chemical
Bank, as Trustee
199
Table of Contents
Exhibit Date
99.2c Pinnacle West Participation 28.1 to APS’ September 30, 1992 Form 11-9-92
APS Agreement, dated as of August 1, 10-Q Report, File No. 1-4473
1986, among PVNGS Funding Corp.,
Inc., Bank of America National Trust
and Savings Association, State Street
of Boston, in its individual capacity
and as Owner Trustee, Chemical Bank,
in its individual capacity and as
Indenture Trustee, APS, and the
Equity Participant named therein
99.2ac Pinnacle West Amendment No. 1 dated as of 10.8 to APS’ September 30, 1986 Form 10-Q 12-4-86
APS November 1, 1986, to Participation Report by means of Amendment No. 1, on
Agreement, dated as of August 1, December 3, 1986 Form 8, File No. 1-4473
1986, among PVNGS Funding Corp.,
Inc., Bank of America National Trust
and Savings Association, State Street
Equity Participant named therein
200
Table of Contents
Exhibit Date
99.2bc Pinnacle West Amendment No. 2, dated as of March 28.4 to APS’ 1992 Form 10-K Report, File 3-30-93
APS 17, 1993, to Participation Agreement, No. 1-4473
dated as of August 1, 1986, among
PVNGS Funding Corp., Inc., PVNGS II
Funding Corp., Inc., State Street Bank
and Trust Company, as successor to
The First National Bank of Boston, in
its individual capacity and as Owner
Trustee, Chemical Bank, in its
individual capacity and as Indenture
Trustee, APS, and the Equity
Participant named therein
99.3c Pinnacle West Trust Indenture, Mortgage, Security 4.5 to APS’ Form S-3 Registration 10-24-86
APS Agreement and Assignment of Facility Statement, File No. 33-9480
Lease, dated as of August 1, 1986,
between State Street Bank and Trust
Company, as successor to The First
National Bank of Boston, as Owner
Trustee, and Chemical Bank, as
Indenture Trustee
201
Table of Contents
Exhibit Date
99.3ac Pinnacle West Supplemental Indenture No. 1, dated as 10.6 to APS’ September 30, 1986 Form 10-Q 12-4-86
APS of November 1, 1986 to Trust Report by means of Amendment No. 1 on
Indenture, Mortgage, Security December 3, 1986 Form 8, File No. 1-4473
Agreement and Assignment of Facility
Indenture Trustee
99.3bc Pinnacle West Supplemental Indenture No. 2 to Trust 4.4 to APS’ 1992 Form 10-K Report, File 3-30-93
APS Indenture, Mortgage, Security No. 1-4473
Trustee, and Chemical Bank, as Lease
Indenture Trustee
99.4c Pinnacle West Assignment, Assumption and Further 28.3 to APS’ Form S-3 Registration 10-24-86
APS Agreement, dated as of August 1, Statement, File No. 33-9480
1986, between APS and State Street
of Boston, as Owner Trustee
202
Table of Contents
Exhibit Date
99.4ac Pinnacle West Amendment No. 1, dated as of 10.10 to APS’ September 30, 1986 Form 10- 12-4-86
APS November 1, 1986, to Assignment, Q Report by means of Amendment No. l on
Assumption and Further Agreement, December 3, 1986 Form 8, File No. 1-4473
dated as of August 1, 1986, between
APS and State Street Bank and Trust
Trustee
99.4bc Pinnacle West Amendment No. 2, dated as of March 28.6 to APS’ 1992 Form 10-K Report, File 3-30-93
APS 17, 1993, to Assignment, Assumption No. 1-4473
and Further Agreement, dated as of
August 1, 1986, between APS and
99.5 Pinnacle West Participation Agreement, dated as of 28.2 to APS’ September 30, 1992 Form 10-Q 11-9-92
APS December 15, 1986, among PVNGS Report, File No. 1-4473
Funding Report Corp., Inc., State Street
Indenture Trustee under a Trust
Indenture, APS, and the Owner
203
Table of Contents
Exhibit Date
99.5a Pinnacle West Amendment No. 1, dated as of August 28.20 to APS’ Form S-3 Registration 8-10-87
APS 1, 1987, to Participation Agreement, Statement No. 33-9480 by means of a
dated as of December 15, 1986, among November 6, 1986 Form 8-K Report, File
PVNGS Funding Corp., Inc. as Funding No. 1-4473
Corporation, State Street Bank and
Trust Company, as successor to The
First National Bank of Boston, as
Owner Trustee, Chemical Bank, as
Owner Participant named therein
99.5b Pinnacle West Amendment No. 2, dated as of March 28.5 to APS’ 1992 Form 10-K Report, File 3-30-93
APS 17, 1993, to Participation Agreement, No. 1-4473
dated as of December 15, 1986, among
PVNGS Funding Corp., Inc., PVNGS II
Funding Corp., Inc., State Street Bank
and Trust Company, as successor to
The First National Bank of Boston, in
its individual capacity and as Owner
Trustee, Chemical Bank, in its
individual capacity and as Indenture
Trustee, APS, and the Owner
204
Table of Contents
Exhibit Date
99.6 Pinnacle West Trust Indenture, Mortgage Security 10.2 to APS’ November 18, 1986 Form 10-K 1-20-87
APS Agreement and Assignment of Facility Report, File No. 1-4473
Lease, dated as of December 15, 1986,
Indenture Trustee
99.6a Pinnacle West Supplemental Indenture No. 1, dated as 4.13 to APS’ Form S-3 Registration 8-24-87
APS of August 1, 1987, to Trust Indenture, Statement No. 33-9480 by means of August
Mortgage, Security Agreement and 1, 1987 Form 8-K Report, File No. 1-4473
Assignment of Facility Lease, dated as
of December 15, 1986, between State
Street Bank and Trust Company, as
of Boston, as Owner Trustee, and
Chemical Bank, as Indenture Trustee
205
Table of Contents
Exhibit Date
99.6b Pinnacle West Supplemental Indenture No. 2 to Trust 4.5 to APS’ 1992 Form 10-K Report, File 3-30-93
APS Indenture Mortgage, Security No. 1-4473
Lease, dated as of December 15, 1986,
Trustee, and Chemical Bank, as Lease
Indenture Trustee
99.7 Pinnacle West Assignment, Assumption and Further 10.5 to APS’ November 18, 1986 Form 8-K 1-20-87
APS Agreement, dated as of December 15, Report, File No. 1-4473
1986, between APS and State Street
of Boston, as Owner Trustee
99.7a Pinnacle West Amendment No. 1, dated as of March 28.7 to APS’ 1992 Form 10-K Report, File 3-30-93
APS 17, 1993, to Assignment, Assumption No. 1-4473
and Further Agreement, dated as of
December 15, 1986, between APS and
99.8c Pinnacle West Indemnity Agreement dated as of 28.3 to APS’ 1992 Form 10-K Report, File 3-30-93
APS March 17, 1993 by APS No. 1-4473
206
Table of Contents
Exhibit Date
99.9 Pinnacle West Extension Letter, dated as of August 28.20 to APS’ Form S-3 Registration 8-10-87
APS 13, 1987, from the signatories of the Statement No. 33-9480 by means of a
Participation Agreement to Chemical November 6, 1986 Form 8-K Report, File
Bank No. 1-4473
99.10 Pinnacle West Arizona Corporation Commission 10.2 to APS’ September 30, 1999 Form 10-Q 11-15-99
APS Order, Decision No. 61969, dated Report, File No. 1-4473
September 29, 1999, including the
Retail Electric Competition Rules
99.11 Pinnacle West Purchase Agreement by and among 99.5 to Pinnacle West/APS June 30, 2005 8-9-05
Pinnacle West Energy Corporation and Form 10-Q Report, File Nos. 1-8962 and 1-
GenWest, L.L.C. and Nevada Power 4473
Company, dated June 21, 2005
a Reports filed under File No. 1-4473 and 1-8962 were filed in the office of the Securities and Exchange
Commission located in Washington, D.C.
b Management contract or compensatory plan or arrangement to be filed as an exhibit pursuant to Item 15(b)
of Form 10-K.
c An additional document, substantially identical in all material respects to this Exhibit, has been entered into,
relating to an additional Equity Participant. Although such additional document may differ in other respects
(such as dollar amounts, percentages, tax indemnity matters, and dates of execution), there are no material
details in which such document differs from this Exhibit.
d Additional agreements, substantially identical in all material respects to this Exhibit have been entered into
with additional persons. Although such additional documents may differ in other respects (such as dollar
amounts and dates of execution), there are no material details in which such agreements differ from this
Exhibit.
207
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 20, 2009 (Registrant)
/s/ William J. Post

(William J. Post, Chairman of the
Board of Directors and Chief Executive Officer)
Power of Attorney
We, the undersigned directors and executive officers of Pinnacle West Capital Corporation, hereby severally appoint James R. Hatfield,
Chris N. Froggatt and Nancy C. Loftin, and each of them, our true and lawful attorneys with full power to them and each of them to sign for us,
and in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature T itle Date
/s/ William J. Post Principal Executive Officer February 20, 2009

(William J. Post, Chairman and Director
of the Board of Directors and
Chief Executive Officer)
/s/ James R. Hatfield Principal Financial Officer February 20, 2009
(James R. Hatfield, and Principal Accounting Officer
Senior Vice President and
Chief Financial Officer)
208
Table of Contents

/s/ Edward N. Basha, Jr. Director February 20, 2009
(Edward N. Basha, Jr.)
/s/ Donald E. Brandt Director February 20, 2009
(Donald E. Brandt)
/s/ Susan Clark-Johnson Director February 20, 2009
(Susan Clark-Johnson)
/s/ Michael L. Gallagher Director February 20, 2009
(Michael L. Gallagher)
/s/ Pamela Grant Director February 20, 2009
(Pamela Grant)
/s/ Roy A. Herberger, Jr. Director February 20, 2009
(Roy A. Herberger, Jr.)
/s/ William S. Jamieson Director February 20, 2009
(William S. Jamieson)
/s/ Humberto S. Lopez Director February 20, 2009
(Humberto S. Lopez)
/s/ Kathryn L. Munro Director February 20, 2009
(Kathryn L. Munro)
/s/ Bruce J. Nordstrom Director February 20, 2009
(Bruce J. Nordstrom)
/s/ W. Douglas Parker Director February 20, 2009
(W. Douglas Parker)
/s/ William L. Stewart Director February 20, 2009
(William L. Stewart)
209
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant)
Date: February 20, 2009 /s/ Donald E. Brandt

(Donald E. Brandt, Chief Executive Officer)
Power of Attorney
We, the undersigned directors and executive officers of Arizona Public Service Company, hereby severally appoint James R. Hatfield, Chris
N. Froggatt and Nancy C. Loftin, and each of them, our true and lawful attorneys with full power to them and each of them to sign for us, and
in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ William J. Post Director February 20, 2009

(William J. Post, Chairman
of the Board of Directors)
/s/ Donald E. Brandt Principal Executive Officer February 20, 2009
(Donald E. Brandt,
Chief Executive Officer)
/s/ James R. Hatfield Principal Financial Officer February 20, 2009
(James R. Hatfield, and Principal Accounting
Senior Vice President and Chief Officer
Financial Officer)
210
Table of Contents

/s/ Edward N. Basha, Jr. Director February 20, 2009
(Edward N. Basha, Jr.)
/s/ Donald E. Brandt Director February 20, 2009
(Donald E. Brandt)
/s/ Susan Clark-Johnson Director February 20, 2009
(Susan Clark-Johnson)
/s/ Michael L. Gallagher Director February 20, 2009
(Michael L. Gallagher)
/s/ Pamela Grant Director February 20, 2009
(Pamela Grant)
/s/ Roy A. Herberger, Jr. Director February 20, 2009
(Roy A. Herberger, Jr.)
/s/ William S. Jamieson Director February 20, 2009
(William S. Jamieson)
/s/ Humberto S. Lopez Director February 20, 2009
(Humberto S. Lopez)
/s/ Kathryn L. Munro Director February 20, 2009
(Kathryn L. Munro)
/s/ Bruce J. Nordstrom Director February 20, 2009
(Bruce J. Nordstrom)
/s/ W. Douglas Parker Director February 20, 2009
(W. Douglas Parker)
/s/ William L. Stewart Director February 20, 2009
(William L. Stewart)
211
Exhibit 3.2
BYLAWS
OF
(Amended as of January 21, 2009)
I. REFERENCES; SENIORITY
1.01. References. Any reference herein made to law will be deemed to refer to the law of the State of Arizona, including any applicable
provision or provisions of Chapters 1-17 and Chapter 23 of Title 10, Arizona Revised Statutes (or its successor), as at any given time in effect.
Any reference herein made to the Articles will be deemed to refer to the applicable provision or provisions of the Articles of Incorporation of
the Company, and all amendments thereto, as at any given time on file with the Arizona Corporation Commission (this reference to that
Commission being intended to include any successor to the incorporating and related functions being performed by that Commission at the
date of the initial adoption of these Bylaws).
1.02. Seniority. Except as indicated in Part X of these Bylaws, the law and the Articles (in that order of precedence) will in all respects be
considered senior and superior to these Bylaws, with any inconsistency to be resolved in favor of the law and the Articles (in that order of
precedence), and with these Bylaws to be deemed automatically amended from time to time to eliminate any such inconsistency which may
then exist.
1.03. Shareholders of Record. Except as otherwise required by law and subject to any procedure established by the Company pursuant to
Arizona Revised Statutes Section 10-723 (or any comparable successor provision), the word “shareholder” as used herein shall mean one who
is a holder of record of shares of capital stock in the Company.
II. SHAREHOLDERS MEETINGS

2.01. Annual Meetings. An annual meeting of shareholders shall be held for the election of directors at such date, time and place, either
within or without the State of Arizona, as may be designated by resolution of the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting. A special meeting may be called and held in lieu of an annual meeting pursuant to the
provisions of Section 2.02 below, and the same proceedings (including the election of directors) may be conducted thereat as at a regular
meeting. Any director elected at any annual meeting, or special meeting in lieu of an annual meeting, will continue in office until the election of
his or her successor, subject to his or her (a) earlier resignation pursuant to Section 6.01 below, (b) removal pursuant to Section 3.13 below, or
(c) death or disqualification.
1
2.02. Special Meetings. Except as otherwise required by law, special meetings of the shareholders may be held whenever and wherever
called by the Chairman of the Board, the President, or a majority of the Board of Directors, but such special meetings may not be called by any
other person or persons. Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice.
2.03. Notice. Notice of any meeting of the shareholders will be given as provided by law to each shareholder entitled to vote at such
meeting and, if required by law, to each other shareholder of the Company. Any such notice may be waived as provided by law.
2.04. Right to Vote. For each meeting of the shareholders, the Board of Directors will fix in advance a record date as contemplated by law,
and the shares of stock and the shareholders “entitled to vote” (as that or any similar term is herein used) at any meeting of the shareholders
will be determined as of the applicable record date. The Secretary (or in his or her absence an Assistant Secretary) will see to the making and
production of any record of shareholders entitled to vote or otherwise entitled to notice of shareholders meetings, in either case which is
required by law. Any voting entitlement may be exercised through proxy, or in such other manner as specifically provided by law, in
accordance with the applicable law. In the event of contest, the burden of proving the validity of any undated or irrevocable proxy will rest
with the person seeking to exercise the same. A telegram, cablegram, or facsimile appearing to have been transmitted by a shareholder (or by
his or her duly authorized attorney-in-fact) or other means of voting by telephone or electronic transmission may be accepted as a sufficiently
written and executed proxy if otherwise permitted by law.
2.05. Notice of Shareholder Business and Nominations.
(a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Directors of the Company and the
proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders only (a) pursuant to
the Company’s notice of meeting (or any supplement thereto), (b) by or at the direction of the Board of Directors or (c) by any
shareholder of the Company who was a shareholder at the time the notice provided for in this Section 2.05 is delivered to the
Secretary of the Company, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this
Section 2.05.
(2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause
(c) of paragraph (a)(1) of this Section 2.05, the shareholder must have given timely notice thereof in writing to the Secretary of
the Company and any such proposed business other than the nominations of persons for election to the Board of Directors
must constitute a proper matter for shareholder action. To be timely, a shareholder notice shall
be delivered to the Secretary at the principal executive offices of the Company not later than the close of business (a) with
respect to business to be brought before the meeting, on the ninetieth (90th ) day nor earlier than the close of business on the
one hundred twentieth (120th ) day prior to the first anniversary of the preceding year’s annual meeting (provided, however,
that in the event that the date of the annual meeting is changed by more than thirty (30) days from such anniversary date,
notice by the shareholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th )
day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th ) day prior to such
annual meeting or the tenth (10th ) day following the day on which public announcement of the date of such meeting is first
made by the Company), and (b) with respect to nominations of persons to be elected to the Board of Directors, the one-
hundred eightieth (180th ) day prior to the date of the meeting at which the election is to occur. In no event shall the public
announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time
period) for the giving of a shareholder’s notice as described above.
(3) In addition to meeting the timely notice requirements of paragraph (a)(2) of this Section 2.05, in order for nominations or other
business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of paragraph (a)(1) of this
Section 2.05, such shareholder’s notice shall set forth: (a) as to each person whom the shareholder proposes to nominate for
election as a director, (i) all information relating to such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with
Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (ii) and such person’s
written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other
business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought
before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and,
in the event that such business includes a proposal to amend the Bylaws of the Company, the language for the proposed
amendment), the reasons for conducting such business at the meeting, and any material
interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and
(c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (i) the name and address of such shareholder, as they appear on the Company’s books, and of such beneficial owner,
(ii) the class and number of shares of capital stock of the Company that are owned beneficially and of record by such
shareholder and such beneficial owner, (iii) a representation that the shareholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such
business or nomination, and (iv) a representation whether the shareholder or the beneficial owner, if any, intends or is part of
a group that intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the
Company’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (B) otherwise to
solicit proxies from shareholders in support of such proposal or nomination. The foregoing notice requirements of clauses
(b) and (c) of paragraph (a)(3) of this Section 2.05 shall be deemed satisfied by a shareholder if the shareholder has notified
the Company of his or her intention to present a proposal at an annual meeting in compliance with Rule 14a-8 (or any
successor thereof) promulgated under the Exchange Act and such shareholder’s proposal has been included in a proxy
statement that has been prepared by the Company to solicit proxies for such annual meeting. The Company may require any
proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such
proposed nominee to serve as a director of the Company.
(b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting pursuant to the Company’s notice of meeting.
(c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.05 shall be eligible
to be elected at an annual or special meeting of shareholders of the Company to serve as directors and only such business shall be
conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth
in this Section 2.05. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty (a) to
determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this
Section 2.05 (including whether the shareholder or beneficial owner, if any, on whose behalf the nomination or proposal is made
solicited (or is part of a group that solicited) or did not so solicit, as the case may be, proxies in support of such shareholder’s
nominee or proposal in compliance with such shareholder’s representation as required by clause (a)(2)(c)(iv) of this Section 2.05)
and (b) if any proposed nomination or business was not made or proposed in compliance with this Section 2.05, to declare that
such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing
provisions of this Section 2.05, if the shareholder (or a qualified representative of the shareholder) does not appear at the annual
meeting of shareholders of the Company to present a nomination or business, such nomination shall be disregarded and such
business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Company.
For purposes of this Section 2.05, to be considered a qualified representative of the shareholder, a person must be authorized by a
writing executed by such shareholder or an electronic transmission delivered by such shareholder to act for such shareholder as
proxy at the meeting of shareholders and such person must produce such writing or electronic transmission, or a reliable
reproduction of the writing or electronic transmission, at the meeting of shareholders.
(2) For purposes of this Section 2.05, “public announcement” shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 2.05, a shareholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.05. Nothing in
this Section 2.05 shall be deemed to affect any rights (a) of shareholders to request inclusion of proposals in the Company’s proxy
statement pursuant to Rule 14a-8 of the Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors
pursuant to any applicable provisions of the Articles.
2.06. Right to Attend. Except only to the extent of persons designated by the Board of Directors or the Chairman of the meeting to assist in
the conduct of the meeting (as referred to in Sections 2.08 and 2.09 below) and except as otherwise permitted by the Board or such Chairman,
the persons entitled to attend any meeting of
shareholders may be confined to (i) shareholders entitled to vote thereat and other shareholders entitled to notice of the meeting and (ii) the
persons upon whom proxies valid for purposes of the meeting have been conferred or their duly appointed substitutes (if the related proxies
confer a power of substitution); provided, however, that the Board of Directors or the Chairman of the meeting may establish rules limiting the
number of persons referred to in clause (ii) as being entitled to attend on behalf of any shareholder so as to preclude such an excessively large
representation of such shareholder at the meeting as, in the judgment of the Board or such Chairman, would be unfair to other shareholders
represented at the meeting or be unduly disruptive of the orderly conduct of business at such meeting (whether such representation would
result from fragmentation of the aggregate number of shares held by such shareholder for the purpose of conferring proxies, from the naming
of an excessively large proxy delegation by such shareholder or from employment of any other device). A person otherwise entitled to attend
any such meeting will cease to be so entitled if, in the judgment of the Chairman of the meeting, such person engages thereat in disorderly
conduct impeding the proper conduct of the meeting in the interests of all shareholders as a group.
2.07. Quorum. Except as otherwise provided by law, the Articles or these Bylaws, at each meeting of shareholders the presence in person
or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary
and sufficient to constitute a quorum.
2.08. Election Inspectors. The Board of Directors, in advance of any shareholders meeting may appoint an election inspector or inspectors
to act at such meeting (and any adjournment thereof). If an election inspector or inspectors are not so appointed, the Chairman of the meeting
may or, upon the request of any person entitled to vote at the meeting will, make such appointment. If any person appointed as an inspector
fails to appear or to act, a substitute may be appointed by the Chairman of the meeting. If appointed, the election inspector or inspectors
(acting through a majority of them if there be more than one) will determine the number of shares outstanding, the authenticity, validity and
effect of proxies, the credentials of persons purporting to be shareholders or persons named or referred to in proxies, and the number of shares
represented at the meeting in person and by proxy; they will receive and count votes, ballots and consents and announce the results thereof;
they will hear and determine all challenges and questions pertaining to proxies and voting; and, in general, they will perform such acts as may
be proper to conduct elections and voting with complete fairness to all shareholders. No such election inspector need be a shareholder of the
Company.
2.09. Organization and Conduct of Meetings. Each shareholders meeting will be called to order and thereafter chaired by the Chairman of
the Board if there then is one; or, if not, or if the Chairman of the Board is absent or so requests, then by the President; or if both the Chairman
of the Board and the President are unavailable, then by such other officer of the Company or such shareholder as may be appointed by the
Board of Directors. The Secretary (or in his or her absence an Assistant Secretary) of the Company will act as secretary of each shareholders
meeting; if neither the Secretary nor an Assistant Secretary is in attendance, the Chairman of the meeting may
appoint any person (whether a shareholder or not) to act as secretary thereat. After calling a meeting to order, the Chairman thereof may
require the registration of all shareholders intending to vote in person, and the filing of all proxies, with the election inspector or inspectors, if
one or more have been appointed (or, if not, with the secretary of the meeting). After the announced time for such filing of proxies has ended,
no further proxies or changes, substitutions or revocations of proxies will be accepted. If directors are to be elected, a tabulation of the proxies
so filed will, if any person entitled to vote in such election so requests, be announced at the meeting (or adjournment thereof) prior to the
closing of the election polls.
Absent a showing of bad faith on his or her part, the Chairman of a meeting will, among other things, have absolute authority to determine
the order of business to be conducted at such meeting and to establish rules for, and appoint personnel to assist in, preserving the orderly
conduct of the business of the meeting (including any informal, or question and answer, portions thereof). Rules, regulations or procedures
regarding the conduct of the business of a meeting, whether adopted by the Board of Directors or prescribed by the Chairman of the meeting,
may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures
for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to
shareholders of record of the Company, their duly authorized and constituted proxies (subject to Section 2.06) or such other persons as the
Chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or
the Chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Any informational or other informal session of shareholders conducted under the auspices of the Company after the conclusion of or
otherwise in conjunction with any formal business meeting of the shareholders will be chaired by the same person who chairs the formal
meeting, and the foregoing authority on his or her part will extend to the conduct of such informal session.
2.10. Voting. The number of shares voted on any matter submitted to the shareholders which is required to constitute their action thereon
or approval thereof will be determined in accordance with applicable law, the Articles, and these Bylaws, if applicable. No ballot or change of
vote will be accepted after the polls have been declared closed following the ending of the announced time for voting.
2.11. Shareholder Approval or Ratification. The Board of Directors may submit any contract or act for approval or ratification at any duly
constituted meeting of the shareholders, the notice of which either includes mention of the proposed submittal or is waived as provided in
Section 2.03 above. Except as otherwise required by law (e.g., Arizona Revised Statutes Section 10-863), if any contract or act so submitted is
approved or ratified by a majority of the votes cast thereon at such meeting, the same will be valid and as binding upon the Company and all of
its shareholders as it would be if approved and ratified by each and every shareholder of the Company.
2.12. Control Share Act. The provisions of Section 10-2721 through and including Section 10-2727 of the Arizona Revised Statutes shall
not apply to the Company.
2.13. Adjournments. Any meeting of shareholders, annual or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Company may transact any business that might have been transacted at the original
meeting. If the adjournment is for more than one hundred and twenty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.
III. BOARD OF DIRECTORS

3.01. Membership. The Board of Directors of the corporation shall consist of not less than nine (9) nor more than twenty-one
(21) shareholders of the Company or of any parent corporation thereof. Each director shall be elected annually and hold office in the manner
provided by law and in the Articles (Art. Fifth). The Board will have the exclusive power to increase or decrease its size within such limits. Any
vacancy occurring in the Board, whether by reason of death, resignation, disqualification or otherwise, may be filled by the directors as
contemplated by law and as provided in the Articles (Art. Fifth). Any such increase in the size of the Board, and the filling of any vacancy
created thereby, will require action by a majority of the whole membership of the Board as comprised immediately before such increase.
3.02. Qualifications. In order to qualify as a director, a person must be the owner of one or more shares of the capital stock of the Company
or of any parent corporation thereof at the time of assuming office (except as may otherwise be provided in these Bylaws or in the Articles)
and for so long thereafter as such person remains in office. A person will cease to qualify as a director if he or she (i) is in good faith
determined by a majority of the other directors then in office to be physically or mentally incapable of competent performance as a director for
a period, starting with inception of the incapacity, that has extended or is likely to extend for more than six months or (ii) has failed to attend six
successive regular meetings of the Board (as determined in accordance with Section 3.03 below) unless and to the extent such failure is waived
by a majority of the other directors then in office; however, disqualification pursuant to clause (i) or (ii) of this sentence will not preclude the
subsequent election or appointment of such person as a director by the shareholders or the Board if a majority of the directors in office
immediately prior to the submission of such person for election or appointment shall determine that his or her prior incapacity or principal
reason for prior non-attendance no longer exists. A person who has been a full-time employee of the Company within twelve months prior to
the date of any election will not qualify for election as a director on that date unless he or she then remains a full-time employee of the
Company or unless the Board of Directors specifically authorizes the election of such person. A person who has qualified by employment
status for his or her most
recent election as a director may serve throughout the term for which such person was elected, notwithstanding the cessation of full-time
employment by the Company between the date of such election and the end of such term, subject, however, to his or her otherwise remaining
qualified for such office.
3.03. Regular Meetings. A regular annual meeting of the directors is to be held as soon as practicable after the adjournment of each annual
shareholders meeting either at the place of the shareholders meeting or at such other place as the directors elected at the shareholders meeting
may have been informed of at or before the time of their election. Regular meetings, other than the annual ones, may be held at such intervals
at such places and at such times as the Board of Directors may provide.
3.04. Special Meetings. Special meetings of the Board of Directors may be held whenever and wherever called for by the Chairman of the
Board, the President or the number of directors which would be required to constitute a quorum.
3.05. Notice. No notice need be given of regular meetings of the Board of Directors. Notice of the time and place (but not necessarily the
purpose or all of the purposes) of any special meeting will be given to each director in person or by telephone, or via mail, telegram, facsimile,
or other electronic transmission addressed in the manner appearing on the Company’s records. Notice to any director of any such special
meeting will be deemed given sufficiently in advance when (i) if given by mail, the same is deposited in the United States mail at least four days
before the meeting date, with postage thereon prepaid, (ii) if given by telegram, the same is delivered to the telegraph office for fast transmittal
at least 48 hours prior to the convening of the meeting, (iii) if given by facsimile or other electronic transmission, the same is received by the
director or an adult member of his or her office staff or household, at least 24 hours prior to the convening of the meeting, or (iv) if personally
delivered or given by telephone, the same is handed, or the substance thereof is communicated over the telephone to the director or to an
adult member of his or her office staff or household, at least 24 hours prior to the convening of the meeting. Any such notice may be waived as
provided by law. No call or notice of a meeting of directors will be necessary if each of them waives the same in writing or by attendance. Any
meeting, once properly called and noticed (or as to which call and notice have been waived as aforesaid) and at which a quorum is formed, may
be adjourned to another time and place by a majority of those in attendance.
3.06. Quorum; Voting. A quorum for the transaction of business at any meeting or adjourned meeting of the directors will consist of a
majority of those then in office. Any matter submitted to a meeting of the directors will be resolved by a majority of the votes cast thereon,
except as otherwise required by these Bylaws (§§ 3.01 and 3.02 above and § 3.07 below), by law or by any applicable Article. Where action by
a majority of the whole membership is required, such requirement will be deemed to relate to a majority of the directors in office at the time the
action is taken. In computing any such majority, whether for purposes of determining the presence of a quorum or the adequacy of the vote on
any proposed action, any unfilled vacancies at the time existing in the membership of the Board will be excluded from the computation.
3.07. Executive Committee. The Board of Directors may, by resolution adopted by a majority of the whole Board, name three or more of its
members as an Executive Committee. Such Executive Committee will have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Company while the Board is not in session, except only as precluded by law or where action
other than by a majority of the votes cast is required by these Bylaws, or the law (all as referred to in Section 3.06 above), and subject to such
limitations as may be included in any applicable resolution passed by a majority of the whole membership of the Board. A majority of those
named to the Executive Committee will constitute a quorum.
3.08. Other Committees. The Board of Directors may designate one or more additional committees, each committee to consist of one or
more of the directors of the Company. The Board of Directors may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent permitted by law and
to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers
that may require it.
3.09. Committee Functioning. Notice requirements and related waiver provisions for meetings of the Executive Committee and other
committees of the Board will be the same as those set forth in Section 3.05 above for meetings of the Board of Directors. Except as provided in
the next two succeeding sentences, a majority of those named to the Executive Committee or any other committee of the Board will constitute a
quorum at any meeting thereof (with the effect of departure of committee members from a meeting and the computation of a majority of
committee members to be in accordance with the applicable policies of Section 3.06 above), and any matter submitted to a meeting of any such
committee will be resolved by a majority of the votes cast thereon. No distinction will be made among ex-officio or other members of any such
committee for quorum, voting or other purposes, except that the membership of any committee (including the Executive Committee), in
performing any function vested in it as herein contemplated, may be deemed to exclude any officer or employee of the Company, in either case,
or other person having a direct or indirect personal interest in any proposed exercise of such function, whose exclusion for that purpose is
deemed appropriate by a majority of the other members of such committee proposing to perform such function. All committees are to keep
regular minutes of the transactions of their meetings.
3.10. Action by Telephone or Consent. Any meeting of the Board or any committee thereof may be held by conference telephone or similar
communications equipment as permitted by law, in which case any required notice of such meeting may generally describe the arrangements
(rather than the place) for the holding thereof, and all other provisions herein contained or referred to will apply to such meeting as though it
were physically held at a single place. Action may also be taken by the Board or any committee thereof without a meeting if the members
thereof consent in writing thereto as contemplated by law.
3.11. Presumption of Assent. A director of the Company who is present at a meeting of the Board of Directors, or of any committee when
corporate action is taken is deemed to have assented to the action taken unless either (i) the director objects at the beginning of the meeting or
promptly on the director’s arrival to holding it or transacting business at the meeting; (ii) the director’s dissent or abstention from the action
taken is entered in the minutes of the meeting; or (iii) the director delivers written notice of the director’s dissent or abstention to the presiding
officer of the meeting before its adjournment or to the Company before 5:00 P.M. on the next business day after the meeting. The right of
dissent or abstention is not available to a director who votes in favor of the action taken.
3.12. Compensation. By resolution of the Board, the directors may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors, or of any committee, and may be paid a fixed sum for attendance at each such meeting and/or a stated salary as a director or
committee member. No such payment will preclude any director from serving the Company in any other capacity and receiving compensation
therefor.
3.13. Removal. Any director or the entire Board of Directors may be removed, with or without cause, only at a special meeting of
shareholders called for that purpose, if the votes cast in favor of such removal exceed the votes cast against such removal, except that if less
than the entire Board of Directors is to be removed, no one of the directors may be removed if the votes cast against the director’s removal
would be sufficient to elect the director if then cumulatively voted at an election for the class of directors of which the director is a part.
IV. OFFICERS — GENERAL

4.01. Elections and Appointments. The directors may elect or appoint one or more of the officers of the Company contemplated in Part V
below. Any such election or appointment will regularly take place at the annual meeting of the directors, but elections of officers may be held
at any other meeting of the Board. A person elected or appointed to any office will continue to hold that office until the election or
appointment of his or her successor, subject to action earlier taken pursuant to Section 4.04 or 6.01 below. Any person may hold more than
one office.
4.02. Additional Appointments. In addition to the officers contemplated in Part V below, the Board of Directors may create other corporate
positions, and appoint persons thereto, with such authority to perform such duties as may be prescribed from time to time by the Board of
Directors, by the President or by the superior officer of any person so appointed. Notwithstanding such additional appointments, only those
persons whose offices are described in Part V are to be considered an officer of the Company unless the resolution or other Board action
appointing such person expressly states that such person is to be considered an officer of the Company. Each of such persons (in the order
designated by the Board or the superior officer of such person) will be vested with all of the powers and charged with all of the duties of his or
her superior officer in the event of such superior officer’s absence or disability.
4.03. Bonds and Other Requirements. The Board of Directors may require any officer or other appointee to give bond to the Company
(with sufficient surety, and conditioned upon the faithful performance of the duties of his or her office or position) and to comply with such
other conditions as may from time to time be required of him or her by the Board.
4.04. Removal or Delegation. Provided that a majority of the whole membership thereof concurs therein, the Board of Directors may remove
any officer of the Company as provided by law and declare his or her office or offices vacant or abolished or, in the case of the absence or
disability of any officer or for any other reason considered sufficient, may temporarily delegate his or her powers and duties to any other
officer or to any director. Similar action may be taken by the Board of Directors in regard to appointees designated pursuant to Section 4.02
above.
4.05. Salaries. Officer salaries may from time to time be fixed by the Board of Directors or (except as to his or her own) be left to the
discretion of the Chief Executive Officer or the President. No officer will be prevented from receiving a salary by reason of the fact that he or
she is also a director of the Company.
V. SPECIFIC OFFICERS, FUNCTIONS AND POWERS

5.01. Chairman of the Board. The Board of Directors may elect a Chairman to serve as a general executive officer of the Company and, if
specifically designated as such by the Board, as the Chief Executive Officer of the Company. If elected, the Chairman will preside at all
meetings of the directors and be vested with such other powers and duties as the Board may from time to time delegate to him or her.
5.02. Chief Executive Officer. Subject to the control of the Board of Directors exercised as hereinafter provided, the Chief Executive Officer
of the Company will supervise its business and affairs and the performance of their respective duties by all other officers, by appointees
designated pursuant to Section 4.02 above, and by such additional appointees to such additional positions (corporate, divisional or otherwise)
as the Chief Executive Officer may designate, with authority on his or her part to delegate the foregoing duty of supervision to such extent and
to such person or persons as may be determined by the Chief Executive Officer. Except as otherwise indicated from time to time by resolution
of the Board of Directors, its management of the business and affairs of the Company will be implemented through the office of the Chief
Executive Officer.
5.03. President and Vice Presidents. Unless specified to the contrary by resolution of the Board of Directors, the President will be the
Chief Executive Officer of the Company. In addition to the supervisory functions above set forth on the part of the Chief Executive Officer or in
lieu thereof if a contrary specification is made by the Board relative to the Chief Executive Officer, the President will be vested with such
powers and duties as the Board may from time to time designate. Vice Presidents may be elected by the Board of Directors to perform such
duties as may be designated by the Board or be assigned or delegated to them by their respective superior officers. The
Board may identify (i) one or more Vice Presidents as “Executive” or “Senior” Vice Presidents and (ii) the President or any Vice President as
“General Manager” of the Company and the title of any Vice President may include words indicative of his or her particular area of
responsibility and authority. Vice Presidents will succeed to the responsibilities and authority of the President, in the event of his or her
absence or disability, in the order consistent with their respective titles or regular duties or as specifically designated by the Board of
Directors.
5.04. Treasurer and Secretary. The Treasurer and Secretary each will perform all such duties normally associated with his or her office
(including, in the case of the Secretary, the giving of notice and the preparation and retention of minutes of corporate proceedings and the
custody of corporate records and the seal of the Company) as are not assigned to a Vice President of the Company, along with such other
duties as may be designated by the Board or be assigned or delegated to them by their respective superior officers. The Board may appoint
one or more Assistant Treasurers or Assistant Secretaries, each of whom (in the order designated by the Board or their respective superior
officers) will be vested with all of the powers and charged with all of the duties of the Treasurer or the Secretary (as the case may be) in the
event of his or her absence or disability.
5.05. Specific Powers. Except as may otherwise be specifically provided in a resolution of the Board of Directors, any of the officers
referred to in this Part V will be a proper officer to authenticate records of the Company and to sign on behalf of the Company any deed, bill of
sale, assignment, option, mortgage, pledge, note, bond, debenture, evidence of indebtedness, application, consent (to service of process or
otherwise), agreement, indenture or other instrument of importance to the Company. Any such officer may represent the Company at any
meeting of the shareholders or members of any corporation, association, partnership, joint venture or other entity in which this Company then
has an interest, and may vote such interest in person or by proxy appointed by him or her, provided that the Board of Directors may from time
to time confer the foregoing authority upon any other person or persons.
VI. RESIGNATIONS AND VACANCIES

6.01. Resignations.
(a) Any director, committee member or officer may resign from his or her office at any time by written notice as specified in accordance
with Arizona Revised Statutes Sections 10-807 and 10-843. The acceptance of a resignation will not be required to make it effective.
(b) Except as prohibited by law or by the Articles, any nominee for election as a director at a meeting of shareholders duly called and at
which a quorum is present, in an uncontested election, who receives a greater number of votes cast “withheld” for his or her election
than “for” such election shall promptly tender his or her resignation for consideration to the Corporate Governance Committee or its
successor. The Corporate
Governance Committee or its successor shall evaluate the director’s tendered resignation taking into account the best interests of the
Company and its shareholders and shall recommend to the Board of Directors whether to accept or reject such resignation. In making
its recommendation, the Corporate Governance Committee or its successor may consider, among other things, the effect of the
exercise of cumulative voting in the election. The Board of Directors shall act within 120 days following certification of the
shareholder vote and publicly disclose its decision and the underlying rationale. Any director who tenders his or her resignation
pursuant to this provision shall not participate in any committee or Board of Director consideration thereof.
6.02. Vacancies. If the office of any director, committee member or officer becomes vacant by reason of his or her death, resignation,
disqualification, removal or otherwise, the Board of Directors may choose a successor to hold office for the unexpired term.
VII. INDEMNIFICATION AND RATIFICATION

7.01. Indemnification. In order to induce qualified persons to serve the Company (and any other corporation, joint venture, partnership,
trust or other enterprise at the request of the Company) as directors and officers, the Company shall indemnify any and all of its directors and
officers, or former directors and officers to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended.
7.02. Ratification; Special Committee. Any transaction involving the Company, any of its subsidiary corporations or any of its directors,
officers, employees or agents which at any time is questioned in any manner or context (including a shareholders derivative suit), on the
ground of lack of authority, conflict of interest, misleading or omitted statement of fact or law, nondisclosure, miscomputation, improper
principles or practices of accounting, inadequate records, defective or irregular execution or any similar ground, may be investigated and/or
ratified (before or after judgment), or an election may be made not to institute or pursue a claim or legal proceedings on account thereof or to
accept or approve a negotiated settlement with respect thereto (before or after the institution of legal proceedings), by the Board of Directors
or by a special committee thereof comprised of one or more disinterested directors (that is, a director or directors who did not participate in the
questioned transaction with actual knowledge of the questioned aspect or aspects thereof). Such a special committee may be validly formed
and fully empowered to act, in accordance with the purposes and duties assigned thereto, by resolution or resolutions of the Board of
Directors, notwithstanding (i) the inclusion of Board members who are not disinterested as aforesaid among those who form a quorum at the
meeting or meetings at which one or more members of such special committee are elected or appointed to the Board or to such special
committee or at which such committee is formed or empowered, or their inclusion among the directors who vote upon or otherwise participate
in taking any of the foregoing actions, or (ii) the taking of any of such actions by the disinterested members of the Board (or a majority of such
members) whose
number is not sufficient to constitute a quorum or a majority of the membership of the full Board. Any such special committee so comprised
will, to the full extent consistent with its purposes and duties as expressed in such resolution or resolutions, have all of the authority and
powers of the full Board and its Executive Committee (the same as though it were the full Board and/or its Executive Committee in carrying out
such purposes and duties) and will function in accordance with Section 3.09 above. No other provisions of these Bylaws which may at any
time appear to conflict with any provisions of this Section 7.02, and no defect or irregularity in the formation, empowering or functioning of
any such special committee, will serve to impede, impair or bring into question any action taken or purported to be taken by such committee or
the validity of any such action. Any ratification of a transaction pursuant to this Section 7.02 will have the same force and effect as if the
transaction has been duly authorized originally. Any such ratification, and any election made pursuant to this Section 7.02 with respect to
claims, legal proceedings or settlements, will be binding upon the Company and its shareholders and will constitute a bar to any claim or the
execution of any judgment in respect of the transaction involved in such ratification or election.
VIII. SEAL
8.01. Form Thereof. The seal of the Company will have inscribed thereon the name of the Company, the state and year of its incorporation
and the words “SEAL”.
IX. STOCK CERTIFICATES

9.01. Form Thereof. Shares shall be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form.
This requirement shall not apply to shares represented by a certificate until the certificate is surrendered to the Company. Notwithstanding the
foregoing, every holder of stock represented by certificates and, upon request any holder of uncertificated shares, shall be entitled to have a
certificate in such form as approved by the Board of Directors.
9.02. Ownership. The Company will be entitled to treat the registered owner of any share as the absolute owner thereof and accordingly,
will not be bound to recognize any beneficial, equitable or other claim to, or interest in, such share on the part of any other person, whether or
not it has notice thereof, except as may expressly be provided by Chapter 8 of Title 47, Arizona Revised Statutes (or its successor), as at the
time in effect, or other applicable law.
9.03. Transfers. Transfer of stock will be made on the books of the Company as follows: (i) with respect to certificated shares, only upon
surrender of the certificate therefor, duly endorsed by an appropriate person, with such assurance of the genuineness and effectiveness of the
endorsement as the Company may require, all as contemplated by Chapter 8 of Title 47, Arizona Revised Statutes (or its successor), as at the
time in effect, and/or upon submission of any affidavit, other document or notice which the Company considers necessary; and (ii) with
respect to uncertificated shares, upon compliance with the customary procedures for transferring shares in uncertificated form.
9.04. Lost Certificates. In the event of the loss, theft or destruction of any certificate representing capital stock of this Company, the
Company may issue (or, in the case of any such stock as to which a transfer agent and/or registrar have been appointed, may direct such
transfer agent and/or registrar to countersign, register and issue) a replacement certificate in lieu of that alleged to be lost, stolen or destroyed,
and cause the same to be delivered to the owner of the stock represented thereby, provided that the owner shall have submitted such
evidence showing the circumstances of the alleged loss, theft or destruction, and his or her ownership of the certificate as the Company
considers satisfactory, together with any other factors which the Company considers pertinent, and further provided that an indemnity
agreement and/or indemnity bond shall have been provided in form and amount satisfactory to the Company and to its transfer agent and/or
registrar, if applicable.
X. EMERGENCY BYLAWS
10.01. Emergency Conditions. The emergency Bylaws provided in this Part X will be as effective in the event of an emergency as
prescribed in Arizona Revised Statutes Section 10-207.D. To the extent not inconsistent with the provisions of this Part X, these Bylaws will
remain in effect during such emergency and upon its termination, these emergency Bylaws will cease to be operative.
10.02. Board Meetings. During any such emergency, a meeting of the Board of Directors or any of its committees may be called by any
officer or director of the Company. Notice of the time and place of the meeting will be given by the person calling the same to those of the
directors whom it may be feasible to reach by any available means of communication. Such notice will be given so much in advance of the
meeting as circumstances permit in the judgment of the person calling the same. At any Board or committee meeting held during any such
emergency, a quorum will consist of a majority of those who could reasonably be expected to attend the meeting if they were willing to do so,
but in no event more than a majority of those to whom notice of such meeting is required to have been given as above provided.
10.03. Certain Actions. The Board of Directors, either before or during any such emergency, may provide and from time to time modify
lines of succession in the event that during such an emergency any or all officers, appointees, employees or agents of the Company are for
any reason rendered incapable of discharging their duties. The Board, either before or during any such emergency, may, effective in the
emergency, change the head office or designate several alternative head offices of the Company, or authorize the officers to do so.
10.04. Liability. No director, officer, appointee, employee or agent acting in accordance with these emergency Bylaws will be liable except
for willful misconduct.
10.05. Modifications. These emergency Bylaws will be subject to repeal or change by further action of the Board of Directors, but no such
repeal or change will modify the provisions of Section 10.04 with respect to action taken prior to the time of such repeal or change. Any
amendment of these emergency Bylaws may make any
further or different provisions that may be practical and necessary for the circumstances of the emergency.
XI. DIVIDENDS
11.01. Declaration. Subject to such restrictions or requirements as may be imposed by law or the Company’s Articles or as may otherwise
be binding upon the Company, the Board of Directors may from time to time declare dividends on stock of the Company outstanding on the
dates of record fixed by the Board, to be paid in cash, in property or in shares of the Company’s stock on or as of such payment or distribution
dates as the Board may prescribe.
XII. BUSINESS COMBINATIONS

12.01. Definitions. In these Bylaws, the following definitions shall apply:
1. “Affiliate” means a person that directly or indirectly controls, is controlled by, or is under common control with a specified person.
2. “Announcement date,” when used in reference to any business combination, means the date of the first public announcement of
the final, definitive proposal for the business combination.
3. “Associate,” when used to indicate a relationship with any person, means any of the following:
(a) Any corporation or organization of which the person is an officer, director, or partnership or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class or series of shares entitled to vote or other equity interest;
(b) Any trust or estate in which the person has a substantial beneficial interest or as to which the person serves as trustee or
personal representative or in a similar fiduciary capacity; or
(c) Any relative or spouse of the person, or any relative of the spouse, residing in the home of the person.
4. “Beneficial owner,” when used with respect to shares or other securities, includes any person who, directly or indirectly through
any agreement, arrangement, relationship, understanding, or otherwise, whether or not in writing, has or shares the power to vote,
or direct the voting of the shares or securities or has or shares the power to dispose of or direct the disposition of the shares or
securities, except that:
(a) A person is not deemed the beneficial owner of shares or securities tendered pursuant to a tender or exchange offer made by
the person or any of the person’s affiliates or associates until the tendered shares or securities are accepted for purchase or
exchange; and
(b) A person is not deemed the beneficial owner of shares or securities with respect to which the person has the power to vote
or direct the voting arising solely from a revocable proxy given in response to a proxy solicitation required to be made and
made in accordance with the applicable rules and regulations under the Securities Exchange Act of 1934, as amended, and is
not then reportable under that act on a Schedule 13D or comparable report.
5. “Beneficial ownership” includes the right to acquire shares or securities through the exercise of options, warrants, or rights, the
conversion of convertible securities, or otherwise. The shares or securities subject to the options, warrants, rights, or conversion
privileges held by a person are deemed to be outstanding for the purpose of computing the percentage of outstanding shares or
securities of the class or series owned by the person but are not deemed to be outstanding for the purpose of computing the
percentage of the class or series owned by any other person. A person is deemed the beneficial owner of shares and securities
beneficially owned by the spouse of the person or any relative of the spouse residing in the home of the person, any trust or estate
in which the person owns ten percent (10%) or more of the total beneficial interest or serves as trustee or personal representative,
any corporation or entity in which the person owns ten percent (10%) or more of the equity and any affiliate of the person.
6. “Business combination,” when used in reference to the Company and any interested shareholder of the Company, means any of
the following:
(a) Any merger or consolidation of the Company or any subsidiary of the Company with either:
(i) The interested shareholder; or
(ii) Any other domestic or foreign corporation, whether or not itself an interested shareholder of the Company, that is, or
after the merger would be, an affiliate or associate of the interested shareholder, except that the foregoing does not
include the merger of a wholly-owned subsidiary of the Company into the
Company or the merger of two or more wholly-owned subsidiaries of the Company.

(b) Any exchange, pursuant to a plan of exchange under the laws of the State of Arizona or a comparable statute of any other
state or jurisdiction, of shares of the Company or any subsidiary of the Company for shares of either:
(i) The interested shareholder; or
(ii) Any other domestic or foreign corporation, whether or not itself an interested shareholder of the Company, that is, or
after the exchange would be, an affiliate or associate of the interested shareholder.
(c) Any sale, lease, exchange, mortgage, pledge, transfer, or other disposition, in a single transaction or a series of transactions,
to or with the interested shareholder or any affiliate or associate of the interested shareholder, of assets of the Company or
any subsidiary of the Company to which any of the following applies:
(i) Has an aggregate market value equal to ten percent (10%) or more of the aggregate market value of all the assets,
determined on a consolidated basis, of the Company.
(ii) Has an aggregate market value equal to ten percent (10%) or more of the aggregate market value of all the outstanding
shares of the Company.
(iii) Represents ten percent (10%) or more of the earning power or net income, determined on a consolidated basis, of the
Company.
(d) The issuance or transfer by the Company or any subsidiary of the Company, in a single transaction or a series of
transactions, of any shares of the Company or any subsidiary of the Company that have an aggregate market value equal to
five percent (5%) or more of the aggregate market value of all the outstanding shares of the Company to the interested
shareholder or any affiliate or associate of the interested shareholder, except pursuant to the exercise of warrants or rights to
purchase shares offered or a dividend or distribution paid or made pro rata to all shareholders of the Company.
(e) The adoption of any plan or proposal for the liquidation or dissolution of the Company, or any reincorporation of the
Company in another state or jurisdiction, proposed by, on behalf of, or pursuant to any agreement, arrangement, or
understanding, whether or not in writing, with the interested shareholder or any affiliate or associate of the interested
shareholder.
(f) Any reclassification of securities, including any share dividend or split, reverse share split, or other distribution of shares in
respect of shares, recapitalization of the Company, merger or consolidation of the Company with any subsidiary of the
Company exchange of shares of the Company with any subsidiary of the Company or other transaction, whether or not with
or into or otherwise involving the interested shareholder, proposed by, on behalf of, or pursuant to any agreement,
arrangement, or understanding, whether or not in writing, with the interested shareholder or any affiliate or associate of the
interested shareholder that has the effect, directly or indirectly, of increasing the proportionate share of the outstanding
shares of any class or series of shares entitled to vote, or securities that are exchangeable for or convertible into or that carry
a right to acquire shares entitled to vote, of the Company or any subsidiary of the Company that is, directly or indirectly,
owned by the interested shareholder or any affiliate or associate of the interested shareholder, except as a result of immaterial
changes due to fractional share adjustments.
(g) Any receipt by the interested shareholder or any affiliate or associate of the interested shareholder of the benefit, directly or
indirectly, except proportionately as a shareholder of the Company, of any loans, advances, guarantees, pledges, or other
financial assistance or any tax credits or other tax advantages provided by or through the Company or any subsidiary of the
Company (other than expense account advances made in the ordinary course of business).
7. “Consummation date,” with respect to any business combination, means the date of consummation of the business combination
or, in the case of a business combination as to which a shareholder vote is taken, the later of:
(i) The business day before the vote; or
(ii) Twenty (20) days before the date of consummation of the business combination.
8. “Control,” “controlling,” “controlled by” or “under common control with” means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise. A person’s beneficial ownership of ten percent (10%) or more of the voting power of the
Company’s outstanding shares entitled to vote in the election of directors creates a presumption that the person has control of the
Company. A person is not considered to have control of the Company if the person holds voting power, in good faith and not for
the purpose of avoiding any provision of law as an agent, bank, broker, nominee, custodian, or trustee for one or more beneficial
owners who do not individually or as a group have control of the Company.
9. “Interested shareholder,” when used in reference to the Company means any person, other than the Company or any subsidiary of
the Company, that is either:
(a) The beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the outstanding shares
entitled to vote of the Company; or
(b) An affiliate or associate of the Company who at any time within the three (3) year period immediately before the date in
question was the beneficial owner of ten percent (10%) or more of the voting power of the then outstanding shares entitled
to vote of the Company.
10. “Market value,” when used in reference to shares or property of the Company, means the following:
(a) In the case of shares, the highest closing sale price during the thirty (30) day period immediately preceding the date in
question of a share on the composite tape for New York Stock Exchange listed shares or, if the shares are not quoted on the
composite tape or not listed on the New York Stock Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934, as amended, on which the share are listed or, if the shares are not listed on any
such exchange, on the National Association of Securities Dealers, Inc. Automated Quotations National Market System or, if
the shares are not quoted on the National Association of Securities Dealers, Inc. Automated Quotations National Market
System, the highest closing bid quotation during the thirty (30) day period preceding the date in question of a share on the
National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use or, if no such quotation is available, the fair market value on the date in
question of a share as determined in good faith by the Board of the Company.
(b) In the case of property other than cash or shares, the fair market value of the property on the date in question as determined
in good faith by the Board of the Company.
11. “Person” means any natural person, partnership, corporation, group, association, venture, firm, or other entity (other than the
Company, any subsidiary of the Company, or a trustee or fiduciary holding stock for the benefit of the employees of the Company
or its subsidiaries or any one of its subsidiaries, pursuant to one or more employee benefit plans). If two or more persons act as a
partnership, limited partnership, syndicate, or other group pursuant to any agreement, arrangement, relationship, understanding, or
otherwise, whether or not in writing, for the purposes of acquiring, owning, or voting shares of the Company, all members of the
partnership, syndicate, or other group shall be deemed a person. Person does not include a licensed broker, dealer, or underwriter
that purchases shares of the Company solely for purposes of resale to the public that is not acting in concert with an interested
shareholder.
12. “Share acquisition date,” with respect to any person and the Company, means the date that the person first becomes an interested
shareholder of the Company.
12.02. Business Combination with Interested Shareholders; Approved by Directors.
1. Except as set forth in these Bylaws, the Company may not engage in any business combination or vote, consent or otherwise act
to authorize a subsidiary of the Company to engage in any business combination with respect to, proposed by, or on behalf of, or
pursuant to any agreement, arrangement or understanding, whether or not in writing, with any interested shareholder of the
Company or any affiliate or associate of the interested shareholder for a period of three (3) years after the interested shareholder’s
share acquisition date, unless the business combination or the acquisition of shares made by the interested shareholder on the
interested shareholder’s share acquisition date is approved by a committee of the Board of Directors of the Company before the
interested shareholder’s share acquisition date. The committee shall be formed in accordance with subsection 4 of this
Section 12.02.
2. If a good faith definitive proposal regarding a business combination is made in writing to the Board of Directors of the Company, a
committee of the Board formed in accordance with subsection 4 of this Section 12.02 shall consider and take action on the
proposal. Unless the committee responds affirmatively in writing within forty-five (45) days after receipt of the proposal by the
Company, the committee shall be considered to have disapproved the business combination.
3. If a good faith definitive proposal to acquire shares is made in writing to the Board of Directors of the Company, a committee of the
Board of Directors formed in accordance with subsection 4 of this Section 12.02 shall consider and take action on the proposal.
Unless the committee responds affirmatively in writing within forty-five (45) days after receipt of the proposal by the Company, the
committee shall be considered to have disapproved the share acquisition.
4. When a business combination or acquisition of shares is proposed pursuant to this Section 12.02, the Board of Directors shall
promptly form a committee composed of all of the Board’s disinterested Directors. The committee shall take action on the proposal
by the affirmative vote of a simple majority of the committee members. The committee is not subject to any direction or control by
the Board with respect to the committee’s consideration of or any action concerning a business combination or acquisition of
shares pursuant to this Section 12.02. A committee formed pursuant to this subsection shall be composed of one or more members.
Only disinterested Directors may be members of a committee formed pursuant to this subsection. However, if the Board of
Directors has no disinterested Directors, the Board shall select three or more disinterested persons to be committee members. For
purposes of this subsection, a Director or person is disinterested if the Director or person is not an interested shareholder or an
affiliate thereof or a present or former officer or employee of the Company or an affiliate or associate of the Company or of the
interested shareholder or of any affiliate or associate of the interested shareholder.
12.03. Requirements after Three Years. Except for the provisions of Sections 12.02 and 12.04, the Company may not engage at any time in
any business combination or vote, consent, or otherwise act to authorize a subsidiary of the Company to engage in any business combination
with respect to, proposed by, on behalf of, or pursuant to any agreement, arrangement, or understanding, whether or not in writing, with an
interested shareholder of the Company or any affiliate or associate of the interested shareholder other than a business combination meeting all
the requirements of this Article XII, the Articles, and the requirements specified in any of the following:
1. A business combination with respect to which the consummation date is no less than three years after the share acquisition date,
approved by the Board of Directors of the Company before the interested shareholder’s share acquisition date, or as to which the
acquisition of shares made by the interested shareholder on the interested shareholder’s acquisition date had been approved by
the Board of Directors before the interested shareholder’s share acquisition date.
2. A business combination approved by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote
not beneficially owned by the interested shareholder proposing the business combination or any affiliate or associate of the
interested shareholder proposing the business combination at a meeting called for that purpose no earlier than three years after the
interested shareholder’s share acquisition date.
3. A business combination, with respect to which the consummation date is no earlier than three years after the interested
shareholder’s share acquisition date, that meets all of the following conditions:
(a) The aggregate amount of the cash and the market value as of the consummation date of consideration other than cash to be
received per share by holders of outstanding common shares of the Company in the business combination is at least equal to
the higher of the following:
(i) The highest per share price paid by the interested shareholder, at a time when the interested shareholder was the
beneficial owner, directly or indirectly, of five percent (5%) or more of the outstanding shares entitled to vote of the
Company, for any common shares of the same class or series acquired by it within the three (3) year period immediately
before the announcement date with respect to the business combination or within the three (3) year period immediately
before, or in, the transaction in which the interested shareholder became an interested shareholder, whichever is higher,
plus, in either case, interest compounded annually from the earliest date on which the highest per share acquisition
price was paid through the consummation date at the rate for one year United States treasury obligations from time to
time in effect less the aggregate amount of any cash dividends paid, and the market value of any dividends paid
other than in cash, per common share since the earliest date, up to the amount of the interest.
(ii) The market value per common share on the announcement date with respect to the business combination or on the
interested shareholder’s share acquisition date, whichever is higher, plus interest compounded annually from that date
through the consummation date at the rate for one year United States treasury obligations from time to time in effect
less the aggregate amount of any cash dividends paid and the market value of any dividends paid other than in cash,
per common share since that date, up to the amount of the interest.
(b) The aggregate amount of the cash and the market value as of the consummation date of consideration other than cash
to be received per share by holders of outstanding shares of any class or series of shares, other than common shares,
of the Company in the business combination is at least equal to the highest of the following, whether or not the
interested shareholder has previously acquired any shares of the class or series:
(i) The highest per share price paid by the interested shareholder, at a time when the interested shareholder was the
beneficial owner, directly or indirectly, of five percent (5%) or more of the outstanding shares entitled to vote of
the Company, for any shares of the class or series acquired by it within the three (3) year period immediately
before the announcement date with respect to the business combination or within the three (3) year period
immediately before, or in, the transaction in which the interested shareholder became an interested shareholder,
whichever is higher, plus, in either case, interest compounded annually from the earliest date on which the highest
per share acquisition price was paid through the consummation date at the rate for one year United States
treasury obligations from time to time in effect less the aggregate amount of any cash dividends paid and the
market value of any dividends paid other than in cash, per share of the class or
series since such earliest date, up to the amount of the interest.

(ii) The highest preferential amount per share to which the holders of shares of the class or series are entitled in the
event of any voluntary liquidation, dissolution, or winding up of the Company, plus the aggregate amount of any
unpaid dividends declared or due as to which the holders are entitled before payment of dividends on some other
class or series of shares, unless the aggregate amount of the dividends is included in the preferential amount.
(iii) The market value per share of the class or series on the announcement date with respect to the business
combination or on the interested shareholder’s share acquisition date, whichever is higher, plus interest
compounded annually from that date through the consummation date at the rate for one year United States
treasury obligations from time to time in effect less the aggregate amount of any cash dividends paid and the
market value of any dividends paid other than in cash, per share of the class or series since that date, up to the
amount of the interest.
(c) The consideration to be received by holders of a particular class or series of outstanding shares, including common
shares, of the Company in the business combination is in cash or in the same form as the interested shareholder has
used to acquire the largest number of shares of the class or series of shares previously acquired by it and the
consideration is distributed promptly.
(d) The holders of all outstanding shares of the Company not beneficially owned by the interested shareholder immediately
before the consummation date with respect to the business combination are entitled to receive in the business
combination cash or other consideration for the shares in compliance with subdivisions (a), (b) and (c).
(e) After the interested shareholder’s share acquisition date and before the consummation date with respect to the
business combination, the interested shareholder has not become the beneficial owner of any additional shares entitled
to vote of the Company except:
(i) As part of the transaction that resulted in the interested shareholder becoming an interested shareholder;
(ii) By virtue of proportionate share splits, share dividends, or other distributions of shares in respect of shares not
constituting a business combination;
(iii) Through a business combination meeting all of the conditions of Section 12.02 and this paragraph; or
(iv) Through purchase by the interested shareholder at any price that, if the price had been paid in an otherwise
permissible business combination the announcement date and consummation date of which were the date of the
purchase, would have satisfied the requirements of subdivisions (a), (b) and (c) of this Section.
12.04. Application. This Article XII does not apply to any business combination of the Company with an interested shareholder of the
Company who became an interested shareholder inadvertently, if the interested shareholder both:
1. As soon as practicable, divests itself of a sufficient amount of the shares entitled to vote of the Company so that it no longer is the
beneficial owner, directly or indirectly, of ten percent (10%) or more of the outstanding shares entitled to vote of the Company.
2. Would not at any time within the three (3) year period preceding the announcement date with respect to the business combination
have been an interested shareholder except for the inadvertent acquisition.
XIII. LIMITATION ON SHARE REPURCHASES

13.01. Limitation on Share Repurchases. The Company shall not, directly or indirectly, purchase or agree to purchase any shares entitled
to vote from a person who
beneficially owns more than five per cent (5%) of the voting stock of the Company for more than the “average market price” of the shares if the
shares have been beneficially owned by the person or persons for less than three (3) years, unless either (i) the purchase or agreement to
purchase is approved at a meeting of shareholders by the affirmative vote of the holders of a majority of the voting stock entitled to vote
excluding shares beneficially owned by such person, by any of such person’s affiliates or associates, or by any officer or director of the
Company or (ii) the Company makes an offer, of at least equal value per share, to all holders of shares of such class or series and to all holders
of any class or series into which the shares may be converted.
13.02. Definitions. For the purposes of this Article, “average market price” means the average closing sale price during the thirty trading
days immediately preceding the purchase of the shares in question, or if the person or persons have commenced a tender offer or have
announced an intention to seek control of the Company, during the thirty trading days preceding the earlier of the commencement of the
tender offer or the making of the announcement, of a share on the composite tape for New York Stock Exchange listed shares or, if the shares
are not quoted on the composite tape or not listed on the New York Stock Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934, as amended, on which the shares are listed or, if the shares are not listed on any such
exchange, on the National Association of Securities Dealers, Inc. Automated Quotations National Market System or, if the shares are not
quoted on the National Association of Securities Dealers, Inc. Automated Quotations National Market System, the average closing bid
quotation, during the thirty trading days preceding the purchase of the shares in questions of a share on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in use, or if the person or persons have commenced a tender offer
or have announced an intention to seek control of the issuing public corporation, during the thirty trading days preceding the earlier of the
commencement of the tender offer or the making of the announcement, except that if no quotation is available the average market price is the
fair market value on the date of purchase of the shares in question of a share as determined in good faith by the Board of Directors of the
Company.
XIV. AMENDMENTS
14.01. Amendment of Bylaws. These Bylaws may be altered, amended, supplemented, repealed, or temporarily or permanently suspended,
in whole or in part, or replacement Bylaw provisions adopted by: (i) the affirmative vote of a majority of the directors then in office; or (ii) the
affirmative vote of a majority of the votes cast on such matter(s) at a meeting of shareholders.
Exhibit 3.4
BYLAWS
OF
(Amended as of December 16, 2008)
I. REFERENCES; SENIORITY
1.01. References. Any reference herein made to law will be deemed to refer to the law of the State of Arizona, including any applicable
provision or provisions of Chapters 1-17 and Chapter 23 of Title 10, Arizona Revised Statutes (or its successor), as at any given time in effect.
Any reference herein made to the Articles will be deemed to refer to the applicable provision or provisions of the Articles of Incorporation of
the Company, and all amendments thereto, as at any given time on file with the Arizona Corporation Commission (this reference to that
Commission being intended to include any successor to the incorporating and related functions being performed by that Commission at the
date of the initial adoption of these Bylaws).
1.02. Seniority. Except as indicated in Part X of these Bylaws, the law and the Articles (in that order of precedence) will in all respects be
considered senior and superior to these Bylaws, with any inconsistency to be resolved in favor of the law and the Articles (in that order of
precedence), and with these Bylaws to be deemed automatically amended from time to time to eliminate any such inconsistency which may
then exist.
1.03. Shareholders of Record. Except as otherwise required by law and subject to any procedure established by the Company pursuant to
Arizona Revised Statutes Section 10-723 (or any comparable successor provision), the word “shareholder” as used herein shall mean one who
is a holder of record of shares of capital stock in the Company.
II. SHAREHOLDERS MEETINGS

2.01. Annual Meetings. An annual meeting of shareholders shall be held for the election of directors at such date, time and place, either
within or without the State of Arizona, as may be designated by resolution of the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting. A special meeting may be called and held in lieu of an annual meeting pursuant to the
provisions of Section 2.02 below, and the same proceedings (including the election of directors) may be conducted thereat as at a regular
meeting. Any director elected at any annual meeting, or special meeting in lieu of an annual meeting, will continue in office until the election of
his or her successor, subject to his or her (a) earlier resignation pursuant to Section 6.01 below, (b) removal pursuant to Section 3.12 below, or
(c) death or disqualification.
2.02. Special Meetings. Except as otherwise required by law, special meetings of the shareholders may be held whenever and wherever
called by the Chairman of the
Board, the President, or a majority of the Board of Directors, but such special meetings may not be called by any other person or persons.
Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice.
2.03. Notice. Notice of any meeting of the shareholders will be given as provided by law to each shareholder entitled to vote at such
meeting and, if required by law, to each other shareholder of the Company. Any such notice may be waived as provided by law.
2.04. Right to Vote. For each meeting of the shareholders, the Board of Directors will fix in advance a record date as contemplated by law,
and the shares of stock and the shareholders “entitled to vote” (as that or any similar term is herein used) at any meeting of the shareholders
will be determined as of the applicable record date. If no record date is so fixed by the Board of Directors, the record date for determination of
shareholders shall be as provided by law. The Secretary (or in his or her absence an Assistant Secretary) will see to the making and production
of any record of shareholders entitled to vote or otherwise entitled to notice of shareholders meetings, in either case which is required by law.
Any voting entitlement may be exercised through proxy, or in such other manner as specifically provided by law, in accordance with the
applicable law. In the event of contest, the burden of proving the validity of any undated or irrevocable proxy will rest with the person seeking
to exercise the same. A telegram, cablegram, or facsimile appearing to have been transmitted by a shareholder (or by his or her duly authorized
attorney-in-fact) or other means of voting by telephone or electronic transmission may be accepted as a sufficiently written and executed
proxy if otherwise permitted by law.
2.05. Right to Attend. Except only to the extent of persons designated by the Board of Directors or the Chairman of the meeting to assist in
the conduct of the meeting (as referred to in Sections 2.07 and 2.08 below) and except as otherwise permitted by the Board or such Chairman,
the persons entitled to attend any meeting of shareholders may be confined to (i) shareholders entitled to vote thereat and other shareholders
entitled to notice of the meeting and (ii) the persons upon whom proxies valid for purposes of the meeting have been conferred or their duly
appointed substitutes (if the related proxies confer a power of substitution); provided, however, that the Board of Directors or the Chairman of
the meeting may establish rules limiting the number of persons referred to in clause (ii) as being entitled to attend on behalf of any shareholder
so as to preclude such an excessively large representation of such shareholder at the meeting as, in the judgment of the Board or such
Chairman, would be unfair to other shareholders represented at the meeting or be unduly disruptive of the orderly conduct of business at such
meeting (whether such representation would result from fragmentation of the aggregate number of shares held by such shareholder for the
purpose of conferring proxies, from the naming of an excessively large proxy delegation by such shareholder or from employment of any other
device). A person otherwise entitled to attend any such meeting will cease to be so entitled if, in the judgment of the Chairman of the meeting,
such person engages thereat in disorderly conduct impeding the proper conduct of the meeting in the interests of all shareholders as a group.
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2.06. Quorum. Except as otherwise provided by law, the Articles or these Bylaws, at each meeting of shareholders the presence in person
or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary
and sufficient to constitute a quorum.
2.07. Election Inspectors. The Board of Directors, in advance of any shareholders meeting may appoint an election inspector or inspectors
to act at such meeting (and any adjournment thereof). If an election inspector or inspectors are not so appointed, the Chairman of the meeting
may or, upon the request of any person entitled to vote at the meeting will, make such appointment. If any person appointed as an inspector
fails to appear or to act, a substitute may be appointed by the Chairman of the meeting. If appointed, the election inspector or inspectors
(acting through a majority of them if there be more than one) will determine the number of shares outstanding, the authenticity, validity and
effect of proxies, the credentials of persons purporting to be shareholders or persons named or referred to in proxies, and the number of shares
represented at the meeting in person and by proxy; they will receive and count votes, ballots and consents and announce the results thereof;
they will hear and determine all challenges and questions pertaining to proxies and voting; and, in general, they will perform such acts as may
be proper to conduct elections and voting with complete fairness to all shareholders. No such election inspector need be a shareholder of the
Company.
2.08. Organization and Conduct of Meetings. Each shareholders meeting will be called to order and thereafter chaired by the Chairman of
the Board if there then is one; or, if not, or if the Chairman of the Board is absent or so requests, then by the President; or if both the Chairman
of the Board and the President are unavailable, then by such other officer of the Company or such shareholder as may be appointed by the
Board of Directors. The Secretary (or in his or her absence an Assistant Secretary) of the Company will act as secretary of each shareholders
meeting; if neither the Secretary nor an Assistant Secretary is in attendance, the Chairman of the meeting may appoint any person (whether a
shareholder or not) to act as secretary thereat. After calling a meeting to order, the Chairman thereof may require the registration of all
shareholders intending to vote in person, and the filing of all proxies, with the election inspector or inspectors, if one or more have been
appointed (or, if not, with the secretary of the meeting). After the announced time for such filing of proxies has ended, no further proxies or
changes, substitutions or revocations of proxies will be accepted. If directors are to be elected, a tabulation of the proxies so filed will, if any
person entitled to vote in such election so requests, be announced at the meeting (or adjournment thereof) prior to the closing of the election
polls.
Absent a showing of bad faith on his or her part, the Chairman of a meeting will, among other things, have absolute authority to determine
the order of business to be conducted at such meeting and to establish rules for, and appoint personnel to assist in, preserving the orderly
conduct of the business of the meeting (including any informal, or question and answer, portions thereof). Rules, regulations or procedures
regarding the conduct of the business of a meeting, whether adopted by the Board of Directors or prescribed by the Chairman of the meeting,
may include, without limitation, the
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following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting
and the safety of those present; (iii) limitations on attendance at or participation in the meeting to shareholders of record of the Company, their
duly authorized and constituted proxies (subject to Section 2.05) or such other persons as the Chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions
or comments by participants. Unless and to the extent determined by the Board of Directors or the Chairman of the meeting, meetings of
shareholders shall not be required to be held in accordance with the rules of parliamentary procedure. Any informational or other informal
session of shareholders conducted under the auspices of the Company after the conclusion of or otherwise in conjunction with any formal
business meeting of the shareholders will be chaired by the same person who chairs the formal meeting, and the foregoing authority on his or
her part will extend to the conduct of such informal session.
2.09. Voting. The number of shares voted on any matter submitted to the shareholders which is required to constitute their action thereon
or approval thereof will be determined in accordance with applicable law, the Articles, and these Bylaws, if applicable. No ballot or change of
vote will be accepted after the polls have been declared closed following the ending of the announced time for voting.
2.10. Shareholder Approval or Ratification. The Board of Directors may submit any contract or act for approval or ratification at any duly
constituted meeting of the shareholders, the notice of which either includes mention of the proposed submittal or is waived as provided in
Section 2.03 above. Except as otherwise required by law (e.g., Arizona Revised Statutes Section 10-863), if any contract or act so submitted is
approved or ratified by a majority of the votes cast thereon at such meeting, the same will be valid and as binding upon the Company and all of
its shareholders as it would be if approved and ratified by each and every shareholder of the Company.
2.11. Adjournments. Any meeting of shareholders, annual or special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Company may transact any business that might have been transacted at the original
meeting. If the adjournment is for more than one hundred and twenty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting.
2.12. Shareholder Action by Written Consent. Any action required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting if one (1) or more consents in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to
vote with respect to the subject matter thereof. The consents shall be delivered to the Company for inclusion in the minutes or filing with the
Company’s records. Action taken by consent is effective when the last shareholder signs the consent, unless the consent specifies a different
effective date, except that if,
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by law, the action to be taken requires that notice be given to shareholders who are not entitled to vote on the matter, the effective date shall
not be prior to ten (10) days after the Company shall give such shareholders written notice of the proposed action, which notice shall contain
or be accompanied by the same material that would have been required if a formal meeting had been called to consider the action. A consent
signed under this section has the effect of a meeting vote and may be described as such in any document.
III. BOARD OF DIRECTORS

3.01. Membership and Qualification. The Board of Directors will have the exclusive power to increase or decrease its size within the limits
fixed in the Articles (Art. Fifth). Any vacancy occurring in the Board, whether by reason of death, resignation, disqualification or otherwise,
may be filled by the directors as contemplated by law and as provided in the Articles (Art. Fifth). Any such increase in the size of the Board,
and the filling of any vacancy created thereby, will require action by a majority of the whole membership of the Board as comprised
immediately before such increase. A person who has been a full-time employee of the Company within twelve months prior to the date of any
election will not qualify for election as a director on that date unless he or she then remains a full-time employee of the Company or unless the
Board of Directors specifically authorizes the election of such person. A person who has qualified by employment status for his or her most
recent election as a director may serve throughout the term for which such person was elected, notwithstanding the cessation of full-time
employment by the Company between the date of such election and the end of such term, subject, however, to his or her otherwise remaining
qualified for such office.
3.02. Regular Meetings. A regular annual meeting of the directors is to be held as soon as practicable after the adjournment of each annual
shareholders meeting either at the place of the shareholders meeting or at such other place as the directors elected at the shareholders meeting
may have been informed of at or before the time of their election. Regular meetings, other than the annual ones, may be held at such intervals
at such places and at such times as the Board of Directors may provide.
3.03. Special Meetings. Special meetings of the Board of Directors may be held whenever and wherever called for by the Chairman of the
Board, the President or the number of directors which would be required to constitute a quorum.
3.04. Notice. No notice need be given of regular meetings of the Board of Directors. Notice of the time and place (but not necessarily the
purpose or all of the purposes) of any special meeting will be given to each director in person or by telephone, or via mail, telegram, facsimile,
or other electronic transmission addressed in the manner appearing on the Company’s records. Notice to any director of any such special
meeting will be deemed given sufficiently in advance when (i) if given by mail, the same is deposited in the United States mail at least four days
before the meeting date, with postage thereon prepaid, (ii) if given by telegram, the same is delivered to the telegraph office for fast transmittal
at least 48 hours prior to the convening of the
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meeting, (iii) if given by facsimile or other electronic transmission, the same is received by the director or an adult member of his or her office
staff or household, at least 24 hours prior to the convening of the meeting, or (iv) if personally delivered or given by telephone, the same is
handed, or the substance thereof is communicated over the telephone to the director or to an adult member of his or her office staff or
household, at least 24 hours prior to the convening of the meeting. Any such notice may be waived as provided by law. No call or notice of a
meeting of directors will be necessary if each of them waives the same in writing or by attendance. Any meeting, once properly called and
noticed (or as to which call and notice have been waived as aforesaid) and at which a quorum is formed, may be adjourned to another time and
place by a majority of those in attendance.
3.05. Quorum; Voting. A quorum for the transaction of business at any meeting or adjourned meeting of the directors will consist of a
majority of those then in office. Any matter submitted to a meeting of the directors will be resolved by a majority of the votes cast thereon,
except as otherwise required by these Bylaws (§ 3.01 above and § 3.06 below), by law or by any applicable Article. Where action by a majority
of the whole membership is required, such requirement will be deemed to relate to a majority of the directors in office at the time the action is
taken. In computing any such majority, whether for purposes of determining the presence of a quorum or the adequacy of the vote on any
proposed action, any unfilled vacancies at the time existing in the membership of the Board will be excluded from the computation.
3.06. Executive Committee. The Board of Directors may, by resolution adopted by a majority of the whole Board, name three or more of its
members as an Executive Committee. Such Executive Committee will have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Company while the Board is not in session, except only as precluded by law or where action
other than by a majority of the votes cast is required by these Bylaws, or the law (all as referred to in Section 3.05 above), and subject to such
limitations as may be included in any applicable resolution passed by a majority of the whole membership of the Board. A majority of those
named to the Executive Committee will constitute a quorum.
3.07. Other Committees. The Board of Directors may designate one or more additional committees, each committee to consist of one or
more of the directors of the Company. The Board of Directors may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent permitted by law and
to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers
that may require it.
3.08. Committee Functioning. Notice requirements (and related waiver provisions) for meetings of the Executive Committee and other
committees of the Board will be the same as those set forth in Section 3.04 above for meetings of the Board of
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Directors. Except as provided in the next two succeeding sentences, a majority of those named to the Executive Committee or any other
committee of the Board will constitute a quorum at any meeting thereof (with the effect of departure of committee members from a meeting and
the computation of a majority of committee members to be in accordance with the applicable policies of Section 3.05 above), and any matter
submitted to a meeting of any such committee will be resolved by a majority of the votes cast thereon. No distinction will be made among ex-
officio or other members of any such committee for quorum, voting or other purposes, except that the membership of any committee (including
the Executive Committee), in performing any function vested in it as herein contemplated, may be deemed to exclude any officer or employee of
the Company, in either case, or other person, having a direct or indirect personal interest in any proposed exercise of such function, whose
exclusion for that purpose is deemed appropriate by a majority of the other members of such committee proposing to perform such function.
All committees are to keep regular minutes of the transactions of their meetings.
3.09. Action by Telephone or Consent. Any meeting of the Board or any committee thereof may be held by conference telephone or similar
communications equipment as permitted by law in which case any required notice of such meeting may generally describe the arrangements
(rather than the place) for the holding thereof, and all other provisions herein contained or referred to will apply to such meeting as though it
were physically held at a single place. Action may also be taken by the Board or any committee thereof without a meeting if the members
thereof consent in writing thereto as contemplated by law.
3.10. Presumption of Assent. A director of the Company who is present at a meeting of the Board of Directors, or of any committee when
corporate action is taken is deemed to have assented to the action taken unless either (i) the director objects at the beginning of the meeting or
promptly on the director’s arrival to holding it or transacting business at the meeting; (ii) the director’s dissent or abstention from the action
taken is entered in the minutes of the meeting; or (iii) the director delivers written notice of the director’s dissent or abstention to the presiding
officer of the meeting before its adjournment or to the Company before 5:00 P.M. on the next business day after the meeting. The right of
dissent or abstention is not available to a director who votes in favor of the action taken.
3.11. Compensation. By resolution of the Board, the directors may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors, or of any committee, and may be paid a fixed sum for attendance at each such meeting and/or a stated salary as a director or
committee member. No such payment will preclude any director from serving the Company in any other capacity and receiving compensation
therefor.
3.12. Removal. Any director or the entire Board of Directors may be removed, with or without cause, only at a special meeting of
shareholders called for that purpose, if the votes cast in favor of such removal exceed the votes cast against such removal, except that if less
than the entire Board of Directors is to be removed, no one of the
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directors may be removed if the votes cast against the director’s removal would be sufficient to elect the director if then cumulatively voted at
an election for the class of directors of which the director is a part.
IV. OFFICERS — GENERAL

4.01. Elections and Appointments. The directors may elect or appoint one or more of the officers of the Company contemplated in Part V
below. Any such election or appointment will regularly take place at the annual meeting of the directors, but elections of officers may be held
at any other meeting of the Board. A person elected or appointed to any office will continue to hold that office until the election or
appointment of his or her successor, subject to action earlier taken pursuant to Section 4.04 or 6.01 below. Any person may hold more than
one office.
4.02. Additional Appointments. In addition to the officers contemplated in Part V below, the Board of Directors may create other corporate
positions, and appoint persons thereto, with such authority to perform such duties as may be prescribed from time to time by the Board of
Directors, by the President or by the superior officer of any person so appointed. Notwithstanding such additional appointments, only those
persons whose offices are described in Part V are to be considered an officer of the Company unless the resolution or other Board action
appointing such person expressly states that such person is to be considered an officer of the Company. Each of such persons (in the order
designated by the Board or the superior officer of such person) will be vested with all of the powers and charged with all of the duties of his or
her superior officer in the event of such superior officer’s absence or disability.
4.03. Bonds and Other Requirements. The Board of Directors may require any officer or other appointee to give bond to the Company
(with sufficient surety, and conditioned upon the faithful performance of the duties of his or her office or position) and to comply with such
other conditions as may from time to time be required of him or her by the Board.
4.04. Removal or Delegation. Provided that a majority of the whole membership thereof concurs therein, the Board of Directors may remove
any officer of the Company as provided by law and declare his or her office or offices vacant or abolished or, in the case of the absence or
disability of any officer or for any other reason considered sufficient, may temporarily delegate his or her powers and duties to any other
officer or to any director. Similar action may be taken by the Board of Directors in regard to appointees designated pursuant to Section 4.02
above.
4.05. Salaries. Officer salaries may from time to time be fixed by the Board of Directors or (except as to his or her own) be left to the
discretion of the Chief Executive Officer or the President. No officer will be prevented from receiving a salary by reason of the fact that he or
she is also a director of the Company.
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V. SPECIFIC OFFICERS, FUNCTIONS AND POWERS

5.01. Chairman of the Board. The Board of Directors may elect a Chairman to serve as a general executive officer of the Company and, if
specifically designated as such by the Board, as the Chief Executive Officer of the Company. If elected, the Chairman will preside at all
meetings of the directors and be vested with such other powers and duties as the Board may from time to time delegate to him or her.
5.02. Chief Executive Officer. Subject to the control of the Board of Directors exercised as hereinafter provided, the Chief Executive Officer
of the Company will supervise its business and affairs and the performance of their respective duties by all other officers, by appointees
designated pursuant to Section 4.02 above, and by such additional appointees to such additional positions (corporate, divisional or otherwise)
as the Chief Executive Officer may designate, with authority on his or her part to delegate the foregoing duty of supervision to such extent and
to such person or persons as may be determined by the Chief Executive Officer. Except as otherwise indicated from time to time by resolution
of the Board of Directors, its management of the business and affairs of the Company will be implemented through the office of the Chief
Executive Officer.
5.03. President and Vice Presidents. Unless specified to the contrary by resolution of the Board of Directors, the President will be the
Chief Executive Officer of the Company. In addition to the supervisory functions above set forth on the part of the Chief Executive Officer or in
lieu thereof if a contrary specification is made by the Board relative to the Chief Executive Officer, the President will be vested with such
powers and duties as the Board may from time to time designate. Vice Presidents may be elected by the Board of Directors to perform such
duties as may be designated by the Board or be assigned or delegated to them by their respective superior officers. The Board may identify
(i) one or more Vice Presidents as “Executive” or “Senior” Vice Presidents and (ii) the President or any Vice President as “General Manager” of
the Company and the title of any Vice President may include words indicative of his or her particular area of responsibility and authority. Vice
Presidents will succeed to the responsibilities and authority of the President, in the event of his or her absence or disability, in the order
consistent with their respective titles or regular duties or as specifically designated by the Board of Directors.
5.04. Treasurer and Secretary. The Treasurer and Secretary each will perform all such duties normally associated with his or her office
(including, in the case of the Secretary, the giving of notice and the preparation and retention of minutes of corporate proceedings and the
custody of corporate records and the seal of the Company) as are not assigned to a Vice President of the Company, along with such other
duties as may be designated by the Board or be assigned or delegated to them by their respective superior officers. The Board may appoint
one or more Assistant Treasurers or Assistant Secretaries, each of whom (in the order designated by the Board or their respective superior
officers) will be vested with all of the powers and charged with all of the duties of the Treasurer or the Secretary (as the case may be) in the
event of his or her absence or disability.
-9-
5.05. Specific Powers. Except as may otherwise be specifically provided in a resolution of the Board of Directors, any of the officers
referred to in this Part V will be a proper officer to authenticate records of the Company and to sign on behalf of the Company any deed, bill of
sale, assignment, option, mortgage, pledge, note, bond, debenture, evidence of indebtedness, application, consent (to service of process or
otherwise), agreement, indenture or other instrument of importance to the Company. Any such officer may represent the Company at any
meeting of the shareholders or members of any corporation, association, partnership, joint venture or other entity in which this Company then
has an interest, and may vote such interest in person or by proxy appointed by him or her, provided that the Board of Directors may from time
to time confer the foregoing authority upon any other person or persons.
VI. RESIGNATIONS AND VACANCIES

6.01. Resignations. Any director, committee member or officer may resign from his or her office at any time by written notice as specified in
accordance with Arizona Revised Statutes Sections 10-807 and 10-843. The acceptance of a resignation will not be required to make it effective.
6.02. Vacancies. If the office of any director, committee member or officer becomes vacant by reason of his or her death, resignation,
disqualification, removal or otherwise, the Board of Directors may choose a successor to hold office for the unexpired term.
VII. INDEMNIFICATION AND RATIFICATION

7.01. Indemnification. In order to induce qualified persons to serve the Company (and any other corporation, joint venture, partnership,
trust or other enterprise at the request of the Company) as directors and officers, the Company shall indemnify any and all of its directors and
officers, or former directors and officers to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended.
7.02. Ratification; Special Committee. Any transaction involving the Company, any of its subsidiary corporations or any of its directors,
officers, employees or agents which at any time is questioned in any manner or context (including a shareholders derivative suit), on the
ground of lack of authority, conflict of interest, misleading or omitted statement of fact or law, nondisclosure, miscomputation, improper
principles or practices of accounting, inadequate records, defective or irregular execution or any similar ground, may be investigated and/or
ratified (before or after judgment), or an election may be made not to institute or pursue a claim or legal proceedings on account thereof or to
accept or approve a negotiated settlement with respect thereto (before or after the institution of legal proceedings), by the Board of Directors
or by a special committee thereof comprised of one or more disinterested directors (that is, a director or directors who did not participate in the
questioned transaction with actual knowledge of the questioned aspect or aspects thereof). Such a special committee may be validly formed
and fully empowered to act, in accordance with the purposes and duties assigned thereto, by resolution or resolutions of the Board
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of Directors, notwithstanding (i) the inclusion of Board members who are not disinterested as aforesaid among those who form a quorum at the
meeting or meetings at which one or more members of such special committee are elected or appointed to the Board or to such special
committee or at which such committee is formed or empowered, or their inclusion among the directors who vote upon or otherwise participate
in taking any of the foregoing actions, or (ii) the taking of any of such actions by the disinterested members of the Board (or a majority of such
members) whose number is not sufficient to constitute a quorum or a majority of the membership of the full Board. Any such special committee
so comprised will, to the full extent consistent with its purposes and duties as expressed in such resolution or resolutions, have all of the
authority and powers of the full Board and its Executive Committee (the same as though it were the full Board and/or its Executive Committee
in carrying out such purposes and duties) and will function in accordance with Section 3.08 above. No other provisions of these Bylaws which
may at any time appear to conflict with any provisions of this Section 7.02, and no defect or irregularity in the formation, empowering or
functioning of any such special committee, will serve to impede, impair or bring into question any action taken or purported to be taken by
such committee or the validity of any such action. Any ratification of a transaction pursuant to this Section 7.02 will have the same force and
effect as if the transaction has been duly authorized originally. Any such ratification, and any election made pursuant to this Section 7.02 with
respect to claims, legal proceedings or settlements, will be binding upon the Company and its shareholders and will constitute a bar to any
claim or the execution of any judgment in respect of the transaction involved in such ratification or election.
VIII. SEAL
8.01. Form Thereof. The seal of the Company will have inscribed thereon the name of the Company, the state and year of its incorporation
and the words “SEAL”.
IX. STOCK CERTIFICATES

9.01. Form Thereof. Each certificate representing stock of the Company will be in such form conforming to law as may from time to time be
approved by the Board of Directors, and will bear the manual facsimile signatures and seal of the Company as required or permitted by law.
9.02. Ownership. The Company will be entitled to treat the registered owner of any share as the absolute owner thereof and accordingly,
will not be bound to recognize any beneficial, equitable or other claim to, or interest in, such share on the part of any other person, whether or
not it has notice thereof, except as may expressly be provided by Chapter 8 of Title 47, Arizona Revised Statutes (or its successor), as at the
time in effect, or other applicable law.
9.03. Transfers. Transfer of stock will be made on the books of the Company only upon surrender of the certificate therefor, duly endorsed
by an appropriate person, with such assurance of the genuineness and effectiveness of the endorsement as the Company may require, all as
contemplated by Chapter 8 of Title 47, Arizona Revised
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Statutes (or its successor), as at the time in effect, and/or upon submission of any affidavit, other document or notice which the Company
considers necessary.
9.04. Lost Certificates. In the event of the loss, theft or destruction of any certificate representing capital stock of this Company, the
Company may issue (or, in the case of any such stock as to which a transfer agent and/or registrar have been appointed, may direct such
transfer agent and/or registrar to countersign, register and issue) a replacement certificate in lieu of that alleged to be lost, stolen or destroyed,
and cause the same to be delivered to the owner of the stock represented thereby, provided that the owner shall have submitted such
evidence showing the circumstances of the alleged loss, theft or destruction, and his or her ownership of the certificate as the Company
considers satisfactory, together with any other factors which the Company considers pertinent, and further provided that an indemnity
agreement and/or indemnity bond shall have been provided in form and amount satisfactory to the Company and to its transfer agent and/or
registrar, if applicable.
X. EMERGENCY BYLAWS
10.01. Emergency Conditions. The emergency Bylaws provided in this Part X will be effective in the event of an emergency as prescribed in
Arizona Revised Statutes Section 10-207.D. To the extent not inconsistent with the provisions of this Part X, these Bylaws will remain in effect
during such emergency and upon its termination these emergency Bylaws will cease to be operative.
10.02. Board Meetings. During any such emergency, a meeting of the Board of Directors or any of its committees may be called by any
officer or director of the Company. Notice of the time and place of the meeting will be given by the person calling the same to those of the
directors whom it may be feasible to reach by any available means of communication. Such notice will be given so much in advance of the
meeting as circumstances permit in the judgment of the person calling the same. At any Board or committee meeting held during any such
emergency, a quorum will consist of a majority of those who could reasonably be expected to attend the meeting if they were willing to do so,
but in no event more than a majority of those to whom notice of such meeting is required to have been given as above provided.
10.03. Certain Actions. The Board of Directors, either before or during any such emergency, may provide and from time to time modify
lines of succession in the event that during such an emergency any or all officers, appointees, employees or agents of the Company are for
any reason rendered incapable of discharging their duties. The Board, either before or during any such emergency, may, effective in the
emergency, change the head office or designate several alternative head offices of the Company, or authorize the officers to do so.
10.04. Liability. No director, officer, appointee, employee or agent acting in accordance with these emergency Bylaws will be liable except
for willful misconduct.
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10.05. Modifications. These emergency Bylaws will be subject to repeal or change by further action of the Board of Directors, but no such
repeal or change will modify the provisions of Section 10.04 with respect to action taken prior to the time of such repeal or change. Any
amendment of these emergency Bylaws may make any further or different provisions that may be practical and necessary for the
circumstances of the emergency.
XI. DIVIDENDS
11.01. Declaration. Subject to such restrictions or requirements as may be imposed by law or the Company’s Articles or as may otherwise
be binding upon the Company, the Board of Directors may from time to time declare dividends on stock of the Company outstanding on the
dates of record fixed by the Board, to be paid in cash, in property or in shares of the Company’s stock on or as of such payment or distribution
dates as the Board may prescribe.
XII. AMENDMENTS
12.01. Procedure. These Bylaws may be amended, supplemented, repealed or temporarily or permanently suspended, in whole or in part, or
new bylaws may be adopted, at any duly constituted meeting of the Board of Directors, the notice of which meeting either includes mention of
the proposed action relative to the Bylaws or is waived as provided in Section 3.04 above. If, however, the chairman of any such meeting or a
majority of directors in attendance thereat in good faith determines that any such action has arisen as a matter of necessity at the meeting and
is otherwise proper, no notice of such action will be required.
12.02. Amendment of Bylaws. These Bylaws may be altered, amended, supplemented, repealed, or temporarily or permanently suspended,
in whole or in part, or replacement Bylaw provisions adopted by: (i) the affirmative vote of a majority of the directors then in office; or (ii) the
affirmative vote of a majority of the votes cast on such matter(s) at a meeting of shareholders.
- 13 -
Exhibit 10.2.6
DEFERRED COMPENSATION PLAN OF 2005

FOR EMPLOYEES OF PINNACLE WEST CAPITAL CORPORATION AND AFFILIATES
TABLE OF CONTENTS
P age
ARTICLE 1 Definitions 1
ARTICLE 2 Selection, Enrollment, Eligibility 4

2.1 Eligibility 4
2.2 Enrollment Requirements 4
2.3 Eligibility; Commencement of Participation 4
2.4 Loss of Eligibility to Participate 5
ARTICLE 3 Deferral Commitments/Interest Crediting 5

3.1 Deferral 5
3.2 Maximum Deferral 5
3.3 Election to Defer; Effect of Election Form 5
3.4 Withholding of Deferral Amounts 6
3.5 Interest Crediting Prior to Distribution 6
3.6 Change in Time and Form of Payment 6
3.7 Installment Distribution 6
3.8 FICA Taxes 7
ARTICLE 4 Short-Term Payout and Unforeseeable Financial Emergencies 8

4.1 Short-Term Payout 8
4.2 Withdrawal Payout; Suspensions for Unforeseeable Financial Emergencies 8
ARTICLE 5 Payment of Benefits 8

5.1 Payment of Termination Benefit 8
5.2 Death Prior to Pay Out 9
ARTICLE 6 Disability Credit 9

6.1 Disability Credit 9
ARTICLE 7 Beneficiary Designation 9

7.1 Beneficiary 10
7.2 Beneficiary Designation and Change; Spousal Consent 10
7.3 Acknowledgment 10
7.4 No Beneficiary Designation 10
7.5 Doubt as to Beneficiary 10
7.6 Discharge of Obligations 10
ARTICLE 8 Leave of Absence 10

8.1 Paid Leave of Absence 10
8.2 Unpaid Leave of Absence 10
8.3 Definition of Leave of Absence 11
ARTICLE 9 Termination, Amendment or Modification 11

9.1 Termination 11
P age
9.2 Amendment 11
ARTICLE 10 Administration 11
10.1 Committee Duties 11
10.2 Agents 11
10.3 Binding Effect of Decisions 11
10.4 Indemnity of Committee 11
10.5 Employer Information 11
ARTICLE 11 Other Benefits and Agreements 12

11.1 Coordination with Other Benefits 12
ARTICLE 12 Claims Procedures 12

12.1 Claims 12
ARTICLE 13 Miscellaneous 12
13.1 Unsecured General Creditor 12
13.2 Employer’s Liability 12
13.3 Nonassignability 12
13.4 Not a Contract of Employment 12
13.5 Furnishing Information 13
13.6 Terms 13
13.7 Captions 13
13.8 Governing Law 13
13.9 Validity 13
13.10 Notice 13
13.11 Successors 13
13.12 Spouse’s Interest 13
13.13 Incompetent 13
13.14 Commencement of Payments 14
13.15 Interpretation of Plan Provisions 14
ii
DEFERRED COMPENSATION PLAN OF 2005 FOR EMPLOYEES OF

PINNACLE WEST CAPITAL CORPORATION AND AFFILIATES
Effective January 1, 1992, Pinnacle West Capital Corporation, an Arizona corporation (the “Company”), established the Pinnacle West
Capital Corporation, Arizona Public Service Company, SunCor Development Company and El Dorado Investment Company Deferred
Compensation Plan (the “Prior Plan”). Effective December 31, 2004, the Company restated the Prior Plan in its entirety to incorporate all prior
amendments to the Prior Plan as in effect on October 3, 2004, and to cease future deferrals thereunder after December 31, 2004. By this
instrument, effective January 1, 2005, the Company intends to establish a new deferred compensation plan that is substantially similar to the
Prior Plan, except to the extent required by Section 409A of the Internal Revenue Code of 1986, as amended, and is known as the Deferred
Compensation Plan of 2005 for Employees of Pinnacle West Capital Corporation and Affiliates (“Plan”) for the purpose of providing specified
benefits to a select group of management, highly compensated employees and Directors who contribute materially to the continued growth,
development and future business success of the Company, Arizona Public Service Company, SunCor Development Company, El Dorado
Investment Company, and their subsidiaries. The Plan applies to deferred compensation which was either earned or first became vested after
December 31, 2004, applying the rules set forth in Treasury Regulation Section 1.409A-6. As a result, this Plan applies to any interest credits
above the Crediting Rate with respect to the December 31, 2004 Account Balance of any Participant who had less than five years of Plan
Participation as of December 31, 2004. Otherwise, this Plan shall not apply to an individual’s December 31, 2004 Account Balance and any
interest credited to such Account Balance.
ARTICLE 1
Definitions
For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following
indicated meanings:
1.1 “Account Balance” shall mean the sum of (i) the Deferral Amount, plus (ii) interest credited in accordance with all the applicable interest
crediting provisions of the Plan, reduced by all Short-Term Payouts, if made. This account shall be a bookkeeping entry only and shall
be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan.
1.2 “Annual Deferral” shall mean that portion of a Participant’s Base Annual Salary, Restricted Stock Units (but only if deferral of Restricted
Stock Units is permitted by the Company), Year-End Bonus and/or Directors Fees that a Participant elects to have and is deferred, in
accordance with Article 3, for any one Plan Year. In the event of Disability, death or a Separation from Service prior to the end of a Plan
Year and prior to 2008, such year’s Annual Deferral shall be the actual amount withheld prior to such event.
1.3 “Base Annual Salary” shall mean the annual compensation, excluding bonuses, commissions, overtime, incentive payments, non-
monetary awards, Directors Fees and other fees paid to a Participant for employment services rendered to any Employer, before
reduction for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 compensation plans of any Employer.
1
1.4 “Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 7, that are entitled
to receive benefits under this Plan upon the death of a Participant.
1.5 “Beneficiary Designation Form’’ shall mean the form established from time to time by the Committee that a Participant completes, signs
and returns to the Company to designate one or more Beneficiaries.
1.6 “Board” shall mean the Board of Directors of the Company.
1.7 “Bonus Rate” for a Plan Year shall mean an interest rate determined for each Plan Year by the Committee, in its sole discretion, which rate
shall be determined on or before the first business day of the month that precedes the beginning of the Plan Year for which the rate
applies.
1.8 “Change of Control” shall have the meaning set forth in the Key Executive Employment and Severance Agreement issued to certain
employees of the Company.
1.9 “Claimant” shall have the meaning set forth in Section 12.1.
1.10 “Code” shall mean the Internal Revenue Code of 1986, as amended.
1.11 “Committee” shall mean the administrative committee appointed to manage and administer the Plan in accordance with its provisions
pursuant to Article 10.
1.12 “Company” shall mean Pinnacle West Capital Corporation, an Arizona corporation.
1.13 “Crediting Rate” for a Plan Year shall mean a rate of interest equal to the ten-year U.S. Treasury Note rate as published on the last
business day of the first week of October preceding a Plan Year.
1.14 “Deferral” shall mean the sum of all of a Participant’s Annual Deferrals.
1.15 “Director” shall mean any member of the board of directors of an Employer.
1.16 “Directors Fees” shall mean the annual fees paid by an Employer, including retainer fees and meetings fees, as compensation for serving
on a board of directors of an Employer.
1.17 “Disability” shall mean (i) in the case of a Participant who is an employee of an Employer, a period of disability during which a Participant
qualifies for benefits under the Participant’s Employer’s long-term disability plan, or (ii) in the case of a Participant who is a Director, a
period of disability during which the Participant would have qualified for benefits under such a plan, as determined in the sole discretion
of the Committee, had the Participant been an employee of an Employer.
1.18 “Disability Benefit” shall mean the benefit set forth in Article 6.
1.19 “Effective Date” shall mean January 1, 2005.
1.20 “Election Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the
Company to make an election under the Plan.
2
1.21 “Employer” shall mean the Company, Arizona Public Service Company, an Arizona corporation, SunCor Development Company, an
Arizona corporation, El Dorado Investment Company, an Arizona corporation, and/or any subsidiaries of such corporations that have
been selected by the Board to participate in the Plan.
1.22 “Participant” shall mean any employee or Director of an Employer (i) who is selected to participate in the Plan, (ii) who elects to
participate in the Plan, and (iii) who signs an Election Form and a Beneficiary Designation Form.
1.23 “Plan” shall mean the Deferred Compensation Plan of 2005 for Employees of Pinnacle West Capital Corporation and Affiliates, which
shall be evidenced by this instrument, as amended from time to time.
1.24 “Plan Year” shall begin on January 1 of each year and continue through December 31.
1.25 “Preferred Rate” for a Plan Year shall mean the Crediting Rate plus the Bonus Rate for such Plan Year.
1.26 “Restricted Stock Units” shall have the meaning assigned to that term under the Pinnacle West Capital Corporation 2007 Long-Term
Incentive Plan.
1.27 “Retirement” and “Retires” shall mean, with respect to an employee, Separation from Service for any reason other than a leave of
absence, death or Disability on or after the earlier of the attainment of (a) age sixty-five (65) with five (5) Years of Service or (b) age fifty-
five (55) with ten (10) Years of Service; and shall mean, with respect to a Director who is not an employee, Separation from Service with
all Employers on or after the earlier of the attainment of (x) age sixty-five (65) with five (5) Years of Service as a Director or (y) age fifty-
five (55) with ten (10) Years of Service as a Director. If a Participant is both an employee and a Director, Retirement shall occur when he
or she Retires as an employee.
1.28 “Separation from Service” or “Separates from Service” shall mean the ceasing of employment by an employee with all Employers or
ceasing service as a Director of all Employers, voluntarily or involuntarily for any reason other than death. If a Participant is both an
employee and a Director, a Separation from Service shall occur when he or she terminates employment as an employee, and the
Participant shall become an inactive Participant (as defined in the last sentence of Section 2.4) at such point in time. Except as provided
in the preceding sentence and the resolution of the Board defining such term, “Separation from Service” and “Separates from Service”
shall be determined in accordance with the default rules set forth in the regulations issued under Code Section 409A.
1.29 “Short-Term Payout” shall mean the payout set forth in Section 4.1.
1.30 “Specified Employee” shall have the meaning set forth in Section 409A of the Code, the regulations issued thereunder, and the
resolution issued by the Board defining such term.
1.31 “Termination Benefit” shall mean the benefit set forth in Article 5.
1.32 “Unforeseeable Financial Emergency” shall mean a severe financial hardship to the Participant resulting from (i) an illness or accident of
the Participant, the Participant’s Beneficiary, or the Participant’s spouse or dependent (as defined in Code Section 152(a)), (ii) loss of the
Participant’s property due to casualty or (iii) other similar extraordinary and unforeseeable
3
circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the
Committee.
1.33 “Year-End Bonus” shall mean compensation paid to a Participant who is an employee as an annual bonus under any Employer’s regular
annual bonus and incentive plans. Special bonuses, nuclear-specific bonuses, estimated bonuses paid by SunCor Development
Company, large asset bonus plan payments, and incentive payments made to a Participant shall not constitute “Year-End Bonuses.”
1.34 “Years of Plan Participation” shall mean the total number of full Plan Years a Participant has been a Participant in the Plan and has either
(i) made deferral elections or (ii) had an Account Balance. For purposes of a Participant’s first Plan Year of participation only, any partial
Plan Year of participation shall be treated as a full Plan Year. For purposes of a Participant’s final Plan Year of participation only, a
Participant shall be awarded a Year of Plan Participation if, and only if, he or she has been credited with 1,000 hours of service in such
Plan Year. A single Plan Year of Plan participation described above shall be referred to as a “Year of Plan Participation.”
1.35 “Years of Service” shall mean the total number of years of employment during which a Participant has been credited with at least 1,000
hours of service in each of those years. For purposes of this definition only, (i) Participants who are employees shall be credited with ten
(10) hours of service for each working day during which they are employed by the Employer and Participants who are Directors shall be
credited with ten (10) hours of service for each day (other than weekend days) during which they serve as a Director, provided that no
Participant shall be credited with more than 1,000 hours of service in any one year of employment, and (ii) a year of employment shall be
a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the employee’s date
of hiring or the date the Director begins his or her service as a Director and that, for any subsequent year, commences on an anniversary
of that date.
ARTICLE 2
Selection, Enrollment, Eligibility
2.1 Eligibility. Participation in the Plan shall be limited to a select group of management, highly compensated employees and Directors of the
Employers. All officers and members of the Senior Management Group may participate in the Plan, excluding presidents of subsidiaries
of SunCor Development Company.
2.2 Enrollment Requirements. As a condition to participation, each selected employee or Director shall complete, execute and return to the
Company an Election Form and a Beneficiary Designation Form. To the extent permitted by the Committee, a selected employee or
Director may enroll in the Plan and make elections by electronic means. In addition, the Committee, in its sole discretion, may establish
from time to time such other enrollment requirements as it determines in its sole discretion are necessary.
2.3 Eligibility; Commencement of Participation. When an employee or Director first becomes eligible to participate in the Plan, that employee
or Director may commence participation in the Plan at any time within 30 days after his or her initial qualification for eligibility. When a
Participant has ceased being eligible to participate in the Plan (other than by the accrual of earnings), and subsequently becomes eligible
to participate in the Plan again more than 24 months after first not being eligible to participate in the Plan, the Participant will be treated
as a new Participant and will be allowed to recommence participation in the Plan at any time within
4
30 days after his or her requalification for eligibility. If an employee or Director fails to submit an Election Form to the Company within
30 days after his or her initial qualification or requalification for eligibility, that employee or Director shall not be eligible to submit an
Election Form until the election period effective the following January 1.
2.4 Loss of Eligibility to Participate. If the status of a Participant changes, without a Separation from Service, so that he or she is no longer
an employee eligible to participate pursuant to Section 2.1, he or she shall become an inactive Participant as of the last day of the Plan
Year in which such change of status occurred. Inactive Participants shall continue to participate in the Plan for all purposes other than
for purposes of making deferrals under Section 3.1 and 3.2.
ARTICLE 3
Deferral Commitments/Interest Crediting
3.1 Deferral. Subject to Section 3.2 below, a Participant may defer eligible compensation for each Plan Year starting with his or her
commencement of participation in the Plan and ending immediately prior to his or her death or Separation from Service.
3.2 Maximum Deferral. Subject to Section 3.3, for each Plan Year, a Participant may defer up to fifty percent (50%) of his or her Base Annual
Salary, up to one hundred percent (100%) of his or her Year-End Bonus, up to 100% of his or her Restricted Stock Units (if the Company
allows deferrals of Restricted Stock Units), and/or up to one hundred percent (100%) of his or her Directors Fees.
3.3 Election to Defer; Effect of Election Form. In connection with a Participant’s initial commencement (or in certain cases described in
Section 2.3, recommencement) of participation in the Plan, the Participant may file an Election Form within 30 days after becoming eligible
to participate. If this initial Election Form is filed after the beginning of the calendar year to which the Election Form relates, the
Participant may elect only to defer his or her Base Annual Salary for pay periods commencing after the filing of his or her Election Form.
For each succeeding Plan Year, a Participant may elect to defer from his or her Base Annual Salary, Year-End Bonus and/or Directors
Fees (and Restricted Stock Units to the extent permitted by the Company) an Annual Deferral by delivering to the Company a completed
Election Form before the January 1 of the calendar year in which the Participant earns the compensation he or she is deferring, which
election and form shall be irrevocable during the Plan Year except as provided in Section 4.2. Notwithstanding the foregoing, with
respect to Restricted Stock Units, the Committee may permit a Participant to file an Election Form on or before the thirtieth day after the
Participant obtains the right to the Restricted Stock Units, provided that the Election Form is filed at least twelve months in advance of
the earliest date at which the forfeiture condition with respect to the Restricted Stock Units could lapse. If no Election Form is delivered
and accepted for a Plan Year, no Annual Deferral will be withheld for that Plan Year. Any such Election Form shall designate the time and
form of payment of the compensation deferred. With respect to any interest credits above the Crediting Rate with respect to the
December 31, 2004 Account Balance of any Participant who had less than five years of Plan Participation as of December 31, 2004, the
election of the form and time of payment made by such Participant with respect to the calendar year in which the Participant first earns
five years of Plan Participation shall govern the form and time of payment of such interest credits. Except as provided in Section 3.6, such
time and form of payment may not be changed, although a Participant may elect a different time and form of payment with respect to the
Annual Deferral for each separate Plan Year.
5
3.4 Withholding of Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral shall be withheld
periodically from the Participant’s Base Annual Salary. The Year-End Bonus, Restricted Stock Unit, and/or Directors Fees portion of the
Annual Deferral shall be withheld at the time the Year-End Bonus and/or Director Fees and/or compensation attributable to Restricted
Stock Units are or would otherwise be paid to the Participant.
3.5 Interest Crediting Prior to Distribution. Prior to any distribution of benefits under Article 5, interest shall be credited in accordance with
rules established by the Company. The rate of interest for crediting shall be the Preferred Rate; provided, however in the case of a
Participant who Separates from Service (other than at Retirement) more than six months before any Change of Control and with less than
five years of Plan Participation, the Crediting Rate shall be used with respect to his or her Termination Benefit. If a Short-Term Payout is
made, for purposes of crediting interest, the Account Balance shall be reduced as of the first day of the Plan Year in which the Short-
Term Payout is made.
3.6 Change in Time and Form of Payment. A Participant may change an election as to time and form of payment with respect to Short-Term
Payouts or Termination Benefits if such an Election Form is filed in accordance with rules established by the Committee no later than
December 31, 2008. Any such election must not defer benefits which would otherwise be payable in the calendar year of election to a
later calendar year or accelerate benefits which would be payable in a later calendar year into the calendar year of election. On and after
January 1, 2009, a Participant may change an election as to time and form of payment with respect to Termination Benefits under the Plan
if an Election Form is filed in accordance with rules established by the Committee, provided (a) such election must not take effect until at
least 12 months after the date on which the Election Form is properly filed, (b) the first payment with respect to which such election is
made must be deferred for a period of not less than 5 years from the date such payment would otherwise have been made, and (c) any
election related to a payment that was otherwise to be made at a specified time may not be made less than 12 months prior to the date of
the first scheduled payment. For purposes of the preceding sentence, a series of installment payments shall be considered a single
payment. Subject to the foregoing, the Election Form most recently filed with the Company for each calendar year shall govern the
payout of all Termination Benefits for such calendar year.
3.7 Installment Distribution. In the event a benefit is paid in installments, installment payment amounts shall be determined in the following
manner:
(a) Interest Rate. The interest rate to be used to calculate installment payment amounts shall be a fixed interest rate that is determined
by averaging the Preferred Rates for the Plan Year in which a Participant becomes eligible to receive a benefit and the four
(4) preceding Plan Years. If a Participant who Separates from Service other than on account of Retirement has completed fewer than
five (5) Years of Plan Participation, this average shall be determined using the Crediting Rates for the Plan Years during which the
Participant participated in the Plan; provided, however, in the event that installment payment amounts commence on or after the
date which is six months before a Change of Control, the interest rate to be used to calculate installment payment amounts shall be
a fixed interest rate that is determined by averaging the Preferred Rates for the relevant Plan Years in which the Participant
participated in the Plan.
(b) Installment Payments. For purposes of calculating installment payment amounts, each annual installment payment, starting with
the first payment, which for this purpose is deemed to be paid as of the date that the Participant becomes eligible to receive a
benefit under this Plan without respect to any six-month delay in benefit commencement for a
6
Specified Employee (the “Eligibility Date”), and continuing thereafter for each additional year that starts on the anniversary of the
Eligibility Date until the Participant’s Account Balance is paid in full, shall be deemed to have been paid prior to the crediting of
interest for that year. (The result of this is that interest crediting shall be made after taking into account the annual installment
payment for that year.)
(c) Amortization. Based on the interest rate determined in accordance with Section 3.7(b) above, the Participant’s Account Balance
shall be amortized in equal installment payments over the term of the specified payment period. The resulting number shall be the
installment payment that is to be paid each year.
(d) Timing of Payments. The initial installment payment shall be made at the time set forth in Section 5.1(a). Installment payments for
subsequent years shall be made in January of such year, subject to the requirement that payment of any installment amount
following Separation from Service shall not be made prior to the date which is six (6) months after the date of the Participant’s
Separation from Service in the case of a Participant who is determined to be a Specified Employee.
3.8 FICA Taxes. For each Plan Year in which an Annual Deferral is being withheld, the Participant’s Employer(s) shall withhold from the
Participant’s compensation that is not being deferred the Participant’s share of FICA taxes.
7
ARTICLE 4
Short-Term Payout and Unforeseeable Financial Emergencies
4.1 Short-Term Payout. At the same time as each election to defer an Annual Deferral, a Participant may elect to receive a future Short-Term
Payout from the Plan with respect to that Annual Deferral. The Short-Term Payout shall be a lump sum payment in an amount that is
equal to the Annual Deferral plus interest credited at the Preferred Rate, and it shall be paid in January of the Plan Year that is five
(5) years after the first day of the Plan Year in which the Annual Deferral is actually deferred; provided, however, that if the Participant
Separates from Service or dies before the Plan Year in which a Short-Term Payout is to be made, distribution will be made in accordance
with Article 5 instead of this Section 4.1. Except as provided in Section 3.6, such election shall be irrevocable.
4.2 Withdrawal Payout; Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial
Emergency, the Participant may petition the Committee to receive a partial or full payout from the Plan. The payout shall not exceed the
lesser of (i) the Participant’s Account Balance, calculated as if such Participant were receiving a Termination Benefit, or (ii) the amount
reasonably needed to satisfy the Unforeseeable Financial Emergency plus amounts necessary to pay taxes reasonably anticipated as a
result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or
compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would
not itself cause severe financial hardship) or by cessation of deferrals under this Plan. If the petition for a payout is approved, the
payout shall be made within sixty (60) days after the date of approval. In the event that the Participant takes an Unforeseeable Financial
Emergency withdrawal under this Plan, the Participant’s deferral election for the Plan Year shall immediately terminate for the remainder
of such Plan Year.
ARTICLE 5
Payment of Benefits
5.1 Payment of Termination Benefit.
(a) Lump Sum or Installments. A Participant may elect to receive his or her Termination Benefit in a lump sum or in equal annual
payments over a period of five (5), ten (l0) or fifteen (15) years (the latter determined in accordance with Section 3.7 above) by so
electing on an Election Form. If a Participant elects a lump sum payment, he or she shall specify whether the lump sum will be paid
within 30 days following (i) his or her Separation from Service or, if later, (ii) his or her attainment of age fifty-five (55) following
Separation from Service. If the Participant elects installment payments, they will begin within 30 days after the Participant’s 55th
birthday (or his or her Separation from Service, if the Participant is over age fifty-five (55) upon his or her Separation from Service).
The Participant may change his or her election to an allowable alternative payout date or period by submitting a new Election Form
to the Company in accordance with Section 3.6. Failure to make an election will result in the benefits being paid in a lump sum
within 30 days after the Participant’s Separation from Service. Any election under this Section 5.1 shall be irrevocable, except to the
extent provided in Section 3.6. Notwithstanding the foregoing, payment of the Termination Benefit shall not be made or commence
prior to the date which is six (6) months after the date of a Participant’s
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Separation from Service in the case of a Participant who is determined to be a Specified Employee.
(b) Automatic Distribution of Termination Benefits. Notwithstanding any provision of this Section 5.2 to the contrary, if, upon a
Participant’s Separation from Service, his or her Account Balance, as determined pursuant to Section 5.1, when added to his or her
Retirement Account Balance Benefit under the Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan of
2005, does not exceed the amount specified in Code Section 402(g) for the calendar year in which such Separation from Service
occurs, the Participant’s Termination Benefit shall be distributed in a lump sum within thirty (30) days following his or her
Separation from Service. Notwithstanding the foregoing, payment of the Termination Benefit shall not be made prior to the date
which is six (6) months after the date of a Participant’s Separation from Service in the case of a Participant who is determined to be
a Specified Employee.
5.2 Death Prior to Pay Out.
(a) Death Prior to Commencement of Payments. If a Participant dies prior to the payout date that he or she elected for his or her
Termination Benefit, his or her Termination Benefit shall be paid to the Participant’s Beneficiary in the survivor form elected by the
Participant (lump sum or installments over five, ten, or fifteen years) commencing in the January immediately after the Participant’s
death.
(b) Death After Commencement. If a Participant dies after the commencement of the payment of his or her Termination Benefit, but
before the Termination Benefit is paid in full, the Participant’s unpaid Termination Benefit payments shall continue and shall be
paid to the Participant’s Beneficiary over the remaining number of years and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived.
ARTICLE 6
Disability Credit
6.1 Disability Credit.
(a) Eligibility. By participating in the Plan, all Participants are eligible for this credit.
(b) Credit for Plan Year of Disability. A Participant who is determined to be suffering from a Disability, and who is not receiving Base
Annual Salary, Year-End Bonus and/or Directors Fees, shall be credited with an amount equal to that portion of the Annual
Deferral commitment that would otherwise have been withheld from the Participant’s Base Annual Salary, Year-End Bonus and/or
Directors Fees for the Plan Year during which the Participant first suffers Disability, unless the Disability ceases in the Plan Year
that it commences, in which case the crediting shall apply only for the period of Disability.
ARTICLE 7
Beneficiary Designation
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7.1 Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary (both primary as well as contingent) to
receive any benefits payable under the Plan to a Beneficiary upon the death of a Participant.
7.2 Beneficiary Designation and Change; Spousal Consent. A Participant shall designate his or her Beneficiary by completing and signing
the Beneficiary Designation Form, and returning it to the Company or its designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s
rules and procedures, as in effect from time to time. If the Participant names, with respect to more than fifty percent (50%) of his or her
benefit under this Plan, someone other than his or her spouse as a Beneficiary, a spousal consent, in the form designated by the
Committee, must be signed by that Participant’s spouse and returned to the Company. Upon submission to the Company of a new
Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Committee shall be entitled to rely on
the last Beneficiary Designation Form filed by the Participant prior to his or her death.
7.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received by the Company or its
designated agent.
7.4 No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 7.1, 7.2 and 7.3 above, or if all
designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the
Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse with respect to any undistributed benefits. If the
Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or
personal representative of the Participant’s estate.
7.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its discretion, to cause the Participant’s Employer to withhold such payments until this
matter is resolved to the Committee’s satisfaction.
7.6 Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and
the Committee from all further obligations under this Plan with respect to the Participant.
ARTICLE 8
Leave of Absence
8.1 Paid Leave of Absence. If a Participant is authorized by the Participant’s Employer for any reason to take a paid leave of absence from
the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Annual Deferral
shall continue to be withheld during such paid leave of absence in accordance with Section 3.3.
8.2 Unpaid Leave of Absence. If a Participant is authorized by the Participant’s Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be considered employed by the Employer and the Participant
shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid
employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election, if any, made for that Plan Year prior to the leave of absence.
10
8.3 Definition of Leave of Absence. Whether a Participant is on a leave of absence shall be determined in accordance with the default rules
under the regulations issued pursuant to Section 409A of the Code.
ARTICLE 9
Termination, Amendment or Modification
9.1 Termination. Subject to the requirements of Code Section 409A, any Employer reserves the right to terminate the Plan at any time with
respect to Participants whose services are retained by that Employer. Upon the termination of the Plan in accordance with the
requirements of Section 409A of the Code, a Participant’s Account Balance shall be paid out in accordance with the regulations issued
under Section 409A of the Code. The termination of the Plan shall not adversely affect any Participant or Beneficiary who has become
entitled to the payment of any benefits under the Plan as of the date of termination.
9.2 Amendment. The Company may, at any time, amend or modify the Plan in whole or in part with respect to any Employer or all Employers,
provided, however, that no amendment or modification shall be effective to the extent it would cause an amount to become taxable or be
subject to additional taxes on account of such amendment under Code Section 409A or the regulations or other guidance issued
thereunder.
ARTICLE 10
Administration
10.1 Committee Duties. This Plan shall be administered by a Committee, which shall consist of persons approved by the Board. Members of
the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to make, amend, interpret,
and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan.
10.2 Agents. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel who may be counsel to any Employer.
10.3 Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with
the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the Plan.
10.4 Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee against any and all claims,
losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee or any of its members.
10.5 Employer Information. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death
or Separation from Service of its Participants, and such other pertinent information as the Committee may reasonably require.
11
ARTICLE 11
Other Benefits and Agreements
11.1 Coordination with Other Benefits. Except as provided in this Section, the benefits provided for a Participant and Participant’s Beneficiary
under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees or
directors of the Participant’s Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or
program except as may otherwise be expressly provided.
ARTICLE 12
Claims Procedures
12.1 Claims. Any Participant, Beneficiary or any authorized representative acting on behalf of the Participant or Beneficiary (“Claimant”)
claiming benefits, eligibility, participation or any other right or interest under this Plan may file a written claim setting forth the basis of
the claim under the procedures set forth in the Pinnacle West Capital Corporation Savings Plan.
ARTICLE 13
Miscellaneous
13.1 Unsecured General Creditor. Amounts payable to a Participant or his or her Beneficiary under this Plan shall be paid from the general
assets of an Employer. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest
or claims in any property or assets of an Employer. Any and all of an Employer’s assets shall be, and remain, the general, unpledged,
unrestricted assets of the Employer. An Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured
promise to pay money in the future and Participants and their Beneficiaries shall be unsecured creditors of the Participant’s Employer.
13.2 Employer’s Liability. An Employer’s liability for the payment of benefits shall be defined only by the Plan. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the Plan.
13.3 Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, the amounts, if any, payable hereunder,
or any part thereof, and all rights to such amounts are expressly declared to be unassignable and non-transferable, except that the
foregoing shall not apply to any family support obligations set forth in a court order which is determined by the Committee to be a
qualified domestic relations order as defined in Code Section 414(p). No part of the amounts payable shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.
13.4 Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment
between any Employer and the Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that
can be terminated at any time for any reason, with or without cause, unless expressly provided in a written employment agreement.
Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer or to be retained as a
Director, or to interfere with the right of any Employer to discipline or discharge the Participant at any time.
12
13.5 Furnishing Information. A Participant will cooperate with the Committee by furnishing any and all information requested by the
Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.
13.6 Terms. Whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases where they would so apply.
13.7 Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
13.8 Governing Law. The provisions of this Plan shall be construed and interpreted according to the laws of the State of Arizona to the
extent not preempted by Federal law.
13.9 Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted
herein.
13.10 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-
delivered, or sent by registered or certified mail, to the addresses indicated below:
If a Participant’s Employer is Pinnacle West Capital Corporation or one of its subsidiaries, then to:
400 North 5th Street
P.O. Box 53999
Attn: Manager of Benefit Services
Station 8460
Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered,
or sent by mail, to the last known address of the Participant.
13.11 Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant’s Employer and its successors and assigns
and the Participant, the Participant’s Beneficiaries, and their permitted successors and assigns.
13.12 Spouse’s Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such
spouse’s will, nor shall such interest pass under the laws of intestate succession.
13.13 Incompetent. If the Committee, in its discretion, determines that a benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the
13
disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person
having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority,
incompetency, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall
be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge
of any liability under the Plan for such payment amount.
13.14 Commencement of Payments. In all cases in which amounts are payable within a fixed month (for example, the January after a Participant
Separates from Service), payment is deemed to be made within the fixed month if the payment is made on the first day of such month or
a later date within the same calendar year or, if later, by the fifteenth day of the third calendar month following the first day of such fixed
month (provided the Participant is not permitted, directly or indirectly, to designate the taxable year of payment). In addition, a payment
is treated as made upon the date specified under the Plan if the payment is made no earlier than thirty (30) days before the first day of
such fixed month and the Participant is not permitted, directly or indirectly, to designate the taxable year of payment.
13.15 Interpretation of Plan Provisions. This Plan shall be interpreted in a manner consistent with the provisions of Section 409A of the Code
and the regulations thereunder.
14
IN WITNESS WHEREOF the Company has caused this Plan to be executed by its duly authorized officers this 19th day of
December 2008.
By: /s/ Barbara M. Gomez

Its: VP and Treasurer
ATTEST:
By: /s/ Donna L. Thomas

Its: HR Services Director
15
Exhibit 10.3.2

SUPPLEMENTAL EXCESS BENEFIT
RETIREMENT PLAN OF 2005
TABLE OF CONTENTS
P AGE
ARTICLE ONE — PREAMBLE 1
ARTICLE TWO — CONSTRUCTION 3
ARTICLE THREE — ELIGIBILITY AND PARTICIPATION 3

(a) Officers 3
(b) SMG Participants 4
(c) Commencement of Participation 4
(d) Status Change 4
(e) Rehires 4
ARTICLE FOUR — BENEFITS 4

(a) Officer Benefits 4
(1) Group A Participants 4
(2) Group B Participants 5
(3) Group C Participants 6
(4) Compensation 7
(5) Promotion to Officer Status 8
(b) SMG Participants 8
(c) Average Monthly Compensation 9
(d) Disability Accrual 9
(e) Recognition of Benefits under Separate Agreements 9
ARTICLE FIVE — PAYMENT OF BENEFITS ON AND AFTER JANUARY 1, 2009 10

(a) Officer Traditional Benefits Described in Sections 4(a)(1) and 4(a)(2)(i) 10
(1) Time for Commencement 10
(2) Form of Payment 11
(3) Actuarial Adjustments 11
(b) Spouse’s Benefit with Respect to Officer Traditional Benefits Described in Sections 4(a)(1) and 4(a)(2)(i) 12
(c) Officer Retirement Account Balance Benefits Described in Sections 4(a)(2)(ii) and 4(a)(3) 13
(1) Time and Form of Payment 13
(3) Payment Upon Death 14
(d) SMG Traditional and Retirement Account Balance Benefits Described in Section 4(b) 15
(1) Form of Payment — Traditional Benefits 15
(2) Time of Payment — Traditional Benefits 15
(3) Form and Time of Payment — Retirement Account Balance Benefit 16
(5) Time and Form of Benefits Payable Upon Death 17
(e) Change in Time and Form of Payment 17
(f) Cash-Out Provisions 17
(g) Reemployment 18
ARTICLE SIX — PAYMENT OF BENEFITS BEFORE JANUARY 1, 2009 18
i
P AGE
ARTICLE SEVEN — SECTION 409A COMPLIANCE 19
ARTICLE EIGHT — FUNDING 20
ARTICLE NINE — ADMINISTRATION 20
ARTICLE TEN — AMENDMENT AND TERMINATION OF THE PLAN 20
ARTICLE ELEVEN — ASSIGNMENT 21
ARTICLE TWELVE — WITHHOLDING 21
ARTICLE THIRTEEN — OTHER BENEFIT PLANS OF THE COMPANY 21
ARTICLE FOURTEEN — SPOUSAL CONSENT AND BENEFICIARY DESIGNATIONS 22
ARTICLE FIFTEEN — MISCELLANEOUS 22
ARTICLE SIXTEEN — EFFECTIVE DATE 22
ii

SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN OF 2005
ARTICLE ONE — PREAMBLE
Effective January 1, 1987, PINNACLE WEST CAPITAL CORPORATION (the “Company”) adopted the PINNACLE WEST CAPITAL
CORPORATION SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN (the “Prior Plan”) for the purpose of paying retirement benefits to
certain employees in excess of the benefits permitted to be paid under the Pinnacle West Capital Corporation Retirement Plan (the “Retirement
Plan”) by reason of Section 415 of the Internal Revenue Code (the “Code”). The Prior Plan was thereafter amended several times to provide
additional benefits, thereby changing the Prior Plan from an “excess benefit plan” under the Employee Retirement Income Security Act of 1974,
as amended (the “Act”), to a “top hat” plan under the Act.
Effective January 1, 1982, ARIZONA PUBLIC SERVICE COMPANY (“APS”) adopted the ARIZONA PUBLIC SERVICE COMPANY
SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN (the “APS Plan”) for the purpose of paying retirement benefits to certain
employees in excess of the benefits permitted to be paid under the Arizona Public Service Company Employees’ Retirement Plan (the “APS
Retirement Plan”) by reason of Section 415 of the Code. The APS Plan was thereafter amended several times to provide additional benefits,
thereby changing the APS Plan from an “excess benefit plan” under the Act to a “top hat” plan under the Act.
Effective January 1, 2000, the Company and APS amended and restated the Prior Plan and the APS Plan to merge the APS Plan into the
Prior Plan and to make other technical changes. The Prior Plan was amended several times thereafter.
Effective January 1, 2003, the Company amended the Prior Plan to add a new benefit structure.
1
Effective December 31, 2004, the Company amended the Prior Plan to “grandfather” from the application of Code Section 409A benefits
with respect to only those participants who neither earned nor became vested in a supplemental excess benefit after December 31, 2004. Only
the benefits of such participants are provided under the terms of the Prior Plan.
This Plan applies to the entire benefit of any participant who either earned or became vested in all or any portion of his or her benefits on
or after January 1, 2005.
2
ARTICLE TWO
CONSTRUCTION
Terms capitalized in this Plan shall have the meaning given in Article Two of the Retirement Plan, governing definitions and
construction, except where such terms are otherwise defined in this Plan. If any provision of this Plan is determined to be invalid or
unenforceable for any reason, the remaining provisions shall continue in full force and effect. All of the provisions of this Plan shall be
construed and enforced according to the laws of the State of Arizona, and shall be administered according to the laws of such state, except as
otherwise required by the Act, the Code or other applicable federal law. It is the intention of the Company that the Plan, as adopted by the
Company, shall constitute an “unfunded plan of deferred compensation for a select group of management and highly compensated
employees” within the meaning of Sections 201(2) and 301(3) of the Act. Benefits under this Plan shall be paid from the Company’s general
assets, and not from any trust fund or other segregated fund, unless paid out of a rabbi trust established by the Company. The assets of any
such rabbi trust shall be subject to the claims of the general creditors of the Company. This Plan shall be construed in a manner consistent
with the Company’s intention.
ARTICLE THREE
ELIGIBILITY AND PARTICIPATION

Employees of the Company or its Affiliates who are individually designated as Plan participants by the Human Resources Committee of
the Board of Directors of the Company (“Committee”), in its discretion, shall be eligible to participate in the Plan, and such designated
individuals shall be considered “Eligible Employees.”
(a) Officers. Except as provided by the Committee, Eligible Employees who are officers of the Company or an Affiliate which is a
participating employer under the Retirement Plan shall be entitled to the benefits described in Section 4(a); provided, however, that presidents
and other officers of APS Energy Services and subsidiaries of SunCor are not eligible to participate in the Plan and are
3
therefore not considered officers for this purpose unless otherwise selected for participation by the Committee.
(b) SMG Participants. Except as provided by the Committee, Eligible Employees of the Company or an Affiliate which is a participating
employer under the Retirement Plan who are not officers shall be entitled to the benefits described in Section 4(b).
(c) Commencement of Participation. An Eligible Employee shall commence participation in this Plan as of the first day of the Plan Year
following the date the Committee designates him or her as a participant. Such participation shall continue until the date on which the
participant is no longer designated as an Eligible Employee by the Committee.
(d) Status Change. Notwithstanding the foregoing, if the status of a participant changes for reasons other than separation from service
with the Company or an Affiliate which is a participating employer under the Retirement Plan, so that he or she no longer is eligible to
participate in the Plan, his or her participation in the Plan shall cease but his or her benefit under this Plan as of the date of his or her change of
status shall not be canceled or distributed, but shall be determined upon his or her separation from service with the Company or an Affiliate.
(e) Rehires. In the event that a Participant terminates employment and is later rehired, he or she shall not be eligible to participate in the
Plan again unless such individual is again individually designated as a Plan participant by the Committee following his or her rehire.
ARTICLE FOUR
BENEFITS
A participant whose entire benefit was both earned and vested on December 31, 2004 (as determined under regulations issued under
Code Section 409A) shall receive such benefit under the Prior Plan. All other participants shall receive their entire benefit under the terms
outlined below.
(a) Officer Benefits.
(1) Group A Participants. Subject to ARTICLE SEVEN, a participant who is eligible under Section 3(a) and who is a Group A
Participant under the Retirement Plan shall be
4
entitled to a monthly benefit for life commencing at age 65 equal to the lesser of (i) or (ii), reduced by (iii), where
(i) Equals three percent (3%) of the participant’s Average Monthly Compensation multiplied by the participant’s Years of Service,
not to exceed ten (10) Years of Service, plus two percent (2%) of the participant’s Average Monthly Compensation multiplied by the
participant’s Years of Service in excess of ten (10) Years of Service,
(ii) Equals sixty percent (60%) of the participant’s Average Monthly Compensation, and
(iii) Equals the amount of such participant’s monthly benefit for life at age 65 determined under the terms of the Retirement Plan.
(2) Group B Participants. Subject to ARTICLE SEVEN, a participant who is eligible under Section 3(a) and who is a Group B Participant
under the Retirement Plan shall be entitled to a monthly benefit for life commencing at age 65 equal to the sum of (i) and (ii), where
(i) Equals the benefit determined under the formula set forth above in this Section 4(a)(1) for a Group A Participant in the Retirement
Plan based on the participant’s Years of Service as of March 31, 2003 (March 31, 2006 in the case of a SunCor participant) and his or her
Average Monthly Compensation as of the date of determination. Years of Service as of March 31, 2003 (March 31, 2006 in the case of a
SunCor participant) shall equal his or her full Years of Service as of such date plus a partial Year of Service equal to the lesser of one
(1) or a fraction, the numerator of which is the participant’s Hours of Service earned during the period beginning on the day after the last
day of his or her Computation Period ending prior to March 31, 2003 (March 31, 2006 in the case of a SunCor participant) and ending on
March 31, 2003 (March 31, 2006 in the case of a SunCor participant), and the denominator of which is 1,000, and
5
(ii) Equals the monthly benefit for life payable at age 65 which is the Actuarial Equivalent of a lump sum benefit equal to the
participant’s Supplemental Retirement Account Balance minus the participant’s Retirement Account Balance under the Retirement Plan.
For the avoidance of doubt, if the amount under this Section 4(a)(2)(ii) is a negative number, it will serve as an offset against the amount
payable under Section 4(a)(2)(i).
(3) Group C Participants. Subject to ARTICLE SEVEN, a participant who is eligible under Section 3(a) and who is a Group C Participant
under the Retirement Plan shall be entitled to a monthly benefit for life commencing at age 65 equal to the Actuarial Equivalent of a lump
sum benefit equal to (i) reduced by (ii), where
(i) Equals the participant’s Supplemental Retirement Account Balance, and
(ii) Equals the participant’s Retirement Account Balance under the Retirement Plan.
A participant’s Supplemental Retirement Account Balance shall be a notional account credited with Monthly Retirement Account
Balance Credits and Interest Credits. For purposes of this Plan, Monthly Retirement Account Balance Credits shall be determined under the
general methodology set forth in the Retirement Plan based on the participant’s Monthly Compensation for the month but using the
following chart; provided that, except for a Group C Participant, a participant shall not receive a Monthly Retirement Account Balance
Credit after the last day of the calendar year in which he or she is credited with twenty-five (25) Years of Service, with twenty-five years
(25) Years of Service defined as twenty-five (25) full twelve (12) month periods in duration.
6
Age at End of P lan Year in P ercent of Monthly

Which Month Occurs Compensation Contribution Rate
Less than 35 12%
35-39 14%
40-44 16%
45-49 20%
50-54 24%
55 and over 28%
(4) Compensation. For purposes of this Section 4(a), Compensation and Monthly Compensation shall be determined without regard to
the limitation set forth in Section 401(a)(17) of the Code and shall be increased by any cash payments made to the participant pursuant to
“year-end” bonus or incentive plans maintained by the Company or an Affiliate which is a participating employer under the Retirement Plan
for employees generally and by any amounts deferred by the participant under any of the Company’s or such an Affiliate’s deferred
compensation plans for employees. Bonus or incentive payments made in a form other than cash, bonus or incentive payments which are
not “year-end” bonus or incentive payments, bonus or incentive payments under individual agreements between the Company or such an
Affiliate and a participant, and large asset bonus plan payments shall not be taken into account as Compensation and Monthly
Compensation for purposes of this Plan unless the Company’s President or Chief Executive Officer determines, in his or her discretion, that
such bonus or incentive payment shall be taken into account as Compensation and Monthly Compensation under this Plan. Subject to the
foregoing, (a) eligible bonuses and incentive payments (including eligible bonuses and incentive payments paid after termination) shall be
taken into account as Compensation and Monthly Compensation in the year in which such amounts are paid rather than in the year in
which they are earned, provided that the Company’s President or Chief Executive Officer shall have the authority to determine, in his or her
discretion, that such bonus or incentive payment shall be taken into account in the year in which such amounts are earned rather than in
the year in which they are paid, (b) Retention Unit Awards granted in a calendar month which become
7
vested shall be counted as Compensation paid and earned in such calendar month; provided, however, that if Retention Unit Awards are
taken into account in determining a participant’s Average Monthly Compensation with respect to benefits described in Sections 4(a)(1) or
4(a)(2)(i), no more than two other year-end bonus or incentive payments will be taken into account in determining such Average Monthly
Compensation. Effective for SunCor bonuses earned in 2006 and later years, bonuses paid to the SunCor President and Executive Vice
Presidents shall be included in Compensation or Monthly Compensation only to the extent of 100% of base pay, and the bonuses paid to
SunCor Vice Presidents shall be included in Compensation or Monthly Compensation only to the extent of 70% of base pay. The
Company’s President or Chief Executive Officer shall have the sole and absolute discretion to determine whether a bonus or incentive
payment made to a participant constitutes Compensation or Monthly Compensation for purposes of this Section 4(a) and may differentiate
among individuals in establishing the bonus or incentive payments that may be taken into account under the Plan.
(5) Promotion to Officer Status. In the event that an Eligible Employee is promoted to officer status, his or her Traditional Benefit and
Retirement Account Balance Benefit shall be retroactively calculated as if he or she had served as an officer during the entire period of his
or her employment with the Company or any of its Affiliates.
(b) SMG Participants.
Subject to ARTICLE SIX and ARTICLE SEVEN, any participant who is designated for participation pursuant to Section 3(b) and who
receives a benefit under the Retirement Plan, or such participant’s surviving spouse or beneficiary in the event of the participant’s death, shall
be entitled to a benefit payable in accordance with this ARTICLE FOUR and with ARTICLE FIVE equal to (i) reduced by (ii), where
(i) Equals the amount of such participant’s or surviving spouse’s or beneficiary’s benefit under the Retirement Plan computed under
the provisions of the Retirement Plan but without regard to the cap on Compensation in Section 2.1(n) and the limitations in
8
Section 5.13 of the Retirement Plan and the provisions of Sections 401(a)(17) and 415 of the Code; and
(ii) Equals the amount of such participant’s or surviving spouse’s or beneficiary’s benefit which would be payable under the terms of
the Retirement Plan if the participant or his or her surviving spouse or beneficiary were to receive payment under the Retirement Plan at the
same time and in the same form as benefits are payable under this Plan.
For purposes of this Section 4(b), Compensation shall include any amount of the participant’s regular salary that the participant elects to
defer under any deferred compensation plans for employees of the Company or an Affiliate which is a participating employer under the
Retirement Plan (including amounts deferred before participation in the Plan commences) and shall exclude all bonus or incentive payments
paid to the participant.
(c) Average Monthly Compensation.
For purposes of computing a participant’s Average Monthly Compensation, such term shall have the same meaning as under the
Retirement Plan except that the highest 36 consecutive months of Compensation will be determined based on the participant’s entire period of
employment (instead of only the most recent 120 consecutive months of employment as provided in the Retirement Plan).
(d) Disability Accrual.
A participant who is earning a disability accrual under Section 4.5 of the Retirement Plan shall continue to accrue benefits under this Plan
until the earlier of the date disability accrual ceases under the Retirement Plan or the date his or her benefits commence under this Plan.
(e) Recognition of Benefits under Separate Agreements.
In the event that the Company or an Affiliate enters into a separate agreement with an Eligible Employee which provides that the
payment of benefits under the Plan shall be modified as provided in such agreement, the Plan shall be deemed to have been amended to reflect
the terms of any such agreement.
9
ARTICLE FIVE
PAYMENT OF BENEFITS ON AND AFTER JANUARY 1, 2009

(a) Officer Traditional Benefits Described in Sections 4(a)(1) and 4(a)(2)(i).
(1) Time for Commencement. A participant may elect the time for commencement of payment of benefits described in Sections 4(a)(1)
and 4(a)(2)(i) on or before the later of December 31, 2008 or the day before the Committee designates the individual as a participant in this
Plan. Any such election shall be irrevocable except as provided in Section 5(e). A participant desiring to make the election described in the
preceding sentence may elect to receive his or her benefits described in Sections 4(a)(1) or 4(a)(2)(i) upon the later of separation from
service or a specified age after age 55 (age 54 for an individual who has severed from employment before 2009 and, as a result of such
severance, has received an additional year of age and service under the Retirement Plan and has therefore become entitled to receive
Traditional Benefits under the Retirement Plan at age 54) and on or before age 65. Such election of a commencement age before age 65 will
be effective only if the participant has ten Years of Service upon his or her separation from service. In the absence of such an election, the
participant’s benefits described in Section 4(a)(1) or 4(a)(2)(i) will commence as follows: (i) upon separation from service if at the time of
such separation from service he or she has either attained age sixty-five (65) or has both attained age fifty-five (55) and completed ten
(10) Years of Service; or (ii) age sixty-five (65) if at the time of such separation from service he or she has neither attained age sixty-five (65)
nor both attained age fifty-five (55) and completed ten (10) Years of Service. Such benefits shall be unreduced if they commence on or after
the date on which the participant attains the age of sixty-five (65) years or attains the age of
10
sixty (60) years and is credited with at least twenty (20) Years of Service. If benefits commence earlier than as provided in the preceding
sentence, the portion of his or her benefit calculated in accordance with Section 4(a)(1) or 4(a)(2)(i) shall be reduced by three percent (3%)
for each year (or part thereof) by which the participant’s retirement age precedes the date on which he or she would have attained the age
of sixty (60) years if he or she is credited with at least twenty (20) Years of Service or the date on which he or she would have attained the
age of sixty-five (65) years if credited with less than twenty (20) Years of Service.
(2) Form of Payment. This section governs the election of the form of payment of benefits described in Sections 4(a)(1) and 4(a)(2)(i).
A participant may elect to receive such benefits in the form of a life annuity or any joint and survivor annuity form (with the participant’s
spouse as joint annuitant) permitted under the Retirement Plan. In addition, a participant who commences benefits after 2007 shall have a
five-year installment option with respect to any benefits payable after 2008 under Sections 4(a)(1) or 4(a)(2)(i). However, a participant must
elect the five-year installment form of benefit on or before the later of December 31, 2008 or the day before the Committee designates the
individual as a participant in this Plan. If a participant has not elected the five-year installment form of benefit as provided in the preceding
sentence, then the participant may elect an annuity form of payment at any time up until the date payments are scheduled to commence.
Except as provided in the preceding sentence or in Section 5(e), any such election of the form of payment shall be irrevocable. In the
absence of an election regarding the form of payment, benefits payable to a single participant under Section 4(a)(1) or Section 4(a)(2)(i) shall
be payable as a life annuity and to a married participant as a monthly payment to the participant for his or her life equal to the amount
determined under Section 4(a)(1) or Section 4(a)(2)(i) and upon his or her death, shall provide monthly payments to the participant’s spouse
for life equal to one hundred percent (100%) of the monthly payment being received by the participant at the time of his or her death. A
participant may not elect to receive such benefits in any form not described in this Section, such as the ten-year certain form or the method
described in Section 6.6 of the Retirement Plan (the “Over-and-Under Payment Method”).
(3) Actuarial Adjustments. The joint and 50% survivor annuity form shall be fully subsidized (i.e., the amount of the benefit payable
for the participant’s life under the joint
11
and 50% survivor annuity shall be equal to the amount of the benefit payable for the participant’s life under the life only benefit). Alternate
joint and survivor payment forms shall be actuarially equivalent to the joint and 50% survivor form, using the same actuarial adjustments as
provided under the Retirement Plan. The five-year installment form shall be actuarially equivalent to the single life annuity (increased for
this purpose by the subsidy for the joint and 50% survivor form), but using a discount rate assumption of 6.25% and the mortality table
used by the Company for year-end financial reporting purposes for the calendar year preceding the year in which the five-year installment
benefit commences.
(b) Spouse’s Benefit with Respect to Officer Traditional Benefits Described in Sections 4(a)(1) and 4(a)(2)(i).
If a participant entitled to benefits under Section 4(a)(1) or Section 4(a)(2)(i) dies while still employed by the Company or an Affiliate, the
participant’s spouse shall be entitled to a survivor annuity equal to one hundred percent (100%) of the monthly benefit that the participant
would have received under Section 4(a)(1) or Section 4(a)(2)(i) had he or she terminated employment on the day before he or she died,
survived to the age on which he or she would first be eligible to commence benefits under this Section 5(a), elected to retire and commence
benefits under the Plan and the Retirement Plan at that time in the form of a joint and 100% survivor annuity, and then died. Benefits payable
to the surviving spouse shall commence on the first day of the month following the participant’s date of death. Benefits payable to a
terminated participant entitled to benefits under Section 4(a)(1) or 4(a)(2)(i) who dies prior to commencing benefits shall be paid in the form of a
survivor annuity equal to fifty percent (50%) of the monthly benefit for life which the participant would have received had he or she survived
to the earliest date under this Section 5(a) upon which he or she could have commenced benefits. Such benefits shall commence as follows: (i)
upon death if at the time of such death the participant has either attained age sixty-five (65) or has both attained age fifty-five (55) and
completed ten (10) Years of Service; or (ii) age sixty-five (65) if at the time of such death the participant has neither attained age sixty-five
(65) nor both attained age fifty-five (55) and completed ten (10) Years of Service.
12
(c) Officer Retirement Account Balance Benefits Described in Sections 4(a)(2)(ii) and 4(a)(3).
(1) Time and Form of Payment. The participant may elect the form and time of payment of benefits described in Section 4(a)(2)(ii) or
Section 4(a)(3) on or before the later of December 31, 2008 or the day before the Committee designates the individual as a participant in this
Plan. Any such election shall be irrevocable except as provided in the next sentence or Section 5(e). Any election of an annuity form of
benefit may be changed to any other actuarially equivalent annuity form of benefit on or before the date annuity payments are to begin. A
participant may elect to receive benefits described in Section 4(a)(2)(ii) or Section 4(a)(3) at any time permitted under the Retirement Plan. A
participant may elect to receive benefits described in Section 4(a)(2)(ii) or Section 4(a)(3) in the form of a lump sum, a life annuity, or in any
joint and survivor annuity form (with the participant’s spouse as joint annuitant) permitted under the Retirement Plan. In addition, a
participant who commences benefits after 2007 shall have a five-year installment option with respect to any benefits payable after 2008. A
participant may not elect to receive such benefits in any other form, such as the ten-year certain form or the Over-and-Under Payment
Method. In the absence of an election regarding the form of benefits, payments shall be made in a lump sum upon separation from service.
(2) Actuarial Adjustments. The life annuity form of benefit shall be actuarially equivalent to the participant’s Retirement Account
Balance, using the actuarial factors set forth in the Retirement Plan. The joint and 50% survivor annuity form shall be fully subsidized (i.e.,
the amount of the benefit payable for the participant’s life under the joint and 50% survivor annuity shall be equal to the amount of the
benefit payable for the participant’s life under the life only annuity benefit). The other joint and survivor annuity forms of benefit shall be
actuarially equivalent to the joint and 50% survivor annuity form of benefit, using the actuarial assumptions in the Retirement Plan. The
five-year installment form shall be actuarially equivalent to the lump sum benefit (increased for this purpose by the subsidy for the joint and
13
50% survivor form), but using a discount rate assumption of 6.25% and the mortality table used by the Company for year-end financial
reporting purposes for the calendar year preceding the year in which the five-year installment benefit commences.
(3) Payment Upon Death. If a participant dies before commencement of benefits described in Sections 4(a)(2)(ii) or 4(a)(3), such
benefits shall be paid to the participant’s spouse or beneficiary in a lump sum upon the participant’s death.
14
(d) SMG Traditional and Retirement Account Balance Benefits Described in Section 4(b).
(1) Form of Payment — Traditional Benefits. This section governs the election of the form of payment of SMG benefits which
supplement benefits described in Sections 5.1.1 and 5.1.2(a) of the Retirement Plan (“Traditional Benefits”). A participant may elect to
receive Traditional Benefits in any form permitted under the Retirement Plan except for the Over-and-Under Payment Method. In addition, a
participant who commences benefits after 2007 shall have a five-year installment option with respect to any Traditional Benefits payable
after 2008. However, a participant must elect the five-year installment form of benefit on or before the later of December 31, 2008 or the day
before the Committee designates the individual as a participant in this Plan. If a participant has not elected the five-year installment form of
benefit as provided in the preceding sentence, then the participant may elect the annuity form of payment of Traditional Benefits at any time
up until the date payments are scheduled to commence. Except as provided in the preceding sentence or in Section 5(e), any such election
of the form of payment shall be irrevocable. In the absence of an election with respect to Traditional Benefits, Traditional Benefits payable
to a single participant shall be payable as a life annuity and to a married participant in the form of a joint and 50% survivor annuity with the
participant’s spouse as beneficiary.
(2) Time of Payment — Traditional Benefits. The participant may elect the time for payment of Traditional Benefits on or before the
later of December 31, 2008 or the day before the Committee designates the individual as a participant in this Plan. Any such election shall be
irrevocable except as provided in Section 5(e). A participant desiring to make the election described in the preceding sentence may elect to
receive his or her Traditional Benefits upon the later of separation from service or a specified age after age 55 and on or before age 65. Such
election of a commencement age before age 65 will be effective only if the participant has
15
ten Years of Service upon his or her separation from service. In the absence of such an election, the participant’s Traditional Benefits will
commence as follows: (i) upon separation from service if at the time of such separation from service he or she has either attained age sixty-
five (65) or has both attained age fifty-five (55) and completed ten (10) Years of Service; or (ii) age sixty-five (65) if at the time of such
separation from service he or she has neither attained age sixty-five (65) nor both attained age fifty-five (55) and completed ten (10) Years of
Service.
(3) Form and Time of Payment — Retirement Account Balance Benefit. A participant may elect the time and form of payment of his or
her benefit which supplements his or her Retirement Account Balance under the Retirement Plan (“Retirement Account Balance Benefit”)
on or before the later of December 31, 2008 or the day before the Committee designates the individual as a participant in this Plan. A
participant may elect to receive his or her Retirement Account Balance Benefit at any time and in any form permitted under the Retirement
Plan, except for the Over-and-Under Payment Method. In addition, a participant who commences benefits after 2007 shall have a five-year
installment option with respect to any benefits payable after 2008. However, a participant must elect the five-year installment form of benefit
on or before the later of December 31, 2008 or the day before the Committee designates the individual as a participant in this Plan. Any
election of a form or time of payment for his or her Retirement Account Balance Benefit shall be irrevocable except as provided in the next
sentence or Section 5(e). If a participant elects an annuity form of payment for his or her Retirement Account Balance Benefit, such election
may be changed to another actuarially equivalent annuity form available under the Retirement Plan at any time on or before annuity
payments are scheduled to commence. In the absence of an election, his or her Retirement Account Balance Benefit shall be paid in a lump
sum upon separation from service.
(4) Actuarial Adjustments. Alternate payment forms described in this Section 5(d) (other than the five-year installment form) shall be
actuarially equivalent using the assumptions provided under the Retirement Plan. The five-year installment form shall be
16
actuarially equivalent to the single life annuity for the Traditional Benefit or the lump sum for the Retirement Account Balance Benefit, but
using a discount rate assumption of 6.25% and the mortality assumption used by the Company for year-end financial reporting purposes for
the calendar year preceding the year in which the five-year installment benefit commences.
(5) Time and Form of Benefits Payable Upon Death. In the event a participant dies before Traditional Benefits described in Section
4(b) commence, benefits shall be paid to the surviving spouse for his or her life commencing as follows: (i) upon death if at the time of such
death the participant has either attained age sixty-five (65) or has both attained age fifty-five (55) and completed ten (10) Years of Service; or
(ii) age sixty-five (65) if at the time of such death the participant has neither attained age sixty-five (65) nor both attained age fifty-five
(55) and completed ten (10) Years of Service. In the event that the participant dies before Retirement Account Balance Benefits described in
Section 4(b) commence to the participant, then such benefits shall be paid to the participant’s spouse or beneficiary in a lump sum upon the
participant’s death.
(e) Change in Time and Form of Payment.
A participant may change an election as to the time and form of payment of his or her benefits if an election is filed in accordance with
rules established by the Committee, provided (i) such election must not take effect until at least twelve months after the date on which the
election is properly filed, (ii) the first payment with respect to which such election is made must be deferred for a period of not less than five
years from the date such payment would otherwise have been made, and (iii) any election related to a payment that was otherwise to be made
at a specified time may not be made less than twelve months prior to the date of the first scheduled payment. Any such change in election
must provide for payment at a time permitted under the Retirement Plan and a form permitted under this Plan.
(f) Cash-Out Provisions.
(1) If the present value of a participant’s or Spouse’s or Vested Survivor’s vested Traditional Benefit under the Plan is less than the
limit described in Code Section 402(g)
17
upon the participant’s death, retirement, or other separation from service which occurs after 2008, the participant’s or Spouse’s or Vested
Survivor’s vested Traditional Benefit shall immediately be distributed in a single lump sum. If the value of a participant’s or Spouse’s or
Vested Survivor’s vested Retirement Account Balance Benefit plus the participant’s vested benefit under the Pinnacle West Capital
Corporation Deferred Compensation Plan of 2005 for Employees of Pinnacle West Capital Corporation and Affiliates is less than the limit
described in Code Section 402(g) upon the participant’s retirement, death, or other separation from service which occurs after 2008, such
vested Retirement Account Balance Benefit shall immediately be distributed in a single lump sum. The benefits of a non-vested participant
shall automatically be deemed to be cashed out pursuant to this Section 5(f) upon such participant’s separation from service.
(2) For purposes of calculating the present value of a participant’s vested benefits, the Spouse’s Benefit or the Vested Survivor’s
Benefit, the actuarial assumptions incorporated by reference in Section 2.1(c) of the Retirement Plan shall be used, but in no event shall
such present value be less than the present value calculated using the “applicable interest rate” and “applicable mortality table,” as defined
in Section 5.19 of the Retirement Plan.
(g) Reemployment.
For the avoidance of doubt, once benefits under this Plan have commenced, such benefits shall not be suspended as a result of the
participant’s reemployment by the Company or an Affiliate.
ARTICLE SIX
PAYMENT OF BENEFITS BEFORE JANUARY 1, 2009

A participant who separates from service before January 1, 2009 and who begins receiving payment of his or her benefits under the
Retirement Plan before January 1, 2009 shall receive benefits under this Plan in the same manner and at the same time as the participant’s
benefits under the Retirement Plan are paid. Notwithstanding the foregoing, a participant who terminated employment after December 31, 2007
will be entitled to change the form of payments of his or her unpaid benefits as of December 31, 2008 under this Plan to the five-year
installment option by filing a special election on or
18
before December 31, 2008. Such special election shall only apply to benefits payable after December 31, 2008.
ARTICLE SEVEN
SECTION 409A COMPLIANCE

If a benefit becomes payable under this Plan to a specified employee, payments due within six months following separation from service
shall be delayed and distributed as a single payment on the first day of the seventh month immediately following the participant’s separation
from service, with simple interest added to such payments from the date they otherwise would have been paid at the crediting rate in effect
under the Retirement Plan. The terms “separation from service” and “specified employee” shall have the meaning set forth in Section 409A of
the Code, the regulations thereunder, and the resolution issued by the Board of Directors of the Company defining such terms, except that a
separation from service shall not include separation by reason of death. All provisions of this Plan shall be interpreted in a manner so as to be
consistent with Section 409A of the Code and the regulations issued thereunder.
19
ARTICLE EIGHT
FUNDING
Benefits under this Plan shall be payable from the general assets of the Company and shall not be segregated in a trust fund or otherwise
funded in any manner prior to the time of payment. No Plan participant shall have any vested rights hereunder nor any right hereunder to any
specific assets of the Company.
ARTICLE NINE
ADMINISTRATION
The Plan will be administered by the Administrative Committee that administers the Retirement Plan. Except as otherwise expressly
provided in this Plan, the Administrative Committee shall have the same powers and responsibilities as it has under Sections 10.4 and 12.2 of
the Retirement Plan. Claims for benefits under the Plan shall be determined in the manner set forth in Article Eleven of the Retirement Plan.
ARTICLE TEN
AMENDMENT AND TERMINATION OF THE PLAN

The Plan may be amended in whole or in part, prospectively or retroactively, by action of the Company’s Board of Directors, and may be
terminated at any time by action of the Board of Directors in accordance with the requirements of Code Section 409A and the regulations
issued thereunder; provided, however, that no such amendment or termination shall reduce any amount payable hereunder to the extent such
amount accrued prior to the date of amendment or termination. All amendments shall be in writing, approved by the Company’s Board of
Directors and executed by a duly authorized officer of the Company.
20
ARTICLE ELEVEN
ASSIGNMENT
No Plan participant or beneficiary of a Plan participant shall have any right to assign, pledge, hypothecate, anticipate or any way create a
lien on any amounts payable hereunder. No amounts payable hereunder shall be subject to assignment or transfer or otherwise be alienable,
either by voluntary or involuntary act, or by operation of law, or be subject to attachment, execution, garnishment, sequestration or other
seizure under any legal, equitable or other process, or be liable in any way for the debts or defaults of Plan participants and their beneficiaries.
Notwithstanding the foregoing, assignments of the benefits provided under this Plan shall be permitted for purposes of satisfying family
support obligations if such assignments are pursuant to a court order which satisfies the requirements for a “qualified domestic relations
order” as defined in Section 206(d)(3) of the Act.
ARTICLE TWELVE
WITHHOLDING
Any taxes required to be withheld from payments to the Plan participants hereunder shall be deducted and withheld by the Company.
ARTICLE THIRTEEN
OTHER BENEFIT PLANS OF THE COMPANY

Nothing contained in this Plan shall prevent a Plan participant prior to his or her death, or his or her spouse or other beneficiary after his
or her death, from receiving, in addition to any payments provided for under this Plan, any payments provided for under the Retirement Plan or
under The Pinnacle West Capital Corporation Savings Plan, or which would otherwise be payable or distributable to him or her, his or her
surviving spouse or beneficiary under any plan or policy of the Company or otherwise. Nothing in this Plan shall be construed as preventing
the Company or any
21
of its subsidiaries from establishing any other or different plans providing for current or deferred compensation for employees.
ARTICLE FOURTEEN
SPOUSAL CONSENT AND BENEFICIARY DESIGNATIONS

To the extent required by the Company, a participant must obtain the consent of his or her spouse to a form of benefit under which the
spouse does not receive a survivor annuity or to a beneficiary designation under which the spouse is not designated as the beneficiary. A
participant may designate his or her beneficiary to receive Retirement Account Benefits which have not yet commenced upon his or her death.
In the absence of any such beneficiary designation, the participant’s beneficiary designation under the Retirement Plan shall control or, in the
absence of any such designation under the Retirement Plan, the participant’s Retirement Account Benefits shall be paid to the same person or
entity as under the Retirement Plan. A participant may also designate a beneficiary to receive any remaining installment payments due upon
his or her death under the five-year installment option. In the absence of any such designation, the remaining installment payments shall be
paid to his or her spouse if he or she is living on the date of the participant’s death or, in the absence of any such spouse, to his or her estate.
ARTICLE FIFTEEN
MISCELLANEOUS
Nothing contained in this Plan shall be construed as a contract of employment between the Company and an employee, or as a right of
any employee to be continued in the employment of the Company, or as a limitation of the right of the Company to discharge any of its
employees, with or without cause.
All of the provisions of this Plan shall be binding upon all persons who shall be entitled to any benefit hereunder, their heirs and
personal representatives.
ARTICLE SIXTEEN
EFFECTIVE DATE
The Plan, as amended and restated, shall be effective as of January 1, 2005.
22
IN WITNESS WHEREOF, the Company has caused this Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan,
as amended and restated herein, to be executed by its duly authorized officer this 19th day of December, 2008.
By /s/ Barbara M. Gomez
Its VP and Treasurer
Attest:
By /s/ Donna L. Thomas
Its HR Services Director
23
Exhibit 10.4.10
SUPPLEMENTAL AGREEMENT
FOR RANDALL K. EDINGTON
Table of Contents
Page
1. Definitions 1
2. Cash Bonuses 3
3. Compensation in lieu of Entergy Stock Options and Performance Shares 3
4. Deferred Compensation 4
5. Supplemental Pension Benefit 5
6. Specified Employee Rule 6
7. Special Medical Benefits in Certain Circumstances 6
8. Termination for Disability 6
9. Termination Not Giving Rise to Company Obligations 7
10. Termination Notice and Procedure 7
11. Obligations of Executive 7
12. Company Right of Offset 8
13. Amendment and Termination 8
14. Withholding 8
15. Venue; Governing Law 8
16. Notice 8
17. Funding 8
18. No Waiver 9
19. Claims Procedure 9
20. Administration and Interpretation of Agreement 9
21. Section 409A Compliance 9
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SUPPLEMENTAL AGREEMENT
FOR RANDALL K. EDINGTON
THIS AGREEMENT, made and entered into as of the 26th day of December, 2008 by and between Arizona Public Service Company, an
Arizona corporation (hereinafter referred to as the “Company”) and Randall K. Edington (hereinafter referred to as “Executive”):
W I T N E S S ET H
WHEREAS, the Company and Executive entered into two letter agreements (the “Letter Agreements”), the first dated December 20, 2006,
under which employment was offered to and accepted by Executive, and the second dated July 18, 2008, under which additional compensation
and benefits were offered to and accepted by Executive; and
WHEREAS, the Company and Executive deem it necessary and desirable to enter into this special supplemental agreement (the
“Agreement”) to formally memorialize certain provisions of the Letter Agreements in accordance with the requirements of Code Section 409A.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto
mutually covenant and agree as follows:
1. Definitions.
(a) “Cause” shall mean (i) Executive’s unreasonable neglect in performing his duties, including, but not limited to gross negligence, fraud,
misappropriation or embezzlement involving property of the Company or an affiliate of the Company, or (ii) any other intentional act
by Executive that may impair the goodwill or business of the Company or an affiliate of the Company, or that may cause damage to
any of their businesses.
(b) “Change of Control” shall have the same meaning as given to that term in the KEESA.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
(d) “Deferred Compensation Account” shall mean an unfunded account established by the Company for the benefit of Executive in
accordance with Section 4.
(e) “Disability” shall mean that Executive is unable to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less
than 12 months.
(f) “Employment Date” shall mean January 25, 2007.
(g) “Entergy” shall mean Entergy Corporation, its successors and assigns.
(h) “Final Average Pay” shall mean the average of the sum of:
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(i) Executive’s base salary payable during any 12-month period, disregarding any deductions therefrom for benefits or taxes on
either a pre-tax or after-tax basis, plus
(ii) Executive’s annual year-end bonus payable during such period, disregarding any deductions therefrom for benefits or taxes on
either a pre-tax or after-tax basis,
for three such periods within the ten years ending coincident with or next preceding Executive’s Termination Date which produce the
highest such average. In calculating Final Average Pay, a consistent twelve-month period shall be used, and only three year-end
bonuses shall be counted. If more than three year-end bonuses are included in the three periods used, only the three highest year-end
bonuses shall be counted.
(i) “KEESA” shall mean that certain Key Employee Employment and Severance Agreement entered into by and between the Company
and Executive under date of November 5, 2007, as amended from time to time.
(j) “Qualified Plan” shall mean the Pinnacle West Capital Corporation Retirement Plan, as amended from time to time.
(k) “SEBRP” shall mean the Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan, as amended from time to
time.
(l) “Section 409A” shall mean Section 409A of the Code and the regulations thereunder, as amended from time to time.
(m) “Spouse” shall mean the spouse to whom Executive was married on December 21, 2006. For the avoidance of doubt, if Executive and
his Spouse divorce, such divorce shall not terminate the Spouse’s rights under this Agreement, and any subsequent spouse of
Executive shall be entitled to no benefits under this Agreement.
(n) “Termination Date” shall mean the earliest of the following:
(i) Executive’s date of death;
(ii) sixty (60) days after the delivery of the Notice of Termination terminating Executive’s employment on account of Disability,
unless Executive returns full-time to the performance of his duties prior to the expiration of such period;
(iii) the date of the Notice of Termination if Executive’s employment is terminated by Executive voluntarily; and
(iv) fifteen (15) days after the delivery of the Notice of Termination if Executive’s employment is terminated by the Company (other
than by reason of Disability).
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(o) “Year of Service” shall have the same meaning as given to that term in the Qualified Plan.
2 Cash Bonuses. If Executive has remained in continuous employment with the Company from his Employment Date through January 25,
2009, the Company shall pay Executive bonus compensation of $100,000 not later than March 15, 2009.
3 Compensation in lieu of Entergy Stock Options and Performance Shares.
(a) If, as of the date specified in Column 1 of the table below:
(i) Executive has remained continuously employed by the Company since his Employment Date, and
(ii) the fair market value of one share of Entergy common stock on that date exceeds the amount shown in Column 2, the Company
shall pay Executive the difference between the amount shown in Column 2 and the fair market value of one share of Entergy
common stock on that date, multiplied by the number in Column 3.
Column 1 Column 2 Column 3

Description (vesting date) (strike price) (number of shares)
(2006 grant) January 26, 2009 $68.89 2,668
(b) If, as of the date specified in Column 1 of the table below, Executive has remained in continuous employment with the Company since
his Employment Date, then the Company shall pay Executive an amount determined by:
(i) adding
(A) the fair market value of one share of Entergy common stock on that date; plus
(B) the sum of all dividends paid on one share of Entergy common stock in the 36 months ending on that date; and
(ii) multiplying the sum determined in subparagraph (i) by the number in Column 2.
Column 1 Column 2
Description (day after end of period) (number of shares)
(2006-2008 performance period) January 1, 2009 1,100
(c) (i) The fair market value of a share of Entergy common stock as of any date provided for in paragraph (a) or (b) shall be based on the
closing price therefor on that date, or if that date is a holiday for the New York Stock Exchange, the next date on which the New York
Stock Exchange is open for business, all as published in the Wall Street Journal.
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(ii) If there shall occur any merger, consolidation, liquidation, issuance of rights or warrants to purchase securities, recapitalization,
reclassification, stock dividend, spin-off, split-off, stock split, reverse stock split or other distribution with respect to the shares
of Entergy common stock, or any similar corporate transaction or event in respect of Entergy common stock between
Executive’s Employment Date and any date specified in the table set forth in paragraph (a) or (b), then a proportionate
adjustment shall be made in Columns 2 and 3 of the chart in paragraph (a) and in Column 2 of the chart in paragraph (b), without
change in the value represented therein.
(d) The Company shall pay the amount based on the price of Entergy common stock as of any date provided for in paragraph (a) or
(b) not later than thirty (30) days following that date.
4. Deferred Compensation. The Company shall establish a hypothetical Deferred Compensation Account for the benefit of Executive in
accordance with the following:
(a) The Deferred Compensation Account shall be credited with the following amounts as of the following specified dates, provided that
Executive remains in continuous employment with the Company on the specified dates.
Specified Date Amount

July 15, 2008 $1,000,000
June 1, 2009 $1,000,000
June 1, 2010 $1,000,000
June 1, 2011 $1,000,000
(b) No interest, earnings or market value adjustments will be applied to the amounts in the Deferred Compensation Account at any time.
(c) Executive’s Deferred Compensation Account shall become 100% vested as of the first to occur of the following dates (“Vesting
Date”):
(i) June 1, 2012, provided that Executive is continuously employed with the Company from the date of this Agreement through
June 1, 2012, or
(ii) Executive’s Termination Date by reason of his death, Disability or involuntary termination without Cause.
(d) The amount payable to Executive under this Section 4 will be the amount of the Deferred Compensation Account on his Vesting Date;
provided, if vesting is caused by Executive’s death, the amount payable shall be $4,000,000, regardless of the date of death, and shall
be paid to Executive’s Spouse, or if Executive is not survived by his Spouse, to Executive’s estate.
(e) The amount payable pursuant to this Section 4 shall be paid in the form of single sum within 30 days after the Vesting Date.
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(f) The amount payable pursuant to this Section 4 shall not be taken into account for purposes of determining the amount available for
deferral by Executive or the amount of the benefit accrued by Executive under any qualified or non-qualified, funded or unfunded
deferred compensation or retirement plan or welfare benefit plan in which Executive is eligible to participate.
(g) Upon Executive’s Termination Date for any reason other than death, Disability or involuntary termination without Cause before
occurrence of a Vesting Date, the Deferred Compensation Account shall be forfeited in its entirety.
5. Supplemental Pension Benefit.
(a) Notwithstanding anything in the SEBRP to the contrary, the form, amount and timing of payments of Executive’s SEBRP benefits shall
be determined under this Section 5, which shall be deemed to modify the SEBRP with respect to Executive.
(b) If Executive’s Termination Date occurs for any reason after he has completed at least five (5) Years of Service, Executive shall be
entitled to a supplemental pension valued on the basis of a single life annuity payable upon his termination of employment equal to
the greater of (i) 10% of Executive’s Final Average Pay per Year of Service, to a maximum of 60% of Executive’s Final Average Pay,
reduced by the actuarially equivalent benefit payable under the Qualified Plan, or (ii) the Executive’s benefit payable under the SEBRP
(determined solely by reference to the SEBRP document) converted to an actuarially equivalent life annuity payable upon his
termination of employment. In no event, however, shall Executive’s monthly benefit be less than the amount determined in
Section 5(c).
Executive’s benefit under this Section 5(b) shall be payable 50% in the applicable annuity form described in the next sentence and
50% in an actuarially equivalent single sum. If Executive’s Spouse is living on the Termination Date, the applicable annuity form shall
be an actuarially equivalent 100% joint and survivor annuity measured by the remaining lifetimes of Executive and his Spouse, and if
Executive’s Spouse is not living on the Termination Date, the applicable annuity form shall be a single life annuity measured by
Executive’s remaining lifetime.
If Executive’s employment terminates as a result of death, (i) the lump sum benefit described above shall be payable upon his death to
his surviving Spouse, if she is then living, otherwise to his estate, and (ii) if Executive is survived by his Spouse, she shall receive the
survivor annuity portion of the 100% joint and survivor annuity described above.
(c) (i) If Executive’s Termination Date occurs before he has completed five (5) Years of Service for any reason other than voluntary
resignation or termination for Cause, Executive shall be entitled to a supplemental pension equal to $24,226 per month payable for
the remaining lifetime of Executive, and if Executive is survived by his Spouse, for the remaining lifetime of the Spouse after
Executive’s death, reduced as provided for in subparagraph (ii).
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(ii) The benefit payable pursuant to paragraph (i) shall be offset by the corresponding actuarially equivalent benefits payable under
the Qualified Plan, if vested on the Termination Date.
(iii) In the event Executive’s Termination Date occurs on or after the date he has completed three (3) Years of Service but before he
has completed five (5) Years of Service on account of voluntary resignation or termination for Cause, Executive shall receive his
benefit payable under the SEBRP determined solely by reference to the SEBRP document converted to an actuarially equivalent
joint and 100% survivor annuity for the lifetime of Executive and his Spouse. If Executive’s Termination Date occurs before he
has completed five (5) Years of Service for any reason other than as described in the preceding sentence, Executive shall not
receive a benefit calculated under the SEBRP document, but instead shall receive the benefit described in Section 5(c)(i).
(d) Subject to Section 6, Executive’s benefits under this Section 5 shall commence on the first day of the month following his Termination
Date. For the avoidance of doubt, Executive’s benefits under this Section 5 shall not be actuarially reduced to reflect early
commencement of benefits if he terminates employment before age 65.
(e) All determinations of actuarial equivalence provided for in this Section 5 shall be made on the basis of the actuarial assumptions in
use as of the specified dates under the Qualified Plan.
6. Specified Employee Rule. Notwithstanding any provision of Section 5, if Executive is a specified employee as defined by the Company for
purposes of Section 409A on his Termination Date and his Termination Date is not caused by his death or Disability, payments provided
for in Section 5 shall not begin until 6 months after his Termination Date, and all amounts otherwise payable earlier than 6 months following
his Termination Date shall be paid on the first day of the seventh full calendar month following his Termination Date.
7. Special Medical Benefits in Certain Circumstances. If Executive’s Termination Date occurs before January 25, 2012 by reason of involuntary
termination without Cause, death, Disability or following a Change of Control, or for any reason on or after January 25, 2012, Executive and
his Spouse, or if Executive’s Termination Date is caused by his death, his Spouse alone, shall receive coverage available to retired
Company executives of the same rank as Executive as of his Termination Date or their widowed spouses, as the case may be, under the
Company’s retiree medical plan in effect from time to time or equivalent coverage funded by insurance, as determined by the Company in its
sole discretion, subject to Executive’s or his Spouse’s payment of contributions at the same rate as contributions for equivalent coverage
due from such other executives who commenced employment with the Company before 2003 and have 25 or more Years of Service (or their
spouses), as determined from time to time.
8. Termination for Disability. If Executive has been absent from his duties hereunder on a full-time basis for five (5) consecutive months on
account of a Disability, the Company may
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provide a Notice of Termination which satisfies the requirements of Section 10, and Executive’s employment shall, for purposes of this
Agreement, terminate sixty (60) days thereafter, unless Executive returns to the performance of his duties on a full-time basis prior to the
end of the sixty (60) day period.
9. Termination Not Giving Rise to Company Obligations. If Executive’s employment is terminated for Cause or if Executive voluntarily
terminates his employment before January 25, 2012, subject to the procedures set forth in Section 10, Executive shall not be entitled to
receive any amount or benefit otherwise due under this Agreement after the Termination Date.
10. Termination Notice and Procedure. Any termination by the Company or Executive of Executive’s employment shall be communicated by
written Notice of Termination to Executive if such Notice is delivered by the Company and to the Company if such Notice is delivered by
Executive, all in accordance with the following procedures:
(a) The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances alleged to provide a basis for termination.
(b) Any Notice of Termination by the Company shall be approved in writing by its Chief Executive Officer and Chief Operating Officer.
(c) If the Company shall give a Notice of Termination for Cause and Executive in good faith notifies the Company that a dispute exists
concerning such termination within the fifteen (15) day period following Executive’s receipt of such notice, then if it is thereafter
determined that:
(i) the reason given by the Company for termination did exist, Executive’s Termination Date shall be the date set forth in the
Company’s Notice of Termination for Cause; or
(ii) the reason given by the Company for termination did not exist, the employment of Executive shall be deemed to have been
terminated involuntarily without Cause on the date set forth in the Company’s Notice of Termination.
11. Obligations of Executive. Executive covenants and agrees, during Executive’s employment with the Company and following his
Termination Date, to hold in strict confidence any and all information in Executive’s possession as a result of Executive’s employment
with the Company; provided that nothing in this Agreement shall be construed as prohibiting Executive from reporting any suspected
instance of illegal activity of any nature, any nuclear safety concern, any workplace safety concern or any public safety concern to the
United States Nuclear Regulatory Commission, United States Department of Labor or any federal or state governmental agency or
prohibiting Executive from participating in any way in any state or federal administrative, judicial or legislative proceeding or investigation
with respect to any such claims and matters.
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12. Company Right of Offset. In the event that the Company has paid Executive more than the amount to which Executive is entitled under
this Agreement, the Company shall have the right to recover all or any part of such overpayment from Executive or from whomsoever has
received such amount.
13. Amendment and Termination. The term of this Agreement shall expire when all obligations of the Company and Executive hereunder have
been satisfied. This Agreement sets forth the entire agreement between Executive and the Company with respect to the subject matter
hereof, and supersedes all prior oral or written negotiations, commitments, understandings and writings with respect thereto. This
Agreement may not be terminated, amended or modified during its term as specified above except by written instrument executed by the
Company and Executive.
14. Withholding. The Company shall be entitled to withhold from amounts to be paid to Executive under this Agreement any federal, state or
local withholding or other taxes or charges which it is from time to time required to withhold.
15. Venue; Governing Law. This Agreement and Executive’s and Company’s respective rights and obligations hereunder shall be governed
by and construed in accordance with the laws of the State of Arizona. Any action concerning this Agreement shall be brought in the
Federal or state courts located in the County of Maricopa, Arizona, and each party consents to the venue and jurisdiction of such courts.
16. Notice. Notices given pursuant to this Agreement shall be in writing and (a) if hand delivered, shall be deemed given when delivered, and
(b) if mailed, shall be deemed delivered when placed in the United States mail, postage prepaid, addressed,
if to the Company, to:
Board of Directors
400 North Fifth Street
Phoenix, Arizona 85004
Attention: Law Department
or if to Executive, to:
Randall K. Edington
3853 North Sidney St.
Buckeye, Arizona 85396
or to such other addresses as the parties may provide written notice of to each other, from time to time, in accordance with this
Section 16.
17. Funding. Amounts payable under this Agreement shall constitute an unfunded general obligation of the Company payable from its
general assets, and the Company shall not be required to establish any special fund or trust for purposes of paying benefits under this
Agreement. The Executive shall not have any vested right to any particular assets of the
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Company as a result of execution of this Agreement and shall be a general creditor of the Company.
18. No Waiver. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same
time or any prior or subsequent time.
19. Claims Procedure Any claim for benefits under Sections 4 or 5 shall be processed under the Qualified Plan claims procedure.
20. Administration and Interpretation of Agreement. The Company acting through the Administrative Committee under the Qualified Plan
shall be responsible for and shall control and manage the operation and administration of this Agreement, except as otherwise specifically
provided for herein. The Company shall administer the provisions of this Agreement in accordance with its terms and shall have all
powers necessary to carry out the provisions of this Agreement. The Administrative Committee shall interpret this Agreement and shall
have the discretionary authority to determine all questions arising in the administration, interpretation, and application of this Agreement.
Any such determination by the Administrative Committee shall presumptively be conclusive and binding on all persons.
21. Section 409A Compliance. This Agreement is designed to comply with Section 409A. Notwithstanding any other provision of this
Agreement, all provisions of this Agreement shall be construed in a manner consistent with Section 409A.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has
executed this Agreement, on the date and year first above written.
By /s/ Donald Robinson

Its Sr VP Planning & Administration
/s/ Randall K. Edington

Randy Edington
Exhibit 10.6.5
Summary of 2009 Incentive Plans

On January 21, 2009, the Board of Directors of Pinnacle West, acting on the recommendation of the Board’s Human Resources Committee
(the “Committee”), approved the 2009 Pinnacle West Employee Incentive Plan (the “Pinnacle West Incentive Plan”) and the 2009 APS
Employee Incentive Plan (the “APS Incentive Plan”) (collectively, the “2009 Plans”). The 2009 Plans provide incentive award opportunities for
Pinnacle West and APS employees, including the following “named executive officers” from the Company’s proxy statement relating to its
2009 Annual Meeting: James R. Hatfield, Senior Vice President and Chief Financial Officer; Donald E. Brandt, Pinnacle West’s President and
Chief Operating Officer and the Chief Executive Officer of APS; Randall K. Edington, Executive Vice President and Chief Nuclear Officer of
APS; and Steven M. Wheeler, Executive Vice President, Customer Service and Regulation, of APS. Mr. Post will be retiring this year and will
not be participating in the 2009 Plans.
From January 1, 2009 through April 30, 2009, Mr. Brandt’s incentive opportunities will be under the APS Incentive Plan. As discussed
above, Mr. Brandt will be assuming the positions of Chairman of the Board and Chief Executive Officer of Pinnacle West, effective April 30,
2009. As a result, Mr. Brandt’s incentive opportunities from May 1, 2009 through December 31, 2009 will be under the Pinnacle West Incentive
Plan. As required by the Committee’s Charter, the Committee, rather than the Board, approved the “Chairman and CEO” component of the
Pinnacle West Incentive Plan for Mr. Brandt for this eight-month period. Mr. Brandt’s incentive opportunities under the Pinnacle West
Incentive Plan and the APS Incentive Plan will be pro-rated based on the number of months he is subject to each 2009 Plan.
The award opportunity for Mr. Brandt is based on APS’ 2009 earnings (while he is subject to the APS Incentive Plan) and on Pinnacle
West’s 2009 earnings (while he is subject to the Pinnacle West Incentive Plan), excluding, in each case, impacts from certain Arizona
Corporation Commission rate decisions. The Committee will evaluate impacts of unusual or nonrecurring adjustments on actual earnings. Once
the earnings threshold is met, the achievement of the level of earnings generally determines what award, if any, the participant receives.
However, the amount of the award, if any, is in the sole discretion of the Committee. Accordingly, the Committee may consider factors other
than earnings, such as shareholder value creation, customer service, financial strength, operating performance, and safety. Subject to the
foregoing, Mr. Brandt has an award opportunity of up to 50% of his base salary if a threshold earnings level is met, up to 100% of his base
salary if a midpoint earnings level is met, and up to 150% of his base salary if a maximum earnings level is met.
In the case of Messrs. Hatfield, Edington and Wheeler, the APS Incentive Plan is composed of two components, one of which is based on
APS’ 2009 earnings and the other on the achievement of specified business unit results. For Messrs. Hatfield, Edington and Wheeler, once the
specified APS earnings threshold is met (subject to the potential earnings adjustments discussed above), the achievement of the level of
earnings and business unit results generally determines what award, if any, they will receive. However, the amount of the award, if any, to each
participant in the APS Incentive Plan is in the sole discretion of the Committee. Accordingly, the Committee may consider factors other than
APS earnings and the achievement
of business unit results, such as shareholder value creation, customer service, financial strength, operating performance, safety, and the Chief
Executive Officer’s assessment of the officer’s individual performance during the year, to measure performance. Subject to the foregoing,
Mr. Hatfield, Mr. Edington and Mr. Wheeler each has an award opportunity of up to 25% of his base salary if the midpoint earnings level is
met and up to 50% of his base salary if the maximum earnings level is met.
In the case of Mr. Hatfield, Mr. Edington and Mr. Wheeler, the APS Incentive Plan details “critical success indicators” for specific business
units. Once an APS earnings threshold is met, the Committee will consider the achievement of the critical success indicators, which the
Committee may weigh as it deems appropriate in determining an incentive opportunity for each individual up to 50% of his base salary. In the
case of Mr. Hatfield, the Committee will consider the following key critical success indicators in the Shared Services business unit: (i) the
average of the Fossil business unit results (safety performance, environmental performance and production) and the Palo Verde business unit
results (safety performance; performance improvement in other key areas, such as equipment reliability and plant metrics; production,
including site capacity factor and outage durations; and financial performance); (ii) the Customer Service, Delivery and Regulatory business
unit results (safety performance, customer experience survey, business performance trends, customer reliability, and environmental
performance); (iii) shared services costs; and (iv) shared services safety. In the case of Mr. Edington, the Committee will consider the
following key critical success indicators in the Palo Verde Nuclear Generation Station business unit: safety performance; performance
improvement in other key areas, such as equipment reliability and plant metrics; production, including site capacity factor and outage
durations; and financial performance. In the case of Mr. Wheeler, the Committee will consider the following key critical success indicators in
the Customer Service, Delivery, and Regulatory business unit: safety performance; customer experience survey; business performance trends;
customer reliability; and environmental performance.
Exhibit 12.1

COMPUTATION OF EARNINGS TO FIXED CHARGES
T welve Months Ended December 31,

2008 2007 2006 2005 2004
Earnings:
Income from continuing operations $ 213,557 $ 298,744 $ 316,265 $ 227,288 $ 242,887
Income taxes 65,407 150,910 155,855 129,533 133,771
Fixed charges 241,976 235,705 225,119 214,430 214,803
Total earnings $ 520,940 $685,359 $ 697,239 $ 571,251 $ 591,461
Fixed Charges:
Interest expense $ 216,290 $ 208,521 $ 196,826 $ 185,087 $ 183,527
Estimated interest portion of annual rents 25,686 27,184 28,293 29,343 31,276
Total fixed charges $ 241,976 $ 235,705 $ 225,119 $ 214,430 $ 214,803
Ratio of Earnings to Fixed Charges (rounded

down) 2.15 2.90 3.09 2.66 2.75
Exhibit 12.2


2008 2007 2006 2005 2004
Earnings:
Income from Continuing Operations $ 262,344 $ 283,940 $ 269,730 $ 170,479 $ 199,627
Income taxes 107,261 151,157 138,927 98,010 120,030
Fixed charges 213,583 202,044 191,174 178,437 181,372
Total earnings $ 583,188 $ 637,141 $ 599,831 $ 446,926 $ 501,029
Fixed Charges:
Interest charges $ 183,503 $ 170,594 $ 158,769 $ 145,502 $ 146,983
Amortization of debt discount 4,702 4,639 4,363 4,085 4,854
Ratio of Earnings to Fixed Charges (rounded

down) 2.73 3.15 3.13 2.50 2.76
Exhibit 12.3

AND PREFERRED STOCK DIVIDEND REQUIREMENTS

2008 2007 2006 2005 2004
Earnings:
Income from continuing operations $ 213,557 $ 298,744 $ 316,265 $ 227,288 $ 242,887
Income taxes 65,407 150,910 155,855 129,533 133,771
Fixed charges 241,976 235,705 225,119 214,430 214,803
Total earnings $ 520,940 $ 685,359 $ 697,239 $ 571,251 $ 591,461
Fixed Charges:
Interest expense $ 216,290 $ 208,521 $ 196,826 $ 185,087 $ 183,527
Preferred Stock Dividend Requirements:

Income before income taxes $ 278,964 $ 449,654 $ 472,120 $ 356,821 $ 376,658
Net income from continuing operations 213,557 298,744 316,265 227,288 242,887
Ratio of income before income taxes to net
income 1.306 1.505 1.493 1.570 1.551
Preferred stock dividends — — — — —
Preferred stock dividend requirements —

ratio (above) times preferred stock
dividends $ — $ — $ — $ — $ —
Fixed Charges and Preferred Stock Dividend

Requirements:
Fixed charges $ 241,976 $ 235,705 $ 225,119 $ 214,430 $ 214,803
Preferred stock dividend requirements — — — — —
Total $ 241,976 $ 235,705 $ 225,119 $ 214,430 $ 214,803
Ratio of Earnings to Combined Fixed Charges

and Preferred Stock Dividend Requirements
(rounded down) 2.15 2.90 3.09 2.66 2.75
Exhibit 21.1
PNW has the following subsidiaries: 1) Arizona Public Service Company

2) APS Energy Services Company, Inc.
3) El Dorado Investment Company
4) Pinnacle West Energy Corporation (merged into PWCC 8/1/06)
5) SunCor Development Company
6) APSES Holdings, Inc.
APS Energy L.P. (dissolved 9/29/06)
7) Pinnacle West Marketing & Trading Co., LLC
Pinnacle West Energy affiliates:
1) GenWest, LLC } now under PWCC

2) APACS Holdings, LLC } now under PWCC
Arizona Public Service Company has the following subsidiaries/affiliates:

1) APS Foundation, Inc.
2) Axiom Power Solutions, Inc.
3) BIXCO, Inc.
4) PWE NEWCO, Inc.

5) Powertree Carbon Co., LLC
APS Energy Services Company has the following affiliates:
1) Apex Power LLC
2) Northwind Phoenix LLC (a Delaware LLC/subsidiary of APSES)
3) Tucson District Energy, LLC (an Arizona LLC/subsidiary of Northwind Phx LLC)
4) Crest Power, LLC
El Dorado has or has had the following investments/affiliates:
1) Acoustic Locating Services, LLC
2) Aegis Technologies, Inc.
3) Arizona Business Accelerator
4) Arizona Professional Baseball Ltd Partnership
5) Dominion Fund II (Dissolved as of 12/31/02)
6) El Dorado Ventures / El Dorado Ventures II (Dissolved as of 12/31/02)
7) El Dorado Ventures III (Dissolving)
8) Gateway Data Sciences Corp. (Dissolved as of 12/31/02)
9) NAC Holding Inc./ NAC International Inc. (All stock sold on 11/18/04 to USEC, Inc)
10) NxtPhase Corporation
11) Phoenix Downtown Theater LLC
12) Phoenix Suns Ltd Partnership (Sold on 6/30/04)
13) PowerOneData, Inc.
14) Serveron Corporation
15) Underground Imaging Technologies, LLC (Vermeer Manufacturing Company)
SunCor has the following subsidiaries and other related entities:

1. Avimor Water Reclamation Company (fka Foothills Sewer Company, Inc.)
2. Centrepoint Associates, LLC (Kimco)
3. Club West Golf Course, LLC

4. Coral Canyon HD, LLC (SITLA)
5. Golf de Mexico, S.A. de C.V.
6. Hayden Ferry Lakeside, LLC (SunCor is Sole Member- purchased Benton-Robb interest)
Lakeside Residential Communities, LLC
BV at Hayden Ferry Lakeside, LLC
Edgewater at Hayden Ferry Lakeside, LLC
Waterford at Hayden Ferry Lakeside, LLC
Hayden Ferry Lakeside II, LLC
Hayden Ferry Lakeside III, LL
7. Hidden Hills of Scottsdale, LLC
8. Highland Water Company, Inc.
9. Kabuto SunCor JV (Kabuto Int’l Corp.)
10. Marina Heights, LLC
11. Palm Valley 303 Building 1, LLC
12. Palm Valley Golf Club, Inc.
13. Palm Valley Professional Plaza, LLC
14. Ranch Communities of America, LLC (NZ Legacy, LLC)
15. Rancho Viejo de Santa Fe, Inc.
Rancho Viejo Village Center, LLC (Dissolved 04-04-05)
Ranchland Utility Company
Santa Fe Water Resource Alliance, LLC
16. Riverside Distribution Center, LLC (Ryan Buckeye, LLC)
17. Scottsdale Mountain Limited Partnership
18. SDC Prescott, LLC
19. SDC Prescott Valley, LLC
20. SDC Yavapai, LLC
21. Sedona Golf Resort LC (Sedona Assoc. LP)
22. StoneRidge Commercial, LLC (WLD Prescott, LLC)
23. StoneRidge — Prescott Valley LLC (WLD Prescott, LLC)
StoneRidge Golf Course, LLC
24. SunCor Homes, Inc. (fka Golden Heritage Homes, Inc.)
SunCor Construction AZ, Inc. (fka Golden Heritage Construction, Inc.)
Golden Heritage Construction Nevada, LLC

SunCor Financial, LLC (fka HFS Mortgage, LLC)
25. SunCor Construction, Inc. (fka SCM, Inc.)
26. SunCor Golf, Inc.
Westworld Golf Course, LLC
27. SunCor Idaho, Inc.
Avimor, LLC (fka SunCor Idaho, LLC and Spring Valley Development, LLC)
SunCor Realty & Management Idaho, LLC
28. SunCor New Mexico, Inc.

SunCor Albuquerque, LLC
SunCor Construction NM, LLC
29. SunCor Realty & Management Company
30. SunCor Utah, Inc.
Coral Canyon Town Center, LLC (SITLA and Southern
Utah Homebuilders Association)
Coral Canyon Town Center II, LLC (SITLA)
31. SunRidge Canyon, LLC
32. Talavi Associates, LLC (WLD Partners)
33. TypeTwo, Inc. (Kabuto Int’l Corp.)
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNlTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-134206, 333-155641 on Form S-3; and in Registration
Statement Nos. 33-54307, 333-143432, 333-91786, 333-138089, and 333-157151 on Form S-8 of our report dated February 19, 2009, relating to the
consolidated financial statements and financial statement schedules of Pinnacle West Capital Corporation and the effectiveness of Pinnacle
West Capital Corporation’s internal control over financial reporting (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the Company’s adoption of Statement of Financial Accounting Standards No. 158) appearing in this Annual
Report on Form 10-K of Pinnacle West Capital Corporation for the year ended December 31, 2008.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 19, 2009
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 333-134206-01 on Form S-3;
and in Registration Statement No. 333-46161 on Form S-8 of our report dated February 19, 2009 relating to the financial statements and financial
statement schedule of Arizona Public Service Company, and the effectiveness of Arizona Public Service Company’s internal control over
financial reporting (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s adoption
of Statement of Financial Accounting Standards No. 158) appearing in this Annual Report on Form 10-K of Arizona Public Service Company
for the year ended December 31, 2008.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 19, 2009
Exhibit 31.1
CERTIFICATION
I, William J. Post, certify that:

1. I have reviewed this Annual Report on Form 10-K of Pinnacle West Capital Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 20, 2009.
/s/ William J. Post

William J. Post
Chairman and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, James R. Hatfield, certify that:

1. I have reviewed this Annual Report on Form 10-K of Pinnacle West Capital Corporation;
functions):
/s/ James R. Hatfield

James R. Hatfield
Senior Vice President & Chief Financial Officer
Exhibit 31.3
CERTIFICATION
I, Donald E. Brandt, certify that:

1. I have reviewed this Annual Report on Form 10-K of Arizona Public Service Company;
functions):
/s/ Donald E. Brandt

Donald E. Brandt
Chief Executive Officer
Exhibit 31.4
CERTIFICATION
I, James R. Hatfield, certify that:

1. I have reviewed this Annual Report on Form 10-K of Arizona Public Service Company;
functions):

James R. Hatfield
Senior Vice President & Chief Financial Officer
Exhibit 32.1
CERTIFICATION
OF
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, William J. Post, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report on Form 10-K of Pinnacle West Capital Corporation for the fiscal year ended December 31, 2008 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly
presents, in all material respects, the financial condition and results of operations of Pinnacle West Capital Corporation.
/s/ William J. Post

William J. Post
Chairman and Chief Executive Officer
I, James R. Hatfield, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report on Form 10-K of Pinnacle West Capital Corporation for the fiscal year ended December 31, 2008 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form
10-K fairly presents, in all material respects, the financial condition and results of operations of Pinnacle West Capital Corporation.

James R. Hatfield
Senior Vice President and Chief Financial Officer
Exhibit 32.2
CERTIFICATION
OF
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald E. Brandt, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report on Form 10-K of Arizona Public Service Company for the fiscal year ended December 31, 2008 fully complies with the
10-K fairly presents, in all material respects, the financial condition and results of operations of Arizona Public Service Company.
/s/ Donald E. Brandt

Donald E. Brandt
Chief Executive Officer
I, James R. Hatfield, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report on Form 10-K of Arizona Public Service Company for the fiscal year ended December 31, 2008 fully complies with the
10-K fairly presents, in all material respects, the financial condition and results of operations of Arizona Public Service Company.

James R. Hatfield
Senior Vice President and
Chief Financial Officer

ARIZONA PUBLIC SERVICE CO 10-K (Annual Reports) 2009-02-20

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ARIZONA PUBLIC SERVICE CO 10-K (Annual Reports) 2009-02-20

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˛ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

Commission Registrants; State of Incorporation; IRS Employer

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

PINNACLE WEST CAPITAL CORPORATION

ARIZONA PUBLIC SERVICE COMPANY

PINNACLE WEST CAPITAL CORPORATION $3,085,816,962 as of June 30, 2008

PINNACLE WEST CAPITAL CORPORATION 100,990,779 shares

DOCUMENTS INCORPORATED BY REFERENCE

PART III 165

APS ACC Proceedings

• Corporate Governance Guidelines;

REGULATION AND COMPETITION

BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY

Coal Fueled Generating Facilities

Nuclear Generating Facility

Transmission and Distribution Facilities

Plant and Transmission Line Leases and Easements on Indian Lands

Navajo Generating Station FIP

BUSINESS OF SUNCOR DEVELOPMENT COMPANY

BUSINESS OF OTHER SUBSIDIARIES

ITEM 1A. RISK FACTORS

ITEM 1B. UNRESOLVED STAFF COMMENTS

Information Regarding Our Properties

Real Estate Segment Properties

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A

Name Age at February 20, 2009 P osition(s) at February 20, 2009

James R. Hatfield 51 Senior Vice President and Chief Financial Officer

John R. Denman 66 Senior Vice President, Fossil Operations, APS

Chris N. Froggatt 51 Vice President and Treasurer

Barbara M. Gomez 54 Vice President, Controller and Chief Accounting Officer

Nancy C. Loftin 55 Senior Vice President, General Counsel and Secretary

Donald G. Robinson 55 President and Chief Operating Officer, APS

Lori S. Sundberg 45 Vice President, Human Resources, APS

Steven M. Wheeler 60 Executive Vice President, Customer Service and

(1) Member of the Board of Directors.

QUARTERLY STOCK PRICES AND DIVIDENDS PAID PER SHARE

Common Stock Dividends

Q u arte r 2008 2007

Issuer Purchases of Equity Securities

Total Total Num be r of

ITEM 6. SELECTED FINANCIAL DATA

2008 2007 2006 2005 2004

COMMON STOCK DATA

BALANCE SHEET DATA

SELECTED FINANCIAL DATA

2008 2007 2006 2005 2004

BALANCE SHEET DATA

Liabilities and equity:

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS

PINNACLE WEST CONSOLIDATED –

2008 2007 2006

PINNACLE WEST CONSOLIDATED – RESULTS OF OPERATIONS

2008 Compared with 2007

Regulated Electricity Segment Revenues

Real Estate Segment Revenues

All Other Revenues

2007 Compared with 2006

Regulated Electricity Segment Revenues

Real Estate Segment Revenues

All Other Revenues