##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 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 File
    
    Registrants; State of Incorporation;
    
    IRS EmployerNumber
    
    Addresses; and Telephone Number
    
    Identification No.1-8962
    
    PINNACLE WEST CAPITAL CORPORATION
    
    86-0512431(An Arizona corporation)400 North Fifth Street, P.O. Box 53999Phoenix, Arizona 85072-3999(602) 250-10001-4473
    
    ARIZONA PUBLIC SERVICE COMPANY
    
    86-0011170(An Arizona corporation)400 North Fifth Street, P.O. Box 53999Phoenix, Arizona 85072-3999(602) 250-1000
 Securities registered pursuant to Section 12(b) of the Act:
 
 Title Of Each Class
    
    Name Of Each Exchange On Which RegisteredPINNACLE WEST CAPITAL CORPORATION
    
    Common Stock, No Par Value
    
    New York Stock ExchangeARIZONA PUBLIC SERVICE COMPANY
    
    None
    
    None
 
 Securities registered pursuant to Section 12(g) of the Act:
   PINNACLE WEST CAPITAL CORPORATION
    
    Yes þ
    
    No oARIZONA PUBLIC SERVICE COMPANY
    
    Yes þ
    
    No o
  PINNACLE WEST CAPITAL CORPORATION
    
    Yes o
    
    No þARIZONA PUBLIC SERVICE COMPANY
    
    Yes o
    
    No þ
  PINNACLE WEST CAPITAL CORPORATION
    
    Yes þ
    
    No oARIZONA PUBLIC SERVICE COMPANY
    
    Yes þ
    
    No o
  PINNACLE WEST CAPITAL CORPORATION
    
    Yes o
    
    No oARIZONA PUBLIC SERVICE COMPANY
    
    Yes o
    
    No o
 þ
   Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  PINNACLE WEST CAPITAL CORPORATION
    
    $3,035,693,863 as of June 30, 2009ARIZONA PUBLIC SERVICE COMPANY
    
    $0 as of June 30, 2009
  PINNACLE WEST CAPITAL CORPORATION
    
    101,445,202 sharesARIZONA 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.
 
   
 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.




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##### 



TABLE OF CONTENTS
 PageGLOSSARY OF NAMES AND TECHNICAL TERMS
    
    
    1FORWARD-LOOKING STATEMENTS
    
    
    2PART I
    
    
    3Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    22Item 1B. Unresolved Staff Comments
    
    
    33Item 2. Properties
    
    
    34Item 3. Legal Proceedings
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Executive Officers of Pinnacle West
    
    
    38PART II
    
    
    40Item 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    40Item 6. Selected Financial Data
    
    
    42Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    44Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    79Item 8. Financial Statements and Supplementary Data
    
    
    80Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    169Item 9A. Controls and Procedures
    
    
    169Item 9B. Other Information
    
    
    170PART III
    
    
    170Item 10. Directors, Executive Officers and Corporate Governance of Pinnacle West
    
    
    170Item 11. Executive Compensation
    
    
    170Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
    
    
    170Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    172Item 14. Principal Accountant Fees and Services
    
    
    172PART IV
    
    
    173Item 15. Exhibits and Financial Statement Schedules
    
    
    173SIGNATURES
    
    
    213
  This combined Form 10-K is separately filed by Pinnacle West and APS. 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. The information required with respect to each
company is set forth within the applicable items. Item 7 of this report is divided into two
sections  Pinnacle West Consolidated and APS. The Pinnacle West Consolidated section describes
Pinnacle West and its subsidiaries on a consolidated basis, including discussions of Pinnacle
Wests regulated utility and non-utility operations. 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, which only relate to APS Financial Statements.
  i




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ACC
    
    Arizona Corporation CommissionADEQ
    
    Arizona Department of Environmental QualityAFUDC
    
    Allowance for Funds Used During ConstructionANPP
    
    Arizona Nuclear Power Project, also known as Palo VerdeAPS
    
    Arizona Public Service Company, a subsidiary of the CompanyAPSES
    
    APS Energy Services Company, Inc., a subsidiary of the CompanyBase Fuel Rate
    
    The portion of APS retail base rates attributable to fuel and purchased power costsCholla
    
    Cholla Power PlantDOE
    
    United States Department of EnergyEl Dorado
    
    El Dorado Investment Company, a subsidiary of the CompanyEPA
    
    United States Environmental Protection AgencyFASB
    
    Financial Accounting Standards BoardFERC
    
    United States Federal Energy Regulatory CommissionFour Corners
    
    Four Corners Power PlantkV
    
    Kilovolt, one thousand voltskWh
    
    Kilowatt-hour, one thousand watts per hourMW
    
    Megawatt, one million wattsNative Load
    
    Retail and wholesale sales supplied under traditional cost-based rate regulationNavajo Plant
    
    Navajo Generating StationNRC
    
    United States Nuclear Regulatory CommissionOCI
    
    Other comprehensive incomePalo Verde
    
    Palo Verde Nuclear Generating StationPinnacle West
    
    Pinnacle West Capital Corporation (any use of the words Company, we, and our refer to Pinnacle West)Pinnacle West Marketing & Trading
    
    Pinnacle West Marketing & Trading Co., LLC, a subsidiary of the CompanyPRP
    
    Potentially responsible party under SuperfundPSA
    
    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 RateSalt River Project
    
    Salt River Project Agricultural Improvement and Power DistrictSunCor
    
    SunCor Development Company, a subsidiary of the CompanyTCA
    
    Transmission cost adjustorVIE
    
    Variable-interest entityWest Phoenix
    
    West Phoenix Power Plant




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FORWARD-LOOKING STATEMENTS
  
    
    regulatory and judicial decisions, developments and proceedings;
 
    
    our ability to achieve timely and adequate rate recovery of our costs;
 
    
    our ability to reduce capital expenditures and other costs while maintaining reliability
and customer service levels;
 
    
    variations in demand for electricity, including those due to weather, the general economy,
customer and sales growth (or decline), and the effects of energy conservation measures;
 
    
    power plant performance and outages;
 
    
    volatile fuel and purchased power costs;
 
    
    fuel and water supply availability;
 
    
    new legislation or regulation relating to greenhouse gas emissions, renewable energy
mandates and energy efficiency standards;
 
    
    our ability to meet renewable energy requirements and recover related costs;
 
    
    risks inherent in the operation of nuclear facilities, including spent fuel disposal
uncertainty;
 
    
    competition in retail and wholesale power markets;
 
    
    the duration and severity of the economic decline in Arizona and current credit, financial
and real estate market conditions;
 
    
    the cost of debt and equity capital and the ability to access capital markets when
required;
 
    
    restrictions on dividends or other burdensome provisions in our credit agreements and ACC
orders;
 
    
    our ability, or the ability of our subsidiaries, to meet debt service obligations;
 
    
    changes to our credit ratings;
 
    
    the investment performance of the assets of our nuclear decommissioning trust, pension, and
other postretirement benefit plans and the resulting impact on future funding requirements;
 
    
    liquidity of wholesale power markets and the use of derivative contracts in our business;
 
    
    potential shortfalls in insurance coverage;
 
    
    new accounting requirements or new interpretations of existing requirements;
 
    
    transmission and distribution system conditions and operating costs;
 
    
    the ability to meet the anticipated future need for additional baseload generation and
associated transmission facilities in our region;
 
    
    the ability of our counterparties and power plant participants to meet contractual or other
obligations;
 
    
    technological developments in the electric industry; and
 
    
    economic and other conditions affecting the real estate market in SunCors
market areas.
   2




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PART I
 
 ITEM 1. BUSINESS
 Pinnacle West
  Operating Revenues (in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007APS
    
    $
    3,149,500
    
    
    $
    3,133,496
    
    
    $
    2,936,277Percentage of Pinnacle West Consolidated
    
    96%
    
    
    95%
    
    
    89%
    BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
   3




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Energy Sources and Resource Planning
  Generation Facilities
  Coal Fueled Generating Facilities
 Four Corners
  4




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Cholla
 Navajo Generating Station
  Nuclear
 Palo Verde Nuclear Generating Station 
 Palo Verde Leases 
  5




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Palo Verde Operating Licenses 
 Palo Verde Fuel Cycle 
 
    
    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.
  Spent Nuclear Fuel and Waste Disposal 
 NRC Inspection 
   6




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Nuclear Decommissioning Costs
 Palo Verde Liability and Insurance Matters
 Natural Gas and Oil Fueled Generating Facilities
  Solar Facilities
  Purchased Power Contracts
  Purchased Power Capacity 
  7




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CONVENTIONAL AGREEMENTS:
 Type
    
    Dates Available
    
    Capacity (MW)Purchase Agreement (a)
    
    Year-round through December 2014
    
    Up to 90Purchase Agreement (b)
    
    Year-round through June 15, 2010
    
    238Exchange Agreement (c)
    
    May 15 to September 15 annually through 2020
    
    480Tolling Agreement
    
    June 2007 through May 2017
    
    500Tolling Agreement
    
    June 2010 through October 2019
    
    560Day-Ahead Call Option Agreement
    
    June 2007 through September 2015 (summer seasons)
    
    500Day-Ahead Call
Option Agreement
    
    June 2007 through summer 2016
    
    150Demand Response Agreement (d)
    
    2010 through 2024 (summer seasons)
    
    100
 (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. This contract is being replaced with a purchase
agreement for approximately 36MW starting June 15, 2010 and ending June 14, 2020.(c)
    
    This is a seasonal capacity exchange agreement under which APS receives electricity during
the summer peak season (from May 15 to September 15) and APS returns a like amount of
electricity during the winter season (from October 15 to February 15).(d)
    
    The capacity under this agreement increases in a phased manner over the first three years to
reach the 100 MW level by the summer of 2012. RENEWABLE AGREEMENTS:
 Type and Name
    
    Location
    
    Contract End Date
    
    Capacity (MW)Operating Facilities:WindAragonne Mesa
    
    Santa Rosa, NM
    
    2026
    
    90High Lonesome
    
    Mountainair, NM
    
    2039
    
    100GeothermalSalton Sea
    
    Imperial County, CA
    
    2029
    
    10BiomassWhite Mountain Power
    
    Snowflake, AZ
    
    2023
    
    10BiogasGlendale Landfill
    
    Glendale, AZ
    
    2030
    
    3Signed Agreements for
Other Facilities:SolarSolana (a)
    
    Gila Bend, AZ
    
    2043
    
    250Solar 1 (b)
    
    Ajo, AZ
    
    2036
    
    5Solar 2 (b)
    
    Buckeye, AZ
    
    2035
    
    6Solar 3 (b)
    
    Prescott, AZ
    
    2041
    
    10
 (a)
    
    Represents contracted capacity.(b)
    
    Details of these agreements have not yet been publicly announced.  8




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Current and Future Resources
 Current Demand and Reserve Margin
  Future Resources and Resource Plan
  st
  9




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Renewable Energy Standard
  2010
    
    
    2015
    
    
    2020
    
    
    2025RES as a % of retail electric sales
    
    
    2.5
    %
    
    
    5.0
    %
    
    
    10.0
    %
    
    
    15.0
    %Percent of RES to be supplied from distributed
energy resources
    
    
    20.0
    %
    
    
    30.0
    %
    
    
    30.0
    %
    
    
    30.0
    %APS RES commitment as a % of retail electric
sales per the retail rate case
settlement agreement
    
    
    
    
    
    
    10.0
    %
  Demand Side Management and Energy Efficiency
  Economic Stimulus Projects
    10




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Competitive Environment and Regulatory Oversight
 Retail
       11




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Wholesale
  Environmental Matters
 Climate Change
 Legislative and Regulatory Initiatives.
  H.R. 2454
    
    
    S. 1733Allowance Cost
    
    
    Annual Cost
    
    
    
    
    
    
    Annual Cost($ per metric ton)
    
    
    ($ in millions)
    
    
    Rate Impact
    
    
    ($ in millions)
    
    
    Rate Impact$
    20
    
    
    $
    68
    
    
    
    2%
    
    
    $
    101
    
    
    
    3%$
    50
    
    
    $
    170
    
    
    
    5%
    
    
    $
    252
    
    
    
    8%$
    75
    
    
    $
    255
    
    
    
    8%
    
    
    $
    379
    
    
    
    12%
   12




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2
   Regional Initiative .
  13




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Company Response to Climate Change Initiatives .
  (www.pinnaclewest.com)
 Climate Change Lawsuits.
   14




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EPA Environmental Regulation
 Regional Haze Rules.
      15




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Mercury and other Hazardous Air Pollutants.
  Federal Implementation Plan (FIP).
 Coal Combustion Waste.
 Section 114 Request .
  16




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Superfund . nd
  Manufactured Gas Plant Sites.
 Navajo Nation Environmental Issues
    17




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Water Supply
     18




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BUSINESS OF OTHER SUBSIDIARIES
 SunCor
    19




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APSES
   El Dorado
    20




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OTHER INFORMATION
  ApproximateNumber ofPrincipal Executive Office
    
    Year of
    
    
    Employees atAddress
    
    Incorporation
    
    
    December 31, 2009Pinnacle West
    
    400 North Fifth Street
    
    
    1985
    
    
    
    7,200
    (a)Phoenix, AZ 85004APS
    
    400 North Fifth Street
    
    
    1920
    
    
    
    6,800
    (b)P.O. Box 53999
Phoenix, AZ 85072-3999SunCor
    
    80 East Rio Salado Parkway
    
    
    1965
    
    
    
    260Suite 410
Tempe, AZ 85281APSES
    
    60 E. Rio Salado Parkway
    
    
    1998
    
    
    
    70Suite 1001
Tempe, AZ 85281El Dorado
    
    400 North Fifth Street
    
    
    1983
    
    
    
    Phoenix, AZ 85004
 (a)
    
    Includes 6,800 APS employees and 400 people employed by Pinnacle West and its
other subsidiaries.(b)
    
    Includes employees at jointly-owned generating facilities (approximately 3,300
employees) for which APS serves as the generating facility manager. Approximately
2,000 APS employees are union employees. The collective bargaining agreement with
union employees in the fossil generation and energy delivery business areas expires in
April 2011, and the parties will likely begin negotiating a successor agreement in
early 2011. The agreement with union employees serving as Palo Verde security officers
expires in 2013. WHERE TO FIND MORE INFORMATION
 www.pinnaclewest.com
   21




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ITEM 1A. RISK FACTORS
  REGULATORY RISKS
 Our financial condition depends upon APS ability to recover costs in a timely manner from
customers through regulated rates and otherwise execute its business strategy.
  APS ability to conduct its business operations and avoid fines and penalties depends upon
compliance with federal, state or local statutes and regulations, and obtaining and maintaining
certain regulatory permits, approvals and certificates.
 .
  22




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The operation of APS nuclear power plant exposes it to substantial regulatory oversight and
potentially significant liabilities and capital expenditures.
  APS is subject to numerous environmental laws and regulations, and changes in, or liabilities
under, existing or new laws or regulations may increase APS cost of operations or impact its
business plans.
  Environmental Clean Up.
 Regional Haze.
  23




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Coal Ash.
 New Source Review.
 Mercury and other Hazardous Air Pollutants.
  APS faces physical and operational risks related to climate change, and potential financial risks
resulting from climate change litigation and legislative and regulatory efforts to limit greenhouse
gas emissions.
 2
 Physical and Operational Risks.
  24




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Financial Risks  Potential Legislation and Regulation
 2
   If APS cannot meet or maintain the level of renewable energy required under Arizonas increasing
Renewable Energy Standards or the higher commitment levels established in the settlement agreement,
APS may be subject to penalties or fines for non-compliance.
   25




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Deregulation or restructuring of the electric industry may result in increased competition, which
could have a significant adverse impact on APS business and its results of operations.
    OPERATIONAL RISKS
 APS results of operations can be adversely affected by various factors impacting demand for
electricity.
 Weather Conditions.
   26




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Effects of Energy Conservation Measures and Distributed Energy.
  The operation of power generation facilities involves risks that could result in unscheduled power
outages or reduced output, which could materially affect APS results of operations .
  The lack of access to sufficient supplies of water could have a material adverse impact on APS
business and results of operations.
  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.
   27




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There are inherent risks in the ownership and operation of nuclear facilities, such as
environmental, health, fuel supply, spent fuel disposal, regulatory and financial risks and the
risk of terrorist attack.
   The use of derivative contracts in the normal course of our business could result in financial
losses that negatively impact our results of operations.
    28




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Changes in technology may adversely affect APS business.
   FINANCIAL RISKS
 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.
  
    
    continuation of the current economic downturn;
 
    
    terrorist attacks or threatened attacks on our facilities or those of unrelated
energy companies;
 
    
    mergers among financial institutions and the overall health of the banking industry;
or
 
    
    the overall health of the utility industry.
   29




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
    
    increasing the cost of future debt financing;
 
    
    reducing our credit ratings;
 
    
    increasing our vulnerability to adverse economic and industry conditions; and
 
    
    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.
 A reduction in our credit ratings could materially and adversely affect our business, financial
condition and results of operations.
  Market performance, changing interest rates and other economic factors could decrease the value of
our benefit plan assets and nuclear decommissioning trust funds and increase our related
obligations, resulting in significant additional funding that could negatively impact our business.
   30




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We may be required to adopt International Financial Reporting Standards (IFRS). The ultimate
adoption of such standards could negatively impact our business, financial condition or results of
operations.
  Our cash flow largely depends on the performance of our subsidiaries.
   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.
  The market price of our common stock may be volatile.
  
    
    variations in our quarterly operating results;
 
    
    operating results that vary from the expectations of management, securities analysts
and investors;
  31




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
    
    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.
  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.
  
    
    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;
 
    
    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.
   32




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SunCors
business and financial results would be adversely affected if it is unable to extend,
modify or renew its credit facilities or repay its debt through sales of its remaining assets.
       
 ITEM 1B. UNRESOLVED STAFF COMMENTS
 .
  33




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ITEM 2. PROPERTIES
 Generation Facilities
  Principal
    
    Primary
    
    OwnedNo. of
    
    %
    
    
    Fuels
    
    Dispatch
    
    CapacityName
    
    Units
    
    Owned (a)
    
    
    Used
    
    Type
    
    (MW)Nuclear:Palo Verde (b)
    
    3
    
    
    29.1
    %
    
    Uranium
    
    Base Load
    
    
    1,146Total Nuclear
    
    
    
    
    
    
    
    
    
    
    
    
    1,146Steam:Four Corners 1, 2, 3
    
    3
    
    
    
    
    
    Coal
    
    Base Load
    
    
    560Four Corners 4, 5 (c)
    
    2
    
    
    15
    %
    
    Coal
    
    Base Load
    
    
    225Cholla
    
    3
    
    
    
    
    
    Coal
    
    Base Load
    
    
    647Navajo (d)
    
    3
    
    
    14
    %
    
    Coal
    
    Base Load
    
    
    315Ocotillo
    
    2
    
    
    
    
    
    Gas
    
    Peaking
    
    
    220Saguaro
    
    2
    
    
    
    
    
    Gas/Oil
    
    Peaking
    
    
    210Total Steam
    
    
    
    
    
    
    
    
    
    
    
    
    2,177Combined Cycle:Redhawk
    
    2
    
    
    
    
    
    Gas
    
    Load Following
    
    
    984West Phoenix
    
    5
    
    
    
    
    
    Gas
    
    Load Following
    
    
    887Total Combined Cycle
    
    
    
    
    
    
    
    
    
    
    
    
    1,871Combustion Turbine:Ocotillo
    
    2
    
    
    
    
    
    Gas
    
    Peaking
    
    
    110Saguaro 1, 2
    
    2
    
    
    
    
    
    Gas/Oil
    
    Peaking
    
    
    110Saguaro 3
    
    1
    
    
    
    
    
    Gas
    
    Peaking
    
    
    79Douglas
    
    1
    
    
    
    
    
    Oil
    
    Peaking
    
    
    16Sundance
    
    10
    
    
    
    
    
    Gas
    
    Peaking
    
    
    420West Phoenix
    
    2
    
    
    
    
    
    Gas
    
    Peaking
    
    
    110Yucca 1, 2, 3
    
    3
    
    
    
    
    
    Gas/Oil
    
    Peaking
    
    
    93Yucca 4
    
    1
    
    
    
    
    
    Oil
    
    Peaking
    
    
    54Yucca 5, 6
    
    2
    
    
    
    
    
    Gas
    
    Peaking
    
    
    96Total Combustion Turbine
    
    
    
    
    
    
    
    
    
    
    
    
    1,088Solar:Multiple state-wide solar
facilities
    
    
    
    
    
    
    
    Solar
    
    Peaking
    
    
    6Total Solar
    
    
    
    
    
    
    
    
    
    
    
    
    6Total Capacity
    
    
    
    
    
    
    
    
    
    
    
    
    6,288
 (a)
    
    100% unless otherwise noted.(b)
    
    See Business of Arizona Public Service Company  Generation  Nuclear in Item 1 for
details regarding leased interests in Palo Verde. The other owners are Salt River Project
(17.5%), Southern California Edison (15.8%), El Paso Electric (15.8%), Public Service
Company of New Mexico (10.2%), Southern California Public Power Authority (5.9%), and Los
Angeles Department of Water & Power (5.7%).  34




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##### Table of Contents



(c)
    
    The other owners are Salt River Project (10%), Public Service Company of New Mexico
(13%), Southern California Edison (48%), Tucson Electric Power Company (1%) and El Paso
Electric (1%).(d)
    
    The other owners are Salt River Project (21.7%), Nevada Power Company (11.3%), the
United States Government (24.3%), Tucson Electric Power Company (7.5%) and Los Angeles
Department of Water & Power (21.2%).   Transmission and Distribution Facilities
 Current Facilities
 Percent Owned(Weighted Average)North Valley System
    
    
    65.9
    %Palo Verde  Estrella 500KV System
    
    
    55.5
    %Round Valley System
    
    
    50.0
    %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
    %
 Expansion.
   35




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##### Table of Contents



Plant and Transmission Line Leases and Easements on Indian Lands
   Real Estate Segment Properties
   36




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##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS
    
 ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
   37




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##### Table of Contents



EXECUTIVE OFFICERS OF PINNACLE WEST
  Name
    
    Age
    
    Position
    
    PeriodDonald E. Brandt
    
    55
    
    Chairman of the Board and Chief Executive
Officer of Pinnacle West; Chairman of the
Board of APS
    
    2009-PresentChief Executive Officer of APS
    
    2008-PresentPresident and Chief Operating Officer of
Pinnacle West
    
    2008-2009President of APS
    
    2006-2009Executive Vice President of Pinnacle West;
Chief Financial Officer of APS
    
    2003-2008Chief Financial Officer of Pinnacle West
    
    2002-2008Executive Vice President of APS
    
    2003-2006Donald G. Robinson
    
    56
    
    President and Chief Operating Officer of APS
    
    2009-PresentSenior Vice President, Planning and
Administration of APS
    
    2007-2009Vice President, Planning of APS
    
    2003-2007James R. Hatfield
    
    52
    
    Treasurer of Pinnacle West and APS
    
    2009-PresentSenior Vice President and Chief Financial
Officer of Pinnacle West and APS
    
    2008-PresentSenior Vice President and Chief Financial
Officer of OGE Energy Corp.
    
    1999-2008Denise R. Danner
    
    54
    
    Vice President, Controller and Chief
Accounting Officer of Pinnacle West; Chief Accounting Officer of APS
    
    2010-PresentVice President and Controller of APS
    
    2009-PresentSenior Vice President, Controller and Chief
Accounting Officer of Allied Waste Industries,
Inc.
    
    2007-2008Vice President, Controller and Chief
Accounting Officer of Phelps Dodge Corporation
    
    2004-2007Randall K. Edington
    
    56
    
    Executive Vice President and Chief Nuclear Officer of APS
    
    2007-PresentSenior Vice President and Chief Nuclear
Officer of APS
    
    2007Site Vice President and Chief Nuclear Officer
of Cooper Generating Station with Entergy
Corporation
    
    2003-2007
  38




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##### Table of Contents



Name
    
    Age
    
    Position
    
    PeriodDavid P. Falck
    
    56
    
    Executive Vice President, General Counsel and
Secretary of Pinnacle West and APS
    
    2009-PresentSenior Vice President  Law of Public Service
Enterprise Group Inc.
    
    2007-2009Partner  Pillsbury Winthrop Shaw Pittman LLP
    
    1987-2007Mark A. Schiavoni
    
    54
    
    Senior Vice President, Fossil Operations of APS
    
    2009-PresentSenior Vice President of Exelon Generation and
President of Exelon Power
    
    2004-2009Lori S. Sundberg
    
    46
    
    Vice President, Human Resources of APS
    
    2007-PresentVice President, Employee Relations, Safety,
Compliance & Embrace of American Express
Company
    
    2007Vice President, HR Relationship Leader, Global
Corporate Travel Division of American Express
Company
    
    2003-2007Steven M. Wheeler
    
    61
    
    Executive Vice President, Customer Service and
Regulation of APS
    
    2003-Present
  39




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##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
   Dividends2009
    
    High
    
    
    Low
    
    
    Close
    
    
    Per Share1st Quarter
    
    $
    35.13
    
    
    $
    22.32
    
    
    $
    26.56
    
    
    $
    0.5252nd Quarter
    
    
    30.30
    
    
    
    25.28
    
    
    
    30.15
    
    
    
    0.5253rd Quarter
    
    
    33.71
    
    
    
    28.87
    
    
    
    32.82
    
    
    
    0.5254th Quarter
    
    
    37.96
    
    
    
    31.08
    
    
    
    36.58
    
    
    
    0.525
 Dividends2008
    
    High
    
    
    Low
    
    
    Close
    
    
    Per Share1st Quarter
    
    $
    42.92
    
    
    $
    34.08
    
    
    $
    35.08
    
    
    $
    0.5252nd Quarter
    
    
    37.39
    
    
    
    30.26
    
    
    
    30.77
    
    
    
    0.5253rd Quarter
    
    
    37.88
    
    
    
    30.34
    
    
    
    34.41
    
    
    
    0.5254th Quarter
    
    
    35.83
    
    
    
    26.27
    
    
    
    32.13
    
    
    
    0.525
   Common Stock Dividends
(Dollars in Thousands)
 Quarter
    
    2009
    
    20081st Quarter
    
    $42,500
    
    $42,5002nd Quarter
    
    42,500
    
    42,5003rd Quarter
    
    42,500
    
    42,5004th Quarter
    
    42,500
    
    42,500
   40




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##### Table of Contents



Issuer Purchases of Equity Securities
  Total
    
    
    
    
    
    
    Total Number ofNumber of
    
    
    
    
    
    
    Shares Purchased
    
    
    Maximum Number ofShares
    
    
    Average
    
    
    as Part of Publicly
    
    
    Shares that May Yet BePurchased
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    (1)
    
    
    per Share
    
    
    or Programs
    
    
    Plans or ProgramsOctober 1 - October 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    November 1 - November 30, 2009
    
    
    35
    
    
    $
    33.46
    
    
    
    
    
    
    
    December 1 - December 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    35
    
    
    $
    33.46
    
    
    
    
    
    
    
    
 (1)
    
    Represents shares of common stock withheld by Pinnacle West to satisfy tax withholding
obligations upon the vesting of restricted stock.  41




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
PINNACLE WEST CAPITAL CORPORATION  CONSOLIDATED
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands, except per share amounts)OPERATING RESULTSOperating revenues:Regulated electricity segment
    
    $
    3,149,187
    
    
    $
    3,127,383
    
    
    $
    2,918,163
    
    
    $
    2,635,036
    
    
    $
    2,237,145Real estate segment
    
    
    103,152
    
    
    
    74,549
    
    
    
    189,726
    
    
    
    306,938
    
    
    
    280,204Marketing and trading
    
    
    
    
    
    
    66,897
    
    
    
    138,247
    
    
    
    136,748
    
    
    
    179,895Other revenues
    
    
    44,762
    
    
    
    41,729
    
    
    
    48,018
    
    
    
    36,172
    
    
    
    61,221Total operating revenues
    
    $
    3,297,101
    
    
    $
    3,310,558
    
    
    $
    3,294,154
    
    
    $
    3,114,894
    
    
    $
    2,758,465Income from continuing operations (a)
    
    $
    67,231
    
    
    $
    231,304
    
    
    $
    300,436
    
    
    $
    308,972
    
    
    $
    223,933Discontinued operations  net of income
taxes (b)
    
    
    (13,676
    )
    
    
    10,821
    
    
    
    6,707
    
    
    
    18,283
    
    
    
    (47,666
    )Net Income
    
    
    53,555
    
    
    
    242,125
    
    
    
    307,143
    
    
    
    327,255
    
    
    
    176,267Less: Net loss attributable to
noncontrolling interests
    
    
    (14,775
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income attributable to common shareholders
    
    $
    68,330
    
    
    $
    242,125
    
    
    $
    307,143
    
    
    $
    327,255
    
    
    $
    176,267COMMON STOCK DATABook value per share  year-end
    
    $
    32.69
    
    
    $
    34.16
    
    
    $
    35.15
    
    
    $
    34.48
    
    
    $
    34.58Earnings per weighted-average
common share outstanding:Continuing operations attributable to
common shareholders  basic
    
    $
    0.81
    
    
    $
    2.30
    
    
    $
    3.00
    
    
    $
    3.11
    
    
    $
    2.32Net income attributable to common
shareholders  basic
    
    $
    0.68
    
    
    $
    2.40
    
    
    $
    3.06
    
    
    $
    3.29
    
    
    $
    1.83Continuing operations attributable to
common shareholders  diluted
    
    $
    0.81
    
    
    $
    2.29
    
    
    $
    2.98
    
    
    $
    3.09
    
    
    $
    2.32Net income attributable to common
shareholders  diluted
    
    $
    0.67
    
    
    $
    2.40
    
    
    $
    3.05
    
    
    $
    3.27
    
    
    $
    1.82Dividends declared per share
    
    $
    2.10
    
    
    $
    2.10
    
    
    $
    2.10
    
    
    $
    2.025
    
    
    $
    1.925Weighted-average common shares
outstanding  basic
    
    
    101,160,659
    
    
    
    100,690,838
    
    
    
    100,255,807
    
    
    
    99,417,008
    
    
    
    96,483,781Weighted-average common shares
outstanding  diluted
    
    
    101,263,795
    
    
    
    100,964,920
    
    
    
    100,834,871
    
    
    
    100,010,108
    
    
    
    96,589,949BALANCE SHEET DATATotal assets
    
    $
    11,808,155
    
    
    $
    11,620,093
    
    
    $
    11,162,209
    
    
    $
    10,817,900
    
    
    $
    10,588,485Liabilities and equity:Current liabilities
    
    $
    1,083,160
    
    
    $
    1,505,928
    
    
    $
    1,344,449
    
    
    $
    923,338
    
    
    $
    1,608,863Long-term debt less current maturities
    
    
    3,370,524
    
    
    
    3,031,603
    
    
    
    3,127,125
    
    
    
    3,232,633
    
    
    
    2,608,455Deferred credits and other
    
    
    4,008,791
    
    
    
    3,589,194
    
    
    
    3,159,024
    
    
    
    3,215,813
    
    
    
    2,946,203Total liabilities
    
    
    8,462,475
    
    
    
    8,126,725
    
    
    
    7,630,598
    
    
    
    7,371,784
    
    
    
    7,163,521Total equity
    
    
    3,345,680
    
    
    
    3,493,368
    
    
    
    3,531,611
    
    
    
    3,446,116
    
    
    
    3,424,964Total liabilities and equity
    
    $
    11,808,155
    
    
    $
    11,620,093
    
    
    $
    11,162,209
    
    
    $
    10,817,900
    
    
    $
    10,588,485
 (a)
    
    Includes a $157 million after tax real estate impairment charge in 2009 (see Note 23). Also
includes regulatory disallowance of $8 million after tax in 2007 and $84 million after tax in
2005.(b)
    
    Amounts primarily related to SunCors real estate impairment charges (see Note 23),
Silverhawk Power Station (Silverhawk) and APSES discontinued operations (see Note
22).  42




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##### Table of Contents



SELECTED FINANCIAL DATA
ARIZONA PUBLIC SERVICE COMPANY
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(dollars in thousands)OPERATING RESULTSElectric operating revenues
    
    $
    3,149,500
    
    
    $
    3,133,496
    
    
    $
    2,936,277
    
    
    $
    2,658,513
    
    
    $
    2,270,793Fuel and purchased power costs
    
    
    1,178,620
    
    
    
    1,289,883
    
    
    
    1,151,392
    
    
    
    969,767
    
    
    
    688,982Other operating expenses
    
    
    1,533,037
    
    
    
    1,408,213
    
    
    
    1,358,890
    
    
    
    1,290,804
    
    
    
    1,200,198Operating income
    
    
    437,843
    
    
    
    435,400
    
    
    
    425,995
    
    
    
    397,942
    
    
    
    381,613Other income (deductions)
    
    
    13,893
    
    
    
    836
    
    
    
    20,870
    
    
    
    27,584
    
    
    
    (69,171
    )Interest deductions  net of
AFUDC
    
    
    200,511
    
    
    
    173,892
    
    
    
    162,925
    
    
    
    155,796
    
    
    
    141,963Net income
    
    $
    251,225
    
    
    $
    262,344
    
    
    $
    283,940
    
    
    $
    269,730
    
    
    $
    170,479BALANCE SHEET DATATotal assets
    
    $
    11,503,402
    
    
    $
    10,963,577
    
    
    $
    10,321,402
    
    
    $
    9,948,766
    
    
    $
    9,143,643Liabilities and equity:Common stock equity
    
    $
    3,445,355
    
    
    $
    3,339,150
    
    
    $
    3,351,441
    
    
    $
    3,207,473
    
    
    $
    2,985,225Long-term debt less current
maturities
    
    
    3,180,406
    
    
    
    2,850,242
    
    
    
    2,876,881
    
    
    
    2,877,502
    
    
    
    2,479,703Total capitalization
    
    
    6,625,761
    
    
    
    6,189,392
    
    
    
    6,228,322
    
    
    
    6,084,975
    
    
    
    5,464,928Current liabilities
    
    
    874,842
    
    
    
    1,267,768
    
    
    
    1,055,706
    
    
    
    806,556
    
    
    
    1,021,084Deferred credits and other
    
    
    4,002,799
    
    
    
    3,506,417
    
    
    
    3,037,374
    
    
    
    3,057,235
    
    
    
    2,657,631Total liabilities and equity
    
    $
    11,503,402
    
    
    $
    10,963,577
    
    
    $
    10,321,402
    
    
    $
    9,948,766
    
    
    $
    9,143,643
  43




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 INTRODUCTION
  OVERVIEW
  Areas of Business Focus
 Operational Performance and Reliability.
 Nuclear.
 Coal and Related Environmental Matters.
  44




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##### Table of Contents



Transmission and Delivery.
 Renewable
Energy.
  Rate Matters.
   45




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##### Table of Contents



Financial Strength and Flexibility.
 SunCor Real Estate Operations.
 Subsidiaries.
 Key Financial Drivers
  Electric Operating Revenues.
 Customer and Sales Growth.
  46




---



##### Table of Contents



Weather.
 Fuel and Purchased Power Costs.
 Operations and Maintenance Expenses .
 Depreciation and Amortization Expenses.
 Property Taxes.
  47




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##### Table of Contents



Income Taxes .
 Interest Expense.
 PINNACLE WEST CONSOLIDATED  RESULTS OF OPERATIONS
  
    
    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.
 Operating Results  2009 Compared with 2008
    48




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##### Table of Contents



Increase(Decrease)in NetIncomeYear Ended
    
    
    AttributableDecember 31,
    
    
    to Common2009
    
    
    2008
    
    
    Shareholders(dollars in millions)Regulated Electricity Segment:Operating revenues less fuel and
purchased power expenses
    
    $
    1,970
    
    
    $
    1,843
    
    
    $
    127Operations and maintenance
    
    
    (862
    )
    
    
    (796
    )
    
    
    (66
    )Depreciation and amortization
    
    
    (400
    )
    
    
    (383
    )
    
    
    (17
    )Taxes other than income taxes
    
    
    (123
    )
    
    
    (125
    )
    
    
    2Other income (expenses), net
    
    
    (1
    )
    
    
    (20
    )
    
    
    19Interest charges, net of capitalized
financing costs
    
    
    (199
    )
    
    
    (171
    )
    
    
    (28
    )Income taxes
    
    
    (142
    )
    
    
    (92
    )
    
    
    (50
    )Regulated electricity segment net
income
    
    
    243
    
    
    
    256
    
    
    
    (13
    )Real Estate Segment:Real estate impairment charges (a)
    
    
    (266
    )
    
    
    (53
    )
    
    
    (213
    )Other real estate operations
    
    
    (10
    )
    
    
    10
    
    
    
    (20
    )Income taxes
    
    
    109
    
    
    
    17
    
    
    
    92Real estate segment net loss
    
    
    (167
    )
    
    
    (26
    )
    
    
    (141
    )All Other (b)
    
    
    (8
    )
    
    
    12
    
    
    
    (20
    )Net Income Attributable to Common
Shareholders
    
    $
    68
    
    
    $
    242
    
    
    $
    (174
    )
 (a)
    
    See Note 23 for additional information on real estate impairment charges.(b)
    
    Includes activities related to marketing and trading, APSES and El Dorado.
Income for 2008 includes income from discontinued operations of $8 million related to
the resolution of certain tax issues associated with the sale of Silverhawk in 2005.
None of these segments is a reportable segment. Regulated electricity segment
   49




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##### Table of Contents



Operating revenues less fuel and purchased power expenses
  Increase (Decrease)PurchasedOperating
    
    
    power and fuelrevenues
    
    
    expenses
    
    
    Net change(dollars in millions)Higher renewable energy and demand-side
management surcharges (substantially
offset in operations and maintenance expense)
    
    $
    63
    
    
    $
    
    
    
    $
    63Interim retail rate increases effective
January 1, 2009
    
    
    61
    
    
    
    
    
    
    
    61Transmission rate increases
    
    
    21
    
    
    
    
    
    
    
    21Increased mark-to-market valuations of fuel and
purchased power contracts related to
favorable changes in market prices,
net of related PSA deferrals
    
    
    
    
    
    
    (18
    )
    
    
    18Effects of weather on retail sales, primarily
due to hotter weather in the third
quarter of 2009
    
    
    12
    
    
    
    3
    
    
    
    9Lower retail sales primarily due to lower
usage per customer, including the effects of
the Companys energy efficiency programs,
but excluding the effects of weather
    
    
    (58
    )
    
    
    (26
    )
    
    
    (32
    )Higher fuel and purchased power costs including
the effects of lower off-system sales, net
of related PSA deferrals
    
    
    (30
    )
    
    
    (19
    )
    
    
    (11
    )Lower retail revenues related to recovery of PSA
deferrals, offset by lower amortization of the
same amount recorded as fuel and purchased
power expense (see Note 3)
    
    
    (36
    )
    
    
    (36
    )
    
    
    Miscellaneous items, net
    
    
    (11
    )
    
    
    (9
    )
    
    
    (2
    )Total
    
    $
    22
    
    
    $
    (105
    )
    
    $
    127
 Operations and maintenance
 
    
    An increase of $62 million related to renewable energy and demand-side management
programs, which are offset in operating revenues;
 
    
    An increase of $29 million in generation costs, including more planned maintenance,
partially offset by lower costs at Palo Verde due to cost efficiency measures; and
 
    
    A decrease of $25 million associated with cost saving measures and other factors,
including the absence of employee severance costs in 2009.
  50




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##### Table of Contents



Depreciation and amortization
 Interest charges, net of capitalized financing costs
 Other income (expenses), net
 Income taxes
 Real estate segment
  
    
    An increase in real estate impairment charges of $213 million (see Note 23 for
details of the impairment charges);
 
    
    A decrease of $20 million in income from other real estate operations primarily due
to 2008 income from a commercial property sale; and
 
    
    An increase in income tax benefits of $92 million primarily because of a higher net
loss.
 All Other
  Operating Results  2008 Compared with 2007
   51




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##### Table of Contents



Increase(Decrease)in NetIncomeYear Ended
    
    
    AttributableDecember 31,
    
    
    to Common2008
    
    
    2007
    
    
    Shareholders(dollars in millions)Regulated Electricity Segment:Operating revenues less fuel and
purchased power expenses
    
    $
    1,843
    
    
    $
    1,777
    
    
    $
    66Operations and maintenance
    
    
    (796
    )
    
    
    (709
    )
    
    
    (87
    )Depreciation and amortization
    
    
    (383
    )
    
    
    (365
    )
    
    
    (18
    )Taxes other than income taxes
    
    
    (125
    )
    
    
    (128
    )
    
    
    3Other income (expenses), net
    
    
    (20
    )
    
    
    (6
    )
    
    
    (14
    )Interest charges, net of capitalized
financing costs
    
    
    (171
    )
    
    
    (156
    )
    
    
    (15
    )Income taxes
    
    
    (92
    )
    
    
    (139
    )
    
    
    47Regulated electricity segment net
income
    
    
    256
    
    
    
    274
    
    
    
    (18
    )Real Estate Segment:Real estate impairment charges (a)
    
    
    (53
    )
    
    
    
    
    
    
    (53
    )Other real estate operations
    
    
    10
    
    
    
    37
    
    
    
    (27
    )Income taxes
    
    
    17
    
    
    
    (14
    )
    
    
    31Real estate segment net income (loss)
    
    
    (26
    )
    
    
    23
    
    
    
    (49
    )All Other (b)
    
    
    12
    
    
    
    10
    
    
    
    2Net Income Attributable to Common
Shareholders
    
    $
    242
    
    
    $
    307
    
    
    $
    (65
    )
 (a)
    
    See Note 23 for additional information on real estate impairment
charges.(b)
    
    Includes activities related to marketing and trading, APSES and El Dorado.
Income for 2008 includes income from discontinued operations of $8 million related
to the resolution of certain tax issues associated with the sale of Silverhawk in
2005. None of these segments is a reportable segment.  52




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##### Table of Contents



Regulated electricity segment
  Operating revenues less fuel and purchased power expenses
  Increase (Decrease)PurchasedOperating
    
    
    power and fuelrevenues
    
    
    expenses
    
    
    Net change(dollars in millions)Retail rate increases effective
July 1, 2007
    
    $
    156
    
    
    $
    
    
    
    $
    156Deferred fuel and purchased power costs related
to higher base fuel rate
    
    
    
    
    
    
    141
    
    
    
    (141
    )Transmission rate increases
    
    
    31
    
    
    
    
    
    
    
    31Higher retail sales primarily due to
customer growth partially offset by
lower usage per customer,
but excluding the effects of weather
    
    
    29
    
    
    
    8
    
    
    
    21Higher renewable energy surcharges
(substantially offset in operations and
maintenance expense)
    
    
    14
    
    
    
    
    
    
    
    14Regulatory disallowance in 2007
    
    
    
    
    
    
    (14
    )
    
    
    14Revenues related to long-term traditional
wholesale contracts
    
    
    26
    
    
    
    14
    
    
    
    12Higher fuel and purchased power costs including
the effects of lower off-system sales, net
of related PSA deferrals
    
    
    38
    
    
    
    41
    
    
    
    (3
    )Lower mark-to-market valuations of fuel and
purchased power contracts related to
changes in market prices,
net of related PSA deferrals
    
    
    
    
    
    
    14
    
    
    
    (14
    )Effects of weather on retail sales
    
    
    (63
    )
    
    
    (20
    )
    
    
    (43
    )Lower retail revenues related to recovery of PSA
deferrals, offset by lower amortization of the
same amount recorded as fuel and purchased
power expense (see Note 3)
    
    
    (47
    )
    
    
    (47
    )
    
    
    Miscellaneous items, net
    
    
    25
    
    
    
    6
    
    
    
    19Total
    
    $
    209
    
    
    $
    143
    
    
    $
    66
  53




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##### Table of Contents



Operations and maintenance
 
    
    An increase of $30 million related to customer service and other costs including
distribution system reliability;
 
    
    An increase of $18 million in generation costs, including more planned maintenance;
 
    
    An increase of $14 million related to renewable energy programs, which are offset in
operating revenues;
 
    
    An increase of $9 million associated with employee severance costs in 2008; and
 
    
    An increase of $16 million due to other miscellaneous factors.
 Depreciation and amortization
 Interest charges, net of capitalized financing costs
 Other income (expenses), net
 Income taxes
 Real estate segment
  
    
    Real estate impairment charges of $53 million (see Note 23) without comparable
charges in the prior year;
 
    
    A decrease of $27 million from other real estate operations primarily due to
decreased land parcel sales in the 2008 period as a result of the weak real estate
market; and
    
    An increase in income tax benefits of $31 million primarily because of the net loss
recorded in 2008.
  54




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PINNACLE WEST CONSOLIDATED 
LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
  2009
    
    
    2008
    
    
    2007Net cash flow provided by operating activities
    
    $
    1,031
    
    
    $
    814
    
    
    $
    658Net cash flow used for investing activities
    
    
    (705
    )
    
    
    (815
    )
    
    
    (873
    )Net cash flow provided by (used for)
financing activities
    
    
    (286
    )
    
    
    51
    
    
    
    185Net increase (decrease) in cash and cash
equivalents
    
    $
    40
    
    
    $
    50
    
    
    $
    (30
    )
 2009 Compared with 2008
    2008 Compared with 2007
    55




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##### Table of Contents



Liquidity
 Capital Expenditure Requirements
  CAPITAL EXPENDITURES
 Actual
    
    
    Estimated2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012APSGeneration (a)
    
    $
    353
    
    
    $
    310
    
    
    $
    241
    
    
    $
    408
    
    
    $
    425
    
    
    $
    545Distribution
    
    
    372
    
    
    
    340
    
    
    
    246
    
    
    
    304
    
    
    
    344
    
    
    
    368Transmission
    
    
    138
    
    
    
    163
    
    
    
    193
    
    
    
    158
    
    
    
    169
    
    
    
    206Other (b)
    
    
    37
    
    
    
    43
    
    
    
    52
    
    
    
    84
    
    
    
    71
    
    
    
    48Subtotal
    
    
    900
    
    
    
    856
    
    
    
    732
    
    
    
    954
    
    
    
    1,009
    
    
    
    1,167Other (c)
    
    
    164
    
    
    
    48
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,064
    
    
    $
    904
    
    
    $
    745
    
    
    $
    954
    
    
    $
    1,009
    
    
    $
    1,167
 (a)
    
    Generation includes nuclear fuel expenditures of approximately $60 million to
$80 million per year for 2010, 2011 and 2012.(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.
   56




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##### Table of Contents



Pinnacle West (Parent Company)
         57




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##### Table of Contents



APS
    58




---



##### Table of Contents



Other Financing Matters 
    59




---



##### Table of Contents



Other Subsidiaries
 SunCor
      El Dorado
 APSES
 Debt Provisions
   60




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##### Table of Contents



Credit Ratings
  Moodys
    
    Standard & Poors
    
    FitchPinnacle WestSenior unsecured (a)
    
    Baa3 (P)
    
    BB+ (prelim)
    
    N/ACommercial paper
    
    P-3
    
    A-3
    
    F3Outlook
    
    Stable
    
    Stable
    
    NegativeAPSSenior unsecured
    
    Baa2
    
    BBB-
    
    BBBSecured lease
obligation bonds
    
    Baa2
    
    BBB-
    
    BBBCommercial paper
    
    P-2
    
    A-3
    
    F3Outlook
    
    Stable
    
    Stable
    
    Stable
 (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.  61




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##### Table of Contents



Off-Balance Sheet Arrangements
     Guarantees and Letters of Credit
    62




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##### Table of Contents



Contractual Obligations
  2011-
    
    
    2013-2010
    
    
    2012
    
    
    2014
    
    
    Thereafter
    
    
    TotalLong-term debt payments,
including interest: (a)APS
    
    $
    397
    
    
    $
    1,233
    
    
    $
    785
    
    
    $
    2,835
    
    
    $
    5,250SunCor
    
    
    81
    
    
    
    14
    
    
    
    2
    
    
    
    
    
    
    
    97Pinnacle West
    
    
    10
    
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    187Total long-term debt payments,
including interest and capital
lease obligations
    
    
    488
    
    
    
    1,424
    
    
    
    787
    
    
    
    2,835
    
    
    
    5,534Short-term debt payments,
including interest (b)
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Purchased power and fuel
commitments (c)
    
    
    444
    
    
    
    687
    
    
    
    947
    
    
    
    6,397
    
    
    
    8,475Operating lease payments (d)
    
    
    77
    
    
    
    141
    
    
    
    126
    
    
    
    73
    
    
    
    417Nuclear decommissioning funding
requirements
    
    
    24
    
    
    
    49
    
    
    
    49
    
    
    
    161
    
    
    
    283Renewable energy credits (e)
    
    
    48
    
    
    
    30
    
    
    
    30
    
    
    
    142
    
    
    
    250Purchase obligations (f)
    
    
    44
    
    
    
    62
    
    
    
    14
    
    
    
    165
    
    
    
    285Total contractual commitments
    
    $
    1,279
    
    
    $
    2,393
    
    
    $
    1,953
    
    
    $
    9,773
    
    
    $
    15,398
 (a)
    
    The long-term debt matures at various dates through 2038 and bears interest principally at
fixed rates. Interest on variable-rate long-term debt is determined by using average rates at
December 31, 2009 (see Note 6).(b)
    
    The short-term debt is primarily related to bank borrowings at Pinnacle West under its
revolving line 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 Notes 3 and 11).(d)
    
    Relates to the Palo Verde sale leaseback and other items (see Note 9).(e)
    
    Contracts to purchase renewable energy credits in compliance with the Renewable Energy
Standard.(f)
    
    These contractual obligations include commitments for capital expenditures and other
obligations.   63




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Regulatory Accounting
    Pensions and Other Postretirement Benefit Accounting
   64




---



##### Table of Contents



Increase (Decrease)Impact on
    
    
    Impact onPension
    
    
    PensionActuarial Assumption (a)
    
    Liability
    
    
    ExpenseDiscount rate:Increase 1%
    
    $
    (231
    )
    
    $
    (7
    )Decrease 1%
    
    
    260
    
    
    
    10Expected 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.  Increase (Decrease)Impact on Other
    
    
    Impact on OtherPostretirement Benefit
    
    
    PostretirementActuarial Assumption (a)
    
    Obligation
    
    
    Benefit ExpenseDiscount rate:Increase 1%
    
    $
    (96
    )
    
    $
    (5
    )Decrease 1%
    
    
    111
    
    
    
    5Health care cost trend
rate (b):Increase 1%
    
    
    110
    
    
    
    8Decrease 1%
    
    
    (89
    )
    
    
    (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.   65




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##### Table of Contents



Derivative Accounting
   Fair Value Measurements
   Real Estate Investment Impairments
   66




---



##### Table of Contents



OTHER ACCOUNTING MATTERS
   MARKET AND CREDIT RISKS
 Market Risks
  Interest Rate and Equity Risk
   67




---



##### Table of Contents



Pinnacle West  Consolidated
 Variable-Rate
    
    
    Fixed-RateShort-Term Debt
    
    
    Long-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest2009
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2010
    
    
    1.09
    %
    
    $
    153,715
    
    
    
    1.66
    %
    
    $
    276,636
    
    
    
    5.56
    %
    
    $
    1,0572011
    
    
    
    
    
    
    
    
    
    
    2.00
    %
    
    
    39,967
    
    
    
    6.23
    %
    
    
    576,2282012
    
    
    
    
    
    
    
    
    
    
    5.25
    %
    
    
    38
    
    
    
    6.30
    %
    
    
    446,4182013
    
    
    
    
    
    
    
    
    
    
    5.25
    %
    
    
    1,774
    
    
    
    5.75
    %
    
    
    32,2342014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.79
    %
    
    
    477,050Years thereafter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.48
    %
    
    
    1,804,000Total
    
    
    
    
    
    $
    153,715
    
    
    
    
    
    
    $
    318,415
    
    
    
    
    
    
    $
    3,336,987Fair value
    
    
    
    
    
    $
    153,715
    
    
    
    
    
    
    $
    318,415
    
    
    
    
    
    
    $
    3,463,960
 Variable-Rate
    
    
    Fixed-RateShort-Term Debt
    
    
    Long-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest2008
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2009
    
    
    2.24
    %
    
    $
    670,469
    
    
    
    3.88
    %
    
    $
    173,619
    
    
    
    4.62
    %
    
    $
    4,0272010
    
    
    
    
    
    
    
    
    
    
    3.99
    %
    
    
    2,042
    
    
    
    5.66
    %
    
    
    1,1372011
    
    
    
    
    
    
    
    
    
    
    6.22
    %
    
    
    2,259
    
    
    
    6.23
    %
    
    
    576,2502012
    
    
    
    
    
    
    
    
    
    
    6.00
    %
    
    
    16
    
    
    
    6.50
    %
    
    
    376,3382013
    
    
    
    
    
    
    
    
    
    
    6.00
    %
    
    
    1,864
    
    
    
    6.00
    %
    
    
    231Years thereafter
    
    
    
    
    
    
    
    
    
    
    8.30
    %
    
    
    539,145
    
    
    
    5.64
    %
    
    
    1,540,229Total
    
    
    
    
    
    $
    670,469
    
    
    
    
    
    
    $
    718,945
    
    
    
    
    
    
    $
    2,498,212Fair value
    
    
    
    
    
    $
    670,469
    
    
    
    
    
    
    $
    718,945
    
    
    
    
    
    
    $
    2,107,635
  68




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##### Table of Contents



APS
 Variable-Rate
    
    
    Fixed-RateShort-Term Debt
    
    
    Long-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest2009
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2010
    
    
    
    
    
    $
    
    
    
    
    0.25
    %
    
    $
    196,170
    
    
    
    5.60
    %
    
    $
    1,0062011
    
    
    
    
    
    
    
    
    
    
    0.26
    %
    
    
    26,710
    
    
    
    6.37
    %
    
    
    401,2012012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.30
    %
    
    
    446,3982013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.75
    %
    
    
    32,2322014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.79
    %
    
    
    477,050Years thereafter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.48
    %
    
    
    1,804,000Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    222,880
    
    
    
    
    
    
    $
    3,161,887Fair value
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    222,880
    
    
    
    
    
    
    $
    3,283,631
 Variable-Rate
    
    
    Fixed-RateShort-Term Debt
    
    
    Long-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest2008
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2009
    
    
    2.09
    %
    
    $
    521,684
    
    
    
    
    
    
    $
    
    
    
    
    5.62
    %
    
    $
    8742010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.60
    %
    
    
    1,0122011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.37
    %
    
    
    401,2082012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.50
    %
    
    
    376,3252013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.00
    %
    
    
    231Years thereafter
    
    
    
    
    
    
    
    
    
    
    8.30
    %
    
    
    539,145
    
    
    
    5.64
    %
    
    
    1,540,229Total
    
    
    
    
    
    $
    521,684
    
    
    
    
    
    
    $
    539,145
    
    
    
    
    
    
    $
    2,319,879Fair value
    
    
    
    
    
    $
    521,684
    
    
    
    
    
    
    $
    539,145
    
    
    
    
    
    
    $
    1,935,160
 Commodity Price Risk
   69




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##### Table of Contents



2009
    
    
    2008Mark-to-market of net positions at beginning of year
    
    $
    (282
    )
    
    $
    40Recognized in earnings:Change in mark-to-market losses for future
period deliveries
    
    
    (4
    )
    
    
    (4
    )Mark-to-market (gains) losses realized including
ineffectiveness during the period
    
    
    11
    
    
    
    (5
    )Decrease (increase) in regulatory asset
    
    
    76
    
    
    
    (111
    )Recognized in OCI:Change in mark-to-market losses for future
period deliveries (a)
    
    
    (155
    )
    
    
    (138
    )Mark-to-market (gains) losses realized during
the
period
    
    
    185
    
    
    
    (64
    )Change in valuation techniques
    
    
    
    
    
    
    Mark-to-market of net positions at end of year
    
    $
    (169
    )
    
    $
    (282
    )
 (a)
    
    The changes in mark-to-market recorded in OCI are due primarily to changes in
forward natural gas prices.  TotalYears
    
    
    fairSource of Fair Value
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    thereafter
    
    
    valuePrices actively quoted
    
    $
    (13
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (13
    )Prices provided by
other external sources
    
    
    (76
    )
    
    
    (59
    )
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146
    )Prices based on models
and other valuation
methods
    
    
    (4
    )
    
    
    (1
    )
    
    
    3
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (4
    )
    
    
    (10
    )Total by maturity
    
    $
    (93
    )
    
    $
    (60
    )
    
    $
    (8
    )
    
    $
    (2
    )
    
    $
    (2
    )
    
    $
    (4
    )
    
    $
    (169
    )
  70




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##### Table of Contents



December 31, 2009
    
    
    December 31, 2008Gain (Loss)
    
    
    Gain (Loss)Price Up 10%
    
    
    Price Down 10%
    
    
    Price Up 10%
    
    
    Price Down 10%Mark-to-market
changes reported
in:EarningsElectricity
    
    $
    1
    
    
    $
    (1
    )
    
    $
    2
    
    
    $
    (2
    )Natural gas
    
    
    1
    
    
    
    (1
    )
    
    
    3
    
    
    
    (3
    )Regulatory
asset
(liability) or
OCI (a)Electricity
    
    
    21
    
    
    
    (21
    )
    
    
    20
    
    
    
    (20
    )Natural gas
    
    
    59
    
    
    
    (59
    )
    
    
    64
    
    
    
    (64
    )Total
    
    $
    82
    
    
    $
    (82
    )
    
    $
    89
    
    
    $
    (89
    )
 (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
  ARIZONA PUBLIC SERVICE COMPANY  RESULTS OF OPERATIONS
 Regulatory Matters
  Operating Results  2009 Compared with 2008
    71




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IncreaseYear Ended
    
    
    (Decrease)December 31,
    
    
    in Net2009
    
    
    2008
    
    
    Income(dollars in millions)Operating revenues less fuel and
purchased
power expenses
    
    $
    1,971
    
    
    $
    1,844
    
    
    $
    127Operations and maintenance
    
    
    (853
    )
    
    
    (787
    )
    
    
    (66
    )Depreciation and amortization
    
    
    (399
    )
    
    
    (383
    )
    
    
    (16
    )Taxes other than income taxes
    
    
    (122
    )
    
    
    (124
    )
    
    
    2Other income (expenses), net
    
    
    (8
    )
    
    
    (25
    )
    
    
    17Interest charges, net of capitalized
financing costs
    
    
    (185
    )
    
    
    (155
    )
    
    
    (30
    )Income taxes
    
    
    (153
    )
    
    
    (108
    )
    
    
    (45
    )Net Income
    
    $
    251
    
    
    $
    262
    
    
    $
    (11
    )
  72




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Operating revenues less fuel and purchased power expenses
  Increase (Decrease)PurchasedOperating
    
    
    power and fuelrevenues
    
    
    expenses
    
    
    Net change(dollars in millions)Higher renewable energy and demand-side
management surcharges (substantially
offset in operations and maintenance expense)
    
    $
    63
    
    
    $
    
    
    
    $
    63Interim retail rate increases effective
January 1, 2009
    
    
    61
    
    
    
    
    
    
    
    61Transmission rate increases
    
    
    21
    
    
    
    
    
    
    
    21Increased mark-to-market valuations of fuel and
purchased power contracts related to
favorable changes in market prices,
net of related PSA deferrals
    
    
    
    
    
    
    (18
    )
    
    
    18Effects of weather on retail sales, primarily
due to hotter weather in the third
quarter of 2009
    
    
    12
    
    
    
    3
    
    
    
    9Lower retail sales primarily due to lower
usage per customer, including the effects of
the Companys energy efficiency programs,
but excluding the effects of weather
    
    
    (58
    )
    
    
    (26
    )
    
    
    (32
    )Higher fuel and purchased power costs including
the effects of lower off-system sales, net
of related PSA deferrals
    
    
    (30
    )
    
    
    (19
    )
    
    
    (11
    )Lower retail revenues related to recovery of PSA
deferrals, offset by lower amortization of the
same amount recorded as fuel and purchased
power expense (see Note 3)
    
    
    (36
    )
    
    
    (36
    )
    
    
    Miscellaneous items, net
    
    
    (17
    )
    
    
    (15
    )
    
    
    (2
    )Total
    
    $
    16
    
    
    $
    (111
    )
    
    $
    127
 Operations and maintenance
 
    
    An increase of $62 million related to renewable energy and demand-side management
programs, which are offset in operating revenues;
 
    
    An increase of $29 million in generation costs, including more planned maintenance,
partially offset by lower costs at Palo Verde due to cost efficiency measures; and
 
    
    A decrease of $25 million associated with cost saving measures and other factors,
including the absence of employee severance costs in 2009.
 Depreciation and amortization
  73




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Interest charges, net of capitalized financing costs
 Other income (expenses), net
 Income taxes
 Operating Results  2008 Compared with 2007
   74




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IncreaseYear Ended
    
    
    (Decrease)December 31,
    
    
    in Net2008
    
    
    2007
    
    
    Income(dollars in millions)Operating revenues less fuel and
purchased
power expenses
    
    $
    1,844
    
    
    $
    1,785
    
    
    $
    59Operations and maintenance
    
    
    (787
    )
    
    
    (710
    )
    
    
    (77
    )Depreciation and amortization
    
    
    (383
    )
    
    
    (365
    )
    
    
    (18
    )Taxes other than income taxes
    
    
    (124
    )
    
    
    (128
    )
    
    
    4Other income (expenses), net
    
    
    (25
    )
    
    
    (5
    )
    
    
    (20
    )Interest charges, net of capitalized
financing costs
    
    
    (155
    )
    
    
    (142
    )
    
    
    (13
    )Income taxes
    
    
    (108
    )
    
    
    (151
    )
    
    
    43Net income
    
    $
    262
    
    
    $
    284
    
    
    $
    (22
    )
  75




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Operating revenues less fuel and purchased power expenses
  Increase (Decrease)PurchasedOperating
    
    
    power and fuelrevenues
    
    
    expenses
    
    
    Net change(dollars in millions)Retail rate increases effective
July 1, 2007
    
    $
    156
    
    
    $
    
    
    
    $
    156Deferred fuel and purchased power costs related
to higher base fuel rate
    
    
    
    
    
    
    141
    
    
    
    (141
    )Transmission rate increases
    
    
    31
    
    
    
    
    
    
    
    31Higher retail sales primarily due to
customer growth partially offset by
lower usage per customer,
but excluding the effects of weather
    
    
    29
    
    
    
    8
    
    
    
    21Higher renewable energy surcharge (substantially
offset in operations and maintenance expense)
    
    
    14
    
    
    
    
    
    
    
    14Regulatory disallowance in 2007
    
    
    
    
    
    
    (14
    )
    
    
    14Revenues related to long-term traditional
wholesale contracts
    
    
    26
    
    
    
    14
    
    
    
    12Higher fuel and purchased power costs including
the effects of lower off-system sales, net
of related PSA deferrals
    
    
    38
    
    
    
    41
    
    
    
    (3
    )Lower mark-to-market valuations of fuel and
purchased power contracts related to
changes in market prices,
net of related PSA deferrals
    
    
    
    
    
    
    14
    
    
    
    (14
    )Effects of weather on retail sales
    
    
    (63
    )
    
    
    (20
    )
    
    
    (43
    )Lower retail revenues related to recovery of PSA
deferrals, offset by lower amortization of the
same amount recorded as fuel and purchased
power expense (see Note 3)
    
    
    (47
    )
    
    
    (47
    )
    
    
    Miscellaneous items, net
    
    
    13
    
    
    
    1
    
    
    
    12Total
    
    $
    197
    
    
    $
    138
    
    
    $
    59
 Operations and maintenance
 
    
    An increase of $30 million related to customer service and other costs including
distribution system reliability;
 
    
    An increase of $18 million in generation costs, including more planned maintenance;
 
    
    An increase of $14 million related to renewable energy programs, which are offset in
operating revenues;
 
    
    An increase of $9 million associated with employee severance costs in 2008; and
 
    
    An increase of $6 million due to other miscellaneous factors.
  76




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Depreciation and amortization
 Interest charges, net of capitalized financing costs
 Other income (expenses), net
 Income taxes
 ARIZONA PUBLIC SERVICE COMPANY  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
  2009
    
    
    2008
    
    
    2007Net cash flow provided by operating activities
    
    $
    959
    
    
    $
    785
    
    
    $
    766Net cash flow used for investing activities
    
    
    (738
    )
    
    
    (879
    )
    
    
    (881
    )Net cash flow provided by (used for)
financing activities
    
    
    (172
    )
    
    
    114
    
    
    
    86Net increase (decrease) in cash and cash
equivalents
    
    $
    49
    
    
    $
    20
    
    
    $
    (29
    )
 2009 Compared with 2008
     77




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2008 Compared with 2007
    Liquidity
  Contractual Obligations
  2011-
    
    
    2013-
    
    
    There-2010
    
    
    2012
    
    
    2014
    
    
    after
    
    
    TotalLong-term debt payments,
including interest (a)
    
    $
    397
    
    
    $
    1,233
    
    
    $
    785
    
    
    $
    2,835
    
    
    $
    5,250Purchased power and fuel
commitments (b)
    
    
    444
    
    
    
    687
    
    
    
    947
    
    
    
    6,397
    
    
    
    8,475Operating lease payments (c)
    
    
    70
    
    
    
    131
    
    
    
    120
    
    
    
    63
    
    
    
    384Nuclear decommissioning
funding requirements
    
    
    24
    
    
    
    49
    
    
    
    49
    
    
    
    161
    
    
    
    283Renewable energy credits (d)
    
    
    48
    
    
    
    30
    
    
    
    30
    
    
    
    142
    
    
    
    250Purchase obligations (e)
    
    
    44
    
    
    
    62
    
    
    
    14
    
    
    
    165
    
    
    
    285Total contractual
commitments
    
    $
    1,027
    
    
    $
    2,192
    
    
    $
    1,945
    
    
    $
    9,763
    
    
    $
    14,927
 (a)
    
    The long-term debt matures at various dates through 2038 and bears interest principally at
fixed rates. Interest on variable-rate long-term debt is determined by using average rates at
December 31, 2009 (see Note 6).(b)
    
    APS purchased power and fuel commitments include purchases of coal, electricity, natural
gas, renewable energy and nuclear fuel (see Notes 3 and 11).(c)
    
    Relates to the Palo Verde sale leaseback and other items (see Note 9).(d)
    
    Contracts to purchase renewable energy credits in compliance with the Renewable Energy
Standard.(e)
    
    These contractual obligations include commitments for capital expenditures and other
obligations.   78




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ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
   79




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 PageManagements Report on Internal Control Over Financial Reporting (Pinnacle West
Capital Corporation)
    
    
    81Report of Independent Registered Public Accounting Firm
    
    
    82Pinnacle West Consolidated Statements of Income for 2009, 2008 and 2007
    
    
    84Pinnacle West Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    85Pinnacle West Consolidated Statements of Cash Flows for 2009, 2008 and 2007
    
    
    87Pinnacle West Consolidated Statements of Changes in Common Stock Equity
for 2009, 2008 and 2007
    
    
    88Notes to Pinnacle Wests Consolidated Financial Statements
    
    
    89Managements Report on Internal Control Over Financial Reporting (Arizona
Public Service Company)
    
    
    150Report of Independent Registered Public Accounting Firm
    
    
    151APS Statements of Income for 2009, 2008 and 2007
    
    
    153APS Balance Sheets as of December 31, 2009 and 2008
    
    
    154APS Statements of Cash Flows for 2009, 2008 and 2007
    
    
    156APS Statements of Changes in Common Stock Equity for 2009, 2008 and 2007
    
    
    157Supplemental Notes to APS Financial Statements
    
    
    159Financial Statement Schedules for 2009, 2008 and 2007Pinnacle West Schedule I  Condensed Statements of Income for 2009, 2008
and 2007
    
    
    164Pinnacle West Schedule I  Condensed Balance Sheets as of December 31, 2009 and
2008
    
    
    165Pinnacle West Schedule I  Condensed Statements of Cash Flows for 2009, 2008
and 2007
    
    
    166Pinnacle West Schedule II  Reserve for Uncollectibles for 2009, 2008 and 2007
    
    
    167APS Schedule II  Reserve for Uncollectibles for 2009, 2008 and 2007
    
    
    168
   80




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MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
(PINNACLE WEST CAPITAL CORPORATION)
 Internal Control  Integrated Framework Internal Control  Integrated Framework,
   81




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated
Framework
    82




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Internal Control  Integrated Framework
  
  83




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF INCOME
  Year Ended December 31,2009
    
    
    2008
    
    
    2007OPERATING REVENUESRegulated electricity segment
    
    $
    3,149,187
    
    
    $
    3,127,383
    
    
    $
    2,918,163Real estate segment
    
    
    103,152
    
    
    
    74,549
    
    
    
    189,726Marketing and trading
    
    
    
    
    
    
    66,897
    
    
    
    138,247Other revenues
    
    
    44,762
    
    
    
    41,729
    
    
    
    48,018Total
    
    
    3,297,101
    
    
    
    3,310,558
    
    
    
    3,294,154OPERATING EXPENSESRegulated electricity segment fuel and purchased power
    
    
    1,178,620
    
    
    
    1,284,116
    
    
    
    1,140,923Real estate segment operations
    
    
    102,381
    
    
    
    100,102
    
    
    
    168,911Real estate impairment charge (Note 23)
    
    
    258,453
    
    
    
    18,108
    
    
    
    Marketing and trading fuel and
purchased power
    
    
    
    
    
    
    45,572
    
    
    
    100,462Operations and maintenance
    
    
    875,357
    
    
    
    807,852
    
    
    
    728,340Depreciation and amortization
    
    
    404,331
    
    
    
    390,093
    
    
    
    371,877Taxes other than income taxes
    
    
    123,663
    
    
    
    125,336
    
    
    
    128,210Other expenses
    
    
    32,523
    
    
    
    34,171
    
    
    
    38,925Total
    
    
    2,975,328
    
    
    
    2,805,350
    
    
    
    2,677,648OPERATING INCOME
    
    
    321,773
    
    
    
    505,208
    
    
    
    616,506OTHERAllowance for equity funds used during
construction
    
    
    14,999
    
    
    
    18,636
    
    
    
    21,195Other income (Note 19)
    
    
    5,669
    
    
    
    12,797
    
    
    
    25,362Other expense (Note 19)
    
    
    (14,269
    )
    
    
    (31,576
    )
    
    
    (25,857
    )Total
    
    
    6,399
    
    
    
    (143
    )
    
    
    20,700INTEREST EXPENSEInterest charges
    
    
    233,859
    
    
    
    215,684
    
    
    
    207,827Capitalized interest
    
    
    (10,745
    )
    
    
    (18,820
    )
    
    
    (23,063
    )Total
    
    
    223,114
    
    
    
    196,864
    
    
    
    184,764INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    105,058
    
    
    
    308,201
    
    
    
    452,442INCOME TAXES (Note 4)
    
    
    37,827
    
    
    
    76,897
    
    
    
    152,006INCOME FROM CONTINUING OPERATIONS
    
    
    67,231
    
    
    
    231,304
    
    
    
    300,436INCOME (LOSS) FROM DISCONTINUED OPERATIONSNet of income tax expense (benefit) of $(8,917),
$6,999 and $4,486 (Note 22)
    
    
    (13,676
    )
    
    
    10,821
    
    
    
    6,707NET INCOME
    
    
    53,555
    
    
    
    242,125
    
    
    
    307,143Less: Net loss attributable to noncontrolling interests
    
    
    (14,775
    )
    
    
    
    
    
    
    NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
    
    $
    68,330
    
    
    $
    242,125
    
    
    $
    307,143WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING  BASIC
    
    
    101,161
    
    
    
    100,691
    
    
    
    100,256WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING  DILUTED
    
    
    101,264
    
    
    
    100,965
    
    
    
    100,835EARNINGS PER WEIGHTED  AVERAGE COMMON SHARE OUTSTANDINGIncome from continuing operations attributable
to common shareholders 
basic
    
    $
    0.81
    
    
    $
    2.30
    
    
    $
    3.00Net income attributable to common
shareholders  basic
    
    
    0.68
    
    
    
    2.40
    
    
    
    3.06Income from continuing operations attributable
to common shareholders 
diluted
    
    
    0.81
    
    
    
    2.29
    
    
    
    2.98Net income attributable to common shareholders  diluted
    
    
    0.67
    
    
    
    2.40
    
    
    
    3.05DIVIDENDS DECLARED PER SHARE
    
    $
    2.10
    
    
    $
    2.10
    
    
    $
    2.10AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS:Income from continuing operations, net of tax
    
    $
    82,006
    
    
    $
    231,304
    
    
    $
    300,436Discontinued operations, net of tax
    
    
    (13,676
    )
    
    
    10,821
    
    
    
    6,707Net income attributable to common shareholders
    
    $
    68,330
    
    
    $
    242,125
    
    
    $
    307,143
   84




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
  December 31,2009
    
    
    2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    145,378
    
    
    $
    105,245Customer and other receivables
    
    
    301,915
    
    
    
    292,682Accrued utility revenues
    
    
    110,971
    
    
    
    100,089Allowance for doubtful accounts
    
    
    (6,153
    )
    
    
    (3,383
    )Materials and supplies (at average cost)
    
    
    176,020
    
    
    
    173,252Fossil fuel (at average cost)
    
    
    39,245
    
    
    
    29,752Deferred income taxes (Note 4)
    
    
    53,990
    
    
    
    79,729Income tax receivable
    
    
    26,005
    
    
    
    Home inventory (Notes 1 and 23)
    
    
    3,282
    
    
    
    50,688Assets from risk management activities (Note 18)
    
    
    50,619
    
    
    
    32,581Other current assets
    
    
    27,465
    
    
    
    21,847Total current assets
    
    
    928,737
    
    
    
    882,482INVESTMENTS AND OTHER ASSETSReal estate investments  net (Notes 1, 6 and 23)
    
    
    119,989
    
    
    
    415,296Assets from risk management activities (Note 18)
    
    
    28,855
    
    
    
    33,675Nuclear decommissioning trust (Note 12)
    
    
    414,576
    
    
    
    343,052Other assets
    
    
    110,091
    
    
    
    117,935Total investments and other assets
    
    
    673,511
    
    
    
    909,958PROPERTY, PLANT AND EQUIPMENT (Notes 1, 6,
9 and 10)Plant in service and held for future use
    
    
    12,848,138
    
    
    
    12,264,805Less accumulated depreciation and amortization
    
    
    (4,340,645
    )
    
    
    (4,141,546
    )Net
    
    
    8,507,493
    
    
    
    8,123,259Construction work in progress
    
    
    467,700
    
    
    
    572,354Intangible assets, net of accumulated amortization
of $294,724 and $282,196
    
    
    164,380
    
    
    
    131,722Nuclear fuel, net of accumulated amortization of
$64,544 and $55,343
    
    
    118,243
    
    
    
    89,323Total property, plant and equipment
    
    
    9,257,816
    
    
    
    8,916,658DEFERRED DEBITSDeferred fuel and purchased power regulatory asset
(Notes 1 and 3)
    
    
    
    
    
    
    7,984Other regulatory assets (Notes 1, 3 and 4)
    
    
    781,714
    
    
    
    787,506Income tax receivable
    
    
    65,103
    
    
    
    Other deferred debits
    
    
    101,274
    
    
    
    115,505Total deferred debits
    
    
    948,091
    
    
    
    910,995TOTAL ASSETS
    
    $
    11,808,155
    
    
    $
    11,620,093
   85




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PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
 December 31,2009
    
    
    2008LIABILITIES AND EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    240,637
    
    
    $
    261,029Accrued taxes
    
    
    104,011
    
    
    
    109,798Accrued interest
    
    
    54,596
    
    
    
    40,741Short-term borrowings (Note 5)
    
    
    153,715
    
    
    
    670,469Current maturities of long-term debt (Note 6)
    
    
    277,693
    
    
    
    177,646Customer deposits
    
    
    71,026
    
    
    
    78,745Liabilities from risk management activities (Note 18)
    
    
    55,908
    
    
    
    69,585Other current liabilities
    
    
    125,574
    
    
    
    97,915Total current liabilities
    
    
    1,083,160
    
    
    
    1,505,928LONG-TERM DEBT LESS CURRENT MATURITIES (Note 6)
    
    
    3,370,524
    
    
    
    3,031,603DEFERRED CREDITS AND OTHERDeferred income taxes (Note 4)
    
    
    1,496,095
    
    
    
    1,403,318Deferred fuel and purchased power regulatory liability
(Note 3)
    
    
    87,291
    
    
    
    Other regulatory liabilities (Notes 1 and 3)
    
    
    679,072
    
    
    
    587,586Liability for asset retirements (Note 12)
    
    
    301,783
    
    
    
    275,970Liabilities for pension and other postretirement
benefits (Note 8)
    
    
    811,338
    
    
    
    675,788Liabilities from risk management activities (Note 18)
    
    
    62,443
    
    
    
    126,532Customer advances
    
    
    136,595
    
    
    
    132,023Coal mine reclamation
    
    
    92,060
    
    
    
    91,201Unrecognized tax benefits
    
    
    142,099
    
    
    
    68,904Other
    
    
    200,015
    
    
    
    227,872Total deferred credits and other
    
    
    4,008,791
    
    
    
    3,589,194COMMITMENTS AND CONTINGENCIES (SEE NOTES)EQUITY (Note 7)Common stock, no par value; authorized
150,000,000 shares; issued 101,527,937 at
end of 2009 and 100,948,436 at end of 2008
    
    
    2,153,295
    
    
    
    2,151,323Treasury stock at cost; 93,239 shares at end of 2009
and 59,827 at end of 2008
    
    
    (3,812
    )
    
    
    (2,854
    )Total common stock
    
    
    2,149,483
    
    
    
    2,148,469Retained earnings
    
    
    1,298,213
    
    
    
    1,444,208Accumulated other comprehensive loss:Pension and other postretirement benefits (Note 8)
    
    
    (50,892
    )
    
    
    (47,547
    )Derivative instruments
    
    
    (80,695
    )
    
    
    (99,151
    )Total accumulated other comprehensive loss
    
    
    (131,587
    )
    
    
    (146,698
    )Total Pinnacle West shareholders equity
    
    
    3,316,109
    
    
    
    3,445,979Noncontrolling real estate interests
    
    
    29,571
    
    
    
    47,389Total equity
    
    
    3,345,680
    
    
    
    3,493,368TOTAL LIABILITIES AND EQUITY
    
    $
    11,808,155
    
    
    $
    11,620,093
   86




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet Income
    
    $
    53,555
    
    
    $
    242,125
    
    
    $
    307,143Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization including nuclear fuel
    
    
    443,160
    
    
    
    423,969
    
    
    
    403,896Deferred fuel and purchased power
    
    
    (51,742
    )
    
    
    (80,183
    )
    
    
    (196,136
    )Deferred fuel and purchased power amortization
    
    
    147,018
    
    
    
    183,126
    
    
    
    231,106Deferred fuel and purchased power regulatory disallowance
    
    
    
    
    
    
    
    
    
    
    14,370Allowance for equity funds used during construction
    
    
    (14,999
    )
    
    
    (18,636
    )
    
    
    (21,195
    )Real estate impairment charge
    
    
    280,188
    
    
    
    53,250
    
    
    
    Deferred income taxes
    
    
    105,492
    
    
    
    158,024
    
    
    
    (58,027
    )Change in mark-to-market valuations
    
    
    (6,939
    )
    
    
    9,074
    
    
    
    17,579Changes in current assets and liabilities:Customer and other receivables
    
    
    12,292
    
    
    
    73,446
    
    
    
    58,793Accrued utility revenues
    
    
    (10,882
    )
    
    
    7,388
    
    
    
    4,057Materials, supplies and fossil fuel
    
    
    (12,261
    )
    
    
    (25,453
    )
    
    
    (29,776
    )Other current assets
    
    
    (9,186
    )
    
    
    8,734
    
    
    
    (10,040
    )Accounts payable
    
    
    (27,328
    )
    
    
    (69,439
    )
    
    
    (42,004
    )Accrued taxes and income tax receivable  net
    
    
    (31,792
    )
    
    
    (13,149
    )
    
    
    20,764Home inventory
    
    
    33,833
    
    
    
    48,041
    
    
    
    (56,883
    )Other current liabilities
    
    
    29,274
    
    
    
    (5,130
    )
    
    
    22,657Expenditures for real estate investments
    
    
    (2,957
    )
    
    
    (21,168
    )
    
    
    (121,316
    )Other changes in real estate assets
    
    
    (4,216
    )
    
    
    18,211
    
    
    
    82,521Change in margin and collateral accounts  assets
    
    
    (12,806
    )
    
    
    17,450
    
    
    
    (37,371
    )Change in margin and collateral accounts  liabilities
    
    
    35,654
    
    
    
    (132,416
    )
    
    
    19,284Change in long term income tax receivable
    
    
    (131,984
    )
    
    
    
    
    
    
    Change in unrecognized tax benefits
    
    
    137,898
    
    
    
    (94,551
    )
    
    
    25,178Change in other regulatory liabilities
    
    
    110,642
    
    
    
    (12,129
    )
    
    
    7,133Change in other long-term assets
    
    
    (47,899
    )
    
    
    6,104
    
    
    
    (23,826
    )Change in other long-term liabilities
    
    
    7,050
    
    
    
    36,880
    
    
    
    40,029Net cash flow provided by operating activities
    
    
    1,031,065
    
    
    
    813,568
    
    
    
    657,936CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (764,609
    )
    
    
    (935,577
    )
    
    
    (960,390
    )Contributions in aid of construction
    
    
    53,525
    
    
    
    60,292
    
    
    
    41,809Capitalized interest
    
    
    (10,745
    )
    
    
    (18,820
    )
    
    
    (23,063
    )Proceeds from sale of investment securities
    
    
    
    
    
    
    
    
    
    
    69,225Purchases of investment securities
    
    
    
    
    
    
    
    
    
    
    (36,525
    )Proceeds from nuclear decommissioning trust sales
    
    
    441,242
    
    
    
    317,619
    
    
    
    259,026Investment in nuclear decommissioning trust
    
    
    (463,033
    )
    
    
    (338,361
    )
    
    
    (279,768
    )Proceeds from sale of commercial real estate investments
    
    
    43,370
    
    
    
    94,171
    
    
    
    58,139Other
    
    
    (4,667
    )
    
    
    5,517
    
    
    
    (1,807
    )Net cash flow used for investing activities
    
    
    (704,917
    )
    
    
    (815,159
    )
    
    
    (873,354
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    867,469
    
    
    
    96,934
    
    
    
    230,571Repayment and reacquisition of long-term debt
    
    
    (435,127
    )
    
    
    (181,491
    )
    
    
    (162,060
    )Short-term borrowings  net
    
    
    (516,754
    )
    
    
    331,741
    
    
    
    304,911Dividends paid on common stock
    
    
    (205,076
    )
    
    
    (204,247
    )
    
    
    (210,473
    )Common stock equity issuance
    
    
    3,302
    
    
    
    3,687
    
    
    
    24,089Other
    
    
    171
    
    
    
    3,891
    
    
    
    (2,509
    )Net cash flow provided by (used for) financing activities
    
    
    (286,015
    )
    
    
    50,515
    
    
    
    184,529NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    40,133
    
    
    
    48,924
    
    
    
    (30,889
    )CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
    
    
    105,245
    
    
    
    56,321
    
    
    
    87,210CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    145,378
    
    
    $
    105,245
    
    
    $
    56,321Supplemental disclosure of cash flow informationCash paid during the period for:Income taxes, net of (refunds)
    
    $
    (52,776
    )
    
    $
    24,233
    
    
    $
    204,643Interest, net of amounts capitalized
    
    $
    203,860
    
    
    $
    191,085
    
    
    $
    193,533
   87




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
  Year Ended December 31,2009
    
    
    2008
    
    
    2007COMMON STOCK (Note 7)Balance at beginning of year
    
    $
    2,151,323
    
    
    $
    2,135,787
    
    
    $
    2,114,550Issuance of common stock
    
    
    10,620
    
    
    
    10,845
    
    
    
    24,089Other
    
    
    (8,648
    )
    
    
    4,691
    
    
    
    (2,852
    )Balance at end of year
    
    
    2,153,295
    
    
    
    2,151,323
    
    
    
    2,135,787TREASURY STOCK (Note 7)Balance at beginning of year
    
    
    (2,854
    )
    
    
    (2,054
    )
    
    
    (449
    )Purchase of treasury stock
    
    
    (2,156
    )
    
    
    (1,387
    )
    
    
    (1,964
    )Reissuance of treasury stock used for stock
compensation
    
    
    1,198
    
    
    
    587
    
    
    
    359Balance at end of year
    
    
    (3,812
    )
    
    
    (2,854
    )
    
    
    (2,054
    )RETAINED EARNINGSBalance at beginning of year
    
    
    1,444,208
    
    
    
    1,413,741
    
    
    
    1,319,747Net income attributable to common shareholders
    
    
    68,330
    
    
    
    242,125
    
    
    
    307,143Common stock dividends
    
    
    (212,386
    )
    
    
    (211,405
    )
    
    
    (210,473
    )Cumulative effect of change in accounting
for income taxes (Note 4)
    
    
    
    
    
    
    
    
    
    
    (2,676
    )Other
    
    
    (1,939
    )
    
    
    (253
    )
    
    
    Balance at end of year
    
    
    1,298,213
    
    
    
    1,444,208
    
    
    
    1,413,741ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)Balance at beginning of year
    
    
    (146,698
    )
    
    
    (15,863
    )
    
    
    12,268Pension and other postretirement benefits (Note 8):Unrealized actuarial loss, net of tax benefit of
$(4,223), $(7,801) and $(13,573)
    
    
    (6,350
    )
    
    
    (11,053
    )
    
    
    (21,976
    )Prior service cost, net of tax benefit of $(495)
    
    
    
    
    
    
    
    
    
    
    (769
    )Amortization to income:Actuarial loss, net of tax benefit of $1,705,
$1,578 and $1,670
    
    
    2,615
    
    
    
    2,437
    
    
    
    2,214Prior service cost, net of tax benefit of
$215, $222 and $252
    
    
    329
    
    
    
    343
    
    
    
    391Transition obligation, net of tax benefit of
$39, $40 and $43
    
    
    61
    
    
    
    62
    
    
    
    67Derivative instruments:Net unrealized loss, net of tax
benefit of $(61,328), $(54,490) and $(414)
    
    
    (93,996
    )
    
    
    (83,093
    )
    
    
    (785
    )Reclassification of net realized (gain) loss to income, net
of tax (expense) benefit of $72,876, $(24,786)
and $(4,679)
    
    
    112,452
    
    
    
    (39,531
    )
    
    
    (7,273
    )Balance at end of year
    
    
    (131,587
    )
    
    
    (146,698
    )
    
    
    (15,863
    )NONCONTROLLING INTERESTSBalance at beginning of year
    
    
    47,389
    
    
    
    54,569
    
    
    
    49,682Net loss
    
    
    (14,775
    )
    
    
    
    
    
    
    Net capital activities by noncontrolling interests
    
    
    (2,632
    )
    
    
    (8,006
    )
    
    
    4,320Other
    
    
    (411
    )
    
    
    826
    
    
    
    567Balance at end of year
    
    
    29,571
    
    
    
    47,389
    
    
    
    54,569TOTAL EQUITY
    
    $
    3,345,680
    
    
    $
    3,493,368
    
    
    $
    3,586,180COMPREHENSIVE INCOME ATTRIBUTABLE TO
COMMON SHAREHOLDERSNet income attributable to common shareholders
    
    $
    68,330
    
    
    $
    242,125
    
    
    $
    307,143Other comprehensive income (loss)
    
    
    15,111
    
    
    
    (130,835
    )
    
    
    (28,131
    )Comprehensive income attributable to common shareholders
    
    $
    83,441
    
    
    $
    111,290
    
    
    $
    279,012
   88




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Summary of Significant Accounting Policies
 Consolidation and Nature of Operations
       89




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Accounting Records and Use of Estimates
  Derivative Accounting
   Fair Value Measurements
      90




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Regulatory Accounting
      December 31,2009
    
    
    2008Pension and other postretirement benefits
    
    $
    532
    
    
    $
    473Regulatory asset for deferred income taxes
    
    
    59
    
    
    
    51Deferred fuel and purchased power  mark-to-market
    
    
    41
    
    
    
    118Transmission vegetation management
    
    
    34
    
    
    
    20Deferred compensation
    
    
    31
    
    
    
    30Loss on reacquired debt
    
    
    23
    
    
    
    16Demand side management
    
    
    18
    
    
    
    17Coal reclamation
    
    
    16
    
    
    
    17Competition rules compliance charge (a)
    
    
    7
    
    
    
    16Deferred fuel and purchased power (a)
    
    
    
    
    
    
    8Other
    
    
    21
    
    
    
    29Total regulatory assets (b)
    
    $
    782
    
    
    $
    795
 (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.  91




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,2009
    
    
    2008Removal costs (a)
    
    $
    385
    
    
    $
    388Regulatory liability related to asset retirement
obligations
    
    
    156
    
    
    
    103Deferred fuel and purchased power (b)
    
    
    87
    
    
    
    Renewable energy standard
    
    
    51
    
    
    
    22Spent nuclear fuel
    
    
    34
    
    
    
    22Deferred gains on utility property
    
    
    20
    
    
    
    20Tax benefit of Medicare subsidy
    
    
    17
    
    
    
    16Deferred interest income (b)
    
    
    3
    
    
    
    8Other
    
    
    13
    
    
    
    9Total regulatory liabilities
    
    $
    766
    
    
    $
    588
 (a)
    
    In accordance with regulatory accounting guidance, 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
  
    
    material and labor;
 
    
    contractor costs;
 
    
    capitalized leases;
 
    
    construction overhead costs (where applicable); and
 
    
    capitalized interest or an allowance for funds used during construction.
    92




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
    
    Fossil plant  18 years;
 
    
    Nuclear plant  17 years;
 
    
    Other generation  29 years;
 
    
    Transmission  44 years;
 
    
    Distribution  32 years; and
 
    
    Other  8 years.
  Investments
   Capitalized Interest
  Allowance for Funds Used During Construction
   Electric Revenues
   93




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Allowance for Doubtful Accounts
  Real Estate Revenues
   94




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Real Estate Investments
     Cash and Cash Equivalents
  Nuclear Fuel
    95




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Income Taxes
  Intangible Assets
  2. New Accounting Standards
 Variable Interest Entities
  Fair Value Measurements and Disclosures
   
    
    Determining fair value when the volume and level of activity for the asset or
liability have significantly decreased and identifying transactions that are not
orderly.
 
    
    The recognition and presentation of other-than-temporary impairments.
 
    
    Interim disclosures about fair value of financial instruments.
  
    
    Measuring fair value of liabilities, which provides additional guidance on how fair
value measurements of liabilities should be determined.
 
    
    Measuring fair value of certain alternative investments. This guidance provides
clarification on the measurement and disclosure of investments in entities that
calculate net asset value.
  96




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Derivative Instruments
  Noncontrolling Interests
  Employers
Disclosure about Postretirement Benefit Plan Assets
  Subsequent Events
   97




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. Regulatory Matters
 2008 General Retail Rate Case Decision
     
    
    A non-fuel base rate increase in annual pretax revenues of $196.3 million;
 
    
    A net increase in annual pretax revenues of $11.2 million for fuel and purchased
power costs reflected in base rates that would not otherwise have been recoverable
under the PSA;
 
    
    A Base Fuel Rate of $0.0376 per kWh (compared to the prior Base Fuel Rate of $0.0325
per kWh);
 
    
    Revenue accounting treatment for line extension payments received for new or
upgraded service from January 1, 2010 through year end 2012 (or until new rates are
established in APS next general rate case, if that is before the end of 2012),
resulting in present estimates of increased revenues of $23 million, $25 million and
$49 million, respectively;
 
    
    An authorized return on common equity of 11.0%;
 
    
    A capital structure comprised of 46.2% debt and 53.8% common equity;
  98




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    
    A commitment from APS to reduce average annual operational expenses by at least $30
million from 2010 through 2014;
 
    
    Authorization and requirements of equity infusions into APS of at least $700 million
during the period beginning June 1, 2009 through December 31, 2014; and
 
    
    Various modifications to the existing energy efficiency, demand-side management and
renewable energy programs that require APS to, among other things, expand its
conservation and demand-side management programs and its use of renewable energy, as
well as allow for concurrent recovery of renewable energy expenses and provide for more
concurrent recovery of demand-side management costs and incentives.
 Cost Recovery Mechanisms
  Renewable Energy Standard.
  Demand-Side Management Adjustor Charge.
  99




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  PSA Mechanism and Balance.
 
    
    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 to the PSA rate is made annually each February 1st (unless
otherwise approved by the ACC) 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) a 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.
  100




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year EndedDecember 31,2009
    
    
    2008Beginning balance
    
    $
    8
    
    
    $
    111Deferred fuel and purchased power costs-current period
    
    
    52
    
    
    
    78Interest on deferred fuel and purchased power
    
    
    
    
    
    
    2Amounts recovered through revenues
    
    
    (147
    )
    
    
    (183
    )Ending balance
    
    $
    (87
    )
    
    $
    8
 st st
  Transmission Rates and Transmission Cost Adjustor .
  4. Income Taxes
   101




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     2009
    
    
    2008Total unrecognized tax benefits, January 1
    
    $
    63,318
    
    
    $
    157,869Additions for tax positions of the current year
    
    
    44,094
    
    
    
    12,923Additions for tax positions of prior years
    
    
    98,942
    
    
    
    32,510Reductions for tax positions of prior years for:Changes in judgment
    
    
    
    
    
    
    (4,454
    )Settlements with taxing authorities
    
    
    (4,089
    )
    
    
    (35,812
    )Lapses of applicable statute of limitations
    
    
    (1,049
    )
    
    
    (99,718
    )Total unrecognized tax benefits, December 31
    
    $
    201,216
    
    
    $
    63,318
      102




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    (38,502
    )
    
    $
    (85,866
    )
    
    $
    182,181State
    
    
    (38,080
    )
    
    
    11,738
    
    
    
    30,801Total current
    
    
    (76,582
    )
    
    
    (74,128
    )
    
    
    212,982Deferred:Income from continuing operations
    
    
    105,492
    
    
    
    158,024
    
    
    
    (56,147
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (343
    )Total deferred
    
    
    105,492
    
    
    
    158,024
    
    
    
    (56,490
    )Total income tax expense
    
    
    28,910
    
    
    
    83,896
    
    
    
    156,492Less: income tax expense (benefit) on
discontinued operations
    
    
    (8,917
    )
    
    
    6,999
    
    
    
    4,486Income tax expense  continuing
operations
    
    $
    37,827
    
    
    $
    76,897
    
    
    $
    152,006
  103




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Federal income tax expense at 35%
statutory rate
    
    $
    36,770
    
    
    $
    107,870
    
    
    $
    158,355Increases (reductions) in tax expense
resulting from:State income tax net of federal income
tax benefit
    
    
    3,662
    
    
    
    10,857
    
    
    
    17,078Credits and favorable adjustments
related to prior years resolved in
current year
    
    
    
    
    
    
    (28,873
    )
    
    
    (13,205
    )Medicare Subsidy Part-D
    
    
    (2,095
    )
    
    
    (1,993
    )
    
    
    (3,236
    )Allowance for equity funds used during
construction (see Note 1)
    
    
    (4,264
    )
    
    
    (5,755
    )
    
    
    (6,899
    )Other
    
    
    3,754
    
    
    
    (5,209
    )
    
    
    (87
    )Income tax expense  continuing operations
    
    $
    37,827
    
    
    $
    76,897
    
    
    $
    152,006
  December 31,2009
    
    
    2008Current asset
    
    $
    53,990
    
    
    $
    79,729Long-term liability
    
    
    (1,496,095
    )
    
    
    (1,403,318
    )Accumulated deferred income taxes  net
    
    $
    (1,442,105
    )
    
    $
    (1,323,589
    )
  104




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,2009
    
    
    2008DEFERRED TAX ASSETSRisk management activities
    
    $
    87,404
    
    
    $
    132,383Regulatory liabilities:Asset retirement obligation
    
    
    213,814
    
    
    
    194,326Deferred fuel and purchased power
    
    
    34,463
    
    
    
    Other
    
    
    21,613
    
    
    
    13,986Pension and other postretirement liabilities
    
    
    306,515
    
    
    
    281,053Deferred gain on Palo Verde Unit 2 sale
leaseback
    
    
    11,836
    
    
    
    12,665Real estate investments and assets held for
sale
    
    
    113,082
    
    
    
    23,469Other
    
    
    48,602
    
    
    
    78,210Total deferred tax assets
    
    
    837,329
    
    
    
    736,092DEFERRED TAX LIABILITIESPlant-related
    
    
    (1,951,262
    )
    
    
    (1,709,872
    )Risk management activities
    
    
    (20,863
    )
    
    
    (20,732
    )Regulatory assets:Allowance for equity funds used during
construction
    
    
    (23,285
    )
    
    
    (20,174
    )Deferred fuel and purchased power 
mark-to-market
    
    
    (16,167
    )
    
    
    (46,593
    )Pension and other postretirement benefits
    
    
    (210,080
    )
    
    
    (186,916
    )Other
    
    
    (57,210
    )
    
    
    (58,519
    )Other
    
    
    (567
    )
    
    
    (16,875
    )Total deferred tax liabilities
    
    
    (2,279,434
    )
    
    
    (2,059,681
    )Accumulated deferred income taxes  net
    
    $
    (1,442,105
    )
    
    $
    (1,323,589
    )
  105




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5. Lines of Credit and Short-Term Borrowing
  WeightedAmount
    
    
    
    
    
    
    Unused
    
    
    AverageCredit Facility
    
    Expiration
    
    Committed
    
    
    Borrowed
    
    
    Amount
    
    
    Interest Rate
    
    
    Commitment FeesPNW Revolving Credit Line
    
    December 2010
    
    $
    283
    
    
    $
    149
    
    
    $
    134
    
    

    0.982%

    
    
    0.15
    %APS Revolving Credit Line
    
    December 2010
    
    
    377
    
    
    
    
    
    
    
    377
    
    

    

    
    
    0.11
    %APS Revolving Credit Line
    
    September 2011
    
    
    489
    
    
    
    
    
    
    
    489
    
    

    

    
    
    0.10
    %Other SunCor 
Short-term
Borrowings
    
    January 2010
    
    
    
    
    
    
    5
    
    
    
    
    
    

    LIBOR plus 2.50%

    
    
    Total
    
    
    
    $
    1,149
    
    
    $
    154
    
    
    $
    1,000
    WeightedAmount
    
    
    
    
    
    
    Unused
    
    
    AverageCredit Facility
    
    Expiration
    
    Committed
    
    
    Borrowed
    
    
    Amount
    
    
    Interest Rate
    
    
    Commitment FeesPNW Revolving Credit Line
    
    December 2010
    
    $
    300
    
    
    $
    144
    
    
    $
    156
    
    

    2.713%

    
    
    0.15
    %APS Revolving Credit Line
    
    December 2010
    
    
    400
    
    
    
    38
    
    
    
    362
    
    

    1.00%

    
    
    0.11
    %APS Revolving Credit Line
    
    September 2011
    
    
    500
    
    
    
    484
    
    
    
    16
    
    

        2.18%

    
    
    0.10
    %Other SunCor
Short-term
Borrowings
    
    January 2010
    
    
    
    
    
    
    4
    
    
    
    
    
    

    LIBOR plus 2.50%

    
    
    Total
    
    
    
    $
    1,200
    
    
    $
    670
    
    
    $
    534
    106




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Other Short-term Borrowings
   107




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6. Long-Term Debt and Liquidity Matters
  Maturity
    
    Interest
    
    
    December 31,Dates (a)
    
    Rates
    
    
    2009
    
    
    2008APSPollution control bonds  Variable
    
    2024-2038
    
    
    
    (b)
    
    $
    222,880
    
    
    $
    539,145Pollution control bonds  Fixed
    
    2029-2034
    
    
    
    (c)
    
    
    342,975
    
    
    
    Pollution control bonds with senior
notes
    
    2029
    
    
    5.05
    %
    
    
    90,000
    
    
    
    90,000Unsecured notes
    
    2011
    
    
    6.375
    %
    
    
    400,000
    
    
    
    400,000Unsecured notes
    
    2012
    
    
    6.50
    %
    
    
    375,000
    
    
    
    375,000Unsecured notes
    
    2014
    
    
    5.80
    %
    
    
    300,000
    
    
    
    300,000Unsecured notes
    
    2015
    
    
    4.650
    %
    
    
    300,000
    
    
    
    300,000Unsecured notes
    
    2016
    
    
    6.25
    %
    
    
    250,000
    
    
    
    250,000Unsecured notes (d)
    
    2019
    
    
    8.75
    %
    
    
    500,000
    
    
    
    Unsecured notes
    
    2033
    
    
    5.625
    %
    
    
    200,000
    
    
    
    200,000Unsecured notes
    
    2035
    
    
    5.50
    %
    
    
    250,000
    
    
    
    250,000Unsecured notes
    
    2036
    
    
    6.875
    %
    
    
    150,000
    
    
    
    150,000Secured note
    
    2014
    
    
    6.00
    %
    
    
    1,075
    
    
    
    1,258Unamortized discount and premium
    
    
    
    
    
    
    
    
    (7,185
    )
    
    
    (7,908
    )Capitalized lease obligations
    
    2010-2012
    
    
    
    (e)
    
    
    2,837
    
    
    
    3,621Subtotal (f)
    
    
    
    
    
    
    
    
    3,377,582
    
    
    
    2,851,116SUNCORNotes payable
    
    2010-2013
    
    
    
    (g)
    
    
    95,535
    
    
    
    182,804Capitalized lease obligations
    
    2010-2012
    
    
    
    (h)
    
    
    100
    
    
    
    329Subtotal
    
    
    
    
    
    
    
    
    95,635
    
    
    
    183,133PINNACLE WESTSenior notes
    
    2011
    
    
    5.91
    %
    
    
    175,000
    
    
    
    175,000Total long-term debt
    
    
    
    
    
    
    
    
    3,648,217
    
    
    
    3,209,249Less current maturities:APS
    
    
    
    
    
    
    
    
    197,176
    
    
    
    874SunCor
    
    
    
    
    
    
    
    
    80,517
    
    
    
    176,772Pinnacle West
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    277,693
    
    
    
    177,646TOTAL LONG-TERM DEBT LESS
CURRENT
MATURITIES
    
    
    
    
    
    
    
    $
    3,370,524
    
    
    $
    3,031,603
 (a)
    
    This schedule does not reflect the timing of redemptions that may occur prior to maturities.(b)
    
    The weighted-average rate for the variable rate pollution control bonds was 0.25% at December
31, 2009 and 8.30% at December 31, 2008. The 2008 weighted average rate included rates
associated with debt securities in auction rate mode. See discussion of the refinancing of
pollution control bonds below.(c)
    
    The bonds fixed rate of interest range from 5.00% to 6.00% and are subject to mandatory
tender dates. Refer to the discussion below on Pollution Control Bonds.(d)
    
    On February 26, 2009, APS issued $500 million of 8.75% unsecured senior notes that mature on
March 1, 2019.(e)
    
    The weighted-average interest rate was 5.50% at December 31, 2009 and 5.51% at December 31,
2008.  108




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (f)
    
    APS long-term debt less current maturities was $3.180 billion at December 31, 2009 and
$2.850 billion at December 31, 2008. APS current maturities of long-term debt was $197
million at December 31, 2009 and $1 million at December 31, 2008.(g)
    
    SunCor had $57 million outstanding at December 31, 2009 and $120 million at December 31, 2008
under its secured revolver that matured on January 30, 2010. The weighted-average interest
rates were 5.00% at December 31, 2009 and 4.19% at December 31, 2008. At December 31, 2009
and December 31, 2008 approximately $39 million and $63 million of other debt remained
outstanding under other long-term credit facilities. The remaining debt which is primarily
classified as current maturities of long-term debt consisted of multiple notes with variable
interest rates of prime plus 2.0% and LIBOR plus 1.70%, 2.0%, 2.25% and 2.50% at December 31,
2009. At December 31, 2008, the remaining debt consisted of multiple notes with variable
interest rates of prime plus 1.75% and 2.00% and LIBOR plus 1.70%, 2.00%, 2.25%, 2.50% and a
fixed rate note of 4.25%. See below for further discussion of SunCor debt.(h)
    
    The weighted-average interest rate was 4.9% at December 31, 2009 and 6.2% at December 31,
2008. Debt Issuances
 Unsecured Senior Notes
  Pollution Control Bonds
   109




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Navajo County, AZ
    
    Coconino County, AZ
    
    Maricopa County, AZPollution Control
    
    Pollution Control
    
    Pollution ControlIssuer
    
    Corporation (1)
    
    Corporation (2)
    
    Corporation (3)Issuance Date
    
    May 28, 2009
    
    May 28, 2009
    
    June 26, 2009Due Date
    
    June 1, 2034
    
    June 1, 2034
    
    May 1, 2029Bond series details
    
    Series A  5.00%
    
    Series A  5.50%
    
    Series A  6.00%(series, fixed
    
    $38 million
    
    $13 million
    
    $36 millioninterest rate,
    
    June 1, 2012
    
    June 1, 2014
    
    May 1, 2014amount, reset date)Series B  5.50%
    
    
    
    Series B  5.50%$32 million
    
    
    
    $32 millionJune 1, 2014
    
    
    
    May 1, 2012Series C  5.50%
    
    
    
    Series C  5.75%$32 million
    
    
    
    $32 millionJune 1, 2014
    
    
    
    May 1, 2013Series D  5.75%
    
    
    
    Series D  6.00%$32 million
    
    
    
    $32 millionJune 1, 2016
    
    
    
    May 1, 2014Series E  5.75%,
    
    
    
    Series E  6.00%$32 million
    
    
    
    $32 millionJune 1, 2016
    
    
    
    May 1, 2014Total
    
    $166 million
    
    $13 million
    
    $164 million
 (1)
    
    Issued to redeem all of approximately $166 million of the Navajo County, Arizona Pollution
Control Corporation Pollution Control Revenue Refunding Bonds 2004 Series A-E, due 2034.(2)
    
    Issued to redeem all of approximately $13 million of the Coconino County, Arizona Pollution
Control Corporation Pollution Control Revenue Refunding Bonds 2004 Series A, due 2034.(3)
    
    Issued to redeem all of approximately $164 million of the Maricopa County, Arizona Pollution
Control Corporation Pollution Control Revenue Refunding Bonds 2005 Series A-E, due 2029.   110




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Debt Provisions
      111




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 SunCor
       Pinnacle West-Year
    
    Consolidated
    
    
    APS2010
    
    $
    278
    
    
    $
    1972011
    
    
    616
    
    
    
    4282012
    
    
    446
    
    
    
    4462013
    
    
    33
    
    
    
    322014
    
    
    477
    
    
    
    477Thereafter
    
    
    1,805
    
    
    
    1,805Total
    
    $
    3,655
    
    
    $
    3,385
  112




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7. Common Stock and Treasury Stock
  Common Stock
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at December 31, 2006
    
    
    99,961,066
    
    
    $
    2,114,550
    
    
    
    (2,419
    )
    
    $
    (449
    )Common stock issuance
    
    
    564,404
    
    
    
    24,089
    
    
    
    
    
    
    
    Purchase of treasury stock (a)
    
    
    
    
    
    
    
    
    
    
    (47,218
    )
    
    
    (1,964
    )Reissuance of treasury stock
for stock compensation
    
    
    
    
    
    
    
    
    
    
    10,132
    
    
    
    359Other
    
    
    
    
    
    
    (2,852
    )
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    100,525,470
    
    
    
    2,135,787
    
    
    
    (39,505
    )
    
    
    (2,054
    )Common stock issuance
    
    
    422,966
    
    
    
    10,845
    
    
    
    
    
    
    
    Purchase of treasury stock (a)
    
    
    
    
    
    
    
    
    
    
    (39,022
    )
    
    
    (1,387
    )Reissuance of treasury stock
for stock compensation
    
    
    
    
    
    
    
    
    
    
    18,700
    
    
    
    587Other
    
    
    
    
    
    
    4,691
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    100,948,436
    
    
    
    2,151,323
    
    
    
    (59,827
    )
    
    
    (2,854
    )Common stock issuance
    
    
    579,501
    
    
    
    10,620
    
    
    
    
    
    
    
    Purchase of treasury stock (a)
    
    
    
    
    
    
    
    
    
    
    (66,173
    )
    
    
    (2,156
    )Reissuance of treasury stock
for stock compensation
    
    
    
    
    
    
    
    
    
    
    32,761
    
    
    
    1,198Other
    
    
    
    
    
    
    (8,648
    )
    
    
    
    
    
    
    Balance at December 31, 2009
    
    
    101,527,937
    
    
    $
    2,153,295
    
    
    
    (93,239
    )
    
    $
    (3,812
    )
 (a)
    
    Represents shares of common stock withheld from certain stock awards for tax purposes. 8. Retirement Plans and Other Benefits
    113




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Pension
    
    
    Other Benefits2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007Service cost-benefits
earned during the
period
    
    $
    54,288
    
    
    $
    54,576
    
    
    $
    51,803
    
    
    $
    18,285
    
    
    $
    17,793
    
    
    $
    18,491Interest cost on
benefit obligation
    
    
    118,282
    
    
    
    110,207
    
    
    
    100,736
    
    
    
    39,180
    
    
    
    37,897
    
    
    
    35,284Expected return on
plan assets
    
    
    (116,535
    )
    
    
    (118,309
    )
    
    
    (107,165
    )
    
    
    (34,428
    )
    
    
    (43,609
    )
    
    
    (42,177
    )Amortization of:Transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,005
    
    
    
    3,005
    
    
    
    3,005Prior service cost
(credit)
    
    
    2,080
    
    
    
    2,455
    
    
    
    2,957
    
    
    
    (125
    )
    
    
    (125
    )
    
    
    (125
    )Net actuarial loss
    
    
    14,216
    
    
    
    11,145
    
    
    
    16,331
    
    
    
    10,320
    
    
    
    2,372
    
    
    
    3,929Net periodic benefit
cost
    
    $
    72,331
    
    
    $
    60,074
    
    
    $
    64,662
    
    
    $
    36,237
    
    
    $
    17,333
    
    
    $
    18,407Portion of cost
charged to expense
    
    $
    36,484
    
    
    $
    28,854
    
    
    $
    28,063
    
    
    $
    18,278
    
    
    $
    8,325
    
    
    $
    7,989APS share of cost
charged to expense
    
    $
    34,850
    
    
    $
    27,491
    
    
    $
    26,548
    
    
    $
    17,459
    
    
    $
    7,932
    
    
    $
    7,557
  114




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Pension
    
    
    Other Benefits2009
    
    
    2008
    
    
    2009
    
    
    2008Change in Benefit ObligationBenefit obligation at January 1
    
    $
    1,884,656
    
    
    $
    1,720,844
    
    
    $
    655,265
    
    
    $
    605,125Service cost
    
    
    54,288
    
    
    
    54,576
    
    
    
    18,285
    
    
    
    17,793Interest cost
    
    
    118,282
    
    
    
    110,207
    
    
    
    39,180
    
    
    
    37,897Benefit payments
    
    
    (77,577
    )
    
    
    (62,058
    )
    
    
    (18,959
    )
    
    
    (17,566
    )Actuarial loss
    
    
    94,482
    
    
    
    61,087
    
    
    
    6,764
    
    
    
    12,016Benefit obligation at December 31
    
    
    2,074,131
    
    
    
    1,884,656
    
    
    
    700,535
    
    
    
    655,265Change in Plan AssetsFair value of plan assets at
January 1
    
    
    1,430,372
    
    
    
    1,318,939
    
    
    
    429,306
    
    
    
    499,764Actual return on plan assets
    
    
    96,511
    
    
    
    132,449
    
    
    
    61,101
    
    
    
    (64,364
    )Employer contributions
    
    
    
    
    
    
    35,000
    
    
    
    15,506
    
    
    
    10,972Benefit payments
    
    
    (65,075
    )
    
    
    (56,016
    )
    
    
    (15,458
    )
    
    
    (17,066
    )Fair value of plan assets at
December 31
    
    
    1,461,808
    
    
    
    1,430,372
    
    
    
    490,455
    
    
    
    429,306Funded Status at December 31
    
    $
    (612,323
    )
    
    $
    (454,284
    )
    
    $
    (210,080
    )
    
    $
    (225,959
    )
  2009
    
    
    2008Projected benefit obligation
    
    $
    2,074,131
    
    
    $
    1,884,656Accumulated benefit obligation
    
    
    1,824,661
    
    
    
    1,631,909Fair value of plan assets
    
    
    1,461,808
    
    
    
    1,430,372
  Pension
    
    
    Other Benefits2009
    
    
    2008
    
    
    2009
    
    
    2008Current asset
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,221Current liability
    
    
    (11,065
    )
    
    
    (5,676
    )
    
    
    
    
    
    
    Noncurrent liability
    
    
    (601,258
    )
    
    
    (448,608
    )
    
    
    (210,080
    )
    
    
    (227,180
    )Net amount recognized
    
    $
    (612,323
    )
    
    $
    (454,284
    )
    
    $
    (210,080
    )
    
    $
    (225,959
    )
  115




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Pension
    
    
    Other Benefits2009
    
    
    2008
    
    
    2009
    
    
    2008Net actuarial loss
    
    $
    404,619
    
    
    $
    304,335
    
    
    $
    194,301
    
    
    $
    224,624Prior service cost (credit)
    
    
    7,865
    
    
    
    9,946
    
    
    
    (794
    )
    
    
    (920
    )Transition obligation
    
    
    
    
    
    
    
    
    
    
    9,015
    
    
    
    12,019APS portion recorded as a regulatory
asset
    
    
    (336,728
    )
    
    
    (245,235
    )
    
    
    (195,389
    )
    
    
    (227,490
    )Income tax benefit
    
    
    (29,902
    )
    
    
    (27,239
    )
    
    
    (2,095
    )
    
    
    (2,493
    )Accumulated other comprehensive loss
    
    $
    45,854
    
    
    $
    41,807
    
    
    $
    5,038
    
    
    $
    5,740
  OtherPension
    
    
    BenefitsNet actuarial loss
    
    $
    18,557
    
    
    $
    9,398Prior service cost (credit)
    
    
    1,840
    
    
    
    (125
    )Transition obligation
    
    
    
    
    
    
    3,004Total amounts estimated to be
amortized from accumulated
other comprehensive income and
regulatory assets in 2010
    
    $
    20,397
    
    
    $
    12,277
  Benefit Obligations
    
    
    Benefit CostsAs of December 31,
    
    
    For the Years Ended December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2007Discount rate-pension
    
    
    5.90
    %
    
    
    6.11
    %
    
    
    6.11
    %
    
    
    6.25
    %
    
    
    5.90
    %Discount rate-other benefits
    
    
    6.00
    %
    
    
    6.13
    %
    
    
    6.13
    %
    
    
    6.31
    %
    
    
    5.93
    %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
    
    
    
    8.25
    %
    
    
    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
  116




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   1% Increase
    
    
    1% DecreaseEffect on other postretirement
benefits expense, after
consideration of amounts
capitalized or billed to
electric plant participants
    
    $
    8
    
    
    $
    (7
    )Effect on service and interest
cost components of net periodic
other postretirement benefit
costs
    
    
    11
    
    
    
    (9
    )Effect on the accumulated other
postretirement benefit
obligation
    
    
    110
    
    
    
    (89
    )
 Plan Assets
     117




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  QuotedPricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    Unobservable
    
    
    
    
    
    
    Balance atAssets
    
    
    Inputs
    
    
    Inputs
    
    
    Netting and
    
    
    December 31,(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Other (a)
    
    
    2009Pension Plan:Assets:Cash and cash equivalents
    
    $
    519
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    519Corporate debt securities
    
    
    
    
    
    
    590,343
    
    
    
    
    
    
    
    
    
    
    
    590,343Other debt securities (b)
    
    
    
    
    
    
    66,281
    
    
    
    
    
    
    
    
    
    
    
    66,281Interest rate swaps
    
    
    
    
    
    
    20,512
    
    
    
    
    
    
    
    (20,103
    )
    
    
    409Equities  U.S. Companies
    
    
    341,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    341,318Equities  International Companies
    
    
    83,492
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,492Other investments
    
    
    
    
    
    
    6,747
    
    
    
    
    
    
    
    10,177
    
    
    
    16,924Common and collective trusts:U.S. Equities
    
    
    
    
    
    
    144,016
    
    
    
    
    
    
    
    
    
    
    
    144,016International Equities
    
    
    
    
    
    
    132,168
    
    
    
    
    
    
    
    
    
    
    
    132,168Real estate
    
    
    
    
    
    
    
    
    
    
    64,212
    
    
    
    
    
    
    
    64,212Short-term investments
    
    
    
    
    
    
    22,126
    
    
    
    
    
    
    
    
    
    
    
    22,126Liabilities:Interest rate swaps
    
    
    
    
    
    
    (20,103
    )
    
    
    
    
    
    
    20,103
    
    
    
    Total Pension Plan
    
    $
    425,329
    
    
    $
    962,090
    
    
    $
    64,212
    
    
    $
    10,177
    
    
    $
    1,461,808Other Benefits:Assets:Cash and cash equivalents
    
    $
    156
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    156Corporate debt securities
    
    
    
    
    
    
    173,895
    
    
    
    
    
    
    
    
    
    
    
    173,895Other debt securities (b)
    
    
    
    
    
    
    20,280
    
    
    
    
    
    
    
    
    
    
    
    20,280Interest rate swaps
    
    
    
    
    
    
    2,091
    
    
    
    
    
    
    
    (2,049
    )
    
    
    42Equities  U.S. Companies
    
    
    170,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170,293Equities  International Companies
    
    
    9,721
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,721Other investments
    
    
    
    
    
    
    383
    
    
    
    
    
    
    
    (785
    )
    
    
    (402
    )Common and collective trusts:U.S. Equities
    
    
    
    
    
    
    49,363
    
    
    
    
    
    
    
    
    
    
    
    49,363International Equities
    
    
    
    
    
    
    52,670
    
    
    
    
    
    
    
    
    
    
    
    52,670Real Estate
    
    
    
    
    
    
    
    
    
    
    6,504
    
    
    
    
    
    
    
    6,504Short-term investments
    
    
    
    
    
    
    7,933
    
    
    
    
    
    
    
    
    
    
    
    7,933Liabilities:Interest rate swaps
    
    
    
    
    
    
    (2,049
    )
    
    
    
    
    
    
    2,049
    
    
    
    Total Other Benefits
    
    $
    180,170
    
    
    $
    304,566
    
    
    $
    6,504
    
    
    $
    (785
    )
    
    $
    490,455
 (a)
    
    Represents netting under master netting arrangements and Plan receivables and
payables.(b)
    
    This category consists primarily of municipality issued debt securities, but
also includes U.S. Treasuries and asset-backed securities such as collaterized mortgage
obligations.  118




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PINNACLE WEST CAPITAL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  OtherCommon and Collective Trusts - Real Estate
    
    Pension
    
    
    BenefitsBeginning balance at January 1, 2009
    
    $
    88,379
    
    
    $
    8,951Actual return on assets still held at
December 31, 2009
    
    
    (29,590
    )
    
    
    (2,991
    )Actual return on assets sold during the period
    
    
    58
    
    
    
    6Purchases, sales, and settlements
    
    
    5,365
    
    
    
    538Transfers in and/or out of Level 3
    
    
    
    
    
    
    Ending balance at December 31, 2009
    
    $
    64,212
    
    
    $
    6,504
 Contributions
  Estimated Future Benefit Payments
  Year
    
    Pension
    
    
    Other Benefits (a)2010
    
    $
    85,354
    
    
    $
    21,4712011
    
    
    92,897
    
    
    
    23,8402012
    
    
    104,313
    
    
    
    26,2712013
    
    
    114,891
    
    
    
    29,1352014
    
    
    122,120
    
    
    
    31,977Years 2015-2019
    
    
    778,392
    
    
    
    203,957
 (a)
    
    The expected future other benefit payments take into account the Medicare Part
D subsidy.  119




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Employee Savings Plan Benefits
  9. Leases
      Pinnacle WestYear
    
    Consolidated
    
    
    APS2010
    
    $
    77
    
    
    $
    702011
    
    
    73
    
    
    
    672012
    
    
    68
    
    
    
    642013
    
    
    64
    
    
    
    612014
    
    
    62
    
    
    
    59Thereafter
    
    
    73
    
    
    
    63Total future lease commitments
    
    $
    417
    
    
    $
    384
  120




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. Jointly-Owned Facilities
  ConstructionPercent
    
    
    Plant in
    
    
    Accumulated
    
    
    Work inOwned
    
    
    Service
    
    
    Depreciation
    
    
    ProgressGenerating facilities:Palo Verde Units 1 and 3
    
    
    29.1
    %
    
    $
    2,013,822
    
    
    $
    1,080,219
    
    
    $
    61,469Palo Verde Unit 2 (see Note 9)
    
    
    17.0
    %
    
    
    700,228
    
    
    
    319,016
    
    
    
    20,666Four Corners Units 4 and 5
    
    
    15.0
    %
    
    
    167,684
    
    
    
    106,306
    
    
    
    7,572Navajo Generating Station
Units 1, 2 and 3
    
    
    14.0
    %
    
    
    260,248
    
    
    
    156,400
    
    
    
    7,855Cholla common facilities (a)
    
    
    63.2
    %(b)
    
    
    138,301
    
    
    
    45,878
    
    
    
    1,655Transmission facilities:ANPP 500KV System
    
    
    35.8
    %(b)
    
    
    85,321
    
    
    
    25,927
    
    
    
    2,531Navajo Southern System
    
    
    31.4
    %(b)
    
    
    47,337
    
    
    
    13,373
    
    
    
    269Palo Verde  Yuma 500KV
System
    
    
    23.9
    %(b)
    
    
    9,408
    
    
    
    4,027
    
    
    
    518Four Corners Switchyards
    
    
    27.5
    %(b)
    
    
    4,361
    
    
    
    1,405
    
    
    
    Phoenix  Mead System
    
    
    17.1
    %(b)
    
    
    39,015
    
    
    
    6,463
    
    
    
    220Palo Verde  Estrella 500KV
System
    
    
    55.5
    %(b)
    
    
    78,078
    
    
    
    6,168
    
    
    
    North Valley System
    
    
    65.0
    %(b)
    
    
    
    
    
    
    
    
    
    
    80,663Round Valley System
    
    
    50.0
    %(b)
    
    
    
    
    
    
    
    
    
    
    14
 (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. 11. Commitments and Contingencies
 Palo Verde Nuclear Generating Station
 Spent Nuclear Fuel and Waste Disposal
   121




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Nuclear Insurance
    122




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fuel and Purchased Power Commitments
    Actual
    
    
    Estimated (a)2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    ThereafterCoal take-or-pay
commitments
    
    $
    70
    
    
    $
    81
    
    
    $
    93
    
    
    $
    74
    
    
    $
    79
    
    
    $
    82
    
    
    $
    84
    
    
    $
    86
    
    
    $
    316
 (a)
    
    Total take-or-pay commitments are approximately $721 million. The total net
present value of these commitments is approximately $501 million. Renewable Energy Credits
  Coal Mine Reclamation Obligations
  California Energy Market Issues and Refunds in the Pacific Northwest
   123




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Superfund
 nd
 Landlord Bankruptcy
   124




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12. Asset Retirement Obligations and Nuclear Decommissioning Trust
     2009
    
    
    2008Asset retirement obligations at the
beginning of year
    
    $
    276
    
    
    $
    282Changes attributable to:Liabilities settled
    
    
    (1
    )
    
    
    (2
    )Accretion expense
    
    
    20
    
    
    
    19Estimated cash flow revisions
    
    
    7
    
    
    
    (23
    )Asset retirement obligations at the
end of year
    
    $
    302
    
    
    $
    276
   125




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 .
 Total
    
    
    TotalUnrealized
    
    
    UnrealizedFair Value
    
    
    Gains
    
    
    Losses2009Equity securities
    
    $
    167
    
    
    $
    37
    
    
    $
    (6
    )Fixed income securities
    
    
    247
    
    
    
    11
    
    
    
    (1
    )Net receivables (a)
    
    
    1
    
    
    
    
    
    
    
    Total
    
    $
    415
    
    
    $
    48
    
    
    $
    (7
    )
 (a)
    
    Net receivables relate to pending securities sales and purchases. Total
    
    
    TotalUnrealized
    
    
    UnrealizedFair Value
    
    
    Gains
    
    
    Losses2008Equity securities
    
    $
    113
    
    
    $
    18
    
    
    $
    (18
    )Fixed income securities
    
    
    228
    
    
    
    10
    
    
    
    (5
    )Net receivables (a)
    
    
    2
    
    
    
    
    
    
    
    Total
    
    $
    343
    
    
    $
    28
    
    
    $
    (23
    )
 (a)
    
    Net receivables relate to pending securities sales and purchases.  Year Ended December 31,2009
    
    
    2008
    
    
    2007Realized gains
    
    $
    10
    
    
    $
    7
    
    
    $
    3Realized losses
    
    
    (7
    )
    
    
    (8
    )
    
    
    (4
    )Proceeds from the sale of
securities (a)
    
    
    441
    
    
    
    318
    
    
    
    259
 (a)
    
    Proceeds are reinvested in the trust.  Fair ValueLess than one year
    
    $
    141 year - 5 years
    
    
    685 years - 10 years
    
    
    64Greater than 10 years
    
    
    101Total
    
    $
    247
  126




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  13. Selected Quarterly Financial Data (Unaudited)
  2009 Quarter Ended
    
    
    2009March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    TotalAs originally reported:Operating revenues
    
    $
    629,393
    
    
    $
    840,055
    
    
    $
    1,143,077Operations and maintenance
    
    
    207,531
    
    
    
    226,245
    
    
    
    208,769Operating income (loss)
    
    
    (207,629
    )
    
    
    157,103
    
    
    
    344,511Income taxes
    
    
    (96,174
    )
    
    
    37,600
    
    
    
    103,061Income (loss) from
continuing operations
    
    
    (167,796
    )
    
    
    70,993
    
    
    
    187,380Net income (loss)
attributable to common
shareholders
    
    
    (156,510
    )
    
    
    68,347
    
    
    
    186,652SunCor reclassifications
(see Note 22):Operating revenues
    
    $
    (3,526
    )
    
    $
    (4,083
    )
    
    $
    (872
    )Operations and maintenance
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    2,706
    
    
    
    4,904
    
    
    
    886Income taxes
    
    
    1,170
    
    
    
    1,979
    
    
    
    446Income (loss) from
continuing operations
    
    
    1,803
    
    
    
    3,034
    
    
    
    685Net income (loss)
attributable to common
shareholders
    
    
    
    
    
    
    
    
    
    
    After SunCor
reclassifications:Operating revenues
    
    $
    625,867
    
    
    $
    835,972
    
    
    $
    1,142,205
    
    
    $
    693,057
    
    
    $
    3,297,101Operations and maintenance
    
    
    207,531
    
    
    
    226,245
    
    
    
    208,769
    
    
    
    232,812
    
    
    
    875,357Operating income (loss)
    
    
    (204,923
    )
    
    
    162,007
    
    
    
    345,397
    
    
    
    19,292
    
    
    
    321,773Income taxes
    
    
    (95,004
    )
    
    
    39,579
    
    
    
    103,507
    
    
    
    (10,255
    )
    
    
    37,827Income (loss) from
continuing operations
    
    
    (165,993
    )
    
    
    74,027
    
    
    
    188,065
    
    
    
    (28,868
    )
    
    
    67,231Net income (loss)
attributable to common
shareholders
    
    
    (156,510
    )
    
    
    68,347
    
    
    
    186,652
    
    
    
    (30,159
    )
    
    
    68,330
  127




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2008 Quarter Ended
    
    
    2008March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    TotalAs originally reported:Operating revenues
    
    $
    688,256
    
    
    $
    884,513
    
    
    $
    1,070,088
    
    
    $
    686,415
    
    
    $
    3,329,272Operations and maintenance
    
    
    193,023
    
    
    
    193,700
    
    
    
    211,332
    
    
    
    209,797
    
    
    
    807,852Operating income (loss)
    
    
    36,228
    
    
    
    176,128
    
    
    
    275,892
    
    
    
    (17,526
    )
    
    
    470,722Income taxes
    
    
    (1,541
    )
    
    
    16,025
    
    
    
    76,592
    
    
    
    (28,373
    )
    
    
    62,703Income (loss) from continuing operations
    
    
    (6,187
    )
    
    
    112,807
    
    
    
    151,468
    
    
    
    (48,706
    )
    
    
    209,382Net income (loss) attributable to
common shareholders
    
    
    (4,473
    )
    
    
    133,862
    
    
    
    151,586
    
    
    
    (38,850
    )
    
    
    242,125SunCor reclassifications (see Note 22):Operating revenues
    
    $
    (5,546
    )
    
    $
    (3,859
    )
    
    $
    (1,289
    )
    
    $
    (8,020
    )
    
    $
    (18,714
    )Operations and maintenance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    (918
    )
    
    
    (173
    )
    
    
    685
    
    
    
    34,892
    
    
    
    34,486Income taxes
    
    
    (234
    )
    
    
    116
    
    
    
    428
    
    
    
    13,884
    
    
    
    14,194Income (loss) from continuing operations
    
    
    (361
    )
    
    
    179
    
    
    
    659
    
    
    
    21,445
    
    
    
    21,922Net income (loss) attributable to
common shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After SunCor reclassifications:Operating revenues
    
    $
    682,710
    
    
    $
    880,654
    
    
    $
    1,068,799
    
    
    $
    678,395
    
    
    $
    3,310,558Operations and maintenance
    
    
    193,023
    
    
    
    193,700
    
    
    
    211,332
    
    
    
    209,797
    
    
    
    807,852Operating income
    
    
    35,310
    
    
    
    175,955
    
    
    
    276,577
    
    
    
    17,366
    
    
    
    505,208Income taxes
    
    
    (1,775
    )
    
    
    16,141
    
    
    
    77,020
    
    
    
    (14,489
    )
    
    
    76,897Income (loss) from continuing operations
    
    
    (6,548
    )
    
    
    112,986
    
    
    
    152,127
    
    
    
    (27,261
    )
    
    
    231,304Net income (loss) attributable to
common shareholders
    
    
    (4,473
    )
    
    
    133,862
    
    
    
    151,586
    
    
    
    (38,850
    )
    
    
    242,125
  2009 Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,As originally reported  Basic earnings per
share:Income (loss) from continuing operations
    
    $
    (1.52
    )
    
    $
    0.70
    
    
    $
    1.86Net income (loss) attributable to
common shareholders
    
    
    (1.55
    )
    
    
    0.68
    
    
    
    1.84After SunCor reclassifications  Basic
earnings per share:Income (loss) from continuing operations
    
    $
    (1.50
    )
    
    $
    0.73
    
    
    $
    1.86
    
    
    $
    (0.29
    )Net income (loss) attributable to
common shareholders
    
    
    (1.55
    )
    
    
    0.68
    
    
    
    1.84
    
    
    
    (0.30
    )As originally reported  Diluted earnings
per share:Income (loss) from continuing operations
    
    $
    (1.52
    )
    
    $
    0.70
    
    
    $
    1.85Net income (loss) attributable to
common shareholders
    
    
    (1.55
    )
    
    
    0.68
    
    
    
    1.84After SunCor reclassifications  Diluted
earnings per share:Income (loss) from continuing operations
    
    $
    (1.50
    )
    
    $
    0.74
    
    
    $
    1.86
    
    
    $
    (0.29
    )Net income (loss) attributable to
common shareholders
    
    
    (1.55
    )
    
    
    0.68
    
    
    
    1.84
    
    
    
    (0.30
    )
  128




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2008 Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,As originally reported  Basic earnings per
share:Income (loss) from continuing operations
    
    $
    (0.06
    )
    
    $
    1.12
    
    
    $
    1.50
    
    
    $
    (0.48
    )Net income (loss) attributable to
common shareholders
    
    
    (0.04
    )
    
    
    1.33
    
    
    
    1.50
    
    
    
    (0.39
    )After SunCor reclassifications  Basic
earnings per share:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    1.12
    
    
    $
    1.50
    
    
    $
    (0.27
    )Net income (loss) attributable to
common shareholders
    
    
    (0.04
    )
    
    
    1.33
    
    
    
    1.50
    
    
    
    (0.39
    )As originally reported  Diluted earnings
per share:Income (loss) from continuing operations
    
    $
    (0.06
    )
    
    $
    1.12
    
    
    $
    1.50
    
    
    $
    (0.48
    )Net income (loss) attributable to
common shareholders
    
    
    (0.04
    )
    
    
    1.33
    
    
    
    1.50
    
    
    
    (0.39
    )After SunCor reclassifications  Diluted
earnings per share:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    1.12
    
    
    $
    1.50
    
    
    $
    (0.27
    )Net income (loss) attributable to
common shareholders
    
    
    (0.04
    )
    
    
    1.33
    
    
    
    1.50
    
    
    
    (0.39
    )
 14. Fair Value Measurements
     129




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       130




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    Unobservable
    
    
    Counterparty
    
    
    Balance atIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Netting &
    
    
    December 31,(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Other (a)
    
    
    2009AssetsCash equivalents
    
    $
    97
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    97Risk management activities
    
    
    1
    
    
    
    100
    
    
    
    42
    
    
    
    (64
    )
    
    
    79Nuclear decommissioning trust:U.S. Treasury debt securities
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55Commingled U.S. equity funds
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    167Corporate debt securities
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    62Mortgage-backed securities
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60Municipality debt securities
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Other
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    1
    
    
    
    22Total
    
    $
    153
    
    
    $
    459
    
    
    $
    42
    
    
    $
    (63
    )
    
    $
    591LiabilitiesRisk management activities
    
    $
    (14
    )
    
    $
    (246
    )
    
    $
    (52
    )
    
    $
    194
    
    
    $
    (118
    )
 (a)
    
    Primarily represents netting under master netting arrangements, including margin
and collateral. See Note 18.  131




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    Unobservable
    
    

    
    Counterparty
    
    Balance atIdentical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Netting &
    
    
    December 31,(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Other (a)
    
    
    2008AssetsCash equivalents
    
    $
    75
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    75Risk management activities
    
    
    31
    
    
    
    76
    
    
    
    51
    
    
    
    (92
    )
    
    
    66Nuclear decommissioning trust:U.S. Treasury debt securities
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Commingled U.S. equity funds
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    113Corporate debt securities
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Mortgage-backed securities
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    73Municipality debt securities
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Other
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    2
    
    
    
    24Total
    
    $
    139
    
    
    $
    384
    
    
    $
    51
    
    
    $
    (90
    )
    
    $
    484LiabilitiesRisk management activities
    
    $
    (85
    )
    
    $
    (297
    )
    
    $
    (58
    )
    
    $
    244
    
    
    $
    (196
    )
 (a)
    
    Primarily represents netting under master netting arrangements, including margin and collateral. See Note 18.  132




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year EndedDecember 31,2009
    
    
    2008Net risk management activities at beginning of period
    
    $
    (7
    )
    
    $
    8Total net gains (losses) realized/unrealized:Included in earnings (a)
    
    
    3
    
    
    
    15Included in OCI
    
    
    (2
    )
    
    
    (1
    )Deferred as a regulatory asset or liability
    
    
    19
    
    
    
    (39
    )Purchases, issuances, and settlements
    
    
    (2
    )
    
    
    Level 3 transfers (b)
    
    
    (21
    )
    
    
    10Net risk management activities at end of period
    
    $
    (10
    )
    
    $
    (7
    )Net unrealized losses included in earnings related
to instruments still held at end of period
    
    $
    3
    
    
    $
    44
 (a)
    
    Earnings are recorded in regulated electricity segment revenue or regulated electricity
segment fuel and purchased power.(b)
    
    Transfers in or out of Level 3 reflect the fair market value at the beginning
of the period. Transfers are generally triggered by a change in the lowest significant
input and are typically related to our long-dated energy transactions that extend
beyond available quoted periods.  As of
    
    
    As ofDecember 31, 2009
    
    
    December 31, 2008Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValuePinnacle West
    
    $
    175
    
    
    $
    180
    
    
    $
    175
    
    
    $
    169APS
    
    
    3,378
    
    
    
    3,499
    
    
    
    2,851
    
    
    
    2,466SunCor
    
    
    95
    
    
    
    95
    
    
    
    183
    
    
    
    183Total
    
    $
    3,648
    
    
    $
    3,774
    
    
    $
    3,209
    
    
    $
    2,818
  133




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   15. Earnings Per Share
  2009
    
    
    2008
    
    
    2007Basic earnings per share:Income from continuing operations attributable to common shareholders
    
    $
    0.81
    
    
    $
    2.30
    
    
    $
    3.00Income (loss) from discontinued operations
    
    
    (0.13
    )
    
    
    0.10
    
    
    
    0.06Earnings per share  basic
    
    $
    0.68
    
    
    $
    2.40
    
    
    $
    3.06Diluted earnings per share:Income from continuing operations attributable to common shareholders
    
    $
    0.81
    
    
    $
    2.29
    
    
    $
    2.98Income (loss) from discontinued operations
    
    
    (0.14
    )
    
    
    0.11
    
    
    
    0.07Earnings per share  diluted
    
    $
    0.67
    
    
    $
    2.40
    
    
    $
    3.05
    134




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16. Stock-Based Compensation
  Restricted Stock Unit Awards and Stock Grants
    2009
    
    
    2008
    
    
    2007Units granted
    
    
    261,006
    
    
    
    224,658
    
    
    
    136,917Grant date
fair value (a)
    
    $
    30.25
    
    
    $
    36.26
    
    
    $
    46.51
 (a)
    
    weighted average fair value  135




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Weighted-AverageNonvested shares
    
    Shares
    
    
    Grant-Date Fair ValueNonvested at January 1, 2009
    
    
    80,345
    
    
    $
    38.11Granted
    
    
    108,450
    
    
    
    30.79Vested
    
    
    40,684
    
    
    
    35.06Forfeited
    
    
    2,772
    
    
    
    34.52Nonvested at December 31, 2009
    
    
    145,339
    
    
    
    33.57
  Performance Share Awards
    2009
    
    
    2008
    
    
    2007Units granted
    
    
    240,624
    
    
    
    226,242
    
    
    
    134,917Grant date fair value (a)
    
    $
    30.19
    
    
    $
    36.24
    
    
    $
    48.42
 (a)
    
    weighted average grant date fair value  136




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Weighted-AverageNonvested shares
    
    Shares
    
    
    Grant-Date Fair ValueNonvested at January 1, 2009
    
    
    210,548
    
    
    $
    40.69Granted
    
    
    240,624
    
    
    
    30.12Vested
    
    
    
    
    
    
    Forfeited
    
    
    92,229
    
    
    
    46.96Nonvested at December 31, 2009
    
    
    358,943
    
    
    
    32.34
 Retention Units
   Incentive Shares
  Stock Options
   137




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Weighted-Average
    
    
    AggregateShares
    
    
    Weighted-
    
    
    Remaining
    
    
    Intrinsic(in
    
    
    Average
    
    
    Contractual
    
    
    Value (dollarsOptions
    
    thousands)
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    in thousands)Outstanding at
January 1, 2009
    
    
    696
    
    
    $
    39.81Exercised
    
    
    86
    
    
    
    32.29Forfeited or expired
    
    
    177
    
    
    
    40.07Outstanding at
December 31, 2009
    
    
    433
    
    
    
    41.20
    
    
    
    1.8
    
    
    $
    115Exercisable at
December 31, 2009
    
    
    433
    
    
    
    41.20
    
    
    
    1.8
    
    
    $
    115
        138




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17. Business Segments
  
    
    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.
  Business Segments for the Year Ended December 31, 2009RegulatedElectricity
    
    
    Real EstateSegment
    
    
    Segment (a)
    
    
    All other (b)
    
    
    TotalOperating revenues
    
    $
    3,149
    
    
    $
    103
    
    
    $
    45
    
    
    $
    3,297Purchased power and fuel costs
    
    
    1,179
    
    
    
    
    
    
    
    
    
    
    
    1,179Other operating expenses
    
    
    987
    
    
    
    361
    
    
    
    44
    
    
    
    1,392Operating margin
    
    
    983
    
    
    
    (258
    )
    
    
    1
    
    
    
    726Depreciation and amortization
    
    
    400
    
    
    
    2
    
    
    
    2
    
    
    
    404Interest expense
    
    
    214
    
    
    
    8
    
    
    
    1
    
    
    
    223Other expense (income)
    
    
    (16
    )
    
    
    
    
    
    
    10
    
    
    
    (6
    )Income (loss) from continuing
operations before income taxes
    
    
    385
    
    
    
    (268
    )
    
    
    (12
    )
    
    
    105Income taxes
    
    
    142
    
    
    
    (100
    )
    
    
    (4
    )
    
    
    38Income (loss) from continuing
operations
    
    
    243
    
    
    
    (168
    )
    
    
    (8
    )
    
    
    67Loss from discontinued
operations  net of income
tax benefit of $9 million
(see Note 22)
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Net income (loss)
    
    
    243
    
    
    
    (182
    )
    
    
    (8
    )
    
    
    53Less: Net loss attributable to
noncontrolling interests
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Net income (loss) attributable to
common shareholders
    
    $
    243
    
    
    $
    (167
    )
    
    $
    (8
    )
    
    $
    68Total assets
    
    $
    11,513
    
    
    $
    161
    
    
    $
    134
    
    
    $
    11,808Capital expenditures
    
    $
    732
    
    
    $
    7
    
    
    $
    6
    
    
    $
    745
  139




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Business Segments for the Year Ended December 31, 2008RegulatedElectricity
    
    
    Real EstateSegment
    
    
    Segment (a)
    
    
    All other (b)
    
    
    TotalOperating revenues
    
    $
    3,127
    
    
    $
    74
    
    
    $
    109
    
    
    $
    3,310Purchased power and fuel costs
    
    
    1,284
    
    
    
    
    
    
    
    46
    
    
    
    1,330Other operating expenses
    
    
    927
    
    
    
    118
    
    
    
    40
    
    
    
    1,085Operating margin
    
    
    916
    
    
    
    (44
    )
    
    
    23
    
    
    
    895Depreciation and amortization
    
    
    383
    
    
    
    5
    
    
    
    2
    
    
    
    390Interest expense
    
    
    189
    
    
    
    6
    
    
    
    2
    
    
    
    197Other expense (income)
    
    
    (4
    )
    
    
    (4
    )
    
    
    8
    
    
    
    Income (loss) from continuing
operations before income taxes
    
    
    348
    
    
    
    (51
    )
    
    
    11
    
    
    
    308Income taxes
    
    
    92
    
    
    
    (19
    )
    
    
    4
    
    
    
    77Income (loss) from continuing
operations
    
    
    256
    
    
    
    (32
    )
    
    
    7
    
    
    
    231Income from discontinued
operations  net of income
tax expense of $7 million
(see Note 22)
    
    
    
    
    
    
    6
    
    
    
    5
    
    
    
    11Net income (loss) attributable to
common shareholders
    
    $
    256
    
    
    $
    (26
    )
    
    $
    12
    
    
    $
    242Total assets
    
    $
    10,951
    
    
    $
    523
    
    
    $
    146
    
    
    $
    11,620Capital expenditures
    
    $
    856
    
    
    $
    41
    
    
    $
    7
    
    
    $
    904
  140




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Business Segments for the Year Ended December 31, 2007RegulatedElectricity
    
    
    Real EstateSegment
    
    
    Segment (a)
    
    
    All other (b)
    
    
    TotalOperating revenues
    
    $
    2,918
    
    
    $
    189
    
    
    $
    187
    
    
    $
    3,294Purchased power and fuel costs
    
    
    1,141
    
    
    
    
    
    
    
    100
    
    
    
    1,241Other operating expenses
    
    
    836
    
    
    
    169
    
    
    
    60
    
    
    
    1,065Operating margin
    
    
    941
    
    
    
    20
    
    
    
    27
    
    
    
    988Depreciation and amortization
    
    
    366
    
    
    
    4
    
    
    
    2
    
    
    
    372Interest expense
    
    
    180
    
    
    
    4
    
    
    
    1
    
    
    
    185Other expense (income)
    
    
    (18
    )
    
    
    (11
    )
    
    
    8
    
    
    
    (21
    )Income from continuing
operations before income taxes
    
    
    413
    
    
    
    23
    
    
    
    16
    
    
    
    452Income taxes
    
    
    139
    
    
    
    8
    
    
    
    5
    
    
    
    152Income from continuing operations
    
    
    274
    
    
    
    15
    
    
    
    11
    
    
    
    300Income (loss) from discontinued
operations  net of income
tax expense of $5 million
(see Note 22)
    
    
    
    
    
    
    8
    
    
    
    (1
    )
    
    
    7Net income (loss) attributable to
common shareholders
    
    $
    274
    
    
    $
    23
    
    
    $
    10
    
    
    $
    307Capital expenditures
    
    $
    900
    
    
    $
    161
    
    
    $
    3
    
    
    $
    1,064
 (a)
    
    Due to the current and anticipated continuing distressed conditions in the real
estate and credit markets, in 2009 our real estate subsidiary, SunCor, began disposing
of its homebuilding operations, master-planned communities, land parcels, commercial
assets and golf courses in order to reduce its outstanding debt (see Note 23). As a
part of this plan to sell substantially all of SunCors assets, the real estate segment
may no longer be a reporting segment in the future.(b)
    
    All other activities relate to 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 Accounting
   141




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       Commodity
    
    QuantityPower
    
    
    16,467,388
    
    
    megawatt hoursGas
    
    
    161,999,632
    
    
    MMBTU (a)
 (a)
    
    MMBTU is one million British thermal units  142




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Derivative Instruments in Designated Accounting Hedging Relationships
  Financial Statement
    
    Year EndedCommodity Contracts
    
    Location
    
    December 31, 2009Amount of Loss
 Recognized in AOCI on Derivative
Instruments (Effective Portion)
    
    Accumulated other comprehensive loss-derivative instruments
    
    $
    (155,325
    )Amount of Loss Reclassified from AOCI into Income (Effective Portion Realized)
    
    Regulated electricity segment fuel and purchased power
    
    
    (185,329
    )Amount of Loss Recognized
in Income from Derivative
Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing) (a)
    
    Regulated electricity segment fuel and purchased power
    
    
    (19,902
    )
 (a)
    
    During the year ended December 31, 2009, $192 thousand was reclassified from AOCI
to earnings related to discontinued cash flow hedges.  Derivative Instruments Not Designated as Accounting Hedges
  Financial Statement
    
    Year EndedCommodity Contracts
    
    Location
    
    December 31, 2009Amount of Net Gain
Recognized in Income
from Derivative Instruments
    
    Regulated electricity segment revenue
    
    $
    2,484Amount of Net Loss Recognized in Income from Derivative Instruments
    
    Regulated electricity segment fuel and purchased power expense
    
    
    (16,740
    )Total
    
    
    
    $
    (14,256
    )
  143




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fair Values of Derivative Instruments in the Consolidated Balance Sheets
  Investments
    
    
    Current
    
    
    Deferred Credits
    
    
    Total AssetsCommodity Contracts
    
    Current Assets
    
    
    and Other Assets
    
    
    Liabilities
    
    
    and Other
    
    
    (Liabilities)Derivatives designated
as accounting hedging
instruments:Assets
    
    $
    329
    
    
    $
    
    
    
    $
    3,242
    
    
    $
    75
    
    
    $
    3,646Liabilities
    
    
    (3,436
    )
    
    
    (256
    )
    
    
    (72,899
    )
    
    
    (77,953
    )
    
    
    (154,544
    )Total hedging
instruments
    
    
    (3,107
    )
    
    
    (256
    )
    
    
    (69,657
    )
    
    
    (77,878
    )
    
    
    (150,898
    )Derivatives not
designated as accounting
hedging instruments:Assets
    
    
    31,220
    
    
    
    29,807
    
    
    
    34,645
    
    
    
    44,631
    
    
    
    140,303Liabilities
    
    
    (4,123
    )
    
    
    (696
    )
    
    
    (81,722
    )
    
    
    (71,408
    )
    
    
    (157,949
    )Total non-hedging
instruments
    
    
    27,097
    
    
    
    29,111
    
    
    
    (47,077
    )
    
    
    (26,777
    )
    
    
    (17,646
    )Total derivatives
    
    
    23,990
    
    
    
    28,855
    
    
    
    (116,734
    )
    
    
    (104,655
    )
    
    
    (168,544
    )Margin account
    
    
    8,643
    
    
    
    
    
    
    
    12,464
    
    
    
    104
    
    
    
    21,211Collateral provided to
counterparties
    
    
    17,986
    
    
    
    
    
    
    
    49,412
    
    
    
    42,108
    
    
    
    109,506Collateral provided
from counterparties
    
    
    
    
    
    
    
    
    
    
    (1,050
    )
    
    
    
    
    
    
    (1,050
    )Balance Sheet Total
    
    $
    50,619
    
    
    $
    28,855
    
    
    $
    (55,908
    )
    
    $
    (62,443
    )
    
    $
    (38,877
    )
 Credit Risk and Credit Related Contingent Features
   144




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   19. Other Income and Other Expense
  2009
    
    
    2008
    
    
    2007Other income:Interest income
    
    $
    1,660
    
    
    $
    7,601
    
    
    $
    11,656SunCor other income
    
    
    362
    
    
    
    3,218
    
    
    
    11,370Investment gains  net
    
    
    2,516
    
    
    
    
    
    
    
    Miscellaneous
    
    
    1,131
    
    
    
    1,978
    
    
    
    2,336Total other income
    
    $
    5,669
    
    
    $
    12,797
    
    
    $
    25,362Other expense:Non-operating costs (a)
    
    $
    (6,593
    )
    
    $
    (13,030
    )
    
    $
    (13,993
    )Investment losses  net
    
    
    
    
    
    
    (17,702
    )
    
    
    (2,341
    )Miscellaneous
    
    
    (7,676
    )
    
    
    (844
    )
    
    
    (9,523
    )Total other expense
    
    $
    (14,269
    )
    
    $
    (31,576
    )
    
    $
    (25,857
    )
 (a)
    
    Includes equity earnings from a real estate joint venture that is a pass-through entity for
tax purposes.  145




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 20. Variable-Interest Entities
      21. Guarantees
   Guarantees
    
    
    Surety BondsTerm
    
    
    
    
    
    
    TermAmount
    
    
    (in years)
    
    
    Amount
    
    
    (in years)APSES
    
    $
    14
    
    
    
    1
    
    
    $
    19
    
    
    
    1APS
    
    
    3
    
    
    
    1
    
    
    
    8
    
    
    
    1Total
    
    $
    17
    
    
    
    
    
    
    $
    27
  146




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   22. Discontinued Operations
 SunCor 
 Silverhawk
 APSES 
  147




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2009
    
    
    2008
    
    
    2007Revenue:SunCor  commercial operations
    
    $
    13
    
    
    $
    57
    
    
    $
    29Other (primarily APSES) (a)
    
    
    
    
    
    
    67
    
    
    
    204Total revenue
    
    $
    13
    
    
    $
    124
    
    
    $
    233Income (loss) before taxes:SunCor  commercial operations
    
    $
    (23
    )
    
    $
    8
    
    
    $
    12Silverhawk
    
    
    
    
    
    
    13
    
    
    
    Other (primarily APSES)
    
    
    
    
    
    
    (3
    )
    
    
    (1
    )Total income before taxes
    
    $
    (23
    )
    
    $
    18
    
    
    $
    11Income (loss) after taxes:SunCor  commercial operations
    
    $
    (14
    )
    
    $
    6
    
    
    $
    8Silverhawk
    
    
    
    
    
    
    8
    
    
    
    Other (primarily APSES)
    
    
    
    
    
    
    (3
    )
    
    
    (1
    )Total income
after taxes (b)
    
    $
    (14
    )
    
    $
    11
    
    
    $
    7
 (a)
    
    APSES discontinued its commodity-related energy services in 2008 and the
associated revenues and costs were reclassified to discontinued operations in 2008 and
2007.(b)
    
    Includes a tax benefit recognized by the parent company in
accordance with an intercompany tax sharing agreement of $9 million
for the year ended December 31, 2009.  148




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 23. Real Estate Impairment Charge
  2009
    
    
    2008Homebuilding and master-planned communities
    
    $
    161
    
    
    $
    18Land parcels and commercial assets
    
    
    82
    
    
    
    Golf courses
    
    
    15
    
    
    
    Subtotal
    
    
    258
    
    
    
    18Discontinued operations
    
    
    22
    
    
    
    35Less noncontrolling interests
    
    
    (14
    )
    
    
    Total
    
    $
    266
    
    
    $
    53
     149




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MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
(ARIZONA PUBLIC SERVICE COMPANY)
 Internal Control  Integrated Framework Internal Control  Integrated Framework,
   150




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
    151




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Internal Control  Integrated Framework
 
  152




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ARIZONA PUBLIC SERVICE COMPANY
 
 STATEMENTS OF INCOME
 (dollars in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007ELECTRIC OPERATING REVENUES
    
    $
    3,149,500
    
    
    $
    3,133,496
    
    
    $
    2,936,277OPERATING EXPENSESFuel and purchased power
    
    
    1,178,620
    
    
    
    1,289,883
    
    
    
    1,151,392Operations and maintenance
    
    
    852,563
    
    
    
    787,270
    
    
    
    710,077Depreciation and amortization
    
    
    399,455
    
    
    
    383,098
    
    
    
    365,430Income taxes (Notes 4 and S-1)
    
    
    158,661
    
    
    
    113,799
    
    
    
    155,735Other taxes
    
    
    122,358
    
    
    
    124,046
    
    
    
    127,648Total
    
    
    2,711,657
    
    
    
    2,698,096
    
    
    
    2,510,282OPERATING INCOME
    
    
    437,843
    
    
    
    435,400
    
    
    
    425,995OTHER INCOME (DEDUCTIONS)Income taxes (Notes 4 and S-1)
    
    
    6,087
    
    
    
    6,538
    
    
    
    4,578Allowance for equity funds
used during
construction
    
    
    14,999
    
    
    
    18,636
    
    
    
    21,195Other income (Note S-3)
    
    
    10,808
    
    
    
    6,231
    
    
    
    16,727Other expense (Note S-3)
    
    
    (18,001
    )
    
    
    (30,569
    )
    
    
    (21,630
    )Total
    
    
    13,893
    
    
    
    836
    
    
    
    20,870INTEREST DEDUCTIONSInterest on long-term debt
    
    
    199,907
    
    
    
    170,071
    
    
    
    161,030Interest on short-term
borrowings
    
    
    6,315
    
    
    
    13,432
    
    
    
    9,564Debt discount,
premium and expense
    
    
    4,675
    
    
    
    4,702
    
    
    
    4,639Allowance for borrowed
funds used
during construction
    
    
    (10,386
    )
    
    
    (14,313
    )
    
    
    (12,308
    )Total
    
    
    200,511
    
    
    
    173,892
    
    
    
    162,925NET INCOME
    
    $
    251,225
    
    
    $
    262,344
    
    
    $
    283,940
   153




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
 
 BALANCE SHEETS
 (dollars in thousands)
 December 31,2009
    
    
    2008ASSETSUTILITY PLANT (Notes 1, 6, 9 and 10)Electric plant in service and held for future use
    
    $
    12,781,256
    
    
    $
    12,198,010Less accumulated depreciation and amortization
    
    
    4,326,908
    
    
    
    4,129,958Net
    
    
    8,454,348
    
    
    
    8,068,052Construction work in progress
    
    
    460,748
    
    
    
    571,977Intangible assets, net of accumulated amortization of
$293,450 and $280,633
    
    
    164,183
    
    
    
    131,243Nuclear fuel, net of accumulated amortization of
$64,544 and $55,343
    
    
    118,243
    
    
    
    89,323Total utility plant
    
    
    9,197,522
    
    
    
    8,860,595INVESTMENTS AND OTHER ASSETSNuclear decommissioning trust (Note 12)
    
    
    414,576
    
    
    
    343,052Assets from risk management activities (Note 18)
    
    
    28,855
    
    
    
    33,675Other assets
    
    
    68,839
    
    
    
    60,604Total investments and other assets
    
    
    512,270
    
    
    
    437,331CURRENT ASSETSCash and cash equivalents
    
    
    120,798
    
    
    
    71,544Customer and other receivables
    
    
    280,226
    
    
    
    262,177Accrued utility revenues
    
    
    110,971
    
    
    
    100,089Allowance for doubtful accounts
    
    
    (6,063
    )
    
    
    (3,155
    )Materials and supplies (at average cost)
    
    
    176,020
    
    
    
    173,252Fossil fuel (at average cost)
    
    
    39,245
    
    
    
    29,752Assets from risk management activities (Note 18)
    
    
    50,619
    
    
    
    32,181Deferred income taxes (Notes 4 and S-1)
    
    
    53,990
    
    
    
    79,694Other
    
    
    25,724
    
    
    
    19,866Total current assets
    
    
    851,530
    
    
    
    765,400DEFERRED DEBITSDeferred fuel and purchased power regulatory asset
(Notes 1 and 3)
    
    
    
    
    
    
    7,984Other regulatory assets (Notes 1, 3, 4 and S-1)
    
    
    781,714
    
    
    
    787,506Income tax receivable
    
    
    65,498
    
    
    
    Unamortized debt issue costs
    
    
    20,959
    
    
    
    22,026Other
    
    
    73,909
    
    
    
    82,735Total deferred debits
    
    
    942,080
    
    
    
    900,251TOTAL ASSETS
    
    $
    11,503,402
    
    
    $
    10,963,577
   154




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ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
(dollars in thousands)
 December 31,2009
    
    
    2008LIABILITIES AND EQUITYCAPITALIZATIONCommon stock
    
    $
    178,162
    
    
    $
    178,162Additional paid-in capital
    
    
    2,126,863
    
    
    
    2,117,789Retained earnings
    
    
    1,250,126
    
    
    
    1,168,901Accumulated other comprehensive income (loss):Pension and other postretirement benefits (Note 8)
    
    
    (29,114
    )
    
    
    (26,960
    )Derivative instruments
    
    
    (80,682
    )
    
    
    (98,742
    )Common stock equity
    
    
    3,445,355
    
    
    
    3,339,150Long-term debt less current maturities (Note 6)
    
    
    3,180,406
    
    
    
    2,850,242Total capitalization
    
    
    6,625,761
    
    
    
    6,189,392CURRENT LIABILITIESShort-term borrowings
    
    
    
    
    
    
    521,684Current maturities of long-term debt (Note 6)
    
    
    197,176
    
    
    
    874Accounts payable
    
    
    213,833
    
    
    
    233,529Accrued taxes
    
    
    158,051
    
    
    
    219,129Accrued interest
    
    
    54,099
    
    
    
    39,860Customer deposits
    
    
    70,780
    
    
    
    77,452Liabilities from risk management activities (Note 18)
    
    
    55,908
    
    
    
    69,585Other
    
    
    124,995
    
    
    
    105,655Total current liabilities
    
    
    874,842
    
    
    
    1,267,768DEFERRED CREDITS AND OTHERDeferred income taxes (Notes 4 and S-1)
    
    
    1,582,945
    
    
    
    1,401,412Deferred fuel and purchased power regulatory liability
(Notes 1 and 3)
    
    
    87,291
    
    
    
    Other regulatory liabilities (Notes 1, 3, 4, and S-1)
    
    
    679,072
    
    
    
    587,586Liability for asset retirements (Note 12)
    
    
    301,783
    
    
    
    275,970Liabilities for pension and other postretirement
benefits (Note 8)
    
    
    766,378
    
    
    
    635,327Customer advances for construction
    
    
    136,595
    
    
    
    132,023Liabilities from risk management activities (Note 18)
    
    
    62,443
    
    
    
    126,532Coal mine reclamation
    
    
    92,060
    
    
    
    91,201Unrecognized tax benefits
    
    
    140,638
    
    
    
    67,846Other
    
    
    153,594
    
    
    
    188,520Total deferred credits and other
    
    
    4,002,799
    
    
    
    3,506,417COMMITMENTS AND CONTINGENCIES (SEE NOTES)TOTAL LIABILITIES AND EQUITY
    
    $
    11,503,402
    
    
    $
    10,963,577
   155




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ARIZONA PUBLIC SERVICE COMPANY
 
 STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    251,225
    
    
    $
    262,344
    
    
    $
    283,940Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization including nuclear fuel
    
    
    438,284
    
    
    
    416,709
    
    
    
    395,890Deferred fuel and purchased power
    
    
    (51,742
    )
    
    
    (80,183
    )
    
    
    (196,136
    )Deferred fuel and purchased power amortization
    
    
    147,018
    
    
    
    183,126
    
    
    
    231,106Deferred fuel and purchased power regulatory
disallowance
    
    
    
    
    
    
    
    
    
    
    14,370Allowance for equity funds used during
construction
    
    
    (14,999
    )
    
    
    (18,636
    )
    
    
    (21,195
    )Deferred income taxes
    
    
    192,914
    
    
    
    145,157
    
    
    
    (44,478
    )Change in mark-to-market valuations
    
    
    (6,939
    )
    
    
    7,792
    
    
    
    (6,758
    )Changes in current assets and liabilities:Customer and other receivables
    
    
    2,603
    
    
    
    40,782
    
    
    
    19,825Accrued utility revenues
    
    
    (10,882
    )
    
    
    6,784
    
    
    
    4,057Materials, supplies and fossil fuel
    
    
    (12,261
    )
    
    
    (25,453
    )
    
    
    (29,776
    )Other current assets
    
    
    (9,427
    )
    
    
    128
    
    
    
    (8,056
    )Accounts payable
    
    
    (22,129
    )
    
    
    (5,915
    )
    
    
    (2,797
    )Accrued taxes
    
    
    (61,078
    )
    
    
    (12,377
    )
    
    
    13,802Other current liabilities
    
    
    26,907
    
    
    
    20,527
    
    
    
    20,231Change in margin and collateral accounts  assets
    
    
    (13,206
    )
    
    
    17,850
    
    
    
    11,252Change in margin and collateral accounts  liabilities
    
    
    35,654
    
    
    
    (132,416
    )
    
    
    27,624Change in regulatory liabilities
    
    
    110,642
    
    
    
    (12,129
    )
    
    
    7,541Change in long-term income tax receivable
    
    
    (132,379
    )
    
    
    
    
    
    
    Change in unrecognized tax benefits
    
    
    137,478
    
    
    
    (92,064
    )
    
    
    27,773Change in other long-term assets
    
    
    (53,734
    )
    
    
    14,340
    
    
    
    (23,577
    )Change in other long-term liabilities
    
    
    4,770
    
    
    
    48,894
    
    
    
    41,177Net cash flow provided by operating activities
    
    
    958,719
    
    
    
    785,260
    
    
    
    765,815CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (754,301
    )
    
    
    (910,189
    )
    
    
    (924,166
    )Contributions in aid of construction
    
    
    53,525
    
    
    
    60,292
    
    
    
    41,809Capitalized interest
    
    
    (10,386
    )
    
    
    (14,313
    )
    
    
    (12,308
    )Proceeds from sale of investment securities
    
    
    
    
    
    
    
    
    
    
    69,225Purchases of investment securities
    
    
    
    
    
    
    
    
    
    
    (36,525
    )Proceeds from nuclear decommissioning trust sales
    
    
    441,242
    
    
    
    317,619
    
    
    
    259,026Investment in nuclear decommissioning trust
    
    
    (463,033
    )
    
    
    (338,361
    )
    
    
    (279,768
    )Other
    
    
    (4,667
    )
    
    
    5,517
    
    
    
    1,211Net cash flow used for investing activities
    
    
    (737,620
    )
    
    
    (879,435
    )
    
    
    (881,496
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    863,780
    
    
    
    
    
    
    
    Short-term borrowings  net
    
    
    (521,684
    )
    
    
    303,684
    
    
    
    218,000Equity infusion
    
    
    
    
    
    
    7,601
    
    
    
    39,548Dividends paid on common stock
    
    
    (170,000
    )
    
    
    (170,000
    )
    
    
    (170,000
    )Repayment and reacquisition of long-term debt
    
    
    (343,941
    )
    
    
    (27,717
    )
    
    
    (1,586
    )Net cash flow provided by (used for) financing
activities
    
    
    (171,845
    )
    
    
    113,568
    
    
    
    85,962NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    49,254
    
    
    
    19,393
    
    
    
    (29,719
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    71,544
    
    
    
    52,151
    
    
    
    81,870CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    120,798
    
    
    $
    71,544
    
    
    $
    52,151Supplemental disclosure of cash flow information:Cash paid during the year for:Income taxes, net of refunds
    
    $
    13,555
    
    
    $
    56,728
    
    
    $
    186,183Interest, net of amounts capitalized
    
    $
    181,597
    
    
    $
    167,592
    
    
    $
    165,279
   156




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ARIZONA PUBLIC SERVICE COMPANY
 
 STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
 (dollars in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007COMMON STOCK
    
    $
    178,162
    
    
    $
    178,162
    
    
    $
    178,162ADDITIONAL PAID-IN CAPITALBalance at beginning of year
    
    
    2,117,789
    
    
    
    2,105,466
    
    
    
    2,065,918Equity Infusion
    
    
    
    
    
    
    7,601
    
    
    
    39,548Other
    
    
    9,074
    
    
    
    4,722
    
    
    
    Balance at end of year
    
    
    2,126,863
    
    
    
    2,117,789
    
    
    
    2,105,466RETAINED EARNINGSBalance at beginning of year
    
    
    1,168,901
    
    
    
    1,076,557
    
    
    
    960,405Net income
    
    
    251,225
    
    
    
    262,344
    
    
    
    283,940Common stock dividends
    
    
    (170,000
    )
    
    
    (170,000
    )
    
    
    (170,000
    )Cumulative effect of change in accounting
for income taxes (Note S-1)
    
    
    
    
    
    
    
    
    
    
    2,212Balance at end of year
    
    
    1,250,126
    
    
    
    1,168,901
    
    
    
    1,076,557ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)Balance at beginning of year
    
    
    (125,702
    )
    
    
    (8,744
    )
    
    
    2,988Pension and other postretirement benefits (Note 8):Unrealized actuarial loss, net of tax benefit of
$(2,938), $(5,075) and $(15,126)
    
    
    (4,571
    )
    
    
    (7,597
    )
    
    
    (23,304
    )Prior service cost, net of tax benefit of $(463)
    
    
    
    
    
    
    
    
    
    
    (713
    )Amortization to income:Actuarial loss, net of tax benefit of $1,387,
$1,393 and $1,238
    
    
    2,126
    
    
    
    2,130
    
    
    
    1,908Prior service cost, net of tax benefit of
$190, $189 and $212
    
    
    291
    
    
    
    289
    
    
    
    327Derivative instruments:Net unrealized gain (loss), net of tax expense
(benefit) of $(61,317), $(56,149) and $1,369
    
    
    (94,008
    )
    
    
    (85,670
    )
    
    
    2,040Reclassification of net realized (gains) losses to
income, net of tax (expense) benefit of
$73,261, $(16,890) and $5,164
    
    
    112,068
    
    
    
    (26,110
    )
    
    
    8,010Balance at end of year
    
    
    (109,796
    )
    
    
    (125,702
    )
    
    
    (8,744
    )TOTAL COMMON STOCK EQUITY
    
    $
    3,445,355
    
    
    $
    3,339,150
    
    
    $
    3,351,441COMPREHENSIVE INCOMENet income
    
    $
    251,225
    
    
    $
    262,344
    
    
    $
    283,940Other comprehensive income (loss)
    
    
    15,906
    
    
    
    (116,958
    )
    
    
    (11,732
    )Total comprehensive income
    
    $
    267,131
    
    
    $
    145,386
    
    
    $
    272,208
   157




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##### Table of Contents



APSConsolidated
    
    SupplementalFootnote
    
    FootnoteReference
    
    ReferenceSummary of Significant Accounting Policies
    
    Note 1
    
    New Accounting Standards
    
    Note 2
    
    Regulatory Matters
    
    Note 3
    
    Income Taxes
    
    Note 4
    
    Note S-1Lines 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-2Fair Value Measurements
    
    Note 14
    
    Earnings Per Share
    
    Note 15
    
    Stock-Based Compensation
    
    Note 16
    
    Business Segments
    
    Note 17
    
    Derivative Accounting
    
    Note 18
    
    Other Income and Other Expense
    
    Note 19
    
    Note S-3Variable Interest Entities
    
    Note 20
    
    Guarantees
    
    Note 21
    
    Discontinued Operations
    
    Note 22
    
    Real Estate Impairment Charge
    
    Note 23
    
    
  158




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
 
 NOTES TO FINANCIAL STATEMENTS
 S-1. Income Taxes
     2009
    
    
    2008Total unrecognized tax benefits, January 1
    
    $
    62,409
    
    
    $
    154,473Additions for tax positions of the current year
    
    
    44,094
    
    
    
    12,893Additions for tax positions of prior years
    
    
    98,269
    
    
    
    32,481Reductions for tax positions of prior years for:Changes in judgment
    
    
    
    
    
    
    (4,547
    )Settlements with taxing authorities
    
    
    (4,089
    )
    
    
    (35,812
    )Lapses of applicable statute of limitations
    
    
    (796
    )
    
    
    (97,079
    )Total unrecognized tax benefits, December 31
    
    $
    199,887
    
    
    $
    62,409
      159




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    (8,667
    )
    
    $
    (54,719
    )
    
    $
    168,607State
    
    
    (31,673
    )
    
    
    16,823
    
    
    
    27,028Total current
    
    
    (40,340
    )
    
    
    (37,896
    )
    
    
    195,635Deferred
    
    
    192,914
    
    
    
    145,157
    
    
    
    (44,478
    )Total income tax expense
    
    $
    152,574
    
    
    $
    107,261
    
    
    $
    151,157
   160




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Federal income tax expense at 35%
statutory rate
    
    $
    141,330
    
    
    $
    129,362
    
    
    $
    152,284Increases (reductions) in tax
expense resulting from:State income tax net of
federal income tax benefit
    
    
    16,691
    
    
    
    14,956
    
    
    
    17,540Credits and favorable
adjustments related to prior
years resolved in current
year
    
    
    
    
    
    
    (28,873
    )
    
    
    (11,432
    )Medicare Subsidy Part-D
    
    
    (2,025
    )
    
    
    (1,921
    )
    
    
    (3,100
    )Allowance for equity funds
used during construction
(see Note 1)
    
    
    (4,265
    )
    
    
    (5,755
    )
    
    
    (6,900
    )Other
    
    
    843
    
    
    
    (508
    )
    
    
    2,765Income tax expense
    
    $
    152,574
    
    
    $
    107,261
    
    
    $
    151,157
  December 31,2009
    
    
    2008Current asset
    
    $
    53,990
    
    
    $
    79,694Long-term liability
    
    
    (1,582,945
    )
    
    
    (1,401,412
    )Accumulated deferred income taxes  net
    
    $
    (1,528,955
    )
    
    $
    (1,321,718
    )
  161




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
  December 31,2009
    
    
    2008DEFERRED TAX ASSETSRegulatory liabilities:Asset retirement obligation
    
    $
    213,814
    
    
    $
    194,326Deferred fuel and purchased power
    
    
    34,463
    
    
    
    Other
    
    
    21,613
    
    
    
    13,986Risk management activities
    
    
    87,404
    
    
    
    132,383Pension and other postretirement liabilities
    
    
    288,769
    
    
    
    265,156Deferred gain on Palo Verde Unit 2
sale-leaseback
    
    
    11,836
    
    
    
    12,665Other
    
    
    92,580
    
    
    
    119,447Total deferred tax assets
    
    
    750,479
    
    
    
    737,963DEFERRED TAX LIABILITIESPlant-related
    
    
    (1,951,262
    )
    
    
    (1,709,872
    )Risk management activities
    
    
    (20,863
    )
    
    
    (20,732
    )Regulatory assets:Allowance for equity funds used
during construction
    
    
    (23,285
    )
    
    
    (20,174
    )Deferred fuel and purchased power 
mark-to-market
    
    
    (16,167
    )
    
    
    (46,593
    )Pension and other postretirement
benefits
    
    
    (210,080
    )
    
    
    (186,916
    )Other
    
    
    (57,210
    )
    
    
    (58,519
    )Other
    
    
    (567
    )
    
    
    (16,875
    )Total deferred tax liabilities
    
    
    (2,279,434
    )
    
    
    (2,059,681
    )Accumulated deferred income taxes  net
    
    $
    (1,528,955
    )
    
    $
    (1,321,718
    )
  162




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
 S-2. Selected Quarterly Financial Data (Unaudited)
  2009 Quarter Ended,
    
    
    2009March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    TotalOperating revenues
    
    $
    602,660
    
    
    $
    812,587
    
    
    $
    1,083,825
    
    
    $
    650,428
    
    
    $
    3,149,500Operations and maintenance
    
    
    201,100
    
    
    
    221,128
    
    
    
    203,446
    
    
    
    226,889
    
    
    
    852,563Operating income
    
    
    29,125
    
    
    
    122,385
    
    
    
    245,104
    
    
    
    41,229
    
    
    
    437,843Net income
    
    
    (15,479
    )
    
    
    78,544
    
    
    
    197,065
    
    
    
    (8,905
    )
    
    
    251,225
 2008 Quarter Ended,
    
    
    2008March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    TotalOperating revenues
    
    $
    625,576
    
    
    $
    831,083
    
    
    $
    1,042,084
    
    
    $
    634,753
    
    
    $
    3,133,496Operations and maintenance
    
    
    188,135
    
    
    
    187,819
    
    
    
    206,526
    
    
    
    204,790
    
    
    
    787,270Operating income
    
    
    33,628
    
    
    
    163,860
    
    
    
    202,655
    
    
    
    35,257
    
    
    
    435,400Net income
    
    
    (6,364
    )
    
    
    125,382
    
    
    
    159,754
    
    
    
    (16,428
    )
    
    
    262,344
 S-3. Other Income and Other Expense
  2009
    
    
    2008
    
    
    2007Other income:Interest income
    
    $
    502
    
    
    $
    3,863
    
    
    $
    10,961SO2 emission allowance sales
and other (a)
    
    
    1,439
    
    
    
    392
    
    
    
    1,001Investment gains  net
    
    
    6,673
    
    
    
    
    
    
    
    2,429Miscellaneous
    
    
    2,194
    
    
    
    1,976
    
    
    
    2,336Total other income
    
    $
    10,808
    
    
    $
    6,231
    
    
    $
    16,727Other expense:Non-operating costs (a)
    
    $
    (7,368
    )
    
    $
    (10,538
    )
    
    $
    (12,712
    )Asset dispositions
    
    
    (656
    )
    
    
    (5,779
    )
    
    
    (1,981
    )Investment losses  net
    
    
    
    
    
    
    (9,438
    )
    
    
    Miscellaneous
    
    
    (9,977
    )
    
    
    (4,814
    )
    
    
    (6,937
    )Total other expense
    
    $
    (18,001
    )
    
    $
    (30,569
    )
    
    $
    (21,630
    )
 (a)
    
    As defined by the FERC, includes below-the-line non-operating utility income
and expense (items excluded from utility rate recovery).  163




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY
 
 SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 CONDENSED STATEMENTS OF INCOME
  Year Ended December 31,2009
    
    
    2008
    
    
    2007(a)Operating revenues
    
    $
    1,156
    
    
    $
    52
    
    
    $
    6,708Operating expensesFuel and purchased power
    
    
    
    
    
    
    (19,970
    )
    
    
    (35,541
    )Other operating expenses
    
    
    11,004
    
    
    
    9,016
    
    
    
    5,659Total
    
    
    11,004
    
    
    
    (10,954
    )
    
    
    (29,882
    )Operating income
    
    
    (9,848
    )
    
    
    11,006
    
    
    
    36,590OtherEquity in earnings of subsidiaries
    
    
    (37,214
    )
    
    
    226,893
    
    
    
    287,078Other income
    
    
    2,776
    
    
    
    1,248
    
    
    
    225Total
    
    
    (34,438
    )
    
    
    228,141
    
    
    
    287,303Interest expense
    
    
    14,129
    
    
    
    17,550
    
    
    
    17,190Income from continuing operations
    
    
    (58,415
    )
    
    
    221,597
    
    
    
    306,703Income tax benefit (b)
    
    
    (117,792
    )
    
    
    (12,374
    )
    
    
    (440
    )Income from continuing operations  net of
income taxes
    
    
    59,377
    
    
    
    233,971
    
    
    
    307,143Income from discontinued operations 
net of income taxes
    
    
    8,953
    
    
    
    8,154
    
    
    
    Net income
    
    $
    68,330
    
    
    $
    242,125
    
    
    $
    307,143
 (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 transferred to APS or expired.(b)
    
    In 2009, this is primarily the income tax benefit related to SunCors real
estate impairment charges.  164




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY
 
 SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 CONDENSED BALANCE SHEETS
  Balance at December 31,2009
    
    
    2008AssetsCurrent assetsCash and cash equivalents
    
    $
    17,284
    
    
    $
    6,262Customer and other receivables
    
    
    77,570
    
    
    
    65,576Income tax receivable
    
    
    64,317
    
    
    
    Other current assets
    
    
    49
    
    
    
    367Total current assets
    
    
    159,220
    
    
    
    72,205Investments and other assetsInvestments in subsidiaries
    
    
    3,490,148
    
    
    
    3,709,099Deferred income taxes
    
    
    89,842
    
    
    
    Other assets
    
    
    22,520
    
    
    
    20,029Total investments and other assets
    
    
    3,602,510
    
    
    
    3,729,128Total Assets
    
    $
    3,761,730
    
    
    $
    3,801,333Liabilities and Common Stock EquityCurrent liabilitiesAccounts payable
    
    $
    10,923
    
    
    $
    6,310Accrued taxes
    
    
    5,157
    
    
    
    (96,188
    )Short-term borrowings
    
    
    149,086
    
    
    
    144,000Other current liabilities
    
    
    9,950
    
    
    
    8,027Total current liabilities
    
    
    175,116
    
    
    
    62,149Long-term debt less current maturities
    
    
    175,000
    
    
    
    175,000Deferred credits and otherDeferred income taxes
    
    
    
    
    
    
    18,027Pension and other postretirement liabilities
    
    
    29,343
    
    
    
    27,300Other
    
    
    36,591
    
    
    
    25,489Total deferred credits and other
    
    
    65,934
    
    
    
    70,816Common stock equityCommon stock
    
    
    2,149,483
    
    
    
    2,148,469Accumulated other comprehensive loss
    
    
    (131,587
    )
    
    
    (146,698
    )Retained earnings
    
    
    1,298,213
    
    
    
    1,444,208Total Pinnacle West Shareholders equity
    
    
    3,316,109
    
    
    
    3,445,979Noncontrolling real estate interests
    
    
    29,571
    
    
    
    47,389Total Equity
    
    
    3,345,680
    
    
    
    3,493,368Total Liabilities and Common Stock Equity
    
    $
    3,761,730
    
    
    $
    3,801,333
  165




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY
 
 SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 CONDENSED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2009
    
    
    2008
    
    
    2007 (a)Cash flows from operating activitiesNet Income
    
    $
    68,330
    
    
    $
    242,125
    
    
    $
    307,143Adjustments to reconcile net income to net
cash provided by operating activities:Equity in earnings of subsidiaries  net
    
    
    37,214
    
    
    
    (226,893
    )
    
    
    (287,078
    )Depreciation and amortization
    
    
    127
    
    
    
    210
    
    
    
    320Deferred income taxes
    
    
    (106,536
    )
    
    
    31,954
    
    
    
    (24,192
    )Change in mark-to-market valuations
    
    
    
    
    
    
    (19,975
    )
    
    
    53,228Customer and other receivables
    
    
    (2,303
    )
    
    
    38,938
    
    
    
    112,543Accounts payable
    
    
    466
    
    
    
    (14,134
    )
    
    
    (57,978
    )Accrued taxes and income tax receivables  net
    
    
    44,625
    
    
    
    (5,230
    )
    
    
    25,127Change in margin and collateral accounts  net
    
    
    
    
    
    
    
    
    
    
    (11,602
    )Dividends received from subsidiaries
    
    
    170,000
    
    
    
    170,000
    
    
    
    180,000Other net
    
    
    (2,379
    )
    
    
    (7,914
    )
    
    
    (104,968
    )Net cash flow provided by operating activities
    
    
    209,544
    
    
    
    209,081
    
    
    
    192,543Cash flows from investing activitiesInvestments in subsidiaries
    
    
    (4,967
    )
    
    
    (18,765
    )
    
    
    (83,993
    )Repayments of loans from subsidiaries
    
    
    25,240
    
    
    
    10,194
    
    
    
    14,996Advances of loans to subsidiaries
    
    
    (21,587
    )
    
    
    (22,554
    )
    
    
    (19,796
    )Net cash flow used for investing activities
    
    
    (1,314
    )
    
    
    (31,125
    )
    
    
    (88,793
    )Cash flows from financing activitiesShort-term borrowings and payments  net
    
    
    4,566
    
    
    
    28,729
    
    
    
    87,371Dividends paid on common stock
    
    
    (205,076
    )
    
    
    (204,247
    )
    
    
    (210,473
    )Repayment of long-term debt
    
    
    
    
    
    
    
    
    
    
    (115
    )Common stock equity issuance
    
    
    3,302
    
    
    
    3,687
    
    
    
    19,593Net cash flow used for financing activities
    
    
    (197,208
    )
    
    
    (171,831
    )
    
    
    (103,624
    )Net increase in cash and cash equivalents
    
    
    11,022
    
    
    
    6,125
    
    
    
    126Cash and cash equivalents at beginning of year
    
    
    6,262
    
    
    
    137
    
    
    
    11Cash and cash equivalents at end of year
    
    $
    17,284
    
    
    $
    6,262
    
    
    $
    137
 (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 transferred to APS or expired.  166




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
 
 SCHEDULE II  RESERVE FOR UNCOLLECTIBLES
  Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EAdditionsBalance at
    
    
    Charged to
    
    
    Charged
    
    
    
    
    
    
    Balancebeginning
    
    
    cost and
    
    
    to other
    
    
    
    
    
    
    at end ofDescription
    
    of period
    
    
    expenses
    
    
    accounts
    
    
    Deductions
    
    
    periodReserve for uncollectibles:2009
    
    $
    3,383
    
    
    $
    7,617
    
    
    $
    
    
    
    $
    4,847
    
    
    $
    6,1532008
    
    
    4,782
    
    
    
    6,177
    
    
    
    
    
    
    
    7,576
    
    
    
    3,3832007
    
    
    5,597
    
    
    
    4,130
    
    
    
    
    
    
    
    4,945
    
    
    
    4,782
  167




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
 
 SCHEDULE II  RESERVE FOR UNCOLLECTIBLES
  Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EAdditionsBalance at
    
    
    Charged to
    
    
    Charged
    
    
    
    
    
    
    Balancebeginning
    
    
    cost and
    
    
    to other
    
    
    
    
    
    
    at end ofDescription
    
    of period
    
    
    expenses
    
    
    accounts
    
    
    Deductions
    
    
    periodReserve for uncollectibles:2009
    
    $
    3,155
    
    
    $
    7,062
    
    
    $
    
    
    
    $
    4,154
    
    
    $
    6,0632008
    
    
    4,265
    
    
    
    5,924
    
    
    
    
    
    
    
    7,034
    
    
    
    3,1552007
    
    
    4,223
    
    
    
    5,059
    
    
    
    
    
    
    
    5,017
    
    
    
    4,265
  168




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  et seq
          169




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE OF PINNACLE WEST
  www.pinnaclewest.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
   170




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##### Table of Contents



Securities Authorized for Issuance Under Equity Compensation Plans
  EQUITY COMPENSATION PLAN INFORMATION
 Number of securitiesremaining availablefor future issuanceNumber of securities
    
    
    Weighted-average
    
    
    under equityto be issued upon
    
    
    exercise price of
    
    
    compensation plansexercise of
    
    
    outstanding
    
    
    (excluding securitiesoutstanding options,
    
    
    options, warrants
    
    
    reflected in columnwarrants and rights
    
    
    and rights
    
    
    (a))Plan Category
    
    (a)1
    
    
    (b)2
    
    
    (c)3Equity compensation
plans approved by
security holders
    
    
    1,613,227
    
    
    $
    41.20
    
    
    
    6,436,058Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,613,227
    
    
    $
    41.20
    
    
    
    6,436,058
 
 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
   171




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##### Table of Contents



Equity Compensation Plans Not Approved By Security Holders
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES
 Pinnacle West
  APS
  Type of Service
    
    2008
    
    
    2009Audit Fees (1)
    
    $
    1,935,056
    
    
    $
    1,698,325Audit-Related Fees (2)
    
    
    233,025
    
    
    
    380,695Tax Fees (3)
    
    
    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 an International Financial Reporting
Standards Assessment for work performed in 2009 and employee benefit plan audits for work
performed in 2008 and 2009.(3)
    
    The aggregate fees billed primarily for tax compliance and tax planning.   172




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Financial Statements and Financial Statement Schedules
  Exhibits Filed
  Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed3.1
    
    Pinnacle West
    
    Articles of
Incorporation,
restated as of May
21, 2008
    
    3.1 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File Nos. 1-8962 and
1-4473
    
    8-7-083.2
    
    Pinnacle West
    
    Pinnacle West
Capital Corporation
Bylaws, amended as
of January 21, 2009
    
    3.2 to Pinnacle West/APS December 31,
2008 Form 10-K Report, File Nos. 1-8962
and 1-4473
    
    2-20-093.3
    
    APS
    
    Articles of
Incorporation,
restated as of May
25, 1988
    
    4.2 to APS Form 18 Registration Nos.
33-33910 and 33-55248 by means of
September 24, 1993 Form 8-K Report, File
No. 1-4473
    
    9-29-933.4
    
    APS
    
    Arizona Public
Service Company
Bylaws, amended as
of December 16,
2008
    
    3.4 to Pinnacle West/APS December 31,
2008 Form 10-K, File No. 1-4473
    
    2-20-094.1
    
    Pinnacle West
    
    Specimen
Certificate of
Pinnacle West
Capital Corporation
Common Stock, no
par value
    
    4.12 to Pinnacle West April 29, 2005
Form 8-K Report, File No. 1-8962
    
    5-2-05
  173




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.2
    
    Pinnacle West
APS
    
    Indenture dated as
of January 1, 1995
among APS and The
Bank of New York
Mellon, as Trustee
    
    4.6 to APS Registration Statement Nos.
33-61228 and 33-55473 by means of
January 1, 1995 Form 8-K Report, File
No. 1-4473
    
    1-11-954.2a
    
    Pinnacle West
APS
    
    First Supplemental
Indenture dated as
of January 1, 1995
    
    4.4 to APS Registration Statement Nos.
33-61228 and 33-55473 by means of
January 1, 1995 Form 8-K Report, File
No. 1-4473
    
    1-11-954.3
    
    Pinnacle West
APS
    
    Indenture dated as
of November 15,
1996 between APS
and The Bank of New
York, as Trustee
    
    4.5 to APS Registration Statements Nos.
33-61228, 33-55473, 33-64455 and 333-
15379 by means of November 19, 1996 Form
8-K Report, File No. 1-4473
    
    11-22-964.3a
    
    Pinnacle West
APS
    
    First Supplemental
Indenture dated as
of November 15,
1996
    
    4.6 to APS Registration Statements Nos.
33-61228, 33-55473, 33-64455 and
333-15379 by means of November 19, 1996
Form 8-K Report, File No. 1-4473
    
    11-22-964.3b
    
    Pinnacle West
APS
    
    Second Supplemental
Indenture dated as
of April 1, 1997
    
    4.10 to APS Registration Statement Nos.
33-55473, 33-64455 and 333-15379 by
means of April 7, 1997 Form 8-K Report,
File No. 1-4473
    
    4-9-974.3c
    
    Pinnacle West
APS
    
    Third Supplemental
Indenture dated as
of November 1, 2002
    
    10.2 to Pinnacle Wests March 31, 2003
Form 10-Q Report, File No. 1-8962
    
    5-15-03
  174




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.4
    
    Pinnacle West
    
    Indenture dated as
of December 1, 2000
between the Company
and The Bank of New
York, as Trustee,
relating to Senior
Unsecured Debt
Securities
    
    4.1 to Pinnacle Wests Registration
Statement No. 333-52476
    
    12-21-004.5
    
    Pinnacle West
    
    Indenture dated as
of December 1, 2000
between the Company
and The Bank of New
York, as Trustee,
relating to
Subordinated
Unsecured Debt
Securities
    
    4.2 to Pinnacle Wests Registration
Statement No. 333-52476
    
    12-21-004.6
    
    Pinnacle West
APS
    
    Indenture dated as
of January 15, 1998
between APS and The
Bank of New York
Mellon Trust
Company N.A.
(successor to
JPMorgan Chase
Bank, N.A.,
formerly known as
The Chase Manhattan
Bank), as Trustee
    
    4.10 to APS Registration Statement Nos.
333-15379 and 333-27551 by means of
January 13, 1998 Form 8-K Report, File
No. 1-4473
    
    1-16-984.6a
    
    Pinnacle West
APS
    
    Fifth Supplemental
Indenture dated as
of October 1, 2001
    
    4.1 to APS September 30, 2001 Form
10-Q, File No. 1-4473
    
    11-6-014.6b
    
    Pinnacle West
APS
    
    Sixth Supplemental
Indenture dated as
of March 1, 2002
    
    4.1 to APS Registration Statement Nos.
333-63994 and 333-83398 by means of
February 26, 2002 Form 8-K Report, File
No. 1-4473
    
    2-28-024.6c
    
    Pinnacle West
APS
    
    Seventh
Supplemental
Indenture dated as
of May 1, 2003
    
    4.1 to APS Registration Statement No.
333-90824 by means of May 7, 2003 Form
8-K Report, File No. 1-4473
    
    5-9-03
  175




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.6d
    
    Pinnacle West
APS
    
    Eighth Supplemental
Indenture dated as
of June 15, 2004
    
    4.1 to APS Registration Statement No.
333-106772 by means of June 24, 2004
Form 8-K Report, File No. 1-4473
    
    6-28-044.6e
    
    Pinnacle West
APS
    
    Ninth Supplemental
Indenture dated as
of August 15, 2005
    
    4.1 to APS Registration Statements Nos.
333-106772 and 333-121512 by means of
August 17, 2005 Form 8-K Report, File
No. 1-4473
    
    8-22-054.6f
    
    APS
    
    Tenth Supplemental
Indenture dated as
of August 1, 2006
    
    4.1 to APS July 31, 2006 Form 8-K
Report, File No. 1-4473
    
    8-3-064.6g
    
    Pinnacle West
APS
    
    Eleventh
Supplemental
Indenture dated as
of February 26,
2009
    
    4.1 to APS February 23, 2009 Form 8-K
Report, File Nos. 1-8962 and 1-4473
    
    2-25-094.7
    
    Pinnacle West
    
    Amended and
Restated Rights
Agreement, dated as
of March 26, 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
    
    4.1 to Pinnacle Wests March 22, 1999
Form 8-K Report, File No. 1-8962
    
    4-19-99
  176




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.7a
    
    Pinnacle West
    
    Amendment to Rights
Agreement,
effective as of
January 1, 2002
    
    4.1 to Pinnacle Wests March 31, 2002
Form 10-Q Report, File No. 1-8962
    
    5-15-024.8
    
    Pinnacle West
    
    Second Amended and
Restated Investors
Advantage Plan
dated as of June
23, 2004
    
    4.4 to Pinnacle Wests June 23, 2004
Form 8-K Report, File No. 1-8962
    
    8-9-044.8a
    
    Pinnacle West
    
    Third Amended and
Restated Investors
Advantage Plan
dated as of
November 25, 2008
    
    4.1 to Pinnacle Wests Form 18
Registration Statement No. 333-155641
    
    11-25-084.9
    
    Pinnacle West
    
    Agreement, dated
March 29, 1988,
relating to the
filing of
instruments
defining the rights
of holders of
long-term debt not
in excess of 10% of
the Companys total
assets
    
    4.1 to Pinnacle Wests 1987 Form 10-K
Report, File No. 1-8962
    
    3-30-884.9a
    
    Pinnacle West
APS
    
    Agreement, dated
March 21, 1994,
relating to the
filing of
instruments
defining the
rights of holders
of APS long-term
debt not in excess
of 10% of APS
total assets
    
    4.1 to APS 1993 Form 10-K Report, File
No. 1-4473
    
    3-30-9410.1.1
    
    Pinnacle West
APS
    
    Two separate
Decommissioning
Trust Agreements
(relating to PVNGS
Units 1 and 3,
respectively), each
dated July 1, 1991,
between APS and
Mellon Bank, N.A.,
as Decommissioning
Trustee
    
    10.2 to APS September 30, 1991 Form
10-Q Report, File No. 1-4473
    
    11-14-91
  177




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.1.1a
    
    Pinnacle West
APS
    
    Amendment No. 1 to
Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of
December 1, 1994
    
    10.1 to APS 1994 Form
10- K Report, File No. 1-4473
    
    3-30-9510.1.1b
    
    Pinnacle West
APS
    
    Amendment No. 1 to
Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of
December 1, 1994
    
    10.2 to APS 1994 Form
10-K Report, File No. 1-4473
    
    3-30-9510.1.1c
    
    Pinnacle West
APS
    
    Amendment No. 2 to
APS Decommissioning
Trust Agreement
(PVNGS Unit 1)
dated as of July 1,
1991
    
    10.4 to APS 1996 Form
10-K Report, File No. 1-4473
    
    3-28-9710.1.1d
    
    Pinnacle West
APS
    
    Amendment No. 2 to
APS Decommissioning
Trust Agreement
(PVNGS Unit 3)
dated as of July 1,
1991
    
    10.6 to APS 1996 Form
10-K Report, File No. 1-4473
    
    3-28-9710.1.1e
    
    Pinnacle West
APS
    
    Amendment No. 3 to
the Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of March
18, 2002
    
    10.2 to Pinnacle Wests March 31, 2002
Form 10-Q Report, File No. 1-8962
    
    5-15-0210.1.1f
    
    Pinnacle West
APS
    
    Amendment No. 3 to
the Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of March
18, 2002
    
    10.4 to Pinnacle Wests March 2002 Form
10-Q Report, File No. 1-8962
    
    5-15-0210.1.1g
    
    Pinnacle West
APS
    
    Amendment No. 4 to
the Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of
December 19, 2003
    
    10.3 to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
    
    3-15-04
  178




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.1.1h
    
    Pinnacle West
APS
    
    Amendment No. 4 to
the Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of
December 19, 2003
    
    10.5 to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
    
    3-15-0410.1.1i
    
    Pinnacle West
APS
    
    Amendment No. 5 to
the Decommissioning
Trust Agreement
(PVNGS Unit 1),
dated as of May 1,
2007
    
    10.1 to Pinnacle West/APS March 31, 2007
Form 10-Q Report, File Nos. 1-8962 and
1-4473
    
    5-9-0710.1.1j
    
    Pinnacle West
APS
    
    Amendment No. 5 to
the Decommissioning
Trust Agreement
(PVNGS Unit 3),
dated as of May 1,
2007
    
    10.2 to Pinnacle West/APS March 31, 2007
Form 10-Q Report, File Nos. 1-8962 and
104473
    
    5-9-0710.1.2
    
    Pinnacle West
APS
    
    Amended and
Restated
Decommissioning
Trust Agreement
(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
    
    10.1 to Pinnacle Wests 1991 Form 10-K
Report, File No. 1-8962
    
    3-26-92
  179




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.1.2a
    
    Pinnacle West
APS
    
    First Amendment to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of
November 1, 1992
    
    10.2 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-9310.1.2b
    
    Pinnacle West
APS
    
    Amendment No. 2 to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of
November 1, 1994
    
    10.3 to APS 1994 Form
10-K Report, File No. 1-4473
    
    3-30-9510.1.2c
    
    Pinnacle West
APS
    
    Amendment No. 3 to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of June
20, 1996
    
    10.1 to APS June 30, 1996 Form 10-Q
Report, File No. 1-4473
    
    8-9-9610.1.2d
    
    Pinnacle West
APS
    
    Amendment No. 4 to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2)
dated as of
December 16, 1996
    
    APS 10.5 to APS 1996 Form 10-K Report,
File No. 1-4473
    
    3-28-9710.1.2e
    
    Pinnacle West
APS
    
    Amendment No. 5 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of June
30, 2000
    
    10.1 to Pinnacle Wests March 31, 2002
Form 10-Q Report, File No. 1-8962
    
    5-15-0210.1.2f
    
    Pinnacle West
APS
    
    Amendment No. 6 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of March
18, 2002
    
    10.3 to Pinnacle Wests March 31, 2002
Form 10-Q Report, File No. 1-8962
    
    5-15-02
  180




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.1.2g
    
    Pinnacle West
APS
    
    Amendment No. 7 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of
December 19, 2003
    
    10.4 to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
    
    3-15-0410.1.2h
    
    Pinnacle West
APS
    
    Amendment No. 8 to
the Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2),
dated as of April
1, 2007
    
    10.1.2h to Pinnacle Wests 2007 Form
10-K Report, File No. 1-8962
    
    2-27-0810.2.1b
    
    Pinnacle West
APS
    
    Arizona Public
Service Company
Deferred
Compensation Plan,
as restated,
effective January
1, 1984, and the
second and third
amendments thereto,
dated December 22,
1986, and December
23, 1987
respectively
    
    10.4 to APS 1988 Form
10-K Report, File No. 1-4473
    
    3-8-8910.2.1ab
    
    Pinnacle West
APS
    
    Third Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan,
effective as of
January 1, 1993
    
    10.3A to APS 1993 Form
10-K Report, File No. 1-4473
    
    3-30-9410.2.1bb
    
    Pinnacle West
APS
    
    Fourth Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan
effective as of May
1, 1993
    
    10.2 to APS September 30, 1994 Form
10-Q Report, File No. 1-4473
    
    11-10-94
  181




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.1cb
    
    Pinnacle West
APS
    
    Fifth Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan
effective January
1, 1997
    
    10.3A to APS 1996 Form 10-K Report,
File No. 1-4473
    
    3-28-9710.2.1db
    
    Pinnacle West
APS
    
    Sixth Amendment to
the Arizona Public
Service Company
Deferred
Compensation Plan
effective January
1, 2001
    
    10.8A to Pinnacle Wests 2000 Form 10-K
Report, File No. 1-8962
    
    3-14-0110.2.2b
    
    Pinnacle West
APS
    
    Directors Deferred
Compensation Plan,
as restated,
effective January
1, 1986
    
    10.1 to APS June 30, 1986 Form 10-Q
Report, File No. 1-4473
    
    8-13-8610.2.2ab
    
    Pinnacle West
APS
    
    Second Amendment to
the Arizona Public
Service Company
Directors Deferred
Compensation Plan,
effective as of
January 1, 1993
    
    10.2A to APS 1993 Form
10-K Report, File No. 1-4473
    
    3-30-9410.2.2bb
    
    Pinnacle West
APS
    
    Third Amendment to
the Arizona Public
Service Company
Directors Deferred
Compensation Plan,
effective as of May
1, 1993
    
    10.1 to APS September 30, 1994 Form
10-Q Report, File No. 1-4473
    
    11-10-9410.2.2cb
    
    Pinnacle West
APS
    
    Fourth Amendment to
the Arizona Public
Service Company
Directors Deferred
Compensation Plan,
effective as of
January 1, 1999
    
    10.8A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-00
  182




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.3b
    
    Pinnacle West
APS
    
    Trust for the
Pinnacle West
Capital
Corporation,
Arizona Public
Service Company and
SunCor Development
Company Deferred
Compensation Plans
dated August 1,
1996
    
    10.14A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-0010.2.3ab
    
    Pinnacle West
APS
    
    First Amendment
dated December 7,
1999 to the Trust
for the Pinnacle
West Capital
Corporation,
Arizona Public
Service Company and
SunCor Development
Company Deferred
Compensation Plans
    
    10.15A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-0010.2.4b
    
    Pinnacle West
APS
    
    Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan
as amended and
restated effective
January 1, 1996
    
    10.10A to APS 1995 Form 10-K Report,
File No. 1-4473
    
    3-29-9610.2.4ab
    
    Pinnacle West
APS
    
    First Amendment
effective as of
January 1, 1999, to
the Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan
    
    10.7A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-00
  183




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.4bb
    
    Pinnacle West
APS
    
    Second Amendment
effective January
1, 2000 to the
Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan
    
    10.10A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-0010.2.4cb
    
    Pinnacle West
APS
    
    Third Amendment to
the Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan,
effective as of
January 1, 2002
    
    10.3 to Pinnacle Wests March 31, 2003
Form 10-Q Report, File No. 1-8962
    
    5-15-0310.2.4db
    
    Pinnacle West
APS
    
    Fourth Amendment to
the Pinnacle West
Capital
Corporation,
Arizona Public
Service Company,
SunCor Development
Company and El
Dorado Investment
Company Deferred
Compensation Plan,
effective January
1, 2003
    
    10.64 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-13-0610.2.5b
    
    Pinnacle West
APS
    
    Schedules of
William J. Post and
Jack E. Davis to
Arizona Public
Service Company
Deferred
Compensation Plan,
as amended
    
    10.3A to Pinnacle West 2002 Form 10-K
Report, File No. 1-8962
    
    3-31-03
  184




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.6b
    
    Pinnacle West
APS
    
    Deferred
Compensation Plan
of 2005 for
Employees of
Pinnacle West
Capital Corporation
and Affiliates
    
    10.2.6 to Pinnacle West/APS 2008 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    2-20-0910.2.6ab
    
    Pinnacle West
APS
    
    First Amendment to
the Deferred
Compensation Plan
of 2005 for
Employees of
Pinnacle West
Capital Corporation
and Affiliates10.3.1b
    
    Pinnacle West
APS
    
    Pinnacle West
Capital Corporation
Supplement Excess
Benefit Retirement
Plan, amended and
restated as of
January 1, 2003
    
    10.7A to Pinnacle Wests 2003 Form 10-K
Report, File No. 1-8962
    
    3-15-0410.3.1ab
    
    Pinnacle West
APS
    
    Pinnacle West
Capital Corporation
Supplemental Excess
Benefit Retirement
Plan, as amended
and restated, dated
December 18, 2003
    
    10.48b to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-13-0610.3.2b
    
    Pinnacle West
APS
    
    Pinnacle West
Capital Corporation
Supplemental Excess
Benefit Retirement
Plan of 2005
    
    10.3.2 to Pinnacle West/APS 2008 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    2-20-0910.4.1b
    
    Pinnacle West
APS
    
    Letter Agreement
dated December 21,
1993, between APS
and William L.
Stewart
    
    10.6A to APS 1994 Form 10-K Report,
File No. 1-4473
    
    3-30-9510.4.2b
    
    Pinnacle West
APS
    
    Letter Agreement
dated August 16,
1996 between APS
and William L.
Stewart
    
    10.8 to APS 1996 Form
10-K Report, File No. 1-4473
    
    3-28-97
  185




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.4.3b
    
    Pinnacle West
APS
    
    Letter Agreement
dated October 3,
1997 between APS
and William L.
Stewart
    
    10.2 to APS September 30, 1997 Form
10-Q Report, File No. 1-4473
    
    11-12-9710.4.4b
    
    Pinnacle West
APS
    
    Letter Agreement
dated December 13,
1999 between APS
and William L.
Stewart
    
    10.9A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-0010.4.4ab
    
    Pinnacle West
APS
    
    Amendment to Letter
Agreement,
effective as of
January 1, 2002,
between APS and
William L. Stewart
    
    10.1 to Pinnacle Wests June 30, 2002
Form 10-Q Report, File No. 1-8962
    
    8-13-0210.4.5b
    
    Pinnacle West
APS
    
    Letter Agreement
dated June 28, 2001
between Pinnacle
West Capital
Corporation and
Steve Wheeler
    
    10.4A to Pinnacle Wests 2002 Form 10-K
Report, File No. 1-8962
    
    3-31-0310.4.6b
    
    APS
    
    Letter Agreement
dated December 20,
2006 between APS
and Randall K.
Edington
    
    10.78 to Pinnacle West/APS 2006 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    2-28-0710.4.7b
    
    APS
    
    Letter Agreement
dated July 22, 2008
between APS and
Randall K. Edington
    
    10.3 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File No. 1-4473
    
    8-07-0810.4.8b
    
    Pinnacle West
APS
    
    Letter Agreement
dated June 17, 2008
between Pinnacle
West/APS and James
R. Hatfield
    
    10.1 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File Nos. 1-8962 and
1-4473
    
    8-07-0810.4.9b
    
    APS
    
    Description of 2008
Palo Verde Specific
Compensation
Opportunity for
Randall K. Edington
    
    10.7 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File No. 1-4473
    
    8-07-08
  186




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.4.10b
    
    APS
    
    Supplemental
Agreement dated
December 26, 2008
between APS and
Randall K. Edington
    
    10.4.10 to Pinnacle West/APS 2008 Form
10-K Report, File No. 1-4473
    
    2-20-0910.4.11b
    
    APS
    
    Description of 2009
Palo Verde Specific
Compensation
Opportunity for
Randall K. Edington
    
    10.2 to Pinnacle West/APS March 31, 2009
Form 10-Q Report, File No. 1-4473
    
    5-5-0910.4.12b
    
    Pinnacle West
APS
    
    Career Recognition
Award Agreement
dated April 14,
2009 between
Pinnacle West
Capital Corporation
and William J. Post
    
    10.1 to Pinnacle West/APS March 31, 2009
Form 10-Q Report, File Nos. 1-8962 and
1-4473
    
    5-5-0910.4.13b
    
    APS
    
    Description of 2010
Palo Verde Specific
Compensation
Opportunity for
Randall K. Edington10.5.1bd
    
    Pinnacle West
APS
    
    Key Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
executive officers
of Pinnacle West
and its
subsidiaries
    
    10.77 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-13-0610.5.1abd
    
    Pinnacle West
APS
    
    Form of Amended and
Restated Key
Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
officers of
Pinnacle West and
its subsidiaries
    
    10.4 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File Nos. 1-8962
and 1-4473
    
    11-5-07
  187




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.5.2bd
    
    Pinnacle West
APS
    
    Form of Key
Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
officers of
Pinnacle West and
its subsidiaries
    
    10.3 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File Nos. 1-8962
and 1-4473
    
    11-5-0710.5.3bd
    
    Pinnacle West
APS
    
    Form of Key
Executive
Employment and
Severance Agreement
between Pinnacle
West and certain
officers of
Pinnacle West and
its subsidiaries10.6.1b
    
    Pinnacle West
APS
    
    Pinnacle West
Capital Corporation
1994 Long- Term
Incentive Plan,
effective as of
March 23, 1994
    
    Appendix A to the Proxy Statement for
the Plan Report for Pinnacle Wests 1994
Annual Meeting of Shareholders, File
No. 1-8962
    
    4-15-9410.6.1ab
    
    Pinnacle West
APS
    
    First Amendment
dated December 7,
1999 to the
Pinnacle West
Capital Corporation
1994 Long-Term
Incentive Plan
    
    10.12A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-0010.6.2b
    
    Pinnacle West
APS
    
    Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
    
    10.5A to Pinnacle Wests 2002 Form 10-K
Report
    
    3-31-0310.6.2abd
    
    Pinnacle West
APS
    
    Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
    
    10.1 to Pinnacle West/APS December 9,
2005 Form 8-K Report, File Nos. 1-8962
and 1-4473
    
    12-15-05
  188




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.6.2bbd
    
    Pinnacle West
APS
    
    Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
    
    10.1 to Pinnacle West/APS December 31,
2005 Form
8-K Report, File Nos. 1-8962 and 1-4473
    
    2-1-0610.6.2cd
    
    Pinnacle West
APS
    
    Performance
Accelerated Stock
Option Agreement
under Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
    
    10.98 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-0510.6.2dbd
    
    Pinnacle West
APS
    
    Stock Ownership
Incentive Agreement
under Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
    
    10.99 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-0510.6.2ebd
    
    Pinnacle West
APS
    
    Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2002 Long-Term
Incentive Plan
    
    10.91 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-13-0610.6.2fbd
    
    Pinnacle West
APS
    
    Performance Share
Agreement under the
Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
    
    10.3 to Pinnacle West/APS March 31, 2009
Form 10-Q Report, File Nos. 1-8962 and
1-4473
    
    5-5-0910.6.3b
    
    Pinnacle West
    
    Pinnacle West
Capital Corporation
2000 Director
Equity Plan
    
    99.1 to Pinnacle Wests Registration
Statement on Form S-8 (No. 333-40796),
File No. 1-8962)
    
    7-3-0010.6.4b
    
    Pinnacle West
    
    Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
    
    Appendix B to the Proxy Statement for
Pinnacle Wests 2007 Annual Meeting of
Shareholders, File No. 1-8962
    
    4-20-07
  189




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.6.4ab
    
    Pinnacle West
    
    First Amendment to
the Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
    
    10.2 to Pinnacle West/APS April 18, 2007
Form 8-K Report, File No. 1-8962
    
    4-20-0710.6.4bb
    
    Pinnacle West
    
    Description of
Annual Stock Grants
to Non-Employee
Directors
    
    10.1 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File No. 1-8962
    
    11-5-0710.6.4cb
    
    Pinnacle West
    
    Description of
Stock Grant to W.
Douglas Parker
    
    10.2 to Pinnacle West/APS September 30,
2007 Form 10-Q Report, File No. 1-8962
    
    11-5-0710.6.4db
    
    Pinnacle West
    
    Description of
Annual Stock Grants
to Non-Employee
Directors
    
    10.2 to Pinnacle West/APS June 30, 2008
Form 10-Q Report, File No. 1-8962
    
    8-07-0810.6.5bd
    
    Pinnacle West
APS
    
    Summary of 2010 CEO
Variable Incentive
Plan and Officer
Variable Incentive
Plan10.7.1
    
    Pinnacle West
APS
    
    Indenture of Lease
with Navajo Tribe
of Indians, Four
Corners Plant
    
    5.01 to APS Form S-7 Registration
Statement, File No. 2-59644
    
    9-1-7710.7.1a
    
    Pinnacle West
APS
    
    Supplemental and
Additional
Indenture of Lease,
including
amendments and
supplements to
original lease with
Navajo Tribe of
Indians, Four
Corners Plant
    
    5.02 to APS Form S-7 Registration
Statement, File No. 2-59644
    
    9-1-7710.7.1b
    
    Pinnacle West
APS
    
    Amendment and
Supplement No. 1 to
Supplemental and
Additional
Indenture of Lease
Four Corners, dated
April 25, 1985
    
    10.36 to Pinnacle Wests Registration
Statement on Form 8-B Report, File No.
1-8962
    
    7-25-85
  190




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.7.2
    
    Pinnacle West
APS
    
    Application and
Grant of
multi-party
rights-of-way and
easements, Four
Corners Plant Site
    
    5.04 to APS Form S-7 Registration
Statement, File No. 2-59644
    
    9-1-7710.7.2a
    
    Pinnacle West
APS
    
    Application and
Amendment No. 1 to
Grant of
multi-party
rights-of-way and
easements, Four
Corners Power Plant
Site dated April
25, 1985
    
    10.37 to Pinnacle Wests Registration
Statement on Form 8-B, File No. 1-8962
    
    7-25-8510.7.3
    
    Pinnacle West
APS
    
    Application and
Grant of Arizona
Public Service
Company rights-
of-way and
easements, Four
Corners Plant Site
    
    5.05 to APS Form S-7 Registration
Statement, File No. 2-59644
    
    9-1-7710.7.3a
    
    Pinnacle West
APS
    
    Application and
Amendment No. 1 to
Grant of Arizona
Public Service
Company
rights-of-way and
easements, Four
Corners Power Plant
Site dated April
25, 1985
    
    10.38 to Pinnacle Wests Registration
Statement on Form 8-B, File No. 1-8962
    
    7-25-8510.7.4
    
    Pinnacle West
APS
    
    Four Corners
Project Co-Tenancy
Agreement Amendment
No. 6
    
    10.7 to Pinnacle Wests 2000 Form 10-K
Report, File No. 1-8962
    
    3-14-0110.8.1
    
    Pinnacle West
APS
    
    Indenture of Lease,
Navajo Units 1, 2,
and 3
    
    5(g) to APS Form S-7 Registration
Statement, File No. 2-36505
    
    3-23-7010.8.2
    
    Pinnacle West
APS
    
    Application of
Grant of
rights-of-way and
easements, Navajo
Plant
    
    5(h) to APS Form S-7 Registration
Statement, File No. 2-36505
    
    3-23-70
  191




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.8.3
    
    Pinnacle West
APS
    
    Water Service
Contract Assignment
with the United
States Department
of Interior, Bureau
of Reclamation,
Navajo Plant
    
    5(l) to APS Form S-7 Registration
Statement, File No. 2-394442
    
    3-16-7110.8.4
    
    Pinnacle West
APS
    
    Navajo Project
Co-Tenancy
Agreement dated as
of March 23, 1976,
and 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
    
    10.107 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-13-0610.8.5
    
    Pinnacle West
APS
    
    Navajo Project
Participation
Agreement dated as
of September 30,
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
    
    10.108 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-13-06
  192




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.9.1
    
    Pinnacle West
APS
    
    Arizona Nuclear
Power 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, and
amendments 1-12
thereto
    
    10. 1 to APS 1988 Form
10-K Report, File No. 1-4473
    
    3-8-8910.9.1a
    
    Pinnacle West
APS
    
    Amendment No. 13,
dated as of April
22, 1991, to
Arizona Nuclear
Power 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
    
    10.1 to APS March 31, 1991 Form 10-Q
Report, File No. 1-4473
    
    5-15-91
  193




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.9.1b
    
    Pinnacle West
APS
    
    Amendment No. 14 to
Arizona Nuclear
Power 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
    
    99.1 to Pinnacle Wests June 30, 2000
Form 10-Q Report, File No. 1-8962
    
    8-14-0010.10.1
    
    Pinnacle West
APS
    
    Asset Purchase and
Power Exchange
Agreement dated
September 21, 1990
between APS and
PacifiCorp, as
amended as of
October 11, 1990
and as of July 18,
1991
    
    10.1 to APS June 30, 1991 Form 10-Q
Report, File No. 1-4473
    
    8-8-9110.10.2
    
    Pinnacle West
APS
    
    Long-Term Power
Transaction
Agreement dated
September 21, 1990
between APS and
PacifiCorp, as
amended as of
October 11, 1990,
and as of July 8,
1991
    
    10.2 to APS June 30, 1991 Form 10-Q
Report, File No. 1-4473
    
    8-8-91
  194




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.10.2a
    
    Pinnacle West
APS
    
    Amendment No. 1
dated April 5, 1995
to the Long-Term
Power Transaction
Agreement and Asset
Purchase and Power
Exchange Agreement
between PacifiCorp
and APS
    
    10.3 to APS 1995 Form 10-K Report, File
No. 1-4473
    
    3-29-9610.10.3
    
    Pinnacle West
APS
    
    Restated
Transmission
Agreement between
PacifiCorp and APS
dated April 5, 1995
    
    10.4 to APS 1995 Form
10-K Report, File No. 1-4473
    
    3-29-9610.10.4
    
    Pinnacle West
APS
    
    Contract among
PacifiCorp, APS and
United States
Department of
Energy Western Area
Power
Administration,
Salt Lake Area
Integrated Projects
for Firm
Transmission
Service dated May
5, 1995
    
    10.5 to APS 1995 Form
10-K Report, File No. 1-4473
    
    3-29-9610.10.5
    
    Pinnacle West
APS
    
    Reciprocal
Transmission
Service Agreement
between APS and
PacifiCorp dated as
of March 2, 1994
    
    10.6 to APS 1995 Form
10-K Report, File No. 1-4473
    
    3-29-9610.11.1
    
    Pinnacle West
APS
    
    Amended and
Restated
Reimbursement
Agreement among
APS, the Banks
party thereto, and
JPMorgan Chase
Bank, as
Administrative
Agent and Issuing
Bank, dated as of
July 22, 2002
    
    10.100 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-05
  195




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Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.11.2
    
    Pinnacle West
APS
    
    Three-Year Credit
Agreement dated as
of May 21, 2004
between APS as
Borrower, and the
banks, financial
institutions and
other institutional
lenders and initial
issuing banks
listed on the
signature pages
thereof
    
    10.101 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-0510.11.3
    
    Pinnacle West
APS
    
    Three-Year Credit
Agreement dated as
of February 12,
2010 between APS,
as Borrower, Wells
Fargo Bank,
National
Association, as
Agent, and the
lenders and other
parties thereto10.11.4
    
    Pinnacle West
    
    $200,000,000 Senior
Notes Uncommitted
Master Shelf
Agreement dated as
of February 28,
2006
    
    10.96 to Pinnacle West 2005 Form 10-K
Report, File No. 1-8962
    
    3-13-0610.11.5
    
    Pinnacle West
    
    Three-Year Credit
Agreement dated as
of February 12,
2010 among Pinnacle
West Capital
Corporation, as
Borrower, Bank of
America, N.A, as
Agent, and the
lenders and other
parties thereto
  196




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Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.11.5a
    
    Pinnacle West
    
    First Amendment to
Amended and
Restated Credit
Agreement, dated as
of 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
    
    10.1 to Pinnacle Wests June 30, 2006
Form 10-Q Report, File No. 1-8962
    
    8-8-0610.11.6
    
    Pinnacle West
APS
    
    Credit Agreement
dated as of October
19, 2004 among
Pinnacle West,
other lenders, and
JPMorgan Chase
Bank, as
Administrative
Agent
    
    10.1 to Pinnacle Wests September 30,
2004 Form 10-Q Report, File No. 1-8962
    
    11-8-0410.11.7
    
    APS
    
    $500,000,000
Five-Year Credit
Agreement dated as
of September 28,
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
    
    10.1 to APS September 2006 Form 10-Q
Report, File No. 1-4473
    
    11-8-06
  197




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Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.11.8
    
    Pinnacle West
APS
    
    Amended and
Restated
Reimbursement
Agreement among
Arizona Public
Service Company,
The 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
    
    99.6 to PinnacleWest/APS June 30, 2005
Form 10-Q Report, File Nos. 1-8962 and
1-4473
    
    8-9-0510.12.1c
    
    Pinnacle West
APS
    
    Facility Lease,
dated as of August
1, 1986, between
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
    
    4.3 to APS Form 18 Registration
Statement, File No. 33-9480
    
    10-24-8610.12.1ac
    
    Pinnacle West
APS
    
    Amendment No. 1,
dated as of
November 1, 1986,
to Facility Lease,
dated as of August
1, 1986, between
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
    
    10.5 to APS September 30, 1986 Form
10-Q Report by means of Amendment No. 1
on December 3, 1986 Form 8, File No.
1-4473
    
    12-4-86
  198




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Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.12.1bc
    
    Pinnacle West
APS
    
    Amendment No. 2
dated as of June 1,
1987 to Facility
Lease dated as of
August 1, 1986
between U.S. Bank
National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
    
    10.3 to APS 1988 Form
10-K Report, File No. 1-4473
    
    3-8-8910.12.1cc
    
    Pinnacle West
APS
    
    Amendment No. 3,
dated as of March
17, 1993, to
Facility Lease,
dated as of August
1, 1986, between
U.S. Bank National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
    
    10.3 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-9310.12.2
    
    Pinnacle West
APS
    
    Facility Lease,
dated as of
December 15, 1986,
between 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
    
    10.1 to APS November 18, 1986 Form 8-K
Report, File No. 1-4473
    
    1-20-87
  199




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Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.12.2a
    
    Pinnacle West
APS
    
    Amendment No. 1,
dated as of August
1, 1987, to
Facility Lease,
dated as of
December 15, 1986,
between U.S. Bank
National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
    
    4.13 to APS Form 18 Registration
Statement No. 33-9480 by means of
August 1, 1987 Form 8-K Report, File No.
1-4473
    
    8-24-8710.12.2b
    
    Pinnacle West
APS
    
    Amendment No. 2,
dated as of March
17, 1993, to
Facility Lease,
dated as of
December 15, 1986,
between U.S. Bank
National
Association,
successor to State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Lessor, and APS, as
Lessee
    
    10.4 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-9310.13.1
    
    Pinnacle West
APS
    
    Agreement No. 13904
(Option and
Purchase of
Effluent) with
Cities of Phoenix,
Glendale, Mesa,
Scottsdale, Tempe,
Town of Youngtown,
and Salt River
Project
Agricultural
Improvement and
Power District,
dated April 23,
1973
    
    10.3 to APS 1991 Form
10-K Report, File No. 1-4473
    
    3-19-92
  200




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Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.13.2
    
    Pinnacle West
APS
    
    Agreement between
Pinnacle West
Energy Corporation
and Arizona Public
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
    
    10.102 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-0510.13.3
    
    Pinnacle West
APS
    
    Agreement for the
Transfer and Use of
Wastewater and
Effluent by and
between APS, SRP
and PWE dated June
1, 2001
    
    10.103 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-0510.13.4
    
    Pinnacle West
APS
    
    Agreement for the
Sale and Purchase
of Wastewater
Effluent dated
November 13, 2000,
by and between the
City of Tolleson,
Arizona, APS and
SRP
    
    10.104 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-0510.13.5
    
    Pinnacle West
APS
    
    Operating Agreement
for the
Co-Ownership of
Wastewater Effluent
dated November 16,
2000 by and between
APS and SRP
    
    10.105 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-05
  201




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.13.6
    
    Pinnacle West
APS
    
    Agreement for the
Sale and Purchase
of Wastewater
Effluent with City
of 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
    
    10.4 to APS 1991 Form 10-K Report, File
1-4473
    
    3-19-9210.14.1
    
    Pinnacle West
APS
    
    Contract, dated
July 21, 1984, with
DOE providing for
the disposal of
nuclear fuel and/or
high-level
radioactive waste,
ANPP
    
    10.31 to Pinnacle Wests Form S-14
Registration Statement, File No. 2-96386
    
    3-13-8510.15.1
    
    Pinnacle West
APS
    
    Territorial
Agreement between
APS and Salt River
Project
    
    10.1 to APS March 31, 1998 Form 10-Q
Report, File No. 1-4473
    
    5-15-9810.15.2
    
    Pinnacle West
APS
    
    Power Coordination
Agreement between
APS and Salt River
Project
    
    10.2 to APS March 31, 1998 Form 10-Q
Report, File No. 1-4473
    
    5-15-9810.15.3
    
    Pinnacle West
APS
    
    Memorandum of
Agreement between
APS and Salt River
Project
    
    10.3 to APS March 31, 1998 Form 10-Q
Report, File No. 1-4473
    
    5-15-9810.15.3a
    
    Pinnacle West
APS
    
    Addendum to
Memorandum of
Agreement between
APS and Salt River
Project dated as of
May 19, 1998
    
    10.2 to APS May 19, 1998 Form 8-K
Report, File No. 1-4473
    
    6-26-9812.1
    
    Pinnacle West
    
    Ratio of Earnings
to Fixed Charges
  202




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed12.2
    
    APS
    
    Ratio of Earnings
to Fixed Charges12.3
    
    Pinnacle West
    
    Ratio of Earnings
to Combined Fixed
Charges and
Preferred Stock
Dividend
Requirements21.1
    
    Pinnacle West
    
    Subsidiaries of
Pinnacle West23.1
    
    Pinnacle West
    
    Consent of Deloitte
& Touche LLP23.2
    
    APS
    
    Consent of Deloitte
& Touche LLP31.1
    
    Pinnacle West
    
    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
amended31.2
    
    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
amended31.3
    
    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
  203




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed31.4
    
    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
amended32.1
    
    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 200232.2
    
    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 200299.1
    
    Pinnacle West
APS
    
    Collateral Trust
Indenture among
PVNGS II Funding
Corp., Inc., APS
and Chemical Bank,
as Trustee
    
    4.2 to APS 1992 Form 10-K Report, File
No. 1-4473
    
    3-30-9399.1a
    
    Pinnacle West
APS
    
    Supplemental
Indenture to
Collateral Trust
Indenture among
PVNGS II Funding
Corp., Inc., APS
and Chemical Bank,
as Trustee
    
    4.3 to APS 1992 Form 10-K Report, File
No. 1-4473
    
    3-30-93
  204




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.2c
    
    Pinnacle West
APS
    
    Participation
Agreement, dated as
of August 1, 1986,
among PVNGS Funding
Corp., Inc., Bank
of America National
Trust and Savings
Association, 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
    
    28.1 to APS September 30, 1992 Form
10-Q Report, File No. 1-4473
    
    11-9-9299.2ac
    
    Pinnacle West
APS
    
    Amendment No. 1
dated as of
November 1, 1986,
to Participation
Agreement, dated as
of August 1, 1986,
among PVNGS Funding
Corp., Inc., Bank
of America National
Trust and Savings
Association, 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
    
    10.8 to APS September 30, 1986 Form
10-Q Report by means of Amendment No.
1, on December 3, 1986 Form 8, File No.
1-4473
    
    12-4-86
  205




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.2bc
    
    Pinnacle West
APS
    
    Amendment No. 2,
dated as of March
17, 1993, to
Participation
Agreement, 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
    
    28.4 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-9399.3c
    
    Pinnacle West
APS
    
    Trust Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility 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
    
    4.5 to APS Form 18 Registration
Statement, File No. 33-9480
    
    10-24-86
  206




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.3ac
    
    Pinnacle West
APS
    
    Supplemental
Indenture No. 1,
dated as of
November 1, 1986 to
Trust Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility 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
    
    10.6 to APS September 30, 1986 Form
10-Q Report by means of Amendment No. 1
on December 3, 1986 Form 8, File No.
1-4473
    
    12-4-8699.3bc
    
    Pinnacle West
APS
    
    Supplemental
Indenture No. 2 to
Trust Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility 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
Lease Indenture
Trustee
    
    4.4 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-9399.4c
    
    Pinnacle West
APS
    
    Assignment,
Assumption and
Further Agreement,
dated as of August
1, 1986, between
APS and State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee
    
    28.3 to APS Form 18 Registration
Statement, File No. 33-9480
    
    10-24-86
  207




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.4ac
    
    Pinnacle West
APS
    
    Amendment No. 1,
dated as of
November 1, 1986,
to Assignment,
Assumption and
Further Agreement,
dated as of August
1, 1986, between
APS and State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as
Owner Trustee
    
    10.10 to APS September 30, 1986 Form
10-Q Report by means of Amendment No. l
on December 3, 1986 Form 8, File No.
1-4473
    
    12-4-8699.4bc
    
    Pinnacle West
APS
    
    Amendment No. 2,
dated as of March
17, 1993, to
Assignment,
Assumption and
Further Agreement,
dated as of August
1, 1986, between
APS and State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee
    
    28.6 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-9399.5
    
    Pinnacle West
APS
    
    Participation
Agreement, dated as
of December 15,
1986, among PVNGS
Funding Report
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 under a
Trust Indenture,
APS, and the Owner
Participant named
therein
    
    28.2 to APS September 30, 1992 Form
10-Q Report, File No. 1-4473
    
    11-9-92
  208




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.5a
    
    Pinnacle West
APS
    
    Amendment No. 1,
dated as of August
1, 1987, to
Participation
Agreement, dated as
of December 15,
1986, among PVNGS
Funding Corp., Inc.
as Funding
Corporation, State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee, Chemical
Bank, as Indenture
Trustee, APS, and
the Owner
Participant named
therein
    
    28.20 to APS Form 18 Registration
Statement No. 33-9480 by means of a
November 6, 1986 Form 8-K Report, File
No. 1-4473
    
    8-10-8799.5b
    
    Pinnacle West
APS
    
    Amendment No. 2,
dated as of March
17, 1993, to
Participation
Agreement, 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
Participant named
therein
    
    28.5 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-93
  209




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.6
    
    Pinnacle West
APS
    
    Trust Indenture,
Mortgage Security
Agreement and
Assignment of
Facility Lease,
dated as of
December 15, 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
    
    10.2 to APS November 18, 1986 Form
10-K Report, File No. 1-4473
    
    1-20-8799.6a
    
    Pinnacle West
APS
    
    Supplemental
Indenture No. 1,
dated as of August
1, 1987, to Trust
Indenture,
Mortgage, Security
Agreement and
Assignment of
Facility Lease,
dated as of
December 15, 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
    
    4.13 to APS Form 18 Registration
Statement No. 33-9480 by means of August
1, 1987 Form 8-K Report, File No. 1-4473
    
    8-24-87
  210




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.6b
    
    Pinnacle West
APS
    
    Supplemental
Indenture No. 2 to
Trust Indenture
Mortgage, Security
Agreement and
Assignment of
Facility Lease,
dated as of
December 15, 1986,
between State
Street Bank and
Trust Company, as
successor to The
First National Bank
of Boston, as Owner
Trustee, and
Chemical Bank, as
Lease Indenture
Trustee
    
    4.5 to APS 1992 Form 10-K Report, File
No. 1-4473
    
    3-30-9399.7
    
    Pinnacle West
APS
    
    Assignment,
Assumption and
Further Agreement,
dated as of
December 15, 1986,
between APS and
State Street Bank
and Trust Company,
as successor to The
First National Bank
of Boston, as Owner
Trustee
    
    10.5 to APS November 18, 1986 Form 8-K
Report, File No. 1-4473
    
    1-20-8799.7a
    
    Pinnacle West
APS
    
    Amendment No. 1,
dated as of March
17, 1993, to
Assignment,
Assumption and
Further Agreement,
dated as of
December 15, 1986,
between APS and
State Street Bank
and Trust Company,
as successor to The
First National Bank
of Boston, as Owner
Trustee
    
    28.7 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-9399.8c
    
    Pinnacle West
APS
    
    Indemnity Agreement
dated as of March
17, 1993 by APS
    
    28.3 to APS 1992 Form
10-K Report, File No. 1-4473
    
    3-30-93
  211




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.9
    
    Pinnacle West
APS
    
    Extension Letter,
dated as of August
13, 1987, from the
signatories of the
Participation
Agreement to
Chemical Bank
    
    28.20 to APS Form 18 Registration
Statement No. 33-9480 by means of a
November 6, 1986 Form 8-K Report, File
No. 1-4473
    
    8-10-8799.10
    
    Pinnacle West
APS
    
    Arizona Corporation
Commission Order,
Decision No. 61969,
dated September 29,
1999, including the
Retail Electric
Competition Rules
    
    10.2 to APS September 30, 1999 Form
10-Q Report, File No. 1-4473
    
    11-15-9999.11
    
    Pinnacle West
    
    Purchase Agreement
by and among
Pinnacle West
Energy Corporation
and GenWest, L.L.C.
and Nevada Power
Company, dated June
21, 2005
    
    99.5 to Pinnacle West/APS June 30, 2005
Form 10-Q Report, File Nos. 1-8962 and
1-4473
    
    8-9-05
 
 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.  212




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##### Table of Contents



SIGNATURES
  PINNACLE WEST CAPITAL
CORPORATION
(Registrant)Date:  February 19, 2010
    /s/ Donald E. Brandt(Donald E. Brandt,Chairman of the Board of Directors, President and
Chief Executive Officer) Power of Attorney
   Signature
    
    Title
    
    Date/s/ Donald E. Brandt

(Donald E. Brandt, Chairman
of the Board of Directors, President
and Chief Executive Officer)
    
    Principal Executive Officer
and Director
    
    February 19, 2010/s/ James R. Hatfield

(James R. Hatfield,
Senior Vice President and
Chief Financial Officer)
    
    Principal Financial Officer
    
    February 19, 2010/s/ Barbara M. Gomez

(Barbara M. Gomez,
Vice President, Controller and
Chief Accounting Officer,
position at December 31, 2009)
    
    Principal Accounting Officer
(position at December 31, 2009)
    
    February 19, 2010
  213




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##### Table of Contents



Signature
    
    Title
    
    Date/s/ Edward N. Basha, Jr.

(Edward N. Basha, Jr.)
    
    Director
    
    February 19, 2010/s/ Susan Clark-Johnson

(Susan Clark-Johnson)
    
    Director
    
    February 19, 2010/s/ Denis A. Cortese

(Denis A. Cortese)
    
    Director
    
    February 19, 2010/s/ Michael L. Gallagher

(Michael L. Gallagher)
    
    Director
    
    February 19, 2010/s/ Pamela Grant

(Pamela Grant)
    
    Director
    
    February 19, 2010/s/ Roy A. Herberger, Jr.

(Roy A. Herberger, Jr.)
    
    Director
    
    February 19, 2010/s/ William S. Jamieson

(William S. Jamieson)
    
    Director
    
    February 19, 2010/s/ Humberto S. Lopez

(Humberto S. Lopez)
    
    Director
    
    February 19, 2010/s/ Kathryn L. Munro

(Kathryn L. Munro)
    
    Director
    
    February 19, 2010/s/ Bruce J. Nordstrom

(Bruce J. Nordstrom)
    
    Director
    
    February 19, 2010/s/ W. Douglas Parker

(W. Douglas Parker)
    
    Director
    
    February 19, 2010/s/ William J. Post

(William J. Post)
    
    Director
    
    February 19, 2010/s/ William L. Stewart

(William L. Stewart)
    
    Director
    
    February 19, 2010
  214




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##### Table of Contents



SIGNATURES
  ARIZONA PUBLIC SERVICE COMPANY
(Registrant)Date:  February 19, 2010
    /s/ Donald E. Brandt(Donald E. Brandt,Chairman of the Board of Directors and Chief
Executive Officer) Power of Attorney
   Signature
    
    Title
    
    Date/s/ Donald E. Brandt

(Donald E. Brandt, Chairman
of the Board of Directors and
Chief Executive Officer)
    
    Principal Executive Officer
and Director
    
    February 19, 2010/s/ James R. Hatfield

(James R. Hatfield,
Senior Vice President and Chief
Financial Officer)
    
    Principal Financial Officer
and Principal Accounting
Officer
    
    February 19, 2010
  215




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##### Table of Contents



Signature
    
    Title
    
    Date/s/ Edward N. Basha, Jr.

(Edward N. Basha, Jr.)
    
    Director
    
    February 19, 2010/s/ Susan Clark-Johnson

(Susan Clark-Johnson)
    
    Director
    
    February 19, 2010/s/ Denis A. Cortese

(Denis A. Cortese)
    
    Director
    
    February 19, 2010/s/ Michael L. Gallagher

(Michael L. Gallagher)
    
    Director
    
    February 19, 2010/s/ Pamela Grant

(Pamela Grant)
    
    Director
    
    February 19, 2010/s/ Roy A. Herberger, Jr.

(Roy A. Herberger, Jr.)
    
    Director
    
    February 19, 2010/s/ William S. Jamieson

(William S. Jamieson)
    
    Director
    
    February 19, 2010/s/ Humberto S. Lopez

(Humberto S. Lopez)
    
    Director
    
    February 19, 2010/s/ Kathryn L. Munro

(Kathryn L. Munro)
    
    Director
    
    February 19, 2010/s/ Bruce J. Nordstrom

(Bruce J. Nordstrom)
    
    Director
    
    February 19, 2010/s/ W. Douglas Parker

(W. Douglas Parker)
    
    Director
    
    February 19, 2010/s/ William J. Post

(William J. Post)
    
    Director
    
    February 19, 2010/s/ William L. Stewart

(William L. Stewart)
    
    Director
    
    February 19, 2010
  216