##### 



PINNACLE WEST CAPITAL CORPORATION
NON-GAAP FINANCIAL MEASURE RECONCILIATION  OPERATING INCOME
(GAAP MEASURE) TO GROSS MARGIN (NON-GAAP FINANCIAL MEASURE)
 TWELVE MONTHS ENDEDDECEMBER 31,
    
    
    Increase (Decrease)2005
    
    
    2004
    
    
    Pretax
    
    
    After TaxRECONCILIATION OF REGULATED ELECTRICITY SEGMENT GROSS MARGINOperating Income (closest GAAP measure)
    
    $
    515,289
    
    
    $
    517,965
    
    
    $
    (2,676
    )
    
    $
    (1,632
    )Plus:Operations and maintenance
    
    
    635,827
    
    
    
    592,320
    
    
    
    43,507
    
    
    
    26,526Real estate segment operations
    
    
    278,366
    
    
    
    284,194
    
    
    
    (5,828
    )
    
    
    (3,553
    )Depreciation and amortization
    
    
    347,652
    
    
    
    391,597
    
    
    
    (43,945
    )
    
    
    (26,793
    )Taxes other than income taxes
    
    
    132,040
    
    
    
    120,722
    
    
    
    11,318
    
    
    
    6,901Other expenses
    
    
    51,987
    
    
    
    34,108
    
    
    
    17,879
    
    
    
    10,901Regulatory disallowance
    
    
    138,562
    
    
    
    
    
    
    
    138,562
    
    
    
    84,481Marketing and trading segment fuel and purchased power
    
    
    293,091
    
    
    
    320,667
    
    
    
    (27,576
    )
    
    
    (16,813
    )Less:Real estate segment revenues
    
    
    338,031
    
    
    
    350,315
    
    
    
    (12,284
    )
    
    
    (7,490
    )Other revenues
    
    
    61,221
    
    
    
    42,816
    
    
    
    18,405
    
    
    
    11,222Marketing and trading segment revenues
    
    
    351,558
    
    
    
    400,628
    
    
    
    (49,070
    )
    
    
    (29,918
    )Regulated electricity segment gross margin
    
    $
    1,642,004
    
    
    $
    1,467,814
    
    
    $
    174,190
    
    
    $
    106,204RECONCILIATION OF MARKETING AND TRADING SEGMENT GROSS MARGINOperating Income (closest GAAP measure)
    
    $
    515,289
    
    
    $
    517,965
    
    
    $
    (2,676
    )
    
    $
    (1,632
    )Plus:Operations and maintenance
    
    
    635,827
    
    
    
    592,320
    
    
    
    43,507
    
    
    
    26,526Real estate segment operations
    
    
    278,366
    
    
    
    284,194
    
    
    
    (5,828
    )
    
    
    (3,553
    )Depreciation and amortization
    
    
    347,652
    
    
    
    391,597
    
    
    
    (43,945
    )
    
    
    (26,793
    )Taxes other than income taxes
    
    
    132,040
    
    
    
    120,722
    
    
    
    11,318
    
    
    
    6,901Other expenses
    
    
    51,987
    
    
    
    34,108
    
    
    
    17,879
    
    
    
    10,901Regulatory disallowance
    
    
    138,562
    
    
    
    
    
    
    
    138,562
    
    
    
    84,481Regulated electricity segment fuel and purchased power
    
    
    595,141
    
    
    
    567,433
    
    
    
    27,708
    
    
    
    16,894Less:Real estate segment revenues
    
    
    338,031
    
    
    
    350,315
    
    
    
    (12,284
    )
    
    
    (7,490
    )Other revenues
    
    
    61,221
    
    
    
    42,816
    
    
    
    18,405
    
    
    
    11,222Regulated electricity segment revenues
    
    
    2,237,145
    
    
    
    2,035,247
    
    
    
    201,898
    
    
    
    123,097Marketing and trading segment gross margin
    
    $
    58,467
    
    
    $
    79,961
    
    
    $
    (21,494
    )
    
    $
    (13,104
    )




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##### 



PINNACLE WEST CAPITAL CORPORATION
NON-GAAP FINANCIAL MEASURE RECONCILIATION  OPERATING INCOME
(GAAP MEASURE) TO GROSS MARGIN (NON-GAAP FINANCIAL MEASURE)
 TWELVE MONTHS ENDEDDECEMBER 31,
    
    
    Increase (Decrease)2004
    
    
    2003
    
    
    Pretax
    
    
    After TaxRECONCILIATION OF REGULATED ELECTRICITY SEGMENT GROSS MARGINOperating Income (closest GAAP measure)
    
    $
    517,965
    
    
    $
    473,252
    
    
    $
    44,713
    
    
    $
    27,262Plus:Operations and maintenance
    
    
    592,320
    
    
    
    548,732
    
    
    
    43,588
    
    
    
    26,576Real estate segment operations
    
    
    284,194
    
    
    
    305,974
    
    
    
    (21,780
    )
    
    
    (13,279
    )Depreciation and amortization
    
    
    391,597
    
    
    
    435,140
    
    
    
    (43,543
    )
    
    
    (26,548
    )Taxes other than income taxes
    
    
    120,722
    
    
    
    110,270
    
    
    
    10,452
    
    
    
    6,373Other expenses
    
    
    34,108
    
    
    
    23,254
    
    
    
    10,854
    
    
    
    6,618Marketing and trading segment fuel and purchased power
    
    
    320,667
    
    
    
    344,862
    
    
    
    (24,195
    )
    
    
    (14,752
    )Less:Real estate segment revenues
    
    
    350,315
    
    
    
    361,604
    
    
    
    (11,289
    )
    
    
    (6,883
    )Other revenues
    
    
    42,816
    
    
    
    27,929
    
    
    
    14,887
    
    
    
    9,077Marketing and trading segment revenues
    
    
    400,628
    
    
    
    391,196
    
    
    
    9,432
    
    
    
    5,751Regulated electricity segment gross margin
    
    $
    1,467,814
    
    
    $
    1,460,755
    
    
    $
    7,059
    
    
    $
    4,305RECONCILIATION OF MARKETING AND TRADING SEGMENT GROSS MARGINOperating Income (closest GAAP measure)
    
    $
    517,965
    
    
    $
    473,252
    
    
    $
    44,713
    
    
    $
    27,262Plus:Operations and maintenance
    
    
    592,320
    
    
    
    548,732
    
    
    
    43,588
    
    
    
    26,576Real estate segment operations
    
    
    284,194
    
    
    
    305,974
    
    
    
    (21,780
    )
    
    
    (13,279
    )Depreciation and amortization
    
    
    391,597
    
    
    
    435,140
    
    
    
    (43,543
    )
    
    
    (26,548
    )Taxes other than income taxes
    
    
    120,722
    
    
    
    110,270
    
    
    
    10,452
    
    
    
    6,373Other expenses
    
    
    34,108
    
    
    
    23,254
    
    
    
    10,854
    
    
    
    6,618Regulated electricity segment fuel and purchased power
    
    
    567,433
    
    
    
    517,320
    
    
    
    50,113
    
    
    
    30,554Less:Real estate segment revenues
    
    
    350,315
    
    
    
    361,604
    
    
    
    (11,289
    )
    
    
    (6,883
    )Other revenues
    
    
    42,816
    
    
    
    27,929
    
    
    
    14,887
    
    
    
    9,077Regulated electricity segment revenues
    
    
    2,035,247
    
    
    
    1,978,075
    
    
    
    57,172
    
    
    
    34,858Marketing and trading segment gross margin
    
    $
    79,961
    
    
    $
    46,334
    
    
    $
    33,627
    
    
    $
    20,504