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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, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
    
    Registrants; State of Incorporation;
    
    IRS EmployerFile Number
    
    Addresses; and Telephone Number
    
    Identification No.1-8962
    
    PINNACLE WEST CAPITAL CORPORATION
    
    86-0512431(An Arizona corporation)400 North Fifth Street, P.O. Box 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,
    
    New York Stock ExchangeNo Par ValueARIZONA PUBLIC SERVICE COMPANY
    
    None
    
    None
 Securities registered pursuant to Section 12(g) of the Act:
  þ o
 o þ
  o þ
 o þ
  þ o
 þ 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
    
    $3,979,906,800 as of June 30, 2007ARIZONA PUBLIC SERVICE COMPANY
    
    $0 as of June 30, 2007
  PINNACLE WEST CAPITAL CORPORATION
    
    100,499,104 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
    
    
    1PART I
    
    
    3Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    21Item 1B. Unresolved Staff Comments
    
    
    28Item 2. Properties
    
    
    29Item 3. Legal Proceedings
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Supplemental ItemExecutive Officers of Pinnacle West
    
    
    32PART II
    
    
    35Item 5. Market for Registrants Common Equity, Pinnacle West Related
Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    35Item 6. Selected Financial Data
    
    
    37Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    39Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    72Item 8. Financial Statements and Supplementary Data
    
    
    73Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    151Item 9A. Controls and Procedures
    
    
    151Item 9B. Other Information
    
    
    152PART III
    
    
    152Item 10. Directors, Executive Officers and Corporate Governance of Pinnacle West
    
    
    152Item 11. Executive Compensation
    
    
    152Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    152Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    154Item 14. Principal Accountant Fees and Services
    
    
    154PART IV
    
    
    156Item 15. Exhibits and Financial Statement Schedules
    
    
    156SIGNATURES
    
    
    197EX-10.1.2HEX-10.6.5EX-12.1EX-12.2EX-12.3EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-31.3EX-31.4EX-32.1EX-32.2
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INTRODUCTION
 Filing Format
   
    
    Pinnacle West ConsolidatedThis section describes the financial condition and
results of operations of Pinnacle West and its subsidiaries on a consolidated basis.
It includes discussions of Pinnacle Wests regulated utility and non-utility
operations. A substantial part of Pinnacle Wests revenues and earnings is derived
from its regulated utility, APS.
    
    APSThis section includes a detailed description of the results of operations and
contractual obligations of APS.
  
 PART I
 
 ITEM 1. BUSINESS
 OVERVIEW
 General
    3




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Business Segments
  
    
    the regulated electricity segment (accounting for 83% of operating revenues in
2007), which consists of traditional regulated retail and wholesale electricity
businesses (primarily electric service to Native Load customers) and related
activities, and includes electricity generation, transmission and distribution; and
    
    the real estate segment (accounting for 6% of operating revenues in 2007), which
consists of SunCors real estate development and investment activities.
  APS ACC Proceedings
  Employees
  Available Information
 www.pinnaclewest.com
 www.pinnaclewest.com,
 
    
    Corporate Governance Guidelines;
    
    Board Committee Summary;
    
    Charters for Pinnacle Wests Audit Committee, Corporate Governance Committee,
Finance, Nuclear and Operating Committee and Human Resources Committee;
    
    Code of Ethics for Financial Professionals;
 4




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
    
    Ethics Policy and Standards of Business Practices;
    
    Director Independence Standards;
    
    Executive Officer Stock Ownership Guidelines; and
    
    Restricted Stock Retention Policy.
   Forward-Looking Statements
  
    
    state and federal regulatory and legislative decisions and actions, particularly
those affecting our rates and our recovery of fuel and purchased power costs;
    
    the outcome of regulatory, legislative and judicial proceedings, both current and
future, relating to the restructuring of the electric industry and environmental matters (including those
related to climate change);
    
    the ongoing restructuring of the electric industry, including decisions impacting
wholesale competition and the introduction of retail electric competition in Arizona;
    
    market prices for electricity and natural gas;
    
    volatile market liquidity, any deteriorating counterparty credit and the use of
derivative contracts in our business (including the interpretation of the subjective
and complex accounting rules related to these contracts);
    
    power plant performance and outages;
    
    transmission outages and constraints;
    
    weather variations affecting local and regional customer energy usage;
    
    customer growth and energy usage;
    
    regional economic and market conditions, including the results of litigation and
other proceedings resulting from the California and Pacific Northwest energy
situations, volatile fuel and purchased power costs and the completion of generation
and transmission construction in the region, which could affect customer growth and the
cost of power supplies;
 5




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
    
    the cost of debt and equity capital and access to capital markets;
    
    current credit ratings remaining in effect for any given period of time;
    
    our ability to compete successfully outside traditional regulated markets (including
the wholesale market);
    
    changes in accounting principles generally accepted in the United States of America
and the interpretation of those principles;
    
    the performance of the stock market and the changing interest rate environment,
which affect the value of our nuclear decommissioning trust, pension, and other
postretirement benefit plan assets, the amount of required contributions to Pinnacle
Wests pension plan and contributions to APS nuclear decommissioning trust funds, as
well as the reported costs of providing pension and other postretirement benefits;
    
    technological developments in the electric industry;
    
    the strength of the real estate market in SunCors market areas, which include
Arizona, Idaho, New Mexico and Utah; and
    
    other uncertainties, all of which are difficult to predict and many of which are
beyond the control of Pinnacle West and APS.
 REGULATION AND COMPETITION
 Retail
    6




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Wholesale
 General
  BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
 General
   Portfolio Resources
  Generation Facilities
  7




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Capacity (kW)Coal:Units 1, 2 and 3 at Four Corners
    
    
    560,00015% owned Units 4 and 5 at Four Corners
    
    
    225,000Units 1, 2 and 3 at Cholla
    
    
    641,00014% owned Units 1, 2 and 3 at the Navajo Generating Station
    
    
    315,000Subtotal
    
    
    1,741,000Gas or Oil:Two steam units at Ocotillo and two steam units at Saguaro
    
    
    430,000Twenty-two combustion turbine units
    
    
    992,000Seven combined cycle units
    
    
    1,862,000Subtotal
    
    
    3,284,000Nuclear:29.1% owned or leased Units 1, 2 and 3 at Palo Verde
    
    
    1,126,752
    1Solar
    
    
    5,817Total
    
    
    6,157,569
 
 1
    
    As of January 26, 2008, nuclear capacity increased to 1,147,122 kW, reflecting
completion of the steam generator replacement program. Coal Fueled Generating Facilities
 Four Corners
 Cholla
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Navajo Generating Station
   Natural Gas Fueled Generating Facilities
  Nuclear Generating Facility
 Palo Verde Nuclear Generating Station 
 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.
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Spent Nuclear Fuel and Waste Disposal 
 Palo Verde Leases 
 Regulatory 
 NRC Inspection 
  10




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Nuclear Decommissioning Costs 
  Palo Verde Liability and Insurance Matters
 Alternative Generation Sources
    11




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Purchased Power Agreements
  CapacityPurchased Power Agreement
    
    Dates Available
    
    (MW)Purchase Agreement (a)
    
    Year-round through June 15, 2010
    
    
    234Exchange Agreement (b)
    
    May 15 to September 15 annually
through 2020
    
    
    480Tolling Agreement
    
    June 2007 through May 2017
    
    
    510Tolling 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
    
    
    150Wind Agreement
    
    December 2006 through December 2026
    
    
    90Geothermal Agreement
    
    January 2006 through 2029
    
    
    10Landfill Gas Agreement
    
    Deliveries expected to commence in 2008; expires 2028
    
    
    3Biomass Agreement
    
    Deliveries expected to commence in 2008; expires 2022
    
    
    14
 
 (a)
    
    The amount of electricity available to APS under this agreement is based in large part on
customer demand and is adjusted annually. Effective June 16, 2007, the seller, Salt River
Project, reduced the capacity available to APS by 150 MW. Additionally, Salt River Project
has elected to cancel this contract effective June 15, 2010.(b)
    
    This is a seasonal capacity exchange agreement with PacifiCorp. Under this agreement, APS
receives electricity from PacifiCorp during the summer peak season (from May 15 to September
15) and APS returns electricity to PacifiCorp during the winter season (from October 15 to
February 15). Until 2020, APS and PacifiCorp each has 480 MW of capacity and a related amount
of energy available to it under the agreement for its respective seasons. In 2007, APS
received 571,342 MWh of energy under the capacity exchange. Additionally, under a
supplemental energy sales agreement, APS must also make additional offers of energy to
PacifiCorp each year through October 31, 2020. Pursuant to this requirement, during 2007,
PacifiCorp received offers of 1,093,175 MWh and purchased 174,340 MWh.  Reserve Margin
  12




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Transmission and Distribution Facilities
  Percent Owned(Weighted Average)Harquahala
    
    
    80.0
    %Palo Verde  Estrella 500KV System
    
    
    55.5
    %ANPP500KV System
    
    
    35.8
    %Navajo Southern System
    
    
    31.4
    %Four Corners Switchyards
    
    
    27.5
    %Palo Verde  Yuma 500KV System
    
    
    23.9
    %Phoenix  Mead System
    
    
    17.1
    %
 Plant and Transmission Line Leases and Easements on Indian Lands
   13




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Construction Program
  Estimate2008
    
    
    2009
    
    
    2010Major facilities:Distribution
    
    $
    410
    
    
    $
    440
    
    
    $
    430Generation
    
    
    380
    
    
    
    390
    
    
    
    380Transmission
    
    
    220
    
    
    
    320
    
    
    
    290Other
    
    
    50
    
    
    
    40
    
    
    
    50Total
    
    $
    1,060
    
    
    $
    1,190
    
    
    $
    1,150
   Environmental Matters
 EPA Environmental Regulation
 Regional Haze Rules
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Mercury
 15




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Federal Implementation Plan
 Four Corners FIP
  16




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Navajo Generating Station FIP
  Superfund nd
 Manufactured Gas Plant Sites
 Navajo Nation Environmental Issues
    17




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Climate Change
   www.pinnaclewest.com
 Water Supply
   18




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Federal Energy Legislation
  BUSINESS OF SUNCOR DEVELOPMENT COMPANY
      BUSINESS OF OTHER SUBSIDIARIES
  20




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ITEM 1A. RISK FACTORS
  APS is subject to comprehensive government regulation by several federal, state and local
regulatory agencies that could have a material adverse impact on its business and results of
operations.
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APS is subject to numerous environmental laws and regulations that may increase its cost of
operations, impact its business plans, or expose it to environmental liabilities.
    22




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Concern over climate change could result in significant legislative and regulatory efforts to
limit greenhouse gas emissions or related litigation, which may increase APS cost of operations.
 2 2
 There are inherent risks in the operation of nuclear facilities, such as environmental, health
and financial risks and the risk of terrorist attack.
    23




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The operation of power generation facilities involves risks that could result in unscheduled
power outages or reduced output, which could materially affect our results of operations.
  Deregulation or restructuring of the electric industry may result in increased competition,
which could have a significant adverse impact on our business and our financial results.
   Changes in technology may adversely affect our business.
  Our results of operations can be adversely affected by weather conditions.
  24




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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.
  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.
  
    
    an economic downturn;
    
    the bankruptcy of an unrelated energy company;
    
    increased market prices for electricity and gas;
    
    terrorist attacks or threatened attacks on our facilities or those of unrelated
energy companies;
    
    changes in technology; or
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
    
    the overall health of the utility or real estate industry.
  
    
    increasing the cost of future debt financing;
    
    increasing our vulnerability to adverse economic and industry conditions;
    
    requiring us to dedicate a substantial portion of our cash flow from operations to
payments on our debt, which would reduce funds available to us for operations, future
business opportunities or other purposes; and
    
    placing us at a competitive disadvantage compared with our competitors that have
less debt.
  A reduction in our credit ratings could materially and adversely affect our business,
financial condition and results of operations.
  The use of derivative contracts in the normal course of our business and changing interest
rates and market conditions could result in financial losses that negatively impact our results of
operations.
  26




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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;
    
    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;
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
    
    future sale of equity or equity-linked securities; and
    
    general domestic and international economic conditions.
  We may enter into credit and other agreements from time to time that restrict our ability to
pay dividends.
  SunCors business and financial performance could be adversely affected by a variety of
factors affecting the real estate market.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
 .
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ITEM 2. PROPERTIES
 Information Regarding Our Properties
    Real Estate Segment Properties
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ITEM 3. LEGAL PROCEEDINGS
    
 ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
  31




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SUPPLEMENTAL ITEM.
 
 EXECUTIVE OFFICERS OF PINNACLE WEST
  Name
    

Age
at February 27, 2008
    

Position(s)
at February 27, 2008William J. Post
    
    
    57
    
    
    Chairman of the Board and Chief Executive Officer (1)Jack E. Davis
    
    
    61
    
    
    President and Chief Operating Officer, and Chief Executive Officer, APS (1)Donald E. Brandt
    
    
    53
    
    
    Executive Vice President
and Chief Financial
Officer, and President and
Chief Financial Officer of
APSJan H. Bennett
    
    
    60
    
    
    Senior Vice President,
Energy Delivery, APSJohn R. Denman
    
    
    65
    
    
    Senior Vice President,
Fossil Operations, APSRandall K. Edington
    
    
    54
    
    
    Executive Vice President
and Chief Nuclear Officer,
APSArmando B. Flores
    
    
    64
    
    
    Executive Vice President,
Corporate Business
Services, APSChris N. Froggatt
    
    
    50
    
    
    Vice President and
Controller, APSBarbara M. Gomez
    
    
    53
    
    
    Vice President and TreasurerNancy C. Loftin
    
    
    54
    
    
    Senior Vice President,
General Counsel and
SecretaryDonald G. Robinson
    
    
    54
    
    
    Senior Vice President,
Planning and
Administration, APSLori S. Sundberg
    
    
    44
    
    
    Vice President, Human
Resources, APSSteven M. Wheeler
    
    
    59
    
    
    Executive Vice President,
Customer Service and
Regulation, APS
 
 (1)
    
    Member of the Board of Directors. 32




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
   Dividends2007
    
    High
    
    Low
    
    Close
    
    Per Share1st Quarter
    
    $
    51.67
    
    
    $
    46.43
    
    
    $
    48.25
    
    
    $
    0.5252nd Quarter
    
    
    50.68
    
    
    
    39.38
    
    
    
    39.85
    
    
    
    0.5253rd Quarter
    
    
    41.76
    
    
    
    36.79
    
    
    
    39.51
    
    
    
    0.5254th Quarter
    
    
    44.50
    
    
    
    39.04
    
    
    
    42.41
    
    
    
    0.525
 Dividends2006
    
    High
    
    Low
    
    Close
    
    Per Share1st Quarter
    
    $
    44.14
    
    
    $
    38.76
    
    
    $
    39.10
    
    
    $
    0.5002nd Quarter
    
    
    41.06
    
    
    
    38.31
    
    
    
    39.91
    
    
    
    0.5003rd Quarter
    
    
    45.99
    
    
    
    39.90
    
    
    
    45.05
    
    
    
    0.5004th Quarter
    
    
    51.00
    
    
    
    45.12
    
    
    
    50.69
    
    
    
    0.525
   Common Stock Dividends
(Dollars in Thousands)
 Quarter
    
    2007
    
    20061st Quarter
    
    $42,500
    
    $42,5002nd Quarter
    
    42,500
    
    42,5003rd Quarter
    
    42,500
    
    42,5004th Quarter
    
    42,500
    
    42,500
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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, 2007
    
    
    862
    
    
    $
    41.90
    
    
    
    
    
    
    
    November 1  November 30, 2007
    
    
    6
    
    
    
    42.37
    
    
    
    
    
    
    
    December 1  December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    868
    
    
    $
    41.90
    
    
    
    
    
    
    
    
 
 (1)
    
    Represents shares of common stock withheld by Pinnacle West to satisfy tax withholding
obligations upon the vesting of restricted stock. 36




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ITEM 6. SELECTED FINANCIAL DATA
PINNACLE WEST CAPITAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(dollars in thousands, except per share amounts)OPERATING RESULTSOperating revenues:Regulated electricity segment
    
    $
    2,918,163
    
    
    $
    2,635,036
    
    
    $
    2,237,145
    
    
    $
    2,035,247
    
    
    $
    1,978,075Real estate segment
    
    
    215,068
    
    
    
    399,798
    
    
    
    338,031
    
    
    
    350,315
    
    
    
    361,604Marketing and trading
    
    
    342,371
    
    
    
    330,742
    
    
    
    351,558
    
    
    
    400,628
    
    
    
    391,196Other revenues
    
    
    48,018
    
    
    
    36,172
    
    
    
    61,221
    
    
    
    42,816
    
    
    
    27,929Total operating revenues
    
    $
    3,523,620
    
    
    $
    3,401,748
    
    
    $
    2,987,955
    
    
    $
    2,829,006
    
    
    $
    2,758,804Income from continuing operations (a)
    
    $
    298,780
    
    
    $
    317,143
    
    
    $
    223,163
    
    
    $
    246,590
    
    
    $
    225,384Discontinued operations  net of income
taxes (b)
    
    
    8,363
    
    
    
    10,112
    
    
    
    (46,896
    )
    
    
    (3,395
    )
    
    
    15,195Net income
    
    $
    307,143
    
    
    $
    327,255
    
    
    $
    176,267
    
    
    $
    243,195
    
    
    $
    240,579COMMON STOCK DATABook value per share  year-end
    
    $
    35.15
    
    
    $
    34.48
    
    
    $
    34.58
    
    
    $
    32.14
    
    
    $
    30.97Earnings (loss) per weighted-average
common share outstanding:Continuing operations  basic
    
    $
    2.98
    
    
    $
    3.19
    
    
    $
    2.31
    
    
    $
    2.70
    
    
    $
    2.47Net income  basic
    
    $
    3.06
    
    
    $
    3.29
    
    
    $
    1.83
    
    
    $
    2.66
    
    
    $
    2.64Continuing operations  diluted
    
    $
    2.96
    
    
    $
    3.17
    
    
    $
    2.31
    
    
    $
    2.69
    
    
    $
    2.47Net income  diluted
    
    $
    3.05
    
    
    $
    3.27
    
    
    $
    1.82
    
    
    $
    2.66
    
    
    $
    2.63Dividends declared per share
    
    $
    2.10
    
    
    $
    2.025
    
    
    $
    1.925
    
    
    $
    1.825
    
    
    $
    1.725Weighted-average common shares
outstanding  basic
    
    
    100,255,807
    
    
    
    99,417,008
    
    
    
    96,483,781
    
    
    
    91,396,904
    
    
    
    91,264,696Weighted-average common shares
outstanding  diluted
    
    
    100,834,871
    
    
    
    100,010,108
    
    
    
    96,589,949
    
    
    
    91,532,473
    
    
    
    91,405,134BALANCE SHEET DATATotal assets
    
    $
    11,243,712
    
    
    $
    11,455,943
    
    
    $
    11,322,645
    
    
    $
    9,896,747
    
    
    $
    9,519,042Liabilities and equity:Current liabilities
    
    $
    1,384,967
    
    
    $
    1,458,560
    
    
    $
    2,272,073
    
    
    $
    1,625,896
    
    
    $
    1,432,568Long-term debt less current maturities
    
    
    3,127,125
    
    
    
    3,232,633
    
    
    
    2,608,455
    
    
    
    2,584,985
    
    
    
    2,616,585Deferred credits and other
    
    
    3,200,009
    
    
    
    3,318,634
    
    
    
    3,017,153
    
    
    
    2,735,670
    
    
    
    2,640,110Total liabilities
    
    
    7,712,101
    
    
    
    8,009,827
    
    
    
    7,897,681
    
    
    
    6,946,551
    
    
    
    6,689,263Common stock equity
    
    
    3,531,611
    
    
    
    3,446,116
    
    
    
    3,424,964
    
    
    
    2,950,196
    
    
    
    2,829,779Total liabilities and equity
    
    $
    11,243,712
    
    
    $
    11,455,943
    
    
    $
    11,322,645
    
    
    $
    9,896,747
    
    
    $
    9,519,042
 
 (a)
    
    Includes regulatory disallowance of $8 million after tax in 2007 and $84 million after tax in
2005. See Note 3.(b)
    
    Amounts primarily related to Silverhawk and SunCor discontinued operations. See Note 22. 37




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##### Table of Contents



SELECTED FINANCIAL DATA
ARIZONA PUBLIC SERVICE COMPANY
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(dollars in thousands)OPERATING RESULTSElectric operating revenues
    
    $
    2,936,277
    
    
    $
    2,658,513
    
    
    $
    2,270,793
    
    
    $
    2,197,121
    
    
    $
    2,104,931Fuel and purchased power costs
    
    
    1,151,392
    
    
    
    969,767
    
    
    
    688,982
    
    
    
    763,254
    
    
    
    703,431Operating expenses
    
    
    1,358,890
    
    
    
    1,290,804
    
    
    
    1,200,198
    
    
    
    1,104,886
    
    
    
    1,103,342Operating income
    
    
    425,995
    
    
    
    397,942
    
    
    
    381,613
    
    
    
    328,981
    
    
    
    298,158Other income (deductions)
    
    
    20,870
    
    
    
    27,584
    
    
    
    (69,171
    )
    
    
    15,328
    
    
    
    26,347Interest deductions  net
    
    
    162,925
    
    
    
    155,796
    
    
    
    141,963
    
    
    
    144,682
    
    
    
    143,568Net income
    
    $
    283,940
    
    
    $
    269,730
    
    
    $
    170,479
    
    
    $
    199,627
    
    
    $
    180,937BALANCE SHEET DATATotal assets
    
    $
    10,402,905
    
    
    $
    10,513,692
    
    
    $
    9,707,441
    
    
    $
    8,098,552
    
    
    
    $7,722,533Liabilities and equity:Common stock equity
    
    $
    3,351,441
    
    
    $
    3,207,473
    
    
    $
    2,985,225
    
    
    $
    2,232,402
    
    
    $
    2,203,630Long-term debt less current
maturities
    
    
    2,876,881
    
    
    
    2,877,502
    
    
    
    2,479,703
    
    
    
    2,267,094
    
    
    
    2,135,606Total capitalization
    
    
    6,228,322
    
    
    
    6,084,975
    
    
    
    5,464,928
    
    
    
    4,499,496
    
    
    
    4,339,236Current liabilities
    
    
    1,096,224
    
    
    
    1,278,566
    
    
    
    1,513,964
    
    
    
    1,178,770
    
    
    
    915,884Deferred credits and other
    
    
    3,078,359
    
    
    
    3,150,151
    
    
    
    2,728,549
    
    
    
    2,420,286
    
    
    
    2,467,413Total liabilities and equity
    
    $
    10,402,905
    
    
    $
    10,513,692
    
    
    $
    9,707,441
    
    
    $
    8,098,552
    
    
    $
    7,722,533
 38




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 INTRODUCTION
  OVERVIEW
      39




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##### Table of Contents



PINNACLE WEST CONSOLIDATED 
EARNINGS CONTRIBUTION BY BUSINESS SEGMENT
  
    
    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.
  2007
    
    
    2006
    
    
    2005Regulated electricity segment (a)
    
    $
    274
    
    
    $
    259
    
    
    $
    167Real estate segment
    
    
    12
    
    
    
    50
    
    
    
    35All other (b)
    
    
    13
    
    
    
    8
    
    
    
    21Income from continuing operations
    
    
    299
    
    
    
    317
    
    
    
    223Discontinued operations  net of tax:Real estate (c)
    
    
    11
    
    
    
    10
    
    
    
    17Sale of Silverhawk (d)
    
    
    
    
    
    
    1
    
    
    
    (67
    )All other (b)
    
    
    (3
    )
    
    
    (1
    )
    
    
    3Net income
    
    $
    307
    
    
    $
    327
    
    
    $
    176
 
 (a)
    
    Includes an $84 million after-tax regulatory disallowance of plant costs in
2005 in accordance with APS 2003 general retail rate case settlement.(b)
    
    Includes activities related to marketing and trading, APSES and El Dorado.
None of these segments is a reportable segment.(c)
    
    Primarily relates to sales of commercial properties.(d)
    
    See Note 22. PINNACLE WEST CONSOLIDATED  RESULTS OF OPERATIONS
 2007 Compared with 2006
  40




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##### Table of Contents




    
    Regulated Electricity Segment  Income from continuing operations increased
approximately $15 million primarily due to higher retail sales related to customer
growth; the effects of weather on retail sales; and impacts of the retail rate
increase. These positive factors were partially offset by higher operations and
maintenance expense primarily due to increased generation costs (including increased
maintenance and overhauls and the Palo Verde performance improvement plan), customer
service and other costs; higher depreciation and amortization primarily due to
increased plant balances; lower other income, net of expense, primarily due to
miscellaneous asset sales in the prior year and lower interest income as a result of
lower investment balances; and a regulatory disallowance. In addition, higher fuel
and purchased power costs related to commodity price increases were substantially
offset by deferral of such costs in accordance with the PSA. See Note 3 for further
discussion of the regulatory disallowance and the PSA.
 
    
    Real Estate Segment  Income from continuing operations decreased approximately $38
million primarily due to lower sales of residential property and land parcels
resulting from the continued slowdown in the western United States real estate
markets.
 41




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##### Table of Contents



Increase (Decrease)Pretax
    
    
    After TaxRegulated electricity segment:Higher retail sales primarily due to customer growth, excluding
weather effects
    
    $
    46
    
    
    $
    28Effects of weather on retail sales
    
    
    37
    
    
    
    23Impacts of retail rate increase effective July 1, 2007:Revenue increase related to higher Base Fuel Rate
    
    
    185
    
    
    
    113Decreased deferred fuel and purchased power costs related to
higher Base Fuel Rate
    
    
    (171
    )
    
    
    (104
    )Non-fuel rate increase
    
    
    6
    
    
    
    4Net changes in fuel and purchased power costs related to price:Higher fuel and purchased power costs related to increased
commodity prices
    
    
    (121
    )
    
    
    (74
    )Increased deferred fuel and purchased power costs related
to increased prices
    
    
    115
    
    
    
    70Mark-to-market fuel and purchased power costs,
net of related deferred fuel and purchased power costs
    
    
    18
    
    
    
    11Regulatory disallowance (see Note 3)
    
    
    (14
    )
    
    
    (8
    )Operations and maintenance increases primarily due to:Increased generation costs, including increased maintenance
and overhauls and Palo Verde performance
improvement plan
    
    
    (25
    )
    
    
    (15
    )Customer service and other costs
    
    
    (21
    )
    
    
    (13
    )Higher depreciation and amortization primarily due to increased
plant balances
    
    
    (12
    )
    
    
    (7
    )Lower other income, net of expense, primarily due to
lower interest income as a result of lower investment
balances and miscellaneous asset sales in prior year
    
    
    (15
    )
    
    
    (9
    )Income tax benefits resolved in 2007 related to prior years
    
    
    
    
    
    
    13Income tax credits resolved in 2006 related to prior years
    
    
    
    
    
    
    (14
    )Miscellaneous items, net
    
    
    6
    
    
    
    (3
    )Increase in regulated electricity segment net income
    
    
    34
    
    
    
    15Lower real estate segment income from continuing operations
primarily due to:Lower sales of residential property resulting from the continued
slowdown in the western United States real estate markets
    
    
    (47
    )
    
    
    (29
    )Lower sales of land parcels
    
    
    (12
    )
    
    
    (7
    )Higher other costs
    
    
    (5
    )
    
    
    (2
    )Higher marketing and trading contribution primarily due to higher
mark-to-market gains resulting from changes in forward prices
and higher unit margins
    
    
    8
    
    
    
    5Other miscellaneous items, net
    
    
    (2
    )
    
    
    Decrease in income from continuing operations
    
    $
    (24
    )
    
    
    (18
    )Discontinued operations:Increased commercial property real estate sales
    
    
    
    
    
    
    1Other discontinued operations
    
    
    
    
    
    
    (3
    )Decrease in net income
    
    
    
    
    
    $
    (20
    )
 42




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##### Table of Contents



Regulated Electricity Segment Revenues
  
    
    a $191 million increase in retail revenues due to a rate increase effective July 1,
2007;
    
    a $60 million increase in retail revenues primarily related to customer growth,
excluding weather effects;
    
    a $50 million increase in retail revenues due to the effects of weather;
    
    a $3 million increase in revenues from Off-System Sales due to higher prices and
volumes;
    
    a $35 million decrease in retail revenues related to recovery of PSA deferrals,
which had no earnings effect because of amortization of the same amount recorded as
fuel and purchased power expense (see Note 3); and
    
    a $14 million net increase due to miscellaneous factors.
 Real Estate Segment Revenues
  
    
    a $167 million decrease in residential property sales due to the continued slowdown
in western United States real estate markets; and
    
    an $18 million decrease primarily due to lower sales of land parcels.
 All Other Revenues
   2006 Compared with 2005
  43




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##### Table of Contents




    
    Regulated Electricity Segment  Income from continuing operations increased
approximately $92 million primarily due to an $84 million after-tax regulatory
disallowance of plant costs recorded in 2005. Income also increased due to higher
retail sales volumes due to customer growth; income tax credits related to prior years
resolved in 2006; and increased other income due to higher interest income on higher
investment balances. These positive factors were partially offset by higher operations
and maintenance expense related to generation and customer service; and higher
depreciation and amortization primarily due to increased plant asset balances,
partially offset by lower depreciation rates. In addition, higher fuel and purchased
power costs of $74 million after-tax were partially offset by the deferral of $45
million after-tax of costs in accordance with the PSA.
    
    Real Estate Segment  Income from continuing operations increased approximately $15
million primarily due to increased margins on residential sales and the sale of certain
joint venture assets, partially offset by higher general and administrative expenses.
Income from discontinued operations decreased $7 million due to lower commercial
property sales.
    
    Other  Income from continuing operations decreased approximately $13 million
primarily due to lower mark-to-market gains, partially offset by higher unit margins on
wholesale sales and competitive retail sales in California.
 44




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##### Table of Contents



Increase (Decrease)Pretax
    
    
    After TaxRegulated electricity segment:Higher fuel and purchased power costs
    
    $
    (121
    )
    
    $
    (74
    )Increased deferred fuel and purchased power costs
(deferrals began April 1, 2005)
    
    
    73
    
    
    
    45Higher retail sales volumes due to customer growth,
excluding weather effects
    
    
    87
    
    
    
    53Regulatory disallowance of plant costs in 2005, in
accordance with APS 2003 general retail rate case
settlement
    
    
    139
    
    
    
    84Operations and maintenance increases primarily due to:Generation costs, including increased maintenance and
overhauls
    
    
    (41
    )
    
    
    (25
    )Customer service costs, including regulatory demand-side
management programs and planned maintenance
    
    
    (16
    )
    
    
    (10
    )Miscellaneous items, net
    
    
    3
    
    
    
    2Higher depreciation and amortization primarily due to
increased plant asset balances partially offset by lower
depreciation rates
    
    
    (11
    )
    
    
    (7
    )Higher other income, net of expense, primarily due to
miscellaneous asset sales and increased interest income on
higher investment balances
    
    
    13
    
    
    
    8Income tax credits related to prior years resolved in 2006
    
    
    
    
    
    
    14Miscellaneous items, net
    
    
    (4
    )
    
    
    2Increase in regulated electricity segment net income
    
    
    122
    
    
    
    92Lower marketing and trading contribution primarily related to
lower mark-to-market gains, partially offset by higher unit
margins on wholesale sales and competitive retail sales in
California
    
    
    (18
    )
    
    
    (11
    )Higher real estate segment contribution primarily related to
increased margins on residential sales and the sale of
certain joint venture assets
    
    
    25
    
    
    
    15Miscellaneous items, net
    
    
    (5
    )
    
    
    (2
    )Increase in income from continuing operations
    
    $
    124
    
    
    
    94Discontinued operations:Silverhawk loss in 2005
    
    
    
    
    
    
    68Lower commercial property real estate sales
    
    
    
    
    
    
    (7
    )Income in 2005 related to sale of NAC
    
    
    
    
    
    
    (4
    )Increase in net income
    
    
    
    
    
    $
    151
 Regulated Electricity Segment Revenues
  
    
    a $265 million increase in revenues related to recovery of PSA deferrals, which had
no earnings effect because of amortization of the same amount recorded as fuel and
purchased power expense;
 45




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##### Table of Contents




    
    a $124 million increase in retail revenues related to customer growth, excluding
weather effects;
 
    
    a $6 million increase in Off-System Sales primarily resulting from $12 million of
sales previously reported in marketing and trading that were classified beginning in
April 2005 as sales in the regulated electricity segment in accordance with APS 2003
general retail rate case settlement, partially offset by $6 million of lower Off-System
Sales in 2006; and
 
    
    a $3 million increase due to miscellaneous factors.
 Real Estate Segment Revenues
  
    
    a $55 million increase in residential sales due to higher prices and volumes; and
 
    
    a $7 million increase in commercial real estate sales.
 Other Revenues
   
    
    a $20 million decrease in mark-to-market gains on contracts for future delivery due
to changes in forward prices;
 
    
    a $12 million decrease in Off-System Sales due to the absence of sales previously
reported in marketing and trading that were classified beginning in April 2005 as sales
in the regulated electricity segment in accordance with APS 2003 general retail rate
case settlement;
 
    
    a $23 million increase from higher prices on competitive retail sales in California;
and
 
    
    a $12 million decrease due to miscellaneous factors.
 LIQUIDITY AND CAPITAL RESOURCES  Pinnacle West Consolidated
 Operating Cash Flows
  46




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##### Table of Contents



Investing Cash Flows
   
    
    A decrease in cash provided by investing activities related to proceeds of
$208 million received in 2006 from the sale of Silverhawk; and
 
    
    An increase in cash used for capital expenditures and capitalized interest
of $183 million (see table and discussion below).
  
    
    A decrease of $65 million in cash invested in securities at APS;
 
    
    An increase of $19 million cash provided by sale of real estate
investments; and
 
    
    A net increase of $3 million due to miscellaneous factors.
   
    
    Proceeds of $208 million received in 2006 from the sale of Silverhawk; and
 
    
    Less cash used for capital expenditures (including the 2005 acquisition of
the Sundance Plant) and capitalized interest of approximately $72 million (see
table and discussion below).
  
    
    An increase of $214 million in cash invested in securities at APS;
 
    
    A decrease of $43 million in cash provided by sale of real estate
investments; and
 47




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##### Table of Contents




    
    A net decrease of $7 million due to miscellaneous factors.
 Financing Cash Flows
    
    
    A decrease of $161 million in net new long-term debt (issuances net of redemptions and
refinancing) to fund our construction program and for other general corporate
purposes; and
 
    
    A net decrease of $57 million due to miscellaneous factors.
   
    
    An increase of $429 million in net new long-term debt (issuances net of redemptions and
refinancing) to fund our construction program and for other general corporate
purposes;
 
    
    A net increase of $56 million in short-term borrowings to fund day-to-day
operations and liquidity needs; and
 
    
    A net increase of $37 million due to miscellaneous factors.
  
    
    A decrease of $259 million related to common stock issuance, primarily due
to a 2005 public offering.
 Liquidity
 Capital Expenditure Requirements
  48




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##### Table of Contents



CAPITAL EXPENDITURES
 Actual
    
    
    Estimated2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010APSDistribution
    
    $
    325
    
    
    $
    357
    
    
    $
    372
    
    
    $
    410
    
    
    $
    440
    
    
    $
    430Generation (a)
    
    
    356
    
    
    
    176
    
    
    
    353
    
    
    
    380
    
    
    
    390
    
    
    
    380Transmission
    
    
    92
    
    
    
    113
    
    
    
    138
    
    
    
    220
    
    
    
    320
    
    
    
    290Other (b)
    
    
    36
    
    
    
    16
    
    
    
    37
    
    
    
    50
    
    
    
    40
    
    
    
    50Subtotal
    
    
    809
    
    
    
    662
    
    
    
    900
    
    
    
    1,060
    
    
    
    1,190
    
    
    
    1,150SunCor (c)
    
    
    106
    
    
    
    201
    
    
    
    161
    
    
    
    100
    
    
    
    90
    
    
    
    100Other
    
    
    13
    
    
    
    7
    
    
    
    3
    
    
    
    20
    
    
    
    20
    
    
    
    10Total
    
    $
    928
    
    
    $
    870
    
    
    $
    1,064
    
    
    $
    1,180
    
    
    $
    1,300
    
    
    $
    1,260
 
 (a)
    
    Includes $185 million in 2005 for the acquisition of the Sundance Plant.(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.    49




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##### Table of Contents



Pinnacle West (Parent Company)
      Significant Financing Activities  2007.
 50




---



##### Table of Contents



Significant Financing Activities 2006.
   APS
   Significant Financing Activities 2007.
 Significant Financing Activities 2006.
 51




---



##### Table of Contents



Other Financing Matters 
  Other Subsidiaries
       52




---



##### Table of Contents



Debt Provisions
     Credit Ratings
  53




---



##### Table of Contents



Moodys
    
    Standard & Poors
    
    FitchPinnacle WestSenior unsecured (a)
    
    Baa3 (P)
    
    BB+ (prelim)
    
    N/ACommercial paper
    
    P-3
    
    A-3
    
    F3Outlook
    
    Negative
    
    Stable
    
    NegativeAPSSenior unsecured
    
    Baa2
    
    BBB-
    
    BBBSecured lease obligation bonds
    
    Baa2
    
    BBB-
    
    BBBCommercial paper
    
    P-2
    
    A-3
    
    F3Outlook
    
    Negative
    
    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. Off-Balance Sheet Arrangements
   Guarantees and Letters of Credit
  54




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##### Table of Contents



Contractual Obligations
  2009-
    
    
    2011-2008
    
    
    2010
    
    
    2012
    
    
    Thereafter
    
    
    TotalLong-term debt payments,
including interest: (a)APS
    
    $
    158
    
    
    $
    537
    
    
    $
    1,038
    
    
    $
    3,135
    
    
    $
    4,868SunCor
    
    
    173
    
    
    
    78
    
    
    
    2
    
    
    
    2
    
    
    
    255Pinnacle West
    
    
    10
    
    
    
    21
    
    
    
    177
    
    
    
    
    
    
    
    208Total long-term debt payments,
including interest
    
    
    341
    
    
    
    636
    
    
    
    1,217
    
    
    
    3,137
    
    
    
    5,331Short-term debt payments,
including interest (b)
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342Purchased power and fuel
commitments (c)
    
    
    418
    
    
    
    651
    
    
    
    434
    
    
    
    1,584
    
    
    
    3,087Operating lease payments
    
    
    79
    
    
    
    148
    
    
    
    133
    
    
    
    195
    
    
    
    555Nuclear decommissioning
funding requirements
    
    
    21
    
    
    
    46
    
    
    
    49
    
    
    
    210
    
    
    
    326Purchase obligations (d)
    
    
    99
    
    
    
    29
    
    
    
    2
    
    
    
    91
    
    
    
    221Uncertain tax positions
    
    
    203
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    215Total contractual commitments
    
    $
    1,503
    
    
    $
    1,522
    
    
    $
    1,835
    
    
    $
    5,217
    
    
    $
    10,077
 
 (a)
    
    The long-term debt matures at various dates through 2036 and bears interest principally at
fixed rates. Interest on variable-rate long-term debt is determined by using the rates at
December 31, 2007 (see Note 6).(b)
    
    The short-term debt is primarily related to APS bank borrowings under its revolving line of
credit and commercial paper at Pinnacle West (see Note 5).(c)
    
    Our purchased power and fuel commitments include purchases of coal, electricity, natural gas
and nuclear fuel (see Note 11).(d)
    
    These contractual obligations include commitments for capital expenditures and other
obligations. CRITICAL ACCOUNTING POLICIES
  55




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##### Table of Contents



Regulatory Accounting
    Pensions and Other Postretirement Benefit Accounting
   56




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##### Table of Contents



Increase (Decrease)Impact on
    
    Impact onPension
    
    PensionActuarial Assumption (a)
    
    Liability
    
    ExpenseDiscount rate:Increase 1%
    
    $
    (213
    )
    
    $
    (5
    )Decrease 1%
    
    
    243
    
    
    
    9Expected long-term rate
of return on plan assets:Increase 1%
    
    
    
    
    
    
    (6
    )Decrease 1%
    
    
    
    
    
    
    6
 
 (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%
    
    $
    (90
    )
    
    $
    (4
    )Decrease 1%
    
    
    105
    
    
    
    5Health care cost trend
rate (b):Increase 1%
    
    
    94
    
    
    
    7Decrease 1%
    
    
    (76
    )
    
    
    (5
    )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.  Derivative Accounting
  57




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##### Table of Contents



OTHER ACCOUNTING MATTERS
     PINNACLE WEST CONSOLIDATED  FACTORS AFFECTING
OUR FINANCIAL OUTLOOK
 Factors Affecting Operating Revenues, Fuel and Purchased Power Costs
 General
 58




---



##### Table of Contents



Rate Proceedings
 Fuel and Purchased Power Costs
 Customer and Sales Growth
  59




---



##### Table of Contents



Weather
 Wholesale Market
 Other Factors Affecting Financial Results
 Operations and Maintenance Expenses
 Depreciation and Amortization Expenses
 Property Taxes
 Interest Expense
 Retail Competition
 Subsidiaries
 60




---



##### Table of Contents



General
 Market Risks
  Interest Rate and Equity Risk
   Variable-Rate
    
    
    Fixed-RateShort-Term Debt
    
    
    Long-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest2007
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2008
    
    
    5.54
    %
    
    $
    340,661
    
    
    
    7.33
    %
    
    $
    159,337
    
    
    
    4.65
    %
    
    $
    4,4362009
    
    
    
    
    
    
    
    
    
    
    7.20
    %
    
    
    71,054
    
    
    
    5.76
    %
    
    
    1,0502010
    
    
    
    
    
    
    
    
    
    
    9.20
    %
    
    
    201
    
    
    
    5.71
    %
    
    
    1,1042011
    
    
    
    
    
    
    
    
    
    
    8.91
    %
    
    
    2,284
    
    
    
    6.23
    %
    
    
    576,2182012
    
    
    
    
    
    
    
    
    
    
    9.50
    %
    
    
    103
    
    
    
    6.50
    %
    
    
    376,293Years thereafter
    
    
    
    
    
    
    
    
    
    
    3.77
    %
    
    
    567,239
    
    
    
    5.64
    %
    
    
    1,540,462Total
    
    
    
    
    
    $
    340,661
    
    
    
    
    
    
    $
    800,218
    
    
    
    
    
    
    $
    2,499,563Fair value
    
    
    
    
    
    $
    340,661
    
    
    
    
    
    
    $
    800,218
    
    
    
    
    
    
    $
    2,414,301
 61




---



##### Table of Contents



Variable-Rate
    
    
    Fixed-RateShort-Term Debt
    
    
    Long-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest2006
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2007
    
    
    6.26
    %
    
    $
    35,750
    
    
    
    10.25
    %
    
    $
    112
    
    
    
    5.78
    %
    
    $
    1,5492008
    
    
    
    
    
    
    
    
    
    
    7.26
    %
    
    
    161,356
    
    
    
    5.39
    %
    
    
    7,8102009
    
    
    
    
    
    
    
    
    
    
    9.37
    %
    
    
    2,500
    
    
    
    6.23
    %
    
    
    5,3712010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.24
    %
    
    
    6,4552011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.24
    %
    
    
    576,320Years thereafter
    
    
    
    
    
    
    
    
    
    
    3.77
    %
    
    
    565,855
    
    
    
    5.81
    %
    
    
    1,916,758Total
    
    
    
    
    
    $
    35,750
    
    
    
    
    
    
    $
    729,823
    
    
    
    
    
    
    $
    2,514,263Fair Value
    
    
    
    
    
    $
    35,750
    
    
    
    
    
    
    $
    729,823
    
    
    
    
    
    
    $
    2,480,605
  Variable-Rate
    
    
    Fixed-RateShort-Term Debt
    
    
    Long-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest
    
    
    
    
    
    
    Interest2007
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2008
    
    
    5.36
    %
    
    $
    218,000
    
    
    
    
    
    
    $
    
    
    
    
    5.66
    %
    
    $
    9782009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.60
    %
    
    
    9342010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.59
    %
    
    
    1,0122011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.37
    %
    
    
    401,2082012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.50
    %
    
    
    376,293Years thereafter
    
    
    
    
    
    
    
    
    
    
    3.76
    %
    
    
    565,855
    
    
    
    5.64
    %
    
    
    1,540,462Total
    
    
    
    
    
    $
    218,000
    
    
    
    
    
    
    $
    565,855
    
    
    
    
    
    
    $
    2,320,887Fair value
    
    
    
    
    
    $
    218,000
    
    
    
    
    
    
    $
    565,855
    
    
    
    
    
    
    $
    2,235,624
 62




---



##### Table of Contents



Variable-Rate
    
    
    Fixed-RateLong-Term Debt
    
    
    Long-Term DebtInterest
    
    
    
    
    
    
    Interest2006
    
    Rates
    
    
    Amount
    
    
    Rates
    
    
    Amount2007
    
    
    
    
    
    $
    
    
    
    
    6.18
    %
    
    $
    1,0332008
    
    
    
    
    
    
    
    
    
    
    6.18
    %
    
    
    1,2302009
    
    
    
    
    
    
    
    
    
    
    6.17
    %
    
    
    1,0202010
    
    
    
    
    
    
    
    
    
    
    6.17
    %
    
    
    1,1112011
    
    
    
    
    
    
    
    
    
    
    6.38
    %
    
    
    401,320Years thereafter
    
    
    3.77
    %
    
    
    565,855
    
    
    
    5.81
    %
    
    
    1,916,758Total
    
    
    
    
    
    $
    565,855
    
    
    
    
    
    
    $
    2,322,472Fair Value
    
    
    
    
    
    $
    565,855
    
    
    
    
    
    
    $
    2,288,814
 Commodity Price Risk
   2007
    
    
    2006Mark-to-market of net positions at beginning of year
    
    $
    15
    
    
    $
    516Recognized in earnings:Change in mark-to-market losses for future
period deliveries
    
    
    (2
    )
    
    
    (27
    )Mark-to-market gains realized including
ineffectiveness during the period
    
    
    (15
    )
    
    
    (3
    )Decrease (increase) in regulatory asset
    
    
    55
    
    
    
    (93
    )Recognized in OCI:Change in mark-to-market losses for future
period deliveries (a)
    
    
    (1
    )
    
    
    (352
    )Mark-to-market gains realized during the period
    
    
    (12
    )
    
    
    (26
    )Change in valuation techniques
    
    
    
    
    
    
    Mark-to-market of net positions at end of year
    
    $
    40
    
    
    $
    15
 
 (a)
    
    The decreases in mark-to-market recorded in OCI are due
primarily to
decreases in forward natural gas prices. 63




---



##### Table of Contents



TotalfairSource of Fair Value
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Years thereafter
    
    
    valuePrices actively quoted
    
    $
    (12
    )
    
    $
    10
    
    
    $
    14
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    14Prices provided by
other external sources
    
    
    (4
    )
    
    
    (16
    )
    
    
    1
    
    
    
    4
    
    
    
    3
    
    
    
    
    
    
    
    (12
    )Prices based on models
and other valuation
methods
    
    
    12
    
    
    
    15
    
    
    
    (1
    )
    
    
    
    
    
    
    2
    
    
    
    10
    
    
    
    38Total by maturity
    
    $
    (4
    )
    
    $
    9
    
    
    $
    14
    
    
    $
    6
    
    
    $
    5
    
    
    $
    10
    
    
    $
    40
  December 31, 2007
    
    
    December 31, 2006Gain (Loss)
    
    
    Gain (Loss)Price Up 10%
    
    
    Price Down 10%
    
    
    Price Up 10%
    
    
    Price Down 10%Mark-to-market changes
reported in:EarningsElectricity
    
    $
    3
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    Natural gas
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    Regulatory asset
(liability) or OCI (a)Electricity
    
    
    45
    
    
    
    (45
    )
    
    
    38
    
    
    
    (38
    )Natural gas
    
    
    85
    
    
    
    (85
    )
    
    
    80
    
    
    
    (80
    )Total
    
    $
    137
    
    
    $
    (137
    )
    
    $
    118
    
    
    $
    (118
    )
 
 (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
  64




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY  RESULTS OF OPERATIONS
 Regulatory Matters
  2007 Compared with 2006
   65




---



##### Table of Contents



Increase (Decrease)Pretax
    
    
    After TaxHigher retail sales primarily due to customer growth, excluding
weather effects
    
    $
    46
    
    
    $
    28Effects of weather on retail sales
    
    
    37
    
    
    
    23Impacts of
retail rate increase effective July 1, 2007:Revenue increase related to higher Base Fuel Rate
    
    
    185
    
    
    
    113Decreased deferred fuel and purchased power costs related
to
higher Base Fuel Rate
    
    
    (171
    )
    
    
    (104
    )Non-fuel rate increase
    
    
    6
    
    
    
    4Net changes in fuel and purchased power costs related to price:Higher fuel and purchased power costs related to increased
commodity prices
    
    
    (121
    )
    
    
    (74
    )Increased deferred fuel and purchased power costs related
to increased prices
    
    
    115
    
    
    
    70Mark-to-market fuel and purchased power costs,
net of related deferred fuel and purchased power costs
    
    
    18
    
    
    
    11Regulatory disallowance (see Note 3)
    
    
    (14
    )
    
    
    (8
    )Operations and maintenance increases primarily due to:Increased generation costs, including increased maintenance
and overhauls and Palo Verde performance
improvement plan
    
    
    (25
    )
    
    
    (15
    )Customer service and other costs
    
    
    (19
    )
    
    
    (11
    )Higher depreciation and amortization primarily due to increased
plant balances
    
    
    (12
    )
    
    
    (7
    )Lower other income, net of expense, primarily due to
lower interest income as a result of lower investment
balances and miscellaneous asset sales in prior year
    
    
    (7
    )
    
    
    (4
    )Income tax benefits resolved in 2007 related to prior years
    
    
    
    
    
    
    11Income tax credits resolved in 2006 related to prior years
    
    
    
    
    
    
    (11
    )Higher interest expense, net of capitalized financing costs,
primarily
due to higher debt balances and higher rates
    
    
    (7
    )
    
    
    (4
    )Lower marketing and trading contribution primarily due to lower
mark-to-market gains because of changes in forward prices
    
    
    (7
    )
    
    
    (4
    )Other miscellaneous items, net
    
    
    2
    
    
    
    (4
    )Increase in net income
    
    $
    26
    
    
    $
    14
  
    
    a $191 million increase in retail revenues due to a rate increase effective
July 1, 2007;
    
    a $60 million increase in retail revenues primarily related to customer growth,
excluding weather effects;
    
    a $50 million increase in retail revenues due to the effects of weather;
 66




---



##### Table of Contents




    
    a $3 million increase in revenues from Off-System Sales due to higher prices and
volumes;
    
    a $35 million decrease in retail revenues related to recovery of PSA deferrals,
which had no earnings effect because of amortization of the same amount recorded as
fuel and purchased power expense (see Note 3); and
    
    a $9 million net increase due to miscellaneous factors.
 2006 Compared with 2005
  67




---



##### Table of Contents



Increase (Decrease)Pretax
    
    
    After TaxHigher fuel and purchased power costs (see Note 3)
    
    $
    (121
    )
    
    $
    (74
    )Higher retail sales volumes due to customer growth,
excluding weather effects
    
    
    87
    
    
    
    53Increased deferred fuel and purchased power costs (deferrals
began April 1, 2005)
    
    
    73
    
    
    
    45Absence of prior-year cost-based contract for PWEC Dedicated
Assets (see Note 3)
    
    
    56
    
    
    
    34Higher marketing and trading gross margin primarily related to
higher mark-to-market gains
    
    
    20
    
    
    
    12Regulatory disallowance of plant costs in 2005, in accordance with
APS 2003 general retail rate case settlement
    
    
    139
    
    
    
    84Operations and maintenance increases primarily due to:Generation costs, including increased maintenance and overhauls
    
    
    (41
    )
    
    
    (25
    )Costs of PWEC Dedicated Assets not included in prior year
    
    
    (18
    )
    
    
    (11
    )Customer service costs, including regulatory demand-side
management programs and planned maintenance
    
    
    (16
    )
    
    
    (10
    )Miscellaneous items, net
    
    
    1
    
    
    
    1Depreciation and amortization increases primarily due to:Higher depreciable assets due to transfer of PWEC Dedicated
Assets (see Note 3)
    
    
    (14
    )
    
    
    (8
    )Higher other depreciable assets partially offset by lower
depreciation rates
    
    
    (14
    )
    
    
    (8
    )Higher interest expense, net of capitalized financing costs, primarily
due to higher debt balances and higher rates
    
    
    (14
    )
    
    
    (8
    )Higher other income, net of expense, primarily due to miscellaneous
asset sales and increased interest income on higher investment
balances
    
    
    9
    
    
    
    5Income tax credits related to prior years resolved in 2006
    
    
    
    
    
    
    11Miscellaneous items, net
    
    
    (7
    )
    
    
    (1
    )Increase in net income
    
    $
    140
    
    
    $
    100
  
    
    a $265 million increase in revenues related to recovery of PSA deferrals, which had
no earnings effect because of amortization of the same amount recorded as fuel and
purchased power expense;
    
    a $124 million increase in retail revenues related to customer growth, excluding
weather effects; and
    
    a $1 million decrease due to miscellaneous factors.
 68




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES  ARIZONA PUBLIC SERVICE COMPANY
 Operating Cash Flows
   Investing Cash Flows
   
    
    An increase of $239 million in cash used for capital expenditures and
allowance for borrowed funds used during construction (see table and
discussion above).
  
    
    A decrease of $65 million in cash invested in securities; and
 
    
    A net increase of $7 million due to miscellaneous factors.
   
    
    A decrease of $500 million related to repayment in 2005 by PWEC of a loan;
 
    
    An increase of $214 million in cash invested in
securities; and
 
    
    A net decrease of $1 million due to miscellaneous factors.
  
    
    Less cash used for capital expenditures (including, in 2005, the acquisition
of the PWEC Dedicated Assets and the Sundance Plant) and allowance for
borrowed funds used during construction of $646 million (see table and
discussion above).
 Financing Cash Flows
   
    
    A decrease of $311 million in net new long-term
debt (issuances net of redemptions and
refinancing) to fund APS construction program and for general corporate
purposes; and
 69




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##### Table of Contents




    
    A decrease of $173 million due to decreased equity infusions from Pinnacle
West.
  
    
    A net increase of $218 million in short-term borrowings to fund day-to-day
operations and liquidity needs.
   
    
    An increase of $466 million in net new long-term debt
issuances net of redemptions and
refinancings in order to fund our construction program and for other general
corporate purposes.
  
    
    A decrease of $37 million due to decreased equity infusions from Pinnacle
West; and
 
    
    A net decrease of $1 million due to miscellaneous factors.
 Liquidity
  70




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##### Table of Contents



Contractual Obligations
  2009-
    
    
    2011-
    
    
    There-2008
    
    
    2010
    
    
    2012
    
    
    after
    
    
    TotalLong-term debt payments,
including interest (a)
    
    $
    158
    
    
    $
    537
    
    
    $
    1,038
    
    
    $
    3,135
    
    
    $
    4,868Short-term debt payments,
including interest
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219Purchased power and fuel
commitments (b)
    
    
    375
    
    
    
    651
    
    
    
    422
    
    
    
    1,584
    
    
    
    3,032Operating lease payments
    
    
    72
    
    
    
    136
    
    
    
    124
    
    
    
    177
    
    
    
    509Nuclear decommissioning
funding requirements
    
    
    21
    
    
    
    46
    
    
    
    49
    
    
    
    210
    
    
    
    326Purchase obligations (c)
    
    
    99
    
    
    
    29
    
    
    
    2
    
    
    
    91
    
    
    
    221Uncertain tax positions
    
    
    198
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    210Total contractual
commitments
    
    $
    1,142
    
    
    $
    1,411
    
    
    $
    1,635
    
    
    $
    5,197
    
    
    $
    9,385
 
 (a)
    
    The long-term debt matures at various dates through 2036 and bears interest principally at
fixed rates. Interest on variable-rate long-term debt is determined by the rates at
December 31, 2007 (see Note 6).(b)
    
    APS purchased power and fuel commitments include purchases of coal, electricity, natural
gas, and nuclear fuel (see Note 11).(c)
    
    These contractual obligations include commitments for capital expenditures and other
obligations. 
 71




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE
 DISCLOSURES ABOUT MARKET RISK
  72




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 PageManagements Report on Internal Control Over Financial Reporting (Pinnacle West
Capital Corporation)
    
    
    74Report of Independent Registered Public Accounting Firm
    
    
    75Pinnacle West Consolidated Statements of Income for 2007, 2006 and 2005
    
    
    77Pinnacle West Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    78Pinnacle West Consolidated Statements of Cash Flows for 2007, 2006 and 2005
    
    
    80Pinnacle West Consolidated Statements of Changes in Common Stock Equity
for 2007, 2006 and 2005
    
    
    81Notes to Pinnacle Wests Consolidated Financial Statements
    
    
    82Managements Report on Internal Control Over Financial Reporting (Arizona
Public Service Company)
    
    
    129Report of Independent Registered Public Accounting Firm
    
    
    130APS Statements of Income for 2007, 2006 and 2005
    
    
    132APS Balance Sheets as of December 31, 2007 and 2006
    
    
    133APS Statements of Cash Flows for 2007, 2006 and 2005
    
    
    135APS Statements of Changes in Common Stock Equity for 2007, 2006 and 2005
    
    
    136Supplemental Notes to APS Financial Statements
    
    
    138Financial Statement Schedules for 2007, 2006 and 2005Pinnacle West Schedule I  Condensed Statements of Income for 2007, 2006 and 2005
    
    
    146Pinnacle West Schedule I  Condensed Balance Sheets as of December 31, 2007 and
2006
    
    
    147Pinnacle West Schedule I  Condensed Statements of Cash Flows for 2007, 2006
and 2005
    
    
    148Pinnacle West Schedule II  Reserve for Uncollectibles for 2007, 2006 and 2005
    
    
    149APS Schedule II  Reserve for Uncollectibles for 2007, 2006 and 2005
    
    
    150
  73




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL
 OVER FINANCIAL REPORTING
 (PINNACLE WEST CAPITAL CORPORATION)
 Internal Control  Integrated Framework Internal Control  Integrated Framework,
  74




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated
Framework
   75




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##### Table of Contents



Internal ControlIntegrated Framework
  
 76




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF INCOME
  Year Ended December 31,2007
    
    
    2006
    
    
    2005OPERATING REVENUESRegulated electricity segment
    
    $
    2,918,163
    
    
    $
    2,635,036
    
    
    $
    2,237,145Real estate segment
    
    
    215,068
    
    
    
    399,798
    
    
    
    338,031Marketing and trading
    
    
    342,371
    
    
    
    330,742
    
    
    
    351,558Other revenues
    
    
    48,018
    
    
    
    36,172
    
    
    
    61,221Total
    
    
    3,523,620
    
    
    
    3,401,748
    
    
    
    2,987,955OPERATING EXPENSESRegulated electricity segment fuel and
purchased power
    
    
    1,140,923
    
    
    
    960,649
    
    
    
    595,141Real estate segment operations
    
    
    193,926
    
    
    
    324,861
    
    
    
    278,366Marketing and trading fuel and
purchased power
    
    
    294,236
    
    
    
    290,637
    
    
    
    293,091Operations and maintenance
    
    
    734,705
    
    
    
    691,277
    
    
    
    635,827Depreciation and amortization
    
    
    373,436
    
    
    
    358,644
    
    
    
    347,652Taxes other than income taxes
    
    
    128,218
    
    
    
    128,395
    
    
    
    132,040Other expenses
    
    
    38,925
    
    
    
    28,415
    
    
    
    51,987Regulatory disallowance (Note 3)
    
    
    
    
    
    
    
    
    
    
    138,562Total
    
    
    2,904,369
    
    
    
    2,782,878
    
    
    
    2,472,666OPERATING INCOME
    
    
    619,251
    
    
    
    618,870
    
    
    
    515,289OTHERAllowance for equity funds used during
construction
    
    
    21,195
    
    
    
    14,312
    
    
    
    11,191Other income (Note 19)
    
    
    24,694
    
    
    
    44,016
    
    
    
    23,360Other expense (Note 19)
    
    
    (25,883
    )
    
    
    (27,800
    )
    
    
    (26,716
    )Total
    
    
    20,006
    
    
    
    30,528
    
    
    
    7,835INTEREST EXPENSEInterest charges
    
    
    212,620
    
    
    
    196,826
    
    
    
    185,087Capitalized interest
    
    
    (23,063
    )
    
    
    (20,989
    )
    
    
    (12,018
    )Total
    
    
    189,557
    
    
    
    175,837
    
    
    
    173,069INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
    
    
    449,700
    
    
    
    473,561
    
    
    
    350,055INCOME TAXES
(Note 4)
    
    
    150,920
    
    
    
    156,418
    
    
    
    126,892INCOME FROM CONTINUING OPERATIONS
    
    
    298,780
    
    
    
    317,143
    
    
    
    223,163INCOME (LOSS) FROM DISCONTINUED OPERATIONSNet of income tax expense (benefit)
of $5,572, $6,570 and ($29,797)
    
    
    8,363
    
    
    
    10,112
    
    
    
    (46,896
    )NET INCOME
    
    $
    307,143
    
    
    $
    327,255
    
    
    $
    176,267WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING  BASIC
    
    
    100,256
    
    
    
    99,417
    
    
    
    96,484WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING  DILUTED
    
    
    100,835
    
    
    
    100,010
    
    
    
    96,590EARNINGS PER WEIGHTED  AVERAGE
COMMON SHARE OUTSTANDINGIncome from continuing operations  basic
    
    $
    2.98
    
    
    $
    3.19
    
    
    $
    2.31Net income  basic
    
    
    3.06
    
    
    
    3.29
    
    
    
    1.83Income from continuing operations  diluted
    
    
    2.96
    
    
    
    3.17
    
    
    
    2.31Net income  diluted
    
    
    3.05
    
    
    
    3.27
    
    
    
    1.82DIVIDENDS DECLARED PER SHARE
    
    $
    2.10
    
    
    $
    2.025
    
    
    $
    1.925
  77




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
  December 31,2007
    
    
    2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    56,321
    
    
    $
    87,210Investment in debt securities
    
    
    
    
    
    
    32,700Customer and other receivables
    
    
    456,007
    
    
    
    501,628Allowance for doubtful accounts
    
    
    (4,782
    )
    
    
    (5,597
    )Materials and supplies (at average cost)
    
    
    149,759
    
    
    
    125,802Fossil fuel (at average cost)
    
    
    27,792
    
    
    
    21,973Deferred income taxes (Note 4)
    
    
    31,510
    
    
    
    982Assets from risk management and trading activities
(Note 18)
    
    
    97,373
    
    
    
    641,040Home inventory (Note 1)
    
    
    98,729
    
    
    
    41,846Other current assets
    
    
    34,738
    
    
    
    27,078Total current assets
    
    
    947,447
    
    
    
    1,474,662INVESTMENTS AND OTHER ASSETSReal estate investments  net (Notes 1 and 6)
    
    
    532,600
    
    
    
    526,008Assets from long-term risk management and trading
activities (Note 18)
    
    
    89,913
    
    
    
    167,211Decommissioning trust accounts (Note 12)
    
    
    379,347
    
    
    
    343,771Other assets
    
    
    117,941
    
    
    
    111,388Total investments and other assets
    
    
    1,119,801
    
    
    
    1,148,378PROPERTY, PLANT AND EQUIPMENT (Notes 1, 6,
9 and 10)Plant in service and held for future use
    
    
    11,640,739
    
    
    
    11,154,919Less accumulated depreciation and amortization
    
    
    4,004,944
    
    
    
    3,797,475Net
    
    
    7,635,795
    
    
    
    7,357,444Construction work in progress
    
    
    625,577
    
    
    
    368,284Intangible assets, net of accumulated amortization
of $252,122 and $218,836
    
    
    105,746
    
    
    
    96,100Nuclear fuel, net of accumulated amortization of
$68,375 and $50,741
    
    
    69,271
    
    
    
    60,100Total property, plant and equipment
    
    
    8,436,389
    
    
    
    7,881,928DEFERRED DEBITSDeferred fuel and purchased power regulatory asset
(Notes 1, 3 and 4)
    
    
    110,928
    
    
    
    160,268Other regulatory assets (Notes 1, 3 and 4)
    
    
    514,353
    
    
    
    686,016Other deferred debits
    
    
    114,794
    
    
    
    104,691Total deferred debits
    
    
    740,075
    
    
    
    950,975TOTAL ASSETS
    
    $
    11,243,712
    
    
    $
    11,455,943
  78




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PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
 December 31,2007
    
    
    2006LIABILITIES AND COMMON STOCK EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    323,346
    
    
    $
    346,047Accrued taxes
    
    
    269,628
    
    
    
    263,935Accrued interest
    
    
    39,836
    
    
    
    48,746Short-term borrowings (Note 5)
    
    
    340,661
    
    
    
    35,750Current maturities of long-term debt (Note 6)
    
    
    163,773
    
    
    
    1,596Customer deposits
    
    
    80,010
    
    
    
    70,168Liabilities from risk management and trading
activities (Note 18)
    
    
    65,028
    
    
    
    558,195Other current liabilities
    
    
    102,685
    
    
    
    134,123Total current liabilities
    
    
    1,384,967
    
    
    
    1,458,560LONG-TERM DEBT LESS CURRENT MATURITIES
(Note 6)
    
    
    3,127,125
    
    
    
    3,232,633DEFERRED CREDITS AND OTHERDeferred income taxes (Note 4)
    
    
    1,243,743
    
    
    
    1,225,798Regulatory liabilities (Notes 1, 3 and 4)
    
    
    642,564
    
    
    
    635,431Liability for asset retirements (Note 12)
    
    
    281,903
    
    
    
    268,389Liabilities for pension and other postretirement
benefits (Note 8)
    
    
    504,603
    
    
    
    588,852Liabilities from risk management and trading
activities (Note 18)
    
    
    45,686
    
    
    
    171,170Unamortized gain  sale of utility plant (Note 9)
    
    
    36,606
    
    
    
    41,182Other
    
    
    444,904
    
    
    
    387,812Total deferred credits and other
    
    
    3,200,009
    
    
    
    3,318,634COMMITMENTS AND CONTINGENCIES (SEE NOTES)COMMON STOCK EQUITY (Note 7)Common stock, no par value; authorized
150,000,000 shares; issued 100,525,470 at
end of 2007 and 99,961,066 at end of 2006
    
    
    2,135,787
    
    
    
    2,114,550Treasury stock at cost; 39,505 shares at end of
2007 and 2,419 shares at end of 2006
    
    
    (2,054
    )
    
    
    (449
    )Total common stock
    
    
    2,133,733
    
    
    
    2,114,101Accumulated other comprehensive income (loss):Pension and other postretirement
benefits (Note 8)
    
    
    (39,336
    )
    
    
    (19,263
    )Derivative instruments
    
    
    23,473
    
    
    
    31,531Total accumulated other comprehensive income
    
    
    (15,863
    )
    
    
    12,268Retained earnings
    
    
    1,413,741
    
    
    
    1,319,747Total common stock equity
    
    
    3,531,611
    
    
    
    3,446,116TOTAL LIABILITIES AND COMMON STOCK EQUITY
    
    $
    11,243,712
    
    
    $
    11,455,943
  79




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet Income
    
    $
    307,143
    
    
    $
    327,255
    
    
    $
    176,267Adjustments to reconcile net income to net cash provided by
operating activities:Silverhawk impairment loss
    
    
    
    
    
    
    
    
    
    
    91,025Regulatory disallowance
    
    
    
    
    
    
    
    
    
    
    138,562Depreciation and amortization including nuclear fuel
    
    
    403,896
    
    
    
    386,760
    
    
    
    381,604Deferred fuel and purchased power
    
    
    (196,136
    )
    
    
    (252,849
    )
    
    
    (172,756
    )Deferred fuel and purchased power amortization
    
    
    231,106
    
    
    
    265,337
    
    
    
    Deferred fuel and purchased power disallowance
    
    
    14,370
    
    
    
    
    
    
    
    Allowance for equity funds used during construction
    
    
    (21,195
    )
    
    
    (14,312
    )
    
    
    (11,191
    )Deferred income taxes
    
    
    (58,027
    )
    
    
    27,738
    
    
    
    (23,806
    )Change in mark-to-market valuations
    
    
    17,579
    
    
    
    28,464
    
    
    
    (11,670
    )Changes in current assets and liabilities:Customer and other receivables
    
    
    62,850
    
    
    
    9,189
    
    
    
    (38,763
    )Materials, supplies and fossil fuel
    
    
    (29,776
    )
    
    
    (9,094
    )
    
    
    (16,836
    )Other current assets
    
    
    (10,040
    )
    
    
    (890
    )
    
    
    (6,815
    )Accounts payable
    
    
    (42,004
    )
    
    
    (46,055
    )
    
    
    (6,392
    )Collateral
    
    
    (44,853
    )
    
    
    (165,828
    )
    
    
    192,040Home inventory
    
    
    (56,883
    )
    
    
    11,563
    
    
    
    (21,400
    )Accrued taxes
    
    
    20,764
    
    
    
    (22,329
    )
    
    
    43,624Other current liabilities
    
    
    22,657
    
    
    
    21,763
    
    
    
    1,567Proceeds from the sale of real estate assets
    
    
    82,521
    
    
    
    34,990
    
    
    
    16,218Real estate investments
    
    
    (121,316
    )
    
    
    (126,229
    )
    
    
    (88,055
    )Change in risk management and trading  liabilities
    
    
    (14,450
    )
    
    
    (133,197
    )
    
    
    110,393Changes in
unrecognized tax benefits
    
    
    25,178
    
    
    
    
    
    
    
    Change in other long-term assets
    
    
    17,390
    
    
    
    20,330
    
    
    
    (97,893
    )Change in other long-term liabilities
    
    
    47,162
    
    
    
    30,896
    
    
    
    74,573Net cash flow provided by operating activities
    
    
    657,936
    
    
    
    393,502
    
    
    
    730,296CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (918,581
    )
    
    
    (737,779
    )
    
    
    (633,532
    )Capitalized interest
    
    
    (23,063
    )
    
    
    (20,990
    )
    
    
    (12,018
    )Purchase of Sundance Plant
    
    
    
    
    
    
    
    
    
    
    (185,046
    )Proceeds from the sale of Silverhawk
    
    
    
    
    
    
    207,620
    
    
    
    Purchases of investment securities
    
    
    (36,525
    )
    
    
    (1,439,404
    )
    
    
    (2,962,278
    )Proceeds from sale of investment securities
    
    
    69,225
    
    
    
    1,406,704
    
    
    
    3,143,481Proceeds from nuclear decommissioning trust sales
    
    
    259,026
    
    
    
    254,651
    
    
    
    186,215Investment in nuclear decommissioning trust
    
    
    (279,768
    )
    
    
    (275,393
    )
    
    
    (204,633
    )Proceeds from sale of real estate investments
    
    
    58,139
    
    
    
    39,621
    
    
    
    82,719Other
    
    
    (1,807
    )
    
    
    (3,763
    )
    
    
    Net cash flow used for investing activities
    
    
    (873,354
    )
    
    
    (568,733
    )
    
    
    (585,092
    )CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt
    
    
    230,571
    
    
    
    757,636
    
    
    
    1,088,815Repayment of long-term debt
    
    
    (162,060
    )
    
    
    (527,864
    )
    
    
    (1,288,034
    )Short-term borrowings and payments  net
    
    
    304,911
    
    
    
    9,911
    
    
    
    (46,413
    )Dividends paid on common stock
    
    
    (210,473
    )
    
    
    (201,220
    )
    
    
    (186,677
    )Common stock equity issuance
    
    
    24,089
    
    
    
    39,548
    
    
    
    298,168Other
    
    
    (2,509
    )
    
    
    30,427
    
    
    
    (20,426
    )Net cash flow provided by (used for) financing activities
    
    
    184,529
    
    
    
    108,438
    
    
    
    (154,567
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (30,889
    )
    
    
    (66,793
    )
    
    
    (9,363
    )CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
    
    
    87,210
    
    
    
    154,003
    
    
    
    163,366CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    56,321
    
    
    $
    87,210
    
    
    $
    154,003Supplemental disclosure of cash flow informationCash paid during the period for:Income taxes paid, net of refunds
    
    $
    204,643
    
    
    $
    157,245
    
    
    $
    86,711Interest paid, net of amounts capitalized
    
    $
    193,533
    
    
    $
    153,503
    
    
    $
    181,975
  80




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PINNACLE WEST CAPITAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
  Year Ended December 31,2007
    
    
    2006
    
    
    2005COMMON STOCK (Note 7)Balance at beginning of year
    
    $
    2,114,550
    
    
    $
    2,067,377
    
    
    $
    1,769,047Issuance of common stock
    
    
    24,089
    
    
    
    39,420
    
    
    
    298,330Other
    
    
    (2,852
    )
    
    
    7,753
    
    
    
    Balance at end of year
    
    
    2,135,787
    
    
    
    2,114,550
    
    
    
    2,067,377TREASURY STOCK (Note 7)Balance at beginning of year
    
    
    (449
    )
    
    
    (1,245
    )
    
    
    (428
    )Purchase of treasury stock
    
    
    (1,964
    )
    
    
    (229
    )
    
    
    (1,601
    )Reissuance of treasury stock used for stock
compensation, net
    
    
    359
    
    
    
    1,025
    
    
    
    784Balance at end of year
    
    
    (2,054
    )
    
    
    (449
    )
    
    
    (1,245
    )RETAINED EARNINGSBalance at beginning of year
    
    
    1,319,747
    
    
    
    1,193,712
    
    
    
    1,204,122Net income
    
    
    307,143
    
    
    
    327,255
    
    
    
    176,267Common stock dividends
    
    
    (210,473
    )
    
    
    (201,220
    )
    
    
    (186,677
    )Cumulative effect of change in accounting
for income taxes (Note 4)
    
    
    (2,676
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    1,413,741
    
    
    
    1,319,747
    
    
    
    1,193,712ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)Balance at beginning of year
    
    
    12,268
    
    
    
    165,120
    
    
    
    (22,545
    )Pension and other postretirement benefits (Note 8):Unrealized actuarial loss, net of tax benefit of
($13,573)
    
    
    (21,976
    )
    
    
    
    
    
    
    Prior service cost, net of tax benefit of ($495)
    
    
    (769
    )
    
    
    
    
    
    
    Amortization to income:Actuarial loss, net of tax expense of $1,670
    
    
    2,214
    
    
    
    
    
    
    
    Prior service cost, net of tax expense of $252
    
    
    391
    
    
    
    
    
    
    
    Transition obligation, net of tax expense of $43
    
    
    67
    
    
    
    
    
    
    
    Minimum pension liability adjustment, net of tax
expense (benefit) of $28,425 and ($9,526)
    
    
    
    
    
    
    44,086
    
    
    
    (15,489
    )Adjustment to reflect a change in accounting, net of
tax expense of $22,412
    
    
    
    
    
    
    33,928
    
    
    
    Derivative instruments:Net unrealized gain (loss), net of tax expense
(benefit) of ($414), ($137,606) and $179,927
    
    
    (785
    )
    
    
    (214,777
    )
    
    
    281,019Reclassification of net realized gain to income,
net of tax benefit of ($4,679), ($10,308)
and ($50,056)
    
    
    (7,273
    )
    
    
    (16,089
    )
    
    
    (77,865
    )Balance at end of year
    
    
    (15,863
    )
    
    
    12,268
    
    
    
    165,120TOTAL COMMON STOCK EQUITY
    
    $
    3,531,611
    
    
    $
    3,446,116
    
    
    $
    3,424,964COMPREHENSIVE INCOMENet income
    
    $
    307,143
    
    
    $
    327,255
    
    
    $
    176,267Other comprehensive income (loss)
    
    
    (28,131
    )
    
    
    (186,780
    )
    
    
    187,665Comprehensive income
    
    $
    279,012
    
    
    $
    140,475
    
    
    $
    363,932
 
 81




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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
   Accounting Records and Use of Estimates
  Derivative Accounting
   82




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         83




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Regulatory Accounting
     December 31,2007
    
    
    2006Pension and other postretirement benefits
    
    $
    338
    
    
    $
    473Deferred fuel and purchased power (a) (Note 3)
    
    
    111
    
    
    
    160Regulatory asset for deferred income taxes
    
    
    40
    
    
    
    27Deferred compensation
    
    
    30
    
    
    
    28Competition rules compliance charge (a)
    
    
    25
    
    
    
    34Loss on reacquired debt (b)
    
    
    16
    
    
    
    17Deferred fuel and purchased power  mark-to-market
    
    
    7
    
    
    
    62Other
    
    
    58
    
    
    
    45Total regulatory assets (c)
    
    $
    625
    
    
    $
    846
 
 (a)
    
    Subject to a carrying charge.(b)
    
    See Reacquired Debt Costs below.(c)
    
    There are no regulatory assets for which regulators have allowed recovery of
costs but not allowed a return by exclusion from rate base.  84




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,2007
    
    
    2006Removal costs (a)
    
    $
    392
    
    
    $
    387Regulatory liability related to asset retirement
obligations
    
    
    153
    
    
    
    133Tax benefit of Medicare subsidy
    
    
    35
    
    
    
    50Deferred gains on utility property
    
    
    20
    
    
    
    20Deferred interest income (b)
    
    
    13
    
    
    
    18Regulatory liability for deferred income taxes
    
    
    6
    
    
    
    11Other
    
    
    24
    
    
    
    16Total regulatory liabilities
    
    $
    643
    
    
    $
    635
 
 (a)
    
    In accordance with SFAS No. 71, APS accrues for removal costs for its regulated assets,
even if there is no legal obligation for removal.(b)
    
    Subject to a carrying charge. Utility Plant and Depreciation
  
    
    material and labor;
    
    contractor costs;
    
    capitalized leases;
    
    construction overhead costs (where applicable); and
    
    capitalized interest or an allowance for funds used during construction.
    85




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    
    Fossil plant  17 years;
    
    Nuclear plant  17 years;
    
    Other generation  29 years;
    
    Transmission  43 years;
    
    Distribution  33 years; and
    
    Other  6 years.
  Investments
   Capitalized Interest
  Allowance for Funds Used During Construction
   Electric Revenues
  86




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Real Estate Revenues
  Real Estate Investments
  87




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Cash and Cash Equivalents
   Nuclear Fuel
   Income Taxes
  Reacquired Debt Costs
  Stock-based Compensation
  88




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Intangible Assets
  2. New Accounting Standards
     3. Regulatory Matters
 Retail Rate Order
 Retail Rate Increase
 89




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  PSA Modifications
 
    
    APS records deferrals for recovery or refund to the extent actual retail fuel and
purchased power costs vary from the Base Fuel Rate (currently $0.0325 per kWh);
    
    under a 90/10 sharing arrangement, APS defers 90% of the difference between retail
fuel and purchased power costs (excluding certain costs, such as renewable energy
resources and the capacity components of long-term purchase power agreements acquired
through competitive procurement) and the Base Fuel Rate; APS absorbs 10% of the
retail fuel and purchased power costs above the Base Fuel Rate and
retains 10% of
the benefit from the retail fuel and purchased power costs that are below the Base Fuel
Rate;
    
    an adjustment is made annually each February 1st and goes into effect
automatically unless suspended by the ACC;
    
    the PSA uses a forward-looking estimate of fuel and purchased power costs to set the
annual PSA rate, which will be reconciled to actual costs experienced for each PSA Year
(February 1 through January 31) (see the following bullet point);
    
    the PSA rate includes (a) a Forward Component, under which APS recovers or refunds
differences between expected fuel and purchased power costs for the upcoming calendar
year and those embedded in the Base Fuel Rate; (b) an Historical Component, under
which differences between actual fuel and purchased power costs and those recovered
through the combination of the Base Fuel Rate and the Forward Component are recovered
during the next PSA Year; and (c) a Transition Component, under which APS may seek
mid-year PSA changes due to large variances between actual fuel and purchased power
costs and the combination of the Base Fuel Rate and the Forward Component;
    
    amounts to be recovered or refunded through the sum of the PSA components discussed
in the preceding bullet point are limited to a maximum plus or minus $0.004 per kWh
change in the PSA rate in any PSA Year; and
    
    the PSA adjustor that took effect on February 1, 2007 ($0.004 per kWh), and that was
scheduled to expire on January 31, 2008, will remain in effect as long as necessary
after January 31, 2008 to collect $46 million of 2007 fuel and purchased power costs
deferred as a result of the mid-2007 implementation of the new Base Fuel Rate.
 90




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 PSA Balance
  2007
    
    
    2006Beginning balance
    
    $
    160
    
    
    $
    173Deferred fuel and purchased power costs-current period
    
    
    189
    
    
    
    244Regulatory disallowance
    
    
    (14
    )
    
    
    Interest on deferred fuel and purchased power
    
    
    7
    
    
    
    8Amounts recovered through revenues
    
    
    (231
    )
    
    
    (265
    )Ending balance
    
    $
    111
    
    
    $
    160
  2006 Deferrals
  Line Extension Schedule
   91




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Rate Requests for Transmission and Ancillary Services
    Other
  Federal
 FERC Order
   92




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    4. Income Taxes
     93




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Total unrecognized tax benefits, January 1, 2007
    
    $
    132,691Additions for tax positions of the current year
    
    
    Additions for tax positions of prior years
    
    
    65,022Reductions for tax positions of prior years for:Changes in judgment
    
    
    (37,419
    )Settlements with taxing authorities
    
    
    (2,425
    )Lapses of applicable statute of limitations
    
    
    Total unrecognized tax benefits, December 31, 2007
    
    $
    157,869
      94




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    183,547
    
    
    $
    110,029
    
    
    $
    107,837State
    
    
    30,972
    
    
    
    21,507
    
    
    
    13,064Total current
    
    
    214,519
    
    
    
    131,536
    
    
    
    120,901Deferred:Income from continuing operations
    
    
    (56,147
    )
    
    
    31,452
    
    
    
    11,930Discontinued operations
    
    
    (1,880
    )
    
    
    
    
    
    
    (35,736
    )Total deferred
    
    
    (58,027
    )
    
    
    31,452
    
    
    
    (23,806
    )Total income tax expense
    
    
    156,492
    
    
    
    162,988
    
    
    
    97,095Less: income tax expense (benefit) on
discontinued operations
    
    
    5,572
    
    
    
    6,570
    
    
    
    (29,797
    )Income tax expense  continuing operations
    
    $
    150,920
    
    
    $
    156,418
    
    
    $
    126,892
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Federal income tax expense at 35%
statutory rate
    
    $
    157,395
    
    
    $
    165,746
    
    
    $
    122,519Increases (reductions) in tax expense
resulting from:State income tax net of federal income
tax benefit
    
    
    16,964
    
    
    
    17,309
    
    
    
    11,981Credits and favorable adjustments
related to prior years resolved in
current year
    
    
    (13,205
    )
    
    
    (14,028
    )
    
    
    Medicare Subsidy Part-D
    
    
    (3,236
    )
    
    
    (3,156
    )
    
    
    (2,733
    )Allowance for equity funds used during
construction (see Note 1)
    
    
    (6,899
    )
    
    
    (4,679
    )
    
    
    (3,694
    )Other
    
    
    (99
    )
    
    
    (4,774
    )
    
    
    (1,181
    )Income tax expense  continuing operations
    
    $
    150,920
    
    
    $
    156,418
    
    
    $
    126,892
  December 31,2007
    
    
    2006Current asset
    
    $
    31,510
    
    
    $
    982Long-term liability
    
    
    (1,243,743
    )
    
    
    (1,225,798
    )Accumulated deferred income taxes  net
    
    $
    (1,212,233
    )
    
    $
    (1,224,816
    )
 95




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31,2007
    
    
    2006DEFERRED TAX ASSETSRisk management and trading activities
    
    $
    43,358
    
    
    $
    280,152Regulatory liabilities:Asset retirement obligation
    
    
    214,607
    
    
    
    203,846Federal excess deferred income taxes
    
    
    11,091
    
    
    
    12,714Tax benefit of Medicare subsidy
    
    
    11,727
    
    
    
    18,214Other
    
    
    26,579
    
    
    
    27,283Pension and other postretirement liabilities
    
    
    211,192
    
    
    
    272,484Deferred gain on Palo Verde Unit 2 sale
leaseback
    
    
    14,408
    
    
    
    16,160Other
    
    
    112,209
    
    
    
    73,811Total deferred tax assets
    
    
    645,171
    
    
    
    904,664DEFERRED TAX LIABILITIESPlant-related
    
    
    (1,538,183
    )
    
    
    (1,509,812
    )Risk management and trading activities
    
    
    (58,931
    )
    
    
    (285,961
    )Regulatory assets:Deferred fuel and purchased power
    
    
    (43,661
    )
    
    
    (62,889
    )Deferred fuel and purchased power -mark-to-market
    
    
    (2,782
    )
    
    
    (24,427
    )Pension and other postretirement
benefits
    
    
    (133,120
    )
    
    
    (185,602
    )Other
    
    
    (80,727
    )
    
    
    (60,789
    )Total deferred tax liabilities
    
    
    (1,857,404
    )
    
    
    (2,129,480
    )Accumulated deferred income taxes  net
    
    $
    (1,212,233
    )
    
    $
    (1,224,816
    )
 5. Lines of Credit and Short-Term Borrowings
   96




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    6. Long-Term Debt
  97




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31,Maturity
    
    
    InterestDates (a)
    
    
    Rates
    
    
    2007
    
    
    2006APSPollution control bonds
    
    
    2024-2034
    
    
    
    (b
    )
    
    $
    565,855
    
    
    $
    565,855Pollution 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
    
    
    2033
    
    
    
    5.625
    %
    
    
    200,000
    
    
    
    200,000Unsecured notes
    
    
    2015
    
    
    
    4.650
    %
    
    
    300,000
    
    
    
    300,000Unsecured notes
    
    
    2014
    
    
    
    5.80
    %
    
    
    300,000
    
    
    
    300,000Secured note
    
    
    2014
    
    
    
    6.00
    %
    
    
    1,430
    
    
    
    1,592Senior notes
    
    
    2035
    
    
    
    5.50
    %
    
    
    250,000
    
    
    
    250,000Senior notes (c)
    
    
    2016
    
    
    
    6.25
    %
    
    
    250,000
    
    
    
    250,000Senior notes (c)
    
    
    2036
    
    
    
    6.875
    %
    
    
    150,000
    
    
    
    150,000Unamortized discount and premium
    
    
    
    
    
    
    
    
    
    
    (8,883
    )
    
    
    (9,857
    )Capitalized lease obligations
    
    
    2007-2012
    
    
    
    (d
    )
    
    
    4,457
    
    
    
    5,880Subtotal (e)
    
    
    
    
    
    
    
    
    
    
    2,877,859
    
    
    
    2,878,470SUNCORNotes payable
    
    
    2008-2013
    
    
    
    (f
    )
    
    
    237,671
    
    
    
    180,316Capitalized lease obligations
    
    
    2007-2010
    
    
    
    (g
    )
    
    
    368
    
    
    
    328Subtotal
    
    
    
    
    
    
    
    
    
    
    238,039
    
    
    
    180,644PINNACLE WESTSenior notes (h)
    
    
    2011
    
    
    
    5.91
    %
    
    
    175,000
    
    
    
    175,000Capitalized lease obligations
    
    
    2007
    
    
    
    5.45
    %
    
    
    
    
    
    
    115Subtotal
    
    
    
    
    
    
    
    
    
    
    175,000
    
    
    
    175,115Total long-term debt
    
    
    
    
    
    
    
    
    
    
    3,290,898
    
    
    
    3,234,229Less current maturities
    
    
    
    
    
    
    
    
    
    
    163,773
    
    
    
    1,596TOTAL LONG-TERM DEBT LESS CURRENT
MATURITIES
    
    
    
    
    
    
    
    
    
    $
    3,127,125
    
    
    $
    3,232,633
 
 (a)
    
    This schedule does not reflect the timing of redemptions that may occur prior to maturity.(b)
    
    The weighted-average rate was 3.76% at December 31, 2007 and 3.77% at December 31, 2006.
Changes in short-term interest rates would affect the costs associated with this debt. In
addition, these amounts include $343 million of auction rate debt securities backed by
insurance at December 31, 2007 and 2006.(c)
    
    On August 3, 2006, APS issued $250 million 6.25% notes due 2016 and $150 million 6.875% notes
due 2036. A portion of the proceeds was used to repay outstanding commercial paper balances
and $84 million of its 6.75% senior note that matured November 15, 2006. The remainder has
been used to fund its construction program and other general corporate purposes.(d)
    
    The weighted-average interest rate was 5.51% at December 31, 2007 and 6.20% at December 31,
2006.(e)
    
    APS long-term debt less current maturities was $2.877 billion at December 31, 2007 and
$2.878 billion at December 31, 2006. APS current maturities of long-term debt were $1
million at December 31, 2007 and 2006. 98




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 (f)
    
    SunCor had $94 million outstanding at December 31, 2007 under its revolving lines of credit.
The weighted-average interest rate was 7.27% at December 31, 2007. The remaining amount of
approximately $143 million at December 31, 2007 was made up of multiple notes with variable
interest rates based on the lenders prime rates plus 1.75% and 2.0% or LIBOR plus 1.7%, 2.0%
and 2.25%. SunCor had $118 million outstanding at December 31, 2006 under its revolving line
of credit. The weighted-average interest rate was 7.08% at December 31, 2006. The remaining
amount of approximately $62 million at December 31, 2006 was made up of multiple notes with
variable interest rates based on the lenders prime rates plus 1.75% and 2.0% or LIBOR plus
2.25%. There is also a note at a fixed rate of 4.25% at December 31, 2007 and 2006(g)
    
    The weighted-average interest rate was 7.0% at December 31, 2007 and 6.25% at December 31,
2006.(h)
    
    On February 28, 2006, Pinnacle West entered into a $200 million Senior Notes Uncommitted
Master Shelf Agreement with Prudential Investment Management Inc. (Prudential). Under the
terms of the agreement, Pinnacle West may offer up to $200 million of its senior notes for
purchase by Prudential at any time prior to December 31, 2007. The maturity of the notes
cannot exceed five years. On February 28, 2006, Pinnacle West issued $175 million of its
5.91% senior notes, series A, to Prudential.     99




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Year
    
    Pinnacle West
    
    
    APS2008
    
    $
    164
    
    
    $
    12009
    
    
    72
    
    
    
    12010
    
    
    224
    
    
    
    2242011
    
    
    578
    
    
    
    4012012
    
    
    376
    
    
    
    376Thereafter
    
    
    1,886
    
    
    
    1,884Total
    
    $
    3,300
    
    
    $
    2,887
 7. Common Stock and Treasury Stock
  100




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Common Stock
    
    
    Treasury StockShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalance at December 31, 2004
    
    
    91,802,861
    
    
    $
    1,769,047
    
    
    
    (9,522
    )
    
    $
    (428
    )Common stock issuance (a)
    
    
    7,274,272
    
    
    
    298,330
    
    
    
    
    
    
    
    Purchase of treasury stock
(b)
    
    
    
    
    
    
    
    
    
    
    (28,124
    )
    
    
    (1,601
    )Reissuance of treasury stock
for stock compensation
(net)
    
    
    
    
    
    
    
    
    
    
    17,588
    
    
    
    784Balance at December 31, 2005
    
    
    99,077,133
    
    
    
    2,067,377
    
    
    
    (20,058
    )
    
    
    (1,245
    )Common stock issuance
    
    
    883,933
    
    
    
    39,420
    
    
    
    
    
    
    
    Purchase of treasury stock
(b)
    
    
    
    
    
    
    
    
    
    
    (5,505
    )
    
    
    (229
    )Reissuance of treasury stock
for stock compensation
(net)
    
    
    
    
    
    
    
    
    
    
    23,144
    
    
    
    1,025Other
    
    
    
    
    
    
    7,753
    
    
    
    
    
    
    
    Balance at December 31, 2006
    
    
    99,961,066
    
    
    
    2,114,550
    
    
    
    (2,419
    )
    
    
    (449
    )Common stock issuance
    
    
    564,404
    
    
    
    24,089
    
    
    
    
    
    
    
    Purchase of treasury stock
(b)
    
    
    
    
    
    
    
    
    
    
    (47,218
    )
    
    
    (1,964
    )Reissuance of treasury stock
for stock compensation
(net)
    
    
    
    
    
    
    
    
    
    
    10,132
    
    
    
    359Other
    
    
    
    
    
    
    (2,852
    )
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    100,525,470
    
    
    $
    2,135,787
    
    
    
    (39,505
    )
    
    $
    (2,054
    )
 
 (a)
    
    On May 2, 2005, Pinnacle West issued 6,095,000 shares of its common stock at an
offering price of $42 per share, resulting in net proceeds of approximately $248
million. Pinnacle West used the net proceeds for general corporate purposes, including
making capital contributions to APS, which, in turn, used such funds to pay a portion
of the approximately $190 million purchase price to acquire the Sundance Plant and for
other capital expenditures incurred to meet the growing needs of APS service
territory.(b)
    
    Represents shares of common stock withheld from certain stock awards for tax
purposes. 8. Retirement Plans and Other Benefits
   101




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Pension
    
    
    Other Benefits2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006
    
    
    2005Service cost-benefits
earned during the
period
    
    $
    51,803
    
    
    $
    47,287
    
    
    $
    45,027
    
    
    $
    18,491
    
    
    $
    19,968
    
    
    $
    20,913Interest cost on benefit
obligation
    
    
    100,736
    
    
    
    92,196
    
    
    
    87,189
    
    
    
    35,284
    
    
    
    34,653
    
    
    
    34,223Expected return on plan
assets
    
    
    (107,165
    )
    
    
    (95,912
    )
    
    
    (88,403
    )
    
    
    (42,177
    )
    
    
    (36,930
    )
    
    
    (30,471
    )Amortization of:Transition
(asset) obligation
    
    
    
    
    
    
    (645
    )
    
    
    (3,227
    )
    
    
    3,005
    
    
    
    3,005
    
    
    
    3,005Prior service
cost (credit)
    
    
    2,957
    
    
    
    2,401
    
    
    
    2,401
    
    
    
    (125
    )
    
    
    (125
    )
    
    
    (125
    )Net actuarial
loss
    
    
    16,331
    
    
    
    23,366
    
    
    
    19,810
    
    
    
    3,929
    
    
    
    8,662
    
    
    
    9,243Net periodic benefit
cost
    
    $
    64,662
    
    
    $
    68,693
    
    
    $
    62,797
    
    
    $
    18,407
    
    
    $
    29,233
    
    
    $
    36,788Portion of cost charged
to expense
    
    $
    28,063
    
    
    $
    30,912
    
    
    $
    26,375
    
    
    $
    7,989
    
    
    $
    13,155
    
    
    $
    15,451APS share of costs charged
to expense
    
    $
    26,548
    
    
    $
    29,203
    
    
    $
    24,169
    
    
    $
    7,557
    
    
    $
    12,428
    
    
    $
    14,159
  Pension
    
    
    Other Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Change in Benefit ObligationBenefit obligation at January 1
    
    $
    1,670,274
    
    
    $
    1,596,068
    
    
    $
    616,985
    
    
    $
    585,678Service cost
    
    
    51,803
    
    
    
    47,287
    
    
    
    18,491
    
    
    
    19,968Interest cost
    
    
    100,736
    
    
    
    92,196
    
    
    
    35,284
    
    
    
    34,653Benefit payments
    
    
    (52,168
    )
    
    
    (49,189
    )
    
    
    (17,763
    )
    
    
    (16,439
    )Actuarial gains
    
    
    (52,227
    )
    
    
    (19,588
    )
    
    
    (47,872
    )
    
    
    (6,875
    )Plan amendments
    
    
    2,426
    
    
    
    3,500
    
    
    
    
    
    
    
    Benefit obligation at December 31
    
    
    1,720,844
    
    
    
    1,670,274
    
    
    
    605,125
    
    
    
    616,985
 102




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Change in Plan AssetsFair value of plan assets at
January 1
    
    $
    1,214,229
    
    
    $
    1,064,848
    
    
    $
    480,638
    
    
    $
    416,174Actual return on plan assets
    
    
    101,138
    
    
    
    148,895
    
    
    
    26,952
    
    
    
    47,988Employer contributions
    
    
    52,000
    
    
    
    46,500
    
    
    
    18,407
    
    
    
    29,233Benefit payments
    
    
    (48,428
    )
    
    
    (46,014
    )
    
    
    (26,233
    )
    
    
    (12,757
    )Fair value of plan assets at
December 31
    
    
    1,318,939
    
    
    
    1,214,229
    
    
    
    499,764
    
    
    
    480,638Funded Status at December 31
    
    $
    (401,905
    )
    
    $
    (456,045
    )
    
    $
    (105,361
    )
    
    $
    (136,347
    )
  2007
    
    2006Projected benefit obligation
    
    $
    1,720,844
    
    
    $
    1,670,274Accumulated benefit obligation
    
    
    1,484,444
    
    
    
    1,426,492Fair value of plan assets
    
    
    1,318,939
    
    
    
    1,214,229
  Pension
    
    
    Other Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Current asset
    
    $
    
    
    
    $
    
    
    
    $
    1,321
    
    
    $
    Current liability
    
    
    (3,984
    )
    
    
    (3,540
    )
    
    
    
    
    
    
    Noncurrent liability
    
    
    (397,921
    )
    
    
    (452,505
    )
    
    
    (106,682
    )
    
    
    (136,347
    )Net amount recognized
    
    $
    (401,905
    )
    
    $
    (456,045
    )
    
    $
    (105,361
    )
    
    $
    (136,347
    )
  Pension
    
    
    Other Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Net actuarial loss
    
    $
    268,532
    
    
    $
    331,054
    
    
    $
    106,407
    
    
    $
    143,079Prior service cost (credit)
    
    
    12,401
    
    
    
    12,932
    
    
    
    (1,045
    )
    
    
    (1,171
    )Transition obligation
    
    
    
    
    
    
    
    
    
    
    15,024
    
    
    
    18,029APS portion recorded as a regulatory
asset
    
    
    (221,787
    )
    
    
    (318,461
    )
    
    
    (116,425
    )
    
    
    (154,531
    )Accumulated other comprehensive loss
    
    $
    59,146
    
    
    $
    25,525
    
    
    $
    3,961
    
    
    $
    5,406
 103




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  OtherPension
    
    
    BenefitsNet actuarial loss
    
    $
    9,048
    
    
    $
    4,042Prior service cost (credit)
    
    
    2,455
    
    
    
    (125
    )Transition obligation
    
    
    
    
    
    
    3,005Total amounts estimated to be
amortized from accumulated
other comprehensive income and
regulatory assets in 2008
    
    $
    11,503
    
    
    $
    6,922
  Benefit CostsBenefit Obligations
    
    For the Years EndedAs of December 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Discount rate-pension
    
    
    6.25
    %
    
    
    5.90
    %
    
    
    5.90
    %
    
    
    5.66
    %Discount rate-other benefits
    
    
    6.31
    %
    
    
    5.93
    %
    
    
    5.93
    %
    
    
    5.68
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %Expected long-term return on
plan assets
    
    
    N/A
    
    
    
    N/A
    
    
    
    9.00
    %
    
    
    9.00
    %Initial health care cost trend
rate
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %Ultimate health care cost trend
rate
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Year ultimate health care trend
rate is reached
    
    
    2012
    
    
    
    2011
    
    
    
    2011
    
    
    
    2010
   104




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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
    
    $
    7
    
    
    $
    (5
    )Effect on service and interest
cost components of net periodic
other postretirement benefit
costs
    
    
    10
    
    
    
    (8
    )Effect on the accumulated other
postretirement benefit
obligation
    
    
    94
    
    
    
    (76
    )
 Plan Assets
  Pension
    
    Other BenefitsAsset Category:
    
    2007
    
    2006
    
    Target
    
    2007
    
    2006
    
    TargetEquity securities
    
    
    68
    %
    
    
    69
    %
    
    
    68
    %
    
    
    70
    %
    
    
    74
    %
    
    
    70
    %Fixed income
    
    
    25
    
    
    
    25
    
    
    
    25
    
    
    
    28
    
    
    
    25
    
    
    
    27Other
    
    
    7
    
    
    
    6
    
    
    
    7
    
    
    
    2
    
    
    
    1
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   Contributions
  Estimated Future Benefit Payments
  105




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year
    
    Pension
    
    Other Benefits (a)2008
    
    $
    60,536
    
    
    $
    19,3152009
    
    
    66,799
    
    
    
    21,2462010
    
    
    73,624
    
    
    
    23,8462011
    
    
    82,764
    
    
    
    26,5792012
    
    
    93,371
    
    
    
    29,293Years 2013-2017
    
    
    639,326
    
    
    
    194,680
 
 (a)
    
    The expected future other benefit payments take into account the Medicare Part
D subsidy. Employee Savings Plan Benefits
  9. Leases
      106




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Pinnacle WestYear
    
    Consolidated
    
    
    APS2008
    
    $
    79
    
    
    $
    722009
    
    
    75
    
    
    
    692010
    
    
    73
    
    
    
    672011
    
    
    68
    
    
    
    632012
    
    
    65
    
    
    
    61Thereafter
    
    
    195
    
    
    
    177Total future lease commitments
    
    $
    555
    
    
    $
    509
 10. Jointly-Owned Facilities
  ConstructionPercent
    
    Plant in
    
    Accumulated
    
    Work inOwned
    
    Service
    
    Depreciation
    
    ProgressGenerating facilities:Palo Verde Units 1 and 3
    
    
    29.1
    %
    
    $
    1,939,389
    
    
    $
    1,038,432
    
    
    $
    132,618Palo Verde Unit 2 (see Note 9)
    
    
    17.0
    %
    
    
    672,564
    
    
    
    303,638
    
    
    
    16,630Four Corners Units 4 and 5
    
    
    15.0
    %
    
    
    182,052
    
    
    
    99,127
    
    
    
    12,345Navajo Generating Station
Units 1, 2 and 3
    
    
    14.0
    %
    
    
    255,592
    
    
    
    142,144
    
    
    
    1,855Cholla common facilities (a)
    
    
    63.9
    %(b)
    
    
    91,636
    
    
    
    49,741
    
    
    
    31,692Transmission facilities:ANPP500KV System
    
    
    35.8
    %(b)
    
    
    79,515
    
    
    
    24,001
    
    
    
    4,399Navajo Southern System
    
    
    31.4
    %(b)
    
    
    38,935
    
    
    
    12,665
    
    
    
    5,575Palo Verde  Yuma 500KV
System
    
    
    23.9
    %(b)
    
    
    9,230
    
    
    
    3,857
    
    
    
    3,427Four Corners Switchyards
    
    
    27.5
    %(b)
    
    
    3,198
    
    
    
    1,304
    
    
    
    Phoenix  Mead System
    
    
    17.1
    %(b)
    
    
    36,032
    
    
    
    4,823
    
    
    
    Palo Verde  Estrella 500KV
System
    
    
    55.5
    %(b)
    
    
    74,318
    
    
    
    3,990
    
    
    
    Harquahala
    
    
    80.0
    %(b)
    
    
    
    
    
    
    
    
    
    
    6,418
 
 (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. 107




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11. Commitments and Contingencies
 Palo Verde Nuclear Generating Station
 Spent Nuclear Fuel and Waste Disposal
   Nuclear Insurance
   108




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fuel and Purchased Power Commitments
    Actual
    
    Estimated (a)2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterCoal take-or-pay
commitments
    
    $
    48
    
    
    $
    67
    
    
    $
    70
    
    
    $
    81
    
    
    $
    97
    
    
    $
    75
    
    
    $
    77
    
    
    $
    78
    
    
    $
    476
 
 (a)
    
    Total take-or-pay commitments are approximately $884 million. The total net
present value of these commitments is approximately $588 million. Coal Mine Reclamation Obligations
  California Energy Market Issues and Refunds in the Pacific Northwest
 FERC
  109




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     110




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Navajo Nation Litigation
   Superfund
 nd
 Salt River Project
  111




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Litigation
  12. Asset Retirement Obligations
     2007
    
    
    2006Asset retirement obligations at the
beginning of year
    
    $
    268
    
    
    $
    269Changes attributable to:Liabilities settled
    
    
    (2
    )
    
    
    (2
    )Accretion expense
    
    
    20
    
    
    
    19Estimated cash flow revisions
    
    
    (4
    )
    
    
    (18
    )Asset retirement obligations at the
end of year
    
    $
    282
    
    
    $
    268
   112




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 .
 TotalUnrealizedFair Value
    
    
    Gains2007Equity securities
    
    $
    175
    
    
    $
    68Fixed income securities
    
    
    204
    
    
    
    5Total
    
    $
    379
    
    
    $
    732006Equity securities
    
    $
    164
    
    
    $
    63Fixed income securities
    
    
    180
    
    
    
    3Total
    
    $
    344
    
    
    $
    66
  Year Ended December 31,2007
    
    2006
    
    2005Realized gains
    
    $
    3
    
    
    $
    9
    
    
    $
    6Realized losses
    
    
    (4
    )
    
    
    
    
    
    
    (6
    )Proceeds from the sale of securities
    
    
    259
    
    
    
    255
    
    
    
    186
  Fair ValueLess than one year
    
    $
    101 year - 5 years
    
    
    425 years - 10 years
    
    
    38Greater than 10 years
    
    
    114Total
    
    $
    204
 113




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13. Selected Quarterly Financial Data (Unaudited)
  2007 Quarter Ended
    
    2007March 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    TotalOperating revenues
    
    $
    695,135
    
    
    $
    863,435
    
    
    $
    1,205,934
    
    
    $
    759,116
    
    
    $
    3,523,620Operations and
maintenance
    
    
    171,578
    
    
    
    177,310
    
    
    
    178,419
    
    
    
    207,398
    
    
    
    734,705Operating income
    
    
    67,989
    
    
    
    158,686
    
    
    
    338,777
    
    
    
    53,799
    
    
    
    619,251Income taxes
    
    
    8,609
    
    
    
    40,231
    
    
    
    91,588
    
    
    
    10,492
    
    
    
    150,920Income from continuing
operations
    
    
    15,798
    
    
    
    78,496
    
    
    
    200,998
    
    
    
    3,488
    
    
    
    298,780Net income
    
    
    16,530
    
    
    
    78,994
    
    
    
    208,708
    
    
    
    2,911
    
    
    
    307,143
 2006 Quarter Ended
    
    2006March 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    TotalOperating revenues
    
    $
    670,206
    
    
    $
    925,028
    
    
    $
    1,076,442
    
    
    $
    730,072
    
    
    $
    3,401,748Operations and
maintenance
    
    
    178,427
    
    
    
    168,332
    
    
    
    164,396
    
    
    
    180,122
    
    
    
    691,277Operating income
    
    
    57,163
    
    
    
    191,197
    
    
    
    310,440
    
    
    
    60,070
    
    
    
    618,870Income taxes
    
    
    6,793
    
    
    
    49,271
    
    
    
    98,836
    
    
    
    1,518
    
    
    
    156,418Income from continuing
operations
    
    
    11,595
    
    
    
    110,843
    
    
    
    184,179
    
    
    
    10,526
    
    
    
    317,143Net income
    
    
    12,455
    
    
    
    112,154
    
    
    
    184,167
    
    
    
    18,479
    
    
    
    327,255
  2007 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,Basic earnings per share:Income from continuing operations
    
    $
    0.16
    
    
    $
    0.78
    
    
    $
    2.00
    
    
    $
    0.03Net income
    
    
    0.17
    
    
    
    0.79
    
    
    
    2.08
    
    
    
    0.03Diluted earnings per share:Income from continuing operations
    
    $
    0.16
    
    
    $
    0.78
    
    
    $
    1.99
    
    
    $
    0.03Net income
    
    
    0.16
    
    
    
    0.78
    
    
    
    2.07
    
    
    
    0.03
 2006 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,Basic earnings per share:Income from continuing operations
    
    $
    0.12
    
    
    $
    1.12
    
    
    $
    1.85
    
    
    $
    0.11Net income
    
    
    0.13
    
    
    
    1.13
    
    
    
    1.85
    
    
    
    0.19Diluted earnings per share:Income from continuing operations
    
    $
    0.12
    
    
    $
    1.11
    
    
    $
    1.84
    
    
    $
    0.10Net income
    
    
    0.13
    
    
    
    1.13
    
    
    
    1.84
    
    
    
    0.18
 114




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14. Fair Value of Financial Instruments
     15. Earnings Per Share
  2007
    
    
    2006
    
    
    2005Basic earnings per share:Income from continuing operations
    
    $
    2.98
    
    
    $
    3.19
    
    
    $
    2.31Income (loss) from discontinued
operations
    
    
    0.08
    
    
    
    0.10
    
    
    
    (0.48
    )Earnings per share  basic
    
    $
    3.06
    
    
    $
    3.29
    
    
    $
    1.83Diluted earnings per share:Income from continuing operations
    
    $
    2.96
    
    
    $
    3.17
    
    
    $
    2.31Income (loss) from discontinued
operations
    
    
    0.09
    
    
    
    0.10
    
    
    
    (0.49
    )Earnings per share  diluted
    
    $
    3.05
    
    
    $
    3.27
    
    
    $
    1.82
  115




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  16. Stock-Based Compensation
     116




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     117




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##### Table of Contents



PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Weighted-Average
    
    AggregateWeighted-
    
    Remaining
    
    Intrinsic ValueShares
    
    Average Exercise
    
    Contractual Term
    
    (dollars inOptions
    
    (in thousands)
    
    Price
    
    (Years)
    
    thousands)Outstanding at
January 1, 2007
    
    
    1,088
    
    
    $
    40.64Exercised
    
    
    207
    
    
    
    39.48Forfeited or expired
    
    
    20
    
    
    
    43.64Outstanding at
December 31, 2007
    
    
    861
    
    
    
    40.84
    
    
    
    3.0
    
    
    $
    2,187Exercisable at
December 31, 2007
    
    
    861
    
    
    
    40.84
    
    
    
    3.0
    
    
    $
    2,187
   Shares
    
    Weighted-Average Grant-DateNonvested shares
    
    (in thousands)
    
    Fair ValueNonvested at January 1, 2007
    
    
    429
    
    
    $
    41.45Granted
    
    
    164
    
    
    
    48.02Vested
    
    
    147
    
    
    
    41.38Forfeited
    
    
    67
    
    
    
    42.40Nonvested at December 31, 2007
    
    
    379
    
    
    
    43.64
   118




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2007
    
    2007 Grant
    
    2006
    
    2006 Grant
    
    
    
    
    
    2005 GrantShares/
    
    Date Fair
    
    Shares/
    
    Date Fair
    
    2005
    
    Date FairUnits
    
    Value (a)
    
    Units
    
    Value (a)
    
    Shares
    
    Value (a)Restricted stock
award units
    
    
    27,026
    
    
    $
    46.58
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Restricted cash
award units
    
    
    107,891
    
    
    
    46.58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Performance share
awards
    
    
    134,917
    
    
    
    48.42
    
    
    
    274,070
    
    
    
    41.50
    
    
    
    215,300
    
    
    
    41.36Stock ownership
incentive awards
    
    
    
    
    
    
    
    
    
    
    12,526
    
    
    
    41.50
    
    
    
    13,114
    
    
    
    44.13Retention unit
awards
    
    
    
    
    
    
    
    
    
    
    123,197
    
    
    
    49.92
    
    
    
    
    
    
    
    Special grant
    
    
    2,000
    
    
    
    41.88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (a)
    
    Restricted stock units, performance shares, special grant and stock ownership
incentive awards priced at the closing market price on the grant date.   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.
  119




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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
    
    
    All other (a)
    
    
    TotalOperating revenues
    
    $
    2,918
    
    
    $
    215
    
    
    $
    391
    
    
    $
    3,524Purchased power and fuel costs
    
    
    1,141
    
    
    
    
    
    
    
    294
    
    
    
    1,435Other operating expenses
    
    
    836
    
    
    
    194
    
    
    
    66
    
    
    
    1,096Operating margin
    
    
    941
    
    
    
    21
    
    
    
    31
    
    
    
    993Depreciation and amortization
    
    
    366
    
    
    
    5
    
    
    
    2
    
    
    
    373Interest expense
    
    
    180
    
    
    
    8
    
    
    
    2
    
    
    
    190Other expense (income)
    
    
    (18
    )
    
    
    (10
    )
    
    
    8
    
    
    
    (20
    )Income from continuing
operations before income taxes
    
    
    413
    
    
    
    18
    
    
    
    19
    
    
    
    450Income taxes
    
    
    139
    
    
    
    6
    
    
    
    6
    
    
    
    151Income from continuing operations
    
    
    274
    
    
    
    12
    
    
    
    13
    
    
    
    299Income from discontinued
operations  net of income
tax expense of $6 million (see Note
22)
    
    
    
    
    
    
    11
    
    
    
    (3
    )
    
    
    8Net income
    
    $
    274
    
    
    $
    23
    
    
    $
    10
    
    
    $
    307Total assets
    
    $
    10,438
    
    
    $
    661
    
    
    $
    145
    
    
    $
    11,244Capital expenditures
    
    $
    900
    
    
    $
    161
    
    
    $
    3
    
    
    $
    1,064
 Business Segments for the Year Ended December 31, 2006RegulatedElectricity
    
    
    Real EstateSegment
    
    
    Segment
    
    
    All other (a)
    
    
    TotalOperating revenues
    
    $
    2,635
    
    
    $
    400
    
    
    $
    367
    
    
    $
    3,402Purchased power and fuel costs
    
    
    960
    
    
    
    
    
    
    
    291
    
    
    
    1,251Other operating expenses
    
    
    791
    
    
    
    325
    
    
    
    57
    
    
    
    1,173Operating margin
    
    
    884
    
    
    
    75
    
    
    
    19
    
    
    
    978Depreciation and amortization
    
    
    354
    
    
    
    3
    
    
    
    2
    
    
    
    359Interest expense
    
    
    173
    
    
    
    1
    
    
    
    2
    
    
    
    176Other expense (income)
    
    
    (22
    )
    
    
    (11
    )
    
    
    2
    
    
    
    (31
    )Income from continuing
operations before income taxes
    
    
    379
    
    
    
    82
    
    
    
    13
    
    
    
    474Income taxes
    
    
    120
    
    
    
    32
    
    
    
    5
    
    
    
    157Income from continuing operations
    
    
    259
    
    
    
    50
    
    
    
    8
    
    
    
    317Income from discontinued
operations  net of income
tax expense of $7 million (see Note 22)
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Net income
    
    $
    259
    
    
    $
    60
    
    
    $
    8
    
    
    $
    327Total assets
    
    $
    10,566
    
    
    $
    591
    
    
    $
    299
    
    
    $
    11,456Capital expenditures
    
    $
    662
    
    
    $
    201
    
    
    $
    7
    
    
    $
    870
 120




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Business Segments for the Year Ended December 31, 2005RegulatedElectricity
    
    
    Real EstateSegment
    
    
    Segment
    
    
    All other (a)
    
    
    TotalOperating revenues (b)
    
    $
    2,237
    
    
    $
    338
    
    
    $
    413
    
    
    $
    2,988Purchased power and fuel costs
    
    
    595
    
    
    
    
    
    
    
    293
    
    
    
    888Other operating expenses
    
    
    740
    
    
    
    278
    
    
    
    80
    
    
    
    1,098Regulatory disallowance
(see Note 3)
    
    
    139
    
    
    
    
    
    
    
    
    
    
    
    139Operating margin
    
    
    763
    
    
    
    60
    
    
    
    40
    
    
    
    863Depreciation and amortization
    
    
    343
    
    
    
    3
    
    
    
    2
    
    
    
    348Interest expense
    
    
    169
    
    
    
    2
    
    
    
    2
    
    
    
    173Other expense (income)
    
    
    (6
    )
    
    
    (3
    )
    
    
    1
    
    
    
    (8
    )Income from continuing
operations before income taxes
    
    
    257
    
    
    
    58
    
    
    
    35
    
    
    
    350Income taxes
    
    
    90
    
    
    
    23
    
    
    
    14
    
    
    
    127Income from continuing operations
    
    
    167
    
    
    
    35
    
    
    
    21
    
    
    
    223Income (loss) from discontinued
operations  net of income
tax benefit of $(30) (see Note
22) (c)
    
    
    
    
    
    
    17
    
    
    
    (64
    )
    
    
    (47
    )Net income (loss)
    
    $
    167
    
    
    $
    52
    
    
    $
    (43
    )
    
    $
    176Capital expenditures
    
    $
    811
    
    
    $
    106
    
    
    $
    11
    
    
    $
    928
 
 (a)
    
    All other activities relate to marketing and trading, APSES and El Dorado.
None of these segments is a reportable segment.(b)
    
    Effective April 1, 2005, revenues of approximately $40 million from Off-System
Sales, which were previously reported in the other segment, began being reported in the
regulated electricity segment in accordance with the retail rate case settlement.(c)
    
    The other segment primarily relates to the sale and operations of Silverhawk.
See Note 22. 18. Derivative and Energy Trading Accounting
   121




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       122




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Cash Flow Hedges
  2007
    
    2006
    
    2005Gains (losses) on the ineffective portion
of derivatives qualifying for hedge
accounting
    
    $
    1,430
    
    
    $
    (5,666
    )
    
    $
    14,289Gains (losses) from the change in options
time value excluded from measurement
of effectiveness
    
    
    
    
    
    
    (10
    )
    
    
    620Gains from the discontinuance of
cash flow hedges
    
    
    320
    
    
    
    453
    
    
    
    556
   Investments
    
    
    
    
    
    
    Deferredand Other
    
    
    Current
    
    
    Credits and
    
    
    Net AssetDecember 31, 2007
    
    Current Assets
    
    
    Assets
    
    
    Liabilities
    
    
    Other
    
    
    (Liability)Mark-to-market
    
    $
    60,044
    
    
    $
    89,913
    
    
    $
    (64,497
    )
    
    $
    (45,686
    )
    
    $
    39,774Margin account
and options  at
cost
    
    
    37,329
    
    
    
    
    
    
    
    (531
    )
    
    
    
    
    
    
    36,798Total
    
    $
    97,373
    
    
    $
    89,913
    
    
    $
    (65,028
    )
    
    $
    (45,686
    )
    
    $
    76,572
 Investments
    
    
    
    
    
    
    Deferredand Other
    
    
    
    
    
    
    Credits and
    
    
    Net AssetDecember 31, 2006
    
    Current Assets
    
    
    Assets
    
    
    Current Liabilities
    
    
    Other
    
    
    (Liability)Mark-to-market
    
    $
    563,335
    
    
    $
    166,372
    
    
    $
    (543,214
    )
    
    $
    (171,170
    )
    
    $
    15,323Margin account,
options and
emission
allowances -
at
cost
    
    
    77,705
    
    
    
    839
    
    
    
    (14,981
    )
    
    
    
    
    
    
    63,563Total
    
    $
    641,040
    
    
    $
    167,211
    
    
    $
    (558,195
    )
    
    $
    (171,170
    )
    
    $
    78,886
  123




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Credit Risk
  19. Other Income and Other Expense
  124




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2007
    
    
    2006
    
    
    2005Other income:Interest income
    
    $
    11,656
    
    
    $
    18,867
    
    
    $
    14,793SunCor other income (a)
    
    
    10,702
    
    
    
    10,881
    
    
    
    2,623SO2 emission allowance sales and
other (b)
    
    
    
    
    
    
    10,782
    
    
    
    3,187Investment gains  net
    
    
    
    
    
    
    2,537
    
    
    
    752Miscellaneous
    
    
    2,336
    
    
    
    949
    
    
    
    2,005Total other income
    
    $
    24,694
    
    
    $
    44,016
    
    
    $
    23,360Other expense:Non-operating costs (b)
    
    $
    (14,021
    )
    
    $
    (16,223
    )
    
    $
    (13,589
    )Asset dispositions
    
    
    
    
    
    
    (2,056
    )
    
    
    (9,759
    )Investment losses  net
    
    
    (2,339
    )
    
    
    
    
    
    
    Miscellaneous
    
    
    (9,523
    )
    
    
    (9,521
    )
    
    
    (3,368
    )Total other expense
    
    $
    (25,883
    )
    
    $
    (27,800
    )
    
    $
    (26,716
    )
 
 (a)
    
    Includes equity earnings from a real estate joint venture that is a pass-through entity for
tax purposes.(b)
    
    As defined by the FERC, includes below-the-line non-operating utility income and expense
(items excluded from utility rate recovery). 20. Variable-Interest Entities
    21. Guarantees
  125




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Guarantees
    
    
    Surety BondsTerm
    
    
    
    
    
    
    TermAmount
    
    
    (in years)
    
    
    Amount
    
    
    (in years)Parental:Pinnacle West Marketing & Trading
    
    $
    25
    
    
    
    1
    
    
    $
    
    
    
    
    APSES
    
    
    18
    
    
    
    1
    
    
    
    20
    
    
    
    1APS
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    Total
    
    $
    47
    
    
    
    
    
    
    $
    20
    22. Discontinued Operations
 SunCor -
 126




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PINNACLE WEST CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Silverhawk -
 Other  
  2007
    
    
    2006
    
    
    2005Revenue:SunCor  commercial operations
    
    $
    4
    
    
    $
    3
    
    
    $
    9Silverhawk
    
    
    
    
    
    
    1
    
    
    
    95Total revenue
    
    $
    4
    
    
    $
    4
    
    
    $
    104Income (loss) before taxes:SunCor  commercial operations
    
    $
    19
    
    
    $
    17
    
    
    $
    28Silverhawk (a)
    
    
    
    
    
    
    1
    
    
    
    (111
    )Other
    
    
    (5
    )
    
    
    (1
    )
    
    
    6Total income (loss) before taxes
    
    $
    14
    
    
    $
    17
    
    
    $
    (77
    )Income (loss) after taxes:SunCor  commercial operations
    
    $
    11
    
    
    $
    10
    
    
    $
    17Silverhawk
    
    
    
    
    
    
    1
    
    
    
    (67
    )Other
    
    
    (3
    )
    
    
    (1
    )
    
    
    3Total income (loss) after taxes
    
    $
    8
    
    
    $
    10
    
    
    $
    (47
    )
 
 (a)
    
    Income before income taxes includes an interest expense allocation, net of
capitalized amounts, of $13 million in 2005. The allocation was based on Pinnacle
Wests weighted-average interest rate applied to the net property, plant and equipment. 127




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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,
  128




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
   129




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Internal ControlIntegrated Framework






130




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ARIZONA PUBLIC SERVICE COMPANY
 
 STATEMENTS OF INCOME
 (dollars in thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Electric Operating Revenues
    
    $
    2,936,277
    
    
    $
    2,658,513
    
    
    $
    2,270,793Operating Expenses:Fuel and purchased power
    
    
    1,151,392
    
    
    
    969,767
    
    
    
    688,982Operations and maintenance
    
    
    710,077
    
    
    
    665,631
    
    
    
    591,941Depreciation and amortization
    
    
    365,430
    
    
    
    353,057
    
    
    
    325,174Income taxes (Notes 4 and S-1)
    
    
    155,735
    
    
    
    144,127
    
    
    
    157,273Other taxes
    
    
    127,648
    
    
    
    127,989
    
    
    
    125,810Total
    
    
    2,510,282
    
    
    
    2,260,571
    
    
    
    1,889,180Operating Income
    
    
    425,995
    
    
    
    397,942
    
    
    
    381,613Other Income (Deductions):Regulatory disallowance (Note 3)
    
    
    
    
    
    
    
    
    
    
    (138,562
    )Income taxes (Notes 4 and S-1)
    
    
    4,578
    
    
    
    5,200
    
    
    
    59,263Allowance for equity funds used
during construction
    
    
    21,195
    
    
    
    14,312
    
    
    
    11,191Other income (Note S-4)
    
    
    16,727
    
    
    
    31,902
    
    
    
    22,141Other expense (Note S-4)
    
    
    (21,630
    )
    
    
    (23,830
    )
    
    
    (23,204
    )Total
    
    
    20,870
    
    
    
    27,584
    
    
    
    (69,171
    )Interest Deductions:Interest on long-term debt
    
    
    161,030
    
    
    
    149,240
    
    
    
    138,476Interest on short-term borrowings
    
    
    9,564
    
    
    
    9,529
    
    
    
    7,026Debt discount, premium and expense
    
    
    4,639
    
    
    
    4,363
    
    
    
    4,085Allowance for borrowed funds used
during construction
    
    
    (12,308
    )
    
    
    (7,336
    )
    
    
    (7,624
    )Total
    
    
    162,925
    
    
    
    155,796
    
    
    
    141,963Net Income
    
    $
    283,940
    
    
    $
    269,730
    
    
    $
    170,479
  131




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ARIZONA PUBLIC SERVICE COMPANY
 
 BALANCE SHEETS
 (dollars in thousands)
 December 31,2007
    
    
    2006ASSETSUtility Plant (Notes 1, 6, 9 and 10)Electric plant in service and held for future use
    
    $
    11,582,862
    
    
    $
    11,094,868Less accumulated depreciation and amortization
    
    
    3,994,777
    
    
    
    3,789,534Net
    
    
    7,588,085
    
    
    
    7,305,334Construction work in progress
    
    
    622,693
    
    
    
    365,704Intangible assets, net of accumulated amortization of
$250,268 and $217,099
    
    
    105,225
    
    
    
    95,601Nuclear fuel, net of accumulated amortization of
$68,375 and $50,741
    
    
    69,271
    
    
    
    60,100Total utility plant
    
    
    8,385,274
    
    
    
    7,826,739Investments and Other AssetsDecommissioning trust accounts (Note 12)
    
    
    379,347
    
    
    
    343,771Assets from risk management and trading activities
(Note S-3)
    
    
    82,588
    
    
    
    96,892Other assets
    
    
    69,570
    
    
    
    67,763Total investments and other assets
    
    
    531,505
    
    
    
    508,426Current Assets:Cash and cash equivalents
    
    
    52,151
    
    
    
    81,870Investment in debt securities
    
    
    
    
    
    
    32,700Customer and other receivables
    
    
    402,244
    
    
    
    410,436Allowance for doubtful accounts
    
    
    (4,265
    )
    
    
    (4,223
    )Materials and supplies (at average cost)
    
    
    149,759
    
    
    
    125,802Fossil fuel (at average cost)
    
    
    27,792
    
    
    
    21,973Assets from risk management and trading activities
(Note S-3)
    
    
    73,854
    
    
    
    539,308Deferred
income taxes (Notes 4 and S-1)
    
    
    38,707
    
    
    
    19,220Other
    
    
    17,296
    
    
    
    13,367Total current assets
    
    
    757,538
    
    
    
    1,240,453Deferred Debits:Deferred fuel and purchased power regulatory asset
(Notes 1, 3, 4 and S-1)
    
    
    110,928
    
    
    
    160,268Other regulatory assets (Notes 1, 3, 4 and S-1)
    
    
    514,353
    
    
    
    686,016Unamortized debt issue costs
    
    
    24,373
    
    
    
    26,393Other
    
    
    78,934
    
    
    
    65,397Total deferred debits
    
    
    728,588
    
    
    
    938,074Total Assets
    
    $
    10,402,905
    
    
    $
    10,513,692
  132




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ARIZONA PUBLIC SERVICE COMPANY
BALANCE SHEETS
(dollars in thousands)
 December 31,2007
    
    
    2006LIABILITIES AND EQUITYCapitalization:Common stock
    
    $
    178,162
    
    
    $
    178,162Additional paid-in capital (Note 3)
    
    
    2,105,466
    
    
    
    2,065,918Retained earnings
    
    
    1,076,557
    
    
    
    960,405Accumulated other comprehensive income (loss):Pension and
other postretirement benefits (Note 8)
    
    
    (21,782
    )
    
    
    Derivative instruments
    
    
    13,038
    
    
    
    2,988Common stock equity
    
    
    3,351,441
    
    
    
    3,207,473Long-term debt less current maturities (Note 6)
    
    
    2,876,881
    
    
    
    2,877,502Total capitalization
    
    
    6,228,322
    
    
    
    6,084,975Current Liabilities:Short-term debt
    
    
    218,000
    
    
    
    Current maturities of long-term debt (Note 6)
    
    
    978
    
    
    
    968Accounts payable
    
    
    239,923
    
    
    
    223,417Accrued taxes
    
    
    374,444
    
    
    
    381,444Accrued interest
    
    
    38,262
    
    
    
    45,254Customer deposits
    
    
    71,376
    
    
    
    61,900Liabilities from risk management and trading
activities (Note S-3)
    
    
    60,439
    
    
    
    490,855Other
    
    
    92,802
    
    
    
    74,728Total current liabilities
    
    
    1,096,224
    
    
    
    1,278,566Deferred Credits and Other:Deferred income taxes (Notes 4 and S-1)
    
    
    1,250,028
    
    
    
    1,215,862Regulatory liabilities (Notes 1, 3, 4, and S-1)
    
    
    642,564
    
    
    
    635,431Liability for asset retirements (Note 12)
    
    
    281,903
    
    
    
    268,389Pension and
other postretirement liabilities (Note 8)
    
    
    469,945
    
    
    
    551,531Customer advances for construction
    
    
    94,801
    
    
    
    71,211Unamortized gain  sale of utility plant (Note 9)
    
    
    36,606
    
    
    
    41,182Liabilities from risk management and trading
activities (Note S-3)
    
    
    45,558
    
    
    
    135,056Other
    
    
    256,954
    
    
    
    231,489Total deferred credits and other
    
    
    3,078,359
    
    
    
    3,150,151Commitments and Contingencies (See Notes)Total Liabilities and Equity
    
    $
    10,402,905
    
    
    $
    10,513,692
  133




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ARIZONA PUBLIC SERVICE COMPANY
 
 STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash Flows from Operating Activities:Net income
    
    $
    283,940
    
    
    $
    269,730
    
    
    $
    170,479Adjustments to reconcile net income to net cash
provided by operating activities:Regulatory disallowance
    
    
    
    
    
    
    
    
    
    
    138,562Depreciation and amortization including nuclear fuel
    
    
    395,890
    
    
    
    381,173
    
    
    
    353,082Deferred fuel and purchased power
    
    
    (196,136
    )
    
    
    (252,849
    )
    
    
    (172,756
    )Deferred fuel and purchased power amortization
    
    
    231,106
    
    
    
    265,337
    
    
    
    Deferred fuel and purchased power disallowance
    
    
    14,370
    
    
    
    
    
    
    
    Allowance for equity funds used during
construction
    
    
    (21,195
    )
    
    
    (14,312
    )
    
    
    (11,191
    )Deferred income taxes
    
    
    (44,478
    )
    
    
    (305
    )
    
    
    9,659Change in derivative mark-to-market valuations
    
    
    (6,758
    )
    
    
    6,893
    
    
    
    3,492Changes in current assets and liabilities:Customer and other receivables
    
    
    23,882
    
    
    
    20,970
    
    
    
    (56,152
    )Materials, supplies and fossil fuel
    
    
    (29,776
    )
    
    
    (14,381
    )
    
    
    (12,268
    )Other current assets
    
    
    (8,056
    )
    
    
    3,666
    
    
    
    (2,592
    )Accounts payable
    
    
    (2,797
    )
    
    
    5,825
    
    
    
    (12,372
    )Accrued taxes
    
    
    13,802
    
    
    
    23,678
    
    
    
    67,454Collateral
    
    
    509
    
    
    
    (175,799
    )
    
    
    169,080Other current liabilities
    
    
    20,231
    
    
    
    45,125
    
    
    
    (37,781
    )Change in risk management and trading  liabilities
    
    
    (2,009
    )
    
    
    (121,833
    )
    
    
    115,495Change in risk management and trading  assets
    
    
    40,376
    
    
    
    (74,208
    )
    
    
    15,449Changes in
unrecognized tax benefits
    
    
    27,773
    
    
    
    
    
    
    
    Change in other long-term assets
    
    
    (23,577
    )
    
    
    2,828
    
    
    
    (24,752
    )Change in other long-term liabilities
    
    
    48,718
    
    
    
    22,175
    
    
    
    9,002Net cash flow provided by operating activities
    
    
    765,815
    
    
    
    393,713
    
    
    
    721,890Cash Flows from Investing Activities:Capital expenditures
    
    
    (882,357
    )
    
    
    (648,743
    )
    
    
    (609,857
    )Transfer of PWEC Dedicated Assets to APS
    
    
    
    
    
    
    
    
    
    
    (500,000
    )Purchase of Sundance Plant
    
    
    
    
    
    
    
    
    
    
    (185,046
    )Allowance for borrowed funds used during construction
    
    
    (12,308
    )
    
    
    (7,336
    )
    
    
    (7,624
    )Purchases of investment securities
    
    
    (36,525
    )
    
    
    (1,291,903
    )
    
    
    (1,476,623
    )Proceeds from sale of investment securities
    
    
    69,225
    
    
    
    1,259,203
    
    
    
    1,657,798Proceeds from nuclear decommissioning trust sales
    
    
    259,026
    
    
    
    254,651
    
    
    
    186,215Investment in nuclear decommissioning trust
    
    
    (279,768
    )
    
    
    (275,393
    )
    
    
    (204,633
    )Repayment of loan by Pinnacle West Energy
    
    
    
    
    
    
    
    
    
    
    500,000Other
    
    
    1,211
    
    
    
    (4,470
    )
    
    
    (5,372
    )Net cash flow used for investing activities
    
    
    (881,496
    )
    
    
    (713,991
    )
    
    
    (645,142
    )Cash Flows from Financing Activities:Issuance of long-term debt
    
    
    
    
    
    
    395,481
    
    
    
    411,787Short-term borrowings  net
    
    
    218,000
    
    
    
    
    
    
    
    Equity infusion
    
    
    39,548
    
    
    
    212,820
    
    
    
    250,000Dividends paid on common stock
    
    
    (170,000
    )
    
    
    (170,000
    )
    
    
    (170,000
    )Repayment and reacquisition of long-term debt
    
    
    (1,586
    )
    
    
    (86,086
    )
    
    
    (568,177
    )Net cash flow (used for) provided by financing
activities
    
    
    85,962
    
    
    
    352,215
    
    
    
    (76,390
    )Net (decrease) increase in cash and cash equivalents
    
    
    (29,719
    )
    
    
    31,937
    
    
    
    358Cash and cash equivalents at beginning of year
    
    
    81,870
    
    
    
    49,933
    
    
    
    49,575Cash and cash equivalents at end of year
    
    $
    52,151
    
    
    $
    81,870
    
    
    $
    49,933Supplemental disclosure of cash flow information:Cash paid during the year for:Income taxes, net of refunds
    
    $
    186,183
    
    
    $
    117,831
    
    
    $
    34,252Interest, net of amounts capitalized
    
    $
    165,279
    
    
    $
    131,183
    
    
    $
    146,207
  134




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##### Table of Contents



ARIZONA PUBLIC SERVICE COMPANY
 
 STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
 (dollars in thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005COMMON STOCK
    
    $
    178,162
    
    
    $
    178,162
    
    
    $
    178,162ADDITIONAL PAID-IN CAPITAL
    
    
    2,105,466
    
    
    
    2,065,918
    
    
    
    1,853,098RETAINED EARNINGSBalance at beginning of year
    
    
    960,405
    
    
    
    860,675
    
    
    
    860,196Net income
    
    
    283,940
    
    
    
    269,730
    
    
    
    170,479Common stock dividends
    
    
    (170,000
    )
    
    
    (170,000
    )
    
    
    (170,000
    )Cumulative effect of change in accounting
for income taxes (Note S-1)
    
    
    2,212
    
    
    
    
    
    
    
    Balance at end of year
    
    
    1,076,557
    
    
    
    960,405
    
    
    
    860,675ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)Balance at beginning of year
    
    
    2,988
    
    
    
    93,290
    
    
    
    (52,760
    )Pension and other postretirement benefits (Note 8):Unrealized actuarial loss, net of tax benefit of
($15,126)
    
    
    (23,304
    )
    
    
    
    
    
    
    Prior service cost, net of tax benefit of ($463)
    
    
    (713
    )
    
    
    
    
    
    
    Amortization to income:Actuarial loss, net of tax expense of $1,238
    
    
    1,908
    
    
    
    
    
    
    
    Prior service cost, net of tax expense of $212
    
    
    327
    
    
    
    
    
    
    
    Minimum pension liability adjustment, net of tax
expense (benefit) of $27,424 and ($9,023)
    
    
    
    
    
    
    42,731
    
    
    
    (15,045
    )Adjustment to reflect a change in accounting, net of
tax expense of $27,760
    
    
    
    
    
    
    43,401
    
    
    
    Derivative instruments:Net unrealized gain (loss), net of tax expense
(benefit) of $1,369, ($111,367) and $140,135
    
    
    2,040
    
    
    
    (173,872
    )
    
    
    218,656Reclassification
of net realized (gains) losses to income,
net of tax expense (benefit) of $5,164,
($1,657) and ($37,082)
    
    
    8,010
    
    
    
    (2,562
    )
    
    
    (57,561
    )Balance at end of year
    
    
    (8,744
    )
    
    
    2,988
    
    
    
    93,290TOTAL COMMON STOCK EQUITY
    
    $
    3,351,441
    
    
    $
    3,207,473
    
    
    $
    2,985,225COMPREHENSIVE INCOMENet income
    
    $
    283,940
    
    
    $
    269,730
    
    
    $
    170,479Other comprehensive income (loss)
    
    
    (11,732
    )
    
    
    (133,703
    )
    
    
    146,050Total comprehensive income
    
    $
    272,208
    
    
    $
    136,027
    
    
    $
    316,529
  135




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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
    
    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 of Financial Instruments
    
    Note 14
    
    
    Earnings Per Share
    
    Note 15
    
    
    Stock-Based Compensation
    
    Note 16
    
    
    Business Segments
    
    Note 17
    
    
    Derivative and Energy Trading Accounting
    
    Note 18
    
    Note S-3Other Income and Other Expense
    
    Note 19
    
    Note S-4Variable Interest Entities
    
    Note 20
    
    
    Guarantees
    
    Note 21
    
    
    Discontinued Operations
    
    Note 22
    
    
    Related Party Transactions
    
    
    
    
    
    Note S-5
 136




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
 S-1. Income Taxes
       137




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
 Total unrecognized tax benefits, January 1, 2007
    
    $
    126,700Additions for tax positions of the current year
    
    
    Additions for tax positions of prior years
    
    
    66,610Reductions for tax positions of prior years for:Changes in judgment
    
    
    (37,419
    )Settlements with taxing authorities
    
    
    (1,418
    )Lapses of applicable statute of limitations
    
    
    Total unrecognized tax benefits, December 31, 2007
    
    $
    154,473
     Year Ended December 31,2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    168,607
    
    
    $
    114,971
    
    
    $
    79,917State
    
    
    27,028
    
    
    
    21,442
    
    
    
    8,434Total current
    
    
    195,635
    
    
    
    136,413
    
    
    
    88,351Deferred
    
    
    (44,478
    )
    
    
    2,514
    
    
    
    9,659Total income tax expense
    
    $
    151,157
    
    
    $
    138,927
    
    
    $
    98,010
   138




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Federal income tax expense at 35%
statutory rate
    
    $
    152,284
    
    
    $
    143,030
    
    
    $
    93,971Increases (reductions) in tax expense
resulting from:State income tax net of federal income
tax benefit
    
    
    17,540
    
    
    
    15,684
    
    
    
    8,986Credits and favorable adjustments related
to prior years resolved in current year
    
    
    (11,432
    )
    
    
    (10,518
    )
    
    
    Medicare Subsidy Part-D
    
    
    (3,100
    )
    
    
    (3,036
    )
    
    
    (2,465
    )Allowance for equity funds used during
construction (see Note 1)
    
    
    (6,900
    )
    
    
    (4,656
    )
    
    
    (3,694
    )Other
    
    
    2,765
    
    
    
    (1,577
    )
    
    
    1,212Income tax expense
    
    $
    151,157
    
    
    $
    138,927
    
    
    $
    98,010
  December 31,2007
    
    
    2006Current asset
    
    $
    38,707
    
    
    $
    19,220Long-term liability
    
    
    (1,250,028
    )
    
    
    (1,215,862
    )Accumulated deferred income taxes  net
    
    $
    (1,211,321
    )
    
    $
    (1,196,642
    )
 139




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
  December 31,2007
    
    
    2006DEFERRED TAX ASSETSRegulatory liabilities:Asset retirement obligation
    
    $
    214,607
    
    
    $
    203,846Federal excess deferred income tax
    
    
    11,091
    
    
    
    12,714Tax benefit of Medicare subsidy
    
    
    11,727
    
    
    
    18,214Other
    
    
    26,579
    
    
    
    27,283Risk management and trading activities
    
    
    41,512
    
    
    
    244,611Pension and other postretirement
liabilities
    
    
    197,620
    
    
    
    257,910Deferred gain on Palo Verde Unit 2
sale-leaseback
    
    
    14,408
    
    
    
    16,160Other
    
    
    116,491
    
    
    
    86,442Total deferred tax assets
    
    
    634,035
    
    
    
    867,180DEFERRED TAX LIABILITIESPlant-related
    
    
    (1,538,183
    )
    
    
    (1,509,812
    )Risk management and trading activities
    
    
    (46,883
    )
    
    
    (220,303
    )Regulatory assets:Deferred fuel and purchased power
    
    
    (43,661
    )
    
    
    (62,889
    )Deferred fuel and purchased power -
mark-to-market
    
    
    (2,782
    )
    
    
    (24,427
    )Pension and other postretirement
benefits
    
    
    (133,120
    )
    
    
    (185,602
    )Other
    
    
    (80,727
    )
    
    
    (60,789
    )Total deferred tax liabilities
    
    
    (1,845,356
    )
    
    
    (2,063,822
    )Accumulated deferred income taxes  net
    
    $
    (1,211,321
    )
    
    $
    (1,196,642
    )
 140




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
 S-2. Selected Quarterly Financial Data (Unaudited)
  2007 Quarter Ended,
    
    2007March 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    TotalOperating revenues
    
    $
    538,260
    
    
    $
    721,759
    
    
    $
    1,047,062
    
    
    $
    629,196
    
    
    $
    2,936,277Operations and maintenance
    
    
    165,934
    
    
    
    170,631
    
    
    
    171,963
    
    
    
    201,549
    
    
    
    710,077Operating income
    
    
    40,589
    
    
    
    109,643
    
    
    
    238,144
    
    
    
    37,619
    
    
    
    425,995Net income
    
    
    4,317
    
    
    
    75,090
    
    
    
    204,257
    
    
    
    276
    
    
    
    283,940
 2006 Quarter Ended,
    
    2006March 31,
    
    June 30,
    
    September 30,
    
    December 31,
    
    TotalOperating revenues
    
    $
    476,869
    
    
    $
    718,850
    
    
    $
    886,686
    
    
    $
    576,108
    
    
    $
    2,658,513Operations and maintenance
    
    
    173,353
    
    
    
    164,373
    
    
    
    156,170
    
    
    
    171,735
    
    
    
    665,631Operating income
    
    
    25,044
    
    
    
    119,967
    
    
    
    200,580
    
    
    
    52,351
    
    
    
    397,942Net income (loss)
    
    
    (5,521
    )
    
    
    93,757
    
    
    
    168,634
    
    
    
    12,860
    
    
    
    269,730
 S-3. Derivative and Energy Trading Accounting
  Cash Flow Hedges
  2007
    
    2006
    
    2005Gains (losses) on the ineffective portion
of
derivatives qualifying for hedge
accounting
    
    $
    1,430
    
    
    $
    (5,666
    )
    
    $
    14,452Gains (losses) from the change in options
time value excluded from measurement
of effectiveness
    
    
    
    
    
    
    (10
    )
    
    
    620Gains from the discontinuance of
cash flow hedges
    
    
    150
    
    
    
    178
    
    
    
    473
  141




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
  Investments
    
    
    
    
    
    Deferredand Other
    
    Current
    
    Credits andDecember 31, 2007
    
    Current Assets
    
    Assets
    
    Liabilities
    
    Other
    
    Net AssetMark-to-market
    
    $
    36,525
    
    
    $
    82,588
    
    
    $
    (59,908
    )
    
    $
    (45,558
    )
    
    $
    13,647Margin account and
options  at cost
    
    
    37,329
    
    
    
    
    
    
    
    (531
    )
    
    
    
    
    
    
    36,798Total
    
    $
    73,854
    
    
    $
    82,588
    
    
    $
    (60,439
    )
    
    $
    (45,558
    )
    
    $
    50,445
 Investments
    
    
    
    
    
    DeferredCurrent
    
    and Other
    
    Current
    
    Credits and
    
    Net AssetDecember 31, 2006
    
    Assets
    
    Assets
    
    Liabilities
    
    Other
    
    (Liability)Mark-to-market
    
    $
    461,603
    
    
    $
    96,892
    
    
    $
    (488,315
    )
    
    $
    (135,056
    )
    
    $
    (64,876
    )Margin account and
options  at cost
    
    
    77,705
    
    
    
    
    
    
    
    (2,540
    )
    
    
    
    
    
    
    75,165Total
    
    $
    539,308
    
    
    $
    96,892
    
    
    $
    (490,855
    )
    
    $
    (135,056
    )
    
    $
    10,289
    142




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
 S-4. Other Income and Other Expense
  2007
    
    
    2006
    
    
    2005Other income:Interest income
    
    $
    10,961
    
    
    $
    16,526
    
    
    $
    14,513SO2 emission allowance sales
and other (a)
    
    
    1,001
    
    
    
    10,782
    
    
    
    3,187Investment gains  net
    
    
    2,429
    
    
    
    3,645
    
    
    
    1,705Miscellaneous
    
    
    2,336
    
    
    
    949
    
    
    
    2,736Total other income
    
    $
    16,727
    
    
    $
    31,902
    
    
    $
    22,141Other expense:Non-operating costs (a)
    
    $
    (12,712
    )
    
    $
    (15,415
    )
    
    $
    (11,706
    )Asset dispositions
    
    
    (1,981
    )
    
    
    (1,851
    )
    
    
    (9,759
    )Miscellaneous
    
    
    (6,937
    )
    
    
    (6,564
    )
    
    
    (1,739
    )Total other expense
    
    $
    (21,630
    )
    
    $
    (23,830
    )
    
    $
    (23,204
    )
 
 (a)
    
    As defined by the FERC, includes below-the-line non-operating utility income
and expense (items excluded from utility rate recovery). S-5. Related Party Transactions
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Electric operating revenues:Pinnacle
West Marketing & Trading (a)
    
    $
    4
    
    
    $
    6
    
    
    $
    6Pinnacle West Energy
    
    
    
    
    
    
    
    
    
    
    2Total
    
    $
    4
    
    
    $
    6
    
    
    $
    8Fuel and purchased power costs:Pinnacle West Energy
    
    $
    
    
    
    $
    
    
    
    $
    61Other:Pinnacle West Energy interest income
    
    $
    
    
    
    $
    
    
    
    $
    7Equity infusion from Pinnacle West
    
    $
    40
    
    
    $
    210
    
    
    $
    250
 
 (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. 143




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##### Table of Contents



NOTES TO ARIZONA PUBLIC SERVICE COMPANY
 As of December 31,2007
    
    
    2006Net affiliate receivables (payables):Pinnacle
West Marketing & Trading (a)
    
    $
    11
    
    
    $
    2APSES
    
    
    
    
    
    
    1Pinnacle West
    
    
    (9
    )
    
    
    (20
    )Total
    
    $
    2
    
    
    $
    (17
    )
 
 (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.    144




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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 31,2007 (a)
    
    
    2006
    
    
    2005Operating revenues
    
    $
    6,708
    
    
    $
    119,224
    
    
    $
    154,053Operating expensesFuel and purchased power
    
    
    (35,541
    )
    
    
    101,360
    
    
    
    95,223Other operating expenses
    
    
    5,659
    
    
    
    9,607
    
    
    
    3,268Total
    
    
    (29,882
    )
    
    
    110,967
    
    
    
    98,491Operating income
    
    
    36,590
    
    
    
    8,257
    
    
    
    55,562OtherEquity in earnings of subsidiaries
    
    
    287,078
    
    
    
    324,504
    
    
    
    58,759Other income
    
    
    225
    
    
    
    2,208
    
    
    
    5,337Total
    
    
    287,303
    
    
    
    326,712
    
    
    
    64,096Interest expense
    
    
    17,190
    
    
    
    20,522
    
    
    
    16,472Income from continuing operations
    
    
    306,703
    
    
    
    314,447
    
    
    
    103,186Income tax benefit
    
    
    (440
    )
    
    
    (12,898
    )
    
    
    (62,761
    )Income from continuing operations  net of
income taxes
    
    
    307,143
    
    
    
    327,345
    
    
    
    165,947Income (loss) from discontinued operations
    
    
    
    
    
    
    (90
    )
    
    
    10,320Net income
    
    $
    307,143
    
    
    $
    327,255
    
    
    $
    176,267
 
 (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. 145




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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 31,2007 (a)
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    137
    
    
    $
    11Customer and other receivables
    
    
    82,003
    
    
    
    174,583Allowance for doubtful accounts
    
    
    
    
    
    
    (1,200
    )Assets from risk management and trading activities
    
    
    
    
    
    
    101,604Other current assets
    
    
    1,262
    
    
    
    10,810Total current assets
    
    
    83,402
    
    
    
    285,808Investments and other assetsAssets from long-term risk management
and trading activities
    
    
    
    
    
    
    70,319Investments in subsidiaries
    
    
    3,711,737
    
    
    
    3,545,329Deferred income taxes
    
    
    11,806
    
    
    
    Other assets
    
    
    23,591
    
    
    
    73,300Total investments and other assets
    
    
    3,747,134
    
    
    
    3,688,948Total Assets
    
    $
    3,830,536
    
    
    $
    3,974,756Liabilities and Common Stock EquityCurrent liabilitiesAccounts payable
    
    $
    22,177
    
    
    $
    80,903Accrued taxes
    
    
    (86,081
    )
    
    
    (118,073
    )Short-term borrowings
    
    
    115,000
    
    
    
    27,900Current maturities of long-term debt
    
    
    
    
    
    
    115Deferred income taxes
    
    
    7,682
    
    
    
    18,238Liabilities from risk management and
trading activities
    
    
    2
    
    
    
    67,340Other current liabilities
    
    
    18,019
    
    
    
    130,985Total current liabilities
    
    
    76,799
    
    
    
    207,408Long-term debt less current maturities
    
    
    175,000
    
    
    
    175,000Deferred credits and otherDeferred income taxes
    
    
    
    
    
    
    19,582Pension and other postretirement liabilities
    
    
    22,248
    
    
    
    13,437Liabilities from risk management and
trading activities
    
    
    
    
    
    
    36,114Other
    
    
    24,878
    
    
    
    23,218Total deferred credits and other
    
    
    47,126
    
    
    
    92,351Common stock equityCommon stock
    
    
    2,133,733
    
    
    
    2,587,201Accumulated
other comprehensive income (loss)
    
    
    (15,863
    )
    
    
    17,512Retained earnings
    
    
    1,413,741
    
    
    
    895,284Total common stock equity
    
    
    3,531,611
    
    
    
    3,499,997Total Liabilities and Common Stock Equity
    
    $
    3,830,536
    
    
    $
    3,974,756
 
 (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. 146




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PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY
 
 SCHEDULE I  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 CONDENSED STATEMENTS OF CASH FLOWS
 Year Ended December 312007 (a)
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet Income
    
    $
    307,143
    
    
    $
    327,255
    
    
    $
    176,267Less: equity in earnings of subsidiaries  net
    
    
    (287,078
    )
    
    
    (324,504
    )
    
    
    (58,759
    )Net income attributable to Pinnacle West
    
    
    20,065
    
    
    
    2,751
    
    
    
    117,508Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    320
    
    
    
    470
    
    
    
    551Deferred income taxes
    
    
    (24,192
    )
    
    
    30,384
    
    
    
    (19,929
    )Change in mark-to-market valuations
    
    
    53,228
    
    
    
    21,698
    
    
    
    (15,162
    )Customer and other receivables
    
    
    112,543
    
    
    
    2,816
    
    
    
    1,730Accounts payable
    
    
    (57,978
    )
    
    
    (55,675
    )
    
    
    43,969Accrued taxes
    
    
    25,127
    
    
    
    (49,529
    )
    
    
    (84,758
    )Change in risk management and trading  net
    
    
    (11,602
    )
    
    
    65,633
    
    
    
    (82,650
    )Other net
    
    
    (104,968
    )
    
    
    (20,746
    )
    
    
    102,432Net cash flow (used for) provided by
operating activities
    
    
    12,543
    
    
    
    (2,198
    )
    
    
    63,691Cash flows from investing activitiesInvestments in and advances to subsidiaries  net
    
    
    (83,993
    )
    
    
    (4,677
    )
    
    
    (230,229
    )Repayments and advances of loans from
subsidiaries
    
    
    (4,800
    )
    
    
    2,686
    
    
    
    2,402Dividends received from subsidiaries
    
    
    180,000
    
    
    
    180,000
    
    
    
    220,000Purchases of investment securities
    
    
    
    
    
    
    (147,501
    )
    
    
    (1,485,655
    )Proceeds from sale of investment securities
    
    
    
    
    
    
    147,501
    
    
    
    1,485,683Net cash flow (used for) provided by
investing activities
    
    
    91,207
    
    
    
    178,009
    
    
    
    (7,799
    )Cash flows from financing activitiesIssuance of long-term debt
    
    
    
    
    
    
    175,000
    
    
    
    Short-term borrowings and payments  net
    
    
    87,371
    
    
    
    27,900
    
    
    
    Dividends paid on common stock
    
    
    (210,473
    )
    
    
    (201,221
    )
    
    
    (186,677
    )Repayment of long-term debt
    
    
    (115
    )
    
    
    (298,687
    )
    
    
    (165,104
    )Common stock equity issuance
    
    
    19,593
    
    
    
    35,834
    
    
    
    290,542Net cash flow used for financing activities
    
    
    (103,624
    )
    
    
    (261,174
    )
    
    
    (61,239
    )Net increase (decrease) in cash and cash
equivalents
    
    
    126
    
    
    
    (85,363
    )
    
    
    (5,347
    )Cash and cash equivalents at beginning of year
    
    
    11
    
    
    
    85,374
    
    
    
    90,721Cash and cash equivalents at end of year
    
    $
    137
    
    
    $
    11
    
    
    $
    85,374
 
 (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. 147




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PINNACLE WEST CAPITAL CORPORATION
 
 SCHEDULE II  RESERVE FOR UNCOLLECTIBLES
  Column CColumn B
    
    Additions
    
    
    
    
    
    Column EBalance at
    
    Charged to
    
    Charged
    
    
    
    
    
    BalanceColumn A
    
    beginning
    
    cost and
    
    to other
    
    Column D
    
    at end ofDescription
    
    of period
    
    expenses
    
    accounts
    
    Deductions
    
    periodReserve for uncollectibles:2007
    
    $
    5,597
    
    
    $
    4,130
    
    
    $
    
    
    
    $
    4,945
    
    
    $
    4,7822006
    
    
    4,979
    
    
    
    4,096
    
    
    
    
    
    
    
    3,478
    
    
    
    5,5972005
    
    
    4,896
    
    
    
    2,638
    
    
    
    
    
    
    
    2,555
    
    
    
    4,979
 148




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ARIZONA PUBLIC SERVICE COMPANY
 
 SCHEDULE II  RESERVE FOR UNCOLLECTIBLES
  Column CColumn B
    
    Additions
    
    
    
    
    
    Column EBalance at
    
    Charged to
    
    Charged
    
    
    
    
    
    BalanceColumn A
    
    beginning
    
    cost and
    
    to other
    
    Column D
    
    at end ofDescription
    
    of period
    
    expenses
    
    accounts
    
    Deductions
    
    periodReserve for uncollectibles:2007
    
    $
    4,223
    
    
    $
    5,059
    
    
    $
    
    
    
    $
    5,018
    
    
    $
    4,2642006
    
    
    3,568
    
    
    
    4,096
    
    
    
    
    
    
    
    3,441
    
    
    
    4,2232005
    
    
    3,444
    
    
    
    2,638
    
    
    
    
    
    
    
    2,514
    
    
    
    3,568
 149




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
  et seq
         150




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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
  151




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Securities Authorized for Issuance Under Equity Compensation Plans
  EQUITY COMPENSATION PLAN INFORMATION
 Number of securitiesremaining availablefor future issuanceunder equityNumber of securities
    
    
    Weighted-average
    
    
    compensation plansto be issued upon
    
    
    exercise price of
    
    
    (excludingexercise of
    
    
    outstanding
    
    
    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
    
    
    2,008,887
    
    
    $
    40.84
    
    
    
    7,950,520Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,008,887
    
    
    $
    40.84
    
    
    
    7,950,520
 
 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
  152




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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
    
    2006
    
    2007Audit Fees (1)
    
    $
    1,925,550
    
    
    $
    1,921,601Audit-Related Fees (2)
    
    
    167,912
    
    
    
    178,840Tax Fees (3)
    
    
    17,096
    
    
    
    7,751
 
 (1)
    
    The aggregate fees billed for services rendered for the audit of annual financial statements
and for review of financial statements included in Reports on Form 10-Q.(2)
    
    The aggregate fees billed for assurance services that are reasonably related to the
performance of the audit or review of the financial statements that are not included in Audit
Fees reported above, which primarily consist of fees for employee benefit plan audits.(3)
    
    The aggregate fees billed primarily for tax compliance and tax planning.  153




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154




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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
23, 2007
    
    4.1 to Pinnacle West/APS May 23, 2007
Form 8-K Report, File Nos. 1-8962 and
1-4473
    
    5-25-073.2
    
    Pinnacle West
    
    Pinnacle West
Capital Corporation
Bylaws, amended as
of May 23, 2007
    
    4.2 to Pinnacle West/APS May 23, 2007
Form 8-K Report, File Nos. 1-8962 and
1-4473
    
    5-25-073.3
    
    APS
    
    Articles of
Incorporation,
restated as of May
25, 1988
    
    4.2 to APS Form S-3 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 June 23, 2004
    
    3.1 to APS June 30, 2004 Form 10-Q
Report, File No. 1-4473
    
    8-9-044.1
    
    Pinnacle West
    
    Specimen
Certificate of
Pinnacle West
Capital Corporation
Common Stock, no
par value
    
    4.2 to Pinnacle Wests 1988 Form 10-K
Report, File No. 1-8962
    
    3-31-89
 155




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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,
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 among 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
    
    5-15-034.4
    
    Pinnacle West
    
    Indenture dated as
of December 1, 2000
between the Company
and The Bank of New
York, as Trustee,
relating to Senior
Debt Securities
    
    4.1 to Pinnacle Wests Registration
Statement No. 333-52476
    
    12-21-00
 156




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.4a
    
    Pinnacle West
    
    First Supplemental
Indenture dated as
of March 15, 2001
    
    4.1 to Pinnacle Wests Registration
Statement No. 333-52476 by means of
March 26, 2001 Form 8-K Report, File No.
1-8962
    
    3-26-014.4b
    
    Pinnacle West
    
    Second Supplemental
Indenture dated as
of November 1, 2003
    
    4.20 to Pinnacle Wests Registration
Statement No. 333-101457 by means of
November 6, 2003 Form 8-K Report, File
No. 1-8962
    
    11-12-034.5
    
    Pinnacle West
    
    Indenture dated as
of December 1, 2000
between the Company
and The Bank of New
York, as Trustee,
relating to
subordinated 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
among APS and 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
    
    First Supplemental
Indenture dated as
of January 15, 1998
    
    4.3 to APS Registration Statement Nos.
333-15379 and 333-27551 by means of
January 13, 1998 Form 8-K Report, File
No. 1-4473
    
    1-16-984.6b
    
    Pinnacle West
APS
    
    Second Supplemental
Indenture dated as
of February 15,
1999
    
    4.3 to APS Registration Statement Nos.
333-27551 and 333-58445 by means of
February 18, 1999 Form 8-K Report, File
No. 1-4473
    
    2-22-99
 157




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.6c
    
    Pinnacle West
APS
    
    Third Supplemental
Indenture dated as
of November 1, 1999
    
    4.5 to APS Registration Statement Nos.
333-58445 by means of November 2, 1999
Form 8-K Report, File No. 1-4473
    
    11-5-994.6d
    
    Pinnacle West
APS
    
    Fourth Supplemental
Indenture dated as
of August 1, 2000
    
    4.1 to APS Registration Statement No.
333-58445 and 333-94277 by means of
August 2, 2000 Form 8-K Report, File No.
1-4473
    
    8-4-004.6e
    
    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
    
    11-6-014.6f
    
    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
    
    2-28-024.6g
    
    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
    
    5-9-034.6h
    
    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
    
    6-28-044.6i
    
    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
    
    8-22-054.6j
    
    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
    
    8-2-06
 158




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Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.7
    
    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
    
    4-19-994.7a
    
    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
    
    8-9-044.9
    
    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
    
    3-30-88
 159




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed4.9a
    
    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
    
    11-14-9110.1.1a
    
    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
    
    3-28-97
 160




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.1.1d
    
    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
    
    3-15-0410.1.1h
    
    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
    
    5-9-07
 161




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.1.2
    
    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
    
    3-26-9210.1.2a
    
    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 January
31, 1992
    
    10.1 to APS June 30, 1996 Form 10-Q
Report, File No. 1-4473
    
    8-9-96
 162




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.1.2d
    
    Pinnacle West
APS
    
    Amendment No. 4 to
Amended and
Restated
Decommissioning
Trust Agreement
(PVNGS Unit 2)
dated as of January
31, 1992
    
    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
    
    5-15-0210.1.2g
    
    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
 163




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.1b
    
    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
    
    11-10-9410.2.1cb
    
    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
    
    8-13-86
 164




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.2ab
    
    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
    
    3-30-0010.2.3b
    
    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
    
    3-30-00
 165




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.4b
    
    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
    
    3-30-0010.2.4bb
    
    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
    
    3-30-00
 166




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.2.4cb
    
    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
    
    3-31-0310.3.1b
    
    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
    
    3-13-06
 167




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.4.1b
    
    Pinnacle West
APS
    
    Letter Agreement
dated July 28, 1995
between Arizona
Public Service
Company and Armando
B. Flores
    
    10.16A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-0010.4.2b
    
    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
    
    3-30-9510.4.3b
    
    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
    
    3-28-9710.4.4b
    
    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
    
    11-12-9710.4.5b
    
    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
    
    3-30-0010.4.5ab
    
    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
    
    8-13-0210.4.6b
    
    Pinnacle West
APS
    
    Letter Agreement
dated October 3,
1997 between
Arizona Public
Service Company and
James M. Levine
    
    10.17A to Pinnacle Wests 1999 Form 10-K
Report, File No. 1-8962
    
    3-30-0010.4.7b
    
    Pinnacle West
APS
    
    Employment
Agreement dated
February 27, 2003
between APS and
James M. Levine
    
    10.1 to Pinnacle Wests March 31, 2003
Form 10-Q Report, File No. 1-8962
    
    5-15-03
 168




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.4.8b
    
    Pinnacle West
APS
    
    Summary of James M.
Levine Retirement
Benefits
    
    10.2 to Pinnacle Wests March 31, 2003
Form 10-Q Report, File No. 1-8962
    
    5-15-0310.4.9b
    
    Pinnacle West
APS
    
    Employment
Agreement,
effective as of
October 1, 2002,
between APS and
James M. Levine
    
    10.1 to Pinnacle Wests September 30,
2002 Form 10-Q Report, File No. 1-8962
    
    11-14-0210.4.9ab
    
    Pinnacle West
APS
    
    Amendment to
Agreement between
APS and James M.
Levine effective
October 11, 2002
    
    10.2 to Pinnacle Wests September 30,
2004 Form 10-Q Report, File No. 1-8962
    
    11-8-0410.4.9bb
    
    Pinnacle West
APS
    
    Second Amendment to
Agreement between
APS and James M.
Levine effective as
of 1-1-05
    
    10.79.2 to Pinnacle West/APS 2004 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-16-0510.4.10b
    
    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
    
    3-31-0310.4.11b
    
    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
    
    2-28-0710.5.1bd
    
    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
    
    3-13-06
 169




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.5.1abd
    
    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
    
    11-5-0710.5.2bd
    
    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
    
    11-5-0710.6.1b
    
    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
 170




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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
    
    3-13-0610.6.3b
    
    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
    
    4-20-0710.6.4ab
    
    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
    
    4-20-07
 171




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.6.4bbd
    
    Pinnacle West
    
    Form of Restricted
Stock Unit
Agreement Under the
Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
    
    10.1 to Pinnacle West/APS June 30, 2007
Form 10-Q Report, File No. 1-8962
    
    8-7-0710.6.4cb
    
    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
    
    11-5-0710.6.4db
    
    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
    
    11-5-0710.6.4ebd
    
    Pinnacle West
APS
    
    Form of Restricted
Stock Unit
Agreement under the
Pinnacle West
Capital Corporation
2007 Long-Term
Incentive Plan
    
    10.1 to Pinnacle West/APS January 22,
2008 Form 8-K Report, File Nos. 1-8962
and 1-4473
    
    1-28-0810.6.4fbd
    
    Pinnacle West
APS
    
    Form of Performance
Share Agreement
under the Pinnacle
West Capital
Corporation 2007
Long-Term Incentive
Plan
    
    10.2 to Pinnacle West/APS January 22,
2008 Form 8-K Report, File Nos. 1-8962
and 1-4473
    
    1-28-0810.6.4gbd
    
    Pinnacle West
APS
    
    Form of Restricted
Stock Agreement
Under the Pinnacle
West Capital
Corporation 2007
Long-Term Incentive
Plan
    
    10.3 to Pinnacle West/APS January 22,
2008 Form 8-K Report, File Nos. 1-8962
and 1-4473
    
    1-28-0810.6.5bd
    
    Pinnacle West
APS
    
    Summary of 2008 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
    
    9-1-77
 172




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.7.1a
    
    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
    
    7-25-8510.7.2
    
    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
    
    7-25-85
 173




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.7.4
    
    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
    
    3-23-7010.8.3
    
    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
    
    3-13-06
 174




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.8.5
    
    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
    
    3-13-0610.9.1
    
    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
    
    3-8-89
 175




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.9.1a
    
    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
    
    5-15-9110.9.1b
    
    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
    
    8-14-00
 176




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.10.1
    
    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
    
    8-8-9110.10.2a
    
    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
    
    3-29-96
 177




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.10.5
    
    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
    
    3-16-0510.11.2
    
    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
    
    Amended and
Restated Five-Year
Credit Agreement
dated as of
December 9, 2005
between APS, as
Borrower, Citibank,
N.A., as Agent, and
the lenders and
other parties
thereto
    
    10.95 to Pinnacle West/APS 2005 Form
10-K Report, File Nos. 1-8962 and 1-4473
    
    3-13-0610.11.4
    
    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
    
    3-13-06
 178




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.11.5
    
    Pinnacle West
    
    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 agent parties
thereto
    
    10.97 to Pinnacle West 2005 Form 10-K
Report, File No. 1-8962
    
    3-13-0610.11.5a
    
    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
    
    11-8-04
 179




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.11.7
    
    APS
    
    $500,000,000
Five-Year Credit
Agreement dated as
of September 29,
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
    
    11-8-0610.11.8
    
    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
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 S-3 Registration
Statement, File No. 33-9480
    
    10-24-86
 180




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.12.1ac
    
    Pinnacle West
APS
    
    Amendment No. 1,
dated as of
November 1, 1986,
to Facility Lease,
dated as of August
1, 1986, between
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
    
    12-4-8610.12.1bc
    
    Pinnacle West
APS
    
    Amendment No. 2
dated as of June 1,
1987 to 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
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
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
    
    3-30-93
 181




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.12.2
    
    Pinnacle West
APS
    
    Facility Lease,
dated as of
December 15, 1986,
between 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
    
    1-20-8710.12.2a
    
    Pinnacle West
APS
    
    Amendment No. 1,
dated as of August
1, 1987, to
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
Lessor, and APS, as
Lessee
    
    4.13 to APS Form S-3 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 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
    
    3-30-93
 182




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.13.1
    
    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
    
    3-19-9210.13.2
    
    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
    
    3-16-05
 183




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.13.5
    
    Pinnacle West
    
    Operating Agreement
    
    10.105 to Pinnacle West/APS 2004 Form
    
    3-16-05APS
    
    for the
Co-Ownership of
Wastewater Effluent
dated November 16,
2000 by and between
APS and SRP
    
    10-K Report, File Nos. 1-8962 and 1-447310.13.6
    
    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
    
    5-15-98
 184




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed10.15.3a
    
    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 Charges12.2
    
    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
William J. Post,
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
Donald E. Brandt,
Chief Financial
Officer, pursuant
to Rule 13a-14(a)
and Rule 15d-14(a)
of the Securities
Exchange Act, as
amended
 185




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed31.3
    
    APS
    
    Certificate of Jack
E. Davis, Chief
Executive Officer,
pursuant to Rule
13a-14(a) and Rule
15d-14(a) of the
Securities Exchange
Act, as amended31.4
    
    APS
    
    Certificate of
Donald E. Brandt,
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
    
    3-30-93
 186




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.1a
    
    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
    
    3-30-9399.2c
    
    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
    
    11-9-92
 187




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.2ac
    
    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
    
    12-4-8699.2bc
    
    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
    
    3-30-93
 188




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.3c
    
    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 S-3 Registration
Statement, File No. 33-9480
    
    10-24-8699.3ac
    
    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
    
    12-4-86
 189




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.3bc
    
    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 S-3 Registration
Statement, File No. 33-9480
    
    10-24-8699.4ac
    
    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
    
    12-4-86
 190




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##### Table of Contents



Exhibit
    
    
    
    
    
    
    
    DateNo.
    
    Registrant(s)
    
    Description
    
    Previously Filed as Exhibit:a
    
    Filed99.4bc
    
    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
 191




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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 S-3 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
 192




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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 S-3 Registration
Statement No. 33-9480 by means of
August 1, 1987 Form 8-K Report, File No.
1-4473
    
    8-24-87
 193




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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
 194




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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 S-3 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. 195




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##### Table of Contents



SIGNATURES
  Date: February 27, 2008
    PINNACLE WEST CAPITAL CORPORATION(Registrant)/s/ William J. Post(William J. Post, Chairman of theBoard of Directors and Chief
Executive Officer) Power of Attorney
   Signature
    
    Title
    
    Date/s/ William J. Post

(William J. Post, Chairman
    
    Principal Executive Officer and
Director
    
    February 27, 2008of the Board of Directors andChief Executive Officer)/s/ Jack E. Davis

(Jack E. Davis, President
    
    Director
    
    February 27, 2008and Chief Operating Officer)/s/ Donald E. Brandt

(Donald E. Brandt,
    
    Principal Accounting Officer and
Principal Financial Officer
    
    February 27, 2008Executive Vice President andChief Financial Officer)
 196




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##### Table of Contents



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

(Edward N. Basha, Jr.)
    
    Director
    
    February 27, 2008/s/ Susan Clark-Johnson

(Susan Clark-Johnson)
    
    Director
    
    February 27, 2008/s/ Michael L. Gallagher

(Michael L. Gallagher)
    
    Director
    
    February 27, 2008/s/ Pamela Grant

(Pamela Grant)
    
    Director
    
    February 27, 2008/s/ Roy A. Herberger, Jr.

(Roy A. Herberger, Jr.)
    
    Director
    
    February 27, 2008/s/ William S. Jamieson

(William S. Jamieson)
    
    Director
    
    February 27, 2008/s/ Humberto S. Lopez

(Humberto S. Lopez)
    
    Director
    
    February 27, 2008/s/ Kathryn L. Munro

(Kathryn L. Munro)
    
    Director
    
    February 27, 2008/s/ Bruce J. Nordstrom

(Bruce J. Nordstrom)
    
    Director
    
    February 27, 2008/s/ W. Douglas Parker

(W. Douglas Parker)
    
    Director
    
    February 27, 2008/s/ William L. Stewart

(William L. Stewart)
    
    Director
    
    February 27, 2008
 197




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##### Table of Contents



SIGNATURES
  ARIZONA PUBLIC SERVICE COMPANY(Registrant)Date:  February 27, 2008
    /s/ Jack E. Davis(Jack E. Davis, ChiefExecutive Officer) Power of Attorney
   Signature
    
    Title
    
    Date/s/ William J. Post

(William J. Post, Chairman
    
    Director
    
    February 27, 2008of the Board of Directors )/s/ Jack E. Davis

(Jack E. Davis,Chief Executive Officer)
    
    Principal Executive Officer and
Director
    
    February 27, 2008/s/ Donald E. Brandt

(Donald E. Brandt,
    
    Principal Financial Officer
    
    February 27, 2008President and ChiefFinancial Officer)/s/ Chris N. Froggatt

(Chris N. Froggatt,
    
    Principal Accounting Officer
    
    February 27, 2008Vice President and Controller)
 198




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##### Table of Contents



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

(Edward N. Basha, Jr.)
    
    Director
    
    February 27, 2008/s/ Susan Clark-Johnson

(Susan Clark-Johnson)
    
    Director
    
    February 27, 2008/s/ Michael L. Gallagher

(Michael L. Gallagher)
    
    Director
    
    February 27, 2008/s/ Pamela Grant

(Pamela Grant)
    
    Director
    
    February 27, 2008/s/ Roy A. Herberger, Jr.

(Roy A. Herberger, Jr.)
    
    Director
    
    February 27, 2008/s/ William S. Jamieson

(William S. Jamieson)
    
    Director
    
    February 27, 2008/s/ Humberto S. Lopez

(Humberto S. Lopez)
    
    Director
    
    February 27, 2008/s/ Kathryn L. Munro

(Kathryn L. Munro)
    
    Director
    
    February 27, 2008/s/ Bruce J. Nordstrom

(Bruce J. Nordstrom)
    
    Director
    
    February 27, 2008/s/ W. Douglas Parker

(W. Douglas Parker)
    
    Director
    
    February 27, 2008/s/ William L. Stewart

(William L. Stewart)
    
    Director
    
    February 27, 2008
 199