Document:

Exhibit 10.1

February 27, 2003

Jim Levine
4817 N. Greentree Dr. E.
Litchfield Park, AZ  85340

Dear Jim:

As a  supplement  to your  Employment  Agreement  dated  October  11,  2002  the
following  clarifies the benefit items that the Pinnacle West Board has approved
for you:

     o    Pension - Add 5 years of service  effective 1/2002 and each subsequent
          year 3% will be added to the  percent of average  monthly  wage you'll
          receive until the 70% benefit is reached:

          -    18  years of  service  in 2002  (3%x10  - 30% + 2%x8 = 16%),  46%
               pension benefit

          -    2002     +5 years at 2%     46%
          -    2002     +3%                49%
          -    2003     +3%                52%
          -    2004     +3%                55%  age 55
          -    2005     +3%                58%
          -    2006     +3%                61%
          -    2007     +3%                64%
          -    2008     +3%                67%
          -    2009     +3%                70%  age 60

     o    Additional  years of service will count towards the percentage of your
          premium costs for retiree medical coverage.

If you have any questions, please feel free to contact me.

                                        Sincerely,

                                        William J. Post

WP/DO/ch
cc: Armando FloresExhibit 10.2

                         ARIZONA PUBLIC SERVICE COMPANY

                                       TO

                              THE BANK OF NEW YORK

                                     TRUSTEE

                          Third Supplemental Indenture

                          Dated as of November 1, 2002

                                       To

                                    Indenture

                          Dated as of November 15, 1996

              5.05% Senior Notes (Maricopa 2002 Series A) Due 2029
<PAGE>
     THIRD SUPPLEMENTAL INDENTURE, dated as of November 1, 2002, between Arizona
Public Service Company, a corporation duly organized and existing under the laws
of the State of Arizona  (herein  called the  "Company"),  having its  principal
office at 400 North Fifth Street,  Phoenix,  Arizona 85004,  and The Bank of New
York, a New York banking  corporation,  as Trustee (herein called the "Trustee")
under the  Indenture  dated as of November  15, 1996 between the Company and the
Trustee (the "Indenture").

                             RECITALS OF THE COMPANY

     The Company has  executed  and  delivered  the  Indenture to the Trustee to
provide for the issuance  from time to time of its Senior  Notes (the  "Notes"),
said Notes to be issued in one or more series as in the Indenture provided.

     The Company  has  executed  and  delivered  to the  Trustee two  indentures
supplemental  to the Indenture,  the First  Supplemental  Indenture  dated as of
November 15, 1996, and the Second  Supplemental  Indenture  dated as of April 1,
1997 (collectively, the "Supplemental Indentures").

     Pursuant to the terms of the Indenture,  the Company desires to provide for
the  establishment  of a new series of its Notes to be known as its 5.05% Senior
Notes  (Maricopa  2002  Series A) Due 2029  (herein  called the "Series A Senior
Notes"),  the form and  substance  of such Series A Senior  Notes and the terms,
provisions,  and conditions thereof to be set forth as provided in the Indenture
and this Third Supplemental Indenture.

     The Company has entered into a Loan Agreement, dated as of November 1, 2002
(as amended  from time to time,  the "Loan  Agreement")  between the Company and
Maricopa County,  Arizona Pollution Control Corporation (the "Issuer"),  and the
Issuer has issued the Maricopa County,  Arizona  Pollution  Control  Corporation
Pollution  Control Revenue  Refunding Bonds (Arizona Public Service Company Palo
Verde  Project) 2002 Series A in the aggregate  principal  amount of $90,000,000
(the "Series A Pollution  Control Bonds") under that certain Indenture of Trust,
dated as of  November  1,  2002 (as  amended  from time to time,  the  "Maricopa
Indenture")  between the Issuer and The Bank of New York,  as Trustee  (together
with its  successors in such  capacity,  the "Maricopa  Trustee") and loaned the
proceeds  thereof to the Company  (the  "Loan") to pay a portion of the costs of
refunding through  redemption of $45,000,000  aggregate  principal amount of the
Maricopa County, Arizona Pollution Control Corporation Pollution Control Revenue
Refunding  Bonds (Arizona Public Service Company Palo Verde Project) 1994 Series
A and $45,000,000  aggregate  principal amount of the Maricopa  County,  Arizona
Pollution Control Corporation Pollution Control Revenue Refunding Bonds (Arizona
Public Service Company Palo Verde Project) 1994 Series B.

     All things  necessary  to make this Third  Supplemental  Indenture  a valid
agreement of the Company,  and to make the Series A Senior Notes,  when executed
by the  Company  and  authenticated  and  delivered  by the  Trustee,  the valid
obligations of the Company, have been done.

          NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH:

     For and in  consideration  of the premises and the purchase of the Series A
Senior Notes by the Holders  thereof,  and for the purpose of setting forth,  as
provided in the  Indenture,  the form and substance of the Series A Senior Notes

<PAGE>
and the terms,  provisions,  and conditions  thereof, it is mutually agreed, for
the equal and proportionate benefit of all Holders of the Series A Senior Notes,
as follows:

                                   ARTICLE ONE

                         GENERAL TERMS AND CONDITIONS OF
                            THE SERIES A SENIOR NOTES

     SECTION  101.  There  shall be and is hereby  authorized  a series of Notes
designated  the "5.05% Senior Notes  (Maricopa 2002 Series A) Due 2029," limited
in aggregate principal amount to $90,000,000, which amount shall be as set forth
in any  Company  Order for the  authentication  and  delivery of Series A Senior
Notes. The Series A Senior Notes shall mature and the principal shall be due and
payable  together with all accrued and unpaid interest  thereon  (subject to the
provisions for prior redemption  hereinafter set forth) on May 1, 2029, shall be
issued in certificated  form, in the form of a single fully registered  Series A
Senior Note without coupons, and shall be registered in the name of the Maricopa
Trustee.

     SECTION 102.  Subject to the provisions  herein,  the Series A Senior Notes
shall bear  interest  from  November  1, 2002 or from the most  recent  Interest
Payment Date (as defined  below) to which  interest has been paid at the rate of
5.05% per annum  (calculated  on the  basis of a 360-day  year of twelve  30-day
months), payable on May 1 and November 1 of each year (each an "Interest Payment
Date"), commencing May 1, 2003, to the holders thereof of record on the April 15
or October 15, as the case may be, next preceding such Interest Payment Date.

     Notwithstanding  the above,  to the extent  required  in Section 4.2 of the
Loan  Agreement at any time,  all payments of interest on each Interest  Payment
Date and of principal on the maturity date of the Series A Senior Notes shall be
due and payable not less than two (2) Business  Days (as defined in the Maricopa
Indenture) prior to each such Interest Payment Date and such maturity date.

     SECTION  103.  The  principal  of and interest on the Series A Senior Notes
shall be payable by the Company to the Maricopa  Trustee as pledgee and assignee
of the Issuer,  at the designated  office of the Maricopa  Trustee,  which shall
initially  be in the City of New York,  in such coin or  currency  of the United
States of America as, at the  respective  times of payment,  is legal tender for
payment of public and private debts.

     SECTION 104. The Company  shall have no  obligation  to make  payments with
respect to the principal and/or interest on the Series A Senior Notes unless and
until,  and only to the extent that,  payments shall be due and payable pursuant
to the Series A Pollution  Control Bonds.  Any provision  hereof to the contrary
notwithstanding,  the Company shall receive a credit  against its  obligation to
make any payment of interest on the Series A Senior  Notes in an amount equal to
the amount, if any, held by the Maricopa Trustee under the Maricopa Indenture on
deposit in the Bond Fund (as defined in the Maricopa Indenture) and available to
make the  corresponding  payment on the Series A  Pollution  Control  Bonds.  In
addition,  the Company shall receive a credit against its obligation to make any
payment of principal  of the Series A Senior  Notes,  whether at maturity,  upon
redemption or otherwise,  in an amount equal to the amount,  if any, held by the

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<PAGE>
trustee under the Maricopa  Indenture on deposit in said Bond Fund and available
to make the corresponding payment on the Series A Pollution Control Bonds.

     SECTION  105.  In the manner and with the effect  provided in Article 12 of
the Indenture,  the Series A Senior Notes will be subject to redemption prior to
maturity, as follows:

     (a) Series A Senior  Notes are subject to  redemption  prior to maturity in
whole  or in  part,  by lot,  at any  time at a  redemption  price  equal to the
principal  amount thereof plus accrued  interest to the redemption  date, in the
event of the exercise by the Company of its rights to prepay the Loan in full or
in part in accordance with Section 7.2 of the Loan Agreement upon the occurrence
of any of certain  extraordinary  events specified in Section  4.01(a)(1) of the
Maricopa Indenture.

     (b) Series A Senior  Notes are subject to  redemption  prior to maturity in
whole or in part, by lot, on any date on or after November 1, 2012, in the event
of the  exercise  by the  Company of its rights to prepay the Loan in full or in
part in accordance with Section 7.2 of the Loan Agreement and Section 4.01(a)(2)
of the  Maricopa  Indenture at 100% of the  principal  amount of Series A Senior
Notes to be  redeemed,  together  with  accrued  interest  to the date fixed for
redemption

     (c) Series A Senior Notes shall also be  redeemable,  in whole at any time,
prior to maturity by the  application of cash delivered to or deposited with the
Trustee in the event of the  exercise by the Company of its rights to prepay the
Loan in full in  accordance  with Section 7.2 of the Loan  Agreement and Section
4.01(a)(3) of the Maricopa  Indenture,  pursuant to the provisions of Section 87
of the First  Mortgage  (but only if and to the extent such  Section is properly
applicable to bona fide  transactions),  at the principal amount of the Series A
Senior Notes to be redeemed together with accrued interest to the date fixed for
redemption.

     (d) Series A Senior  Notes are  subject to  mandatory  redemption  prior to
maturity  in  whole or in  part,  by lot,  at a  redemption  price  equal to the
principal  amount thereof plus accrued  interest to the redemption date upon the
mandatory  prepayment of the Loan in full or in part in accordance  with Section
7.3 of the Loan Agreement  upon the  occurrence of any of certain  extraordinary
events specified in Section 4.01(b) of the Maricopa Indenture.

     Any notice  given  under the  provisions  of Section  4.03 of the  Maricopa
Indenture  with respect to redemption of all or a part of the Series A Pollution
Control  Bonds  or  Section  7.5 of  the  Loan  Agreement  with  respect  to the
prepayment of all or a part of the Loan will also constitute  sufficient  notice
of the redemption of an amount of the Series A Senior Notes corresponding to the
amount of the Series A Pollution Control Bonds to be redeemed.

     SECTION 106. In all cases that Series A Senior Notes are redeemed  pursuant
to the provisions set forth above, the principal amount of Series A Senior Notes
to be redeemed  shall equal the principal  amount of Series A Pollution  Control
Bonds  concurrently  redeemed  and all  applicable  provisions  of the  Maricopa
Indenture and the Loan Agreement shall be satisfied.

     SECTION 107. The  cancellation  by the Maricopa  Trustee under the Maricopa
Indenture  of Series A Pollution  Control  Bonds  purchased by the Company or of
Series A Pollution Control Bonds redeemed or purchased by the Issuer, with funds

                                       3
<PAGE>
other than payments on Series A Senior  Notes,  shall  constitute  payment of an
amount of the Series A Senior  Notes held by the Maricopa  Trustee  equal to the
aggregate  principal amount of the Series A Pollution Control Bonds so purchased
or redeemed and cancelled.  The Maricopa Trustee is required pursuant to Section
4.05 of the Maricopa  Indenture to notify the Trustee of any such  cancellation,
and,  notwithstanding  the  provisions  of Section  1207 of the  Indenture,  the
Maricopa  Trustee under the Maricopa  Indenture  shall promptly make notation on
the Series A Senior Notes held by it of such  reduction of the principal  amount
thereof.

     SECTION  108.  Upon  payment of the  principal  of and  interest due on the
Series A Pollution  Control  Bonds,  whether at maturity or prior to maturity by
redemption or otherwise,  or upon provision for the payment  thereof having been
made in  accordance  with Article X of the Maricopa  Indenture,  Series A Senior
Notes in a principal  amount equal to the principal amount of Series A Pollution
Control  Bonds so paid or for which such  provision  for  payment  has been made
shall be deemed fully paid,  satisfied and discharged and the obligations of the
Company  thereunder  shall be terminated and such Series A Senior Notes shall be
surrendered to and cancelled by the Trustee.

     SECTION 109. All payments by the Company on the Series A Senior Notes shall
be made at or prior to the opening of business on the due date  thereof.  If the
date for making any payment on the Loan provided in the Loan Agreement is a date
other than the due date for a payment of  principal  or interest on the Series A
Pollution Control Bonds, as described in Section 4.2 of the Loan Agreement,  the
"due  date"  hereunder  will be the date  payment  on the Loan is due under said
Section 4.2.

     SECTION 110. No Series A Senior  Notes shall be issued  except to evidence,
secure and provide for the repayment of the Loan and interest thereon.

     SECTION  111.  Series A Senior  Notes  shall be  nonnegotiable  and will be
nontransferable  except as required to effect assignment to the Maricopa Trustee
under the Maricopa Indenture and to any successor trustee  thereunder.  Upon the
appointment  of a successor  trustee under the Maricopa  Indenture,  the Trustee
shall  authenticate  and the Company  shall issue in the name of said  successor
trustee a new fully registered  Series A Senior Note in the amount of the unpaid
principal amount of the Series A Senior Notes then outstanding, and the Series A
Senior  Notes held by the Maricopa  Trustee who has resigned or been  discharged
shall be surrendered to, and cancelled by, the Trustee.

     The Maricopa  Trustee,  as the holder of the Series A Senior  Notes,  shall
attend  meetings of  bondholders  under the Senior Note Indenture or deliver its
proxy in connection  therewith.  Either at such meeting,  or otherwise  when the
consent of the holders of the  Company's  senior  notes  issued under the Senior
Note Indenture is sought without a meeting,  the Maricopa  Trustee shall vote as
the holder of the Series A Senior Notes, or shall consent with respect  thereto;
PROVIDED,  HOWEVER,  that the  Maricopa  Trustee  shall not vote in favor of, or
consent to, any  modification  of the Senior Note Indenture which is correlative
to a modification  of the Maricopa  Indenture or the Loan Agreement  which would
require the approval of owners of Series A Pollution  Control  Bonds without the

                                       4
<PAGE>
approval  of the  owners of Series A  Pollution  Control  Bonds  which  would be
required for such  correlative  modification of such Maricopa  Indenture or Loan
Agreement.

     SECTION 112. Series A Senior Notes acquired by the Company and submitted to
the Trustee for  cancellation,  or redeemed,  or paid at maturity by the Company
shall forthwith be cancelled by the Trustee.

     SECTION 113. The related series of Senior Note First Mortgage Bonds for the
Series A Senior Notes is the Company's First Mortgage Bonds, Senior Notes Series
C (the "Senior Note Series C Bonds").

     SECTION  114.  When the  obligation  of the Company to make  payments  with
respect to the  principal  of and interest on all or any part of the Senior Note
Series C Bonds shall be satisfied or deemed satisfied pursuant to Section 403 or
Section  501  of the  Indenture  or  pursuant  to  Section  105  of  this  Third
Supplemental  Indenture,  the Trustee shall, upon written request of the Company
and, if applicable,  the receipt of the  certificate of the Expert  described in
Section 404(b) of the Indenture (if such certificate is then required by Section
404(b) of the Indenture),  deliver to the Company without charge therefor all of
the Senior Note Series C Bonds so satisfied or deemed  satisfied,  together with
such  appropriate  instruments  of  transfer  or  release  as may be  reasonably
requested  by the  Company.  All Senior  Note  Series C Bonds  delivered  to the
Company in accordance with this Section 114 shall be delivered by the Company to
the First Mortgage Trustee for cancellation.

                                   ARTICLE TWO

                              ADDITIONAL COVENANTS

     SECTION  201. (a) From and after the Release Date and so long as any Series
A Senior Note is Outstanding,  the Company will not issue,  assume, or guarantee
any Debt secured by any mortgage,  security  interest,  pledge,  or lien (herein
referred to as a "mortgage")  of or upon any Operating  Property of the Company,
whether owned at the date of the Indenture or thereafter acquired,  and will not
permit to exist any Debt secured by a mortgage on any Operating Property created
on or prior to the Release Date, without in any such case effectively  securing,
on the later to occur of the issuance, assumption, or guarantee of any such Debt
or the Release Date, the  Outstanding  Series A Senior Notes  (together with, if
the Company shall so  determine,  any other Note or Debt of or guaranteed by the
Company  ranking senior to, or equally with, the Notes) equally and ratably with
such Debt; provided,  however, that the foregoing restriction shall not apply to
Debt secured by any of the following:

     (1)  mortgages on any property existing at the time of acquisition thereof;

     (2)  mortgages  on  property  of a  corporation  existing  at the time such
          corporation is merged into or consolidated with the Company, or at the
          time of a sale,  lease, or other disposition of the properties of such
          corporation or a division  thereof as an entirety or  substantially as

                                       5
<PAGE>
          an entirety to the Company, provided that such mortgage as a result of
          such merger,  consolidation,  sale, lease, or other disposition is not
          extended to property owned by the Company immediately prior thereto;

     (3)  mortgages on property to secure all or part of the cost of  acquiring,
          constructing,  developing,  or substantially  repairing,  altering, or
          improving such property, or to secure indebtedness incurred to provide
          funds for any such purpose or for  reimbursement  of funds  previously
          expended for any such purpose,  provided such mortgages are created or
          assumed  contemporaneously with, or within eighteen (18) months after,
          such  acquisition  or  completion  of  construction,  development,  or
          substantial  repair,  alteration,  or  improvement  or within  six (6)
          months thereafter pursuant to a commitment for financing arranged with
          a lender or investor within such eighteen (18) month period;

     (4)  mortgages  in favor of the  United  States  of  America  or any  State
          thereof,  or any department,  agency, or  instrumentality or political
          subdivision of the United States of America or any State  thereof,  or
          for the benefit of holders of securities issued by any such entity, to
          secure any Debt  incurred for the purpose of financing all or any part
          of the  purchase  price or the cost of  constructing,  developing,  or
          substantially  repairing,  altering, or improving the property subject
          to such mortgages; or

     (5)  any  extension,  renewal or  replacement  (or  successive  extensions,
          renewals,  or  replacements),  in whole or in  part,  of any  mortgage
          referred to in the foregoing clauses (1) to (4), inclusive;  provided,
          however,  that the  principal  amount of Debt secured  thereby and not
          otherwise authorized by said clauses (1) to (4), inclusive,  shall not
          exceed the principal  amount of Debt,  plus any premium or fee payable
          in connection with any such  extension,  renewal,  or replacement,  so
          secured at the time of such extension, renewal, or replacement.

     (b)  Notwithstanding  the provisions of Section 201(a),  from and after the
Release Date and so long as any Series A Senior Note is Outstanding, the Company
may issue,  assume,  or  guarantee  Debt,  or permit to exist  Debt,  secured by
mortgages which would otherwise be subject to the restrictions of Section 201(a)
up to an aggregate  principal amount that, together with the principal amount of
all other  Debt of the  Company  secured  by  mortgages  (other  than  mortgages
permitted by Section  201(a) that would  otherwise  be subject to the  foregoing
restrictions) and the Value of all Sale and Lease-Back Transactions in existence
at such time (other than any Sale and Lease-Back  Transaction that, if such Sale
and  Lease-Back  Transaction  had been a mortgage,  would have been permitted by
Section 201(a), other than Sale and Lease-Back Transactions permitted by Section
202 because the  commitment  by or on behalf of the  purchaser  was  obtained no
later than  eighteen  (18) months after the later of events  described in (i) or

                                       6
<PAGE>
(ii) of Section 202, and other than Sale and Lease-Back Transactions as to which
application  of amounts have been made in accordance  with clause (z) of Section
202),  does not at the time  exceed  the  greater  of ten  percent  (10%) of Net
Tangible Assets or ten percent (10%) of Capitalization.

     (c) If at any time the Company shall issue,  assume,  or guarantee any Debt
secured by any  mortgage and if Section  201(a)  requires  that the  Outstanding
Series A Senior Notes be secured equally and ratably with such Debt, the Company
will promptly execute, at its expense,  any instruments  necessary to so equally
and ratably secure the Outstanding Series A Senior Notes and deliver the same to
the Trustee along with:

     (1)  An  Officers'  Certificate  stating  that the  covenant of the Company
          contained in Section 201(a) has been complied with; and

     (2)  An Opinion of Counsel to the effect that the Company has complied with
          the covenant  contained  in Section  201(a),  and that any  instrument
          executed by the Company in the  performance of such covenant  complies
          with the requirements of such covenant.

     In the event that the Company shall hereafter secure  Outstanding  Series A
Senior  Notes  equally and ratably  with any other  obligation  or  indebtedness
(including  other  Notes)  pursuant to the  provisions  of this Section 201, the
Trustee  is  hereby   authorized   to  enter  into  an  indenture  or  agreement
supplemental  hereto and to take such action, if any, as it may, in its sole and
absolute  discretion,  deem  advisable to enable it to enforce  effectively  the
rights of the Holders of Outstanding  Series A Senior Notes so secured,  equally
and ratably with such other obligation or indebtedness.

     SECTION  202.  From and after the Release  Date and so long as any Series A
Senior  Note is  outstanding,  the  Company  will  not  enter  into any Sale and
Lease-Back  Transaction  with  respect to any  Operating  Property  and will not
permit to remain in effect any Sale and Lease-Back  Transaction  entered into on
or prior to the Release Date with respect to any  Operating  Property if, in any
case,  the  commitment  by or on behalf of the purchaser is or was obtained more
than  eighteen  (18)  months  after  the  later  of (i)  the  completion  of the
acquisition, construction, or development of such Operating Property or (ii) the
placing in operation of such Operating Property or of such Operating Property as
constructed,  developed, or substantially repaired, altered, or improved, unless
(x) the Company would be entitled  pursuant to Section 201(a) to issue,  assume,
or  guarantee  Debt  secured by a mortgage on such  Operating  Property  without
equally and ratably  securing the Series A Senior Notes or (y) the Company would
be entitled  pursuant to Section  201(b),  after giving  effect to such Sale and
Lease-Back  Transaction,  to incur $1.00 of additional Debt secured by mortgages
(other than  mortgages  permitted  by Section  201(a)) or (z) the Company  shall
apply or cause to be  applied,  in the case of a sale or transfer  for cash,  an
amount  equal to the net  proceeds  thereof  (but not in  excess of the net book
value of such  Operating  Property at the date of such sale or transfer) and, in
the case of a sale or transfer  otherwise  than for cash, an amount equal to the
fair value (as  determined by the Board of Directors) of the Operating  Property
so leased,  to the  retirement,  within one hundred  eighty (180) days after the

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<PAGE>
later to occur of the effective date of such Sale and Lease-Back  Transaction or
the Release  Date, of Notes or other Debt of the Company  ranking  senior to, or
equally  with,  the  Series A Senior  Notes;  PROVIDED,  HOWEVER,  that any such
retirement of Notes shall be in accordance  with the terms and provisions of the
Indenture  and the Notes;  PROVIDED,  FURTHER,  that the amount to be applied to
such  retirement  of Notes or other Debt shall be reduced by an amount  equal to
the sum of (a) an amount  equal to the  redemption  price with  respect to Notes
delivered  within such one hundred  eighty  (180)-day  period to the Trustee for
retirement and  cancellation and (b) the principal  amount,  plus any premium or
fee paid in connection with any redemption in accordance with the terms of other
Debt voluntarily retired by the Company within such one hundred eighty (180)-day
period, excluding in each case retirements pursuant to mandatory sinking fund or
prepayment provisions and payments at maturity.

     SECTION 203. DEFINITIONS

     For  purposes of Section  201 and  Section  202 of this Third  Supplemental
Indenture, the following terms shall have the following meanings:

     "Capitalization"  means the total of all the following  items appearing on,
or included in, the consolidated  balance sheet of the Company:  (i) liabilities
for  indebtedness  maturing  more  than  twelve  (12)  months  from  the date of
determination; and (ii) common stock, preferred stock, premium on capital stock,
capital surplus,  capital in excess of par value, and retained earnings (however
the foregoing may be  designated),  less, to the extent not otherwise  deducted,
the cost of shares of capital stock of the Company held in its treasury.

     Subject to the foregoing,  Capitalization shall be determined in accordance
with generally accepted  accounting  principles and practices  applicable to the
type of  business  in which the  Company is  engaged  and that are  approved  by
independent accountants regularly retained by the Company, and may be determined
as of a date not more than  (sixty) 60 days prior to the  happening  of an event
for which such determination is being made.

     The term "Debt" means any outstanding debt for money borrowed  evidenced by
notes, debentures, bonds, or other securities.

     The term "Net  Tangible  Assets"  means the amount shown as total assets on
the  consolidated  balance  sheet  of  the  Company,  less  the  following:  (i)
intangible assets  including,  but without  limitation,  such items as goodwill,
trademarks,  trade names, patents, and unamortized debt discount and expense and
other  regulatory  assets  carried  as an  asset on the  Company's  consolidated
balance sheet; and (ii) appropriate adjustments,  if any, on account of minority
interests.

     Net Tangible  Assets  shall be  determined  in  accordance  with  generally
accepted accounting  principles and practices applicable to the type of business
in which  the  Company  is  engaged  and that are  approved  by the  independent
accountants  regularly  retained by the Company,  and may be  determined as of a
date not more than (sixty) 60 days prior to the happening of the event for which
such determination is being made.

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<PAGE>
     The term "Operating Property" means (i) any interest in real property owned
by the Company and (ii) any asset owned by the Company  that is  depreciable  in
accordance with generally accepted accounting principles.

     The term "Sale and Lease-Back  Transaction"  means any arrangement with any
person  providing  for the  leasing  to the  Company of any  Operating  Property
(except for temporary leases for a term,  including any renewal thereof,  of not
more than forty-eight (48) months),  which Operating  Property has been or is to
be sold or transferred by the Company to such person.

     The term "Value" means, with respect to a Sale and Lease-Back  Transaction,
as of any  particular  time,  the  amount  equal to the  greater  of (1) the net
proceeds  to the  Company  from  the sale or  transfer  of the  property  leased
pursuant to such Sale and  Lease-Back  Transaction  or (2) the net book value of
such property,  as determined in accordance with generally  accepted  accounting
principles by the Company at the time of entering into such Sale and  Lease-Back
Transaction,  in either case  multiplied  by a fraction,  the numerator of which
shall be equal to the number of full years of the term of the lease that is part
of such Sale and Lease-Back  Transaction  remaining at the time of determination
and the  denominator of which shall be equal to the number of full years of such
term, without regard, in any case, to any renewal or extension options contained
in such lease.

     SECTION 204. Amendment to Section 901 of the Indenture. For purposes of the
Series A Senior  Notes,  clause (1) of Section  901 of the  Indenture,  shall be
revised by deleting  the words "For  purposes of this Article  Nine,  the phrase
`assets substantially as an entirety' shall mean 50% or more of the total assets
of the Company as shown on the  consolidated  balance sheet of the Company as of
the end of the calendar year immediately  preceding the day of the year in which
such   determination   is  made  and"   replacing  said  words  with  the  words
"Notwithstanding this Section 901."

                                  ARTICLE THREE

                          FORM OF SERIES A SENIOR NOTE

     SECTION  301. The Series A Senior Notes and the  Trustee's  certificate  of
authentication to be endorsed are to be substantially in the following forms:

Form of Face of Note.

                         ARIZONA PUBLIC SERVICE COMPANY

              5.05% Senior Notes (Maricopa 2002 Series A) Due 2029

No. 1                                                                $90,000,000

     Arizona Public Service  Company,  a corporation duly organized and existing
under the laws of Arizona (herein called the "Company",  which term includes any
successor  Person  under  the  Indenture  hereinafter  referred  to),  for value

                                       9
<PAGE>
received,  hereby  promises to pay to The Bank of New York, as Trustee under the
Maricopa  Indenture  hereinafter  referred  to, as assignee of Maricopa  County,
Arizona  Pollution  Control  Corporation  under said Maricopa  Indenture,  or it
successors in such capacity,  the principal sum of Ninety Million Dollars on May
1, 2029,  and to pay  interest  thereon  from  November 1, 2002 or from the most
recent  Interest  Payment Date with  respect to which  interest has been paid or
duly  provided  for,  semi-annually  on  May  1 and  November  1 in  each  year,
commencing  May 1,  2003,  at the rate of 5.05% per annum,  until the  principal
hereof is paid or made  available  for payment,  from the dates such amounts are
due until they are paid or made available for payment.  The interest so payable,
and punctually paid or duly provided for, on any Interest  Payment Date will, as
provided  in such  Indenture,  be paid to the Person in whose name this Note (or
one or more  Predecessor  Notes) is  registered  at the close of business on the
Regular Record Date for such interest, which shall be the April 15 or October 15
(whether  or not a  Business  Day),  as the case  may be,  next  preceding  such
Interest Payment Date.

     Notwithstanding  the above,  to the extent  required  in Section 4.2 of the
Loan Agreement  (described  below) at any time, all payments of interest on each
Interest  Payment Date and of principal on the maturity  date of this Note shall
be due and  payable  not less  than two (2)  Business  Days (as  defined  in the
Maricopa  Indenture  (described below)) prior to each such Interest Payment Date
and such maturity date.

     Rights to  payment  of this Note have been  assigned  by  Maricopa  County,
Arizona Pollution Control Corporation (the "Issuer") to The Bank of New York, as
trustee  (the  "Maricopa  Trustee")  under the  Indenture  of Trust  dated as of
November 1, 2002 (as amended and supplemented  from time to time,  herein called
the  "Maricopa  Indenture")  between the  Maricopa  Trustee  and the Issuer,  to
evidence,  secure and provide for the repayment of the loan (the "Loan") made by
the Issuer to the Company under the Loan Agreement  dated as of November 1, 2002
(the Loan Agreement"),  between the Company and the Issuer, from the proceeds of
the  issuance  by the Issuer of  $90,000,000  of the  Maricopa  County,  Arizona
Pollution Control Corporation Pollution Control Revenue Refunding Bonds (Arizona
Public Service Company Palo Verde Project) 2002 Series A (the "Pollution Control
Bonds")  under  the  Maricopa  Indenture,  and such  assignment  has  been  duly
registered.

     Payment of the  principal  of and interest on this Note will be paid by the
Company  to the  Maricopa  Trustee  at the  designated  office  of the  Maricopa
Trustee,  or to any  successor  trustee  under  the  Maricopa  Indenture  at its
designated  office,  in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private debts.

     Reference is hereby made to the further  provisions  of this Note set forth
below,  which further  provisions shall for all purposes have the same effect as
if set forth at this place.

     Unless the  certificate of  authentication  hereon has been executed by the
Trustee referred to on the reverse hereof by manual  signature,  this Note shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.

                                       10
<PAGE>
     IN WITNESS  WHEREOF,  the  Company has caused  this  instrument  to be duly
executed under its corporate seal.

                                        ARIZONA PUBLIC SERVICE COMPANY

                                        By______________________________________

Attest:

______________________________________

Form of Reverse of Note.

     This Note is one of a duly  authorized  issue of  securities of the Company
(herein called the "Notes"), issued and to be issued in one or more series under
an Indenture,  dated as of November 15, 1996, as supplemented and amended by the
First  Supplemental  Indenture  thereto  dated as of  November  15, 1996 and the
Second  Supplemental  Indenture  thereto  dated  as of  April  1,  1997  (herein
collectively  called the  "Indenture"),  between the Company and The Bank of New
York, as Trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture),  and reference is hereby made to the Indenture for
a  statement  of the  respective  rights,  limitations  of  rights,  duties  and
immunities  thereunder of the Company,  the Trustee and the Holders of the Notes
and of the terms  upon  which the Notes are,  and are to be,  authenticated  and
delivered. This Note is one of the series designated on the face hereof, limited
in aggregate principal amount to $90,000,000.

     Prior to the  Release  Date (as  hereinafter  defined),  this  Note will be
secured by First Mortgage Bonds, Senior Note Series C (the "Senior Note Series C
Bonds")  delivered  by the Company to the Trustee for the benefit of the Holders
of the series of Notes of which this Note is a part,  issued  under the Mortgage
and Deed of Trust, dated as of July 1, 1946, from the Company to The Bank of New
York, as successor trustee (the "Mortgage Trustee"), as supplemented and amended
(the  "First  Mortgage").  Reference  is  made  to  the  First  Mortgage  for  a
description  of property  mortgaged  and  pledged,  the nature and extent of the
security,  the rights of the holders of the first mortgage bonds under the First
Mortgage  and of the  Mortgage  Trustee  in  respect  thereof,  the  duties  and
immunities of the Mortgage  Trustee and the terms and conditions  upon which the
Senior  Note  Series C Bonds  are  secured  and the  circumstances  under  which
additional first mortgage bonds may be issued.

     FROM AND AFTER SUCH TIME AS ALL FIRST  MORTGAGE  BONDS  (OTHER  THAN SENIOR
NOTE FIRST MORTGAGE  BONDS,  AS SUCH TERM IS DEFINED IN THE INDENTURE) HAVE BEEN
RETIRED  THROUGH  PAYMENT,  REDEMPTION  OR  OTHERWISE  AT,  BEFORE  OR AFTER THE

                                       11
<PAGE>
MATURITY  THEREOF (THE "RELEASE  DATE"),  THE SENIOR NOTE FIRST  MORTGAGE  BONDS
SHALL CEASE TO SECURE THE NOTES IN ANY MANNER.

     This Note is nonnegotiable and nontransferable except as required to effect
assignment  to the  Maricopa  Trustee  under the Maricopa  Indenture  and to any
successor trustee thereunder.  Upon the appointment of a successor trustee under
the Maricopa  Indenture,  the Trustee shall  authenticate  and the Company shall
issue in the name of said successor  trustee a new fully registered Note of this
series  in the  amount  of  the  unpaid  principal  amount  of  this  Note  then
outstanding,  and this Note  shall be  surrendered  to,  and  canceled  by,  the
Trustee.

     The Company  shall have no  obligation to make payments with respect to the
principal and/or interest on the Notes of this series unless and until, and only
to the extent that,  payments shall be due and payable pursuant to the Pollution
Control Bonds. Any provision hereof to the contrary notwithstanding, the Company
shall receive a credit against its obligation to make any payment of interest on
the Notes of this Series in an amount equal to the amount,  if any,  held by the
Maricopa  Trustee  under the Maricopa  Indenture on deposit in the Bond Fund (as
defined in the  Maricopa  Indenture)  and  available  to make the  corresponding
payment on the Pollution Control Bonds. In addition, the Company shall receive a
credit  against its  obligation to make any payment of principal of the Notes of
this Series,  whether at maturity,  upon  redemption or otherwise,  in an amount
equal to the amount,  if any,  held by the Maricopa  Trustee  under the Maricopa
Indenture on deposit in said Bond Fund and  available to make the  corresponding
payment on the Pollution Control Bonds.

     In the manner and with the effect  provided in Article 12 of the Indenture,
the Notes of this series will be subject to  redemption  prior to  maturity,  as
follows:

     (a) The Notes of this Series are subject to redemption prior to maturity in
whole  or in  part,  by lot,  at any  time at a  redemption  price  equal to the
principal  amount  of the  Notes of this  Series  to be  redeemed  plus  accrued
interest to the  redemption  date in the event of the exercise by the Company of
its rights to prepay the Loan in full or in part in accordance  with Section 7.2
of the Loan Agreement upon the occurrence of any of certain extraordinary events
specified in Section 4.01(a)(1) of the Maricopa Indenture.

     (b) The Notes of this series are subject to redemption prior to maturity in
whole or in part, by lot, on any date on or after November 1, 2012, in the event
of the  exercise  by the  Company of its rights to prepay the Loan in full or in
part in accordance with Section 7.2 of the Loan Agreement and Section 4.01(a)(2)
of the Maricopa  Indenture at 100% of the principal  amount of the Notes of this
series to be  redeemed,  together  with  accrued  interest to the date fixed for
redemption

     (c) The Notes of this  series  shall  also be  redeemable,  in whole at any
time,  prior to maturity by the  application  of cash  delivered to or deposited
with the  Trustee in the event of the  exercise  by the Company of its rights to
prepay the Loan in full in accordance with Section 7.2 of the Loan Agreement and
Section  4.01(a)(3)  of the Maricopa  Indenture,  pursuant to the  provisions of
Section 87 of the First  Mortgage (but only if and to the extent such Section is
properly applicable to bona fide transactions),  at 100% the principal amount of
the Notes of this series to be redeemed  together  with accrued  interest to the
date fixed for redemption.

                                       12
<PAGE>
     (d) The Notes of this series are subject to mandatory  redemption  prior to
maturity in whole or in part, by lot, at a redemption price equal to 100% of the
principal  amount  of the  Notes of this  series  to be  redeemed  plus  accrued
interest to the  redemption  date upon the  mandatory  prepayment of the Loan in
full or in part in accordance  with Section 7.3 of the Loan  Agreement  upon the
occurrence of any of certain  extraordinary  events specified in Section 4.01(b)
of the Maricopa Indenture.

     Any notice  given  under the  provisions  of Section  4.03 of the  Maricopa
Indenture  with respect to redemption of all or a part of the Pollution  Control
Bonds or Section 7.5 of the Loan Agreement with respect to the prepayment of all
or a part of the Loan will also constitute  sufficient  notice of the redemption
of the principal amount of the Notes of this series  corresponding to the amount
of the Pollution Control Bonds to be redeemed.

     In the event of  redemption  of this Note in part only, a new Note or Notes
of this  series  and of like tenor for the  unredeemed  portion  hereof  will be
issued in the name of the Holder hereof upon the cancellation hereof.

     All payments by the Company on the Notes of this series shall be made at or
prior to the opening of business on the due date thereof.  If the  corresponding
date  for  making  any  payment  provided  in the  Maricopa  Indenture  is to be
determined in accordance with the provisions of Section 11.11 thereof,  the "due
date" hereunder will be determined in the same manner.

     The Notes of this series will not be subject to any sinking fund.

     If an Event of Default with respect to Notes of this series shall occur and
be continuing, the principal of the Notes of this series may be declared due and
payable in the manner and with the effect provided in the Indenture.

     If an Event of Default with respect to Notes of this series shall occur and
be continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture and, upon such declaration,
the  Trustee can demand the  acceleration  of the  payment of  principal  of the
Senior Note Series C Bonds as provided in the Indenture.

     The Indenture  permits,  with certain  exceptions as therein provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Company and the rights of the Holders of the Notes of each series to be affected
under the  Indenture at any time by the Company and the Trustee with the consent
of the  Holders  of a  majority  in  principal  amount  of the Notes at the time
Outstanding  of  each  series  to  be  affected.  The  Indenture  also  contains
provisions  permitting the Holders of specified  percentages in principal amount
of the Notes of each series at the time Outstanding, on behalf of the Holders of
all Notes of such  series,  to waive  compliance  by the  Company  with  certain
provisions of the  Indenture  and certain past defaults  under the Indenture and
their consequences.  Any such consent or waiver by the Holder of this Note shall
be conclusive  and binding upon such Holder and upon all future  Holders of this
Note and of any Note  issued  upon the  registration  of  transfer  hereof or in
exchange therefor or in lieu hereof,  whether or not notation of such consent or
waiver is made upon this Note.

                                       13
<PAGE>
     As provided in and subject to the provisions of the  Indenture,  the Holder
of this Note shall not have the right to institute any  proceeding  with respect
to the  Indenture  or for the  appointment  of a receiver  or trustee or for any
other  remedy  thereunder,  unless such Holder shall have  previously  given the
Trustee  written  notice of a  continuing  Event of Default  with respect to the
Notes of this series,  the Holders of not less than 25% in  principal  amount of
the Notes of this series at the time Outstanding shall have made written request
to the Trustee to institute  proceedings  in respect of such Event of Default as
Trustee and offered the Trustee reasonable indemnity,  and the Trustee shall not
have  received  from the Holders of a majority in  principal  amount of Notes of
this series at the time Outstanding a direction  inconsistent with such request,
and shall  have  failed to  institute  any such  proceeding,  for 60 days  after
receipt of such notice, request and offer of indemnity.  The foregoing shall not
apply to any suit  instituted by the Holder of this Note for the  enforcement of
any payment of principal  hereof or interest  hereon on or after the  respective
due dates expressed herein.

     No reference  herein to the  Indenture  and no provision of this Note or of
the  Indenture  shall alter or impair the  obligation  of the Company,  which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency, herein prescribed.

     All terms used in this Note which are defined in the  Indenture  shall have
the meanings assigned to them in the Indenture.

Form of Trustee's Certificate of Authentication.

                          CERTIFICATE OF AUTHENTICATION

     This is one of the Notes of the series  designated  therein  referred to in
the within-mentioned Indenture.

     Dated:
                                                           THE BANK OF NEW YORK,
                                                                      AS TRUSTEE

                                                By______________________________
                                                            AUTHORIZED SIGNATORY

                                  ARTICLE FOUR

                     ORIGINAL ISSUE OF SERIES A SENIOR NOTES

     SECTION 401.  Series A Senior Notes in the  aggregate  principal  amount of
$90,000,000,  may, upon execution of this Third Supplemental  Indenture, or from
time to time thereafter, be executed by the Company and delivered to the Trustee
for  authentication,  and the Trustee shall thereupon  authenticate  and deliver
said Notes to or upon the written order of the Company,  signed by its Chairman,
its  President,  or  any  Vice  President  and  its  Treasurer  or an  Assistant
Treasurer, without any further action by the Company.

                                       14
<PAGE>
                                  ARTICLE FIVE

                           PAYING AGENT AND REGISTRAR

     SECTION  501.  The  Bank of New  York  will be the  Paying  Agent  and Note
Registrar for the Series A Senior Notes.

                                   ARTICLE SIX

                                SUNDRY PROVISIONS

     SECTION  601.  Except  as  otherwise   expressly  provided  in  this  Third
Supplemental  Indenture  or in the form of  Series A Senior  Notes or  otherwise
clearly  required by the context hereof or thereof,  all terms used herein or in
said form of Series A Senior Notes that are defined in the Indenture  shall have
the several meanings respectively assigned to them thereby.

     SECTION 602. The  Indenture,  as  supplemented  by this Third  Supplemental
Indenture,   is  in  all  respects  ratified  and  confirmed,   and  this  Third
Supplemental  Indenture  shall be deemed part of the Indenture in the manner and
to the extent herein and therein provided.

     SECTION  603.  The  Trustee  hereby  accepts  the trusts  herein  declared,
provided, created,  supplemented, or amended and agrees to perform the same upon
the terms and conditions herein and in the Indenture, as heretofore supplemented
and amended, set forth and upon the following terms and conditions:

     The Trustee shall not be  responsible  in any manner  whatsoever  for or in
respect of the validity or sufficiency of this Third  Supplemental  Indenture or
for or in respect of the recitals  contained  herein,  all of which recitals are
made by the  Company  solely.  In  general,  each and every  term and  condition
contained in Article Seven of the Indenture shall apply to and form part of this
Third Supplemental  Indenture with the same force and effect as if the same were
herein set forth in full with such omissions,  variations,  and  insertions,  if
any, as may be  appropriate  to make the same conform to the  provisions of this
Third Supplemental Indenture.

     This  instrument  may be  executed in any number of  counterparts,  each of
which so executed shall be deemed to be an original,  but all such  counterparts
shall together constitute but one and the same instrument.

                                       15
<PAGE>
     IN WITNESS WHEREOF,  the parties hereto have caused this Third Supplemental
Indenture  to be duly  executed,  and  their  respective  corporate  seals to be
hereunto affixed and attested, all as of the day and year first above written.

                                        ARIZONA PUBLIC SERVICE COMPANY

                                        By: Barbara M. Gomez
                                            ------------------------------------
                                            Barbara M. Gomez
                                            Treasurer

Attest:

Betsy A. Pregulman
-------------------------------------
Betsy A. Pregulman
Associate Secretary

                                        THE BANK OF NEW YORK, as Trustee

                                        By: Debra A. Schwalb
                                            ------------------------------------
                                            Vice President

Attest:

Thomas J. Provenzano
-------------------------------------
Vice President

                                       16
<PAGE>
STATE OF ARIZONA         )
                         ) ss:
COUNTY OF MARICOPA       )

     On the 1st day of November, 2002, before me personally came Barbara M.
Gomez, to me known, who, being by me duly sworn, did depose and say that she is
the Treasurer of Arizona Public Service Company, one of the corporations
described in and which executed the foregoing instrument; that she knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors of
said corporation; and that she signed her name thereto by like authority.

                                            Debra L. Blondin
                                            ------------------------------------
                                                       NOTARY PUBLIC

My Commission Expires:

June 7, 2004
----------------------

                                       17
<PAGE>
STATE OF NEW JERSEY      )
                         ) ss:
COUNTY OF PASSAIC        )

     On the 1st day of November, 2002, before me personally came Debra A.
Schwalb, to me known, who, being by me duly sworn, did depose and say that she
is the Vice President of The Bank of New York, one of the corporations described
in and which executed the foregoing instrument; that she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that she signed her name thereto by like authority.

                                            Ronald M. Mania
                                            ------------------------------------
                                                       NOTARY PUBLIC

My Commission Expires:

10-4-06
----------------------

                                       18

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