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Decommissioning Trust Agreement - PINNACLE WEST CAPITAL CORP - 3-15-2004

VIEWS: 1 PAGES: 34

									EXHIBIT 10.5 AMENDMENT NO. 4 Decommissioning Trust Agreement (PVNGS Unit 3) This Amendment No. 4 dated as of December 19, 2003, to the Decommissioning Trust Agreement (PVNGS Unit 3), dated as of July 1, 1991, as amended by Amendment No. 1 thereto dated as of December 1, 1994, Amendment No. 2 thereto dated as of December 16, 1996, and Amendment No. 3 thereto dated as of March 18, 2002 (the "Decommissioning Trust Agreement", terms used herein as therein defined), is entered into between Arizona Public Service Company ("APS") and Mellon Bank, N.A., as Decommissioning Trustee ("Decommissioning Trustee"). R E C I T A L S: WHEREAS, the parties hereto wish to amend the Decommissioning Trust Agreement. NOW, THEREFORE, in consideration of the premises and of other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Amendment. (a) A new Section 29 will be added at the end of the Decommissioning Trust Agreement and will read in full as follows: Section 29. Notice Regarding Disbursements or Payments. Notwithstanding anything to the contrary in this Agreement, except for (i) payments of ordinary administrative costs (including taxes) and other incidental expenses of the Funds (including legal, accounting, actuarial, and trustee expenses) in connection with the operation of the Funds, (ii) withdrawals being made under 10 CFR 50.82(a)(8), and (iii) transfers between the Funds in accordance with the provisions of this Agreement, no disbursement or payment may be made from the Funds until written notice of the intention to make a disbursement or payment has been given to the Director, Office of Nuclear Reactor Regulation, or the Director, Office of Nuclear Material Safety and Safeguards, as applicable, at least 30 working days before the date of the intended disbursement or payment. The disbursement or payment from the Funds, if it is otherwise in compliance with the terms and conditions of this Agreement, may be made following the 30-working day notice period if no written notice of objection from the Director, Office of Nuclear Reactor Regulation, or the Director, Office of Nuclear Material Safety and Safeguards, as applicable, is received by the Decommissioning Trustee or APS within the notice period. The required notice may be made by the Decommissioning Trustee or on the Decommissioning Trustee's behalf. No such notice is required for withdrawals being made pursuant to 10 CFR 50.82(a)(8)(ii), including withdrawals made during the operating life of Unit 3 to be used

for decommissioning planning. In addition, no such notice is required to be made to the NRC after decommissioning has begun and withdrawals are being made under 10 CFR 50.82(a)(8). This Section 29 is intended to qualify each and every provision of this Agreement allowing distributions from the Funds, including but not limited to Section 10 hereof, and in the event of any conflict between any such provision and this Section 29, the provisions of this Section 29 shall control. SECTION 2. Miscellaneous (a) Full Force and Effect. Except as expressly provided herein, the Decommissioning Trust Agreement shall remain unchanged and in full force and effect. Each reference in the Decommissioning Trust Agreement and in any exhibit or schedule thereto

to "this Agreement," "hereto," "hereof" and terms of similar import shall be deemed to refer to the Decommissioning Trust Agreement as amended hereby. (b) Counterparts/Representations. The Amendment No. 4 may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment No. 4 by signing any such counterpart. Each party represents and warrants to the other that it has full authority to enter into this Amendment upon the terms and conditions hereof and that the individual executing this Amendment on its behalf has the requisite authority to bind that Party. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to the Decommissioning Trust Agreement to be duly executed as of the day and year first above written. ARIZONA PUBLIC SERVICE COMPANY By: Barbara M. Gomez Title: Treasurer MELLON BANK, N.A. as Decommissioning Trustee By: Carlos Pacheco Title: Vice President 2
STATE OF ARIZONA County of Maricopa ) ) ss: )

The foregoing instrument was acknowledged before me this 12th day of December, 2003, by Barbara M. Gomez, the Treasurer of ARIZONA PUBLIC SERVICE COMPANY, an Arizona corporation, on behalf of said corporation.
Debra L. Blondin ---------------------------------------Notary Public My commission expires: June 7, 2004 -------------------------COMMONWEALTH OF PENNSYLVANIA County of Allegheny ) ) ss: )

The foregoing instrument was acknowledged before me this 19th day of December, 2003, by Carlos Pacheco, a Vice President of Mellon Bank, N.A. a national banking association having trust powers, as Decommissioning Trustee, on behalf of said national banking association. Julie Ann Mosco Notary Public My commission expires: October 13, 2007

3 Exhibit 10.6a FOURTH AMENDMENT TO THE PINNACLE WEST CAPITAL CORPORATION ARIZONA PUBLIC SERVICE COMPANY SUNCOR DEVELOPMENT AND EL DORADO INVESTMENT COMPANY DEFERRED COMPENSATION PLAN Effective January 1, 1992, Pinnacle West Capital Corporation (the "Company"), Arizona Public Service Company, SunCor Development Company and El Dorado Investment Company adopted the Pinnacle West Capital Corporation, Arizona Public Service Company, SunCor Development Company and El Dorado Investment Company Deferred Compensation Plan (the "Plan"). The Plan was thereafter amended several times. The Plan was amended and restated in its entirety on December 1, 1995 and amended several times thereafter. The Plan was most recently amended on October 22, 2002 to increase the threshold for automatic cashout for terminated or retired Participants under certain circumstances and revise crediting of interest for certain Participants. By this instrument, the Plan is being amended to revise its claim procedures. 1. This Amendment shall amend only those Sections set forth herein and those Sections not amended hereby shall remain in full force and effect. 2. Section 1.1.7 is hereby amended in its entirety to read as follows: 1.17 "Disability" shall mean (i) in the case of a Participant who is an employee of an Employer, a period of disability during which a participant qualifies for benefits under the Participant's Employer's long-term disability plan, or (ii) in the case of a Participant who is a Director, a period of disability during which the Participant would have qualified for benefits under such a plan, as determined in the sole discretion of the Committee, had the Participant been an employee of the Employer.

3. Section 8.1(b) is hereby amended in its entirety to read as follows: (b) Waiver of Deferral; Credit for Plan Year of Disability. A Participant who is determined to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral commitment that would otherwise have been withheld fro a Participant's Bas Annual Salary, Year-End Bonus and/or Directors Fees for the Plan Year during which the Participant first suffers a Disability. In addition, the Participant's Account Balance shall be credited with that portion of the Annual Deferral commitment that is excused in accordance with the preceding sentence, unless the Disability ceases in the Plan Year that it commences, in which case, the crediting shall apply only for the period of Disability. 4. Section 8.2 is hereby amended in its entirety to read as follows:
8.2 Disability Benefit. A Participant suffering a Disability shall, for the benefit purposes under this Plan, continue to be considered to be employed and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding the above, the Committee shall have the right, in its sole and absolute discretion and for purposes of this Plan only, to terminate a Participant's employment or service as a Director at any time after such participant is determined to be suffering from a disability. In determining the Participant's Account Balance for purposes of the Disability Benefit described in the previous sentence, the Preferred Rate shall be used in lieu of the rates in Section

Rate shall be used in lieu of the rates in Section 7.1 5. ARTICLE 14 is hereby amended in its entirety to read

as follows: ARTICLE 14 Claims Procedures 14.1 Claims. Any Participant, Beneficiary or any authorized representative acting on behalf of the Participant or Beneficiary ("Claimant") claiming benefits, eligibility, participation or any other right or interest under this Plan may file a written claim setting forth the basis of the claim with the Employee Benefits Department. A written notice of the Employee Benefits Department's disposition of any such claim shall be furnished to the Claimant within a reasonable time (not to exceed ninety (90) days) after the claim is received by the Employee Benefits Department. Notwithstanding the foregoing, the Employee Benefits Department may have additional time (not to exceed ninety (90) days) to decide the claim if special circumstances exist, provided that it advises the Claimant, in writing and prior to the end of the initial ninety (90) day period, of the special circumstances giving rise to the

need for additional time and the date on which it expects to decide the claim. If the claim is denied, in whole or in part, the notice of disposition shall include the specific reason for the denial, identify the specific provisions of the Plan upon which the denial is based, describe any additional material or information necessary to perfect the claim, explain why that material or information is necessary and describe the Plan's review procedures, including the timeframes thereunder for a Claimant to file a request for review and for the Committee to decide the claim. The notice shall also include a statement advising the claimant of his or her right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended, if his or her claim is denied, in whole or in part, upon review. Within sixty (60) days after receiving the written notice of the Employee Benefits Department's disposition of the claim, the Claimant may request, in writing, review by the Committee of the Employee Benefits Department's decision regarding his or her claim. Upon written request, the Claimant shall be entitled to a review meeting with the Committee to present reasons why the claim should be allowed. The Claimant may submit a written statement in support of his or her claim, together with such comments, information and material relating to the claim, as he or she deems necessary or appropriate. The Claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information which are relevant to the Claimant's claim and its review. If the Claimant does not request review within sixty (60) days after receiving written notice of the Employee Benefits Department's disposition of the claim, the Claimant shall be deemed to have accepted the Employee Benefits Department's written disposition. The Committee shall make its decision on review and provide written notice thereof to the Claimant within a reasonable time (not to exceed sixty (60) days) after the claim is received by the Committee. Notwithstanding the foregoing, the Committee may have additional time (not to exceed sixty (60) days) to decide the claim if special circumstances exist provided that it advises the Claimant, in writing, prior to the end of the initial sixty (60) day period, of the special circumstances giving rise to the need for additional time and the date on which it expects to decide the claim. In no event shall the Committee have more than one hundred twenty (120) days following its receipt of the Claimant's request for review to provide the Claimant with written notice of its decision. The Committee shall have the right to request of and receive from Claimant such additional information, documents or other evidence as the Committee may reasonably require. In the event that the Committee requests such additional information from the Claimant, the period for making the benefit determination on review shall not take into account the period beginning on the date on which the Committee notifies the Claimant in writing of the need for additional information and ending on the date on which the Claimant responds to the request for additional information.

If the claim is denied upon review, in whole or in part, the notice of disposition shall include the specific reason for the denial, identify the specific provision of the Plan upon which the denial is based, include a statement advising the Claimant of his or her right to receive, upon written request and free of charge, reasonable access to and copies of all documents, records and other information which are relevant to the Claimant's claim. The notice shall also include a statement advising the claimant of his or her right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended, if his or her claim is denied, in whole or in part, upon review. For purposes of this Section 14.1, a document, record or information will be considered "relevant" if it (a) was relied upon by the Employee Benefits Department or Committee, as applicable, in making the benefit decision, (b) was submitted, considered or generated in the course of making such decisions, even if it was not relied upon in making those decisions, or (c) demonstrates compliance with the administrative processes and safeguards established by the Plan to insure that the terms of the Plan have been followed and applied consistently. To the extent permitted by law, a decision on review by the Committee shall be binding and conclusive upon all persons whomsoever. Completion of the claims procedure described in this Section 14.1 shall be a mandatory precondition that must be complied with prior to commencement of a legal or equitable action in connection with the Plan by a person claiming rights under the Plan, or by another person claiming rights through such a person. The Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action.

6. Except as otherwise expressly provided herein, this Amendment shall be effective January 1, 2003. Except as amended hereby, the Company ratifies and confirms the Plan as amended and restated effective January 1, 1995 and as thereafter amended. Dated: December 18, 2003 PINNACLE WEST CAPITAL CORPORATION
By /s/ Jack E. Davis ----------------------------------------Its President & Chief Operating Officer of Pinnacle West Capital Corporation and President & Chief Executive Officer of Arizona Public Service Company

Exhibit 10.7a PINNACLE WEST CAPITAL CORPORATION SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN

. . . TABLE OF CONTENTS
PAGE

ARTICLE ONE - PREAMBLE............................................ ARTICLE TWO - CONSTRUCTION........................................ ARTICLE THREE - ELIGIBILITY AND PARTICIPATION..................... ARTICLE FOUR - BENEFITS........................................... ARTICLE FIVE - PAYMENT OF BENEFITS................................ ARTICLE SIX - COORDINATION OF BENEFITS............................ ARTICLE SEVEN - FUNDING........................................... ARTICLE EIGHT - ADMINISTRATION.................................... ARTICLE NINE - AMENDMENT AND TERMINATION OF THE PLAN.............. ARTICLE TEN - ASSIGNMENT.......................................... ARTICLE ELEVEN - WITHHOLDING...................................... ARTICLE TWELVE - OTHER BENEFIT PLANS OF THE COMPANY............... ARTICLE THIRTEEN - MISCELLANEOUS.................................. ARTICLE FOURTEEN - EFFECTIVE DATE.................................

PAGE ---1 2 2 4 9 12 13 13 13 14 14 15 15 16

i PINNACLE WEST CAPITAL CORPORATION SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN ARTICLE ONE PREAMBLE Effective January 1, 1987, PINNACLE WEST CAPITAL CORPORATION (the "Company") adopted the PINNACLE WEST CAPITAL CORPORATION SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN (the "Plan") for the purpose of paying retirement benefits to certain employees in excess of the benefits permitted to be paid under the Pinnacle West Capital Corporation Retirement Plan (the "Retirement Plan") by reason of Section 415 of the Internal Revenue Code (the "Code"). The Plan was thereafter amended several times to provide additional benefits, thereby changing the Plan from an "excess benefit plan" under the Employee Retirement Income Security Act of 1974, as amended (the "Act"), to a "top hat" plan under the Act. Effective January 1, 1982, ARIZONA PUBLIC SERVICE COMPANY ("APS") adopted the ARIZONA PUBLIC SERVICE COMPANY SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN (the "APS Plan") for the purpose of paying retirement benefits to certain employees in excess of the benefits permitted to be paid under the Arizona Public Service Company Employees' Retirement Plan (the "APS Retirement Plan") by reason of Section 415 of the Code. The Plan was thereafter amended several times to provide additional benefits, thereby changing the Plan from an "excess benefit plan" under the Act to a "top hat" plan under the Act. Effective January 1, 2000, the Company and APS amended and restated the Plan and the APS Plan to merge the APS Plan into this Plan and to make other technical changes. The Plan was amended several times thereafter. By this amendment and restatement, the Company intends to amend the Plan to add a new benefit structure. 1 ARTICLE TWO

ARTICLE TWO CONSTRUCTION Terms capitalized in this Plan shall have the meaning given in Article Two of the Retirement Plan, governing definitions and construction, except where such terms are otherwise defined in this Plan. If any provision of this Plan is determined to be invalid or unenforceable for any reason, the remaining provisions shall continue in full force and effect. All of the provisions of this Plan shall be construed and enforced according to the laws of the State of Arizona, and shall be administered according to the laws of such state, except as otherwise required by the Act, the Code or other applicable federal law. It is the intention of the Company that the Plan, as adopted by the Company, shall constitute an "unfunded plan of deferred compensation for a select group of management and highly compensated employees" within the meaning of Sections 201(2) and 301(3) of the Act. Benefits under this Plan shall be paid from the Company's general assets, and not from any trust fund or other segregated fund. This Plan shall be construed in a manner consistent with the Company's intention. ARTICLE THREE ELIGIBILITY AND PARTICIPATION Employees of the Company or its Affiliates who are members of a select group of management or highly compensated employees, as determined by the Human Resources Committee of the Board of Directors of the Company, in its discretion, shall be eligible to participate in the Plan if they satisfy the eligibility requirements of Section 3(a) or Section 3(b). (a) Eligible Employees who are officers of the Company or an Affiliate which is a participating employer under the Retirement Plan shall be entitled to the benefits described in Section 4(a). 2 (b) Eligible Employees of the Company or an Affiliate which is a participating employer under the Retirement Plan who are not officers, who are designated for participation by the Human Resources Committee of the Company's Board of Directors and who are participants in the Retirement Plan shall be entitled to the benefits described in Section 4(b). The Human Resources Committee may make its designations under this Section 3(b) by individual designation or by group designation. A participant shall commence participation in this Plan as of the first day of the Plan Year in which he or she becomes a participant pursuant to this ARTICLE THREE or the first day of his or her employment with the Company or an Affiliate which is a participating employer under the Retirement Plan, whichever is later. Such participation shall continue until the earlier of the date on which the participant no longer satisfies the requirements for participation under Section 3(a) or Section 3(b) or the date on which the Human Resources Committee informs the participant in writing that he or she is no longer eligible to participate in this Plan. Notwithstanding the foregoing, if the status of a participant changes for reasons other than termination of employment with the Company or an Affiliate which is a participating employer under the Retirement Plan, so that he or she no longer is eligible to participate in the Plan, his or her participation in the Plan shall cease but his or her benefit under this Plan as of the date of his or her change of status shall not be canceled or distributed, but shall be determined upon his or her termination of employment with the Company or an Affiliate. 3 ARTICLE FOUR BENEFITS (a) Section 3(a) Participants. (1) Subject to ARTICLE SEVEN, a participant who is eligible under Section 3(a) and who is a Group A Participant under the Retirement Plan shall be entitled to a monthly benefit equal to the lesser of

Participant under the Retirement Plan shall be entitled to a monthly benefit equal to the lesser of (i) or (ii), reduced by (iii), where (i) Equals three percent (3%) of the participant's Average Monthly Compensation multiplied by the participant's Years of Service, not to exceed ten (10) Years of Service, plus two percent (2%) of the participant's Average Monthly Compensation multiplied by the participant's Years of Service in excess of ten (10) Years of Service, (ii) Equals sixty percent (60%) of the participant's Average Monthly Compensation, and (iii) Equals the amount of such participant's monthly benefit determined under the terms of the Retirement Plan and payable in accordance with Section 6.2 of the Retirement Plan. (2) Subject to ARTICLE SEVEN, a participant who is eligible under Section 3(a) and who is a Group B Participant under the Retirement Plan shall be entitled to a monthly benefit equal to the sum of (i) and (ii), where (i) Equals the benefit determined under the formula set forth above in this Section 4(a)(1) for a Group A Participant in the Retirement Plan based on the participant's Years of Service as of March 31, 2003 and his or her Average Monthly Compensation as of the date of determination. Years of Service as of March 31, 2003 shall equal his or her full Years of Service as of such date plus a partial Year of Service equal to the lesser of one (1) or a fraction, the numerator of which is the participant's Hours of 4 Service earned during the period beginning on the day after the last day of his or her Computation Period ending prior to March 31, 2003 and ending on March 31, 2003, and the denominator of which is 1,000, and (ii) Equals the monthly benefit for life payable at Normal Retirement Age which is the Actuarial Equivalent of a lump sum benefit equal to the participant's Supplemental Retirement Account Balance minus the participant's Retirement Account Balance under the Retirement Plan. (3) Subject to ARTICLE SEVEN, a participant who is eligible under Section 3(a) and who is a Group C Participant under the Retirement Plan shall be entitled to a monthly benefit equal to the Actuarial Equivalent of a lump sum benefit equal to (i) reduced by (ii), where (i) Equals the participant's Supplemental Retirement Account Balance, and (ii) Equals the participant's Retirement Account Balance under the Retirement Plan. A participant's Supplemental Retirement Account Balance shall be a notional account credited with Monthly Retirement Account Balance Credits and Interest Credits. For purposes of this Plan, Monthly Retirement Account Balance Credits shall be determined under the general methodology set forth in the Retirement Plan based on the participant's Monthly Compensation for the month but using the following chart; provided that, except for a Group C Participant, a participant shall not receive a Monthly Retirement Account Balance Credit after he or she is credited with more than twenty-five (25) Years of Service, with twenty-five years (25) Years of Service defined as twenty-five (25) full twelve (12) month periods in duration: 5
Percent of Monthly Compensation Contribution Rate ------------------------------12% 14% 16% 20% 24% 28%

Age at End of Plan Year ----------------------Less than 35 35-39 40-44 45-49 50-54 55 and over

For purposes of this Section 4(a), Compensation and Monthly Compensation shall be determined without regard to the limitation set forth in Section 401(a)(17) of the Code and shall be increased by any cash payments made to the participant pursuant to bonus or incentive plans maintained by the Company or an Affiliate which is a participating employer under the Retirement Plan for employees generally and by any amounts deferred by the participant under any of the Company's or such an Affiliate's deferred compensation plans for employees, provided that bonus or incentive payments made in a form other than cash, bonus or incentive payments which are not "year-end" bonus or incentive payments, bonus or incentive payments under individual agreements between the Company or such an Affiliate and a participant, and cash payments made under bonus or incentive plans maintained by the Company or such an Affiliate for employees generally which exceed the maximum amount that the Company's President or Chief Operating Officer determines, in his or her discretion, may be taken into account under this Plan shall not be taken into account as Compensation and Monthly Compensation for purposes of this Plan unless the Company's President or Chief Operating Officer determines, in his or her discretion, that such bonus or incentive payment shall be taken into account as Compensation and Monthly Compensation under this Plan. Eligible bonuses and incentive payments shall be taken into account as Compensation and Monthly Compensation in the year in which such amounts are paid rather than in the year in which they are earned, provided that the Company's President or Chief Operating Officer shall have the 6 authority to determine, in his or her discretion, that such bonus or incentive payment shall be taken into account in the year in which such amounts are earned rather than in the year in which they are paid. The Company's President or Chief Operating Officer shall have the sole and absolute discretion to determine whether a bonus or incentive payment made to a participant constitutes Compensation or Monthly Compensation for purposes of this Section 4(a) and may differentiate among individuals in establishing the bonus or incentive payments that may be taken into account under the Plan. Notwithstanding anything herein to the contrary, the monthly benefit under this Section 4(a) of a participant who was eligible under Section 3(a) on December 31, 1999 shall not be less than such monthly benefit on such date, and the monthly benefit under this Section 4(a) of a participant who was eligible under Section 3(a) of the APS Plan on December 31, 1999 shall not be less than the monthly benefit of such participant under Section 4(a) of the APS Plan on such date, except to the extent attributable solely to an increase in any such participant's monthly benefit under the Retirement Plan due to an increase in the limitations under Sections 401(a)(17) and 415 of the Code. (b) Section 3(b) Participants. Subject to ARTICLE SIX and ARTICLE SEVEN, any participant who is designated for participation pursuant to Section 3(b) and who receives a benefit under the Retirement Plan, or such participant's surviving spouse or beneficiary in the event of the participant's death, shall be entitled to a monthly benefit payable in accordance with this ARTICLE FOUR and with ARTICLE FIVE equal to (i) reduced by (ii), where (i) Equals the amount of such participant's or surviving spouse's or beneficiary's monthly benefit under the Retirement Plan computed under the provisions of the Retirement Plan but without regard to the cap on Compensation in Section 2.1(n) and 7 the limitations in Section 5.13 of the Retirement Plan and the provisions of Sections 401(a)(17) and 415 of the Code; and (ii) Equals the amount of such participant's or surviving spouse's or beneficiary's monthly benefit actually payable under the terms of the Retirement Plan. For purposes of this Section 4(b), Compensation shall include any amount of the participant's regular salary that the participant elects to defer under any deferred compensation plans for employees of the Company or an Affiliate which is a participating employer under the Retirement Plan and shall exclude all bonus or incentive

payments paid to the participant. The Human Resources Committee shall have the sole and absolute discretion to determine a participant's Compensation for purposes of this Section 4(b). Benefits payable under this Section 4(b) shall be payable to a Plan participant or his or her spouse or other beneficiary in the same manner and subject to all the same options, conditions, privileges and restrictions as are applicable to the benefits payable to the Plan participant, spouse or other beneficiary of a Participant under the Retirement Plan, as though such benefits were payable as a part of the benefits being paid under the Retirement Plan. Notwithstanding anything herein to the contrary, the monthly benefit under this Section 4(b) of a participant who was eligible under Section 3(b) on December 31, 1999 shall not be less than such monthly benefit on such date, and the monthly benefit under this Section 4(b) of a participant who was eligible under Section 3(b) of the APS Plan on December 31, 1999 shall not be less than the monthly benefit of such participant under Section 4(b) of the APS Plan on such date, except to the extent attributable solely to an increase in any such participant's monthly benefit under the Retirement Plan due to an increase in the limitations under Sections 401(a)(17) and 415 of the Code. 8 ARTICLE FIVE PAYMENT OF BENEFITS (a) A participant entitled to benefits under Section 4(a) which are described in Section 4(a)(1) or 4(a)(2)(i) may elect to commence receiving such benefits unreduced on or after the date on which the participant attains the age of sixty-five (65) years or attains the age of sixty (60) years and is credited with at least twenty (20) Years of Service. A participant may elect to commence receiving benefits earlier if he or she has attained at least the age of fifty-five (55) years and is credited with at least ten (10) Years of Service, provided that the participant's benefit which represents the portion of his or her benefit calculated in accordance with Section 4(a)(1) or 4(a)(2)(i) shall be reduced by three percent (3%) for each year (or part thereof) by which the participant's retirement age precedes the date on which he or she would have attained the age of sixty (60) years if he or she is credited with at least twenty (20) Years of Service or the date on which he or she would have attained the age of sixty-five (65) years if credited with less than twenty (20) Years of Service. Benefits payable to a participant under Section 4(a)(1) or Section 4(a)(2)(i) shall be payable in accordance with Section 6.2 of the Retirement Plan, and if married, shall provide a monthly payment to the participant for his or her life equal to the amount determined under Section 4(a)(1) or Section 4(a)(2)(i) and upon his or her death, shall provide monthly payments to the participant's spouse for life equal to fifty percent (50%) of the monthly payment being received by the participant at the time of his or her death. If a participant entitled to benefits under Section 4(a)(1) or Section 4(a)(2)(i) dies while still employed by the Company or an Affiliate, the participant's spouse shall be entitled to a survivor annuity equal to one hundred percent (100%) of the monthly benefit that the participant would have received under Section 4(a)(1) or Section 4(a)(2)(i) had he or she terminated employment on the day before he or she died, survived to the age on which he or she would first be 9 eligible to commence benefits under this Section 5(a), elected to retire and commence benefits under the Plan at that time and then died. Benefits payable to the surviving spouse shall commence on the first day of the month following the participant's date of death. The surviving spouse's monthly benefit shall be reduced by the monthly benefit that the spouse receives under Section 5.9 or Section 5.10 of the Retirement Plan, whichever is applicable. Benefits payable to a terminated participant entitled to benefits under Section 4(a)(1) or 4(a)(2)(i) who dies prior to commencing benefits shall be paid in the form of a survivor annuity equal to fifty percent (50%) of the monthly benefit which the participant would have received had he or she survived to the earliest date under this Section 5(a) upon which he or she could have commenced benefits. Such benefits shall commence on the earliest date under this Section 5(a) upon which the participant could have commenced benefits had he or she survived. The surviving spouse's monthly benefit shall be reduced

could have commenced benefits had he or she survived. The surviving spouse's monthly benefit shall be reduced by the monthly benefit that the spouse receives under Section 5.9 or Section 5.10 of the Retirement Plan, whichever is applicable. (b) Benefits payable to a participant under Section 4(a)(2)(ii) or Section 4(a)(3) shall become payable when a participant (or his or her spouse or beneficiary) begins to receive payment of his or her Retirement Account Balance under the Retirement Plan, and shall be subject to the same adjustments and shall be payable by the Company in the same manner and at the same time as the Plan participant's (or his or her spouse's or beneficiary's) Retirement Account Balance under the Retirement Plan is paid, as though such benefits were otherwise payable as a part of the benefits being paid under the Retirement Plan. An election or mode of payment under the Retirement Plan with respect to the participant's Retirement Account Balance shall constitute an election of a similar mode of payment under this Plan. (c) Benefits payable to a participant under Section 4(b) shall become payable when a participant (or his or her spouse or beneficiary) begins to receive payments under the 10 Retirement Plan, and shall be subject to the same adjustments and shall be payable by the Company in the same manner and at the same time as the Plan participant's (or his or her spouse's or beneficiary's) benefits under the Retirement Plan are paid, as though such benefits were otherwise payable as a part of the benefits being paid under the Retirement Plan, subject to ARTICLE SIX. Except as provided in this Subsection (c) or Subsection (d) of this ARTICLE FIVE, an election or mode of payment under the Retirement Plan shall constitute an election of a similar mode of payment under this Plan. The form of payment under Section 6.6 of the Retirement Plan shall not be available under this Plan. (d) If the present value of a Participant's vested benefits under the Plan is Five Thousand Dollars ($5,000.00), or less, at any time after the Participant's retirement or termination of employment and before his or her Annuity Starting Date, the Participant's vested benefits shall be distributed in a single lump sum. The benefits of a nonvested Participant shall automatically be deemed to be cashed out pursuant to this ARTICLE FIVE (d) upon such Participant's termination of employment. If the present value of a Participant's vested benefits is more than Five Thousand Dollars ($5,000.00) but not more than Ten Thousand Dollars ($10,000.00) at any time after the Participant's retirement or termination of employment and before his or her Annuity Starting Date, the Participant's vested benefits shall be distributed in a single lump sum if such distribution is requested in writing by the Participant and his spouse, if married, in accordance with the consent and waiver provisions of Section 6.2 of the Retirement Plan. If the present value of the Spouse's Benefit or Vested Survivor's Benefit under the Plan, as applicable, is Five Thousand Dollars ($5,000.00), or less, at any time after the Participant's death and before the commencement of such benefit, the benefit shall be distributed in a single lump sum. If the present value of the Spouse's Benefit or Vested Survivor's Benefit is more than Five Thousand Dollars ($5,000.00) but not more than Ten Thousand Dollars ($10,000.00) at any 11 time after the Participant's death and before the commencement of such benefit, the benefit shall be distributed in a single lump sum if such distribution is requested in writing by the Participant's surviving Spouse. For purposes of calculating the present value of a Participant's vested benefits, the Spouse's Benefit or the Vested Survivor's Benefit, the actuarial assumptions incorporated by reference in Section 2.1(c) of the Retirement Plan shall be used, but in no event shall such present value be less than the present value calculated using the "applicable interest rate" and "applicable mortality table," as defined in Section 5.19 of the Retirement Plan. ARTICLE SIX COORDINATION OF BENEFITS

If an employee who was participating in a retirement plan sponsored by an Affiliate, which is not a participating employer in the Retirement Plan, becomes an employee of the Company or a participating Affiliate and a participant in the Plan under Section 4(b) and such employee's accrued benefit under the retirement plan maintained by the Affiliate formerly employing him or her is transferred to the Retirement Plan, upon termination of employment, the employee's benefits, calculated in accordance with Section 4(b), will be payable in full from the Plan in accordance with Section 5(b). If an employee who was a participant in the retirement plan of an Affiliate, which is not a participating employer in the Retirement Plan, becomes an employee of the Company or a participating Affiliate and a participant in this Plan, and such employee's accrued benefit under the retirement plan maintained by his or her former employer is not transferred to the Retirement Plan, upon termination of employment, the employee's benefits, calculated in accordance with Section 4(b), will be payable from the Plan in accordance with Section 5(b) to the extent such benefits are attributable to the pension benefits payable to that employee under the Retirement Plan. The benefits calculated pursuant to Section 4(b) that are attributable to the pension benefits payable to 12 the employee under the Retirement Plan are those benefits that bear the same ratio to the total benefits due to the employee, calculated pursuant to Section 4(b), as the benefit payable to the employee from the Retirement Plan bears to the total benefits payable to the employee under both the Retirement Plan and the retirement plan maintained by the Affiliate formerly employing that employee. ARTICLE SEVEN FUNDING Benefits under this Plan shall be payable from the general assets of the Company and shall not be segregated in a trust fund or otherwise funded in any manner prior to the time of payment. No Plan participant shall have any vested rights hereunder nor any right hereunder to any specific assets of the Company. ARTICLE EIGHT ADMINISTRATION The Plan will be administered by the Administrative Committee that administers the Retirement Plan. Except as otherwise expressly provided in this Plan, the Administrative Committee shall have the same powers and responsibilities as it has under Sections 10.4 and 12.2 of the Retirement Plan. Claims for benefits under the Plan shall be determined in the manner set forth in Article Eleven of the Retirement Plan. ARTICLE NINE AMENDMENT AND TERMINATION OF THE PLAN The Plan may be amended in whole or in part, prospectively or retroactively, by action of the Company's Board of Directors, and may be terminated at any time by action of the Board of Directors; provided, however, that no such amendment or termination shall reduce any amount payable hereunder to the extent such amount accrued prior to the date of amendment or 13 termination. All amendments shall be in writing, approved by the Company's Board of Directors and executed by a duly authorized officer of the Company. ARTICLE TEN ASSIGNMENT No Plan participant or beneficiary of a Plan participant shall have any right to assign, pledge, hypothecate,

No Plan participant or beneficiary of a Plan participant shall have any right to assign, pledge, hypothecate, anticipate or any way create a lien on any amounts payable hereunder. No amounts payable hereunder shall be subject to assignment or transfer or otherwise be alienable, either by voluntary or involuntary act, or by operation of law, or be subject to attachment, execution, garnishment, sequestration or other seizure under any legal, equitable or other process, or be liable in any way for the debts or defaults of Plan participants and their beneficiaries. Notwithstanding the foregoing, assignments of the benefits provided under this Plan shall be permitted for purposes of satisfying family support obligations if such assignments are pursuant to a court order which satisfies the requirements for a "qualified domestic relations order" as defined in Section 206(d)(3) of the Act. ARTICLE ELEVEN WITHHOLDING Any taxes required to be withheld from payments to the Plan participants hereunder shall be deducted and withheld by the Company. 14 ARTICLE TWELVE OTHER BENEFIT PLANS OF THE COMPANY Nothing contained in this Plan shall prevent a Plan participant prior to his or her death, or his or her spouse or other beneficiary after his or her death, from receiving, in addition to any payments provided for under this Plan, any payments provided for under the Retirement Plan or under The Pinnacle West Capital Corporation Savings Plan, or which would otherwise be payable or distributable to him or her, his or her surviving spouse or beneficiary under any plan or policy of the Company or otherwise. Nothing in this Plan shall be construed as preventing the Company or any of its subsidiaries from establishing any other or different plans providing for current or deferred compensation for employees. ARTICLE THIRTEEN MISCELLANEOUS Nothing contained in this Plan shall be construed as a contract of employment between the Company and an employee, or as a right of any employee to be continued in the employment of the Company, or as a limitation of the right of the Company to discharge any of its employees, with or without cause. All of the provisions of this Plan shall be binding upon all persons who shall be entitled to any benefit hereunder, their heirs and personal representatives. 15 ARTICLE FOURTEEN EFFECTIVE DATE The Plan, as amended and restated, shall be effective as of January 1, 2003. IN WITNESS WHEREOF, the Company has caused this Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan, as amended and restated herein, to be executed by its duly authorized officer this 18th day of December, 2003. PINNACLE WEST CAPITAL CORPORATION
By /s/ Jack E. Davis --------------------------------------------

Its

President & Chief Operating Officer of Pinnacle West Capital Corporation and President and Chief Executive Officer of Arizona Public Service Company

Attest: By /s/ Nancy C. Loftin --------------------------------Its Vice President, General Counsel and Secretary

16 . . . Exhibit 12.1 PINNACLE WEST CAPITAL CORPORATION COMPUTATION OF EARNINGS TO FIXED CHARGES (THOUSANDS OF DOLLARS)
Twelve Months Ended December 31, ---------------------------------------------------2003 2002 2001 2000 1999 -----------------------------------Earnings: Income from Continuing Operations................... Income Taxes................... Fixed Charges.................. Total........................

$230,576 105,560 235,658 -------571,794 ========

$206,198 132,228 219,651 -------558,077 ========

$327,367 213,535 211,958 -------752,860 ========

$302,332 194,200 202,804 -------699,336 ========

$269,772 141,592 194,070 -------605,434 ========

Fixed Charges: Interest Expense............... Estimated Interest Portion of Annual Rents................. Total Fixed Charges..........

204,590 31,068 -------235,658 ========

187,512 32,139 -------219,651 ========

175,822 36,136 -------211,958 ========

166,447 36,357 -------202,804 ========

157,142 36,928 -------194,070 ========

Ratio of Earnings to Fixed Charges (rounded down).................

2.42 ========

2.54 ========

3.55 ========

3.44 ========

3.11 ========

6 Exhibit 21.1 SUBSIDIARIES OF THE COMPANY Arizona Public Service Company AXIOM Power Solutions, Inc. Bixco, Inc. PWENewco, Inc. APSES Holdings, Inc. APS Energy L.P.

APS Energy Services Company, Inc. Northwind Phoenix LLC Tucson District Energy LLC SunCor Development Company SunCor Golf, Inc. Westworld Golf Course LLC Golden Heritage Homes, Inc. Golden Heritage Construction, Inc. Heritage Financial Services, LLC SCM, Inc. SunCor Realty & Management Company Palm Valley Golf Club, Inc. Rancho Viejo de Santa Fe, Inc. Ranchland Utility Company Rancho Viejo Village Center, LLC SunCor Idaho, LLC Golf de Mexico, S.A. de C.V. Type Two, Inc. Stone Ridge- Prescott Valley LLC Stone Ridge Golf Course LLC Hayden Ferry Lakeside LLC Lakeside Residential Communities, L.L.C. Edgewater at Hayden Ferry Lakeside, L.L.C. BV at Hayden Ferry Lakeside, L.L.C. Club West Golf Course LLC Scottsdale Mountain LLP SunRidge Canyon LLC Sedona Golf Resort LLC Kabuto/SunCor Joint Venture Centrepoint Associates LLC Hidden Hills of Scottsdale LLC Talavi Associates LLC Coral Canyon Town Center LLC Coral Canyon HD, L.L.C.

El Dorado Investment Company Underground Imaging Technologies, LLC NAC Holding Inc. NAC International Inc. Phoenix Suns Limited Partnership AZ PB Partnership El Dorado Ventures III Phoenix Downtown Theater LLC Nxt Phase Pinnacle West Energy Corporation GenWest, LLC APACS Holdings LLC

   Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-15190, 333-52476, 333-101457 and 333-53150 on Form S-3; Registration Statement Nos. 33-47534, 333-40796, 33-54307, 333-95035, 333-91786 and 33-1720 on Form S-8; and Registration Statement No. 2-96386 on Form S-14, all of Pinnacle West Capital Corporation, of our report dated March 11, 2004 (which report expresses an unqualified opinion and includes explanatory paragraphs relating to the change in 2003 in the method of accounting for non-trading derivatives in order to comply with the provisions of Emerging Issues Task Force Issue No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not “Held for Trading Purposes” as Defined in Issue No. 02-3 , the change in 2002 in the method of accounting for trading activities in order to comply with the provisions of Emerging Issues Task Force Issue No. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities , and to the change in 2001 in the method of accounting for derivatives and hedging activities in order to comply with the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ) appearing in this Annual Report on Form 10-K of Pinnacle West Capital Corporation for the year ended December 31, 2003.    DELOITTE & TOUCHE LLP    Phoenix, Arizona March 11, 2004

   Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-15190, 333-52476, 333-101457 and 333-53150 on Form S-3; Registration Statement Nos. 33-47534, 333-40796, 33-54307, 333-95035, 333-91786 and 33-1720 on Form S-8; and Registration Statement No. 2-96386 on Form S-14, all of Pinnacle West Capital Corporation, of our report dated March 11, 2004 (which report expresses an unqualified opinion and includes explanatory paragraphs relating to the change in 2003 in the method of accounting for non-trading derivatives in order to comply with the provisions of Emerging Issues Task Force Issue No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not “Held for Trading Purposes” as Defined in Issue No. 02-3 , the change in 2002 in the method of accounting for trading activities in order to comply with the provisions of Emerging Issues Task Force Issue No. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities , and to the change in 2001 in the method of accounting for derivatives and hedging activities in order to comply with the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ) appearing in this Annual Report on Form 10-K of Pinnacle West Capital Corporation for the year ended December 31, 2003.    DELOITTE & TOUCHE LLP    Phoenix, Arizona March 11, 2004       Exhibit 31.1  CERTIFICATION I, William J. Post, certify that: 1.      2.   I have reviewed this Annual Report on Form 10-K of Pinnacle West Capital Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to   

   3.  

   4.  

  

     

     

5.  

  

   Exhibit 31.1  CERTIFICATION I, William J. Post, certify that: 1.      2.   I have reviewed this Annual Report on Form 10-K of Pinnacle West Capital Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to   

   3.  

   4.  

  

     

     

5.  

  

                  adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2004. 

  
           

  
           

  
           

  
           

  
/s/ William J. Post William J. Post Chairman and Chief Executive Officer   

  
           

  
           

   Exhibit 31.2  CERTIFICATION I, Donald E. Brandt, certify that: 1.   I have reviewed this Annual Report on Form 10-K of Pinnacle West Capital Corporation;

                  adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2004. 

  
           

  
           

  
           

  
           

  
/s/ William J. Post William J. Post Chairman and Chief Executive Officer   

  
           

  
           

   Exhibit 31.2  CERTIFICATION I, Donald E. Brandt, certify that: 1.      2.   I have reviewed this Annual Report on Form 10-K of Pinnacle West Capital Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to   

   3.  

   4.  

  

     

     

5.  

  

                  adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2004. 

  

     

     

     

   Exhibit 31.2  CERTIFICATION I, Donald E. Brandt, certify that: 1.      2.   I have reviewed this Annual Report on Form 10-K of Pinnacle West Capital Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a)   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)   evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)   disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to   

   3.  

   4.  

  

     

     

5.  

  

                  adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2004. 

  
              

     
                             

     
               /s/ Donald E. Brandt Donald E. Brandt Executive Vice President & Chief Financial Officer   

     
                             

   Exhibit 32.1  CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

                  adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2004. 

  
              

     
                             

     
               /s/ Donald E. Brandt Donald E. Brandt Executive Vice President & Chief Financial Officer   

     
                             

   Exhibit 32.1  CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002      I, William J. Post, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Pinnacle West Capital Corporation for the fiscal year ended December 31, 2003 fully  complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained  in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Pinnacle West Capital Corporation. Date: March 15, 2004. 

  
           

     
                       

  
           

  
/s/ William J. Post William J. Post Chairman and Chief Executive Officer

     
                       

     I, Donald E. Brandt, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Pinnacle West Capital Corporation for the fiscal year ended December 31, 2003  fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information  contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Pinnacle West Capital Corporation. Date: March 15, 2004. 

  
                 

     
                                   

     
                     /s/ Donald E. Brandt Donald E. Brandt Executive Vice President and Chief Financial Officer   

     
                                   

  

Exhibit 99.1  PINNACLE WEST RISK FACTORS (2003 Annual Report on Form 10-K)      Set forth below and in other documents we file with the Securities and Exchange Commission are risks and  uncertainties that could affect our financial results.

   Exhibit 32.1  CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002      I, William J. Post, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Pinnacle West Capital Corporation for the fiscal year ended December 31, 2003 fully  complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained  in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Pinnacle West Capital Corporation. Date: March 15, 2004. 

  
           

     
                       

  
           

  
/s/ William J. Post William J. Post Chairman and Chief Executive Officer

     
                       

     I, Donald E. Brandt, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Pinnacle West Capital Corporation for the fiscal year ended December 31, 2003  fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information  contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Pinnacle West Capital Corporation. Date: March 15, 2004. 

  
                 

     
                                   

     
                     /s/ Donald E. Brandt Donald E. Brandt Executive Vice President and Chief Financial Officer   

     
                                   

  

Exhibit 99.1  PINNACLE WEST RISK FACTORS (2003 Annual Report on Form 10-K)      Set forth below and in other documents we file with the Securities and Exchange Commission are risks and  uncertainties that could affect our financial results.       We cannot predict the outcome of APS’ general rate case pending before the ACC.      As required by a 1999 settlement agreement among Arizona Public Service Company (“APS”) and various parties (the “1999 Settlement Agreement”), on June 27, 2003, APS filed a general rate case with the Arizona Corporation Commission (the “ACC”). APS requested a $175.1 million, or 9.8%, increase in its annual retail  electricity revenues, to become effective July 1, 2004. The major reasons for the request include:     •    complying with the provisions of the 1999 Settlement Agreement;       •    incorporating significant increases in fuel and purchased power costs, including results of purchases through the ACC’s “Track B” procurement process;       •    recognizing changes in APS’ cost of service, cost allocation and rate design;

  

Exhibit 99.1  PINNACLE WEST RISK FACTORS (2003 Annual Report on Form 10-K)      Set forth below and in other documents we file with the Securities and Exchange Commission are risks and  uncertainties that could affect our financial results.       We cannot predict the outcome of APS’ general rate case pending before the ACC.      As required by a 1999 settlement agreement among Arizona Public Service Company (“APS”) and various parties (the “1999 Settlement Agreement”), on June 27, 2003, APS filed a general rate case with the Arizona Corporation Commission (the “ACC”). APS requested a $175.1 million, or 9.8%, increase in its annual retail  electricity revenues, to become effective July 1, 2004. The major reasons for the request include:     •    complying with the provisions of the 1999 Settlement Agreement;       •    incorporating significant increases in fuel and purchased power costs, including results of purchases through the ACC’s “Track B” procurement process;       •    recognizing changes in APS’ cost of service, cost allocation and rate design;       •    obtaining rate base recognition of the generating plants built in Arizona by Pinnacle West Energy Corporation (“Pinnacle West Energy”) since 1999 to serve APS’ retail electricity customers, specifically, Redhawk Units 1 and 2, West Phoenix Units 4 and 5 and Saguaro Unit 3 (the “PWEC Dedicated Assets”);       •    recovering $234 million written off by APS as a result of the 1999 Settlement Agreement; and        •    recovering restructuring and compliance costs associated with the ACC’s electric competition rules.      The general rate case will also address the implementation of rate adjustment mechanisms that were the  subject of ACC hearings in April 2003. The rate adjustment mechanisms, which were authorized in the 1999  Settlement Agreement, would allow APS to recover several types of costs, the most significant of which are power supply costs (fuel and purchased power costs) and costs associated with complying with the ACC retail competition rules described below. If APS does not have a rate adjustment mechanism that allows it to recover its full costs of procuring fuel for its generating plants, then changes in fuel prices may increase its cost of producing power or decrease the amount it receives from selling power, harming our financial performance. On November 4, 2003, the ACC approved the issuance of an order which authorizes a rate adjustment mechanism  allowing APS to recover changes in purchased power costs (but not changes in fuel costs) incurred after July 1,  2004. The other rate adjustment mechanisms authorized in the 1999 Settlement Agreement (such as the costs associated with complying with the ACC electric competition rules) were also tentatively approved for subsequent implementation in the general rate case. The purchased power rate adjustment mechanism will not become effective until there is a final order in the general rate case, and the ACC further reserved the right to amend or modify, in all respects, this November 4 order during the rate case.      In its filed testimony in the rate case, the ACC staff recommended, among other things, that the ACC  decrease APS’ rates by approximately 8% (approximately $143 million annually), not allow the PWEC  Dedicated Assets to be included in APS’ rate base, and not allow APS to recover any of the $234 million written off as a result of the 1999 Settlement Agreement. The ACC staff recommendations, if implemented as proposed, could have a material adverse impact on our results of operations, financial position, liquidity, dividend sustainability, credit ratings, and access to capital markets. We believe the ACC will be able to make a decision by the end of 2004. We cannot predict the outcome of the rate case and the resulting levels of regulated revenues.   

  

      Our cash flow largely depends on the performance of our subsidiaries.      We conduct our operations primarily through subsidiaries. Substantially all of our consolidated assets are held  by such subsidiaries. Accordingly, our cash flow is dependent upon the earnings and cash flows of these subsidiaries and their distributions to us. The subsidiaries are separate and distinct legal entities and have no obligation to make distributions to us.      The debt agreements of some of our subsidiaries may restrict their ability to pay dividends, make distributions  or otherwise transfer funds to us. As part of the ACC’s approval of a $500 million financing arrangement  between APS and Pinnacle West Energy, APS must maintain a common equity ratio of at least 40% and may not pay common dividends if the payment would reduce its common equity below that threshold. As defined in the ACC financing order approving the arrangement, common equity ratio is common equity divided by common equity plus long-term debt, including current maturities of long-term debt. At December 31, 2003, APS’  common equity ratio was approximately 46%.       We are subject to complex government regulation which may have a negative impact on our business and our results of operations.      We are, directly and through our subsidiaries, subject to governmental regulation that may have a negative  impact on our business and results of operations. We are a “holding company” within the meaning of the Public Utility Holding Company Act (“PUHCA”); however, we are exempt from the provisions of PUHCA by virtue of our filing of an annual exemption statement with the SEC.      APS is subject to comprehensive regulation by several federal, state and local regulatory agencies, which  significantly influence its operating environment and may affect its ability to recover costs from utility customers. APS is required to have numerous permits, approvals and certificates from the agencies that regulate APS’  business. The Federal Energy Regulatory Commission (“FERC”), the Nuclear Regulatory Commission (“NRC”), the Environmental Protection Agency (“EPA”), and the ACC regulate many aspects of our utility operations, including siting and construction of facilities, customer service and the rates that APS can charge customers. We believe the necessary permits, approvals and certificates have been obtained for APS’ existing operations. However, we are unable to predict the impact on our business and operating results from the future regulatory activities of any of these agencies. Changes in regulations or the imposition of additional regulations could have an adverse impact on our results of operations.       The procurement of wholesale power by APS without the ability to adjust retail rates could have an adverse impact on our business and      financial results.       The 1999 Settlement Agreement limits APS’ ability to change retail rates until at least July 1, 2004, which  could have a significant adverse financial impact on us if wholesale power prices significantly exceed the amount included for generation costs in APS’ current bundled retail rates. Under the ACC’s rules, APS is the “provider of last resort” for standard-offer, full-service customers under rates that have been approved by the ACC. These rates are established until at least July 1, 2004. The 1999 Settlement Agreement allows APS to seek adjustment  of these rates in the event of emergency conditions or circumstances, such as the inability to secure financing on reasonable terms; material changes in APS’ cost of service for ACC-regulated services resulting from federal, tribal, state or local laws; regulatory requirements; or judicial decisions, actions or orders. Energy prices in the western wholesale market vary and, during the course of the last three years, have been volatile. At various times, prices in the spot wholesale market have significantly exceeded the amount included in APS’ current retail rates. APS regularly makes short-term seasonal purchases of power, and may experience unforeseen increases in load demand or generation or transmission outages, requiring APS to purchase additional supplemental power in the wholesale spot market. Unless APS is able to obtain an adjustment of its rates under the emergency provisions of the 1999 Settlement Agreement, there can be no assurance that APS would be able to fully recover the costs of this power. In addition, APS filed a general rate case with the ACC on June 27, 2003 (see discussion above).  Among other things, the rate case will address the implementation of rate adjustment mechanisms, which would allow APS to recover several types of costs, the most significant of which are power supply costs (fuel and purchased power costs) and costs associated with complying with the ACC retail competition rules.

  

      Our cash flow largely depends on the performance of our subsidiaries.      We conduct our operations primarily through subsidiaries. Substantially all of our consolidated assets are held  by such subsidiaries. Accordingly, our cash flow is dependent upon the earnings and cash flows of these subsidiaries and their distributions to us. The subsidiaries are separate and distinct legal entities and have no obligation to make distributions to us.      The debt agreements of some of our subsidiaries may restrict their ability to pay dividends, make distributions  or otherwise transfer funds to us. As part of the ACC’s approval of a $500 million financing arrangement  between APS and Pinnacle West Energy, APS must maintain a common equity ratio of at least 40% and may not pay common dividends if the payment would reduce its common equity below that threshold. As defined in the ACC financing order approving the arrangement, common equity ratio is common equity divided by common equity plus long-term debt, including current maturities of long-term debt. At December 31, 2003, APS’  common equity ratio was approximately 46%.       We are subject to complex government regulation which may have a negative impact on our business and our results of operations.      We are, directly and through our subsidiaries, subject to governmental regulation that may have a negative  impact on our business and results of operations. We are a “holding company” within the meaning of the Public Utility Holding Company Act (“PUHCA”); however, we are exempt from the provisions of PUHCA by virtue of our filing of an annual exemption statement with the SEC.      APS is subject to comprehensive regulation by several federal, state and local regulatory agencies, which  significantly influence its operating environment and may affect its ability to recover costs from utility customers. APS is required to have numerous permits, approvals and certificates from the agencies that regulate APS’  business. The Federal Energy Regulatory Commission (“FERC”), the Nuclear Regulatory Commission (“NRC”), the Environmental Protection Agency (“EPA”), and the ACC regulate many aspects of our utility operations, including siting and construction of facilities, customer service and the rates that APS can charge customers. We believe the necessary permits, approvals and certificates have been obtained for APS’ existing operations. However, we are unable to predict the impact on our business and operating results from the future regulatory activities of any of these agencies. Changes in regulations or the imposition of additional regulations could have an adverse impact on our results of operations.       The procurement of wholesale power by APS without the ability to adjust retail rates could have an adverse impact on our business and      financial results.       The 1999 Settlement Agreement limits APS’ ability to change retail rates until at least July 1, 2004, which  could have a significant adverse financial impact on us if wholesale power prices significantly exceed the amount included for generation costs in APS’ current bundled retail rates. Under the ACC’s rules, APS is the “provider of last resort” for standard-offer, full-service customers under rates that have been approved by the ACC. These rates are established until at least July 1, 2004. The 1999 Settlement Agreement allows APS to seek adjustment  of these rates in the event of emergency conditions or circumstances, such as the inability to secure financing on reasonable terms; material changes in APS’ cost of service for ACC-regulated services resulting from federal, tribal, state or local laws; regulatory requirements; or judicial decisions, actions or orders. Energy prices in the western wholesale market vary and, during the course of the last three years, have been volatile. At various times, prices in the spot wholesale market have significantly exceeded the amount included in APS’ current retail rates. APS regularly makes short-term seasonal purchases of power, and may experience unforeseen increases in load demand or generation or transmission outages, requiring APS to purchase additional supplemental power in the wholesale spot market. Unless APS is able to obtain an adjustment of its rates under the emergency provisions of the 1999 Settlement Agreement, there can be no assurance that APS would be able to fully recover the costs of this power. In addition, APS filed a general rate case with the ACC on June 27, 2003 (see discussion above).  Among other things, the rate case will address the implementation of rate adjustment mechanisms, which would allow APS to recover several types of costs, the most significant of which are power supply costs (fuel and purchased power costs) and costs associated with complying with the ACC retail competition rules. 2

2

  

      If we are not able to access capital at competitive rates, our ability to implement our financial strategy will be adversely affected.      We rely on access to short-term money markets, longer-term capital markets and the bank markets as a significant source of liquidity and for capital requirements not satisfied by the cash flow from our operations. We believe that we will maintain sufficient access to these financial markets based upon current credit ratings. However, certain market disruptions or a downgrade of our credit rating may increase our cost of borrowing or adversely affect our ability to access one or more financial markets. Such disruptions could include:                                  •    an economic downturn; •    capital market conditions generally; •    the bankruptcy of an unrelated energy company; •    market prices for electricity and gas; •    terrorist attacks or threatened attacks on our facilities or those of unrelated energy companies; or •    the overall health of the utility industry.

     Changes in economic conditions could result in higher interest rates, which would increase our interest  expense on our debt and reduce funds available to us for our current plans. Additionally, an increase in our leverage could adversely affect us by:    •    increasing the cost of future debt financing;       •    increasing our vulnerability to adverse economic and industry conditions;       •    requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce funds available to us for operations, future business opportunities or other purposes; and       •    placing us at a competitive disadvantage compared to our competitors that have less debt.       A significant reduction in our credit ratings could materially and adversely affect our business, financial condition and results of      operations.       We cannot be sure that any of our current ratings will remain in effect for any given period of time or that a  rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances in the future so warrant. Any downgrade could increase our borrowing costs which would diminish our financial results. We would likely be required to pay a higher interest rate in future financings, and our potential pool of investors and funding sources could decrease. In addition, borrowing costs under certain of our existing credit facilities depend on our credit ratings. A downgrade could also require us to provide additional support in the form of letters of credit or cash or other collateral to various counterparties. If our short-term ratings were to be lowered, it could limit our access to the commercial paper market. We note that the ratings from credit agencies are not recommendations to buy, sell or hold our securities and that each rating should be evaluated independently of any other rating.       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. 

  

      If we are not able to access capital at competitive rates, our ability to implement our financial strategy will be adversely affected.      We rely on access to short-term money markets, longer-term capital markets and the bank markets as a significant source of liquidity and for capital requirements not satisfied by the cash flow from our operations. We believe that we will maintain sufficient access to these financial markets based upon current credit ratings. However, certain market disruptions or a downgrade of our credit rating may increase our cost of borrowing or adversely affect our ability to access one or more financial markets. Such disruptions could include:                                  •    an economic downturn; •    capital market conditions generally; •    the bankruptcy of an unrelated energy company; •    market prices for electricity and gas; •    terrorist attacks or threatened attacks on our facilities or those of unrelated energy companies; or •    the overall health of the utility industry.

     Changes in economic conditions could result in higher interest rates, which would increase our interest  expense on our debt and reduce funds available to us for our current plans. Additionally, an increase in our leverage could adversely affect us by:    •    increasing the cost of future debt financing;       •    increasing our vulnerability to adverse economic and industry conditions;       •    requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce funds available to us for operations, future business opportunities or other purposes; and       •    placing us at a competitive disadvantage compared to our competitors that have less debt.       A significant reduction in our credit ratings could materially and adversely affect our business, financial condition and results of      operations.       We cannot be sure that any of our current ratings will remain in effect for any given period of time or that a  rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances in the future so warrant. Any downgrade could increase our borrowing costs which would diminish our financial results. We would likely be required to pay a higher interest rate in future financings, and our potential pool of investors and funding sources could decrease. In addition, borrowing costs under certain of our existing credit facilities depend on our credit ratings. A downgrade could also require us to provide additional support in the form of letters of credit or cash or other collateral to various counterparties. If our short-term ratings were to be lowered, it could limit our access to the commercial paper market. We note that the ratings from credit agencies are not recommendations to buy, sell or hold our securities and that each rating should be evaluated independently of any other rating.       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.       Retail competition could have a significant adverse financial impact on us due to an impairment of assets, a  loss of retail customers, lower profit margins or increased costs of capital. In 1999, the ACC approved rules that provide a framework for the introduction of retail electric competition in Arizona. Under the rules, as modified by the 1999 Settlement Agreement, APS was required to transfer all of its competitive electric assets and services to

the 1999 Settlement Agreement, APS was required to transfer all of its competitive electric assets and services to an unaffiliated party or parties or to a separate corporate affiliate or affiliates no later than December 31, 2002.  To satisfy this requirement APS had planned to transfer its generation assets to Pinnacle West Energy. Pursuant to an 3

  

ACC order dated September 10, 2002, the ACC unilaterally modified the 1999 Settlement Agreement and  directed APS to cancel any plans to divest interests in any of its generating assets. The ACC further established a requirement that APS solicit bids for certain estimated amounts of capacity and energy for periods beginning July 1, 2003. Pinnacle West Energy bid on and entered into contracts to supply most of APS’ requirements in the summer months through September 2006. These regulatory developments and legal challenges to the rules have  raised considerable uncertainty about the status and pace of retail electric competition and of electric restructuring in Arizona. Although some very limited retail competition existed in APS’ service area in 1999 and 2000, there are currently no active retail competitors offering unbundled energy or other utility services to APS’ customers. As a result, we cannot predict when, and the extent to which, additional competitors will re-enter APS’ service territory.      As a result of changes in federal law and regulatory policy, competition in the wholesale electricity market has  greatly increased due to a greater participation by traditional electricity suppliers, non-utility generators, independent power producers, and wholesale power marketers and brokers. This increased competition could affect our load forecasts, plans for power supply and wholesale energy sales and related revenues. As a result of the changing regulatory environment and the relatively low barriers to entry, we expect wholesale competition to increase. As competition continues to increase, our financial position and results of operations could be adversely affected.       Recent events in the energy markets that are beyond our control may have negative impacts on our business.      As a result of the energy crisis in California during the summer of 2001, the recent volatility of natural gas  prices in North America, the filing of bankruptcy by the Enron Corporation, and investigations by governmental authorities into energy trading activities, companies generally in the regulated and unregulated utility businesses have been under an increased amount of public and regulatory scrutiny. The capital markets and credit ratings agencies also have increased their level of scrutiny. We believe that we are complying with all applicable laws, but it is difficult or impossible to predict or control what effect these or related issues may have on our business or our access to the capital markets.       Our results of operations can be adversely affected by milder weather.      Weather conditions directly influence the demand for electricity and affect the price of energy commodities.  Electric power demand is generally a seasonal business. In Arizona, demand for power peaks during the hot summer months, with market prices also peaking at that time. As a result, our overall operating results fluctuate substantially on a seasonal basis. In addition, we have historically sold less power, and consequently earned less income, when weather conditions are milder. As a result, unusually mild weather could diminish our results of operations and harm our financial condition.       There are inherent risks in the operation of nuclear facilities, such as environmental, health and financial risks and the risk of terrorist      attack.       Through APS, we have an ownership interest in and operate, on behalf of a group of owners, the Palo Verde  Nuclear Generating Station (“Palo Verde”), which is the largest nuclear electric generating facility in the United States. Palo Verde is subject to environmental, health and financial risks such as the ability to dispose of spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, potential liabilities arising out of the operation of these facilities, and the costs of securing the facilities against possible terrorist attacks and unscheduled outages due to equipment and other problems. We maintain nuclear decommissioning trust funds

  

ACC order dated September 10, 2002, the ACC unilaterally modified the 1999 Settlement Agreement and  directed APS to cancel any plans to divest interests in any of its generating assets. The ACC further established a requirement that APS solicit bids for certain estimated amounts of capacity and energy for periods beginning July 1, 2003. Pinnacle West Energy bid on and entered into contracts to supply most of APS’ requirements in the summer months through September 2006. These regulatory developments and legal challenges to the rules have  raised considerable uncertainty about the status and pace of retail electric competition and of electric restructuring in Arizona. Although some very limited retail competition existed in APS’ service area in 1999 and 2000, there are currently no active retail competitors offering unbundled energy or other utility services to APS’ customers. As a result, we cannot predict when, and the extent to which, additional competitors will re-enter APS’ service territory.      As a result of changes in federal law and regulatory policy, competition in the wholesale electricity market has  greatly increased due to a greater participation by traditional electricity suppliers, non-utility generators, independent power producers, and wholesale power marketers and brokers. This increased competition could affect our load forecasts, plans for power supply and wholesale energy sales and related revenues. As a result of the changing regulatory environment and the relatively low barriers to entry, we expect wholesale competition to increase. As competition continues to increase, our financial position and results of operations could be adversely affected.       Recent events in the energy markets that are beyond our control may have negative impacts on our business.      As a result of the energy crisis in California during the summer of 2001, the recent volatility of natural gas  prices in North America, the filing of bankruptcy by the Enron Corporation, and investigations by governmental authorities into energy trading activities, companies generally in the regulated and unregulated utility businesses have been under an increased amount of public and regulatory scrutiny. The capital markets and credit ratings agencies also have increased their level of scrutiny. We believe that we are complying with all applicable laws, but it is difficult or impossible to predict or control what effect these or related issues may have on our business or our access to the capital markets.       Our results of operations can be adversely affected by milder weather.      Weather conditions directly influence the demand for electricity and affect the price of energy commodities.  Electric power demand is generally a seasonal business. In Arizona, demand for power peaks during the hot summer months, with market prices also peaking at that time. As a result, our overall operating results fluctuate substantially on a seasonal basis. In addition, we have historically sold less power, and consequently earned less income, when weather conditions are milder. As a result, unusually mild weather could diminish our results of operations and harm our financial condition.       There are inherent risks in the operation of nuclear facilities, such as environmental, health and financial risks and the risk of terrorist      attack.       Through APS, we have an ownership interest in and operate, on behalf of a group of owners, the Palo Verde  Nuclear Generating Station (“Palo Verde”), which is the largest nuclear electric generating facility in the United States. Palo Verde is subject to environmental, health and financial risks such as the ability to dispose of spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, potential liabilities arising out of the operation of these facilities, and the costs of securing the facilities against possible terrorist attacks and unscheduled outages due to equipment and other problems. We maintain nuclear decommissioning trust funds and external insurance coverage to minimize our financial exposure to some of these risks; however, it is possible that damages could exceed the amount of insurance coverage.      The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of noncompliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. In addition, although we have no reason to anticipate a serious nuclear incident at Palo Verde, if an incident did occur, it could materially and adversely affect our results of operations or financial condition. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or

incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit. 4

  

     The operation of Palo Verde requires licenses that need to be periodically renewed and/or extended. We do  not anticipate any problems renewing these licenses. However, as a result of potential terrorist threats and increased public scrutiny of utilities, the licensing process could result in increased licensing or compliance costs that are difficult or impossible to predict.       The 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.       Our operations include managing market risks related to commodity prices. We are exposed to the impact of  market fluctuations in the price and transportation costs of electricity, natural gas, coal, and emissions allowances and credits. We have established procedures to manage risks associated with these market fluctuations by utilizing various commodity derivatives, including exchange-traded futures and options and over-the-counter forwards, options, and swaps. As part of our overall risk management program, we enter into derivative transactions to hedge purchases and sales of electricity, fuels, and emissions allowances and credits. The changes in market value of such contracts have a high correlation to price changes in the hedged commodity.      We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We use a risk  management process to assess and monitor the financial exposure of all counterparties. Despite the fact that the majority of trading counterparties are rated as investment grade by the credit rating agencies, there is still a possibility that one or more of these companies could default, resulting in a material adverse impact on our earnings for a given period.      Changing interest rates will affect interest paid on variable-rate debt and interest earned by our pension plan and nuclear decommissioning trust funds. Our policy is to manage interest rates through the use of a combination of fixed-rate and floating-rate debt. The pension plan is also impacted by the discount rate, which is the interest rate used to discount future pension obligations. Continuation of recent decreases in the discount rate would result in increases in pension costs, cash contributions, and charges to other comprehensive income. The pension plan and nuclear decommissioning trust funds also have risks associated with changing market values of equity investments. A significant portion of the pension costs and all of the nuclear decommissioning costs are recovered in regulated electricity prices.       The uncertain outcome regarding the creation of regional transmission organizations, or RTOs, and implementation of the FERC’s      standard market design may materially impact our operations, cash flows or financial position.       In a December 1999 order, the FERC established characteristics and functions that must be met by utilities in  forming and operating RTOs. The characteristics for an acceptable RTO include independence from market participants, operational control over a region large enough to support efficient and nondiscriminatory markets and exclusive authority to maintain short-term reliability. Additionally, in a pending notice of proposed rulemaking, the FERC is considering implementing a standard market design for wholesale markets. On October 16, 2001,  APS and other owners of electric transmission lines in the Southwest filed with the FERC a request for a declaratory order confirming that their proposal to form WestConnect RTO, LLC would satisfy the FERC’s requirements for the formation of an RTO. On October 10, 2002, the FERC issued an order finding that the WestConnect proposal, if modified to address specified issues, could meet the FERC’s RTO requirements and provide the basic framework for a standard market design for the Southwest. On September 15, 2003, the  FERC issued an order granting clarification and rehearing, in part, of its prior orders. In particular, this order approved the use of a physical congestion management scheme, which is used to allocate transmission rights on congested lines, for WestConnect for an initial phase-in period. FERC indicated that the WestConnect utilities and the appropriate regional state advisory committee should develop a market-based congestion management scheme for subsequent implementation. APS is now participating in a cost/benefit analysis of implementing

  

     The operation of Palo Verde requires licenses that need to be periodically renewed and/or extended. We do  not anticipate any problems renewing these licenses. However, as a result of potential terrorist threats and increased public scrutiny of utilities, the licensing process could result in increased licensing or compliance costs that are difficult or impossible to predict.       The 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.       Our operations include managing market risks related to commodity prices. We are exposed to the impact of  market fluctuations in the price and transportation costs of electricity, natural gas, coal, and emissions allowances and credits. We have established procedures to manage risks associated with these market fluctuations by utilizing various commodity derivatives, including exchange-traded futures and options and over-the-counter forwards, options, and swaps. As part of our overall risk management program, we enter into derivative transactions to hedge purchases and sales of electricity, fuels, and emissions allowances and credits. The changes in market value of such contracts have a high correlation to price changes in the hedged commodity.      We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We use a risk  management process to assess and monitor the financial exposure of all counterparties. Despite the fact that the majority of trading counterparties are rated as investment grade by the credit rating agencies, there is still a possibility that one or more of these companies could default, resulting in a material adverse impact on our earnings for a given period.      Changing interest rates will affect interest paid on variable-rate debt and interest earned by our pension plan and nuclear decommissioning trust funds. Our policy is to manage interest rates through the use of a combination of fixed-rate and floating-rate debt. The pension plan is also impacted by the discount rate, which is the interest rate used to discount future pension obligations. Continuation of recent decreases in the discount rate would result in increases in pension costs, cash contributions, and charges to other comprehensive income. The pension plan and nuclear decommissioning trust funds also have risks associated with changing market values of equity investments. A significant portion of the pension costs and all of the nuclear decommissioning costs are recovered in regulated electricity prices.       The uncertain outcome regarding the creation of regional transmission organizations, or RTOs, and implementation of the FERC’s      standard market design may materially impact our operations, cash flows or financial position.       In a December 1999 order, the FERC established characteristics and functions that must be met by utilities in  forming and operating RTOs. The characteristics for an acceptable RTO include independence from market participants, operational control over a region large enough to support efficient and nondiscriminatory markets and exclusive authority to maintain short-term reliability. Additionally, in a pending notice of proposed rulemaking, the FERC is considering implementing a standard market design for wholesale markets. On October 16, 2001,  APS and other owners of electric transmission lines in the Southwest filed with the FERC a request for a declaratory order confirming that their proposal to form WestConnect RTO, LLC would satisfy the FERC’s requirements for the formation of an RTO. On October 10, 2002, the FERC issued an order finding that the WestConnect proposal, if modified to address specified issues, could meet the FERC’s RTO requirements and provide the basic framework for a standard market design for the Southwest. On September 15, 2003, the  FERC issued an order granting clarification and rehearing, in part, of its prior orders. In particular, this order approved the use of a physical congestion management scheme, which is used to allocate transmission rights on congested lines, for WestConnect for an initial phase-in period. FERC indicated that the WestConnect utilities and the appropriate regional state advisory committee should develop a market-based congestion management scheme for subsequent implementation. APS is now participating in a cost/benefit analysis of implementing WestConnect, the results of which are expected to be completed in 2004.      If APS ultimately joins an RTO, APS could incur increased transmission-related costs and reduced transmission service revenues; APS may be required to expand its transmission system according to decisions made by the RTO rather than its internal planning process; and APS may experience other impacts on its operations, cash flows or financial position that will not be quantifiable until the final tariffs and other material terms of the RTO are known.

terms of the RTO are known. 5

  

      We are subject to numerous environmental laws and regulations which may increase our cost of operations, impact our business plans,      or expose us to environmental liabilities.       We are subject to numerous environmental regulations affecting many aspects of our present and future  operations, including air emissions, water quality, wastewater discharges, solid waste, and hazardous waste. These laws and regulations can result in increased capital, operating, and other costs, particularly with regard to enforcement efforts focused on power plant emissions obligations. These laws and regulations generally require us to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Both public officials and private individuals may seek to enforce applicable environmental laws and regulations. We cannot predict the outcome (financial or operational) of any related litigation that may arise.      In addition, we may be a responsible party for environmental clean up at sites identified by a regulatory body.  We cannot predict with certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean-up costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties.      We cannot be sure that existing environmental regulations will not be revised or that new regulations seeking  to protect the environment will not be adopted or become applicable to us. Revised or additional regulations that result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from APS’ customers, could have a material adverse effect on our results of operations.       Actual results could differ from estimates used to prepare our financial statements.      In preparing the financial statements in accordance with generally accepted accounting principles, management  must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex, and actual results could differ from those estimates. We consider the following accounting policies to be our most critical because of the uncertainties, judgments and complexities of the underlying accounting standards and operations involved.    •    Regulatory Accounting — Regulatory accounting allows for the actions of regulators, such as the ACC and the FERC, to be reflected in the financial statements. Their actions may cause us to capitalize costs that would otherwise be included as an expense in the current period by unregulated companies. If future recovery of costs ceases to be probable, the assets would be written off as a charge in current period earnings. We had $165 million of regulatory assets on the Consolidated Balance Sheets at December 31,  2003.       •    Pensions and Other Postretirement Benefit Accounting — Changes in our actuarial assumptions used in calculating our pension and other postretirement benefit liability and expense can have a significant impact on our earnings, plan funding requirements and financial position. The most relevant actuarial assumptions are the discount rate used to measure our liability and net periodic cost, the expected long-term rate of return on plan assets used to estimate earnings on invested funds over the long-term, and the assumed healthcare cost trend rates. We review these assumptions on an annual basis and adjust them as necessary.       •    Derivative Accounting — Derivative accounting requires evaluation of rules that are complex and subject to varying interpretations. Our evaluation of these rules, as they apply to our contracts, will determine whether we use accrual accounting or fair value (mark-to-market) accounting. Mark-to-market accounting requires that changes in fair value be recorded in earnings or, if certain hedge accounting criteria are met, in common stock equity (as a component of other comprehensive income (loss)).   

  

      We are subject to numerous environmental laws and regulations which may increase our cost of operations, impact our business plans,      or expose us to environmental liabilities.       We are subject to numerous environmental regulations affecting many aspects of our present and future  operations, including air emissions, water quality, wastewater discharges, solid waste, and hazardous waste. These laws and regulations can result in increased capital, operating, and other costs, particularly with regard to enforcement efforts focused on power plant emissions obligations. These laws and regulations generally require us to obtain and comply with a wide variety of environmental licenses, permits, inspections and other approvals. Both public officials and private individuals may seek to enforce applicable environmental laws and regulations. We cannot predict the outcome (financial or operational) of any related litigation that may arise.      In addition, we may be a responsible party for environmental clean up at sites identified by a regulatory body.  We cannot predict with certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean-up costs. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties.      We cannot be sure that existing environmental regulations will not be revised or that new regulations seeking  to protect the environment will not be adopted or become applicable to us. Revised or additional regulations that result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from APS’ customers, could have a material adverse effect on our results of operations.       Actual results could differ from estimates used to prepare our financial statements.      In preparing the financial statements in accordance with generally accepted accounting principles, management  must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex, and actual results could differ from those estimates. We consider the following accounting policies to be our most critical because of the uncertainties, judgments and complexities of the underlying accounting standards and operations involved.    •    Regulatory Accounting — Regulatory accounting allows for the actions of regulators, such as the ACC and the FERC, to be reflected in the financial statements. Their actions may cause us to capitalize costs that would otherwise be included as an expense in the current period by unregulated companies. If future recovery of costs ceases to be probable, the assets would be written off as a charge in current period earnings. We had $165 million of regulatory assets on the Consolidated Balance Sheets at December 31,  2003.       •    Pensions and Other Postretirement Benefit Accounting — Changes in our actuarial assumptions used in calculating our pension and other postretirement benefit liability and expense can have a significant impact on our earnings, plan funding requirements and financial position. The most relevant actuarial assumptions are the discount rate used to measure our liability and net periodic cost, the expected long-term rate of return on plan assets used to estimate earnings on invested funds over the long-term, and the assumed healthcare cost trend rates. We review these assumptions on an annual basis and adjust them as necessary.       •    Derivative Accounting — Derivative accounting requires evaluation of rules that are complex and subject to varying interpretations. Our evaluation of these rules, as they apply to our contracts, will determine whether we use accrual accounting or fair value (mark-to-market) accounting. Mark-to-market accounting requires that changes in fair value be recorded in earnings or, if certain hedge accounting criteria are met, in common stock equity (as a component of other comprehensive income (loss)).       •    Mark-to-Market Accounting — The market value of our derivative contracts is not always readily determinable. In some cases, we use models and other valuation techniques to determine fair value. The use of these models and valuation techniques sometimes requires subjective and complex judgment. Actual 6

  

        results could differ from the results estimated through application of these methods. Our marketing and trading portfolio consists of structured activities hedged with a portfolio of forward purchases that protects the economic value of the sales transactions. 7

  

        results could differ from the results estimated through application of these methods. Our marketing and trading portfolio consists of structured activities hedged with a portfolio of forward purchases that protects the economic value of the sales transactions. 7


								
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