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					Managing Change for a Better Tomorrow
Pinnacle West 2007 Corporate Responsibility Report
Table of Contents
Executive Message                       1
Report Introduction                     2
Company Profile                          4
   Our Subsidiaries                     5
   Our Approach                         9
   Key Issues                           11
   Stakeholder Engagement               12
   Corporate Governance                 14
   Affiliations & Memberships           17
   Awards & Recognitions                20
Electric System                         21
   Integrated Resource Planning         21
   APS Generation                       21
   Electric System Reliability          23
Economic Impacts                        26
   Financial Performance                27
   Economic Development                 27
Environmental Performance               30
   Policy, Organization & Management    30
   EHS Targets                          35
   Climate Change                       35
   Air Emissions                        40
   Wastes                               42
   Water                                43
   Material & Chemical Management       44
   Land Use & Biodiversity              47
   Spills & Remediation Programs        49
   EHS Compliance                       52
Eco-Efficiency                          53
   Renewable Energy Programs            53
   Technology Innovation                57
   Demand Side Management               58
Community & Customers                   61
   Community Support                    61   Pinnacle West Capital Corporation (PNW)
   Customers                            65   Contact:
   Suppliers                            66   Corporate Responsibility Report
                                             David Jallo
   Public Safety                        67   Corporate Environmental, Health and Safety
Workplace Performancy                   69   Department

   Labor Practices & Work Environment   69   P.O. Box 53999
                                             Mail Station 8376
   Employment Profile & Diversity        71   Phoenix, AZ 85004
   Development & Training               72   David.Jallo@aps.com
   Employee Health & Productivity       74   (602) 250-3528
                                             (602) 250-3872 (fax)
   Safety Performance                   75
GRI Content Table                       78
                                               http://www.pinnaclewest.com/cr
Sustainability – A Change Management Strategy
Change is inevitable.
Whether the changes we make are incremental or profound is typically only realized with hindsight.
Today, however we are confronted with issues that require atypical changes in the ways we do business
and interact with our customers.
Continuing population growth and the consequent consumption of natural resources, climate change
and the emergence of new bio, nano and information technologies are just some of the issues that
promise to fundamentally change our lives. To address these issues, we must establish a new framework
for decision making that allows us to maximize the opportunities and minimize the risks presented by
change.
At Pinnacle West, we view sustainability as an overarching business strategy that provides a long-term
perspective, and allows us to plan for a future that must be cleaner, faster and smarter. We must better
manage the environmental footprint of our operations, work with our customers to be more efficient
with their use of our product, and work closely with our stakeholders to plan for and develop vibrant
sustainable communities.
Throughout our 2007 Corporate Responsibility Report you’ll find numerous examples of our commit-
ment and actions toward achieving a sustainable future.
We are developing an integrated resource plan to address Arizona’s electricity needs for the next 25
years, taking into consideration environmental issues, available and anticipated technologies, costs and
fuel availability. And we’re preparing this plan with the help of key stakeholders to ensure their ideas and
concerns are addressed in our plan.
We are committed to developing clean renewable resources and new technolo-
gies. We recently announced plans for the Solana Solar Generating Station, a con-
centrating solar plant which, when completed in 2011, will be one of the world’s
largest solar facilities and produce enough energy to power 70,000 homes. It is
estimated that Solana’s energy will cost around 20 percent more than our tradi-
tional sources. However, beyond the impact of producing clean, renewable energy,
Solana will also lessen our reliance on volatile fuels such as natural gas, and is ex-
pected to have a positive economic impact in the neighborhood of $1 billion.
We are embracing new technologies such as smart meters and a smart grid that                               Donald E Brandt
will allow us to provide our customers with unprecedented control in how they                            President and Chief
                                                                                                          Operating Officer
manage their energy use. This new technology will also help us respond more rap-
                                                                                                            Pinnacle West
idly to disturbances in our transmission and distribution system thereby improving                               and
the reliability of our service. We are installing these meters on customer homes                         President and Chief
and businesses at a pace of about 84,000 per year, and while they reflect a signifi-                        Executive Officer
cant investment, they will be critical to delivering the kind of interactive, intuitive                 Arizona Public Service
future our customers expect and deserve.
These efforts we've mentioned are reflective of the profound changes occurring at
our company and in our communities. They are demonstrations of our commit-
ment to sustainability as a business strategy and not just as a “green” initiative.
We are becoming more proficient at analyzing the true life cycle costs of our deci-
sions. We are learning to take a longer-term view of our decisions and our invest-
ments. We are embracing the need to consider the potential economic,
community and environmental nexus of our decisions.
At Pinnacle West, we will continue to make decisions, and changes, using a long-                            Edward Z Fox
                                                                                                       Vice President and Chief
term view of what is best for our customers, our shareholders, our employees and                         Sustainability Officer
our state. We look forward to working with all our stakeholders to achieve a                            Arizona Public Service
cleaner, healthier and economically vibrant sustainable future.
Thank you for your interest in the 2007 Pinnacle West Corporate Responsibility
Report.

                                  1|   Executive Message |   PNW Corporate Responsibility Report ‘07
Introduction
Welcome to the 2007 Pinnacle West Capital Corporation (Pinnacle West) Corporate Responsibility Report
Engaging our stakeholders is vital to the long term success of our company and fundamental to that en-
gagement is transparency in our performance. We have produced an annual environmental, health and
safety report each year since 1994 and the report was expanded to a Corporate Responsibility Report in
2004. We have had more than 75,000 visits to the online version of our 2006 Pinnacle West Corporate Re-
sponsibility Report.
In developing this report, we used international reporting guidelines from Ceres and the Global Reporting
Initiative (GRI). The GRI Content section offers links to data in our report that corresponds to GRI indicators.
Additionally, in some instances we have gone beyond these guidelines to provide information our external
stakeholders, such as socially responsible investment research groups, have asked us to include. While this
results in a somewhat lengthy report, we believe this level of detail allows our stakeholders to more fully un-
derstand and evaluate our sustainability goals and progress. This on-line report is written as a "point it time"
report for end of year 2007, and is not updated on an ongoing basis.
Pinnacle West believes this Corporate Responsibility Report is written in accordance with Application level B
of the Global Reporting Initiative.
The Subsidiaries Section of this report, available on the on-line version, provides information on Pinnacle
West Capital Corporation and its major subsidiaries, Arizona Public Service Company (APS) and SunCor De-
velopment Company. We also provide information on our retail subsidiary, APS Energy Services.
Since our most significant environmental issues are associated with Pinnacle West's largest subsidiary, APS,
the Environmental Performance section of this report focus on APS' environmental performance.
External assurance has not been conducted on this report, due primarily to budgetary reasons. It is the
company's intent to conduct external assurance starting with the 2008 report. We participate in the Ceres
report review process as described below. Internal assurance includes the use of the Enablon electronic cor-
porate responsibility reporting system to manage data, and internal review.



Improving sustainability reporting — working with Ceres
Ceres is a national network of investors, environmental organizations and other public interest groups work-
ing with companies and investors to address sustainability challenges such as global climate change. Ceres
mission is to integrate sustainability into capital markets for the health of the planet and its people.
                     Under Ceres review, APS has issued an annual EHS report since 1994, which evolved to a
                     Corporate Responsibility Report in 2004. The Ceres stakeholder review process allows
                     Pinnacle West to interact with a number of stakeholders from across the nation, includ-
                     ing environmental organizations, investment companies, other businesses and Ceres
professionals, to obtain their review and input into the content and organization of our report. Each year we
receive detailed comments and recommendations from the Ceres review on our draft report, which allows us
to continue to improve our report and meet evolving stakeholder expectations.




                                   2|   Report Introduction |   PNW Corporate Responsibility Report ‘07
'07 SIGNIFICANT CHANGES
In 2007, the company made important changes to its sustainability efforts including the following:


The company implemented a new sustainability governance structure, which is discussed in the Ap-
proach section of this report.

Pinnacle West created a new executive level position of Vice President/Chief Sustainability Officer,
which was filled by Edward Z. Fox.

APS' focus on the customers also included the establishment in 2007 of a new executive position of
Vice President/Chief Customer Officer, which was filled by Tammy McLeod.

A new department, Eco-Efficiency & Technology Innovation, was created to help manage and coordi-
nate our various sustainability initiatives across the enterprise.

Our internal Sustainability Working Group completed a comprehensive sustainability benchmarking
study, and then conducted a complete review and evaluation of all sustainability related metrics in the
company. Based on this review, our sustainability baseline was established and several new key sustain-
ability goals and associated metrics were formulated and are currently in review with our officer Sus-
tainability Policy group.

APS was one of the first companies in the nation to join The Climate Registry in 2007 as a founding
member. We will be voluntarily reporting our GHG emissions to The Climate Registry starting with the
2008 report.

In 2007, APS and GreenFuel Technologies were the first to convert power plant emissions grown algae
into commercial grade biodiesel and ethanol which can be used for fuel. This is an example of the suc-
cess of our technology innovation efforts discussed in the Eco-Efficiency section of this report.

We continued to increase our renewable power resources, tripling the amount of renewable energy uti-
lized in 2007 over our 2006 numbers, and announcing plans to build one of the world's largest solar
power plants. When completed in 2011, the Solana Generating Station will give APS more solar energy
per customer than any other utility nationwide.

New "green" rates were offered in 2007, allowing customers to purchase up to 100 percent of their
power from renewable energy.

A new business coalition, Arizona Business Advancing Sustainability (AzBAS), was co-founded by APS
and Intel to promote sustainable business practices in Arizona. Currently AzBAS is represented by
more than 30 member companies statewide.

The company increased its annual expenditures in its Demand Side Management program to 18.5 mil-
lion in 2007.




                               3|   Report Introduction |   PNW Corporate Responsibility Report ‘07
Company Profile
     About Pinnacle West
      Headquartered in Phoenix, Arizona, and serving the West for more than a century, Pinnacle West
      and its businesses have earned a reputation for customer satisfaction, shareholder value, opera-
      tional excellence and business integrity. Through our subsidiaries we generate, sell and deliver
      electricity and energy-related products and services in the western United States. We also de-
      velop residential, commercial and industrial real estate properties. Pinnacle West's largest sub-
      sidiary, Arizona Public Service Company (APS), is the largest electric utility in Arizona, serving
      about 1.1 million customers across the state.
Pinnacle West:
     • Is in Standard and Poor's 500 index and is traded on the New York Stock Exchange under the
       symbol: Pinnacle West
     • Consolidated assets of $11 billion, including approximately 6,400 megawatts of power plant gen-
       eration capacity
     • APS had 1.1 million customers at year end, in 11 of Arizona’s 15 counties
     • Was given a AAA (highest) rating, and ranked in the top two among utilities in the United States
       in every review since 2001 by Innovest Strategic Advisors for our environmental and sustainabil-
       ity performance
     • Was listed in the 2007 Dow Jones North America Sustainability Index and in the 2007 Dow
       Jones United States Sustainability Index as a sustainability leader in the electric industry. This is
       the third consecutive year that Pinnacle West has been on the Dow Jones Sustainability Indexes
Major Products and Services
Pinnacle West has two principal business segments (determined by products, services and the regula-
tory environment):
     • the regulated electricity segment (accounting for 83 percent of operating revenues in 2007),
        which consists of traditional regulated retail and wholesale electricity businesses (primarily elec-
        tric service to all customers in our service territory) and related activities, and includes electricity
        generation, transmission and distribution; and
     • the real estate segment (accounting for 6 percent of operating revenues in 2007), which consists
        of SunCor’s real estate development and investment activities
In addition, Pinnacle West has a competitive business segment providing innovative energy and renew-
able solutions designed to increase energy efficiency, upgrade equipment and provide sustainability to
our environment. These business segments are discussed in more detail in our 2007 Pinnacle West An-
nual Report, and Pinnacle West 10K, as well as in the Subsidiary Section of this report


 PINNACLE WEST STRATEGIC OBJECTIVES
To provide Arizona electricity customers with outstanding service and reliable energy at fair prices.

To focus on superior long-term total returns for shareholders.

To implement business practices that support a strong economy, a healthy environment and prosperous
communities for Arizona.

To actively manage our costs and business risks.

To work with regulators to achieve positive regulatory outcomes that benefit both customers and share-
holders.

To maximize the long-term value of our assets.

To capture growth opportunities in our electricity markets.

To increase our resource portfolio consistent with our customer growth, environmental factors, cash flow
and market conditions.

                                   4|   Company Profile |   PNW Corporate Responsibility Report ‘07
SUBSIDIARIES
Arizona Public Service Company
Pinnacle West's largest subsidiary is Arizona Public Service Company (APS).
                          APS, Arizona's largest and longest-serving electricity utility, serves more than 1.1
                          million customers in 11 of the state's 15 counties, with the major exceptions of about
                          one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mo-
                          have County in northwestern Arizona.
Incorporated in 1920 under the laws of the state of Arizona, APS employs more than 6,000 employees, in-
cluding employees at jointly-owned generating facilities for which APS serves as the generating facility man-
ager. APS owns 29.1 percent of the Palo Verde Nuclear Generating Station located approximately 50 miles
west of Phoenix. Operated by APS, Palo Verde is the nation's top producer of electricity. The company also
owns and operates seven natural-gas and two coal-powered plants, and has an increasing array of renewable
energy power generation.
Considered by many as the state's largest construction company, APS has built an infrastructure consisting
of more than 30,000 miles of transmission and distribution lines and 400 substations.
A leader in renewable technology, APS owns and operates the APS Solar Test and Research Center (STAR),
the only facility of its kind in the United States. APS owns and operates a variety of photovoltaic solar gener-
ation around the state. Recently, APS announced plans to build Solana, a 280 Megawatt (MW) solar power
plant, which if operating today, would be the world's largest solar power plant. The company is an active
partner in the development and testing of other renewables such as biomass, hydrogen and wind technolo-
gies.
APS is also a strong community partner. Each year, the company and its employees give back to the commu-
nity in a variety of ways. Each year, employees volunteer hundreds of thousands of hours to charitable
causes and organizations. From its programs for supporting children and education; to its commitment to
helping small and minority-owned businesses; to its patronage of the arts and culture; to its encouragement
of economic development, APS sees itself as an active participant in Arizona's continued well-being.
Each year the company and its employees donate money and time to many charitable causes such as the
United Way.
APS is regulated by the Arizona Corporation Commission (ACC). The ACC regulates APS' retail electric rates
and its issuance of securities. The ACC must also approve any transfer of APS' property used to provide re-
tail electric service and approve or receive prior notification of certain transactions between Pinnacle West,
APS and their respective affiliates.
APS' principal executive offices are located at:
400 North Fifth Street
P.O. Box 53999
Phoenix, Arizona 85072-3999
602-250-1000
SunCor Development Company
SunCor Development Company is a wholly-owned subsidiary of Pinnacle West Capital Corporation. SunCor’s
main activities involve acquisition, development, construction, operation, and sale of residential and com-
mercial properties in the western United States, as well as golf course management. With a current asset
base in excess of $450 million and a net worth of more than $300 million, SunCor has thousands of acres
under development in Arizona, Idaho, New Mexico and Utah, and holds tens of thousands of acres yet to be
developed. Previous projects and management contracts have also taken SunCor into California and Mexico.
Backed by significant financial resources, SunCor continues to break new ground, building and maintaining
                          projects that represent aesthetic value, top-quality construction, and superior
                          property management.




                                     5|   Company Profile |   PNW Corporate Responsibility Report ‘07
Dedicated to the environment and sustainable living
One of the Southwest's premier developers, SunCor provides exceptional, meticulously planned environ-
ments. The company is known for developing integrated communities that protect the beauty of nature and
offer superior places to live, work, and play.
As an investment builder, SunCor is deeply committed to the long-term value of all of its projects, oversee-
ing developments that combine aesthetic qualities, well-planned infrastructure, and the highest quality in
materials and construction. SunCor is implementing innovative actions, such as being one of the first devel-
opers to offer New Ruralist style communities and solar power as an option at our Rancho Viejo community.
Listed below are some of the best practices sustainability initiatives that SunCor applies to its communities:

Preservation and Enhancement of native landscapes and habitats
In all of its latest Master Plans SunCor is preserving from 45 percent to 60 percent of the natural open space
saving thousands of acres of drainage basins, wetlands, hillsides and hill tops, wildlife habitat and wildlife mi-
gration corridors.
     Lands disturbed by past agriculture and grazing are being revegetated with native plants
     Stream channels have been restored to provide protection from soil erosion and better habitat for na-
       tive plants and animals
     Developed a No-Net-Loss Wildlife Mitigation Plan for Avimor community in Boise
Water conservation
SunCor has been diligent in designing communities that conserve our valued water resources. These include:
     1 Reducing surface water runoff with using methods such as:
         o Rainwater harvesting (infiltration) in medians and retention areas
         o Porous paving materials such as pavers (driveways at Hayden Ferry and Avimor)
         o Reducing roadway widths and non-porous surfaces in nearly all new master plans
     2 Reusing water with residential cisterns and use of community effluent in parks and common areas.
     3 Limiting water use by minimizing lawns in parks and common areas, particularly in our arid desert
       communities.
     4 Community landscaping with native species and xeriscaping; significant recharge projects (including
       an injection well); use of effluent from residences for golf course irrigation; dual irrigation systems;
       and installation of conservation devices, such as low-flow toilets.
Reducing community automobile dependency
Most of SunCor’s latest master planned communities are mixed-use and have a clustered development pat-
tern. In this way they are designed to offer shopping, working and recreation within walking distance of most
residents. Furthermore an emphasis on providing convenient and safe non-motorized transportation options
is attained in our Master Planned communities though practices such as:
     Extensive trail systems
     Bike lanes and facilities for bike commuters
     Tree lined streets for pedestrian comfort
     Safe roadways crossings and streets designed to reduce vehicle speed
Resource and Materials Conservation
SunCor uses many methods to conserve land resources the use of construction materials. These practices in-
clude:
     Setting aside lands and resources for preservation
     Employing new technology to stabilize soils and protect from wind and water erosion
     Salvaging native plants and revegetating plant materials into parks and common areas
     Reduction of construction waste




                                     6|   Company Profile |   PNW Corporate Responsibility Report ‘07
Building Efficiencies and Technology
In the homebuilding division SunCor strives to build homes that are a step above its competitors. While all of
its communities have differing needs much of what SunCor does exceeds that of the competition or munici-
pal code requirements.
       Within the scope of our Energy Star program, we perform energy inspections that exceed require-
       ments of the municipalities
       We install thermostats that provide not only energy efficiency but also help to improve the quality of
       indoor air
       We install higher efficiency heating and cooling equipment
       We use increased insulation values
       We use lower maintenance and longer lasting materials, things like low maintenance all cementitious
       exteriors, higher quality roofing materials
       We install low water use plumbing fixtures
Energy Conservation (not including building energy efficiencies)
Use of on-site construction materials such as sand, gravel, topsoil and stone to reduce energy needed for
transportation
       Increased use of teleconferencing to reduce employee travel
       Orientation of homes and buildings to maximize energy efficiency (StoneRidge and Avimor)
Pollution reduction
SunCor works to reduce the pollutants that communities generate such as dust, emissions, noise, fertilizers
and light. Our new communities have implemented several practices aimed at pollution reduction
       Limited street lighting and use of “cut-off “street lights that limit light pollution into the night skies
       Dust mitigation for surfaces prone to wind erosion
       Multi-modal transportation systems that encourage biking and walking thereby reducing emissions
       and noise.
       Management of fertilizer applications in parks, golf courses and common areas
Future conservation measures
SunCor is continuing to find ways to be good stewards of its resources. Here are several things that SunCor
is exploring.
       On-site nurseries to limit transportation of materials and save energy
       Bioengineering techniques to stabilize slopes
       LEED Certified commercial construction (Hayden Ferry Lakeside Tower III and Conference Center)
       Use of bio-swales to reduce surface water and provide infiltration
       Integration of agriculture and/or viticulture into our “New Ruralist” communities
       Use of porous concrete for streets, drives and sidewalks
APS Energy Services
APS Energy Services is the full-service energy services subsidiary of Pinnacle West Capital Corporation, and
builds on a long history of delivering competitive electricity, managing energy usage and providing superior
energy and renewable solutions. With an average of 20 years of experience, team members are trusted and
knowledgeable experts in the industry. The company provides flexible, customized and innovative energy
and renewable solutions designed to increase energy efficiency, upgrade equipment and to provide sustain-
ability to our environment. Since 1997, successes have included projects for a vast array of clients ranging
from commercial and industrial entities; healthcare; hospitality; educational campuses; and local, State and
Federal institutions.
                                    Through its wholly owned subsidiary, NorthwindTM Phoenix, APS Energy
                                    Services markets, designs, constructs, finances and operates district en-
                                    ergy systems throughout the Southwest. District energy is an innovative
                                    centralized cooling and heating system that utilizes an extensive under-
ground network of pipes to effectively deliver hot and cold water, steam or electricity from a central plant. In
2007, adding to its reputation of keeping much of downtown Phoenix comfortable, Northwind Phoenix

                                     7|   Company Profile |   PNW Corporate Responsibility Report ‘07
began operating a third plant in downtown Phoenix inside the new and expanded Phoenix Convention Cen-
ter. By summer 2008, the downtown Phoenix system is estimated to reach 30,000 tons of installed capacity,
serving 26 buildings.
In addition to its downtown operations, Northwind Phoenix continues to operate the Arizona State Univer-
sity combined heat and power plant constructed by APS Energy Services, and will soon begin operations of
the recently constructed 1,200- ton cooling plant at the Arizona State University Polytechnic campus located
in the east part of the greater Phoenix area.
Energy conservation is a core focus of APS Energy Services and the company seeks to promote and imple-
ment the efficient use of energy through the development of comprehensive energy solutions. APS Energy
Services is passionate about the environment. In support of this goal, they seek to promote renewable en-
ergy alternatives when applicable and are committed to conducting work in a sustainable and environmen-
tally responsible way. Among its renewable projects:
Solar
The Hualapai Tribe, located predominantly along the western edge of the Grand Canyon, partnered with APS
Energy Services to design and construct a solar hybrid project to provide power to the remote region. The
project consisted of a 17 Kilowatt (kW) solar array with fixed positioning at the air terminal and a 16- kW
solar array with fixed positioning at the residential area, for a total installation of 33- kW. Because the Huala-
pai Tribe is located off the grid, the energy generated from this project is the only source of electricity for
this community.
As part of larger comprehensive energy programs, APS Energy Services completed a 15- kW system
mounted on a wall and covered entryway at the City of Flagstaff, as well as, a 30- kW system on a sports
complex roof in Rohnert Park, CA and 10- kW system for Mineral County School District in Nevada.
A solar collector system, necessary piping and associated pumping and controls to offset 16,500 therms of
annual natural gas usage was installed at the Signal Peak olympic aquatic center as part of a larger compre-
hensive energy program at Central Arizona College. The system interfaces with the existing pumping and
heating system to ensure an adequate source of heat when the solar system cannot provide for full heating
load.
Digester
APS Energy Services engineered a unique fixed film digester plant for Classic Farms in Aurora, S.D. The farm
received a grant from the USDA to construct a plant that converts animal waste from a hog farm into biogas
to run an electric generator that serves farm operations, inclusive of water treatment. A rendering compo-
nent was also part of the grant.
APS Energy Services plans to bring the learnings from this project to Arizona to build the most cost-effec-
tive farm biogas projects. Arizona has a hot climate and a number of farms, which make this optimal for such
a solution.
APS Energy Services constructed a cogeneration unit at the City of Flagstaff Wildcat Hill Wastewater Treat-
ment Plant (WWTP). The project provides the Wildcat Hill WWTP with a biogas reciprocating engine in-
tended to be fueled in whole using digester gas available from Wildcat Hill WWTP. The result of this
cogeneration process will be a maximum electric utility offset of 292 kW of electric power at a 7,000 foot el-
evation at full load.
“As our name says, we’re an energy services company,” said Jim Lodge, president, APS Energy Services.
“Since we were founded in 1998, our mission is to be a premier energy service provider. We achieve this by
helping our customers meet their strategic objectives through comprehensive energy solutions. As energy
prices continue to rise and the increasing importance of taking responsibility for a sustainable environment,
energy efficiency projects and the deployment of renewable technologies is a cost-effective way to assist in
achieving our customers’ goals.”
APS Energy Services is headquartered in Phoenix, Arizona and has completed energy efficiency and renew-
able projects throughout the southwest. For more information about APS Energy Services, please visit their
Web page at www.apses.com.




                                     8|   Company Profile |   PNW Corporate Responsibility Report ‘07
OUR APPROACH
Sustainability at Pinnacle West: An integrated business model
Sustainable business practices are a critical component of our business plan. Sustainability is not a program
at Pinnacle West, it is the way we do business; a business model for accomplishing our goals. For many
years, our company has had a formal corporate philosophy of "doing the right thing" which basically means
focusing on ethical business decisions that are good for the company while also being good for our cus-
tomers, our communities, our employees and the environment. We continue to build on that philosophy in
our sustainability efforts. Sustainable business practices are becoming part of every employees' mindset and
way of doing business, because they are the right thing to do and make good business sense. As such, we
strive to incorporate sustainability concepts into our daily operations and to drive "ownership" of sustainabil-
ity to each and every employee, just as we have with other corporate core values.




We have established a strong sustainability governance system which includes:

     1 Board of Director and executive engagement and oversight, including establishing a Chief Sustain-
       ability Officer position.
     2 Public disclosure of sustainability goals and performance through this annual Corporate Responsibil-
       ity Report.
     3 Establishment, communication and ongoing monitoring of sustainability goals and metrics.
     4 Ongoing dialogue and interaction with our employees about our sustainability efforts.
     5 Establishment of a formal sustainability organizational structure for effective evaluation, communica-
       tion and management of our sustainability efforts.




                                    9|   Company Profile |   PNW Corporate Responsibility Report ‘07
The chart below illustrates our sustainability governance structure.
The Eco-Efficiency and Technology Innovation Department's charge is to help integrate sustainability initia-
tives throughout the enterprise and to better address the evolving expectations and opportunities of stake-




holder groups and the general public. This department helps us to improve the strategic direction and
planning of our initiatives, while allowing the company to better plan and respond to emerging issues, risks
and opportunities. The department is headed by a Senior Manager, who reports directly to the Chief Sustain-
ability Officer. The department does not have line authority over other Pinnacle West departments, rather it
serves a planning, support and coordination role in our sustainability efforts.
The Sustainability Working Group (SWG), a cross-departmental team of key managers and leaders, works in
tandem with the Eco-Efficiency and Technology Innovation Department to improve coordination among the
company's various departments; establish our sustainability baseline and evaluate new issues and opportuni-
ties in sustainable business practices; and help ingrain those business practices and philosophies among our
front-line employees. This team also helps develop and track sustainability performance, including appropri-
ate metrics. The SWG forms Initiatives Teams from employees across the company as needed to work on
specific sustainability issues.
A policy group of company officers and senior managers provides executive level oversight to our sustain-
ability effort. The policy group and Chief Sustainability Officer interfaces with our Board of Directors on sus-
tainability issues.
Arizona Businesses Advancing Sustainability
In order to help advance sustainable business practices across our community, Pinnacle West partnered with
Intel Corporation in 2007 to found a new business association, called Arizona Businesses Advancing Sustain-
ability or AzBAS. AzBAS is dedicated to improving economic, environmental and social business practices in
Arizona, with a goal to discuss sustainable business practices and work collaboratively to improve business
aspects in the state. Among the issues the association expects to discuss is how to work with government
policy makers to improve the state's sustainability. The group also will look to build better relationships with
the communities the companies serve while addressing environmental concerns.



                                    10 |   Company Profile |   PNW Corporate Responsibility Report ‘07
Re-Establishing our Sustainability Baseline and Setting Future Goals
In 2007, our SWG, in conjunction with an outside consultant, conducted a comprehensive benchmarking
study of corporate sustainability goals and metrics, with particular focus on the electric utility industry. Fol-
lowing that benchmarking study, the SWG completed a detailed review of all sustainability metrics at Pinna-
cle West. Based on those two studies, Pinnacle West re-established our sustainability foundation, ensuring
that the goals, metrics and key issues being used were appropriate to our company. As part of that baseline
setting, the SWG identified several new goals and metrics for key issues related to water use, customer en-
ergy conservation and employee engagement, which have been reviewed with the Policy Committee for in-
corporation in 2008

KEY ISSUES
A Sustainable Energy Future
The electric utility company of the future will look much different than the utility company of today. At Pin-
nacle West our primary sustainability challenge lies in responding to this changing future to provide reliable
and affordable energy service to our customers, while maintaining a high level of social responsibility, work-
place performance and environmental stewardship. We realize we must maintain this level of performance
while responding to issues such as global climate change. And as a regulated utility company, we must work
cooperatively with our customers, Arizona and federal regulators, and our other key stakeholders in achiev-
ing the goal of a sustainable energy future for our customers and a successful business enterprise for our
shareholders.
Despite the current economic slow down, our long-term projection for our service territory is for continued
strong growth in both the number of customers and the amount of electricity used per customer. It took
nearly 120 years for our company to add its one millionth customer. It will take a little more than 25 years to
double that number. Detailed discussions on our projected growth and resource planning can be found in
our Integrated Resource Plan at www.aps.com/resources.
                   By 2025, APS Customers and Electric Demand will nearly double




Our sustainability efforts are widespread and include efforts throughout our operations and in the communi-
ties we serve. We monitor and report on more than 200 different sustainability issues and associated met-
rics, which you will find throughout this report. All of these issues are important to us as part of our ongoing
business operations. However, we have identified the following key issues as being particularly critical in re-
sponding to the challenge of a sustainable energy future at this time. These issues represent some of the
greatest challenges, and competitive opportunities, for our company and industry, and each of these key is-
sues is discussed in detail in this Corporate Responsibility Report.
     1 Climate Change
       Climate change, and the move to a low carbon future, is one of the most critical issues facing the
       electric utility industry. The decisions we make in the near future will impact our customers and com-
       munities for decades to come.




                                     11 |   Company Profile |   PNW Corporate Responsibility Report ‘07
    2 Integrated Resource Planning
      The resource planning process plays an essential role in meeting future customer needs in an eco-
      nomic manner while minimizing impacts to the environment. The challenge is even greater for APS
      than for many other utilities due to the strong load growth that APS projects in the future. In plan-
      ning for future resource needs, APS faces a number of challenges, including electric load growth, nat-
      ural gas fuel price volatility, limited availability of regional generation capacity, transmission
      constraints, construction cost escalation and climate change issues.
    3 Demand Side Management and Energy Conservation
      While we are taking many steps to reduce the environmental impact of energy generation and deliv-
      ery, the other side of the equation is reducing the increasing demand for energy. We must help our
      customers understand and help implement ways to achieve energy conservation.
    4 Renewable Energy
      Renewable energy is an crucial part of our energy future, helping to meet the challenge of climate
      change, while also being an important part of our fuel mix diversification. Done right, renewable en-
      ergy can provide price stability and be a cost effective, reliable and non-polluting component of an
      utilities overall energy mix.
    5 Electric System Reliability
      Providing reliable electrical service is vital to a successful utility company. There are many challenges
      to providing a high level of system reliability which APS meets in a number of different ways, includ-
      ing innovative new technologies that will help reshape the future of electric power.
    6 Customer Satisfaction
      A high level of customer satisfaction is essential to our ongoing business success. In the face of rising
      energy costs, achieving high levels of customer satisfaction becomes even more challenging.
    7 Technology Innovation
      Improvements in technology are necessary for us to meet evolving challenges, such as climate
      change and system reliability and efficiency. Future leaders in the utility industry must also be tech-
      nology leaders. APS has an aggressive technology innovation effort that helps us meet these chal-
      lenges.
    8 Employee Workforce development and maintenance
      Our employees are our most critical asset in meeting our future challenges and achieving ongoing
      business success. Maintaining a safe workplace, and continuing to develop our workforce and meet
      the challenge of the retiring "boomer" generation is a critical sustainability issue for Pinnacle West.



STAKEHOLDER ENGAGEMENT
Effective Stakeholder engagement is a critical part of our business plan and essential to our ongoing suc-
cess. Our company has numerous programs and activities for engagement, communication and consultation
with our communities and other stakeholders, which cover the majority of our operations.
Our major stakeholders include:
    Customers
    Shareholders
    Employees
    Investors and the investment community
    Municipalities and community organizations in our service territory
    Native American tribes
    Arizona, New Mexico and federal agencies, including the Arizona Corporation Commission
    The business community and partners
    Industry organizations
    Non-governmental organizations at the local, state and national level
Listed below are examples of the numerous ways we interact with our various stakeholders on an ongoing
basis. Many more examples are provided throughout this report.

                                   12 |   Company Profile |   PNW Corporate Responsibility Report ‘07
Customers
Pinnacle West interacts with customers in a variety of ways, including our 24-hour call center, customer sur-
veys, focus groups, office visits, our Web sites, and through our active community outreach and volunteer
programs. We also conduct semi-annual customer satisfaction surveys. Our goal is to provide an on-going
communication and link to our customers to ensure the highest possible customer service. This is discussed
in more detail in the Customers section of this report.
From these interactions the company is able to evaluate the results of our customer satisfaction efforts, re-
ward top performing individuals and teams, and identify areas for continuous improvement. Customer satis-
faction results play a partial role in the annual performance assessment for most leaders and managers.
Results are also used to determine a portion of APS' annual companywide incentive pay.




Throughout APS, customer input and feedback is sought prior to and following major initiatives and events
(such as new bill designs, rate increases and major curtailment efforts) to help direct communications and
assess the impact on overall customer satisfaction. Additionally, results from customer satisfaction research
are used to identify and prioritize opportunities to improve, to support and assist in decision-making and al-
locating of customer service and related resources and to assess the success of major initiatives undertaken.
Employees
Pinnacle West produces a daily employee e-mail newsletter (called Newsline) and a monthly written publica-
tion (called On), to help keep employees informed on issues and news affecting the company and its em-
ployees. Other communications tools are also used to keep employees informed of important news and
events affecting the company. Processes are also in place for employees to provide feedback to the com-
pany, anonymously if desired. These processes are discussed in further detail in other sections of this report,
including Workplace Performance and Corporate Governance.
An online Sustainability Discussion Board was launched in mid-March of 2007 to promote employee partici-
pation in dialogue about sustainability topics and ideas. To date, more than 1,000 employees have visited the
site.
Our Community
APS works closely with municipalities, government agencies and the public to build consensus and to proac-
tively plan the generation, transmission and distribution resources necessary to accommodate the state’s
rapid customer and business growth. As part of the process, APS conducts environmental studies and exten-
sive public outreach to identify sensitive areas with respect to the affected communities. This process is de-
scribed in more detail in the Land Use and Biodiversity section of this report.
APS brings together various stakeholders in special Focus teams to obtain feedback on specific issues or
programs, on an ad hoc basis. APS has also formed a stakeholder Demand-Side Management (DSM) Collab-
orative team which works with APS in the development of DSM portfolio projects.
We also have a formal corporate volunteer program that is an important part of our community outreach ef-
forts. This effort is extensive and partners Pinnacle West with communities across our service territory on an
ongoing basis.
Likewise, our small business development program, minority and women owned business development pro-
gram, state-wide economic development program and other business and community outreach programs all
provide formal and ongoing outreach to our communities.
A Community Advisory Panel (CAP) was formed in 1999 by Pinnacle West Energy prior to the construction
of the Redhawk Power Plant. CAP members are composed of a broad range of local community interests.
Typical members will include local residents, members of civic and homeowners organizations, environmen-


                                    13 |   Company Profile |   PNW Corporate Responsibility Report ‘07
tal groups, education institutions, business associations and community leaders. The purpose of the group
was to establish two-way communication to review issues of concern and to create a responsive, proactive
partnership between the company and the surrounding communities where the plant was to be built.
In the building of Redhawk, the CAP was instrumental in the formation of the Community Funds (contribu-
tions are made annually by the company) and to return the unused portion of the Redhawk plant property
to its natural state (previously used for farming).
After the construction of Redhawk (completed in 2002), the CAP continued meeting with Redhawk Power
Plant representatives and requested that the Palo Verde Nuclear Generating Station be included in the meet-
ings. Since that time, the group has had periodic meetings with representatives from both plants and covers
a wide range of subjects that include:
     • Identifying community concerns and issues regarding the power plants
     • Providing operational issues at the plants that could affect members of the community
     • Assisting APS in distributing information regarding the plants to the community
Organizations and other Stakeholders
The decommissioning of the Childs-Irving Hydroelectric Plants, and restoration of Fossil Creek to its native
flow, was the product of a unique cooperative effort between APS, Native American tribes, government
agencies, conservation groups and academia. This unprecedented restoration resulted in restoration of a
perennial stream in the arid Southwest to a condition similar to that seen a century ago.
APS worked with four environmental interest groups involved in environmental issues in the western United
States: Environmental Defense, the Grand Canyon Trust, Western Resource Advocates and the New Mexico
Citizens for Clean Air and Water, on the issue of visibility in the western United States, and planned voluntary
emission controls at the APS Cholla and Four Corners plants.
Emergency planning for the Palo Verde Nuclear Generating Station is a cooperative effort involving Pinnacle
West Capital Corporation/Arizona Public Service Company (Operating Manager for Palo Verde), the State of
Arizona, Maricopa County and the Town of Buckeye.
These are just a few of the ways we work with our stakeholders. Throughout this report we provide other ex-
amples of how we engage our stakeholders to work in a cooperative
and mutually beneficial way.

CORPORATE GOVERNANCE
There has been an increased interest in companies corporate gover-
nance practices since 2001, due to the collapse of a number of high-
profile U.S businesses. In 2002, Congress passed the Sarbanes-Oxley
Act, which was intended to restore public confidence in corporate gov-                                     The Better Business Bureau
ernance. In addition, various New York Stock Exchange (NYSE) propos-                                    awarded APS with its' Business
als and Securities and Exchange Commission (SEC) pronouncements                                         Ethics Award in recognition of
have addressed corporate governance, and are changing the way many                                      APS ethical business practices,
companies do business. Pinnacle West welcomes these changes, many                                       including our "Doing the Right
of which affirm the practices we've had in place for many years. We are                                       Thing" philosophy
committed to sound corporate governance practices and financial in-
tegrity.

Corporate Governance and Sustainability
At Pinnacle West, we are striving to go beyond the traditional concept of corporate governance by applying
sound corporate governance practices to key sustainability issues. For example, our climate change program
contains the following key corporate governance practices:
     • Board of Directors engagement and oversight
     • Management execution, including top management involvement, and integration into risk manage-
       ment and resource planning processes
     • Public disclosure
     • Emissions accounting


                                    14 |   Company Profile |   PNW Corporate Responsibility Report ‘07
      • Strategic planning, including incorporation into business operations, establishment of GHG reduction
        targets, and development and implementation of business strategies to reduce greenhouse gas
        (GHG) emissions and to minimize exposure to regulatory, operational and other risks from climate
        change.
These strategies are discussed in more detail in our Climate Change section of this report. We have also cre-
ated a sustainability governance structure, which is discussed in the Pinnacle West Approach section of this
report.
Independent Directors
The Board of Directors currently consists of 12 directors, 11 of whom have been determined to be independ-
ent. See page 3 of the 2008 Proxy Statement under “Do we have independent directors” and “How did the
Board make its independence determinations” for a discussion of the elements for independence and the
determinations.
The Chairman of the Board of Directors is William J. Post. His biography appears on page 12 of the 2008
Proxy Statement. The Corporate Governance Committee has considered separating the Chairman and CEO
roles but concluded that the Company is best served by a structure in which the CEO also serves as Chair-
man.
Board Diversity
Three women and one minority serve on the company's 12-member board of directors.
Director and Executive Compensation
Director and executive compensation is discussed starting on page 9 and 17 respectively of our 2008 Proxy
Statement.
Mechanisms for shareholders and employees to provide recommendations or direction to the Board of Di-
rectors
Please see page 7 of the 2008 Proxy Statement, “How are nominees for the Board selected”; page 10 of the
2008 Proxy Statement, “How can Shareholders communicate with the Board”; and page 49, “How do we
submit shareholder proposals or director nominations for the next Annual Meeting?”

Code of Conduct and Ethics
Pinnacle West has specific policies in place to ensure a high level of corporate conduct and ethics. These
Pinnacle West Ethics Policies and Standards of Business Practices are summarized in an internal booklet
called “Doing the Right Thing.”
All Employees receive a copy of "Doing the Right Thing" when they join the company and are provided up-
dates periodically throughout their employment. In addition, Pinnacle West makes the book available for
viewing by our external stakeholders on our Web site (click on the link above to view).
All Company officers, Board Members, and employees (including full-time, part-time, supplementals and in-
terns) are required to take annual training on corporate conduct and ethics, and to pass an online test on
that training.
Some key sections of the "Doing the Right Thing" booklet include:
      Corporate Ethics Policy (Page 5)
      Supplier/Contractor Relationships (Page 6)
      Giving & Accepting Gifts (Page 6)
      Conflict of Interest (Page 9)
      Reporting Violations of the Ethics Policy (Page 12)
      Employment (Page 14)
      Labor Management Relations/right to organize and collective bargain (Page 16)
      Health and Safety (Page 18)
      Environmental Protection (Page 20)
      Dealings with Public Officials (Page 27)
      Political Participation (Page 28)
      Antitrust (Page 29)
      Sarbanes-Oxley Act of 2002 (Page 31)
      ACC Code of Conduct (Page 34)
      FERC Codes and Standards of Conduct (Page 34)
      Compliance (Page 35)


                                   15 |   Company Profile |   PNW Corporate Responsibility Report ‘07
                                       Pinnacle West also has a booklet called Doing the Right Thing-Contrac-
                                       tors, which provides key components of our ethics and business prac-
                                       tices policy as it applies specifically to contractors. The pamphlet is
                                       distributed to key contractors in partnership with the company's con-
                                       tract labor vendors. Again, this is available for viewing by the public on
                                       our corporate Web site.
                                       APS employees are encouraged to report any questions or concerns re-
                                       lated to our Ethics and Standards of Business Practices to our Business
                                       Practices Department or the company's Help Line. The Help Line is ad-
                                       ministered by an outside third party that is set up to receive employee
                                       concerns and allegations, and is available 24-hours-a-day, seven-days-
                                       a-week. Employees can report questions and concerns anonymously if
                                       desired. A quote from our internal Employee Concerns procedure to our
                                       employees clarifies:
                                         “Concerns/allegations are reported either confidentially or anony-
mously. Confidentially means that those with a business need-to-know may be informed of the concerned
individual’s identity or the details of the allegation and investigation. Anonymously means that the con-
cerned individual’s identity is unknown because the concerned individual does not identify himself/herself at
any time."
Public Affairs
Electricity is critical to our economy. We believe that the electricity dialogue is a key policy issue, and that
shaping an effective public policy is crucial to building a reliable energy future. Every year it becomes more
important to inform our community leaders and elected and appointed officials about the importance of
electricity to jobs, growth and economic efficiency.
Our ethics policy, described in the Doing the Right Thing book above, describes how our employees and our
company interact with public officials. Pinnacle West has a Government Affairs Department which takes the
lead on Pinnacle West's interactions with State and Federal officials. In addition, Pinnacle West has a formal
Political Action Committee (PAC) for employees of the company who elect to join the PAC. Pinnacle West
maintains strict adherence to the laws governing campaign contributions and PACs.

Involvement with pesticides, GMOs, fur, alcohol, tobacco, firearms, nuclear weapons, military products,
pornography or gambling products
We do not have any business involvement/revenues in these product areas
Military contracts and percentage of total revenue
Pinnacle West does not have any specific military related contracts. However, as a public service utility, we
provide electric services to all customers within our service territory, including military facilities.

Pinnacle West Governance is Transparent
Key corporate governance information is available to the public on our Pinnacle West Web site. This includes
detailed information on Board responsibilities, independence of board members, compensation, committee
responsibilities and other key corporate governance issues at the Company. Below are some of the sections
that are available to the public:
       Corporate Governance Guidelines
       Committee Summary
       Audit Committee/Charter
       Corporate Governance Committee/Charter
       Finance, Nuclear and Operating Committee/Charter
       Human Resources Committee/Charter
       Code of Ethics for Financial Professionals
       Ethics Policy and the Standards of Business Practices
       Director Independence Standards
       Executive Officer Stock Ownership Guidelines
       Restricted Stock Retention Policy

                                     16 |   Company Profile |   PNW Corporate Responsibility Report ‘07
AFFILIATIONS AND MEMBERSHIPS
Pinnacle West recognizes that participation in governmental and non-governmental organizations (NGO),
and in industry and professional organizations can provide tremendous business advantages and help en-
hance our sustainability efforts. Many of our employees participate in professional and business associations
related to every function of our business, including accounting, purchasing, environmental, health and safety,
human resources, public relations, engineering and electrical trades. Our employees often take leadership
roles in these organizations.
Here are some of Pinnacle West's key affiliations and memberships relative to our sustainability efforts:

Government and NGO Partnerships and Organizations
Coalition of Environmentally Responsible Economies (CERES)
Ceres is a national network of investors, environmental organizations and other
public interest groups working with companies and investors to address sustain-
ability challenges such as global climate change.
PowerTree Carbon Company
PowerTree Carbon Company LLC is an initiative sponsored by 25 U.S. power companies to plant trees in crit-
ical habitats in the Lower Mississippi River Valley in order to manage carbon dioxide levels. The projects will
restore bottomland and hardwoods on marginal agricultural lands, create habitats for birds and other
wildlife, and provide other environmental benefits including improved water and soil quality.
The National Wild Turkey Foundation (NWTF) Energy for Wildlife
The NWTF is a grassroots, non-profit organization with 545,000 members in 50 states, Canada, Mexico and
14 other foreign countries. It supports scientific wildlife management on public, private and corporate lands.
The Nature Conservancy
The Nature Conservancy is the leading conservation organization
working to protect the most ecologically important lands and wa-
ters around the world for nature and people. The mission of The
Nature Conservancy is to preserve the plants, animals and natural
communities that represent the diversity of life on Earth by pro-
tecting the lands and waters they need to survive.
EPA Coal Combustion Products Partnership (C2P2)
The Coal Combustion Products Partnership (C2P2) program is a cooperative effort between the U.S. Envi-
ronmental Protection Agency, American Coal Ash Association, Utility Solid Waste Activities Group, U.S. De-
partment of Energy, and U.S. Federal Highway Administration to help promote the beneficial use of Coal
Combustion Products (CCPs) and the environmental benefits that result from their use.
EPA Climate Leaders
Climate Leaders is an Environmental Protection Agency (EPS) industry-government
partnership that works with companies to develop long-term comprehensive climate
change strategies. Partners set a corporate-wide greenhouse gas (GHG) reduction
goal and inventory their emissions to measure progress. By reporting inventory data
to the EPA, partners create a lasting record of their accomplishments. Partners also
identify themselves as corporate environmental leaders and strategically position
themselves as climate-change policy continues to unfold.
EPA SF6 Emission Reduction Partnership
The SF6 Emission Reduction Partnership for Electric Power Systems is a collabora-
tive effort between the EPA and the electric power industry to identify and implement cost-effective solu-
tions to reduce sulfur hexafluoride (SF6 ) emissions.
EPA WasteWise
WasteWise is a voluntary EPA program through which organizations eliminate costly municipal solid waste
and select industrial wastes, beneficially effecting their bottom line and the environment. WasteWise is a
flexible program that allows partners to design their own waste-reduction programs tailored to their needs.



                                    17 |   Company Profile |   PNW Corporate Responsibility Report ‘07
EPA/DOA EnergyStar Program
ENERGY STAR is a joint program of the U.S. Environmental Protection Agency and the U.S. Department of
Energy helping consumers save money and protecting the environment through energy-efficient products
and practices.

Industry Groups and Associations
Arizona Businesses Advancing Sustainability
Founded by APS and Intel, AzBAS is a business association dedicated to improving economic, environmen-
tal and social business practices in Arizona.
American Council on Renewable Energy (ACORE)
The ACORE is focused on accelerating the adoption of renewable energy technologies into the mainstream
of American society. ACORE promotes all renewable energy options for the production of electricity, hydro-
gen, fuels and end-use energy including, solar, wind, geothermal, hydro/ocean, waste energy and fuels, bio-
mass and biofuels.
American Wind Energy Association (AWEA)
The AWEA is a national trade association that represents wind power plant de-
velopers, wind turbine manufacturers, utilities, consultants, insurers, financiers,
researchers and others involved in the industry. AWEA provides up-to-date, ac-
curate information about the domestic and international wind energy industry.
Arizona Solar Energy Association (ASEA)
The ASEA’s mission is to educate the people of Arizona about solar energy, its
applications and the benefits of utilizing solar technologies.
CEA Technologies Inc. (CEATI)
CEATI brings electrical utility industry professionals together, through focused interest groups and collabora-
tive projects, to identify and address technical issues that are critical to their organizations.
Common Ground Alliance (CGA)
The Common Ground Alliance (CGA) is a member-driven association dedi-
cated to ensuring public safety, environmental protection, and the integrity
of services by promoting effective damage prevention practices.
Edison Electric Institute (EEI)
EEI is a trade association for U.S. shareholder-owned electric companies.
EEI advocates equitable policies in legislative and regulatory arenas and
provides advocacy, authoritative analysis and critical industry data to its
members, Congress, government agencies, the financial community and
other opinion-leader audiences. It provides forums for member company
representatives to discuss issues and strategies to advance the industry and to ensure a competitive position
in a changing marketplace.
Electric Power Research Institute (EPRI)
EPRI manages a broad public/private collaborative re-
search program covering generation, environmental
protection, power delivery, retail use and power mar-
kets on behalf of the electric utility industry, the indus-
try's customers and society at large.
Institute of Nuclear Power Operations (INPO)
The nuclear electric utility industry created the Institute of Nuclear Power Operations (INPO) in 1979. INPO's
mission is to promote the highest levels of safety and reliability - to promote excellence - in the operation of
nuclear electric generating plants.




                                      18 |   Company Profile |   PNW Corporate Responsibility Report ‘07
U.S. Green Building Council (USGBC)
The USGBC is the nation's foremost coalition of leaders from across the building industry
working to promote buildings that are environmentally responsible, profitable and healthy
places to live and work.
Utility Solid Waste Activities Group (USWAG)
USWAG is responsible for addressing solid and hazardous waste regulatory issues on be-
half of the utility industry and supports a balanced and reasonable approach to waste
management that helps ensure cost-effective protection to the environment. Scott Davis, APS EHS Director,
is the current Chairman for USWAG.
Utility Water Activities Group (UWAG)
The UWAG deals with water-related regulatory issues of importance to electric utilities and supports a bal-
anced and reasonable approach to water quality management that helps ensure cost-effective protection of
the environment.
Utility Air Regulatory Group (UARG)
The Utility Air Regulatory Group is a nonprofit, unincorporated organization of individual electric utilities and
national trade associations.
Water Reuse Association, Arizona Chapter
The mission of the Water Reuse Association is to advance the beneficial and efficient use of water resources
through education, sound science, and technology using reclamation, recycling, reuse, and desalination for
the benefit of members, the public, and the environment.
WEST Associates
WEST Associates is a group of 17 public and private electric utility companies that serve 15 million con-
sumers in the rapidly growing 11 Western states and North Dakota. WEST Associates has played a construc-
tive role on energy and environmental issues in the West since 1964. C.V. Mathai, APS Manager for
Environmental Policy, is the current President of WEST Associates.
Western Business Roundtable (WBRT)
The WBRT is a non-profit business trade association comprised of CEOs
and senior executives of organizations doing business in the Western
United States. WBRT advocates economic development, environmental
protection, regulatory reform, energy policy, public lands use, waste man-
agement and air and water quality.
AMR Sustainability Peer Forum
The Sustainability Peer Forum brings together environ-
mental and sustainability leaders from across industries
to share and discuss best practices, lessons learned, and
how to create industry-leading companies with innova-
tive products and service.
The Product Development and Management Association (PDMA)
PDMA is global advocate for product development and manage-
ment professionals. Our mission is to improve the effectiveness of
individuals and organizations in product development and man-
agement. This is accomplished by providing resources for profes-
sional development, information, collaboration and promotion of
new product development and management.




                                    19 |   Company Profile |   PNW Corporate Responsibility Report ‘07
AWARDS AND RECOGNITIONS
While the company does not take part in sustainable practices to garner awards, Pinnacle West
and its subsidiaries received third party recognition for its sustainability programs in 2007. Here
are some highlights:

     • Pinnacle West was named one of the Global 100 Most Sustainable Corporations in the
       World by Corporate Knights at the 2007 World Economic Forum in Davos, Switzerland.
       This is the fourth year in a year that Pinnacle West has been named a Global 100 com-
       pany.
     • Pinnacle West has the highest rating (AAA) and is ranked in the top two of utilities in
       the United States by Innovest Strategic Value Advisors in a comprehensive analysis on the U.S. Elec-
       tric Power Sector covering the environmental, social and governance factors of the largest publicly-
       traded utility companies. Pinnacle West has received the AAA rating from Innovest each time since
       Innovest started evaluating the company in 2001.
     • Pinnacle West was listed in the 2007 Dow Jones North America Sustainability Index and the 2006
       Dow Jones United States Sustainability Index as a sustainability leader in the electric industry in-
       dexes, for the third year in a row.
     • The Company earned "best in class" status in 2007 by Storebrand Socially Responsible Investment
       for its leading environmental and social performance.
     • APS was named EPA/DOE 2007 Energy Star Partner of the Year from the U.S. Environmental Protec-
       tion Agency for the APS Energy Star Residential Lighting Program.
     • APS won an Award of Merit in the Valley Forward Environmental Excellence Awards, for the APS edu-
       cational program "Road to Renewable Energy"
     • APS was awarded an Exemplary Award from the American Council for an Energy-Efficient Economy
       (ACEEE), recognizing the APS Energy Star Residential Lighting Program as one of America's leading
       energy efficiency programs
     • For the 11th straight year, APS won the Tree Line USA Award by the Arizona Community Tree Council
       in recognition of APS' leadership in urban forestry and environmental stewardship
     • The Better Business Bureau (BBB) awarded APS with its 2008 Business Ethics Award for APS' busi-
       ness ethics approach and our "Doing the Right Thing" corporate philosophy.
     • In 2007, the APS Volunteer Program was named a finalist by the Points of Light Foundation for its
       Awards for Excellence in Workplace Volunteer Programs. As a finalist, the recognition honors the
       more than 170,000 hours of volunteer time donated by employees to more than 400 charitable, cul-
       tural and educational organizations and programs throughout Arizona and New Mexico.
     • The APS Saguaro solar trough was featured on ABC News’ live 20/20 program, Planet Earth 2007:
       Seven Ways to Help Save the World, a live ABC News program that aired in April, and was also fea-
       tured in a special green section produced by The New York Times in March, 2007.
     • The company’s emissions-to-biofuels project at the Redhawk Power Plant was featured in an October
       2007 National Geographic cover story about how plants are being developed into fuel.




                                    20 |   Company Profile |   PNW Corporate Responsibility Report ‘07
Electric System
The integrated, instantaneous electric system ranks as the most important infrastructure element of a
modern economy. Without plentiful and affordable electric power, our economy simply cannot grow.
Unlike the need for a new road or public park, the demand for electricity cannot be deferred.
APS electric system includes power plants for generation of electricity, transmission lines for carrying
the electricity from the power plant to a substation where it is transferred over to the distribution sys-
tem which carries the electricity to our more than 1.1 million customers.
This section discusses key sustainability issues relative to our electric system facilities.

INTEGRATED RESOURCE PLANNING: POWER FOR THE FUTURE
Resource planning for future energy sources plays a critical role in meeting future customer needs in an
economical manner while minimizing impacts to the environment. The decisions we make in resource
planning will impact our customers and our company for decades to come. The challenge is even
greater for APS than for many other utilities due to the strong load growth that APS continues to expe-
rience. In planning for future resource needs, APS faces a number of challenges, including projecting
customer and electric load growth, fuel price volatility, limited availability of regional capacity, transmis-
sion constraints, construction cost escalation and climate change issues. As a regulated utility, APS
seeks to work with our customers, the Arizona Corporation Commission and our other stakeholders to
develop an integrated resource plan that balances all of these issues and provides the sustainable en-
ergy future that we all desire.
To address these challenges, APS has initiated a process to involve key stakeholders in the resource
planning process with the goals of both educating and seeking input from these stakeholders. This pub-
lic process began in January, 2008 when APS filed its Resource Alternatives Report with the Arizona
Corporation Commission (ACC). This report provided information related to a host of resource planning
issues such as load growth projections, potential carbon costs associated with various energy sources,
technology choices, and key challenges. As a follow-up to the report, APS has initiated a series of stake-
holder meetings in which the issues raised in the report can be explored in greater detail. These meet-
ings also provide a forum for open discussion between the stakeholders and APS' experts on different
topics. APS expects that these stakeholder meetings will continue through the first half of 2008. Follow-
ing their conclusion, APS intends to utilize the input from the stakeholders and additional internal analy-
ses to develop a resource plan which will present the resources that APS will utilize to meet future
customer needs.
The APS Resource Alternatives Report, the APS Resource Alternatives Technical Report and the infor-
mation from the public meetings on our integrated plan-
ning process are available to the public at
www.aps.com/resources. This information contains detailed
analysis on items such as projected customer and load
growth; evaluation of different energy sources including re-
newables, coal, natural gas and nuclear; projected carbon
emissions and potential impact of carbon legislation on
each energy source scenario, and more. The interested
reader should review this information for more details.

APS GENERATION
Electrical generation is at the heart of our business and
provides the electricity that we ultimately sell to our cus-
tomers as product. We obtain our energy from both APS
owned generating sources and from purchased power from
merchant power producers (mostly natural gas plants). In
2007, 23.3 percent of our total energy sources were from
purchased power, generally under long term contracts with
merchant generators. The majority of our renewable en-


                                    21 |   Electric System |   PNW Corporate Responsibility Report ‘07
ergy comes from purchased power, and is primarily reflected in the purchased energy section of the below
energy mix chart. Renewable energy is discussed in more detail in the Renewable Energy section of this re-
port. In addition to the purchased power, our 2007 energy mix included APS owned generation consisting
of: coal 36.8 percent; nuclear 21.5 percent; and gas 18.4 percent. Renewable energy from APS owned genera-
tion accounts for less than 1 percent of our overall energy mix.
Pinnacle West's Current Generating Resources
Our electric generating facilities use a mix of fuels including coal, natural gas, oil and nuclear, as well as re-
newable sources. Having a balanced fuel mix has provided APS with a number of financial and environmental
benefits. This fuel mix allows us to enter into long-term fuel-purchasing agreements with our suppliers,
which reduces our costs and provides stable fuel sources into the future. In addition, it gives us operational
flexibility so we can respond to changing markets and current events. Our fuel mix has been a significant
factor in our ability to decrease our air emissions intensity while continuing to add generation resources to
meet our rapid customer growth. This is discussed in more detail in the Air Emissions section of this report.
We also remain committed to our policy of producing energy from natural resources in the most economic
and efficient ways possible. We purchase approximately 97 percent of our coal locally. When feasible, energy
is produced from local and regional fuel sources in an effort to limit the economic and environmental impact
of transportation.
More detail on our fuel supply and purchased power may be found in the Investors section of our Pinnacle
West Web site.
APS owned generating capacity in 2007 is shown below:

Generating Energy From Nuclear Power
                                                                                        Nuclear energy is an important part of our
                                                                                        generation mix, and will be into the future,
                                                                                        providing economic and environmental
                                                                                        benefits, including significant air emissions
                                                                                        avoidance. APS nuclear generation is from
                                                                                        the Palo Verde Nuclear Generating Station,
                                                                                        located about 50 miles west of Phoenix,
                                                                                        Arizona. APS operates the plant and owns
                                                                                        29.1 percent of PV Units 1 and 3 and about
                                                                                        17 percent of Unit 2. In addition, APS leases
                                                                                        about 12.1 percent of Unit 2, resulting in a
                                                                                        29.1 percent combined interest in that Unit.
                                                                                        Nuclear energy is also one of the four sce-
                                                                                        narios for potential additional future gener-
                                                                                        ation resources, as discussed in the
                                                                                        Integrated Resource Plan section of this re-
                                                                                        port.
                                                                   Palo Verde's third major equipment-re-
                                                                   placement project began in late Septem-
                                                                   ber, 2007. The planned refueling outage
                                                                   included the replacement of Unit 3's two
                                                                   steam generators and three low-pressure
                                                                   turbine rotors. Similar work was completed
for Unit 2 in 2003 and Unit 1 in 2005. This work resulted in the design electric rating of the three units in-
creasing from 3,810 MW to 4,008 MW, an increase of 198 MW in net generating capacity.
Nuclear power is a critical aspect of climate change response, generating large amounts of electricity with
essentially no carbon emissions. Each year Palo Verde Nuclear Plant, the nation's largest energy producer,
helps avoid 31.7 million tons of CO2 emissions when compared to equivalent generation from a coal fired
power plant.
Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE, and the
DOE is required to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes gen-

                                     22 |   Electric System |   PNW Corporate Responsibility Report ‘07
erated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a
permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE has announced
that the repository cannot be completed before at least 2017.
The Palo Verde Nuclear Generating Station and other nuclear power plants produce two forms of radioactive
waste: high-level waste and low-level waste. High-level waste consists primarily of spent nuclear fuel. This
spent fuel is highly radioactive for many years, but can be safely stored in spent fuel storage pools or spe-
cially designed and licensed spent fuel storage casks.
We have existing spent fuel storage pools at Palo Verde and have constructed and are using a facility for on-
site dry cask storage of spent fuel while we are awaiting the completion of the Nuclear Waste Storage facil-
ity at Yucca Mountain in Nevada. With the existing storage pools and the addition of the on-site dry cask
storage facility, we believe spent fuel storage methods will be available for use by Palo Verde on-site to allow
continued safe operation through the term of the operating license for each of Palo Verde’s three units. On
average, Palo Verde replaces 200 fuel assemblies annually.
Some low-level waste has been stored on-site in a low-level waste facility; however APS is currently shipping
low-level waste to off-site disposal facilities which are permitted to accept these types of wastes. Examples
of low-level waste include used protective clothing, resins and filters.
                                                            PVNGS Low-Level Solid Radioactive Wastes
                                                            The increase in low-level wastes in 2007 was due prima-
                                                            rily to waste materials associated with a one-time re-
                                                            moval project of a retention basin, and wastes associated
                                                            with the steam generator replacement project. Further
                                                            information on spent nuclear fuel and low-level wastes
                                                            can be found in the PNW annual report and 10K report.
                                                     Nuclear Performance and Safety
                                                     In 2006, the performance at the Palo Verde Nuclear Gen-
                                                     erating Station dropped to disappointing levels, well
                                                     below its previous world-class standards. Working
                                                     closely with the Nuclear Regulatory Commission, last
                                                     year we implemented a performance improvement pro-
gram to restore the plant’s operations to previous levels of excellence. As part of its improvement effort, Palo
Verde completed the Improved Performance And Cultural Transformation project, or ImPACT. The ImPACT
project staff — which numbered as many as 100 APS employees and external experts — were tasked with
identifying issues and corrective actions aimed at improving Palo Verde’s safety culture and overall perform-
ance for the long term. The actions identified through ImPACT are being implemented and tracked through
the site integrated improvement plan.
The plan is designed to restore the plant’s operation to historical levels of excellence by realigning the organ-
ization where needed, identifying and permanently fixing problems, and giving employees the tools they
need to perform their jobs.
Emergency planning for Palo Verde is a cooperative effort involving Pinnacle West Capital Corporation/Ari-
zona Public Service Company (Operating Manager for Palo Verde), the State of Arizona, Maricopa County
and the Town of Buckeye. All planning activities represent a comprehensive response to federal regulations
and guidelines. The Arizona Division of Emergency Management's Radiological Emergency Preparedness
Program has detailed information on emergency planning for Palo Verde.
Discussion on key issues associated with nuclear safety and recent NRC activity and inspections at PVNGS
can also be found in our PNW 10K Report.
Purchased Power
Our purchased power agreements are summarized below (in capacity of MW):

ELECTRIC SYSTEM RELIABILITY
Reliable and affordable electric power is the key energy cornerstone for a dynamic modern economy. When
the lights go out, it becomes clear to all of us just how dependent our businesses and personal lives are on

                                     23 |   Electric System |   PNW Corporate Responsibility Report ‘07
electric power. That is why electric system reliability is so important to Pinnacle West. Providing reliable elec-
trical service is essential to a successful utility company, and our company has numerous programs in place
to help ensure the efficiency and reliability of our electrical system. This starts with high standards in the
planning, engineering and construction of our systems, and continues with the ongoing maintenance and im-
provements to our system.




A highly reliable year : Customers benefit from system improvements
A concerted effort to improve the health of the electric grid over the last decade cumulated in an all-time
best year for reliability for the company. In 2007, APS recorded all-time best results in measures that reflect
outage frequency. According to the final Clear Weather System Average Interruption Frequency Index
(SAIFI) metrics, APS customers saw an average of 0.98 outages, down from 1.0 last year and 1.66 in 1996.
With weather factored, customers experienced 1.57 outages, down from the previous record of 1.60 set in
2002 and 2.78 in 1996. Distribution outages are down 67 percent from a decade ago. Put another way, in
2007, despite adding another 34,000 customers, we kept the power flowing 99.98 percent of the time, even
with our summer storms.
                                                   Meanwhile, APS nearly beat its record for System Average Inter-
                                                   ruption Duration Index (SAIDI), which measure total minutes of
                                                   outages per customer to year. In 2007, the average customer
                                                   experienced 101 minutes of outages, just off the record of 100.
                                                   Our coal units set performance records again with an 88 per-
                                                   cent capacity factor, well above the latest national average of 71
                                                   percent.
                                                   APS was able to achieve these results while serving the fastest
                                                   growing service territory in the country, with 34,000 new meter
                                                   sets.
                                                   To help ensure system reliability, APS is also involved in several
                                                   power line projects in Arizona. APS is continuously evaluating
                                                   new technologies and implementing those new technologies
                                                   that make sense. Several examples of new technologies that we
are implementing are highlighted below:
Smart meters allow APS to serve the customer of the future
The use of "smart meters" and advanced metering technology holds the potential of providing our cus-
tomers with a quantum leap in service in the future. The new devices improve reliability, increase control of
energy usage and allow for a level of customer service never imagined by prior generations.
Traditional meters only measure customer energy usage, while smart meters, which look no different that
their predecessors, have the ability to offer real-time communication between the customer and APS. Smart
meters will allow customers to monitor their energy consumption, make easy comparison and selection of

                                     24 |   Electric System |   PNW Corporate Responsibility Report ‘07
energy plans, control of appliances from remote locations, and potentially lead to fewer outages. Smart me-
ters update energy usage information hourly as opposed to monthly, allowing the customer to better under-
stand his or her energy use and the effects of conservation measures.
We installed our 100,000th smart meter last year and the company is currently replacing more than 7,000
meters per month. Within five years, APS expects to deploy about
800,000 smart meters.
Distribution Operations Management System (DOMS)
APS prides itself on innovation and service, and the latest develop-
ments in smart meters and the company’s Distribution Operations
Management System (DOMS) are two cutting edge technologies
which will benefit customers and APS.
APS designed the DOMS software system to replace wall maps, track
outages information in real time, and manage electrical loads, con-
struction and repair crews. Like many utilities across the country, APS
relies on paper wall maps with color-coded pins to understand the
big picture of its distribution electrical grid.
When completed, DOMS will allow APS to manage and track informa-
tion and make updates to this grid via computer. Currently, DOMS will
be implemented in a pilot phase replacing the Trouble Call Manage-
ment System in the second quarter of 2008.Overall completion of the
majority of the project is anticipated in 2012.
While APS’ traditional methods of managing electrical loads and its
response to outages work well, there is a need for new technology to
address the continued rapid growth of APS’ service territory. The
company's goal is to not only address the growth, but to remain
ahead of it. The objective of the DOMS project is to improve outage
communications and reliability reporting, and further reduce cus-
tomer power-outage durations. Improved customer satisfaction and
enhanced safety practices are just a couple of benefits that would fol-
low.
Before DOMS can be implemented, some preparation must take place. APS is going through a process of
field-phasing verification to ensure the information in the DOMS correlates to what is out in the field. In a
service territory that adds, on average, 10 new distribution substations each year and more than 125 new
customers each day, that's quite an undertaking.
In the long run, the overall effect of DOMS will be a mass integration of APS services and systems. This will
consolidate the systems at five distribution operating centers covering about 35,000-square miles in the
Phoenix Metro area and four state regions into one as needed. It also means a merging and addition of com-
puter systems. From this, DOMS will have the potential for quickly providing planning analysis, power-flow
analysis and suggested switching tools to maintain the electrical grid.
The implementation of DOMS will improve many of the ways APS does business in the future. The DOMS
computer stations will be used to provide simulator training to new operators, enabling them to hit the
ground running. It will affect the areas of construction, operations, maintenance, data quality and customer
care. For APS crews in the field, DOMS will offer crew management and call-out tools to better monitor man-
power requirements. The systems fault locater ability will also reduce the time necessary for troubleshooting
to isolate faults.
Raising capacity, reducing line sag
Replacing an existing transmission line with aluminum conductor composite reinforced transmission line al-
lowed APS to increase a transmission line's capacity without disrupting the surrounding community, while
using the existing poles, towers and line location. The aluminum line carries more than twice the electrical
power of conventional lines the same size and does it at higher operating temperatures with minimal con-
ductor sag. This is another new technology that will help APS meet the demands of the future.


                                    25 |   Electric System |   PNW Corporate Responsibility Report ‘07
Economic Impacts
While strong growth in our number of customers is projected long term, APS customers also continue
to use more electricity per customer. To meet this added demand, we will invest $10 billion in energy re-
sources over the next decade. We continue to secure new generation and site new power lines, improve
reliability and expand customer choice. We’re also holding down costs and increasing productivity, plan-
ning for the future and seeking fair returns for investors for one clear, indispensable purpose—to create
a sustainable energy future for Arizona. Reliable and affordable electric power is the key energy corner-
stone for a dynamic modern economy. New investments now can lower long–run costs, ensure high lev-
els of service quality, facilitate competitive markets and promote environmental goals.
The economic and business success of our family of companies is linked to the economic success and
sustainability of the communities that we serve. That is why Pinnacle West is so active in the community.
We have a commitment to bettering the state's economic and social vitality by being active in economic
development, through community and business leadership, volunteerism, education, environmental
stewardship and charitable giving.
Pinnacle West has a tremendous economic impact on the communities we serve, including:

     • Our product, electricity, is essential to economic growth and a functional economy. Our cus-
       tomers rely on us to provide efficient and reliable electrical service so that they can live, work
       and grow their businesses
     • Pinnacle West is a major employer in Arizona, and one of a relatively few S&P 500 companies
       with headquarters in Arizona
     • APS is essentially one of the largest construction companies in Arizona due to the extensive con-
       struction of new substations, distribution and transmission lines, power plants and other infra-
       structure necessary to both maintain our system and to expand our system to meet the rapid
       growth of our customers. Last year, we kept pace with Arizona’s growth by investing $900 mil-
       lion in infrastructure, and we expect that amount to rise and remain around $1 billion annually.
     • Affiliate SunCor is a major developer in commercial and residential projects
     • Pinnacle West's economic development efforts are a major contributor to economic growth in
       Arizona. We are somewhat unique in that our economic development efforts extend to all areas
       of the state, including rural areas, rather than just focusing in on the major metropolitan areas
     • Pinnacle West's Supplier Diversity Program has provided a significant benefit to the develop-
       ment of a diverse supplier network in Arizona
      • Our extensive network of power plants, transmission and distribution lines, offices and support
         facilities provides a great deal of property tax dollars to the areas we are located. For example,
         the Palo Verde Nuclear Generating Station is the largest single commercial taxpayer in Arizona
In this report, we also provide financial details on issues such as spending on minority- and women-
owned businesses, and charitable donations, and have a detailed discussion on climate change which
may have future economic impacts.




                                  26 |   Economic Impacts |   PNW Corporate Responsibility Report ‘07
FINANCIAL PERFORMANCE
It is a business' responsibility to increase profits and provide economic return to its shareholders. Some be-
lieve that efforts such as environmental stewardship and other sustainability efforts, while perhaps necessary
to a degree in todays business climate, are costs to the organization and they are treated as such. At Pinna-
cle West, we believe that effective sustainability governance is a competitive business strategy that will lead
to increased profitability and business success.
Benefits to our company from our sustainability programs include:

     • risk reduction
     • operating efficiencies
     • early identification of emerging opportunities and issues
     • waste and emissions reductions
     • enhanced corporate reputation
     • human capital - enhanced recruitment and retention
     • enhanced interactions with our critical stakeholders, and
     • compliance benefits

These allow our company to be more innovative and effective in our operations over time, which is a com-
petitive advantage that results in improved shareholder value, not just over a quarter but long term.
Our financial performance in 2007 is discussed in great detail in our 2007 Pinnacle West Annual Report.

ECONOMIC DEVELOPMENT
One of the tenants of sustainability is economic development. We realize that in order for our enterprise to
be successful, the state's business community must remain robust. That is why our company places such
stock in economic development.
Our company is dedicated to supporting economic development efforts throughout the state. We help many
Arizona communities retain successful hometown companies and encourage them to create more jobs
through APS’ Building Bridges to Business program and through APS’ Focused Future economic develop-
ment program.
An example of the company's commitment to economic development can be seen in Gila Bend, where APS
helped Doubletree Paper establish new roots.




In 2007, APS’ Business Development team worked with our economic development partners to bring new
business to Arizona which resulted in:

       creation of an estimated 2,420 new jobs
       new electrical load of 23 megawatts (MW)
       capital Investments of $415 million, and
       1,247,000 square feet of new building space.




                                   27 |   Economic Impacts |   PNW Corporate Responsibility Report ‘07
APS B3: Building Bridges to Business
A community’s greatest assets are the businesses that call it home.
Economic Development studies show that at least 76 percent of new jobs and capital investment comes
from a community’s existing companies. That is why APS’ Building Bridges to Business program or B3 is in-
vesting in Arizona’s greatest assets – the businesses that call our communities home.
APS' B3 program goes beyond traditional business development to provide an innovative retention and ex-
pansion tool that addresses that needs of existing businesses and the cities and towns in which they reside.
The B3 program helps economic development organizations define and analyze company and community
specific information, and creates an environment for establishing relationships between businesses and their
community.
With the B3 program, community leaders and economic development organizations gain a better under-
standing of individual business needs and insights into their local economy and each company’s role in the
community’s economic future.
The B3 program utilizes an internet-based business assessment software program called Synchronist, and
uses a face to face interview/survey to find and track a wide range of useful company and community spe-
cific information, such as:

       Determining benchmarks on critical economic indicators, such as value to the community, growth po-
       tential, risk of relocation or downsizing, overall satisfaction, employment trends, and tracking busi-
       ness and workforce status.

What Others Are Saying About B3:
“The B3 Program has allowed us to collect information in a standard format that allows comparison of busi-
nesses in this region to other parts of the co9untry. I also allows us to identify issues that need to be ad-
dressed by us, the County and the State. B3 helps us provide better services to businesses because we know
what issues affect them most.”
            - Michelle Pierson, Economic Development Deputy Directory, City of Phoenix
Benefits to Local Community and APS
The B3 program strengthens community by helping:

     • Retain and expand existing businesses
     • Retain jobs and tax revenues
     • Develop local firms, creating new jobs
      • Enhance a community’s reputation as a good place to do business
APS’ partners include the Arizona Department of Commerce (ADOC), the Greater Phoenix Economic Coun-
cil (GPEC), as well as all of the rural Economic Development Departments in our Arizona communities (such
as Casa Grande, Yuma, Prescott, Prescott Valley, Payson, Flagstaff, Globe and Parker.
APS Focused Future Program
Through its Focused Future program, established in 1991, APS has helped leaders from less populated areas
develop community and economic development plans that will best prepare their communities for inevitable
growth. Focused Future is a step by-step process designed to empower rural communities with the ability to
determine their own futures.
The program helps them:

     • Define the goals that ensure their economic futures
     • Uncover their community’s strengths and weaknesses
     • Create policies and implement practical programs that enhance their economy
     • Save time and money




                                   28 |   Economic Impacts |   PNW Corporate Responsibility Report ‘07
Additional APS Economic Development Initiatives:

    • APS offers its economic development Web site, Explore Arizona, which provides Arizona demo-
      graphic information and information on available buildings in rural communities and has now created
      an updated tool called Arizona Prospector www.arizonaprospector.com to help find land, buildings,
      and demographics with a GIS integrated system
    • APS provides electric rate analysis and infrastructure evaluations for prospective companies
    • APS assists its partners with site visits from site selectors and facility managers, and on occasion for
      the larger companies, a helicopter tour to help them get a better perspective of transportation routes
      and other factors
    • APS helps GPEC, ADOC and our rural partners with sales missions with site selectors throughout the
      United States
    • The APS Community Initiatives team works with Arizona communities to create business plans that
      emphasize quality growth with quality of life as well as leadership and other programs, all to help
      them become vibrant, growing communities




                                  29 |   Economic Impacts |   PNW Corporate Responsibility Report ‘07
Environmental Performance
Pinnacle West has a long-standing and unwavering commitment to environmental stewardship. In July
1994, APS became the first electric utility to join the Coalition for Environmentally Responsible
Economies (CERES), an independent, non-profit organization that promotes excellence in environmental
stewardship. As a CERES member, APS endorsed the CERES Princi-
ples, an environmental code of conduct. The CERES principles con-
tinue to be part of our APS Environmental Policy, and demonstrate
our commitment to excellence in environmental stewardship.

In 2007, we took a significant continuous improvement step in our
environmental program with the purchase of a new Environmental
Information Management System (EIMS). This electronic EIMS will
enhance our ability to identify, monitor, track and improve our envi-
ronmental obligations and commitments across the company.

Our primary environmental issues are related to the generation,
transmission and distribution of electricity to more than 1.1 million
customers. While renewable generation is a significant focus for our
future capacity resources, we will continue to employ generation resources from coal, natural gas and
nuclear energy far into the future. In addition, we will continue to expand our transmission and distribu-
tion systems as we respond to our growing service territory by adding significant numbers of new sub-
stations and miles of electric lines. While this infrastructure is necessary to generate and distribute
electricity to serve customers, it also creates a number of environmental issues and challenges, which
we discuss in detail in this section of our report.

EHS POLICY
APS Environmental, Health and Safety Policy Statement
APS is committed to a clean, safe and healthy workplace and environment. All aspects of our business
will be managed in a safe and environmentally responsible manner in accordance with the principles set
forth in this policy. We believe these actions benefit our customers, shareholders, employees and the
public, both now and for the future, while improving the quality of the environment in which we live.
This policy reaffirms our commitment to environmental stewardship and protecting the well-being of
our customers, employees and the public.

Management Commitment
All levels of APS management are committed to, and accountable for, implementing, maintaining, meas-
uring and improving the environmental, health and safety programs of the company. Self-assessments
of our performance in these areas will be routinely conducted. We will measure performance and hold
all employees accountable through performance enhancement processes.

Culture
We will foster a culture that encourages safe, healthy and environmentally responsible behavior by
clearly defining the responsibilities of all employees. We will encourage proactive employee involvement
in these efforts. Incentives for extraordinary performance will be provided.

Health & Safety
Safety is the overriding value of all aspects of our business. We will continually provide a safe and
healthy environment for our employees, our customers and the community. We demand safe work be-
havior, practices, design and systems.

Pollution Prevention
Pollution prevention is an operating objective. We strive to prevent or reduce the generation of waste at
the source. Our impact on the environment is minimized through good engineering practices. Where
waste cannot be eliminated, we will seek to maximize recycling. We will, where appropriate, purchase


                             30 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
commodities with recycled content and other environmentally preferable attributes. Waste that must be dis-
posed of will be managed in compliance with all applicable requirements.

Community
We support and participate in the design, development and establishment of sound public policy and educa-
tional initiatives that protect human health and the environment. We will work with governments and others
in creating responsible laws, regulations and standards to safeguard the community, workplace and environ-
ment. We will share with the communities our performance in the environmental, health and safety areas.

Compliance
Compliance with all applicable environmental, health and safety laws and regulations is the minimum stan-
dard of performance. Every employee, from the officer level to the front line, is responsible and accountable
for compliance and has an obligation to bring issues and concerns forward for resolution. We will go beyond
regulatory requirements when there is a sound environmental or business reason to take such action.

Stewardship of Natural Resources
We will responsibly use natural resources, such as air, water, soils and forests, and we will help to conserve
these natural resources through efficient use and careful planning. We will pursue an energy resource plan
that emphasizes environmental protection, energy conservation and efficiency. We will responsibly address
conditions that endanger health, safety or the environment.

CERES Principles
APS was the first utility to adopt the Ceres principles in 1994. Since then, under Ceres review, APS has issued
an annual EHS report, and now a global reporting initiatives (GRI) report. These reports are available online
at www.pinnaclewest.com/cr.

Protection of the Biosphere
We will reduce and make continual progress toward eliminating the release of any substance that may cause
environmental damage to the air, water, the Earth or its inhabitants. We will safeguard all habitats affected
by our operations and will protect open spaces and wilderness, while preserving biodiversity.

Sustainable Use of Natural Resources
We will make sustainable use of renewable natural resources, such as water, soils and forests. We will con-
serve non-renewable natural resources through efficient use and careful planning.

Reduction and Disposal of Wastes
We will reduce and where possible eliminate waste through source reduction and recycling. All waste will be
handled and disposed of through safe and responsible methods.

Energy Conservation
We will conserve energy and improve the energy efficiency of our internal operations and of the goods and
services we sell. We will make every effort to use environmentally safe and sustainable energy sources.

Risk Reduction
We will strive to minimize the environmental, health and safety risks to our employees and the communities
in which we operate through safe technologies, facilities and operating procedures, and by being prepared
for emergencies.

Safe Products and Services
We will reduce and where possible eliminate the use, manufacture or sale of products and services that
cause environmental damage or health or safety hazards. We will inform our customers of the environmental
impacts of our products or services and try to correct unsafe use.

Environmental Restoration
We will promptly and responsibly correct conditions we have caused that endanger health, safety or the en-
vironment. To the extent feasible, we will redress injuries we have caused to persons or damage we have
caused to the environment and will restore the environment.



                                31 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Informing the Public
We will inform in a timely manner everyone who may be affected by conditions caused by our company that
might endanger health, safety or the environment. We will regularly seek advice and counsel through dia-
logue with persons in communities near our facilities. We will not take any action against employees for re-
porting dangerous incidents or conditions to management or to appropriate authorities.

Management Commitment
We will implement these principles and sustain a process that ensures the Board of Directors and Chief Ex-
ecutive Officer are fully informed about pertinent environmental issues and are fully responsible for environ-
mental policy. In selecting our Board of Directors, we will consider demonstrated environmental commitment
as a factor.

Audits and Reports
We will conduct an annual self-evaluation of our progress in implementing these Principles. We will support
the timely creation of generally accepted environmental audit procedures. We will annually complete the
Ceres Report, which will be made available to the public.

EHS ORGANIZATION
Organization                                                                                       Pinnacle West was named to the
Our Environmental, Health and Safety program is decentralized, with                              2007 Dow Jones North American and
primary responsibility for complying with EHS requirements resting                                United States Sustainability Indexes.
with the leaders and frontline employees at our various facilities. De-
partments such as Corporate EHS and Corporate Law are available to assist and support the operating areas
with technical, strategic, regulatory and legal EHS issues. They also provide strategic direction and leader-
ship on issues such as EHS risk analysis and companywide issues such as Superfund and remediation of his-
toric properties. Throughout the company, each employee shares responsibility for EHS compliance and has
an obligation to bring issues and concerns forward for resolution. This obligation is clearly identified in our
EHS Policy and in our Corporate Ethics Policy.

APS’ EHS strategic direction and leadership on company-wide safety, health and environmental issues is de-
termined by a hierarchy of cross-departmental committees and teams. These teams make recommendations
to the Vice President and Chief Sustainability Officer on matters requiring executive oversight. The teams are
also responsible for developing and updating the EHS Policy and EHS Management Plan, and ensuring inte-
grated implementation of these and other critical documents into the company’s operations. These teams
have various issues teams reporting to them. The issues teams are responsible for more detailed work on im-
portant cross-company issues.

EHS Management Systems
Our EHS Management System (EMS) is a systematic framework for managing our EHS practices and ensur-
ing we meet our goals and objectives. Our EMS is modeled upon the general format of the ISO 14000 stan-
dard for Environmental Management Systems, though we have not pursued formal certification since all of
Pinnacle West's operations are based within the United States. The EMS is based on APS’ EHS Policy, which
sets the vision and operating foundation for our EHS efforts. In addition to the EHS policy, APS has several
policies, standards and plans that underscore the importance of our commitment to excellence and ethical
business practices, including protection of our environment.

     • The APS EHS Management Plan augments the EHS policy, and outlines our EHS organization and re-
       sponsibilities for meeting federal, state, county, municipal and tribal environmental, health and safety
       laws and regulations under which we operate.
     • The APS Accident Prevention Manual details the Safety Policy, Responsibilities, and APM rules for
       employees across the company.
     • Our Ethics Policy helps us comply with policies, laws and regulations.
     • Our Standards of Business Practices focuses on meeting company standards and legal requirements.
     • The APS Code of Conduct outlines the relationship between our traditional energy delivery corpora-
       tion, APS, and our competitive retail company, APS Energy Services.


                                32 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
In 2005, APS participated in an Environmental Compliance and Management Systems Benchmarking Study
of electric utilities sponsored by the Electric Utility Benchmarking Association. In that study, APS was identi-
fied as a "Top 5" performer among participating utilities, and components of our EMS were included in the
best practices final report from that study.

We believe that the foundation of sound environmental, health and safety management is compliance with
all regulations. However, to build a true sustainable future requires innovation and leadership beyond basic
compliance. In this respect, APS’ EHS programs go beyond basic compliance in order to meet our goals of a
sustainable energy future. The results of these efforts are documented in this report as well as our other
EHS annual reports dating back to 1994.

To evaluate and strengthen our compliance management systems we have an EHS Compliance Assurance
Program, which is discussed below. EHS professionals across the company are also active in many profes-
sional and industry groups which monitor regulatory changes, evolving EHS and sustainability issues, and
other critical EHS matters affecting our industry. APS also has a Public Affairs department that monitors and
participates in federal and state legislative processes that may impact the company. All of these efforts are
coordinated within the EMS to ensure ongoing compliance and continuous improvement.

Further supporting our compliance management systems are a variety of electronic tools which we use to
both identify and manage our current EMS requirements and activities, and to track emerging issues and
regulations

EHS COMPLIANCE ASSURANCE (AUDIT) PROGRAM
Compliance Assurance Program
Our written Compliance Assurance Program establishes types of assessments and audits, reporting results
to management, corrective actions, tracking status of open items, confidentiality of information, record re-
tention, and roles and responsibilities. Results of the audit are reported directly to the responsible executive
management and at least annually to the Board of Directors.

Officers receive annual reports on audit activities and trends in audit findings. Additionally, facility managers
and EHS professionals are provided with quarterly EHS Checkpoints on EHS audit exceptions for incorpora-
tion into their EHS self-assessment activities.

In order to assure every effort is made to maintain compliance in our complex and diverse operations, the
following four-tier process is established by our Compliance Assurance Program management practice.

Tier I — Ongoing Self-Assessments
The Tier I process is relatively informal and involves routine checks of EHS programs to ensure the program
elements and standards are being accomplished. Each business unit or facility creates and maintains a plan
describing how their Tier I process is implemented. Typical program elements include:

     •   Reviews of mandatory training progress reports
     •   Reviews of monthly trend reports
     •   Field observations and walk-downs
     •   EHS data review
     •   Review of company/industry event reports/lesson learned, critiques and the use of the department’s
         performance indicators

Tier II — Focused Self-Assessments
Company EHS professionals conduct more formal and focused self-assessments annually in each business
unit/department. Tier II assessments are structured, comprehensive reviews of program performance across
the facility or department and/or the company. The Environmental Advisory Team and the Safety and Health
Advisory team develop the Tier II assessment plan at the beginning of each year.

In 2007, APS facilities completed 70 Tier II self-assessments.




                                33 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Tier III — Audit Program
Our EHS audit program is managed by a dedicated corporate EHS Audit Group, which reports organization-
ally to the PNW director of Audit Services, while maintaining lines of ongoing communication to the Vice
President & Chief Sustainability Officer. The director of Audit Services reports directly to the Chairman and
CEO of Pinnacle West and the Audit Committee of the PNW Board of Directors.

The corporate EHS Audit Group is responsible for conducting interviews with Executive Management, Man-
agement and EHS professionals as part of a risk-base scheduling process, in order to create a schedule of
audits at the beginning of each year In addition, the EHS Audit Group facilitates the auditing process so that
each audit is completed. Cross-functional teams are used to conduct detailed annual compliance audits of
EHS programs where appropriate. These teams can include technical and operational experts from opera-
tions across the company. Our audits incorporate applicable environmental, health and safety regulatory re-
quirements and internal EHS policies, procedures and management practices.

The Tier III process also includes a review of the Tier I plans and to verify that a Tier II corrective action
process is in place according to the APS EHS Best Management Practice.

The EHS Audit Group conducted 21 formal Tier III audits at APS facilities in 2007.

Tier IV — Periodic Compliance Reviews
Periodically, a detailed review of the compliance status of EHS programs are conducted. These reviews are
used to establish the baseline of compliance within the EHS programs and identify areas for future Tier II as-
sessments. The reviews are completed either by an independent third party, by internal teams of EHS profes-
sionals or by a combination of internal and external professionals. Such reviews may also be done at the
direction of the Pinnacle West Law Department, utilizing an independent third party or an internal team of
EHS professionals.

In 2007, a Third Party Review was conducted of the EHS Compliance Audit Program. The purpose of this re-
view was to determine PNW compliance audit program conformance with selected reference standards,
audit procedures and program requirements, and to identify strength and opportunities for improvement.
The review did not identify any gaps between the requirements of the external standards and the design of
the PNW program.

EHS TRAINING AND RECOGNITION
EHS Training
In 2007, our employees completed more than 56,000 EHS related training courses. This included training in
383 different compliance required topics, and 26 non-required topics areas. Compliance required topics in-
cluded training required by agencies including OSHA, Department of Transportation (DOT), EPA, NRC and
the Mine Safety and Health Administration (MSHA). Through a detailed profiling process, employees are as-
signed required topics based on the type of work they do. This ensures a safe and healthy work environ-
ment, while allowing the company to maintain compliance. EHS training is tracked via a dedicated computer
tracking system to ensure employees are assigned and received the necessary training during the year.

EHS Excellence Awards
In addition to normal employee merit and incentive recognition, outstanding individual environmental, health
and safety performances and initiatives are recognized through the APS Environmental, Heath and Safety
Excellence Awards program. The EHS Excellence Awards Program’s goals are to encourage employees to
recognize each other, individuals and teams, specifically for embracing our company values through EHS ex-
cellence, with increasingly greater participation by employees who do not have primary roles and responsi-
bilities in EHS.

 In 2007, 21 EHS Excellence Awards were given to individual employees and employee teams. The honored
employees were also recognized in our internal company communications.




                                 34 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
EHS TARGETS
Our EHS policy and Environmental Management System set the framework, goals and objectives of our EHS
activities. In addition, APS sets more specific targets in certain key EHS areas. These targets are integrated
into corporate and departmental level business plans, and are included as part of employee performance re-
views and as a component of corporate incentive pay.

In 2005, APS developed a new long-range business plan encompassing the years 2005 to 2010. This Busi-
ness Plan identifies safety and the environment as two of our six core values. The Business Plan establishes
specific short- and long-term corporate targets for environmental and safety, including the following targets
to be met by 2010:

Safety

    • To achieve the number one ranking among like-sized investor-
      owned utilities for OSHA recordable injuries (all injury incident
      rate, lost work incident rate and severity incident rate) (current re-
      sults discussed in our Employee Safety section of this report)
Environmental

    • To reduce carbon intensity by 10 percent in year 2010 from a year 2000 baseline (current results dis-
       cussed in the Climate Change section of this report)
    • To implement voluntary emissions-reduction programs at the Cholla and Four Corners Power Plants
       (current results discussed in the Air Emissions section of this report)
    • To meet environmental portfolio standard requirements for renewable energy (current results dis-
       cussed in the Renewable Energy section of this report)
Additional targets which were included in the 2007 employee incentive plan include:

     • Reportable environmental incidents
     • EHS related fines
     • CEMS availability
     • Number of environmental self-assessments completed
     • Number of recordable OSHA injuries
Each business group set individual goals for the above and achievement of those goals direct directly to em-
ployee incentive payments. These environmental goals are set annually and reviewed for improvement at
the end of each calendar year

CLIMATE CHANGE
We recognize that climate change is a real world problem that needs to be addressed. It is a long-term issue
requiring long-term vision and steadfast effort. APS has responded to the challenges presented by climate
change since 1995 when APS signed the Department of Energy Climate Challenge and committed to limiting
emissions to 1990 levels by 2000. In 2006, the United States Environmental Protection Agency awarded
APS with its Climate Protection Award, which recognized the many efforts the company made over the past
decade in climate change response.

We are continuing to build on those past efforts with a comprehensive climate change program that in-
cludes a broad range of actions and programs that are designed to respond in a responsible manner to this
issue, recognizing the governance, regulatory and strategic risk management aspects of climate change.

Our climate change program includes:

     • A climate change governance structure that includes Board and Executive management engage-
       ment and oversight
     • A written company position on climate change, which sets the foundation for APS legislative and
       regulatory intervention
     • Establishment of a voluntary carbon emission intensity reduction goal



                                35 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
    • Voluntary inventory and reporting of greenhouse gas (GHG) emissions, including becoming a found-
       ing member of The Climate Registry
    • Legislative and regulatory monitoring and involvement at the federal and state levels
    • Voluntary participation in the EPA’s SF6 Emission Reduction Partnership for Electric Power Systems
    • nclusion of carbon issues as a major component of our Integrated Resource Planning process for fu-
       ture energy sources
    • Voluntary actions to reduce emissions at existing generating facilities through improved efficiencies
       and increased capacity
    • Voluntary actions in carbon sequestration, capture and avoidance
    • Technology innovation to identify low carbon energy sources, increase efficiencies, conserve energy,
       as well as innovative technologies to reduce emissions, or sequester, capture or avoid carbon emis-
       sions
    • Addition of non-carbon emitting renewable energy resources
    • An aggressive Demand Side Management / energy efficiency program to reduce electric demand
       both by our customers and our internal operations
    • Engagement with concerned stakeholders through communications such as this report, stakeholder
       meetings as part of our Integrated Resource Planning process, voluntary participation in the Carbon
       Disclosure Project, and through the Arizona Corporation Commission regulatory process.
    • Identification of potential physical, regulatory and financial risks to our company associated with cli-
       mate change
    • Fleet management activities, including measures to increase fleet miles per gallon and reduce miles
       traveled.
    • Internal energy efficiency measures, includes building all new facilities in accordance with LEED stan-
       dards.
We are also currently developing a Climate Management Report to comply with an Arizona Corporation
Commission (ACC) order in which the ACC directed APS to undertake a climate management plan, carbon
emission reduction study and commitment and action plan with public input and ACC review. We expect to
complete the report in 2008.

Climate Change Governance
Our climate change governance structure includes:

     1 Board of Directors and executive management engagement and
       oversight
     2 Public Disclosure
     3 Emissions accounting
     4 Strategic Planning, including incorporation into business opera-        APS is a founding member
       tions, establishment of GHG reduction targets, and development            of The Climate Registry
       and implementation of business strategies to reduce GHG emis-
       sions and to minimize exposure to regulatory, operational and other risks from climate change.

Pinnacle West/APS Climate Change Position
APS supports a practical, long-term and sustainable approach to addressing climate change. The program
must be national in scope and address all major sources of greenhouse gas emissions economy-wide.

Any program to reduce greenhouse gas emissions must realistically address the significant challenges pre-
sented by rapid growth in certain areas of the United States, like Arizona, which is one of the fastest growing
states in the nation.

Under these rapid growth conditions short term mandates to roll-back greenhouse gas emissions to past
levels are not realistic and will be practical only when low and no carbon technologies are commercially
available to achieve the mandates AND meet the affordable energy needs of our customers.

Emission reduction goals must be predicated upon the development and commercial deployment of low and
no carbon technologies. Timely and successful deployment of new energy technologies will require signifi-
cant sustained levels of federal and state financial support.




                                36 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
                                                                       In the short term, strategies should focus on (i)
                                                                       energy efficiency in all sectors of the economy, in-
                                                                       cluding transportation, construction, appliances,
                                                                       electric utilities and consumption patterns, (ii) de-
                                                                       ployment of cost effective renewable resources,
                                                                       and (iii) utilizing low and no carbon generation
                                                                       technologies that are available to address demand
                                                                       growth and fuel diversity risk.

                                                              In the longer term, APS supports a market based
                                                              approach to addressing Climate Change, such as a
                                                              cap and trade program. Such a program should be
                                                              (i) phased-in and include a price cap to avoid the
                                                              economic disruption that will occur in the event
                                                              that the technology to achieve emission reduc-
tions are not developed or deployed, (ii)updated periodically to recognize and account for rapidly growing
areas of the United States, (iii) conditioned to require participation by developing nations, and (iv) designed
to create new economic opportunities arising from emerging new technologies and processes.

Any federal regulatory process and structure must avoid conflicts and redundancies with state climate
change programs and be (i) crafted to allow regulatory rate-based treatment for associated costs, and (ii)
developed to provide incentives for utilities to undertake early investment in low and no carbon technolo-
gies.

Finally, any legislation must recognize early action/investments to mitigate greenhouse gas emissions in-
cluding the recognition of domestic and international greenhouse gas offsets.

APS Voluntary Climate Change Goal
We have established an internal voluntary climate change goal in our 2005-2010 business plan.

The goal: To reduce carbon intensity from electricity generated from APS owned power plant and APS pur-
chased renewable generation by 10 percent in target year 2010 from a baseline year 2000. The carbon in-
tensity for this goal has reduced to 1,258 lbs/MWh in 2007 from 1,324 lb/MWh in baseline year 2000. This is
a 5 percent reduction. (Note that the carbon intensity number for the goal is different than the carbon inten-
sity in the CO2 Emissions Rate graph below since the goal includes purchased renewable power, while the
emissions graph is only APS owned generation.

We will continue to work towards our 2010 goal to reduce CO2 emissions intensity. In this short term time
period our efforts primarily will be through increasing use of non-emitting renewable energy in our energy
mix; increasing use of lower emitting natural gas; and improvements in power plant efficiencies and capacity
which allows us to generate more electricity for the fuel
burned.

We have considered an actual reduction goal, but with our
continued growth in customers and energy demand, we
will need to increase supplies such as lower carbon natural
gas peaking units, at least in the short term until new tech-
nology becomes commercially available.

APS GHG Emissions Inventory
Based on an internal evaluation of APS direct emissions of
greenhouse gases, more than 98 percent of GHG emissions
at APS owned facilities is carbon dioxide coming from
smokestack emissions at our fossil fuel power plants.
About one percent of our overall GHG emissions are from
sulfur hexafluoride (SF6) emissions from electrical equip-
ment located across our system (SF6 is discussed further


                                37 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
below). The remaining small contribution is from activities
such as our fleet transportation (line trucks, bucket trucks
and other company vehicles). We have a number of pro-
grams in place to address each of these areas, examples of
which are discussed in this report.

APS has participated since 1995 in the Department of Energy
1605(b) voluntary greenhouse gas emissions reporting pro-
gram. In 2007, APS became a founding member of The Cli-
mate Registry, and will begin reporting to the Registry with
our 2008 GHG inventory. APS also provides an annual report
to the EPA (starting in 2005) regarding results in SF6 emis-
sion reduction through the EPA Utility SF6 Partnership pro-
gram.

EPA SF6 Emission Reduction Partnership for Electric
Power Systems
In 2004, APS joined the EPA’s SF6 Emission Reduction Partnership for Electric Power Systems. This is a vol-
untary, collaborative effort between EPA and the electric power industry to identify and implement cost-ef-
fective solutions to reduce sulfur hexafluoride (SF6) emissions. SF6 is a highly potent greenhouse gas used
for insulation and current interruption in electric transmission and distribution equipment. As part of this
partnership, APS is taking voluntary efforts to significantly reduce SF6 emissions. APS' goal in the SF6 part-
nership is to reduce equipment leak rate from 18.38 percent in the base year of 2001, down to 5 percent by
the end of 2008.

By the end of 2006, APS had reduced equipment leak rate from 18.38 percent down to 4.9%, beating our
target date by 2 years. We will continue to work on voluntarily reducing our emissions even further. Our re-
sults in 2006 resulted in eliminated an estimated 19,624 pounds of SF6 emissions in 2006 compared to our
baseline year of 2001. Based on the EPA's greenhouse gas equivalencies, this reduction of SF6 is equivalent
to a reduction of 256,936 tons of carbon dioxide.

Please view our online report for more information on our SF6 program.

APS actions in carbon sequestration, capture and avoidance
Ash Sales to reduce GHG
U.S. power plants produce millions of tons of coal fly ash annually. APS is using its fly ash to help reduce
greenhouse gases while adding to its bottom line. APS sells much of its fly ash to Salt River Materials Group
for use in concrete production. This allows them to use the coal ash as a base product in cement production,
eliminating their need to produce this material and significantly reducing their energy consumption in ce-
ment production. In 2007, APS recycled 943,814 tons of coal ash for cement production or other use, reduc-
ing overall greenhouse gas emissions by over 200,000 tons of carbon dioxide.

Ownership of GHG reductions from activities such as ash recycling are current established by APS in con-
tractual language with the other parties involved, in order to prevent "double reporting" of reduction num-
bers and to establish potential ownership of future emission credits.

PowerTree Carbon Company
To achieve additional CO2 reductions, APS joined 24 other electric utilities in the PowerTree Carbon Com-
pany, which plants trees in ecologically sensitive areas of the lower Mississippi Valley in cooperation with
local and national, governmental and conservation organizations. Planting began in 2003 and over two mil-
lion tons of CO2 are expected to be sequestered over the 100-year life of the project. In 2007, APS' share of
PowerTree Carbon Company sequestration results was the equivalent of a reduction of over 60 short tons of
carbon dioxide.

Emission Reduction/Sequestration
APS has an active technology research and development program which is exploring new ways to reduce or
sequester carbon dioxide emissions from existing and future electric generation. This includes the develop-


                               38 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
ment of renewal energy sources, innovate pollution reduction technologies for fossil fuel power plants and
other clean energy strategies.

In addition, we are looking at other types of innovative (and sometimes unusual) technologies that can help
create a sustainable energy future and reduce greenhouse gases (See Technology Innovation section for de-
tails). An example of this effort is our Emissions to Fuel project in which APS is evaluating the possibility of
using carbon dioxide in stack emissions to grow algae, which will then be used for bio-fuel. Another exam-
ple is West Coast Regional Carbon Sequestration Partnership (WESTCARB), a research project evaluating
whether storing carbon dioxide underground may be a viable option for reducing greenhouse gas emissions
into the atmosphere.

Up-Rating at PVNGS and Avoided GHG Emissions
The Palo Verde Nuclear Generating Station is the largest nuclear power plant in the U.S. It is owned by a
consortium of utilities, including APS, which holds the largest share (29.1 percent) and operates the plant. On
average, the plant displaces about 30 million tons of CO2 annually when compared to the equivalent amount
of power produced by coal resources. About 9.5 million tons is APS’ annual share of the offset. By end of
2007, the plant’s total generating capacity will be increased by 198 MW (to a total of 4,008MW), and it is es-
timated that it will avoid an additional 1.71 million tons of CO2 annually. APS’ share of that offset will be
about 0.5 million tons per year.

We have also implementing efficiency upgrades at our Cholla Power Plant. An improved design of the steam
turbine blades has improved the mechanical efficiency of the turbine, allowing the same amount of coal burn
and same amount of steam flow to be used more efficiently to produce more power (watts). This results in
more megawatts being provided to the customers per ton of coal being burned and thus, less CO2 being
emitted per megawatt hour produced.

Potential physical, regulatory and financial risks to our company associated with climate change
Changes in the global climate may result in regional changes that might impact the physical or operational
environment of an electric utility such as APS. According to the Intergovernmental Panel on Climate Change
(IPCC), North America – including the United States- is projected to warm by about 2 to 13 degrees F by
2100. Other projections for the Southwest US from climate change models include an increase in the number
of extreme hot days in the summer, less precipitation in the form of snow and the earlier runoff of snowmelt,
increased wildfire potential, and the potential for increased water shortages.

However, there is a great deal of uncertainty in predicting climate changes, particularly for a specific region.
The US EPA warns that “projections of climate change in specific areas are not forecasts but are reasonable
examples of how the climate may change”.

Assuming that the primary physical and operational risks to APS from climate change are increased poten-
tial for drought or water shortage, and a mild to moderate increase in ambient temperature, we believe that
we are taking the appropriate steps at this time to respond to these risks. Weather extremes in drought and
high temperature variations are common occurrences in this Southwest United States desert area, and these
are risk factors that we consider in the normal course of business in the engineering and construction of our
electric system.

The National Electric Safety Code does not specify ambient temperatures to use, rather requires utilities to
consider their local situation. APS would naturally have a higher ambient temperature than many other utili-
ties, and engineers for higher ambient temperatures, including safety factors. APS typically assumes an am-
bient temperature of 120 degrees F as the starting point for determining what our materials need to be rated
to. For overhead conductors, that assumption relates to a conductor temperature of 212 degrees F for de-
termining the maximum amp rating for each conductor. Increased ambient temperature would reduce the
amount of power a conductor or other material could carry before reaching its operating temperature. If cli-
mate change were to slightly increase the ambient temperature, then our materials should be fine as we
build in safety factors when considering what temperature they will reach during heavy electricity usage
times. Large increases in ambient temperature due to climate change might require evaluation of some ma-
terials and represents a greater challenge. These are important factors that we will continue to monitor in
our resource planning and system maintenance processes.


                                39 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Arizona is currently in a decade plus long period of drought, with no water supply impacts to our generating
facilities. About 56% of the water used by APS owned generation comes from treated effluent from cities in
the Metro Phoenix area - this is the water used by our Palo Verde Nuclear Generating Station and our Red-
hawk natural gas generating station. The majority of the remaining water comes from deep underground
wells or on-site lakes at our power plants. Water use, source and long-term availability are criteria evaluated
in our resource planning process for all new owned generation or contracts for purchased generation. Our
goal is to minimize water use and insure the long term reliability of the water source. Our PNW Corporate
Responsibility Report provides additional discussion on PNW water use and conservation.

Higher temperatures may decrease the snowpack, which might result in lowered soil moisture and an in-
creased threat of forest fires that could threaten our communities and electric transmission lines. Arizona
has seen an increase in forest fires with the current drought situation. We have responded to the threat in
ways such as aggressively clearing our rights-of-ways to decrease fire danger to our lines.

In addition to design and engineering factors, APS prepares high temperature load forecasts that capture
the possibility of experiencing more extreme temperatures than our "normal" peak day conditions. These
high temperature load forecasts are then provided to our distribution system planners for use in their plan-
ning so that they know what their capacity requirements could be under such conditions.

Financial Risks
The largest financial risks to APS from climate change are likely associated with the potential costs associ-
ated with climate change legislative and regulatory programs at the federal and state levels. Potential im-
pacts of future carbon legislation is discussed as part of our Integrated Resource Plan.

To best manage these risks, APS will maintain an active legislative monitoring and intervention and will in-
corporate climate change issues into our Integrated Resource Planning process. Other components of our
climate change program, including DSM, renewable energy and technology innovation, will also play signifi-
cant roles in managing financial risks associated with climate change.

Western Climate Initiative
In 2007, six western states, including Arizona, and two Canadian provinces entered into an accord, the West-
ern Climate Initiative (WCI), to reduce greenhouse gas (GHG) emissions from automobiles and certain indus-
tries, including utilities. In August 2007, the WCI set a goal of reducing GHG emissions 15% below 2005
levels by 2020. By August 2008, the WCI intends to develop a plan for implementation of this goal, which
includes a cap and trade program. Any such implementation would require independent action by each in-
dividual states or province's legislature or Governor to adopt a version of the plan. APS has participated in
an advisory capacity in the WCI process and will continue to monitor the impact of this Initiative. As stated
in our climate change position, above, APS believes that climate change programs, including cap and trade
programs, should best be undertaken at the federal level rather than at the state level. Having different state
climate management programs across the country is neither efficient nor sustainable for this type of global
issue. It now appears that federal climate change legislation is likely within the next couple of years, and is
supported by all of the presidential candidates. If Arizona is going to adopt regional programs like the WCI,
the program should include legislative involvement and approval.

AIR EMISSIONS
Our company maintains air emissions per megawatt-hour at or below industry averages. This is achieved
through the use of non-emitting nuclear power and renewable energy in our generation mix, emissions con-
trol technology, improved power plant efficiency and a more-diverse fuel mix which includes nuclear, gas/oil,
coal and renewables. In addition, we have an aggressive demand-side management program that works to
improve energy efficiency and reduce per capita demand.

Pollutant Emissions from the APS Generation System
The air emission charts, which are available in the online version of this report, show our air emissions of pri-
mary pollutants from power plant electricity generation over the last five years. These charts show a




                                40 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
generally continuing longer term downward trend in the emissions intensity for the priority pollutants. Car-
bon dioxide emissions are discussed in the Climate Change section of this report.

       Nitrous Oxides (NOx)
       Sulfur Oxides (SOx)
       Particulates (PM)
       Carbon Monoxide (CO)
       Volatile Organic Compounds (VOCs)
       Lead (Pb)
       Mercury (Hg)

APS plants comply with existing Clean Air Act (CAA) regulations. However, as we plan for the future, we rec-
ognize the need to continue to reduce air emissions in our operations, both in new generating facilities and
in improving current facilities. Air emissions are a major consideration in our resources planning process for
new generating facilities. In addition, we are taking significant steps to reduce air emissions in our existing
facilities, as described below.

Voluntary air emissions reductions at Cholla Power Plant
APS initiated discussions with a variety of stakeholders, including the US EPA and the Arizona Department
of Environmental Quality (ADEQ), regarding voluntary sulfur dioxide (SO2) and nitrogen oxide (NOx) emis-
sion reductions at the Cholla Power Plant, resulted in an agreement in 2005 to implement several pollution
control enhancements at the Cholla plant. The following is the status of the projects:

         Unit 1: a new fabric filter (bag-house), low-NOx burners (LNBs) and carbon monoxide (CO) continu-
         ous emissions monitors (CEMS) have been installed. Changes to the S02 scrubber were completed.
         All equipment is now operational.
         Unit 2: LNBs and CO CEMS have been installed, and final tuning of instruments and systems is pro-
         gressing.
         Unit 3: we will replace the existing hot-side electrostatic precipitators (ESPs) with a new fabric filter
         (bag-house), install new LNBs, CO CEMS, and a new SO2scrubber and controls in 2009.
         Unit 4: we are replacing the existing hot-side ESPs with a new fabric filter (bag-house), installing new
         LNBs, CO CEMS and a new SO2 scrubber, and the unit will be operational with this new equipment in
         May 2008.
This collaborative approach for voluntarily achieving more emission reductions sooner – and at lower costs –
assures Cholla’s economic viability and benefits APS shareholders, customers, regulators and most impor-
tantly, the environment.

Voluntary air emission reductions at Four Corners Power Plant
In 2003, APS, various Environmental Groups, Navajo EPA, U.S.EPA, and the National Park Service agreed on
a proposal to test potential reductions in SO2 emissions at the Four Corners plant, utilizing an 18-month-long
test program. The test program involved certain phased op-
erational changes and scrubber chemical process changes to
increase the SO2 control level from 72 percent to 85 percent,
without triggering operational problems. APS initiated the
test program in early 2004.

The test program was completed during summer 2005. APS
determined that the plant was able to meet and exceed the
goal of 85 percent SO2 removal by achieving an SO2 removal
rate of 88 percent. At that elevated control level, the plant
was able to cut its annual SO2 emissions by more than 55
percent, compared to the pre-test level. APS worked with the
various groups involved, including the regulatory agencies, to
incorporate the higher SO2 control level as an enforceable
emission limit for the plant. The figure below shows historic and projected future Four Corners emissions,
and illustrates a dramatic drop in SO2 in 2005 from the test program.

APS has submitted a BART analysis for NOx and PM emissions to EPA, Region 9. The analysis indicates that
LNB is BART for Units 1-2 and LNB/OFA is BART for Units 3-4-5, and that existing PM controls constitute
BART.
                                41 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Travel Reduction Program
Employee Travel Reduction is an important part of our EHS programs, particularly in the Phoenix area – a
U.S. Environmental Protection Agency (EPA) non-attainment area for particulate matter and eight-hour
ozone standard. We encourage employee travel reduction activity and offer subsidies to further persuade
our employees to use alternative means of transportation. Our subsidies cover a portion of the costs for van-
pooling, bus fares and carpool parking. We accommodate compressed work weeks, telecommuting and
videoconferencing. We also offer assistance to employees in finding carpool partners, and in setting up car-
pools. The Travel Reduction Program also has a reward program for employees participating in travel reduc-
tion on High Pollution Advisory days.

                                        APS maintains a fleet of 167 vans that operate daily for employees
                                        commuting between Palo Verde Nuclear Generating Station (PVNGS)
                                        and the Phoenix area. APS began operating this program in 1994 and
                                        almost 62 percent of the permanent APS employees at PVNGS partici-
                                        pate. This program has significantly contributed to the site achieving a
                                        single occupant vehicle (SOV) rate well below the 60-percent target.
                                        The fleet approaches five million commuting miles annually. The com-
                                        muting miles eliminated with this outstanding program is more than
                                        32.7 million annually, resulting in a pollution savings of approximately
                                        442 tons each year.

                                     In 2007, Pinnacle West increased its travel reduction incentives for em-
ployees. Current travel reduction incentives for employees include:

     • $50 monthly subsidy toward vanpool expense for employees who commute in any local Valley Metro
       vans. The employee monthly costs are payroll deducted
     • A 100 percent subsidy of the monthly accrued bus fares up to $68 to employees who commute by
       bus
     • Employees carpooling do not pay the monthly $46 for parking at company headquarters


WASTES
Hazardous Wastes
We have had hazardous waste minimization programs in place for a number of years, which has resulted in
significant reductions in the amount of hazardous wastes generated at APS facilities.

All our facilities are now normally classified as Small Quantity Generators (SQG) or Conditionally Exempt
Small Quantity Generators (CESQG) of hazardous waste, and in 2007 none of our facilities were classified as
Large Quantity Generators of Hazardous Waste. In
2007, APS has continued to show good results in haz-
ardous waste reductions, as shown in the chart below.
All of our hazardous wastes are transported by permit-
ted companies to EPA permitted hazardous waste dis-
posal facilities located in the United States.

Non-hazardous Wastes
We have an aggressive waste reduction, recycling and
reuse program in place at facilities across our organiza-
tion. Our first priority is waste reduction. Each facility
reviews its waste streams and looks for opportunities to
reduce waste. Some of these activities include working
with suppliers to reduce packing materials and pallets,
substituting products, paper reduction in offices and
other strategies to try to reduce wastes. Our second approach is an extensive program to recycle materials.
Our Deer Valley Service Center serves as a central management point for many recycled materials. As the
chart below shows, APS recycles thousands of tons of materials each year. APS also has a very successful
Investment Recovery department that manages surplus materials for reuse.

                               42 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
APS is a member of the EPA's WasteWise
Partnership and Coal Combustion Prod-
ucts Partnership (C2P2). WasteWise is a
voluntary EPA program through which
organizations work to minimize solid
waste. C2P2 is a cooperative effort be-
tween the EPA and the Utility Solid
Waste Activity Group (USWAG) to help
promote the beneficial use of coal combustion products and the environmental benefits that can result.
Each year, APS sends almost 1 million tons of coal combustion products for reuse, which results in significant
benefits to the environment, including hugh reductions in overall CO2 emissions as described in our Climate
Change section.

Used Nuclear Materials
                                                             Nuclear waste issues as discussed in the Generation
                                                             section of this report.

                                                             Vendor Audits
                                                             The EHS Audit Group performs audits of all vendors
                                                             that provide waste disposal or recycling activities and
                                                             services to company facilities. This program evaluates
                                                             our vendors' facility operations, environmental manage-
                                                             ment systems and financial strength in order to mini-
                                                             mize short- and long-term liability caused by vendor
                                                             actions or omissions. The audits also ensure that our
                                                             waste materials are being properly managed once they
                                                             leave our facilities. Twenty-six vendor audits were com-
                                                             pleted in 2007, including sixteen audits of waste treat-
                                                             ment, storage and disposal facilities, five audits of
                                                             recycling firms, four EHS service providers, and one lab-
                                                             oratory.

Pinnacle West belongs to the Joint Utility Vendor Audit Consortium (JUVAC), CHWMEG Consortium and the
Desert Utility Vendor Audit Team (DUVAT). The consortiums are made up of various organizations or part-
nerships that conduct vendor audits and make them available to their members. Participation in these con-
sortiums helps to leverage auditing resources and performance.

WATER MANAGEMENT
Water is a precious resource in the Southwest, and APS' facilities strive to minimize water usage through a
variety of water-conservation activities and through use of treated effluent as a water source. In fact, 60 per-
cent of all water used by APS is treated effluent as discussed in the section below. APS' major use of water is
in electricity generation.

Our SunCor affiliate also has numerous water conservation efforts in place, which are discussed in the Sub-
sidiary section of this report.

Use of Treated Effluent
One of our major water conservation methods is to use treated effluent for our water source in power gener-
ation at our Redhawk and Palo Verde power plants. APS is one of the largest users of treated effluent for
power generation in the United States. This significantly reduces the amount of potable surface and ground-
water required in our generation activities. As shown in the chart below, in 2007 over 60 percent of our total
power plant water came from treated effluent. At the Palo Verde Nuclear Generating Station and our Red-
hawk natural gas-powered facility, we use treated effluent purchased from seven cities in the Phoenix metro-
politan area for cooling. A 35-mile pipeline carries treated waste water from a City of Phoenix sewage
treatment facility to Palo Verde, where we use an advanced waste-water treatment process capable of
preparing 90 million gallons of water each day for use at both Palo Verde and Redhawk.

                                43 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Each year, Palo Verde's water reclamation facility processes about 20 billion gallons of treated effluent for
power plant use, preserving enough potable water for about 75,000 homes.

                                                  The chart is based on a total water use of 35,465 million gallons
                                                  (111,907 acre-feet) in 2007.

                                                  Another way in which APS conserves water is through careful
                                                  water chemistry and treatment. This allows for a high level of
                                                  water recycling in our electricity-generation process. We reuse
                                                  our water supplies as much as possible to avoid wasting water,
                                                  however, some water must be discharged (this is called "blow-
                                                  down water") to control the salinity of the water used in the
                                                  power plant processes.

                                              Water use was also an important consideration in the design of
                                              our newest power plants, and APS strived to incorporate water
                                              conservation measures in these new plants, resulting in power
                                              plants that utilize less water per MWh generated. The type of
cooling system used in new plants is critical to the amount of water used, and APS is committed to using dry
or hybrid cooling in new power plants whenever feasible.

                                              APS has also been able to reduce water use in power plant
                                              generation over the past several years. However, in 2007, the
                                              water use increased slightly, primarily due to operational is-
                                              sues at our Four Corners Power Plant. Two factors increased
                                              the water use at this plant. One was the increased removal of
                                              SO2 by the air pollution control equipment. This equipment
                                              required more water to function properly. In addition, there
                                              were mechanical problems at Unit 5 that caused this unit to
                                              produce less power than normal. The result is the overall
                                              water use at the plant increased because proportion of power
                                              produced by
                                              the older units
                                              1, 2 and 3 in-
                                              creased.
                                              These units are
                                              not as efficient
                                              as the newer
units 4 and 5. The problems at unit 5 have been corrected.

Other Water Conservation Efforts
APS also incorporates water conservation and use ideas into
facility building and maintenance as part of our participation
in the LEED program, and practices other water conservation
measures at our office facilities, such as the use of non-flush
toilets in our corporate headquarters building, and the re-
placement of grass with desert landscaping at some other fa-
cilities.

MATERIAL & CHEMICAL MANAGEMENT
Properly managing the materials and chemicals used in our daily operations is a high priority. Effective pro-
curement management can result in environmental benefits, such as reduced wastes and toxicity, as well as
financial benefits. We have developed procurement procedures and tools that help maximize these benefits.
In addition, we have programs in place that allow us to reuse materials within the company.




                                44 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Environmentally Preferred Procurement
|Our EHS policy confirms our corporate support for green procurement, including sections on use of safe
products and services, sustainable use of natural resources, stewardship of natural resources and pollution
prevention. Our internal corporate procurement procedures further defines this policy :The purchase of all
products, including chemicals and hazardous materials, will only be made after consideration of the prod-
ucts' total life cycle. Prior to procurement, materials must be evaluated for environmental attributes such as
                                                                      recycled content, toxicity and disposal
                                                                      options. Employees making procurement
                                                                      decisions share in this responsibility in
                                                                      order to minimize adverse environmental
                                                                      impacts and future liability.

Investment Recovery
APS also has a very successful Investment Recovery department that manages surplus materials. The first
objective is to re-deploy useful material within the company. For materials that can not be re-deployed, In-
vestment Recovery may sell, recycle or donate materials. Disposal is the last option. In 2007, Investment Re-
covery recorded $6.9 million of total recovered dollars (up from $4.4 million in 2006) from recovered
materials, and an additional $400,384 of avoided costs (e.g. avoided landfill costs on recycled materials), up
from $361,368 in 2006.

In 2007, more than 12.1 million pounds of materials were recycled through Investment Recovery’s programs,
up from 11.4 million pounds recycled in 2006.

Chemical Management
All hazardous materials that are used by the company are required to be reviewed by a Chemical Review
Team prior to purchase in order to help ensure the use of materials with lower environmental and safety im-
pacts. The teams review new products and compare them to existing products to see which provides the
greatest overall benefit to the company. These teams also provide ongoing reviews of current products to
evaluate for “greener” alternatives.

All chemical products are assigned a "EHS Rating" based on the Chemical Abstract Numbers (CAS) of the
ingredients in the product and the products National Fire Protection Association (NFPA) rating. This allows
us to quickly evaluate and compare the potential risks and hazards of the products we use, and to make bet-
ter informed decisions regarding the approval of new products.

Through this process, APS has been able to reduce the number of chemical products across our system by
about 50 percent over the past 10 years, and to also reduce the potential risk of the chemical products we
use by substituting products with a lower potential for health or environmental impacts.

MSDS
All chemical products used at APS are included in an electronic Material Safety Data Sheet (MSDS) system
which is available to any employee across the company. APS facilities may use only those products approved
for use and which are coded on this system. The electronic MSDS system provides other benefits to our EHS
efforts since it allows us to quickly identify the specific chemical ingredients contained in the products at our
facilities, while highlighting the risk profile of specific products. The MSDS system also allows users to print
labels for secondary containers, and improves our ability to identify hazardous materials, in order to ensure
such materials are properly stored and handled.

PCB Management
For a number of years, APS has had an aggressive PCB management program in place to manage PCB and
PCB contaminated equipment. APS has been successful in reducing the use of PCBs in electrical equipment
by targeting suspected equipment based on manufacturer name and serial numbers. The PCB status of our
electrical equipment is tracked in an electronic database, which is readily available across the company, in-
cluding to our field operations via computers in their trucks.




                                45 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Facility Energy Management
Our company has long been a leader in energy efficiency and energy conservation, and many of our facility
energy management efforts have been described in our past EHS Annual Reports. We continued our efforts
with positive results in 2007. Facility energy management is also being added to our sustainability metrics
and starting next year we will begin reporting actual energy use numbers for our internal facilities.

Our facilities implement a variety of energy-efficiency measures including:

     • Operating air conditioning systems with energy-efficiency software that manages duty-cycling and
       set-backs
     • Replacing out-dated air conditioning with high-efficiency equipment
     • Writing all new construction specifications with energy efficiency in mind
     • Requiring energy-efficient Energy Star computers whenever new computer equipment is needed
More than 97 percent of our facility space is equipped with energy-efficient fixtures. We estimate energy
savings of more than 13 million kilowatt-hours (kWh) per year from the use of energy-efficient products.

In 2003, our corporate headquarters in downtown Phoenix was converted to the Northwind Cooling system
which uses an industrial grade, ice-based chiller that manufactures three million pounds of ice each night
when utility loads and rates are lowest. The conversion to Northwind eliminated the on-site requirement
need for cooling towers and their associated air-conditioning chillers, resulting in a significant reduction in
water consumption in the cooling towers, and the elimination of CFC refrigerant R-11 from the chillers.

We are currently developing a voluntary internal metric for energy conservation.

APS LEEDs By Example
APS is a registered member of the U.S. Green Building Council and has committed to a goal of incorporating
Leadership in Energy and Environmental Design (LEED) principles in our building design and maintenance.
LEED principles encourage “design and construction practices that significantly reduce or eliminate the neg-
ative impact of buildings on the environment and occupants in five broad areas: sustainable site planning,
safeguarding water and water efficiency, energy efficiency and renewable energy, conservation of materials
and resources, and indoor environmental quality.”

The LEED rating system ensures buildings meet a minimum set of criteria in each of five categories, con-
tributing to a sustainable environment, ensuring a healthy and safe workplace and reducing operational
costs.

APS is taking an active role in LEED in order to ensure the sustainability of our own facilities, and to allow us
to generate interest for the program as well as educate our customers who may be interested in participat-
ing in the LEED program.

APS has three registered LEED projects: the Wicken-
burg and Flagstaff Service Centers and the new
Ocotillo Service Center, and has a voluntary commit-
ment to build all new facilities in compliance with
LEED standards.

Mobile Fleet
APS has 2,209 company-owned vehicles, which are
managed by the APS Transportation Services depart-
ment. These vehicles are used to operate and main-
tain our electric generation, transmission and
distribution facilities, business offices and other oper-
ations which are located throughout the state of Ari-
zona.

We have been able to significantly increase our fleet fuel efficiency over the past several years, improving
from an average of 4.9 miles per gallon in 2001 to an average just over 9 miles per gallon in 2007.



                                 46 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
APS is also evaluating the use of hybrid line trucks and will purchase hybrid cars for future fleet use in order
to further improve mile per gallon.

                        LAND USE AND BIODIVERSITY
                        Wildlife Protection Programs
                       The APS Forestry and Special Programs Department (APS F&SP) is responsible for
                       administering a variety of operations-related environmental programs associated
                       with vegetation management, wildlife protection, landscaping, wood preservation
                       and electrical hardware inspection. To meet the compliance requirements of the Na-
                       tional Environmental Policy Act (NEPA), Endangered Species Act (ESA) and other
                       pertinent regulations, the department has evolved to include a dedicated staff of de-
greed natural resource professionals including foresters, arborists, wildlife specialists, biologists, an environ-
mental resources specialist, a herpetologist, and an archaeologist.

Arizona's environment provides ideal habitats for a variety of birds of prey, or raptors. Raptors are naturally
drawn to power poles because they offer a high place to perch, roost, nest and hunt. The large wing spans of
raptors, however, make them vulnerable to harm by the electricity being carried on the power lines. The
most common raptors affected in the APS territory include Harris hawks, red-tailed hawks and great horned
owls.

APS F&SP, in partnership with the U.S. Fish and Wildlife Service (USFWS), has developed a comprehensive
Avian Protection Plan. Also, the company has implemented new construction design standards that require
the installation of raptor protection devices and coverings to shield electrical components. All new construc-
tion is installed in accordance with these raptor safe standards and hardware on over 800 existing poles was
modified with protection coverings. Likewise, on all new substation installations, wildlife protective coverings
are installed. In addition, 90 substations were retrofitted with wildlife protection devices in 2007.

Protecting birds from electrical contact also increases safety for members of the cat family, raccoons, squir-
rels and other wildlife whose curiosity and foraging habits draw them to climb power poles and other electri-
cal facilities. APS is a member of the Avian Power Line Interaction Committee and has worked closely with
this group to revise the industry’s “Suggested Practices for Avian Protection on Power Lines” manual.

As a continuation of the Condor Project, APS donated and installed a 1.5-ton array of nine solar panels –
enough to supply 30 amps of power to the holding pen and to a field lab on top of the cliffs. This will keep
the water supply thawed through the winter, make it possible for the staff to utilize video cameras for re-
mote observation and supply electricity directly to the field lab.

APS has completed habitat enhancement projects in partnership with the National Wild Turkey Federation
and has developed right-of-way corridor vegetation management plans that will improve habitat for wild
turkeys and other wildlife. APS is currently collaborating with the Federation, the Forest Service, and the Ari-
zona Game and Fish Department on a wild turkey habitat restoration project on Mingus Mountain in central
Arizona.

The company also conducts a comprehensive nest-management program. When birds build their nests on
electrical equipment it becomes necessary to take action. If the nest is occupied, permits must be obtained
from the USFWS permitting office. APS has developed a nest platform that is installed on the pole in a safe
place, the nest is relocated to this platform, and the chicks are placed back in the nest. The adults return
soon after to care for their young. In most cases birds return year after year to these same nests.

APS is involved in many other environmental and wildlife protection efforts:

     • Wildlife specialists work closely with wildlife rehabilitation organizations to construct artificial homes
       for burrowing owls displaced as a result of development. APS provides the equipment and people
       necessary to construct underground burrows that that serve to hold an entire colony of burrowing
       owls.
     • The department is currently involved in a biological-assessment project in conjunction with the
       USFWS. More than 1,000 miles of the company’s right-of-way corridors are being evaluated to deter-
       mine their value to wildlife habitat and to identify areas of concern as they relate to the company’s
       field operations. This multi-year project began in 2006. The company has dedicated two degreed bi-

                                47 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
       ologists to this project on a full-time basis and the project is expected to be completed in May of
       2008.
     • APS collaborates on projects and partnerships with other agencies and non-profit groups for public
       awareness and education. APS partnered with Liberty Wildlife at several birding events including the
       Tres Rios Nature and Earth Festival, ASU Earth Day, and National Public Lands Day.
     • The company works closely with the Southwest Bald Eagle Association. Each year the company do-
       nates approximately 20 hours of helicopter flight time to transport Arizona Game and Fish personnel
       on their annual Bald Eagle Nest inspections
Cultural Resource Program
Arizona's landscape has a long rich history, and many culturally significant areas. To reduce the possibility of
damaging national historical treasures and to ensure the company is in compliance with current regulations,
APS added a professional archaeologist to its staff. In addition to coordinating the cultural resource compli-
ance component of new construction projects, efforts are underway to survey the majority of the company’s
existing transmission system.

Forestry Program
The Forestry Program includes the maintenance and control of trees, shrubs and
brush growing around APS facilities and equipment – including overhead power
lines, poles, guys and underground electrical equipment. Our Vegetation Man-
agement program follows professional industry tree-trimming standards to limit
damage and improve overall tree health. We follow the Edison Electric Institute’s
(EEI) strategy on minimizing pesticide use.

Staff arboricultural professionals including both degreed Foresters and Arborists
direct these programs. All operations are performed in accordance to ANSI A-
300 Standards for Tree Care. All supervisors and crew leaders are required to
earn and maintain professional certification as International Society of Arbori-
culture (ISA) Certified Arborists. Crew members are required to earn and main-
tain certification as ISA Tree Workers. APS provides an extensive amount of
ongoing arboricultural training.

The high-quality standards of the Forestry and Special Programs' vegetation management efforts have been
recognized for the tenth consecutive year with the National Arbor Day Foundation’s “Tree Line USA Utility”
distinction. The department was lauded for administering a superior program of professional tree care, pro-
viding annual worker training, as well as implementing tree planting and public education programs related
to proper tree care.

It is often necessary to remove established tall-growing species of trees that are growing near power lines. In
many circumstances the company provides the customer with low-growing replacement trees. The depart-
ment has launched a massive tree replacement project in the Phoenix metropolitan area. Thousands of exist-
ing street trees which normally require routine trimming in order to provide safe clearances from overhead
wires are being removed and replaced with appropriate low-water use trees that do not grow tall enough to
affect power lines. This is truly a win-win project.

Every year, APS F&SP visits at least ten local elementary schools to host Arbor Day celebrations. These
events involve an educational component involving the importance of trees in the environment. This is fol-
lowed by a tree-planting ceremony on the school's grounds.

APS F&SP has developed a Website to educate and inform customers about the department’s wildlife pro-
tection and vegetative management programs, and to address questions and concerns.

Underground Quality Assurance Program
The Underground Quality Assurance Program is a proactive approach to reducing environmental impacts
caused by failed or leaking transformers. The group consists of planners, vegetation crews, line crews and a
paint crew. The planners inspect the transformers for safety and maintenance issues and submit jobs to the
required crews. The planners along with the vegetation crew’s partner with the customer to prune/remove
the minimum clearance required for field personnel to safely operate and maintain APS pad mounted equip-



                                48 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
ment. The goal is to inspect all of the transformers statewide to ensure that all leaking, rusting, PCB and
sub-surface transformers are repaired.

APS' infrastructure "Footprint"
APS operates a large number of facilities located throughout Arizona and in the Farmington, New Mexico
area that generate, transmit and distribute electricity to our customers. One of our highest priorities is to
construct and operate these facilities in a safe, sustainable and environmentally conscious manner, protect-
ing our land and our wildlife.

Transmission and Distribution
Transmission lines are the power lines that bring electricity from power plants to substations in customer
areas, where the voltage is lowered. Distribution lines carry electricity at lower voltages and go from substa-
tions to transformers near homes and businesses. The transformers, often located on power poles, decrease
the voltage lower still so it can be used by appliances in homes or businesses.

Distribution Lines:
APS' distribution system includes 12,471 miles of overhead lines and 16,210 miles of underground lines, along
with 34 distribution substations.

Transmission Lines:
APS transmission facilities include 5,759 pole miles of overhead lines and 45 miles of underground lines,
along with 5 transmission substations

While the majority of APS’ customers reside in the metropolitan Phoenix area, we serve a large portion of
the rest of Arizona, which is largely rural. APS averages 23 customers per square mile of service territory.

Office and Support Facilities
At the end of 2007, PNW owned or leased 106 facilities to support our operations, with a total of 1,558,073
square feet of building space. This included 18 APS Service Centers and 32 APS Customer Service Business
Offices located across Arizona.

Transmission and Distribution Line Siting
APS conducts extensive environmental reviews for siting new transmission and distribution systems. For new
power lines rated at greater than 115 kilovolts (kV), the Arizona Corporation Commission requires a Certifi-
cate of Environmental Compatibility (CEC) to be issued prior to construction. APS conducts a thorough sit-
ing process covering a broad range of environmental issues and factors including, land use, cultural
resources, biological resources and habitat studies for rare and endangered species.

APS also conducts a multi-faceted public process which consists of direct mailings, open houses, newspaper
advertising and multiple jurisdictional, governmental and public meetings. APS also maintains a Transmission
and Facility Siting Web site that providing ongoing information about siting projects to the public.

Beyond the regulatory programs, APS has a voluntary siting process for new transmission lines that are less
than 115kV and are not required to follow the state process. This voluntary process is much like the CEC
process where numerous environmental factors are evaluated and the public participation process seeks to
communicate transmission line siting information to local citizenry to obtain their input. This allows APS to
site transmission lines in the most sustainable manner that meets project requirements.

SPILLS & REMEDIATION PROGRAMS
Potentially Responsible Party (PRP) Issues
APS was named in 2003 as a Potential Responsible Party in the Motorola 52nd Street Operable Unit 3 Su-
perfund Site located in Phoenix, Arizona. In July 2004, APS completed negotiations with the EPA and signed
a formal agreement, an Administrative Order of Consent. The agreement obligates APS to determine the ex-
tent, if any, of its contribution to the regional groundwater impacts, and if so, to identify options for address-
ing the company’s contribution to those impacts under the EPA’s oversight and guidelines.



                                49 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
                                                                                         APS is currently implementing the scope
                                                                                         of work specified in the Administrative
                                                                                         Order on Consent to evaluate potential
                                                                                         groundwater impacts at our facility. The
                                                                                         results of the groundwater investigation
                                                                                         to date, indicate that volatile organic
                                                                                         compounds have been detected in both
                                                                                         the up and down gradient monitor wells
                                                                                         at the APS facility at concentrations
                                                                                         below the EPA’s Maximum Contaminant
                                                                                         Level for drinking water with the excep-
                                                                                         tion of one down gradient well which has
                                                                                         had concentrations of one volatile or-
                                                                                         ganic compound just above the Maxi-
                                                                                         mum Contaminant Level. Additional
                                                                                         characterization of the soil and ground-
                                                                                         water will continue as APS continues to
                                                                                         implement the Administrative Order on
                                                                                         Consent.

                                                                      APS continues to provide funding for the
                                                                      clean-up of the Hassayampa Landfill su-
                                                                      perfund site. APS sent industrial solid
                                                                      waste to this municipal landfill until it
                                                                      closed in the late 1970s. The facility was
later designated as a Federal superfund site and APS named as one of a number of PRPs. APS’ contribution
to this clean-up effort is small, representing approximately 1.5 percent of the total annual assessment.

MGP Voluntary Remediation Program Status
Manufactured Gas Plants (MGPs) operated from the late 1800s to about 1950, making synthetic gas for do-
mestic heating and lighting purposes. Several predecessors of APS operated plants in Arizona communities
including Phoenix, Globe, Miami, Prescott, Douglas and Yuma. The manufactured gas process created by-
products including lampblack, tar and
oils, some of which remained at the sites
after operations ceased.

APS has voluntarily investigated and
characterized our historical MGP sites. We
have entered the MPG sites into the Ari-
zona Department of Environmental Qual-
ity Voluntary Remediation Program,
which is a program specifically addressing
the voluntary investigation and remedia-
tion of environmentally impacted sites in
Arizona. The company began evaluating
each site in 1993 to address any remaining
material that may have been generated
by MGP activities. We began remediating
the sites in 1996. Below is the current sta-
tus of our MGP remediation sites:

Other Remediation Projects
The following table describes the current
status of APS’ non-MGP remediation proj-
ects.




                                50 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Toxic Release Inventory
Our company is required by the Environmental Protection Agency (EPA) to report applicable releases of
chemicals listed by the EPA through its Toxic Release Inventory (TRI) program. Our reportable releases
under the TRI program are primarily contained in our air emissions from power plant smokestacks, or are
contained within coal ash. While the TRI quantities reported by our company are fairly large (as is the case
with all utility companies), the majority of these releases are captured by pollution control equipment, or are
contained with our waste coal ash (much of which is recycled for beneficial use). The below chart lists our
2006 TRI summary (2007 TRI report is due in July 2008 and was not available at the publication of this re-
port).




                                51 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
EHS COMPLIANCE
Compliance with all applicable laws and regulations is a minimum performance standard and all our man-
agers and employees are required to uphold regulatory compliance as part of their daily activities and busi-
ness planning. We consider compliance the foundation of our sustainability efforts, with our focus really
being "beyond compliance" in that we look for innovation in our business practices to achieve the best sus-
tainable practices and results.

As an energy supplier and producer, we are subject to environmental, health and safety regulations on the
federal, state, county and local levels. In addition, the Four Corners Power Plant located on the Navajo Na-
tion near Farmington, New Mexico, works with the Navajo Nation Environmental Protection Agency to ad-
dress certain environmental issues. We maintain a goal of zero notices of violation (NOVs) resulting in fines
or penalties. Success in meeting this target is reflected in individual employee performance evaluations and
compensation.

In 2007, APS received the following Notice of Violations (NOV's):

     1. On November 2, 2007, Maricopa County issued NOV # 100900 to Palo Verde for an alleged violation
        of our PM10 permit limits based on cooling tower testing done in 2005. This NOV was for violating
        our monthly permit limits. This NOV was resolved along with two previous NOVs (from 2005 and
        2006) from Maricopa County for a total of $79,619 in fines.
     2. An NOV was issued on June 20, 2007 at the West Phoenix Power Plant for a permit deviation which
        resulted from an equipment malfunction that occurred while the unit was still in normal operation
        and descending in load. A $2,100 fine was paid to Maricopa County to resolve this NOV.
     3. An NOV was issued to our Energy Delivery group in November for not obtaining a Stormwater Dis-
        charge permit coverage for a utility relocation project in Sedona. APS subsequently obtained cover-
        age from ADEQ, and no further action was taken by the agency.

Reportable Releases
In 2007, we had a reportable release of 1,700 pounds of sulfuric acid to soil at our Cholla Power Plant due to
an equipment failure. This release was reported to the NRC, AZSERC and LEPC and was remediated.




                               52 |   Environmental Performance |   PNW Corporate Responsibility Report ‘07
Eco-Efficiency
Eco-efficiency is a management philosophy that aims at minimizing ecological damage while maximiz-
ing efficiency of the firm's production processes. While eco-efficiency at PNW takes many forms in our
sustainability efforts, for the purpose of this report we are focusing on four primary areas that have
some of the greatest potential in providing a cost effective energy future to our customers while contin-
uing to reduce the environmental impacts and resource utilization associated with our product. These
are forward looking, innovative approaches that look for new solutions or approaches to continually im-
prove our sustainability effort. Key areas in which we accomplish that include:
Renewable Energy
Renewable energy will be an increasing important part of our overall energy mix into the future. It can
provide a carbon-free source of energy, while at the same time diversifying our fuel mix and reducing
exposure to price volatility and other concerns associated with fossil fuels.
Technology Innovation
The use of innovative new products and technologies will play a critical role in providing a sustainable
energy future, providing new ways to deliver our product in a cost effective manner, improve customer
service and system reliability and reduce negative impacts to our environment.
Demand Side Management / Energy Efficiency
Demand Side Management/energy efficiency is also a critical component of our overall program to
achieve a sustainable energy future. We are helping our customers to understand how they can more ef-
fectively use energy, and providing resources and incentives for them to accomplish that goal. By re-
ducing the overall usage of electricity, we are preventing the emissions and use of resources needed to
generate that electricity.
Supply Chain Management
Effective management of the materials and services provided by our suppliers is a critical aspect of sus-
tainability. This includes extending the focus upstream towards the suppliers and manufacturers, as well
as downstream towards our customers and our recycling and reuse efforts. By considering the environ-
mental, social and economical facets of our supply chain, our company can help improve the environ-
mental and social aspects of our communities, as well as achieving cost reductions and service
improvements to our customers. Our supply chain sustainability management is discussed primarily in
the Supplier and Material & Chemical Management sections of this report.
APS announces new solar power plant, among world’s largest
With Arizona sunshine in abundance, APS plans to continue its leadership role in the area of solar gener-
ation. The company recently announced plans for one of the world’s largest solar facilities — Solana, a
280-megawatt (MW) concentrating solar power (CSP) plant to be built 70 miles southwest of Phoenix,
near Gila Bend, Ariz.

RENEWABLE ENERGY STANDARD (RES)
In 2006, the ACC gave approval to the RES, which requires regulated utilities, including APS, to gener-
ate 15 percent of their energy from renewable sources – solar, wind, biomass, biogas and geothermal –
by 2025. The RES sets the minimum baseline for our future renewable energy resources. In August of
2007, APS submitted to the ACC a strategy for meeting the first five years of the RES.
Under the RES, in 2007 APS is required to have 5 percent of retail energy sold to come from renewable
sources by 2015 and further increasing by 1 percent each year until 2025, when it reaches 15 percent.
APS renewable energy results in 2007 were communicated to the ACC in a Renewable Energy Programs
Compliance Report. There is no specific obligation to fulfill any portion of that 15 percent with a particu-
lar renewable resource. The standard does require that nearly one-third of the total renewable portfolio
consist of distributed energy. Distributed energy includes customer-owned, customer-generated elec-
tricity, such as solar photovoltaic (PV) rooftop systems. The distributed generation requirement begins




                                  53 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
at 5 percent in 2007, increasing 5 percent each year until it reaches 30 percent in 2012. In addition to this re-
quirement, one-half of the distributed generation must come from residential applications, the other half
from non-residential projects.
If all goes as planned, by 2025, around 4.5 percent (30 percent of 15 percent) of APS’ total energy sales will
be generated by customers. Since it’s not practical to put up a windmill or start a biogas plant in most back-
yards, a large proportion of the residential distributed generation requirement likely will be met with solar
projects. One measure of the popularity of APS’ distributed renewable incentive program, primarily roof-top
solar installations, is the number of incentive payments that have been processed. Through the end of 2007,
APS has provided over $12 million dollars to almost 1,600 APS customers.
Renewable Energy Programs
Renewable energy is a critical component of our future energy mix. Renewable energy will lower carbon
emissions, diversify our generation mix, reduce dependence on fossil fuels and can help create economic op-
portunities in for Arizona
For all of 2007, APS purchased or generated 324,094 MWh of renewable energy, or approximately 1.1 per-
cent of total retail sales. This total includes
renewable generation APS has under con-
tract, APS-owned solar generation, as well
as the energy generated by Solar Partners
Incentive Program ("SPIP") participants. It
also represents a nearly three-fold increase
in renewable energy on the APS system
over 2006.
While we are exploring a wide range of re-
newable sources, including biomass and
geothermal, the majority of our future re-
newable energy will likely come from solar,
which is the most available natural re-
sources for renewable energy in Arizona.
APS has long been a leader in solar energy
development and implementation. Our
Star Center is one of the leading solar en-
ergy research facilities in the world.
APS Renewable Energy Programs
APS’ commitment to renewable energy is divided into three initiatives:

     • Procurement and Generation: producing and purchasing renewable energy for our customers
     • Consumer Programs: facilitating customers use of and support for renewable energy generation, in-
       cluding photovoltaic grid-tied and remote solar (off-grid) systems and small solar hot water systems
     • Technology Development: developing new, more-efficient ways of producing renewable energy. This
       is discussed further in the Technology Section of this report




                                     54 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
Green Rates and Solar Partners Incentive Program
APS offers its customers the opportunity to voluntarily participate in our Green Choice Program. As a Green
Choice member, you choose how much of the energy you use is produced from renewable resources. A
small premium is added to the normal monthly charges. This is a convenient, affordable way to help preserve
the environment while providing for a secure energy source for our future. The Green Choice Program offers
customers two different green rates:

     • The Green Choice Block option (GPS-1) is designed to offer the opportunity to purchase a fixed
       amount of monthly usage from renewable resources. Each kWh (kilowatt hour), available in 100 kWh
       blocks, is priced at a premium of $0.01 plus tax, in addition to the normal monthly charges. The cus-
       tomer chooses how many blocks he or she wishes to purchase.
     • The Green Choice Percentage option (GPS-2) is designed to give the customer the option to choose
       what percentage of actual monthly usage is provided by renewable resources. Each kWh purchased
       is priced at a premium of $0.01 plus tax, in addition to the normal monthly charges. They can choose
       10 percent (non-residential only), 35 percent, 50 percent or 100 percent of your monthly usage.




APS also offers financial incentives to residential and commercial customers who install qualified solar sys-
tems through our Solar Partners® Incentive Program. Participation in the Solar Partners Incentive Program
continued to increase in 2007. During 2007, APS paid over $5 million in incentives to customers on a total of
529 installations. Of those installations, 277 were photovoltaic and 252 were solar water heating. APS is ex-
pecting approval of its RES Implementation Plan in the first half of 2008 and therefore expects to see a con-
tinued increase in Program participation with increased marketing funds and several new technologies
becoming eligible for incentives.
APS’ efforts to develop and promote the use of renewable energy were recognized in 2007 by some of the
most respected media in the United States:

     • The APS Saguaro solar trough was featured on ABC News’ live 20/20 program, Planet Earth 2007:
       Seven Ways to Help Save the World, a live ABC News program that aired in April.
     • The Saguaro solar trough also was featured in a special green section produced by The New York
       Times in March.
     • The company’s Emissions-to-Biofuels project at the Redhawk Power Plant was featured in an October
       2007 National Geographic cover story about how plants are being developed into fuel.
Solar
For more than 25 years APS has been a national leader in solar research and development, and in the practi-
cal use of solar as an energy source for utility power
APS now has more than 6.55 megawatts (MW) of installed solar capacity statewide providing energy to APS
customers. APS' distributed generation capacity currently comes from our solar energy facilities installed at
customer locations. Below are some of the solar power plants that APS currently has in operation.

     • Flagstaff: The Flagstaff solar power plant inaugurated the APS Solar Partner® Program. The Flagstaff
       plant is housed within the APS service yard and produces 82 kilowatts of solar energy. Built in 1997,
       the plant employs the use of single axis tracking technology to maximize the sun’s energy.
     • Glendale: The City hosts APS' first municipal application of high-concentration photovoltaic arrays at
       the Glendale Municipal Airport. This technology tracks the sun’s movement and employs special
       lenses to concentrate the sun’s rays 250 times onto each solar cell.
     • Gilbert: The 125-kW plant is adjacent to the Town’s original ground water recharge site. The one-acre
       site consists of 10 solar arrays, which will track the sun from east to west on a single axis. Each solar

                                     55 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
        array (or series of panels) is about 150-feet long and eight-feet wide and sits relatively low to the
        ground.
      • Prescott: APS and Embry Riddle Aeronautical University joined to construct a 190-kilo-watt (kW)
        plant, which feeds solar power to the electric grid. The plant uses a single axis tracking system that
        allows the photovoltaic arrays to track the sun through the sky. The plant was dedicated in April 2001.
      • Prescott Airport Solar Plant: APS and the City of Prescott teamed to build a plant near the Prescott
        Airport which currently produces 3.5 MW of solar energy, our largest solar facility to date.
      • Scottsdale: In 1999, the City of Scottsdale formed a unique alliance with APS in an effort to meet the
        need for covered parking at commercial buildings with a practical way of generating clean energy. An
        8,500-square-foot parking structure covered with photovoltaic panels began generating 34 kW of
        solar energy at a City of Scottsdale service yard.
      • Scottsdale Water Campus: APS and Scottsdale officials joined to build a single-axis tracking, photo-
        voltaic plant atop of the City's domestic water tanks which produces 230 kW of solar energy.
      • STMicro Rooftop Solar System: This system was the first solar application in Arizona installed for
        commercial grid-connected customers.
      • Tempe: Located on the grounds of the APS Solar Test and Research Center (APS STAR Center®) in
        Tempe, this solar plant generates 480 kW of solar energy for use by all APS customers.
      • Yuma: APS built a new solar power plant near Yuma, which will generate 100 kW of energy. The plant
        is located at the Yucca Power Plant and will generate enough energy to serve about 31 homes.
      • Phoenix: The Arizona Department of Environmental Quality (ADEQ) hosts a 127-kW flat panel solar
        plant built atop the facility's parking canopy. The facility is a partnership between ADEQ and APS
        that makes the facility one of the most energy efficient of all City facilities.
In 2006, the APS Saguaro Solar Power Plant was named Energy Project of the Year by the Association of
Energy Engineers (AEE). This honor came on the heels of the facility being named one of the top 12 power
plants in the world by Power Magazine. Located near Red Rock, Arizona, the one-megawatt plant is the first
solar trough generator in the state and the first solar trough built in the United States in almost 20 years. Un-
like a photovoltaic solar plant, which uses sunlight to produce electricity, a solar trough uses heat from the
sun to create electricity. The sun heats oil, which is then used to drive a turbine/generator. This technology
can easily be combined with a storage facility, allowing it to hold energy, and to provide electricity when
needed, not just when the sun is shining. The APS Saguaro Solar Power Plant also is the first to combine
solar trough technology with an Organic Rankine Cycle Power Block, typically used in geothermal and bio-
mass applications. The block allows the plant to produce more power at lower temperatures.
In addition, as described in other sections of this report, APS has announced plans for a new 280 MW solar
power plant, Solana, to be build near Gila Bend, Arizona.

Customer Solar Programs
APS Solar Partners Rate Program
Under it's Solar Partners Rate Program, APS customers are invited to purchase 15 kilowatt-hour blocks of en-
ergy generated by the solar power plants. The cost to customers is a $2.64 per month premium. Solar Part-
ners offers residential and business
customers an affordable way to take
advantage of the state’s most abundant
source of renewable energy, the sun,
while helping APS develop a secure en-
ergy source for our future. At year’s
end, APS had more than 3,800 Solar
Partners.
APS Solar Partner Incentive Program
This program offers financial incentives
to customers (residential and commer-
cial) who install qualified solar systems. Each year APS sets aside a certain amount of money to fund the
Solar Partner Incentive Program. In 2007, the company set aside $10 million dollars.




                                     56 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
For the period from 2002 through 2007, 546 customers have installed a cumulative total of 3.1 MW of grid-
tied PV systems, and 379 customers have installed a cumulative total of 0.6 MW of off-grid PV systems. In
addition, since 2003, APS has purchased renewable energy credits from customers who have installed solar
water heating systems. Since the program started, 645 solar water heating systems have been installed off-
setting an estimated equivalent of 1.6 million kWh of conventional generation.
Wind
Recently APS signed a long-term contract with a Santa Rosa, New Mexico company to bring 90 megawatts
(MW) of wind energy to the Valley of the Sun.
The 90-megawatt (MW) Aragone Mesa Wind Farm will serve about 22,500 APS customers. Aragonne Wind,
LLC, a wholly-owned subsidiary of Babcock & Brown Operating Partners LLC owns and operates the facility.
APS has a long-term agreement to purchase all the power from the farm. It increased APS’ renewable en-
ergy portfolio from 16 MW (10 MW geothermal, 6 MW solar) to 106 MW — a 563 percent increase

TECHNOLOGY INNOVATION
Innovative new technologies are essential to a sustainable energy future. These technologies are required to
cost effectively increase the efficiencies of electric system infrastructure, reduce carbon emissions, increase
reliability and respond to future emerging issues. APS has been actively involved in technology research and
innovation for many years and has helped develop and implement many new technologies. From our lead-
ing edge solar research, to the use of algae to reduce carbon emissions, to the use of smart meters or hydro-
gen vehicles, we are continually evaluating technology innovation to help create our sustainable energy
future. We are also active participants in industry research activities through organizations such as the Elec-
tric Power Research Institute and the Edison Electric Institute.
Below are several examples of new technologies we are researching and implementing in our operation. Our
research programs are heavily focused on our Key Issues, including climate change, renewable energy, sys-
tem reliability and improved energy delivery systems. Please visit our online report for more information
about each of these programs:

       Solar Energy
       APS has been involved in solar energy research since the 1980s and is a leader in the research and
       development of utility scale solar energy generation
       APS Emissions to BioFuel Project
       APS is conducting an exciting demonstration project in conjunction with GreenFuel Technology that
       uses carbon dioxide from power plant emissions to grow algae which is then used to produce biofu-
       els. This addresses two important issues in the U.S. today; reducing greenhouse gases from power
       plants and producing more domestic sources of alternative fuels for cars and power plants. This proj-
       ect started at our Redhawk natural gas power plant, and in 2007 was expanded to our Four Corners
       coal fired power plant.
       APS Coal to Substitute Natural Gas Project
       APS is working with the U.S. Department of Energy (DOE) to develop a process to manufacture sub-
       stitute natural gas (SNG) via a carbon hydro-gasification process. This is a multi-phase project in
       which the hydro-gasification process will be modeled and ultimately demonstrated. The source of
       carbon for the process can be coal or a bio-source such as the algae described in the Emissions to
       Biofuels Project section.
       APS Hydrogen Park
       Hydrogen has great promise as a sustainable future fuel, and APS is actively exploring energy oppor-
       tunities associated with hydrogen. An exciting example of this is the APS Hydrogen Park, which uses
       solar panels to convert water to hydrogen, which is stored for fuel use.
       The APS Hydrogen Park was the first commercial hydrogen motor vehicle refueling station in Arizona.
       The park was permitted to fuel hydrogen motor vehicles in March, 2002. Located in the downtown
       Phoenix historic district, the park provides an example of modern fueling infrastructure integrated
       with urban architecture. Hydrogen, CNG (compressed natural gas), CHyNG (blends of hydrogen and
       CNG), and "fast charge" BEV (battery electric vehicle) motor vehicle fueling are all available at the
       Hydrogen Park fuel dispensers.



                                     57 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
       West Coast Regional Carbon Sequestration Partnership (WESTCARB)
       APS is working with Salt River Project and Tucson Electric Power as part of WESTCARB, a research
       project evaluating whether storing carbon dioxide underground may be a viable option for reducing
       greenhouse gas emissions into the atmosphere.
       This project will take place on APS land near the Cholla Power Plant in Joseph City, Arizona. The site
       was selected by geologists because of its deep, impervious geologic formations containing salty
       water that is unsuitable for drinking or irrigation. Commercial CO2 will be transported by trucks to
       the site and pumped about three-fourths of a mile into the underground formation, where it will be
       stored and monitored with sensitive instruments.
       Smart Meters
       The use of "smart meters" and advanced metering technology holds the potential of providing our
       customers with a quantum leap in service in the future.
       APS Pyrolysis Project
       APS is sponsoring a pyrolysis demonstration project to research the potential for a biodiesel fuel
       source, a renewable fuel for power plant co-firing and for carbon sequestration with the char (bio-
       mass waste materials) used as a fertilizer supplement.
       ECObus Hydrogen-Powered Bus
       Arizona's first hydrogen-powered bus. ECOtality, Inc. has teamed up with APS to bring the ECObus
       to Arizona to educate the public on the use of renewable energies

DEMAND SIDE MANAGEMENT
Helping our customers use electricity more efficiency is a critical component of our company's sustainability
effort. Not only are our numbers of customers growing, but the energy use per customer continues to grow.
By taking steps to conserve power, customers can reduce their costs and also provide significant benefits to
the environment. Adopting energy efficient practices has many benefits for consumers as well as the envi-
ronment. Conserving energy means less power needs to be generated, which results in fewer emissions im-
pacting the environment and fewer resources being consumed.
DSM and energy efficiency programs are also an important resource for APS. Reducing demand will result in
the amount of electricity that may have to be purchased (particularly expensive peak energy) and may even
result in fewer new power plants needing to be built in the future. The APS DSM Program is managed by the
Customer Information & Programs Depart-
ment. This Department works closely with
the Resource Analysis Department to inte-
grate DSM into the Resource Alternatives
Report. This includes evaluating the effec-
tiveness of future DSM programs on APS
costs and energy generation, and incorpo-
rating anticipated DSM future demand re-
duction into the APS Resource Alternatives
Report. The APS Resource Alternatives
Report shows the projected impact of our
currently projected DSM programs on fu-
ture resource planning.
APS was named EPA/DOE 2007 Energy
Star Partner of the year from the U.S. Envi-
ronmental Protection Agency for the APS
Energy Star Residential Lighting Program.
“Partners like APS have had an outstanding
year in helping consumers help themselves,” said Bill Wehurm, acting assistant administrator for the EPA Of-
fice of Air and Radiation. “In addition to leading the way in promoting products that earn the ENERGY STAR,
APS also works to educate consumers about the importance of energy efficiency. These efforts are a win for
consumers and for the environment.” The program also received the 2007 American Council for an Energy-
Efficient Economy’s “Exemplary Program” award and has been recognized by E-Source as a “best practice”
program. As part of this program, in 2007, more than 2.6 million energy efficient light bulbs were sold as a
result of the APS Compact Fluorescent Lighting (CFL) Program.

                                    58 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
APS' Demand Side Management (DSM) energy conservation program was approved by the Arizona Corpo-
ration Commission (ACC), and APS works closely with the ACC in developing future goals and funding levels
for our DSM efforts. The DSM programs provide information, tools and incentives for our customers to re-
duce energy use. APS spends more than $18 million dollars per year in its DSM programs, and plans to in-
crease spending on these programs to $25 million per year. The company will request an approval from the
ACC to increased spending levels and for specific new programs. APS files a semi-annual progress report
with the ACC on our DSM efforts. The 2007 report can be viewed here.
The approved programs are designed to influence energy decisions by residential and non-residential cus-
tomers and other market players through a combination of rebates and incentives, technical assistance and
training, and consumer education.




The current programs include:
Residential Programs
      Residential New Construction
      Residential Existing Homes AC Efficiency
      Residential Consumer Products
      Residential “Energy Wise” Low Income Weatherization Program
Non-Residential Programs
       Schools
       Non-Residential Existing Facilities
       Non-Residential New Construction and Major Renovation
       Small Non-Residential Program
       Building Operator Training
       Energy Information Services

As seen in the following table, the anticipated environmental benefits, including CO2 reductions, from the
2005-2007 DSM programs are significant.
The environmental reductions are based on the kWh savings of all program measures over their expected
lifetimes.




                                    59 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
More information on our DSM programs can be found at www.aps.com.



                               DSM Estimated Environmental Benefits
                                            2005 - 2007 Programs

                                Water            SOx                   NOx                        CO2       PM10
                                Mil Gal          Lbs                   Lbs                        Mil Lbs   Lbs
                               Residential
  Consumer Products            769.3            2,146                 85,854                     457.7      11,830
  Existing Home HVAC           31.1             574                   22,958                     122.4      3,163
  New Construction             100.7            1,858                 74,340                     396.3      10,243
  Low Income                   11.8             217                   8,687                      46.3       1,197

  Totals for Residential     912.9      4,795                         191,839                    1,022.70   26,433
                             Non-Residential
  Existing Facilities Large  179.7      3,161                         126,432                    674.1      17,421
  Small Non-Residential      132.4      2,320                         92,785                     494.7      12,785
  New Construction           179.7      3,161                         126,432                    674.1      17,421
  Building Operator Training 17.2       317                           12,677                     67.6       1,747
  Energy Information System 9.5         174                           6,977                      37.2       961
  Schools                    36.4       697                           27,876                     148.6      3,841

  Totals for Non-Residential   554.9            9,830                 393,179                    2,096.30   54,176

  Total                        1,467.80         14,625                585,018                    3,119.00   80,609


  The environmental reductions are based on the kWh savings of all program measures over their ex-
  pected lifetimes




                                   60 |   Eco-Efficiency |   PNW Corporate Responsibility Report ‘07
Community and Customers
INVESTING IN THE COMMUNITY
At Pinnacle West we see our role in the community as that of a partner. Throughout our long history of
serving Arizona, we have always worked hard to find opportunities to build healthy communities, to
strengthen the economy and help maintain a healthy environment. We regard these areas as highly as
any other aspects of our business.
We have a strong commitment to community leadership and volunteerism, corporate sponsorship, eco-
nomic development and environmental stewardship, which we believe are essential components of a
successful and sustainable utility today and in the future.
The power of collaboration is at the core of everything we do. We enjoy partnerships with many key or-
ganizations throughout the state — organizations that make a difference in the lives of our neighbors.
We believe our community benefits from working together towards a common goal, and we are ready
to do our part as we join our partners in building a better tomorrow. It is on that commitment to excel-
lence that we plan for the future.
We realize our role in the community is more than just an energy provider or real estate developer. At
Pinnacle West we believe making an investment in the communities we serve is the blueprint that will
allow both our company and the greater community to prosper.
"Your heartfelt historic and ongoing dedication benefits all our residents and the environment we share.
Thank you for living up to your corporate name."
Phil Gordon, Mayor of Phoenix, while presenting a "Friend of Phoenix" award to APS in early 2008
 We embrace the role of collaborator and partner with the communities we live in and serve — not only
because it is the right thing to do — but because we realize that the strength of our company parallels
the strength our state, its economy, its communities and its residents.
From our programs for supporting children and education; to our commitment to helping small and mi-
nority-owned businesses; to our patronage of the arts and culture; to our encouragement of economic
development, APS sees itself as an active participant in the continued well-being of our entire state.
But while our various programs are the vehicles we use to give back, our dedication to the community is
showcased best through the sweat equity of employees who represent our company each day. Our em-
ployees serve on the boards of some of the most important organizations in the state and spend thou-
sands of hours volunteering at events and on organizations that make an impact on the lives of many of
our neighbors.
Each year, our employees distinguish themselves and our company through their support of the United
Way and other charitable organizations. Each year our employees and corporation donated millions of
dollars in community support; dollars that are channeled directly into the hands of social service organi-
zations that are making a difference each day.
We will always consider community involvement an integral part of our company's culture and place it
at the head of our sustainability efforts.

COMMUNITY SUPPORT
Pinnacle West and its family of companies share a partnership with the communities they serve. Com-
munity involvement is an integral part of our company's culture and we encourage each employee, from
the newly-hired to our officers, to actively participate in community events and issues. From corporate
giving to volunteering to public safety programs, the company participates in the community on many
levels. As you'll see in this section, the company is proud to be a good neighbor and partner and is inex-
tricably tied to the health and vitality of this state and its communities.




                              61 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
CHARITABLE GIVING
APS Volunteer Matching Gifts Program
One only need look at projects like the APS Volunteer Matching Gifts program as a benchmark of the com-
pany's spirit of giving. The APS Volunteer Matching Gifts program encourages and recognizes the generosity
of employees, retirees and company board members who volunteer their time and talents to educational,
cultural, environmental, health and human services and community-development organizations dedicated to
enhancing our quality of life.
In 2007, the Volunteer Matching Gifts program contributed $8,500 for non-profit organizations in addition
to the hundreds of volunteer hours put in by employees. The program provides $125 grants to qualified non-
profit agencies getting at least 25 volunteer hours from APS employees. It also matches any financial gift
from an employee to a qualified non-profit organization by providing 50 cents to every employee dollar, up
to $1,000. In 2007, the financial matching gift program contributed over $15,000 to qualified non-profit or-
ganizations.
Charitable Giving
Through its Corporate Giving program, the company cherishes a leadership position in corporate citizenship
in Arizona. We support non-profit organizations with a 501(c)(3) Internal Revenue Service tax exempt status
through cash and/or in kind services. We support our communities in five strategic areas: health and human
services, community development, education, arts and culture and the environment.
APS Corporate Giving does not fund individual requests, charter or private schools, religious, political, frater-
nal, legislative or lobbying efforts or organizations, travel related or hotel expenses, private or family founda-
tions, private non-profit organizations, salaries and/or debt reduction. APS prefers to give directly to
recipient organizations/agencies.




*Total includes APS and SunCor charitable giving, but does not include in-kind giving or volunteer hours. The
above cash donations are from the company and do not include any donations made by our employees.
PNW reported a net income of $307 million in 2007. Therefore the percentage of net income donated to
charity is approximately 2.2%, compared to 1.95% in 2006.

United Way
Our employees are routinely recognized through our Community Services Fund campaign as the top corpo-
rate contributor to the Valley of the Sun United Way as well as other United Way chapters in Arizona and the
San Juan United Way in New Mexico. For the 2006-2007 campaign, employees pledged $2.7 million and
with the APS company match, total pledges exceed $4 million.




                                 62 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
In-Kind Giving
In addition to cash donations and employee volunteerism, Pinnacle West provides a high level of support to
community organizations through in-kind giving, especially printing services.

VOLUNTEERISM
Reaching Out: Our Employees in the Community
Each year, our employees dedicate thousands of hours to charitable causes and organizations. While not
part of their jobs, volunteering is at the core of our company’s culture and is just one way our employees
give back to the communities in which they live and work. We are committed to being part of the fabric of
our state, and that commitment will never waver.
In the past year APS employees, friends and families have walked, climbed, bowled and cleaned all in the
name of charity. They’ve been waiters and elves as well as philanthropists assisting their fellow humans.
“Every charitable event and project APS employees and their families show up en masse. It’s a testament to
something that’s so intrinsic to our company. It’s hard to put into words, but our people truly are Team APS,”
said Maria Maskell, volunteer coordinator. “Our employees do so much good charitable work, the company
goal is to acknowledge and honor each of them.”
One such group of employees, better known as the APS Clown Troupe, has brought laughter and smiles to
Arizona events for the past 19 years. The troupe has logged more than 40,000 hours of performances. While
the clowns give first priority for their performances to organizations involving children, the elderly, disabled
and disadvantaged, they also perform in nearly every community parade in Arizona and northern New Mex-
ico including the Fiesta Bowl Parade, APS Fiesta of Lights and Parada del Sol.
The APS Volunteer Program is active in the more than 200 cities and towns in Arizona served by APS as well
as northwestern New Mexico, where APS is a major employer. All it takes for a community, school or other
nonprofit organization to benefit from the APS Volunteer Program is the presence of a single employee or
retiree who wants to contribute his or her time and talents to help others.
Points of Light Foundation Finalist
In 2007, the APS Volunteer Program was named a finalist by the Points of Light Foundation for its Award for
Excellence in Workplace Volunteer Programs. The recognition honors the more than 130,000 hours of volun-
teer time donated by employees to more than 400 charitable, cultural and educational organizations and
programs throughout Arizona and New Mexico.
Here’s a partial list of the many projects and hours invested by APS volunteers. In many instances, these
charitable projects span more than a decade, bringing annual support to nonprofits. And frequently, APS
volunteers are leaders setting the course for these events. But the list, which isn’t comprehensive, doesn’t
begin to describe the hard work of our volunteers:
     • American Cancer Society – In February 2007, over 400 APS employees, friends and family members
       participated in the Climb to Conquer Cancer at Phoenix’s South Mountain Park. In August, nearly 50
       APS employees, friends and family members made the 7-mile trek up the Arizona Snowbowl near
       Flagstaff. Through these events, participants raised more than $30,000 for the American Cancer So-
       ciety. APS has participated for more than 20 years.
     • American Diabetes Association – APS volunteers have been instrumental in the planning and imple-
       mentation of the ADA’s key fundraising events – Step Out to Fight Diabetes, Tour de Cure and Team
       Diabetes. The Power Peddlers, APS’ bicycle team help plan and participate in the Tour de Cure, and
       other APS employees served on planning committees. Team APS has contributed more than $25,000
       in donations and in-kind services during 2007.
     • American Heart Association – in 2007, more than 25 Team APS members participated in the Heart
       Walk, collecting nearly $11,000. These funds supported research, education and community outreach
       by the AHA.
     • Arizona Trail Association – APS volunteers created a piece of Arizona that will be enjoyed for year to
       come when they constructed a new section of the Arizona Trail near Superior in February 2007.
       Twenty-two APS employees, friends and family members made the three-mile hike to the work site
       and worked together to move rock and brush, dig the trail, build the edge and brush the trail. The
       Arizona Trail is an 800-mile non-motorized border-to-border route between Mexico and Utah.
     • Back-to-School Clothing Drive Association – APS volunteers impacted the lives of nearly 5,000 low-
       income children through this organization by distributing clothes, shoes and a back-pack filled with

                                63 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
                                                                             personal hygiene items. APS has par-
                                                                             ticipated for more than 10 years, and
                                                                             APS employees serve on the board.
                                                                             • Day for Downtown – APS volun-
                                                                             teers joined a city-wide effort to beau-
                                                                             tify downtown Phoenix producing
                                                                             3,600 community service hours to 33
                                                                             non-profit organizations and schools.
                                                                             APS employees partnered with Booker
                                                                             T. Washington Child Development Cen-
                                                                             ter for a Literacy Project. Booker T.
                                                                             Washington is a comprehensive Head
                                                                             Start program for 192 pre-school chil-
                                                                             dren from low income families. Total
                                                                             value of sponsorships, in-kinds dona-
                                                                             tions and service to the community
                                                                             through A Day for Downtown equals
                                                                             $169,072.
     •   Hunger and Homelessness – APS Volunteers hosted a summer and a holiday food drive and collected
         a total of more than $6,000 and 1,300 cans. During November many employees and their families
         volunteered at a local food bank or for an organization that supported homelessness issues. During
         National Hunger and Homelessness Awareness Week (Nov. 11-17), an APS employee spent 24 hours at
         Phoenix area homeless facilities as part of a unique Homeless Immersion Experience organized by
         the Maricopa Association of Governments Continuum of Care Regional Committee on Homelessness.
     •   Junior Achievement – APS volunteers are directly involved in the education process by being in the
         classroom and teaching students about topics such as entrepreneurship, personal finance, career ex-
         ploration and economics.
     •   Volunteers also participated in the Hula Bowl, an annual bowl-a-thon, in which APS employees raised
         $7,400 in 2007 to send over 200 Arizona children to Junior Achievement, a non-profit economic ed-
         ucation program.
     •   Ronald McDonald House – For years, APS volunteers have cooked meals for the resident families at
         Ronald McDonald House. For families with children in the hospital, this is just one way APS Volun-
         teers can make their lives a little less stressful. By providing dinner to the families three times a
         month, APS Volunteers are helping to feed over 3,000 families per year.
     •   The Salvation Army – volunteers provided donated items, supported holiday activities such as the
         Turkey Drive and Christmas Angel project and provided bell ringers. APS employees also serve on the
         board.
     •   Santa Letters – Close to 100 APS volunteers, also known as Santa’s elves, answered nearly 800 letters
         over the holiday season from boys and girls of all ages.
     •   Special Olympics – In 2007, about 50 APS Volunteers helped to coordinate the Special Olympics In-
         door Athletics for over 75 special athletes. APS volunteers have participated in this event for more
         than 20 years, and employees serve on the board.
     •   St. Joseph the Worker – During the hot Arizona summer, APS Volunteers hosted a bottled water drive
         to collect funds and water to assist the homeless survive the summer heat. Monies raised and water
         donated went to St. Joseph the Worker, a nonprofit organization that assists homeless, low-income
         and other disadvantaged individuals in their efforts to become self-sufficient through permanent,
         full-time employment. The generous employees of APS collected nearly enough to provide three full
         weeks of water, hydrating approximately 300 people per day.

CORPORATE CITIZENSHIP
Pinnacle West plays an important role as a community leader in our service territories. These activities
strengthen our communities and build important relationships with our stakeholders.
Pinnacle West enjoys a tradition of supporting employees who hold elected office in their communities and
who serve on the boards of non-profit organizations across the state. We have a high number of employees
who serve their communities in these activities, and in many other community boards, commissions and or-
ganizations.
Company representatives work to strengthen business alliances throughout the Phoenix metropolitan area,
including membership in the Greater Phoenix Economic Council (GPEC), Greater Phoenix Leadership (GPL),

                                   64 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
WESTMARC and the East Valley Partnership. In addition, APS is involved in the Valley Business Council,
which consists of representatives from all the Phoenix-area chambers of commerce.
The Pinnacle West Government and Federal Affairs department gives APS and Pinnacle West a voice in the
law-making process at all levels. The Government Affairs staff over the years has played an important role in
a number of issues that have paid and will continue to provide substantial benefits to Arizona. These include
a number of critical sustainability issues on our community such as transportation, environment, education
and energy. For more information on our public affairs activities, please read our 2007 Public Affairs Report.
Pinnacle West is also active in alliances with governors, legislative leaders, trade groups and associations in
the West, which focus on western-specific issues. Examples include West Connect, West Associates, Western
Business Roundtable and the Western Regional Air Partnership.
The company also funds and supports civic organizations and sponsors events in a number of areas, includ-
ing the arts and culture, community and economic development, education, the environment, and health and
human services. These are discussed in the Charitable Giving section of this report.

CUSTOMERS
Customer Satisfaction
At APS we know customers play a key role
in determining our success. Because APS
places customer focus and customer satis-
faction at the core of all we do, we con-
tinue to earn high marks from our            We go to some exceptional lengths to provide great customer
customers. In the 2007 J. D. Power and      service to our customers, including service outside the "normal"
Associates Business Customer surveys,            course of business, such as the outdoor lighting story.
APS ranked ninth among 55 utilities sur-
veyed nationwide. In the western region residential survey, we were rated the second highest investor-
owned utility overall.
APS' focus on the customers also included the establishment in 2007 of a new executive position of Chief
Customer Officer, which was filled by Tammy McLeod.
For the last 10 years, customer satisfaction surveys among all APS customers help to focus the company on
serving customers well. Results have driven innovation, progress and performance at every level.
Additionally, the company conducts surveys among its residential and business customers who recently
made a transaction through the company’s call center, in a business office, or online at aps.com. This ongo-
ing customer satisfaction research is used to assess and continuously improve customers’ experiences with
APS. For example, systematic customer-centric enhancements to our Web site have culminated in recogni-
tion by E-Source as one of the top websites in North America. In 2007 aps.com was ranked 6th among 111
utilities.
Customer service is an area of emphasis in our 2005-2010 APS Business Plan, which states:
       “We will strengthen our relationships with our customers by providing continued excellent service
       and responsive products and services. These efforts will allow us to evolve beyond customer satisfac-
       tion to true customer loyalty. Customer loyalty becomes critical especially in light of our high growth,
       when customers must act as references for activities such as franchise elections, rate cases, and sub-
       station and line sitings. Satisfied customers are pleased with the service we provide them; loyal cus-
       tomers are willing to make a personal investment in APS by supporting our efforts

       The Challenge: Our customer base continues to grow at a rate three times the national average. This
       growth, coupled with ever greater customer expectations, increases the demand on each employee
       to create sustained value by providing safe, reliable, fairly priced energy; friendly and knowledgeable
       service; and community involvement. We will measure our progress through customer satisfaction
       tracking surveys. The rapid growth within our service territory provides both opportunities and chal-
       lenges”

An important part of a sustainable energy future is an educated public. APS provides a variety of informa-
tion and support services to help our customers become better informed users of electricity. Much of this in-
                                65 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
formation is available to the public on our APS Web site, including the below links:
       APS Green Choice Programs
       Online Rate Comparison
       Residential and Business Energy Survey
       Online Account Management
       Ways to Save
       Using Energy Wisely
       Home Energy Test
       Energy Use History
       Low Income Assistance
       Safety tips

SUPPLIERS
Supplier Code of Conduct
Pinnacle West communicates our expectations of our contractors with regard to our
Ethics Program and Standards of Business Practices in our pamphlet "Doing the Right
Thing-Contractors,".
One section of the pamphlet states that our contractors are responsible to help protect
the environment by complying with all company environmental rules and practices, as
well as all federal, state, county and municipal environmental laws and regulations. The
pamphlet is distributed to key contractors in partnership with the company's contract
labor vendors. This pamphlet is available for viewing by the public on our corporate Web
site (click on the link above).
Contractor Safety Program
Pinnacle West also employs a contractor safety program which communicates the minimal requirements we
expect of our contractors in terms of environmental compliance and employee safety. This program is avail-
able to the public online.
Pinnacle West Supplier Diversity Program
Supplier Diversity is a significant part of APS' business strategy locally, regionally and globally. As a major
purchaser of goods and services, APS has a significant opportunity to facilitate diverse business growth and
to strengthen the state and local economies in all our customer service areas. APS’ success depends on our
ability to understand our diverse consumers' needs and to work effectively with customers and suppliers.
We have a strong commitment towards supporting the development of Minority and Women Owned Busi-
ness Enterprises (MWBE). This includes educating and informing APS employees with purchasing authority,
setting specific MWBE targets, and providing mentoring and other assistance to MWBE suppliers. While
every department has responsibility to help meet our MWBE goals, we have also established an internal de-
partment, the Supplier Diversity & Development (SDD) Team, which is committed to facilitating and expand-
ing competitive business opportunities with Minority, Women, Veteran, Service-Disabled Veterans and HUB
Zone Enterprises primarily in Arizona and the Southwest.
Our efforts are driven by the diversity of the communities, in which we live and serve. We work with these
diverse suppliers to provide greater value, innovative thinking and improve the availability of competitive
goods and services to Pinnacle West. Our success is attributed to strategic relationships built on direct, hon-
est and equitable communications.
2007 Pinnacle West MWBE Targets and Results
Pinnacle West set aggressive MWBE spending targets in 2007 of $44 million minimum and $48 million as
stretch target. Pinnacle West exceeded both of those targets in 2007, with a total of $54.9 million spending
in with MWBE suppliers. Pinnacle West's MWBE program is a major driver for MWBE business development
in Arizona
Vendor Audits
Pinnacle West and APS perform audits of all vendors that provide waste disposal or recycling activities and



                                66 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
services to company facilities. This is discussed in the vendor audits of the Waste section of this report.
Taking AAAME at Small Business
The APS Academy for the Advancement of Small, Minority and Women Owned Enterprises (AAAME) is a
two-year business mentoring program designed, sponsored and administered by Arizona Public Service.
AAAME CEO’s meet twice a month as a group, once a month with their assigned advisors and once a month
with the AAAME Director. Since 1997, 116 small businesses in the Phoenix metropolitan area have attended
business training classes, built networks, developed resources and met with individual advisors all geared to-
ward assisting them in reaching their next level of business success.
This focused and integrated mentoring has resulted in 80 AAAME graduates, with 30 companies currently in
some phase of the AAAME process. All of these businesses have gained knowledge, support, insight, re-
sources and skills that have allowed them to succeed and thrive in their chosen business. Many of the
AAAME companies have increased their revenues and net profits, increased their workforce, strengthened
their market position and increased their business space which adds to the economic impact to the area. In
addition, several AAAME companies have been recognized for their achievements through various award
programs.
The AAAME program combines the following elements:

     • It is a two-year commitment.
     • There is no cost to the AAAME participant.
     • It utilizes the resources of several community based organizations as well as individuals who con-
       tribute to small business.
     • It is a combination of classroom training, group projects and individualized company action plans and
       meetings.
     • It is a personalized approach towards mentoring which holds the business owner accountable for his
       or her own success.
     • There is a continual assessment of the AAAME participant’s implementation of the program elements
       as it relates to the two year business targets.
     • It is peer-to-peer mentoring via the CEO twice a month meetings.

While these factors are unique and valued in the community, AAAME is really about the successful imple-
mentation of solid business practices, utilizing a wide variety of delivery methods and the continual assess-
ment of each AAAME participant’s progress in the program.

PUBLIC SAFETY
Safety is our number one priority and we carry that commitment to safety into the community. To that end,
we staff a Public Safety department to ensure the public is
safe and informed about any possible dangers of electric-
ity.
Both our Customer Service and Public Safety departments
work to ensure our customers have access to accurate in-
formation on the proper use and handling of electricity. In
an effort to educate and protect children, our Public Safety
employees target students throughout Arizona through an
outreach program aimed at safety and awareness. The department also has reached hundreds of mainte-
nance workers, city employees, firefighters and arborists with targeted electrical safety presentations.
The Energy Delivery organization maintains three electrical safety trailers that provide live demonstrations of
the potential danger of electrical conductors and the dramatic impact of electrical current on living tissue to
audiences across Arizona..




                                 67 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
Emergency Response
At Pinnacle West and APS, we train our employees and continually improve and test our systems in order to
be ready for emergencies.
APS employs and trains fire and emergency response teams at the Palo Verde Nuclear Generating Station
plant and the Four Corners and Cholla coal plants. Emergency response plans at each facility detail the roles
of APS employees in responding to emergencies. We actively participate in local emergency planning com-
mittees and provide emergency planning and on-site chemical storage and hazard information to state and
local agencies through SARA (Superfund Reauthorization Act of 1986) Tier I and Tier II reports.
The Palo Verde Nuclear Generating Station annually provides neighbors with information on plant opera-
tions, emergency planning zone maps, emergency classifications, important telephone numbers, procedures,
locations of care centers and suggested protective actions. Palo Verde also conducts joint emergency plan-
ning drills with local, state and federal emergency response agencies at least twice per year.
The APS Energy Delivery and Sales division also maintains an emergency response plan that helps the or-
ganization quickly respond to disasters, both natural and man-made. Periodic reviews and drills help the di-
vision improve its emergency response procedures for use during potentially dangerous emergency outages.
PNW and APS also cooperate with local fire and police departments, and state and federal emergency re-
sponse agencies in homeland security planning, and participates in periodic drills with various agencies, par-
ticularly with respect to electric utility system security issues.
APS also routinely shares intelligence reports with the Arizona Counter Terrorism Information Center
(ACTIC) and has an ongoing relationship with the Department of Homeland Security in securing our Critical
Infrastructure.




                                68 |   Community and Customers |   PNW Corporate Responsibility Report ‘07
Workplace Performance
The businesses of Pinnacle West are built upon a foundation of
skilled, diverse and dedicated employees. Their ability and will-
ingness to innovate, adapt and perform is the foundation of our
current and future excellence. We must ensure employees are
fully engaged in the company’s successes and challenges.
We consider our employees a competitive advantage, and in
order to retain and attract this talented workforce, we offer
competitive compensation, strong benefits and a variety of ca-                            Pinnacle West has received an AAA
reer opportunities.                                                                    (highest) rating from Innovest Strategic
                                                                                       Value Advisors for its environmental and
Over the next five years, we face the challenge of planning for                           sustainability performance, and was
and supporting significant workforce transition. Core skills and                        ranked in the top 2 utilities in the nation
capabilities, including leadership, must be developed as long                                   on the Innovest survey.
tenured employees retire and new employees are integrated
into the workforce. Also, new skills and capabilities will be required to implement improved processes,
new infrastructure and new technology. Success in this area depends on planning and executing knowl-
edge transfer, workforce planning and development, and human performance improvement.
This section of our report shows our performance and some of the ways we will accomplish our work-
place goals.

LABOR PRACTICES AND WORK PERFORMANCE
Pinnacle West’s number one asset is its employees. The company offers a wide array of career opportu-
nities in leadership, professional, technical, administrative and internship positions, as well as union and
non-union positions. At Pinnacle West, our goal is to treat every employee equitably, professionally and
with respect. We have a highly-skilled human resources group dedicated to ensure that labor and em-
ployment issues are addressed. We also have internal policies that spell out employees’ rights, and an
established code of conduct that all employees are expected to follow (See our ethics policy in the Gov-
ernance Section of this report). The company also offers an Employee Concerns Program (ECP) through
which employees can anonymously report any suspected wrongdoing.
Attracting Employees
Our company’s Web site connects potential job seekers with employment opportunities as well as infor-
mation about our family of companies. The company’s School-To-Work (STW) internship program and
scholarships introduce students to virtually every part of our business from engineering to trades and
crafts to information systems. Students are recruited for positions throughout the Pinnacle West family
of companies.
STW also targets students who are attending community colleges or universities, or who are enrolled in
vocational programs tailored for the utility industry. The company also works with Arizona State Univer-
sity, the University of Arizona, Northern Arizona University, Community Colleges, area high schools and
local organizations on scholarship opportunities, career expos and more in order to help develop and
hire the local workforce.
APS also partners with the local Chandler-Gilbert Community College in the Electric Utility Technology
(EUT) program. The program, the first of its kind in Arizona, is collaboration between APS and the col-
lege to address our industry’s need. The two-year program provides community college students with a
foundation in lineman training. The program covers an array of areas including the basics of electricity,
pole climbing, cross arm installation and safety. Participants earn an associate degree in Electric Utility
Technology
APS’ affiliation with the National Association of Colleges and Employers (NACE) allows it to research
graduation rates, new graduates’ compensation and other vital information the company can use to at-
tract top talent.



                               69 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
We also have an active intern program, which is discussed more in the Training section of this report. Ac-
cording to NACE, the national conversion rate of interns to full-time employees is around 50 percent, while
our conversion rate is 98 percent.
Total Rewards
Our company offers competitive compensation and rewards for outstanding performance. APS offers com-
petitive salaries, comprehensive benefits and a sound work environment. All of our full-time employees are
covered by a defined benefit plan and approximately 80 percent of our employees participate in our defined
contribution plan. As of January 1, 2007 our projected benefit obligation for the defined benefit plan is 78%.
Employees hold 2.9% of the shares outstanding through the Pinnacle West 401(k) savings plan. Pinnacle
West's compensation and benefits plan are discussed in more detail on the Pinnacle West Web site.
Family-Friendly Benefits
     • The company offers unpaid sabbaticals to employees who have been employed for five years. Gen-
       eral leaves of absence are also available
     • Time off for mothers after giving birth falls under the com-
       pany's Short-Term Disability policy. No additional paid mater-
       nity leave is available
     • We have a listing of child care centers that provide a discount
       to Pinnacle West employees
     • We have a Healthcare flexible spending account and a de-
       pendent care flexible spending account for our employees
     • Where appropriate, flextime/job share schedules are used in
       the company
     • Based on business needs, part-time work is available upon return in certain circumstances
     • The company provides adoption aid reimbursement up to certain limits of qualified adoption ex-
       penses

Union Representation
The Company has Collective Bargaining Agreements (CBAs) with two Unions: The International Brotherhood
of Electrical Workers Local #387 (IBEW 387), and the Security, Police, Fire Professionals of America
(SPFPA), and the United Brotherhood of Carpenters and Affiliated Local Union #408 International. Nearly 30
percent of the company’s employees are represented by one of these Unions.
In each case there is a negotiated Labor agreement that establishes the working rules and other terms and
conditions of employment. The company’s philosophy is to work cooperatively with unions where they are in
effect and to honor the agreements we have made in our negotiations.
Pinnacle West and APS enjoy a healthy mutual respect with IBEW Local 387, the largest union representing
employees within the company. Through this partnership with IBEW, several initiatives have been imple-
mented, including a multi-skill-training program, a process to hire supplemental workers, a drug-free work-
place program, an apprenticeship program, a driver qualification program and numerous safety projects. The
union and the company often join in community-minded causes such as the Valley of the Sun United Way's
Community Service Fund campaign and a baseball field building program with Major League Baseball’s Ari-
zona Diamondbacks.
We respect the rights of our union employees to bargain collectively. We strive to retain positive labor rela-
tions and we always try to resolve issues internally and at the lowest level possible to ensure positive out-
comes for the employee and for the company.
The company also has a positive discipline program in which leaders work in conjunction with employees
and human resources representatives to achieve positive resolution.
Workforce Succession Planning
As our workforce gets older, the company faces the daunting task of replacing many years of experience as
employees plan their retirements. The company has taken steps to ensure that not only are key positions
filled when experienced employees leave; but also they are filled with employees who are ready and well
trained.

                                 70 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
Although our workforce is aging, our turnover rate including retirements remains low, which gives the com-
pany the time needed to accelerate our training, development and recruitment efforts.
Pinnacle West has had a formal succession planning processes for years, which includes all key leaders
throughout the enterprise. This means the company has identified potential successors for key positions and
has a strong focus on their development.
So while the company stands to lose half of its current employee population to retirement in the next ten
years, we’re putting together tools to look at the entire organization to ensure we fill those positions and
maintain a transfer of that knowledge.
One of the tools is the “dashboard,” a matrix (resembling the layout of a car’s dashboard) that can be tai-
lored for any business unit in the company. It provides a snapshot of an individual business unit’s workforce,
taking into account turnover statistics and more. The dashboard allows each unit to better plan which posi-
tions require backup and knowledge transfer.
Another key way to help business units understand their potential staffing and training needs is the “Knowl-
edge Management Tool,” which ensures that business units plan for positions that are either “critical” or
“unique.”
Our Succession planning is a multi-pronged approach which includes:
     •   Developing and preparing current employees with a focus placed on succession planning
     •   Transferring knowledge
     •   Attracting new talent
     •   Process improvement for succession planning

And, APS’ succession-planning efforts
aren’t confined to the company. For
many years APS has recruited interns
and employees from the community as
well. The company sponsors several ap-
prentice programs through local high
schools and colleges aimed at recruiting,
training and retaining talented students
into the workforce. Please see the Train-
ing and Development section of this re-
port for more information on these
efforts.

EMPLOYMENT PROFILE & DIVERSITY
At APS and Pinnacle West, we believe
our differences can often be our
strengths. That’s why we’re committed
to support diversity: in our workforce, in
the vendors and business partners we
work with and in the community. Diver-
sity of culture and experiences are tangi-
ble assets that bring a flavor and
newness to the table. We also believe
the ideas and perspectives born of di-
versity will lead to the sustainable
growth of our company and our commu-
nities.
At Pinnacle West and APS, we share a
strong diversity commitment in our
workplaces, in our procurement prac-
tices and in our community activities.


                                 71 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
                                                                                      In 2007, Pinnacle West had 6,765 employ-
                                                                                      ees, compared to 6,556 in 2006
                                                                  We are committed to being an equal-em-
                                                                  ployment and affirmative-action employer.
                                                                  We understand the value of diversity in our
                                                                  workforce and actively seek opportunities
                                                                  for incorporating diversity within our com-
                                                                  pany. Pinnacle West strives to provide
                                                                  every employee an equal opportunity to
                                                                  succeed professionally. Our work environ-
                                                                  ment is one wherein every employee is
                                                                  treated with dignity and respect. Decisions
                                                                  about employment, training, compensation
and promotion are based on job-related qualifications. Not only does our company prohibit discrimination,
our policy explicitly prohibits sexual harassment or harassment of any nature in the workplace. Annual affir-
mative-action training is required of all leaders.
APS has a dedicated corporate Affirmative Action/Diversity Team, headed by the manager of Workforce
Services, that focuses on workforce analysis, compliance, affirmative action, diversity, maintaining a harass-
                    ment-free workplace, and training and education.

                    DEVELOPMENT & TRAINING
                   On-going employee training and development is critical to the success of our company.
                   Pinnacle West offers employees excellent opportunities for career and employee devel-
                   opment training. This includes numerous internal training opportunities as well as exter-
                   nal training and tuition reimbursement for formal college and university training. We also
have several apprenticeship and intern programs.
Dedicated Training Facilities and Resources
The company has six dedicated training facilities which include a plant-specific nuclear control room training
simulator; other power plant operations simulators; maintenance, electrical, instrumentation, chemistry, cus-
tomer service, line worker and other technical training laboratories and equipment mock-ups. Employees
have access to fully-equipped classrooms for instructor-led as well as computer-based training. The com-
pany also provides online business and information technology "referenceware" and courses that are acces-
sible to employees at work or at home, 24-hours-a-day.
The company has more than 124 full-time professional staff members dedicated to providing engineering,
craft, trade, technical, customer service, professional, business practices, environmental, health and safety
training and individual and team development. The ratio is one full-time professional for every 50 employees.
Significant Dollar Investment
The company spends more than $30 million annually for facilities, staff, materials, supplies, tuition, fees and
travel to provide training and development for its employees. This is an average of more than $4,800 per
employee. This figure does not include cost of the participants’ time spent in training and development ac-
tivities.

Apprenticeship and Intern Programs
Fossil Joint Apprenticeship program
The Fossil Joint Apprenticeship program was formed by APS and the International Brotherhood of Electrical
Workers Local 387 to develop qualified employees for all company fossil-fueled power plants. The program,
registered in 2001 with the Arizona Department of Commerce and the Federal Department of Labor, offers
on-the-job training for maintenance technician automotive/heavy equipment mechanic; maintenance techni-
cian-machinist; and Electrical & Instrumentation (E&I) Technician.




                                  72 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
The Fossil Joint Apprenticeship Committee administers the program and works with San Juan College in
Farmington, NM, Northland Pioneer College in northern Arizona, and Education Direct (an online distance
learning program) to provide off-the-job training classes. In addition, journeymen in each craft teach both on
and off the job to help apprentices become proficient in their chosen craft. Fossil apprenticeship positions
are posted and applicants for apprenticeships must meet the minimum requirements.
APS Apprenticeship Program
The APS apprenticeship program, started in 1948, is a training ground for those interested in a career in the
electric utility fields. Apprentices receive statewide on-the-job training along with trade-related classroom
training. On successful completion of the apprenticeship program, apprentices become journeymen line-
men, electricians, polyphase metermen and mechanics. APS also has a Utility Tree Worker Apprenticeship,
one of the first of its kind in the nation. The mechanic program is college accredited and the APS apprentice
trade programs qualify for the Montgomery GI Bill.
Quest for Excellence (QFE) program
The Quest for Excellence (QFE) program is a Palo Verde-sponsored partnership with West Valley/Phoenix
area high schools. Students participate in a seven-week program studying advanced math including algebra
and physics. After completing the high school program, graduating seniors are eligible for the summer in-
tern program. All college intern graduates are eligible for fulltime employment based on the availability of
entry level positions, performance standards met and workforce needs of the business units.

Other Accredited, Certified Training Programs
       Eleven nuclear training programs are accredited by the Institute of Nuclear Power Operations (INPO)
       Six craft apprenticeship programs meet state certification requirements
       Environmental, health and safety training programs meet and exceed requirements of the Occupa-
       tional, Safety and Health Administration (OSHA), Environmental Protection Agency (EPA), Depart-
       ment of Transportation (DOT) and Nuclear Regulatory Commission (NRC)
Formal Training Requirements
       All employees are required to complete annual ethics, safety, environmental and business practices
       training, averaging four hours per employee. Training completion is tracked and reported
       Approximately 70 percent of the company’s employees work in highly specialized craft, operations,
       technical, engineering, and customer service positions and have annual job specific training require-
       ments. These training requirements range in duration from 16 to 400 hours annually, for an average of
       46 hours of annual continuing training per employee in these job groups. Training completion is
       tracked and reported
Formal Development Processes
The company has a formal succession planning processes which includes all key leaders throughout the en-
terprise. Succession planning development plans are directed by a panel comprised of the CEO and the ex-
ecutive vice-presidents for officers and candidates to officer positions. Succession planning development
plans for senior managers and candidates to senior management positions are directed by panels comprised
of executive vice-presidents, vice-presidents and appropriate senior managers.
The company has formal leadership development processes:

     • Employees have access to an e-Learning system which can assist them in identifying their aptitude
       and/or interest in becoming a leader
     • Once an employee is identified to fill a leadership role he or she is provided with additional e-Learn-
       ing and in person training opportunities. First-time leaders are provided with courses covering lead-
       ership, communication, performance management, and business skills which prepares them for their
       formal leadership role. Leaders receive ongoing communications on leadership development topics
       and business relevant materials throughout the year
     • All company leaders at the manager level and above participate in three to four Leadership Forums
       per year, to stay focused on the company’s business direction, results and challenges
     • Each business unit executive directs an annual program for his or her leaders to address changes in




                                 73 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
       management, culture, and human-performance improvement issues unique to the business unit
     The company has formal employee development processes:
     • The company provides an educational assistance program for employees seeking college credit or
       degrees. Employees are reimbursed 80 percent of tuition upon successful completion of a course.
       Within the annual limit of $5,000, employees may also be reimbursed the remaining 20 percent of tu-
       ition costs upon successful completion of a degree
     • Performance Review (non-union) employees receive an annual performance plan, which includes
       identification of learning and development objectives. Approximately 70 percent of the company’s
       employees are performance

EMPLOYEE HEALTH & PRODUCTIVITY
                                             Pinnacle West provides a variety of programs that encourage
                                             healthy lifestyles and informed decision making to better manage
                                             health costs and positively impact individual health and productiv-
                                             ity.
                                           We view health management as a corporate business strategy that
                                           focuses upon prevention and health promotion to control escalat-
                                           ing health benefit costs while improving the success and health of
our employees and the company as a whole. We know that disability costs and the effects of an aging work-
force can be minimized through effective implementation of processes and programs designed to promote
healthy behaviors and lifestyle practices.
We have Health Services Clinics at our CHQ, Deer Valley, 4 Corners, Cholla and Palo Verde facilities.
We continue to invest in comprehensive programs that improve the health, productivity and well being of
our employees by promoting healthy behaviors, disease management and healthy lifestyles. Through these
efforts we have been able to control escalating health-benefit costs while improving the success of our em-
ployees and our company and will continue our medical strategy focus to:

       Reduce health risks and improve long-term health status
       Reduce medical claims costs
       Motivate positive change in modifiable health risk behaviors
       Integrate health promotion, preventive services and care management for employees along the
       health care continuum
The company offers a variety of programs to employees to assist with, and support individual personal
health management, including:

       Healthquest is a voluntary, company-paid health screening conducted by an outside worksite well-
       ness vendor at more than 28 site locations throughout the company. Healthquest offers a convenient
       way for employees to help identify and support healthy lifestyle behaviors. Participants receive a
       health evaluation and comprehensive lab screening. After the screening, a confidential report is sent
       to the participant’s home, along with information and resources to help interpret results and take ac-
       tion in managing personal health
       Employee Assistance Program provides no-cost, employee-assistance counseling and referral serv-
       ices to all employees and their family members seeking solutions to personal difficulties such as (but
       not limited to): emotional stress, marital and family discord, drug or alcohol abuse, financial or legal
       burden, death of a loved one, grief, anxiety, depression or other personal problems which may occur
       Weight/Lifestyle Management Classes provides educational instruction and resources to support a
       healthy lifestyle and promote behavioral change
       Flu Shots are provided for free to employees
       Mobile Onsite Mammogram (MOM) screening services at company facilities
       Healthy Lifestyle loans which are interest-free loan up to $1,500 toward healthy lifestyle programs
       and services. These include annual fitness center membership, home use fitness equipment, personal




                                 74 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
        training, nutritional counseling/weight management and programs to help employees quit
        smoking/tobacco
        Ergonomics Program which was created to minimize the potential health impacts to employees from
        ergonomic stress related injuries and illnesses
        Mayo Clinic Web Access provides online health information and resources, including a health risk as-
        sessment and interactive lifestyle management tools and programs
        Healthy Returns Care Management offers care-management services to assist those in better manag-
        ing chronic diseases or conditions
        Flu pandemic plan, Since APS is a critical part of the local infrastructure, a flu pandemic scenario is
        one possible crisis being addressed in the company’s Business Resumption Plan (BRP). A cross-func-
        tional team of employees from Energy Delivery, Generation and Shared Services is developing plans
        to address the impact of sustaining operations during a flu outbreak. Such an outbreak could affect
        employees and the company’s business operations.
In addition, recognizing that a good defense is a healthy offense, the company’s Health Services team is pro-
viding employees with information on good health practices. By following this information, employees and
their families can minimize their risk of becoming part of the flu pandemic.

EMPLOYEE SAFETY
Safety is the overriding value of all aspects of our business. A primary responsibility of all APS employees is
to ensure their safety, that of their co-workers and the public at large. While the growth of our service terri-
tory dictates greater efficiency and productivity, these added demands cannot come at the expense of the
health and safety of our employees. Every employee must have the opportunity to return home at the end of
their shift in the same condition in which they arrived.
With the amount of work necessary to meet our rapidly growing service territory, the challenge to work
safely will continue into the future. This challenge is increasingly significant as many experienced employees
reach retirement age and new team members join our company. In the APS 2005-2010 Business Plan, the
management team asks each employee to "Own the Challenge." Until APS employees can achieve zero
recordable injuries and sustain that performance, there will always be room for improvement.




Specifically, we continue to ask employees to focus on six fundamental principles of safety:

       Use the right tool for the job
       Get the necessary training
       Wear appropriate personal protective equipment
       Conduct thorough tailboard (pre-job) briefings
       Stop work if there is a safety concern or question
       Report all close calls


                                 75 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
Throughout 2007 emphasis was placed on employee participation in behavior-based initiatives designed to
focus the attention of our workforce on safety awareness and minimizing at-risk behavior and conditions.
Leading Safety Performance
Our management team is responsible and accountable for safety performance. However, we recognize that
employees and their immediate supervisors also have a key role in driving personal behavior and therefore
our safety results Working in concert with our full-time safety and health professionals also is critical to our
success. The following describes our internal safety infrastructure:
Safety and Health Advisory Team
The Safety and Health Advisory Team is responsible for providing cross-functional strategic direction and
leadership on companywide health and safety issues. The team consists of safety and health professionals
from each of the company’s business units. These professionals represent their respective business unit and
communicate health and safety issues. The team makes recommendations to the company’s officers on all
matters requiring executive oversight.
The team is supported by the Preven-
tion Team, which advances programs
and practices that promote employee
wellness and accident prevention, and
the Compliance Team, which ad-
dresses regulatory compliance mat-
ters and interpretation of best
management practices.
Joint Health and Safety Committee
The Accident Prevention Manual
(APM) Rules/Revision Committee is
comprised of company and Local
IBEW employees who review the
safety rules and any employee re-
quests for revisions to the manual. In
addition to fielding requests, the Com-
mittee periodically reviews the manual
to ensure it remains timely and useful
in helping to prevent accidents.
Craft Observation Teams
The Energy Delivery business unit at
APS has established four full-time
IBEW positions that conduct field ob-
servations of membership work prac-
tices and work conditions. This
practice enhances trust among union      (Note: 2007 Edison Electric Institute utility industry safety statistics
membership and creates an environ-       were not available at the time this report was published.)
ment that is open to immediate cor-
rective or improvement actions. A
similar approach is used at several APS Generation facilities during critical overhauls and outages.
Critical Success / Performance Indicators
We report safety statistics in an effort to measure and improve our performance. As stated in the 2005 -
2010 Business Plan, our goal is to be ranked number one among peer utilities by 2010 as measured by:

       All Injury Incident Rate - total OSHA Recordable injuries reported;
       Lost Work Incident Rate - total number of OSHA Recordable injuries resulting in lost workdays; and,
       Severity Incident Rate - total number of workdays lost due to OSHA Recordable injuries.




                                  76 |   Workplace Performance |   PNW Corporate Responsibility Report ‘07
While APS continues to rank well in safety performance against its electric and gas utility industry peers,
safety performance in 2007 fell far below our standards. For some perspective, in 2004 – the company’s
safest year – we had 101 recordable injuries, of which 31 involved lost work days. However, in 2007, we in-
curred a total of 177 recordable injuries, 61 involving lost work days.
Safety is a core value at APS, and we are taking steps to improve our performance in 2008 by holding all of-
ficers, managers and front-line supervisors personally accountable for safety performance in their opera-
tions.
“As leaders, we have a responsibility to ensure our people work safely. Let me be clear: Nothing is more im-
portant than the safety of our people, and I need your help in regaining our focus. The number of injuries we
are experiencing is trending upward, and the severity of our injuries is a serious concern. We need to reverse
these trends. I will hold leaders accountable for the safe work practices of their team members.”
                                        --Don Brandt, APS President and Chief Executive Officer
At the beginning of 2008 all leaders were required to participate in a Leader Safety Awareness training pro-
gram and to conduct safety meetings with their employees. These and other efforts will be ongoing
throughout 2008.
Incidents are reported through an electronic Event Notification and Tracking System, and managers are
strongly encouraged to also report close calls By evaluating close calls and making corrections when appro-
priate, we believe we can identify potential problem areas before they result in an accident. The number of
close calls reported has increased over the past several years as we have communicated our reason for
doing so.




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