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PINNACLE WEST CAPITAL CORPORATION
Post Office Box 53999
PHOENIX, ARIZONA 85072-3999

NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
Wednesday, May 23, 2007

To our Shareholders:

     You are invited to attend the 2007 Annual Meeting of Shareholders of Pinnacle West Capital Corporation (the “Company” or “Pinnacle West”) to be held at the Herberger Theater Center, 222 East Monroe, Phoenix, Arizona 85004, at 10:30 a.m., Mountain Standard Time, on Wednesday, May 23, 2007. At this meeting, we are asking you to vote on the following proposals in addition to any other business that may properly come before the meeting:

	(1)		Approve an amendment to the Company’s Articles of Incorporation to declassify the Board of Directors that would result in directors being elected annually (Proposal 1);
	(2)		Elect eleven (11) directors to serve until the 2008 Annual Meeting of Shareholders if Proposal 1 is approved; if Proposal 1 is not approved, elect four (4) Class I directors to serve until the 2010 Annual Meeting of Shareholders (Proposal 2);
	(3)		Approve the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan (Proposal 3); and
	(4)		Ratify the appointment of the Company’s independent auditors for the fiscal year ending December 31, 2007 (Proposal 4).

     All shareholders of record at the close of business on March 26, 2007 are entitled to notice of and to vote at the meeting. Shares can be voted at the meeting only if the holder is present or represented by proxy.

		By order of the Board of Directors,
		NANCY C. LOFTIN
		Vice President, General Counsel and Secretary

Approximate date of mailing to Shareholders:
April 19, 2007

TABLE OF CONTENTS

GENERAL INFORMATION			1
What is the purpose of the Annual Meeting?			1
Who is entitled to vote?			1
How do I vote?			1
Is my vote confidential?			1
What constitutes a quorum?			1
What are the Board’s recommendations?			1
What is required to approve the items to be voted on?			2
Will shareholders be asked to vote on any other matters?			2
Who is entitled to attend the Annual Meeting?			2
Can I change or revoke my vote after I submit my proxy?			2
How do I get a copy of the Annual Report?			2
INFORMATION ABOUT OUR BOARD, ITS COMMITTEES AND OUR CORPORATE GOVERNANCE			3
How often did the Board meet during 2006?			3
Do we have independent directors?			3
How did the Board make its independence determinations?			3
What are the Committees the Board has established?			4
Where can I find the charters of the Board’s Committees and how do I get a copy?			4
What are the responsibilities of the Audit Committee?			4
What are the responsibilities of the Human Resources Committee?			4
What are the responsibilities of the Finance, Nuclear and Operating Committee?			5
What are the responsibilities of the Corporate Governance Committee?			5
Do the non-management and independent directors meet without management present?			5
How are nominees for the Board selected?			5
How are directors compensated?			6
DIRECTOR COMPENSATION			7
How can shareholders communicate with the Board?			8
Do Board members attend the Annual Meeting?			8
Does the Company have a code of business conduct and ethics?			8
PROPOSAL 1 — COMPANY PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO PROVIDE FOR THE ANNUAL ELECTION OF ALL DIRECTORS			8
Background			8
Reasons for Proposed Amendment			9
Effect of the Voting Outcome			10
PROPOSAL 2 — ELECTION OF DIRECTORS			10
Who will be elected at the Annual Meeting?			10
Who are the current nominees if Proposal 1 is approved?			11
Which directors will be nominated if Proposal 1 is not approved?			12
Which directors will continue in office if Proposal 1 is not approved?			12
SHARES OF PINNACLE WEST STOCK OWNED BY MANAGEMENT AND LARGE SHAREHOLDERS			12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			13
RELATED PARTY TRANSACTIONS			14
AUDIT MATTERS			15
Report of the Audit Committee			15
Who are the Company’s independent auditors and will they be at the Annual Meeting?			15
What fees were paid to our independent registered public accountants in 2005 and 2006?			16
What are the Audit Committee’s pre-approval policies?			16
EXECUTIVE COMPENSATION			16
COMPENSATION DISCUSSION AND ANALYSIS			16
Introduction			16
What are our processes and procedures for considering and determining executive compensation?			16
What are the objectives of the Company’s compensation programs?			18
What is the compensation program designed to reward?			18
What are the elements of the Company’s compensation program?			19

Why does the Company choose to pay each element of compensation to its Named Executive Officers?			23
How does the Company determine the amount (and the formula) for each element of compensation paid to its Named Executive Officers?			23
How does each element of compensation and the Company’s decisions regarding that element fit into the Company’s overall compensation objectives and affect decisions regarding other elements?			24
What impact do taxation and accounting considerations have on the decisions regarding executive compensation?			25
REPORT OF THE HUMAN RESOURCES COMMITTEE			25
SUMMARY COMPENSATION TABLE			26
GRANTS OF PLAN-BASED AWARDS			29
EMPLOYMENT AGREEMENTS			30
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END			31
OPTION EXERCISES AND STOCK VESTED			33
PENSION BENEFITS			34
DISCUSSION OF PENSION BENEFITS			35
NONQUALIFIED DEFERRED COMPENSATION			37
DISCUSSION OF NONQUALIFIED DEFERRED COMPENSATION			38
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL			39
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS			42
Equity Compensation Plans Approved By Security Holders			42
Equity Compensation Plans Not Approved By Security Holders			43
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			44
PROPOSAL 3 — APPROVAL OF THE PINNACLE WEST CAPITAL CORPORATION 2007 LONG-TERM INCENTIVE PLAN			44
PROPOSAL 4 — RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF THE COMPANY			48
ADDITIONAL INFORMATION			48
How do we submit shareholder proposals or director nominations for the next Annual Meeting?			48
How many Annual Reports and proxy statements are delivered to a shared address?			49
How much did this proxy solicitation cost?			49
APPENDIX A			50
APPENDIX B			51

GENERAL INFORMATION

     This proxy statement contains information regarding the Company’s 2007 Annual Meeting of Shareholders to be held at the Herberger Theater Center, 222 East Monroe, Phoenix, Arizona 85004, at 10:30 a.m., Mountain Standard Time, on Wednesday, May 23, 2007. The enclosed proxy is being solicited by the Company’s Board of Directors.

What is the purpose of the Annual Meeting?

     At the Annual Meeting you will vote on the matters outlined in the notice of meeting on the cover page of this proxy statement.

Who is entitled to vote?

     All shareholders at the close of business on March 26, 2007 (the record date) are entitled to vote at the meeting. Each holder of outstanding Company common stock is entitled to one vote per share held as of the record date on all matters on which shareholders are entitled to vote, except for the election of directors, in which case “cumulative” voting applies (see “What is required to approve the items to be voted on?” on page 2 of this proxy statement). At the close of business on the record date, there were 100,113,220 shares of common stock outstanding.

How do I vote?

     You may vote in person or by a validly designated proxy, or, if you or your proxy will not be attending the meeting, you may vote in one of three ways:

Vote by internet. The website address for internet voting is on your proxy card. Internet voting is available 24 hours a day;

Vote by telephone. The toll-free number for telephone voting is on your proxy card. Telephone voting is available 24 hours a day; or

Vote by mail. Mark, date, sign and mail promptly the enclosed proxy card (a postage-paid envelope is provided for mailing in the United States).

If you vote by telephone or internet, DO NOT mail your proxy card.

Is my vote confidential?

     Yes, your vote is confidential. Only the following persons have access to your vote: election inspectors; individuals who help with processing and counting of votes; and persons who need access for legal reasons. If you write comments on your proxy card, your comments will be provided to the Company, but how you vote will remain confidential.

What constitutes a quorum?

     To carry on the business of the meeting, we must have a quorum. A quorum is present when a majority of the outstanding shares, as of the record date, are represented in person or by proxy. Shares owned by the Company are not considered outstanding or present at the meeting. Shares that are entitled to vote but that are not voted at the direction of the beneficial owner (called abstentions) and votes withheld by brokers in the absence of instructions from beneficial owners (called broker non-votes) will be counted for the purpose of determining whether there is a quorum for the transaction of business at the meeting.

What are the Board’s recommendations?

     Unless you give other instructions through your proxy vote, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors. The Board’s recommendations are set forth below, together with the description of each item to be voted on in this proxy statement. In summary, the Board recommends a vote:

•

FOR amending the Articles of Incorporation to declassify the Board of Directors and provide for the annual election of Directors (see Proposal 1);

	•		FOR election of the nominated slate of directors (see Proposal 2);
	•		FOR approval of the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan (see Proposal 3); and
	•		FOR ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending December 31, 2007 (see Proposal 4).

What is required to approve the items to be voted on?

Amendment to the Articles of Incorporation. Under the Articles of Incorporation, an affirmative vote of the holders of not less than two-thirds of the total voting power of all outstanding shares of voting stock is required to amend the provisions of the Articles of Incorporation that pertain to the staggered election of Directors, which is the section of the Articles of Incorporation that will be amended if Proposal 1 receives the votes needed to pass. In determining whether Proposal 1 has received the requisite number of votes, abstentions and broker non-votes will have the same effect as votes against Proposal 1.

Election of Directors. Individuals receiving the highest number of votes will be elected. The number of votes that a shareholder may, but is not required to, cast is calculated by multiplying the number of shares of common stock owned by the shareholder, as of the record date, by the number of directors to be elected. Any shareholder may cumulate his or her votes by casting them all in person or by proxy for any one nominee, or by distributing them among two or more nominees. Abstentions and broker non-votes will not be counted towards a nominee’s total.

Approval of the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan (the “2007 Plan”). Approval of the 2007 Plan requires the affirmative vote of a majority of the votes cast, provided that the total votes cast with respect to this proposal represents over fifty percent (50%) of the shares of common stock entitled to vote on the proposal. For purposes of approval of this proposal, abstentions have the effect of a vote against the proposal, and broker non-votes are not considered to be votes cast.

Ratification of the Appointment of the Independent Auditors. In connection with the ratification of the appointment of the independent auditors for the fiscal year ending December 31, 2007, the affirmative vote of a majority of the shares voted on that item will be required for approval. Abstentions and broker non-votes will have no effect on the outcome of this proposal.

Will shareholders be asked to vote on any other matters?

     The Board of Directors is not aware of any other matters that will be brought before the shareholders for a vote. If any other matters properly come before the meeting, the proxy holders will vote on those matters in accordance with the recommendations of the Board of Directors, or, if no recommendations are given, in accordance with their own judgment. Shareholders attending the meeting may directly vote on those matters or they may vote by proxy.

Who is entitled to attend the Annual Meeting?

     You or your validly designated proxy may attend the meeting if you were a shareholder as of the record date. However, the Chairman of the meeting may limit the number of proxy representatives permitted to attend if a shareholder sends several representatives to the meeting.

Can I change or revoke my vote after I submit my proxy?

     Even after you have submitted your proxy card or voted by telephone or by internet, you may change or revoke your vote at any time before the proxy is exercised by filing with our Secretary either a notice of revocation or a signed proxy card bearing a later date. The powers of the proxy holders will be suspended with respect to your shares if you attend the meeting in person and so request, although attendance at the meeting will not by itself revoke a previously granted proxy.

How do I get a copy of the Annual Report?

     A copy of the Annual Report is available at the Company’s website (www.pinnaclewest.com) and will be provided to any shareholder upon request. Shareholders may request a copy from Shareholder Services at the telephone number or address set forth in “How many Annual Reports and proxy statements are delivered to a shared address?” on page 49 of this proxy statement.

INFORMATION ABOUT OUR BOARD, ITS COMMITTEES AND OUR CORPORATE GOVERNANCE

How often did the Board meet during 2006?

     The full Board of Directors met nine (9) times during 2006. Every director attended at least ninety-five percent (95%) of the meetings of the full Board and any committees on which he or she served.

Do we have independent directors?

     New York Stock Exchange (“NYSE”) rules require companies listed on the NYSE to have a majority of independent directors. These rules describe certain relationships that prevent a director from being independent and require a company’s board of directors to make director independence determinations in all other circumstances. The Company’s Board of Directors has adopted Director Independence Standards to assist the Board in making director independence determinations. These Director Independence Standards are available at the Company’s website at www.pinnaclewest.com.

How did the Board make its independence determinations?

     In accordance with NYSE rules and the Director Independence Standards, the Board undertakes an annual review to determine which of its directors are independent. The reviews generally take place in the first quarter of each year; however, directors are required to notify the Company of any changes that occur throughout the year that may impact their independence. In the first quarter of 2006, the Board determined that Mr. Stewart was not independent since at that time he had been an employee of the Company within the past three years. In determining that Mr. Stewart is an independent director as part of the 2007 review, the Board considered that Mr. Stewart’s last date of employment with the Company was November 26, 2003, which was more than three years ago. In addition, even though he had a nuclear consulting arrangement with Arizona Public Service Company (“APS”) during 2006, which has since terminated, the amount of fees paid to him under this arrangement ($8,000) was well below the amounts set forth in the NYSE rules and the Director Independence Standards. In determining that Mr. Gallagher is an independent director both in 2006 and 2007, the Board considered that the law firm of Gallagher and Kennedy, P.A. provided legal services to the Company in 2005 and 2006, and will perform legal services for the Company in 2007. However, since: (i) the amounts paid to Gallagher and Kennedy, P.A. were less than the dollar thresholds set forth in the NYSE rules and the Director Independence Standards; (ii) Mr. Gallagher does not furnish legal services to the Company; and (iii) he has advised the Company that he receives no compensation or benefits from Gallagher and Kennedy, P.A. as a result of the firm providing legal services to the Company, the Board determined that Mr. Gallagher was independent. In addition, from time to time in 2006 and in 2007, the Company contracts for services from a subsidiary of AMEC plc. Ms. Hesse is a director of AMEC plc. However, since the amounts paid to these entities was less than the dollar thresholds set forth in the NYSE rules and the Director Independence Standards and the only position Ms. Hesse holds with AMEC plc is as a director, the Board determined that Ms. Hesse is independent.

     With respect to all of the directors, the Board considered that many of the directors and/or businesses of which they are officers, directors or shareholders are located in APS’ service territory and receive electricity from APS. The Board considered these relationships as well in determining the directors’ independence, but because the rates and charges for electricity provided by APS are fixed by the Arizona Corporation Commission, and the directors satisfied the other independence criteria specified in the NYSE rules and the Director Independence Standards, the Board determined that these relationships did not impact any director’s independence. The Board also considered contributions by the Company to charitable and non-profit organizations where a director also serves as a director of such charities or organizations. However, since none of the directors is also an executive officer of such charitable or non-profit organizations, the Board determined these payments did not impact any director’s independence.

     Based on the Board’s review, the Board of Directors has determined that two (2) of the Company’s twelve (12) directors are not independent and that ten (10) of the directors are independent. The ten (10) independent directors are Messrs. Basha, Gallagher, Herberger, Jamieson, Lopez, Nordstrom and Stewart and Mses. Grant, Hesse and Munro. Messrs. Davis and Post are not independent under NYSE rules or the Director Independence Standards because of their employment with the Company.

What are the Committees the Board has established?

     The Board has a standing Audit Committee, Human Resources Committee, Corporate Governance Committee and Finance, Nuclear and Operating Committee. The Audit Committee, Human Resources Committee and Corporate Governance Committee are made up of independent directors (see “Do we have independent directors?” on page 3 of this proxy statement). The following table sets forth the membership of these Committees as of the date of this proxy statement:

Human

Corporate

Finance, Nuclear

Resources

Governance

and Operating

Director

Audit Committee

Committee

Committee

Committee

Edward N. Basha, Jr.

*

*

*

Jack E. Davis

*

Michael L. Gallagher

*

*

Pamela Grant

*

*

*

Roy A. Herberger, Jr.

*

*

*

*

Martha O. Hesse

*

*

William S. Jamieson, Jr.

*

*

*

Humberto S. Lopez

*

*

*

Kathryn L. Munro

*

*

*

*

Bruce J. Nordstrom

**

*

*

William J. Post

*

William L. Stewart

*

*    Member

**  Chairman

Where can I find the charters of the Board’s Committees and how do I get a copy?

     All of the charters of the Board’s Committees are available at the Company’s website (www.pinnaclewest.com), and will be provided to any shareholder upon request. Shareholders may request copies by contacting Shareholder Services at the telephone number or address set forth in “How many Annual Reports and proxy statements are delivered to a shared address?” on page 49 of this proxy statement.

What are the responsibilities of the Audit Committee?

     The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The primary functions of the Audit Committee, which held seven (7) meetings in 2006, are to assist the Board in monitoring the following:

	•		the integrity of the financial statements of the Company;
	•		the independent auditors’ qualifications, independence and performance;
	•		the performance of the Company’s internal audit function; and
	•		the compliance by the Company with legal and regulatory requirements.

     The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent auditors. The Board has determined that each member of the Audit Committee meets the NYSE experience requirements and that Mr. Nordstrom, the Chairman of the Audit Committee, is an “audit committee financial expert” within the meaning of the Securities and Exchange Commission (“SEC”) rules implementing Section 407 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Mr. Nordstrom has been a certified public accountant (“CPA”) for more than thirty-five (35) years. During his career as a CPA, he has prepared, reviewed, audited and analyzed a wide variety of financial statements. As founder and chief executive officer of Nordstrom and Associates, P.C., in addition to directly providing audit services to clients, he supervises other CPAs in their performance of audit services. All members of the Audit Committee meet the independence requirements of the NYSE rules, SEC rules and the Director Independence Standards.

What are the responsibilities of the Human Resources Committee?

     The responsibilities of the Human Resources Committee are described below in the Compensation Discussion and Analysis under the heading “What are our processes and procedures for considering and determining executive compensation? – The Human Resources Committee” on page 16 of this proxy statement.

What are the responsibilities of the Finance, Nuclear and Operating Committee?

     Among other things, the Finance, Nuclear and Operating Committee, which held three (3) meetings in 2006, has the authority and responsibility under its Charter to:

	•		review and assess reports from the Palo Verde Nuclear Oversight Committee (the “NOC”), which formally reports to the Committee and the Chief Executive Officer of APS;
	•		review the Company’s historical and projected financial performance and annual budgets;
	•		review and recommend approval of short-term investments and borrowing guidelines;
	•		review the Company’s financing plan and recommend approval of the issuance of long-term debt, common equity, and other credit facilities;
	•		review and recommend to the Board the Company’s dividend actions, including stock dividends and other distributions;
	•		review and monitor the performance of the Company’s environmental policies; and
	•		review and monitor the customer and power plant operations of the Company.

     The purpose of the NOC is to provide the Finance, Nuclear and Operating Committee and APS executive management an independent assessment of the performance of the Palo Verde Nuclear Generating Station (“Palo Verde”). Performance includes nuclear safety, plant reliability, plant management, and organizational effectiveness. The NOC performs assessments of Palo Verde compared to established nuclear industry standards and practices and corporate requirements.

What are the responsibilities of the Corporate Governance Committee?

     The Corporate Governance Committee is responsible for developing policies and practices relating to corporate governance, including the development of the Company’s Corporate Governance Guidelines. The Corporate Governance Guidelines are available on the Company’s website (www.pinnaclewest.com), and will be provided to any shareholder upon request. Shareholders may request a copy by contacting Shareholder Services at the telephone number or address set forth in “How many Annual Reports and proxy statements are delivered to a shared address?” on page 49 of this proxy statement. Additional functions of the Corporate Governance Committee include the development and recommendation to the full Board of criteria for selecting new directors; identifying and evaluating individuals qualified to become members of the Board, consistent with criteria approved by the Board; recommending director nominees to the full Board; and recommending to the Board the directors who should serve on each of the Board’s committees.

Do the non-management and independent directors meet without management present?

     NYSE rules require that non-management directors meet at regularly scheduled sessions without management. In 2006, all of the Company’s non-management directors were given notice of and could attend the meetings of the Corporate Governance Committee. The Corporate Governance Committee met five (5) times in 2006 and, at each of these meetings, management was not present for all or part of the meeting and the Company’s independent directors met in executive session. Ms. Munro chairs the Corporate Governance Committee and the meetings of the non-management directors and, as the Chair of the Corporate Governance Committee, serves as the Company’s lead director.

How are nominees for the Board selected?

     As noted above, the Corporate Governance Committee is responsible for evaluating individuals qualified to become members of the Board of Directors and recommending director nominees to the full Board.

     Shareholder Nominees. The policy of the Corporate Governance Committee is to consider properly submitted shareholder nominations for candidates for membership on the Board. See “How do we submit shareholder proposals or director nominations for the next Annual Meeting?” on page 48 of this proxy statement. In evaluating such nominations, the Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth below under “Director Qualifications.” Any shareholder nominations proposed for consideration by the Corporate Governance Committee should include the nominee’s name and qualifications for Board membership and should be addressed to:

Corporate Secretary
Pinnacle West Capital Corporation
400 North 5th Street, Mail Station 9068
Phoenix, Arizona 85004

     In addition, the Bylaws of the Company permit shareholders to nominate directors for consideration at any Annual Meeting of Shareholders. For a description of the process for nominating directors in accordance with the Bylaws, see “How do we submit shareholder proposals or director nominations for the next Annual Meeting?” on page 48 of this proxy statement.

     Director Qualifications. The Company’s Corporate Governance Guidelines contain Board membership criteria that apply to Corporate Governance Committee recommended nominees for a position on the Board. Under these criteria, a director must be a shareholder of the Company. In determining whether an individual should be considered for the Board, the Corporate Governance Committee considers the following qualities, among others: integrity, specific or general skills or experience, wisdom, understanding of the Company’s business environment, and willingness to devote adequate time to Board duties.

     Identifying and Evaluating Nominees for Directors. The Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for a director position. The Corporate Governance Committee regularly assesses the appropriate size of the Board, and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Corporate Governance Committee may consider various potential candidates. Candidates may come to the attention of the Corporate Governance Committee through current Board members, professional search firms, shareholders or other persons. These candidates will be evaluated at regular or special meetings of the Corporate Governance Committee, and may be considered at any point during the year. As described above, the Corporate Governance Committee also will consider properly submitted shareholder nominations for candidates for the Board.

How are directors compensated?

     Only non-employee directors are compensated for Board service. Directors receive $30,000 in annual retainer fees, and the Chairman of the Audit Committee receives an additional annual retainer fee of $15,000 and, as of March 1, 2007, $10,000; the Chairman of the Human Resources Committee receives an additional annual retainer of $7,500; and all other committee chairmen receive an additional annual retainer fee of $5,000 and, as of March 1, 2007, $7,500. Non-employee directors are eligible for grants of stock and nonqualified options under a non-employee director equity plan (the “Directors Equity Plan”). The Directors Equity Plan is discussed under the heading “Securities Authorized for Issuance Under Equity Compensation Plans” on page 42 of this proxy statement. If the 2007 Plan proposed for shareholder approval in Proposal 3 is approved, we will not issue any additional shares under the Directors Equity Plan. Instead, directors will be eligible for grants under the 2007 Plan, which we expect will remain at the same levels as current grants under the Directors Equity Plan until further Board action. Directors are paid $1,500 for each Board meeting attended. Directors also receive $1,500 for each committee meeting attended if they are a member of that committee or if they are invited to attend the committee meeting by the chairman of the committee.

     Company directors, including employee directors, who also serve as APS directors, do so for no additional compensation. Non-employee Company directors who serve on the SunCor Development Company (“SunCor”) Board, the APS Energy Services Company, Inc. (“APSES”) Board or the El Dorado Investment Company (“El Dorado”) Board receive an additional $5,000 in annual retainer fees and $500 for each SunCor, APSES or El Dorado Board meeting attended. Employee Company directors who serve on the SunCor Board, the APSES Board and the El Dorado Board do so for no additional compensation. Mr. Stewart serves as the Board’s liaison to the Palo Verde Nuclear Oversight Committee, for which he receives $5,000 per quarter in additional fees. The Company also reimburses Board members for expenses associated with Board meetings and director education programs.

     Amounts paid to directors in 2006 are as follows:

DIRECTOR COMPENSATION

																		Change in
																		Pension Value
																		and Nonqualified
														Non-Equity				Deferred
		Fees Earned or				Stock				Option				Incentive Plan				Compensation				All Other
		Paid in Cash				Awards				Awards				Compensation				Earnings4				Compensation				Total
Name1		($)2				($)3				($)3				($)				($)				($)				($)
Edward N. Basha, Jr.			67,500				44,220				0				0				0				0				111,720
Jack E. Davis5			0				0				0				0				0				0				0
Michael L. Gallagher			78,500				44,220				0				0				9,000				0				131,720
Pamela Grant			75,500				44,220				0				0				0				0				119,720
Roy A. Herberger, Jr.			79,000				44,220				0				0				8,080				0				131,300
Martha O. Hesse			77,250				44,220				0				0				538				0				122,008
William S. Jamieson, Jr.			70,500				44,220				0				0				7,506				0				122,226
Humberto S. Lopez			77,000				44,220				0				0				13,120				0				134,340
Kathryn L. Munro			74,000				44,220				0				0				3,837				0				122,057
Bruce J. Nordstrom			72,750				44,220				0				0				4,624				0				121,594
William J. Post5			0				0				0				0				0				0				0
William L. Stewart			93,500				44,220				0				0				0				8,000	6			145,720

How can shareholders communicate with the Board?

     Shareholders and other parties interested in communicating with the Board of Directors may do so by writing to Board of Directors, Pinnacle West Capital Corporation, 400 North 5th Street, Mail Station 9068, P.O. Box 53999, Phoenix, Arizona 85072-3999. Communications that are intended specifically for the non-management directors should be sent to the same address to the attention of the Corporate Governance Committee Chairman.

Do Board members attend the Annual Meeting?

     Yes. The Company’s Corporate Governance Guidelines provide that each director is expected to be present at the Annual Meeting. All of the Board members attended the 2006 Annual Meeting.

Does the Company have a code of business conduct and ethics?

     Yes. In order to ensure the highest levels of business ethics, the Board has adopted the Ethics Policy and Standards of Business Practices, which applies to all employees, and the Code of Ethics for Financial Professionals, both of which are described below:

     1. Ethics Policy and Standards of Business Practices. “Doing the Right Thing” presents the Ethics Policy and the Standards of Business Practices of the Company and its subsidiaries. Employees receive a copy of “Doing the Right Thing” when they join the Company and are provided updates periodically throughout their employment. These guidelines help ensure that the employees, officers and directors of the Company and its subsidiaries act with integrity and avoid any real or perceived violation of the Company’s ethics policy, laws or regulations.

     2. Code of Ethics for Financial Professionals. The Company has adopted a Code of Ethics for Financial Professionals, which is designed to promote honest and ethical conduct and compliance with applicable laws, rules, and regulations, particularly as related to the maintenance of financial records, the preparation of financial statements, and proper public disclosure. For purposes of this Code, a Financial Professional means (a) any Company professional employee in the area of finance, accounting, internal audit, energy risk management, marketing and trading, financial control, tax, investor relations, or treasury, and (b) the Company’s Chief Executive Officer, Chief Financial Officer, Controller, Treasurer, and persons performing similar functions at any of the Company’s subsidiaries.

     The codes of conduct are available at the Company’s website (www.pinnaclewest.com) and will be provided to any shareholder upon request. The shareholders may request copies from Shareholder Services at the telephone number or address set forth in “How many Annual Reports and proxy statements are delivered to a shared address?” on page 49 of this proxy statement. The Company provides significant periodic training on the Ethics Policy and Standards of Business Practices and the Code of Ethics for Financial Professionals , including annual computer-based training.

PROPOSAL 1 —		COMPANY PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO PROVIDE FOR THE ANNUAL ELECTION OF ALL DIRECTORS

     The Board of Directors has adopted a resolution, subject to the requisite approval of the Company’s shareholders, to amend the Company’s Articles of Incorporation (“Articles”) to eliminate the classification of the Board of Directors and to provide for an annual election by the shareholders of each director. The text of the proposed amendment to the Articles is attached to this proxy statement as Appendix A. Under the Company’s Articles, the proposed amendment to the Articles will require the affirmative vote of the holders of not less than two-thirds of the total voting power of all outstanding shares of voting stock of the Company. The Board of Directors has approved an amendment of the Company’s Bylaws (the “Bylaws”) to eliminate provisions in the Bylaws that relate to the classification of the Board that will become effective only upon the amendment of the Articles in Proposal 1 becoming effective.

Background

     Since 1985, the Board of Directors has been divided or “classified” into three classes, with directors in each class standing for election at every third annual meeting of shareholders. This proposal, if adopted, would amend the Articles to eliminate the classification structure of the Board of Directors and provide for the annual election of all directors.

     In late 2005, a shareholder of the Company submitted a non-binding shareholder proposal to be considered at the 2006 Annual Meeting, requesting that the Company’s directors take the necessary steps to declassify the Board of Directors in the most expeditious manner possible. The shareholder proposal requested that the transition from a classified system to an annual-election system be completed in one election cycle if practicable. The shareholder proposal received support from approximately 83% of the votes cast at the 2006 Annual Meeting.

     Given the shareholder vote in favor of the proposal at the 2006 Annual Meeting and the Company’s commitment to effective corporate governance, the Board of Directors determined that the Corporate Governance Committee should further study the advisability of retaining a classified board and report its findings to the full Board of Directors. Earlier this year, after completing its review, the Corporate Governance Committee recommended amending the Articles to provide for the annual election of directors and referred the amendment to the full Board for its consideration. The Board unanimously agreed to submit amending the Articles to provide for the annual election of directors to the shareholders for approval.

Reasons for Proposed Amendment

     In considering the proposal, the Corporate Governance Committee and the Board of Directors considered arguments for maintaining, as well as for eliminating, the classified board structure. The Corporate Governance Committee and the Board of Directors considered several arguments that favor retention of the classified board structure, including:

	•		A classified board is designed to provide and promote stability, enhance long-term planning and ensure that a majority of the Company’s directors at any given time have prior experience as directors of the Company, which provides management and shareholders with a valuable resource;
	•		A classified board may enhance the independence of non-management directors by permitting them to act independently and on behalf of shareholders without being concerned about whether they will be re-nominated by the other members of the Board each year;
	•		Whether directors are elected for a one-year or a three-year term, the directors have the same fiduciary duties to the Company and its shareholders; thus, accountability depends on the selection of responsible and experienced individuals, not on whether they serve terms of one year or three years; and
	•		A classified board may help safeguard the Company against the efforts of a third party that is intent on quickly taking control of the business, and not paying fair value for the business and its assets; a classified board gives directors the time and leverage necessary to evaluate any proposal, negotiate on behalf of all shareholders and weigh alternatives for maximizing shareholder value.

     The Corporate Governance Committee and the Board of Directors also considered several arguments against the retention of the classified board structure, including:

	•		Because director elections are the primary means by which the shareholders can affect corporate management, a classified board structure means that shareholders are unable to evaluate and elect directors on an annual basis, which may diminish shareholder influence over company policy;
	•		A classified board structure may negatively affect shareholder value by discouraging takeover proposals and proxy contests because a classified board structure denies shareholders the opportunity to vote for all directors at the same time; and
	•		Shareholders may perceive classified boards as being self-serving.

     After weighing all of these considerations, as well as the fact that the Company’s shareholders voted overwhelmingly in favor of declassifying the Board at the 2006 Annual Meeting, the Corporate Governance Committee and the Board of Directors determined that it was in the best interests of the Company and its shareholders to approve this proposal to amend the Articles to eliminate the classified board structure and provide for the annual election of all directors in the most expeditious manner possible. The Board also determined that the shareholders should have the opportunity to elect the full Board at the 2007 Annual Meeting. See Proposal 2. Therefore, the directors who would be subject to re-election in 2008 and 2009 under the Company’s current classified board structure have tendered conditional resignations that will be effective if Proposal 1 is approved by the requisite vote of shareholders. Accordingly, the Board of Directors, upon recommendation of the Corporate Governance Committee, has

approved for submission to the shareholders Proposal 1 and the adoption of amendments to the Articles that would implement Proposal 1.

Effect of the Voting Outcome

     If Proposal 1 is approved, the proposed amendment to the Articles must be filed with the Arizona Corporation Commission, at which time the amendment will become effective. Directors who would be subject to re-election in 2008 and 2009 have submitted their resignations contingent on the amendment of the Articles in accordance with Proposal 1. In addition, Ms. Hesse advised the Company last September that she would not stand for re-election to the Board of Directors when her current term expires. As a result, all of the current directors (except Ms. Hesse) will stand for re-election at the 2007 Annual Meeting. If Proposal 1 is approved, the annual election of directors will begin with the 2007 Annual Meeting and a full slate of directors will stand for re-election at the 2007 Annual Meeting for one-year terms pursuant to Proposal 2 (discussed below).

     If Proposal 1 is not approved, then the Board of Directors will remain classified and, pursuant to Proposal 2, only the Class I directors will stand for re-election at the 2007 Annual Meeting. In that case, each of the Class I directors would serve for a three-year term expiring in 2010 or until such director’s successor shall have been duly elected and qualified or his or her earlier death, resignation or removal. All other directors will continue in their respective office for the remainder of their respective three-year terms, or until such directors’ successors shall have been duly elected and qualified and subject to their earlier resignation, removal or death.

     If a quorum is present, approval of Proposal 1 requires the affirmative vote of the shareholders present in person or by proxy at the 2007 Annual Meeting and holding not less than two-thirds, or 66 2/3%, of the total voting power of all outstanding shares of the Company’s voting stock. If you execute and return a proxy, but do not specify how to vote the shares represented by your proxy, the persons named as proxies will vote “FOR” the proposed amendment to the Articles. In determining whether Proposal 1 has received the requisite number of affirmative votes, abstentions and broker non-votes will count for quorum purposes, and will have the same effect as votes against Proposal 1.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1 TO AMEND THE ARTICLES OF INCORPORATION TO PROVIDE FOR THE ANNUAL ELECTION OF ALL DIRECTORS

PROPOSAL 2 — ELECTION OF DIRECTORS

Who will be elected at the Annual Meeting?

     The Board of Directors currently consists of twelve (12) members. Prior to the adoption of the amendment described in Proposal 1 (discussed above), the Company’s Articles provide for the division of the Board of Directors into three classes of approximately equal size (Class I, Class II and Class III). Each class serves for a period of three years, although occasionally a director may be elected for a shorter term in one class in order to keep the number of directors in each class approximately equal.

     If the shareholders approve the amendment to the Articles to declassify the Board of Directors, as discussed under Proposal 1 above, conditional resignations submitted by all of the current directors who would be subject to re-election in 2008 and 2009 will become effective. In addition, Ms. Hesse advised the Company last September that she would not stand for re-election to the Board of Directors when her current term expires. As a result, all of the current directors, except for Ms. Hesse, will stand for re-election at the 2007 Annual Meeting. In the event that Proposal 1 is approved, the Board has proposed that all nominated directors set forth in the table on the following page stand for re-election this year to serve as members of the Board of Directors until the 2008 Annual Meeting of the Shareholders or until their successors are duly elected and qualified or their earlier death, resignation or removal. The persons named in the enclosed proxy will vote to elect all of the nominees as directors for terms ending at the 2008 Annual Meeting of the Shareholders unless you withhold authority to vote for any or all of the nominees by marking the proxy to that effect or so voting in person. If one or more of the eleven (11) nominees becomes unavailable to serve prior to the date of the 2007 Annual Meeting, the persons named as proxy holders will vote those shares for the election of such other person(s) as the Board of Directors may recommend, unless the Board of Directors reduces the total number of directors.

     If the shareholders do not approve the proposed amendment to the Articles to declassify the Board of Directors as discussed under Proposal 1 above, then the conditional resignations of the directors will not become effective, the term of office of the four (4) current Class I directors will expire at the 2007 Annual Meeting, and the terms of office of the Class II and Class III directors will expire at the 2008 and 2009 Annual Meetings of the Shareholders, respectively. In that event, the shareholders will

be asked to elect four (4) Class I directors this year to serve as members of the Board of Directors until the 2010 Annual Meeting of the Shareholders or until their successors are duly elected and qualified. If Proposal 1 is not approved, the persons named in the enclosed proxy will vote to elect the four (4) Class I nominees as directors for terms ending at the 2010 Annual Meeting of the Shareholders unless you withhold authority to vote for any or all of the nominees by marking the proxy to that effect or so voting in person.

Who are the current nominees if Proposal 1 is approved?

     If the shareholders approve the amendment to the Articles to declassify the Board of Directors, the eleven (11) nominees for election as directors are set forth on the following table:

NOMINEES FOR DIRECTORS
(TERM EXPIRING AT 2008 ANNUAL MEETING)

								Director
Name		Age				Occupation, Business & Directorships		Since
Edward N. Basha, Jr.			69			Chairman of the Board of Bashas’ supermarket chain since 1968. Chief Executive Officer of Bashas’ and an Arizona civic leader dedicated to multiple Arizona community projects.			1999
Jack E. Davis			60			Chief Operating Officer of the Company since September 2003 and President of the Company since February 2001. Chief Executive Officer of APS since September 2002 and President of APS from September 2002 until December 2006. From October 1998 until September 2002, Mr. Davis served as President, Energy Delivery and Sales of APS. Mr. Davis served as Executive Vice President and Chief Operating Officer of the Company from April 2000 to February 2001. Mr. Davis served in various APS positions as follows: Executive Vice President of Commercial Operations from September 1996 to October 1998; and Vice President, Generation and Transmission from June 1993 to September 1996.			2001
Michael L. Gallagher			62			Attorney-at-law with Gallagher & Kennedy, P.A., Phoenix, Arizona. Chairman Emeritus of Gallagher & Kennedy since 2001. Mr. Gallagher served as President of Gallagher & Kennedy from 1978 through 2000.			1999
Pamela Grant			68			Civic leader. President of TableScapes, Inc. (party supply rentals) from July 1989 through January 1995. Ms. Grant was President and CEO of Goldwaters Department Stores (general mercantile), a division of May Department Stores, from January 1987 to April 1988. From November 1978 to January 1987, Ms. Grant was President, Chair and CEO of Goldwaters Department Stores, a division of Associated Dry Goods.			1985
Roy A. Herberger, Jr.			64			President Emeritus of Thunderbird School of Global Management since November 2004. Mr. Herberger was President of Thunderbird from 1989 until August 2004. Mr. Herberger is also a director of MedAire, Inc.			1992
William S. Jamieson, Jr.			63			President of Micah Institute of Asheville, North Carolina since January 2005. From January 1999 to December 2004, Mr. Jamieson was President of the Institute for Servant Leadership.			1991
Humberto S. Lopez			61			President of HSL Properties, Inc. (real estate development and investment), Tucson, Arizona since 1975.			1995
Kathryn L. Munro			58			Principal of BridgeWest, LLC (investment company) since July 2003. Ms. Munro was Chair of BridgeWest, LLC from February 1999 until July 2003. From 1996 to 1998, Ms. Munro served as CEO of Bank of America’s Southwest Banking Group and was President of Bank of America Arizona from 1994 to 1996. Ms. Munro is also a director of FLOW International Corporation and Knight Transportation, Inc.			2000
Bruce J. Nordstrom			57			President of and certified public accountant at the firm of Nordstrom and Associates, PC, Flagstaff, Arizona, since 1988.			2000
William J. Post			56			Chairman of the Board of the Company since February 2001 and CEO of the Company since February 1999. Mr. Post has served as an officer of the Company since 1995 in the following additional capacities: from August 1999 to February 2001 as President; from February 1997 to February 1999 as President; and from June 1995 to February 1997 as Executive Vice President. Mr. Post is also Chairman of the Board of APS and has held various officer positions at APS since 1982.			1997
William L. Stewart			63			Mr. Stewart retired from the Company effective November 26, 2003. Mr. Stewart served as Chief Executive Officer of Pinnacle West Energy Corporation (“PWEC”) from October 2002 until January 2003 and President of PWEC from October 1999 until January 2003. Mr. Stewart served as President, Generation, of APS from October 1998 to October 2002. Mr. Stewart provided nuclear consulting services to APS in 2006. See footnote 6 to the Director Compensation table on page 7 of this proxy statement for a description of the consulting arrangement.			2001

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINATED SLATE OF DIRECTORS

Which directors will be nominated if Proposal 1 is not approved?

     If the shareholders do not approve Proposal 1 to declassify the Board of Directors, the four (4) nominees for election as Class I directors (term expiring at the 2010 Annual Meeting) are: Roy A. Herberger, Jr.; Humberto S. Lopez; Kathryn L. Munro; and William L. Stewart (see biographical information on page 11 of this proxy statement).

Which directors will continue in office if Proposal 1 is not approved?

     If the shareholders do not approve Proposal 1 to declassify the Board of Directors, the following incumbent directors would continue to serve on the Board of Directors for the indicated terms: Class II Directors (terms expiring at the 2008 Annual Meeting): Edward N. Basha, Jr.; Michael L. Gallagher; Bruce J. Nordstrom; and William J. Post; and Class III Directors (terms expiring at the 2009 Annual Meeting): Jack E. Davis; Pamela Grant; William S. Jamieson, Jr.; and Martha O. Hesse. Ms. Hesse, 64, has been a director since 1991, and was President of Hesse Gas Company from 1990 to 2003, Senior Vice President of First Chicago Corporation (financial services) in 1990, and Chair of the Federal Energy Regulatory Commission from 1986 to 1989. She is also a director of Terra Industries, Inc., Enbridge Energy Partners, L.P. and AMEC plc. As noted above, Ms. Hesse advised the Company last September that she would not stand for re-election to the Board of Directors when her current term expires. If the shareholders approve Proposal 1, Ms. Hesse’s conditional resignation from the Board will become effective and her term will end. If the shareholders do not approve Proposal 1, Ms. Hesse’s current term will continue.

SHARES OF PINNACLE WEST STOCK OWNED BY MANAGEMENT AND LARGE SHAREHOLDERS

     The following table shows the amount of Pinnacle West common stock owned by the Company’s directors, Messrs. Post, Brandt, Davis, Levine and Flores, which officers are the Company’s named executive officers pursuant to the SEC rules (the “Named Executive Officers”), other executive officers and those persons who beneficially own more than 5% of the Company’s common stock. Unless otherwise indicated, each shareholder listed below has sole voting and investment power with respect to the shares beneficially owned.

     The address of listed shareholders not otherwise set forth below is P.O. Box 53999, Mail Station 8602, Phoenix, Arizona 85072-3999. Unless otherwise indicated, all information is as of March 26, 2007, the record date for the Annual Meeting.

		Number of Shares				Shares Acquirable
Name		Beneficially Owned 1				Within 60 Days 2				Percent of Class
Directors:
Edward N. Basha, Jr.			10,535				0				*
Jack E. Davis			58,794				66,000				*
Michael L. Gallagher			11,796				0				*
Pamela Grant			21,956				0				*
Roy A. Herberger, Jr.			14,260				0				*
Martha O. Hesse			6,937				0				*
William S. Jamieson, Jr.			11,590				0				*
Humberto S. Lopez			33,287				0				*
Kathryn L. Munro			10,005				0				*
Bruce J. Nordstrom			12,309				0				*
William J. Post			70,966				467,750				*
William L. Stewart			32,463				0				*
Other Named Executive Officers:
Donald E. Brandt			4,383				0				*
James M. Levine3			41,155				52,625				*
Armando B. Flores4			20,825				0				*
All Directors and Executive Officers as a Group (21 Persons):			440,858				660,125				1.1	%
5% Beneficial Owners5:
Barclays Global Investors, NA. and certain other entities			7,734,321				N/A				7.8	%
45 Fremont Street
San Francisco, CA 94105

Number of Shares

Shares Acquirable

Name

Beneficially Owned 1

Within 60 Days 2

Percent of Class

Franklin Resources, Inc. and certain other entities

6,644,900

N/A

6.7

%

One Franklin Parkway

San Mateo, CA 94403-1906

T. Rowe Price Associates, Inc.

5,987,590

N/A

5.9

%

100 E. Pratt Street

Baltimore, MD 21202

State Street Bank and Trust Company

6,373,403

N/A

6.4

%

225 Franklin Street

Boston, MA 02110

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires the Company’s directors and officers, and persons who own more than 10% of the Company’s common stock to file reports of ownership and changes of ownership with the SEC. Based solely on the Company’s review of these reports, the Company believes that its directors, officers, and greater than 10% beneficial owners complied with their respective Section 16(a) reporting requirements for fiscal year 2006 and prior fiscal years on a timely basis, except as otherwise previously disclosed.

RELATED PARTY TRANSACTIONS

     The Audit Committee of the Board of Directors is responsible for reviewing and approving all material transactions with any related party. Related parties include any of our directors, executive officers, certain of our shareholders, and with respect to each of them, their immediate family members and certain entities in which they own an interest that is greater than 10% (a “Related Party”). This obligation is set forth in writing in our Statement of Policy Regarding Related Party Transactions (the “Policy”).

     To identify Related Party transactions, each year the Company submits and requires our directors and officers to complete Director and Officer Questionnaires identifying any transactions with the Company in which a Related Party has an interest. We review Related Party transactions due to the potential for a conflict of interest. A conflict of interest occurs when an individual’s private interest interferes, or appears to interfere, in any way with our interests. Our Ethics Policy and Standards of Business Practices,“Doing the Right Thing,” requires all directors, officers and employees who may have a potential or apparent conflict of interest to notify their immediate leader and the Company’s ethics department. In addition, the Policy specifically provides that any “Related Party Transaction,” as defined in the Policy, must be approved or ratified by the Audit Committee. A Related Party Transaction is any transaction in which a Related Party and the Company or any of its subsidiaries are participants and where the amount involved exceeds $120,000 in the aggregate.

     Our directors and executive officers are required to bring Related Party Transactions to the attention of the Company’s General Counsel so that the Related Party Transaction may be reviewed in accordance with the Policy. The following transactions are exempt from the review requirement:

	•		Transactions in which rates or charges are fixed in conformity with law or governmental authority (such as APS rates approved by the Arizona Corporation Commission) or the rates or charges are determined by competitive bid;
	•		Transactions with SunCor or its affiliates (such as home purchases) that are offered to the Related Party on terms comparable to those that could be obtained in arm’s length dealing with an unrelated party;
	•		Transactions involving charitable or non-profit organizations where the Related Party serves only as a director or chairman of the organization’s Board of Directors for no compensation;
	•		Transactions in which the Related Party’s interest arises only: (i) from such person’s position as a director of the entity involved in the transaction; (ii) from the direct or indirect ownership by such person, in the aggregate of less than a ten (10) percent equity interest in the entity involved in the transaction; or (iii) the interest arises under both (i) and (ii) above; and
	•		Any transaction involving a director that was considered by the Board in assessing the director’s independence and which resulted in a determination that disclosure of the transaction was not required under Item 404(a) of SEC Regulation S-K.

     The Audit Committee will only approve or ratify a Related Party Transaction if the transaction is on terms no less favorable than those that could be obtained in arm’s length dealing with an unrelated party and the Audit Committee finds that the terms of the transaction are fair and reasonable.

     We expect the Company’s directors, officers and employees to act and make decisions that are in the Company’s best interests and encourage them to avoid situations that present a conflict between the Company’s interests and their own personal interests. The Company’s directors, officers and employees are prohibited from taking any action that may make it difficult for them to perform their duties, responsibilities and services to the Company in an objective and fair manner.

AUDIT MATTERS

Report of the Audit Committee

     The Audit Committee of the Board submitted the following report:

     In accordance with its written charter adopted by the Board, the primary function of the Audit Committee is to assist the Board in monitoring (1) the integrity of the financial statements of the Company, (2) the independent auditors’ qualifications and independence and performance, (3) the performance of the Company’s internal audit function, and (4) the compliance by the Company with legal and regulatory requirements. The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent auditors. Management is responsible for the Company’s financial reporting process, including the Company’s system of internal controls, and for the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. The independent auditors are responsible for auditing and rendering an opinion on those financial statements, as well as auditing certain aspects of the Company’s internal controls. The Committee’s responsibility is to monitor these processes.

     During 2006, the Audit Committee met seven (7) times. These meetings included sessions with the Company’s internal auditors and with the independent auditor, both with and, at six of these meetings, without the presence of management.

     In discharging its oversight responsibility as to the audit process, the Committee obtained from Deloitte & Touche LLP, the Company’s independent auditors, the formal written disclosures and the letter required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees.” The Committee discussed with the auditors any relationships that may impact the auditors’ objectivity and independence and satisfied itself as to the auditors’ independence. The Audit Committee further determined that the other services provided to the Company for which the auditors received the fees disclosed on page 16 of this proxy statement were compatible with maintaining the auditors’ independence.

     The Committee discussed and reviewed with Deloitte & Touche LLP all communications required by auditing standards generally accepted in the United States of America and SEC regulations, including those described in Statement on Auditing Standards No. 61, as amended, “Codification of Statements on Auditing Standards, AU § 380” and Rule 2-07 of Regulation S-X and, with and without management present, discussed and reviewed the results of the independent auditors’ audit of the financial statements.

     The Audit Committee discussed and reviewed the audited financial statements of the Company as of and for the fiscal year ended December 31, 2006, with the Company’s management, the Director of Audit Services and the independent auditors.

     Based on the foregoing, the Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the SEC.

COMMITTEE CHAIRMAN		COMMITTEE MEMBERS
Bruce J. Nordstrom		Edward N. Basha, Jr.
		Pamela Grant
		William S. Jamieson, Jr.
		Humberto S. Lopez
		Kathryn L. Munro

Who are the Company’s independent auditors and will they be at the Annual Meeting?

     The Audit Committee has selected Deloitte & Touche LLP, independent registered public accountants, to examine the Company’s financial statements for the fiscal year ending December 31, 2007 and, pursuant to Proposal 4, has requested shareholder ratification of this selection. The Company expects that representatives of that firm will be present at the Annual Meeting. These representatives will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

What fees were paid to our independent registered public accountants in 2005 and 2006?

     The following fees were paid to the Company’s independent registered public accountants, Deloitte & Touche LLP, for the last two fiscal years:

Type of Service		2005				2006
Audit Fees 1		$	3,145,077			$	2,722,685
Audit-Related Fees 2			189,400				207,890
Tax Fees 3			33,211				37,396

What are the Audit Committee’s pre-approval policies?

     The Audit Committee pre-approves each audit service and non-audit service to be provided by the Company’s independent registered public accountants. The Audit Committee has delegated to the Chairman of the Audit Committee the authority to pre-approve audit and non-audit services to be performed by the independent public accountants if the services are not expected to cost more than $50,000. The Chairman must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All of the services performed by Deloitte & Touche LLP for the Company in 2006 were pre-approved by the Audit Committee.

EXECUTIVE COMPENSATION

Introduction

     The purpose of this Compensation Discussion and Analysis (“CDA”) is to provide information about the compensation that the Company awarded to our Named Executive Officers or that they earned in 2006 and to explain the Company’s compensation process and philosophy and the policies and the factors that underlie our decisions with respect to the Named Executive Officers’ compensation. As we describe in more detail below, the principal objectives of our executive compensation strategy are to attract and retain talented executives, reward business results, strongly differentiate pay based on performance and align the interest of executives with shareholders. In addition to rewarding business and individual performance, the compensation program is designed to promote both annual performance objectives and longer-term performance objectives.

What are our processes and procedures for considering and determining executive compensation?

     The Human Resources Committee. Edward N. Basha, Jr., Pamela Grant, Roy A. Herberger, Jr. (Chairman), William S. Jamieson, Jr., and Humberto S. Lopez are the members of the Human Resources Committee of our Board of Directors (the “Committee”). Each member of the Committee qualifies as an independent director under NYSE rules and our Director Independence Standards.

     The Committee meets as often as necessary to perform its duties and responsibilities. In 2006, the Committee met four (4) times and it has had two (2) meetings so far in 2007. The Committee typically meets with representatives of management and, where appropriate, with outside advisors. It also regularly meets in executive session without management. Although the Committee monitors executive officer compensation throughout the year, it undertakes a thorough analysis of our executive officer compensation each fall. From December through March, the Committee then makes adjustments, if any, to director and officer compensation, including decisions on salary adjustments and cash and non-cash incentives.

     Among other things, the Committee has the authority and responsibility under its charter to:

	•		review management’s plans and programs for the attraction, retention, succession, motivation, and development of the human resources needed to achieve corporate objectives;
	•		review and approve policies on compensation, benefits, and perquisites, including incentive cash compensation plans, equity participation, and other forms of executive incentives;
	•		recommend persons to the full Board for election or appointment as officers;
	•		annually review the goals and performance of our elected officers, including review of compensation, benefits, and perquisites, to satisfy the Committee that there is equity in the compensation practices and general integrity in conforming to approved plans and policies;
	•		review and approve corporate goals and objectives relevant to compensation of our Chief Executive Officer (“CEO”), assess the CEO’s performance in light of these goals and objectives, and set the CEO’s compensation level based on this assessment;
	•		make recommendations to the Board with respect to non-CEO executive compensation, and incentive compensation and equity-based plans that are subject to Board approval;
	•		make recommendations to the Board for director compensation, equity participation, benefits and perquisites;
	•		act as the “committee” under our long-term incentive plans; and
	•		review and recommend changes to pension benefits.

     The charter also provides that in determining the long-term incentive component of CEO compensation, the Committee will consider the Company’s performance and relative shareholder return, the value of incentive awards to CEOs at comparable companies, and the awards given to the CEO in past years.

     Role of Compensation Consultants. The Committee’s charter gives the Committee the sole authority to retain and terminate any consulting firm used by the Committee in evaluating director and officer compensation. Consistent with past practice, in 2005 and 2006, the Committee directly engaged Schuster-Zingheim and Associates, Inc. (“Schuster-Zingheim”), an outside compensation consultant, to assist the Committee in its evaluation of compensation for our executive officers and directors. The Committee instructed the consultant to prepare a detailed analysis of the Company’s current compensation and the compensation practices of other companies that are within a benchmarking group selected by the Committee, and to make recommendations for changes to the existing compensation program. We discuss the reports and recommendations of Schuster-Zingheim with respect to 2006 compensation of our Named Executive Officers in more detail under the heading “How does the Company determine the amount (and the formula) for each element of compensation paid to its Named Executive Officers?” on page 23 of this proxy statement. Schuster-Zingheim does not provide any other services to our Company.

     Role of Executive Officers in Determining Executive Compensation. All compensation decisions are made by the Committee and, with respect to everyone but the CEO, are approved by the Board. NYSE rules and, as noted above, the Committee’s charter, requires the Committee to solely approve the CEO’s compensation. Management works with the Committee in establishing the agenda for Committee meetings and in preparing meeting information. Management provides information to the Committee on the performance of the executive officers for the Committee’s consideration and provides such other information as the Committee may request. Management also assists the Committee in recommending salary levels and the type and structure of other awards. The executive officers are also available to the compensation consultant to provide information as requested by the consultant. As described below under the heading “What are the elements of the Company’s compensation program? — Annual Incentives,” executive officers also play a role in setting the targets for business unit performance or other goals for the Company’s annual incentive plans. At the request of the Chairman of the Committee, the CEO or other officers may attend and participate in portions of the Committee’s meetings.

What are the objectives of the Company’s compensation programs?

          The principal objectives of the Company’s executive compensation strategy are to attract and retain talented executives, reward business results, strongly differentiate pay based on performance and align the interest of executives with shareholders. The objectives are based on the following core principles, which we explain in greater detail below:

•		Business Performance Accountability. Compensation should be tied to the Company’s performance in several key areas so that executives are focused on specific strategic and operating objectives and are held accountable through their compensation for the performance of the Company.
•		Individual Performance Accountability. Compensation should be tied to an individual’s performance so that individual contributions to the Company’s performance are rewarded.
•		Alignment with Shareholder Interests. Compensation should be tied to the Company’s stock performance through performance-based stock incentives so that executives’ interests are aligned with those of our shareholders.
•		Retention. Compensation should be designed to promote key employee retention.
•		Competitiveness. Finally, the compensation program should be designed to attract, retain and reward key leaders critical to the Company’s success by providing competitive total compensation.

What is the compensation program designed to reward?

          The objectives of our compensation programs can generally be summed up in one word: performance. In addition to rewarding business and individual performance, the compensation program is designed to promote both annual performance objectives and longer-term performance objectives.

          Annual incentives in our compensation program are principally cash-based. Annual incentives promote superior operational performance, disciplined cost management, and increased productivity and efficiency that contributes significantly to positive results for Pinnacle West shareholders and APS customers. The elements of our compensation program that promote annual performance objectives are described below under the heading “What are the elements of the Company’s compensation program? — Annual Incentives” on page 19 of this proxy statement.

          Long-term incentives in our compensation program are principally stock-based. Our stock-based incentives in 2006 promote shareholders’ interests through a focus on Company performance relative to a peer index. The elements of our 2006 compensation program that promote long-term performance objectives are our performance shares and retention units (see the following paragraph). We describe these awards below under the heading “What are the elements of the Company’s compensation program? — Long-Term Incentives” on page 20 of this proxy statement.

          On December 13, 2006, our Board, acting on the recommendation of the Committee, restructured the Company’s long-term incentive program to replace, on a going-forward basis, the compensation opportunity previously afforded key employees through grants of performance shares and stock options, with grants of performance shares and retention units or restricted stock units (“RSUs”). We describe these retention units and RSUs below under the heading “What are the elements of the Company’s compensation program? — Long-Term Incentives” on page 20 of this proxy statement. This restructured program is intended to afford key employees the opportunity to earn long-term incentive compensation comparable with their opportunity in prior years. The focus of the restructured program is to motivate long-term performance while promoting key employee retention.

          While our emphasis is on performance incentives, a compensation program must also have elements that are not solely performance-based in order to be competitive in attracting and retaining talented executives. However, we attempt to set these elements at a level that is consistent with our performance objectives. For example, our consistent practice of setting base salaries in the median competitive range emphasizes performance-based compensation objectives. The lack of any significant perquisites emphasizes performance-based compensation objectives. The absence of traditional employment agreements for substantially all of our executive officers, including the Chief Executive Officer and Chairman of the Board, promotes accountability and does not reward poor performance through the payment of severance benefits traditionally paid under employment agreements.

What are the elements of the Company’s compensation program?

          In general, the Company’s compensation program consists of three major elements: base salary, performance-based annual incentives, and long-term incentives consisting of both performance-based awards and other equity-based awards designed to promote key employee retention. In addition, the Company provides pension programs, deferred compensation programs, a limited number of perquisites, and change-in-control arrangements.

          Base Salary. The Committee reviews competitive salary information and individual salaries for executive officers on an annual basis. The Named Executive Officers do not have a contractual right to receive a fixed base salary. In considering individual salaries, the Committee reviews the scope of job responsibilities, internal equity, individual contributions, business performance and current compensation compared to market practices. The base salaries paid to the Company’s executive officers during 2006 overall were competitive with the median salaries in both the utility industry and the compensation analysis blended market. See “How does the Company determine the amount (and the formula) for each element of compensation paid to its Named Executive Officers?” in this CDA on page 23 of this proxy statement. Mr. Brandt’s base salary was increased in December of 2006 to $600,000 in connection with his appointment to the position of President of APS.

          Annual Incentives. We have used incentive programs for all our employees for a number of years. The performance criteria that underlie the annual incentive programs focus on Company earnings, superior operational performance, disciplined cost management, and increased productivity and efficiency. We believe that the annual incentive programs have been effective in achieving these goals. In fact, since the Company introduced employee incentive plans in 1992, productivity has increased by 65%, as measured by the annual improvement in the number of customers served per employee. In order to promote specific goals for 2006, (a) on December 13, 2005, the Committee approved the 2006 Chairman and CEO Variable Incentive Plan (the “CEO Incentive Plan”) and (b) on December 14, 2005, the Board of Directors, acting on the Committee’s recommendation, adopted the 2006 Officer Variable Incentive Plan (the “Officer Incentive Plan” and collectively, the “2006 Incentive Plans”).

          The CEO Incentive Plan is based on the attainment of specified 2006 Company earnings. The Officer Incentive Plan was composed of two components, one of which was based on the Company’s 2006 earnings and the other on the achievement of specified business unit results. The Officer Incentive Plan provided that each relevant business unit would establish the “critical success indicators” for its operations, and that failure to achieve a particular critical success indicator could be offset by enhanced performance in other critical success indicators. The Officer Incentive Plan also provided that once a specified earnings threshold is met, the achievement of the critical success indicators, which are weighted proportionally, will determine the funding percentage in each plan, if any, subject to Committee discretion, as described below. The Company earnings levels under the 2006 Incentive Plans were as follows: $265 million (threshold); $295 million (midpoint); and $325 million (maximum).

          Each of the 2006 Incentive Plans provided that the calculation and amount of the award, if any, to each officer was in the discretion of the Committee. Accordingly, the 2006 Incentive Plans permitted the Committee to consider factors other than Company earnings and the achievement of business unit results to measure performance, including, under the Officer Incentive Plan, the CEO’s assessment of the officer’s individual performance during 2006.

          The incentive awards of the Named Executive Officers under the 2006 Incentive Plans are disclosed in the Summary Compensation Table on page 26 of this proxy statement in the column “Non-Equity Incentive Plan Compensation.” In addition to meeting earnings targets, the Company’s operational results included APS’ successful and reliable management of customer growth, which was three times the national average, while hitting a new system peak demand 9.3% higher than the previous year’s peak; APS’ coal-fired power plants establishing all-time production marks in 2006, which, when combined with the operations of APS’ other fossil units, resulted in a savings to APS’ customers of approximately $42,000,000 in fuel costs; APS’ rating as the top investor-owned utility in the West Region by J.D. Power & Associates; and APS’ completion of the first solar trough power plant in the country in almost 20 years, which plant was named one of the top 12 power plants in the world by Power Magazine. In considering payouts under the 2006 Incentive Plans, however, the Committee reduced the award amounts by the indicated percentages for each Named Executive Officer because of an unfavorable Nuclear Regulatory Commission (the “NRC”) regulatory assessment relating to the Palo Verde Nuclear Generating Station: Mr. Post (31%); Mr. Davis (28%); Mr. Brandt (28%); Mr. Levine (52%); and Mr. Flores (14%).

          In addition, under the Company’s annual incentive plans, the Committee may determine not to approve an award for any or all officers, even if the earnings and business unit targets are met. For example, in early 2006 (when the Committee would otherwise have approved incentive awards based on 2005 performance), the Committee considered the Company’s financial condition and issues facing the Company and decided to forego making any incentive payments to eligible officers even though performance targets were exceeded under the 2005 incentive plans. The incentive award that each of the Named Executive Officers was eligible to receive in early 2006, based on 2005 performance, were as follows: Mr. Post — $1,900,008; Mr. Davis — $1,200,006; Mr. Levine — $553,271; Mr. Brandt — $396,686; and Mr. Flores — $299,717. These awards were not paid.

          Award opportunities under the 2006 Incentive Plans (expressed as a percentage of the officer’s base salary) for the Chairman and CEO and the other Named Executive Officers were based on the following performance measures (weighted according to the indicated percentages):

				Award Opportunity
Officer		Performance Measure(s)1		(Subject to Committee Discretion)1
William J. Post		Company Earnings		Threshold (63%) Midpoint (125%) Maximum (200%)
Jack E. Davis		Company Earnings		Threshold (37.5%) Midpoint (75%) Maximum (150%)
Donald E. Brandt		Company Earnings		Threshold (37.5%) Midpoint (75%) Maximum (150%)
James M. Levine		- Company Earnings (50%)		- Company Earnings:
		- Fossil Business Unit Results (25%) and Palo Verde Business Unit Results (25%). Fossil Business Unit Results and Palo Verde Business Unit Results are described under Shared Services Business Unit Results described below for Mr. Flores.		Threshold (0%) Midpoint (25%) Maximum (50%) - Business Unit Results (up to 50%)
Armando B. Flores		- Company Earnings (50%)		- Company Earnings:
		- Shared Services Business Unit Results (50%), which consists of: - Fossil Business Unit Results (Safety Performance; Coal Production Cost; Equivalent Availability and Capacity Factors; O&M and Capital Costs; and Environmental Performance) - Palo Verde Business Unit Results (Safety Performance; Human Performance Events; Plant Improvement Plan Performance; Capacity Factor; Equipment Reliability; and O&M and Capital Costs); - Delivery Business Unit Results (Safety Performance; Customer and Reliability Satisfaction; Business Performance Trends; Customer Reliability; and Environmental Performance); - Budget Targets; - Safety		Threshold (0%) Midpoint (25%) Maximum (50%) - Shared Services Business Unit Results (up to 50%)

          On January 17, 2007, the Board, acting on the recommendation of the Committee, approved the Company’s 2007 annual incentive plans and, on January 16, 2007, the Committee approved the CEO component of the Company’s 2007 incentive plans. The 2007 incentive plans are substantially similar to the 2006 Incentive Plans. We describe the 2007 incentive plans and the award opportunities for our Named Executive Officers under those plans in our Current Report on Form 8-K filed on January 19, 2007.

          Long-Term Incentives. In early 2006, consistent with our past practices, we issued performance share awards and stock ownership incentive awards, each as described below. We made these awards under our 2002 Long-Term Incentive Plan (the “2002 Plan”). We have not granted stock options to the Company’s executive officers since 2003, except for a single grant in 2004 in connection with an officer’s employment agreement. We began voluntarily expensing stock options in 2002, although the accounting rules requiring the expensing of stock options did not apply to us until January 1, 2006. Stock options are not currently, and are not expected to be, a component of our long-term compensation program.

          In late 2006, we restructured our long-term compensation program to change the type of grants but not the overall incentive potential. Under our restructured program, long-term incentives will consist of performance shares and retention units or, if our shareholders approve the 2007 Plan, restricted stock unit awards (“RSUs”). We will no longer issue stock ownership incentive awards. In order to better implement our long-term compensation program, we have proposed the adoption of the 2007 Plan for approval by our stockholders. We include a description of the 2007 Plan in Proposal 3 in this proxy statement.

          Performance Shares. The 2002 Plan allows for the Company to grant performance based awards. We use performance shares to promote long-term performance. In 2004, the Company stopped granting stock options and increased its use of performance shares in order to further align the executives’ incentive with the Company’s performance. Generally, each recipient of performance shares is entitled to receive shares of common stock at the end of a three-year period based upon the Company’s earnings per share growth rate during that three-year period compared to the earnings per share growth rate of the S&P 1500 Super Composite Electric Utility Index over the same period. For the performance shares granted in 2006, the three-year performance period is from January 1, 2006 to December 31, 2008. The earnings per share growth rate for the three-year performance period is the compounded annual-growth rate of a company’s earnings per share from continuing operations (plus SunCor’s discontinued operations for purposes of calculating the Company’s earnings per share growth), on a fully-diluted basis, during the three-year period. The number of shares of common stock a recipient is entitled to receive is determined by the Company’s relative percentile ranking in the Index during the three-year performance period. The recipient must also remain employed with the Company throughout the performance period, except by way of retirement (in the case of the 2006 performance share grants). A participant who receives an award of performance shares is also entitled to a cash payment equal to the amount of dividends that the participant would have received had he or she owned the shares during the three-year performance period, plus a specified rate of interest, which, in the case of the 2006 performance share awards, is 4.68%.

          We include performance share awards granted in 2006 in the Grants of Plan-Based Awards table on page 29 of this proxy statement. These awards have been valued in the tables in accordance with SEC rules; however, if the performance targets for the 2006 awards are not achieved, the executives will receive nothing from these awards. The performance share awards granted in 2004 that vested in 2006 are disclosed in the Option Exercises and Stock Vested table on page 33 of this proxy statement in the columns under “Stock Awards.” Outstanding performance shares are also included in the Outstanding Equity Awards At Fiscal Year-End table on page 31 of this proxy statement in the “Equity Incentive Plan Awards” columns under the heading “Stock Awards.”

          We issued performance share awards in the first quarter of 2007 under the 2002 Plan for a three-year performance period from January 1, 2007 to December 31, 2009. The terms of these awards are consistent with our prior performance share grants.

          Stock Ownership Incentive Awards. The 2002 Plan allows the Company to grant ownership incentive awards. We have used stock ownership incentives to promote annual performance and stock ownership. Stock ownership aligns the interests of the officers with the long-term health and success of the Company. The stock ownership incentive awards were also designed to incentivize the officers to retain their Company stock over the long term. Each recipient who owned an average amount of stock (calculated over the twelve month period) equal to a specified multiple of such individual’s base salary was entitled to receive 4% of the average number of shares of common stock owned by the recipient during 2006 if the Company’s 2006 earnings from continuing operations (plus SunCor’s earnings from discontinued operations) met a specified threshold. The recipient must also remain employed with the Company throughout the performance period except in the case of death or disability. The share ownership requirements for executive officers are 5 times base salary in the case of the CEO; 3 times base salary in the case of the president of the Company; 2.5 times base salary in the case of Mr. Levine; and 2 times base salary in the case of Messrs. Brandt and Flores. The 2006 earnings threshold was met, so those executive officers who held the requisite number of shares were granted their corresponding stock ownership awards. See footnote 2 to the Option Exercises and Stock Vested table on page 33 of this proxy statement.

          We include stock ownership incentive awards granted in 2006 in the Option Exercises and Stock Vested table on page 33 of this proxy statement in the columns under “Stock Awards.” The 2006 stock ownership incentive awards are also included in the Grant of Plan-Based Awards table on page 29 of this proxy statement in the column marked “Estimated Future Payouts Under Equity Incentive Plan Awards.” Consistent with the restructuring of the Company’s long-term compensation program in December 2006, the Committee does not intend to grant stock ownership incentive awards. The Committee believes that grants of performance shares and retention units or RSUs are more effective forms of awards for long-term performance and key employee retention.

          Retention Units and RSUs. Retention units are incentive awards that vest over a number of years if the award recipient remains employed by the Company or one of its subsidiaries. Each retention unit represents the fair market value of one share of Company common stock on each vesting date (the “Fair Market Value”), as described in more detail below. The retention units granted in 2006:

	•		vest in one-fourth increments on the first business day of each January following the grant date, so that the retention units will be fully vested on January 4, 2010;
	•		fully vest before the end of the regular vesting period if the participant retires, becomes disabled, or dies (unvested retention units are forfeited if the participant terminates employment for any other reason);

	•		are payable in cash to the participant as the retention units vest, in an amount equal to the number of retention units vesting multiplied by the Fair Market Value (in the case of a participant’s death, disability, or retirement before the end of the vesting period, the retention units are payable on the dates and in the percentages specified in the vesting schedule, even though fully vested);
	•		accrue dividend rights equal to the amount of dividends that a participant would have received if the participant had directly owned one share of our common stock for each retention unit held by the participant, with the dividend rights payable only on the retention units that actually vest, plus interest at the rate of 5% per annum, compounded quarterly; and
	•		are included in the determination of the participant’s compensation for purposes of calculating pension benefits under our supplemental excess benefit retirement program (the “Retirement Program”), to the extent the retention units ultimately vest. The Board approved an amendment to the Retirement Program on December 13, 2006 for this purpose and to permit the Committee to specifically designate future grants of retention units or similar compensation arrangements for inclusion in a recipient’s compensation for pension purposes.

           The retention unit awards are included in the Grant of Plan-Based Awards table on page 29 of this proxy statement in the column marked “All Other Stock Awards: Number of Shares of Stock or Units” and in the column marked “Grant Date Fair Value of Stock and Option Awards.” Vested awards are disclosed in the Option Exercises and Stock Vested table on page 33 of this proxy statement in the columns under “Stock Awards.” Outstanding retention units are also included in the Outstanding Equity Awards At Fiscal Year-End table on page 31 of this proxy statement in the first two columns under the heading “Stock Awards.”

          We also made conditional grants of RSUs to our Named Executive Officers under the 2007 Plan in early 2007. We discuss these grants in this proxy statement in Proposal 3 on page 44 of this proxy statement. RSUs are similar to retention units in that a key employee is awarded “units,” the value of which is based on the value of our common stock and which are subject to vesting requirements. Unlike retention units, however, upon the achievement of the vesting requirements for the RSUs, the employee generally receives shares of our common stock, the cash equivalent of those shares, or a combination of both. Depending on the RSU award agreement, either the Company or the recipient may have the election to choose between stock and cash. Grants of RSUs will be included for calculation of pension benefits only if so stated in the applicable award agreement.

          Pension programs, deferred compensation programs and change-in-control agreements.

          The Company also maintains retirement plans, deferred compensation plans and change-in-control arrangements for our officers, including the Named Executive Officers. We believe that these elements of total compensation are essential in order to be competitive in attracting and retaining the caliber of skilled executive talent that we require to be successful. The Committee and the Board consider these elements in setting other elements of executive pay.

          We describe our retirement plans under the heading “Discussion of Pension Benefits” beginning on page 35 of this proxy statement. We describe accrued benefits under our retirement plans for each of the Named Executive Officers in the Pension Benefits table beginning on page 34 of this proxy statement. See also the column “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table beginning on page 26 of this proxy statement.

          We describe our deferred compensation plans under the heading “Discussion of Nonqualified Deferred Compensation” beginning on page 38 of this proxy statement. We describe accrued benefits under our deferred compensation plans for each of the Named Executive Officers in the Nonqualified Deferred Compensation table beginning on page 37 of this proxy statement. See also the column “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table beginning on page 26 of this proxy statement.

          We describe our change-in-control arrangements under the heading “Potential Payments Upon Termination or Change-in-Control – Change-in-Control Arrangements” beginning on page 41 of this proxy statement.

          Perquisites. We have had a long-standing policy of not providing significant perquisites to our executive officers. We describe our perquisites paid to each of the Named Executive Officers in footnote 6 to the Summary Compensation Table on page 26 of this proxy statement.

Why does the Company choose to pay each element of compensation to its Named Executive Officers?

          We choose to pay each element of compensation to further the objectives of our compensation program described above, including the need to attract, retain, and reward key leaders critical to our success by providing competitive total compensation, but with a strong emphasis on performance-based incentives.

How does the Company determine the amount (and the formula) for each element of compensation paid to its Named Executive Officers?

          General. Consistent with past practice, in 2005, the Committee directly engaged Schuster-Zingheim, an outside compensation consultant, to assist the Committee in its evaluation of 2006 compensation for our executive officers. At the request of the Committee, the consultant provided the Committee with compensation information for the utility market and within a blended market comprised of 50% weighted for the utility labor market and 50% weighted for the general industry labor market (100% utility for utility-specific jobs), adjusted for our size (including, in revenue comparisons, assets managed as well as owned), and taking into account the specific duties assigned to each executive officer. Our compensation program is designed to be competitive in both the utility industry and the blended market because we need to be in a position to attract and retain quality talent as necessary in order to achieve our business goals.

          The compensation information used by the consultant and the Committee is based on an analysis of several compensation practices derived from a number of widely-accepted industry compensation surveys. The compensation information for the utility labor market was obtained in part from a survey providing an analysis of the compensation practices of a 14-company comparator group recommended by the compensation consultant, with the input of our senior management, and approved by the Committee. The 14 companies in the approved peer group are Ameren Corporation, DTE Energy Company, Entergy Corp., FPL Group Inc., Great Plains Energy Inc., OGE Energy Corp., PPL Corporation, Progress Energy Inc., Puget Energy Inc., Scana Corp., Southern Co., TECO Energy Inc., Wisconsin Energy Corp., and XCEL Energy Inc. Factors in choosing the companies in the 14-company comparator group include that they:

	•		be strongly represented by nuclear companies because the Company is a large nuclear operator; and
	•		include representation of companies in the S&P 1500 Super Composite Electric Utility Index because the Company’s performance shares are earned based on financial performance compared to this index.

          The consultant compares us to the peer group using regression based on revenues, which the consultant believes is the best statistical predictor of the labor market for officer positions. If regression is not available, the consultant uses tabular data representing the median of the peer group as the best predictor of pay for a job. The 14-company sample, however, is just one of seven compensation survey data points used to determine competitive compensation (three of the data points represent the utility industry and are weighted 50%, and four of the data points represent general industry and are weighted 50%). Except for the 14-company sample, the other six data points are based on revenue – either regression analysis based on revenue or tabular data that represents the median of the comparator group. Using several surveys and several survey samples provides a sound competitive compensation analysis.

          The consultant also reviewed the total compensation of the Named Executive Officers and the individual elements of that compensation, including the type and balance of annual incentives and long-term incentives, and evaluated the competitiveness of the total compensation and individual elements of compensation of each such officer based on all of the survey data discussed above. The consultant’s report, which was provided to the Committee in October 2005, also included recommendations for Committee consideration for 2006 compensation of the Named Executive Officers. The competitive position of each Named Executive Officer’s compensation was targeted in the report relative to the comparison group at various performance levels — base salary at the median of the blended market; total cash compensation (base salary plus annual cash incentive) and total direct compensation (total cash compensation plus long-term incentive) for target/goal performance at or near the median of the blended market; total cash compensation and total direct compensation for exceptional performance around or above the 75th percentile of the blended market; and below median pay for below median performance. For purpose of this analysis, survey data for determining annual and long-term incentive opportunities is averaged for a three-year period to smooth any variation that may occur in a single year in the survey data.

          The Committee then focuses on the individual executives and their individual responsibilities, skills, expertise and value added through performance, and applies these views in conjunction with the information provided by the consultant. The Committee also considers internal equity and contractual commitments in determining or recommending executive pay. For example, Mr. Levine’s employment agreement requires that APS will request that the Committee grant him equity incentive awards under the Company’s 2002 Plan in the same form as, and in an amount equal to 65% to 85% of, the base grants that Mr. Davis receives, except special awards. In making any decision with respect to an executive’s compensation, the Committee considers the officer’s total compensation, but with an increased emphasis on performance-based or other long-term compensation in lieu of base salary adjustments.

          In total, the Committee believes the Company’s compensation program is in the competitive median range and, due primarily to an additional reduction in the actual 2006 annual incentive award due to the NRC assessment, is below the competitive median for 2006.

          Named Executive Officer Compensation (excluding Mr. Post, who is discussed below). The consultant’s October 2005 report concluded that, at that time, (i) the total direct compensation (total cash compensation paid plus long-term incentive grants) for Messrs. Brandt, Davis, Levine and Flores was significantly below the median total direct compensation of the blended industry group (ranging from between 60% to 74% of the median) because the consultant concluded that the February 2005 performance share grants were “less than competitive” and (ii) the base salary and total cash compensation (base salary plus cash incentives) for Messrs. Brandt, Davis, Levine and Flores were within a competitive range of the median base salary and median total cash compensation, respectively, of the blended industry group.

          The consultant provided an updated report to the Committee in October 2006 to assist the Committee in its evaluation of 2007 compensation for Messrs. Brandt, Davis, Levine and Flores. The report concluded that, at that time, (i) the total direct compensation of Messrs. Brandt, Davis, Levine and Flores was significantly below the median total direct compensation of the blended industry group (ranging from between 47% to 62% of the median) because of the non-payment, in early 2006, of the 2005 annual incentive awards (see “What are the elements of the Company’s compensation program? – Annual Incentives” on page 19 of this proxy statement) and “lower-than-competitive” performance share grants in February 2006; (ii) the total cash compensation of Messrs. Brandt, Davis, Levine and Flores was significantly below the median total cash compensation of the industry group (ranging from between 47% to 57% of the median) because of the non-payment of the 2005 annual incentive awards; and (iii) the base salary of Messrs. Brandt, Davis, Levine and Flores was within a competitive range of the median base salary of the blended industry group.

          Mr. Post’s Compensation. With respect to Mr. Post’s compensation, the consultant’s October 2005 report concluded that, at that time, (i) his total direct compensation (total cash compensation paid plus long-term incentive grants) was significantly below the median total direct compensation of the blended industry group (74% of the median) because the February 2005 performance share grants were “less than competitive”; (ii) his total cash compensation (base salary plus cash incentives) was slightly above the competitive range of the median total cash compensation of the blended industry group based on his receipt in early 2005 of an incentive award for 2004 performance above market; and (iii) his base salary was within a competitive range of the median base salary of the blended industry group.

          The consultant provided an updated report to the Committee in October 2006 to assist the Committee in its evaluation of Mr. Post’s 2007 compensation. The October 2006 report concluded that, at that time, (i) Mr. Post’s total direct compensation was significantly below the median total direct compensation of the blended industry group (63% of the median) because of the non-payment, in early 2006, of the 2005 annual incentive award (see “What are the elements of the Company’s compensation program? — Annual Incentives” on page 19 of this proxy statement) and the “lower-than-competitive” performance share grant in February 2006; (ii) his total cash compensation was significantly below the competitive range of the median total cash compensation of the blended industry group (46% of median) because of the non-payment of the 2005 annual incentive award; and (iii) his base salary at that time was at the median base salary of the blended industry group.

How does each element of compensation and the Company’s decisions regarding that element fit into the Company’s overall compensation objectives and affect decisions regarding other elements?

          Before establishing or recommending executive compensation payments or awards, the Committee considers all the components of such compensation, including current pay (salary and bonus, if any), annual and long-term incentive awards, deferred compensation, retirement benefits, outstanding equity awards, perquisites and potential change-in-control severance payments. The Committee considers each element in relation to the others when setting total compensation. See also the discussion under the heading “How does the Company determine the amount (and the formula) for each element of compensation paid to its Named Executive Officers?” above.

What impact do taxation and accounting considerations have on the decisions regarding executive compensation?

     Publicly-traded corporations generally are not permitted to deduct, for federal income tax purposes, annual compensation in excess of $1 million paid to any of certain top executives, except to the extent the compensation qualifies as “performance-based.” The Company does not use the deduction as a justification for awarding compensation in excess of $1 million. However, to the extent the awards do exceed $1 million, the Company believes it is in the shareholders’ best interests to award compensation that will qualify as “performance-based” in order to take advantage of the deduction. However, the Company has not adopted a policy requiring all such compensation to be deductible. The Committee and the Board also take into account other tax and accounting consequences of its total compensation program and the individual components of compensation, and weigh these factors when setting total compensation and determining the individual elements of an officer’s compensation package.

REPORT OF THE HUMAN RESOURCES COMMITTEE

          The Human Resources Committee of the Board submitted the following report:

          The Human Resources Committee is composed of five non-employee directors, each of whom is independent as defined by NYSE rules and the Company’s Director Independence Standards.

          In accordance with SEC rules, the Human Resources Committee discussed and reviewed the Compensation Discussion and Analysis beginning on page 16 of this proxy statement with management and, based on those discussions and review, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

COMMITTEE CHAIRMAN		COMMITTEE MEMBERS
Roy A. Herberger, Jr.		Edward N. Basha, Jr.
		Pamela Grant
		William S. Jamieson, Jr.
		Humberto S. Lopez

SUMMARY COMPENSATION TABLE

          In 2006, the Securities and Exchange Commission adopted new rules regarding the disclosure of executive compensation, which become effective for the Company with this proxy statement. These changes now include more detailed disclosure tables regarding the actual and potential compensation of the Company’s Named Executive Officers.

          The Summary Compensation Table below includes the following principal information, which is explained in greater detail in the footnotes:

	•		Cash compensation. Generally, the cash compensation actually received by our Named Executive Officers for 2006 is the sum of the “Salary,” “Bonus,” and “Non-Equity Incentive Plan Compensation” columns below.
			It is important to note the difference between cash compensation and total compensation. Named Executive Officer actual cash compensation in 2006 and the percentage of this amount compared to the “Total” compensation column is as follows: Mr. Post — $1,945,012 (26%); Mr. Brandt — $1,114,271 (70%); Mr. Davis — $1,769,852 (27%); Mr. Levine — $997,860 (33%); and Mr. Flores — $659,850 (29%).
	•		Stock awards. Amounts accrued by the Company during 2006 for stock awards (such as performance shares) are shown in the “Stock Awards” and “Option Awards” columns.
			A substantial portion of the shares underlying these awards can only be received in future years if the terms of the stock awards – primarily three-year performance measures – are met. Under the new disclosure rules, the value given to stock awards in the Summary Compensation Table is the amount of expense accrued by the Company for the awards, even if the awards are subject to performance measures.
	•		Changes in pension value. Changes in estimated potential future pension benefits are shown in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column.
			For the Named Executive Officers, except for Mr. Brandt, about one-third of their listed 2006 total compensation is comprised of these changes in estimated pension benefits. As discussed in the Pension Benefits table on page 34 of this proxy statement, the accumulated pension benefits of Messrs. Post and Davis each reflect 34 years of service to the Company.

																										Change in Pension
																										Value and
																										Nonqualified
																						Non-Equity				Deferred
														Stock				Option				Incentive Plan				Compensation				All Other
Name and Principal						Salary				Bonus				Awards				Awards				Compensation				Earnings				Compensation				Total
Position		Year				($)				($)1				($)2				($)3				($)4				($)5				($)6				($)
William J. Post, Chairman of the Board and Chief Executive Officer			2006				950,004				0				3,144,947				52,644				985,000				2,353,845				31,902				7,518,342
Donald E. Brandt, Executive Vice President and Chief Financial Officer and President and Chief Financial Officer, APS			2006				456,263				0				300,361				9,286				648,000				145,144				24,590				1,583,644
Jack E. Davis, President and COO and CEO, APS			2006				800,004				99,840				1,880,218				21,334				860,000				2,885,510				24,590				6,571,496
James M. Levine, Executive Vice President, Generation, APS			2006				600,012				99,840				1,010,946				13,860				288,000				995,571				21,094				3,029,323

																										Change in Pension
																										Value and
																										Nonqualified
																						Non-Equity				Deferred
														Stock				Option				Incentive Plan				Compensation				All Other
Name and Principal						Salary				Bonus				Awards				Awards				Compensation				Earnings				Compensation				Total
Position		Year				($)				($)1				($)2				($)3				($)4				($)5				($)6				($)
Armando B. Flores, Executive Vice President, Corporate Business Services, APS			2006				340,842				0				722,353				6,190				309,000				873,431				29,625				2,281,441

	•		Performance Shares. With respect to the performance shares, we estimate the amount accrued based upon projections of the Company’s performance and projections of those companies in the comparator group. As earnings per share are reported by comparator companies, as new information becomes available, or as significant changes to the Company’s earnings become known, these estimated are updated. As such, based upon our best estimates, the 2006 compensation expense accrued for the 2004 grant assumes 100% of the target number of shares will be awarded, the 2005 grant assumes 75% of the target number of shares will be awarded, and the 2006 grant assumes 100% of the target number of shares will be awarded. The 2003 Performance Shares were not awarded, primarily due to the impacts of regulatory disallowance upon earnings. As a result, the compensation expense recorded for financial reporting purposes from 2003 through 2005 for this award was reversed in 2006 and resulted in a deduction in the Stock Awards column for each of the Named Executive Officers. In addition, the actual number of shares issued to the Named Executive Officers under the 2004 grant is set forth in the Option Exercise and Stock Vested table on page 33 of this proxy statement. The expense accrued for this award will be adjusted in 2007 to reflect the change from 100% of the target shares to 54.6% of the target shares, consistent with the number of shares actually awarded in 2007. Furthermore, with respect to the 2006 grant, pursuant to the terms of the award agreements, the employees become fully vested in the award upon retirement. Because all of the Named Executive Officers, with the exception of Mr. Brandt, reached the age of retirement and attained the requisite years of service at the grant date, their entire awards were accrued on the grant date. Mr. Brandt’s award will be accrued over the three year vesting period of the award.
	•		Retention Units. The retention units are payable in 25% annual increments, beginning January 2, 2007 and ending January 4, 2010. Pursuant to the terms of the award agreement, the employee becomes fully vested in the award upon retirement, although the awards will be paid out over the standard vesting period described in the previous sentence. Under FASB 123(R), we are required to accrue the entire compensation expense for retirement eligible employees on the date of the grant, as no additional services are required beyond that date. Because all of the Named Executive Officers, wit the exception of Mr. Brandt, had reached the age of retirement and attained the requisite years of service at the grant date, their entire awards were accrued on the grant date. Mr. Brandt’s award will be accrued over the standard vesting period of the award.
	•		Ownership Incentive Awards. The likelihood of a Named Executive Officer’s stock ownership is considered in the calculation of compensation expense. Because of the significant stock ownership requirements of these awards and the current holdings of the Named Executive Officers, no dollars were accrued in connection with the stock ownership incentive awards granted to Messrs. Post, Brandt and Davis.

³ This column represents the dollar amount recognized by the Company for financial statement reporting purposes with respect to fiscal year 2006 for stock option grants made in prior years. In order to calculate the 2006 accrual associated with outstanding stock options (which consists of stock options granted in 2003 and, for Mr. Levine, in 2004 also), we used the Black-Scholes option-pricing model. The following weighted-average assumptions were used to calculate the fair value of the stock options granted in 2003: risk-free interest rate (3.345%); dividend yield (5.26%); volatility (38.03%); and expected life (5 years). In addition, Mr. Levine’s 2004 stock options had the following weighted-average assumptions: risk-free interest rate (3.150%); dividend yield (4.76%); volatility (17.04%); and expected life (5 years). The Company did not grant stock options to the Named Executive Officers in 2006 and has not granted stock options since 2004. There were no forfeitures of stock options during the year.

⁴ This amount consists solely of the awards made under the 2006 Incentive Plans, which are discussed under the heading “What are the elements of our compensation program? — Annual Incentives” in the CDA on page 19 of this proxy statement.

⁵ The amount in this column consists of: (i) the estimated aggregate change in the actuarial present value from December 31, 2005 to December 31, 2006 of each of the Named Executive Officer’s accumulated benefit payable under all defined benefit and actuarial pension plans (including supplemental plans) as follows: Mr. Post — $2,330,983 (Mr. Post is eligible to retire at age 60 and receive the full retirement benefit); Mr. Brandt — $142,091; Mr. Davis — $2,861,162 (Mr. Davis is 60 and is currently eligible to retire and receive the full retirement benefit); Mr. Levine — $954,860 (Mr. Levine is currently 57 and was eligible to retire on December 31, 2006 and receive the full retirement benefit as a result of his employment agreement; Mr. Levine retired on February 28, 2007); and Mr. Flores — $860,961 (Mr. Flores is 63 and currently eligible to retire and receive the full retirement benefit); and (ii) the above-market portion of interest accrued under the deferred compensation plan as follows: Mr. Post — $22,862; Mr. Brandt — $3,053; Mr. Davis — $24,348; Mr. Levine — $40,711; and Mr. Flores — $12,470. Under the SEC’s disclosure rules, the above-market portion of interest is determined by reference to 120% of the applicable federal long-term rate, with compounding. See the discussion on the rates of interest applicable to the deferred compensation program under the heading “Discussion of Nonqualified Deferred Compensation” on page 38 of this proxy statement. The change in pension value is based on various factors, including level of compensation and assumptions such as interest rate, discount factors, and mortality tables. A change in any of these assumptions may trigger a change in the amount reported in this table but may not change the actual amount of the benefit payable to the executives.

⁶ The amount in this column consists of: (i) the Company’s contributions under the Company’s 401(k) plan as follows: Mr. Post — $9,900; Mr. Brandt — $9,900; Mr. Davis — $9,900; Mr. Levine — $6,600; and Mr. Flores — $9,900; (ii) with respect to Messrs. Post, Levine, and Flores, executive life insurance premiums as follows: Mr. Post —$11,062; Mr. Levine — $3,554; and Mr. Flores — $5,094; and with respect to each of the Named Executive Officers, a $61 premium for an accidental death and dismemberment policy; and (iii) perquisites and personal benefits (consisting of a car allowance, a maximum annual physical benefit and, with respect to Messrs. Brandt, Davis, and Flores, financial planning services), in the aggregate amounts as follows: Mr. Post — $10,879; Mr. Brandt — $14,629; Mr. Davis — $14,629; Mr. Levine — $10,879; and Mr. Flores — $14,570.

GRANTS OF PLAN-BASED AWARDS

																														All Other				All Other
																														Stock				Options
																														Awards:				Awards:				Exercise				Grant
																														Number of				Number of				or Base				Date Fair
						Estimated Possible Payouts Under Non-												Estimated Future Payouts Under												Shares of				Securities				Price of				Value of
						Equity Incentive Plan Awards1												Equity Incentive Plan Awards												Stock or				Underlying				Option				Stock and
						Threshold				Target				Maximum				Threshold				Target				Maximum				Units				Options				Awards				Option
Name		Grant Date				($)3				($)				($)				(#)				(#)				(#)				(#)				(#)				($/S)				Awards2
William J. Post,			12/14/2005				598,503				1,187,505				1,900,008
Chairman of the Board
and Chief Executive			02/21/20064																22,500				45,000				90,000																1,867,500
Officer
			02/21/20065																				4,392																				0
			12/13/20066																												21,034												1,050,017
Donald E. Brandt,			12/14/2005				225,000				450,000				900,000
Executive Vice
President and Chief			02/21/20064																5,050				10,100				20,200																419,150
Financial Officer and
President and Chief Financial			02/21/20065																				844																				0
Officer, APS
			12/13/20066																												11,018												550,019
Jack E. Davis,			12/14/2005				300,002				600,003				1,200,006
President and COO and CEO,
APS			02/21/20064																10,000				20,000				40,000																830,000
			02/21/20065																				2,219																				0
			12/13/20066																												19,030												949,978
James M. Levine,			12/14/2005				1				300,006				600,012
Executive Vice
President, Generation, APS			02/21/20064																6,100				12,200				24,400																506,300
			02/21/20065																				1,558																				64,657
			12/13/20066																												7,011												349,989
Armando B. Flores,			12/14/2005				1				180,012				360,024
Executive Vice
President, Corporate			02/21/20064																3,543				7,085				14,170																294,028
Business Services, APS
			02/21/20065																				795																				32,993
			12/13/20066																												7,011												349,989

EMPLOYMENT AGREEMENTS

          Neither Mr. Post nor Mr. Davis has an employment agreement with the Company.

          APS and Mr. Levine entered into a five-year employment agreement effective as of October of 2002. Mr. Levine retired from his position with the Company, effective February 28, 2007, at which time his employment agreement terminated. While the employment agreement was in effect, Mr. Levine was entitled to participate in various incentive plans and he received annual restricted stock or cash grants (see the “Bonus” column in the Summary Compensation Table). Under his employment agreement, Mr. Levine was credited with an additional five years of service for pension purposes under the Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan (the “Supplemental Plan”). Mr. Levine is providing consulting services to APS for a six-month period following his retirement for $50,000 per month, which is equal to his final monthly base salary of $50,000 per month. Consistent with Mr. Levine’s twenty-two years of credited service to APS and his agreement, Mr. Levine receives normal pension benefits as well as life insurance and medical coverage.

          The Company and Mr. Brandt entered into a letter agreement in November of 2002, pursuant to which five (5) years of service was credited to Mr. Brandt’s pension vesting only, effective as of the date of his employment.

          The Company and Mr. Flores entered into a letter agreement in July of 1995, pursuant to which eight (8) years of service was credited to Mr. Flores for his pension benefit under the Supplemental Plan.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Option Awards

Stock Awards

Equity

Incentive

Equity

Equity

Plan

Incentive Plan

Incentive

Awards:

Awards:

Plan

Market

Number of

Market or

Awards:

Number

Value of

Unearned

Payout Value

Number of

Number of

Number of

of Shares

Shares or

Shares,

of Unearned

Securities

Securities

Securities

or Units

Units of

Units or

Shares, Units

Underlying

Underlying

Underlying

of Stock

Stock

Other

or Other

Unexercised

Unexercised

Unexercised

Option

That Have

That

Rights

Rights That

Option

Options

Options

Unearned

Exercise

Option

Not

Have Not

That Have

Have Not

Grant

(#)

(#)

Options

Price

Expiration

Vested

Vested

Not Vested

Vested

Name

Date1

Exercisable

Unexercisable

(#)

($)

Date

(#) 2

($) 3

(#)

($) 4

William J. Post,

12/17/1997

16,500

0

0

39.75

12/16/2007

Chairman of the Board

and Chief Executive

11/18/1998

20,000

0

0

46.78

11/17/2008

Officer

01/20/1999

70,000

0

0

41.00

1/19/2009

11/17/1999

37,500

0

0

34.66

11/16/2009

11/15/2000

65,000

0

0

44.03

11/14/2010

11/14/2001

65,000

0

0

42.55

11/13/2011

06/19/2002

108,0005

0

0

38.37

06/18/2012

03/18/2003

85,750

0

0

32.29

03/17/2013

21,034

1,066,213

15,4256

781,893

22,5007

1,140,525

Donald E. Brandt,

0

0

0

Executive Vice President and

Chief Financial Officer and

11,018

558,502

President and Chief Financial Officer, APS

2,7256

138,130

5,0507

255,985

Jack E. Davis,

11/18/1998

13,500

0

0

46.78

11/17/2008

President and COO and

CEO, APS

11/15/2000

26,250

0

0

44.03

11/14/2010

11/14/2001

26,250

0

0

42.55

11/13/2011

19,030

964,631

6,2506

316,813

10,0007

506,900