The Better Business Bureau awarded APS with its' Business Ethics Award in recognition of APS ethical business practices, including our "Doing the Right Thing" philosophy

There has been an increased interest in companies corporate governance practices since 2001, due to the collapse of a number of high-profile U.S businesses.  In 2002, Congress passed the Sarbanes-Oxley Act, which was intended to restore public confidence in corporate governance.  In addition, various New York Stock Exchange (NYSE) proposals and Securities and Exchange Commission (SEC) pronouncements have addressed corporate governance, and are changing the way many companies do business. Pinnacle West welcomes these changes, many of which affirm the practices we've had in place for many years.  We are committed to sound corporate governance practices and financial integrity. 

Corporate Governance and Sustainability
At Pinnacle West, we are striving to go beyond the traditional concept of corporate governance by applying sound corporate governance practices to key sustainability issues. For example, our climate change program contains the following key corporate governance practices:

• Board of Directors engagement and oversight
• Management execution, including top management involvement, and integration into risk management and resource planning processes
• Public disclosure
• Emissions accounting
• Strategic planning, including incorporation into business operations, establishment of GHG reduction targets, and development and implementation of  business strategies to reduce greenhouse gas (GHG) emissions and to minimize exposure to regulatory, operational and other risks from climate change.

These strategies are discussed in more detail in our Climate Change section of this report.  We have also created a sustainability governance structure, which is discussed in the Pinnacle West Approach section of this report.

Independent Directors
The Board of Directors currently consists of 12 directors, 11 of whom have been determined to be independent.  See page 3 of the 2008 Proxy Statement under “Do we have independent directors” and “How did the Board make its independence determinations” for a discussion of the elements for independence and the determinations.

The Chairman of the Board of Directors is William J. Post. His biography appears on page 12 of the 2008 Proxy Statement. The Corporate Governance Committee has considered separating the Chairman and CEO roles but concluded that the Company is best served by a structure in which the CEO also serves as Chairman.

Board Diversity
Three women and one minority serve on the company's 12-member board of directors.

Director and Executive Compensation
Director and executive compensation is discussed starting on page 9 and 17 respectively of our 2008 Proxy Statement.

Mechanisms for shareholders and employees to provide recommendations or direction to the Board of Directors
Please see page 7 of the 2008 Proxy Statement, “How are nominees for the Board selected”; page 10 of the 2008 Proxy Statement, “How can Shareholders communicate with the Board”; and page 49, “How do we submit shareholder proposals or director nominations for the next Annual Meeting?”

Code of Conduct and Ethics
Pinnacle West has specific policies in place to ensure a high level of corporate conduct and ethics. These Pinnacle West Ethics Policies and Standards of Business Practices are summarized in an internal booklet called "Doing the Right Thing."     

All Employees receive a copy of "Doing the Right Thing" when they join the company and are provided updates periodically throughout their employment. In addition, Pinnacle West makes the book available for viewing by our external stakeholders on our Web site (click on the link above to view).

All Company officers, Board Members, and employees (including full-time, part-time, supplemental and interns) are required to take annual training on corporate conduct and ethics, and to pass an online test on that training.

Some key sections of the "Doing the Right Thing" booklet include:

• Corporate Ethics Policy (Page 5)
• Supplier/Contractor Relationships (Page 6)
• Giving & Accepting Gifts (Page 6)
• Conflict of Interest (Page 9)
• Reporting Violations of the Ethics Policy (Page 12)
• Employment (Page 14)
• Labor Management Relations/right to organize and collective bargain (Page 16)
• Health and Safety (Page 18)
• Environmental Protection (Page 20)
• Dealings with Public Officials (Page 27)
• Political Participation (Page 28)
• Antitrust (Page 29)
• Sarbanes-Oxley Act of 2002 (Page 31)
• ACC Code of Conduct (Page 34)
• FERC Codes and Standards of Conduct (Page 34)
• Compliance (Page 35)

Pinnacle West also has a booklet called Doing the Right Thing-Contractors, which provides key components of our ethics and business practices policy as it applies specifically to contractors. The pamphlet is distributed to key contractors in partnership with the company's contract labor vendors. Again, this is available for viewing by the public on our corporate Web site.

APS employees are encouraged to report any questions or concerns related to our Ethics and Standards of Business Practices to our Business Practices Department or the company's Help Line. The Help Line is administered by an outside third party that is set up to receive employee concerns and allegations, and is available 24-hours-a-day, seven-days-a-week. Employees can report questions and concerns anonymously if desired. A quote from our internal Employee Concerns procedure to our employees clarifies:

“Concerns/allegations are reported either confidentially or anonymously. Confidentially means that those with a business need-to-know may be informed of the concerned individual’s identity or the details of the allegation and investigation. Anonymously means that the concerned individual’s identity is unknown because the concerned individual does not identify himself/herself at any time."

Public Affairs
Electricity is critical to our economy. We believe that the electricity dialogue is a key policy issue, and that shaping an effective public policy is crucial to building a reliable energy future. Every year it becomes more important to inform our community leaders and elected and appointed officials about the importance of electricity to jobs, growth and economic efficiency.

Our ethics policy, described in the Doing the Right Thing book above, describes how our employees and our company interact with public officials. Pinnacle West has a Government Affairs Department which takes the lead on Pinnacle West's interactions with State and Federal officials. In addition, Pinnacle West has a formal Political Action Committee (PAC) for employees of the company who elect to join the PAC. Pinnacle West maintains strict adherence to the laws governing campaign contributions and PACs.

Involvement with pesticides, GMOs, fur, alcohol, tobacco, firearms, nuclear weapons, military products, pornography or gambling products
We do not have any business involvement/revenues in these product areas

Military contracts and percentage of total revenue
Pinnacle West does not have any specific military related contracts. However, as a public service utility, we provide electric services to all customers within our service territory, including military facilities.

Pinnacle West Governance is Transparent
Key corporate governance information is available to the public on our Pinnacle West Web site. This includes detailed information on Board responsibilities, independence of board members, compensation, committee responsibilities and other key corporate governance issues at the Company.  Below are some of the links to PNW corporate governance that are available to the public: