Corporate Governance Guidelines

            The following Corporate Governance Guidelines (the “Guidelines”) have been adopted by the Board of Directors (the “Board”) of Pinnacle West Capital Corporation (the “Company” or “Pinnacle West”) to assist the Board in the exercise of its responsibilities.  These Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision-making, both at the Board and management level, with a view to enhancing shareholder value over the long term.  These Guidelines are in addition to and are not intended to change or interpret any Federal or state law or regulation, or Articles of Incorporation or Bylaws of the Company.  The Guidelines are subject to modification from time to time by the Board

RESPONSIBILITIES OF THE BOARD

1. General Responsibilities of the Board

Under Arizona law, “the business and affairs of the [Company] shall be managed under the direction of [the Board].”

2. Specific Principal Responsibilities of the Board.

(a) Compliance with Law and Maintenance of Ethical Business Environment.  The Board recognizes the importance of the Company operating as an ethical and law-abiding company.  The Board is responsible for overseeing the Company’s compliance with its Ethics Policy and its Standards of Business Practices (the “Policy”), as revised from time to time.

(b) Provision of Critical Oversight.  In addition to its other duties and responsibilities, the Board is responsible for providing critical oversight of the Company’s business in the best interests of its shareholders and other stakeholders.

(c) Chief Executive Officer Performance Review and Succession Planning.

(i) The Human Resources Committee reviews and approves corporate goals and objectives relevant to CEO and officer compensation and assesses performance in light of those goals and objectives.  The Board is responsible for determining whether Company officers should be retained, replaced or removed.  In carrying out this responsibility, the Board will give due consideration to the CEO selecting and maintaining members of his or her management team.

(ii) The Board is responsible for establishing and annually reviewing a CEO succession plan.

(d) Role of Board Committees.  The Board has four standing Committees, each of which performs the key responsibilities reflected in its respective Charter:

(i) Audit Committee;
(ii) Human Resources Committee;
(iii) Finance, Nuclear and Operating Committee; and
(iv) Corporate Governance Committee.

3. Responsibilities of Individual Directors.

(a) General.  Each Director is expected to individually contribute to the Board’s satisfaction of its principal responsibilities.

(b) Attendance at Meetings.  Each Director is expected to be present at all Board meetings, the annual meeting of shareholders and meetings of Committees on which he or she serves.

(c) Commitment of Sufficient Time.  Each Director is expected to spend the necessary time to properly discharge his or her responsibilities as a Director, including reviewing any written materials provided to the Board or Committee in advance of Board or Committee meetings.  The Company will provide the Board and Committees with the necessary written materials sufficiently in advance of each meeting to permit appropriate review by each Director.

(d) Service on Other Boards. Directors should not serve on more than four other boards of public companies in addition to the Pinnacle West Board without the prior approval of the Corporate Governance Committee.  The Corporate Governance Committee shall take into account the specific facts and circumstances, including whether service on a greater number of public company boards would impair that individual director’s ability to serve effectively on the Company’s Board.

STRUCTURE, COMPOSITION AND OPERATIONS OF THE BOARD

1. Independence of the Board.

The Board shall be comprised of a majority of directors who qualify as independent directors (“Independent Directors”) under listing standards of the New York Stock Exchange and any applicable rules and laws.

2. Size of the Board.

The Board shall consist of at least nine and no more than twenty-one directors.

3. Director Qualifications.

The Corporate Governance Committee is responsible for identifying and recommending to the Board individuals qualified to become Directors.  A Director must be a shareholder of the Company.  In addition, the Board believes that the following qualities should be taken into account when determining whether to nominate an individual as a Director: integrity; specific or general skills or experience; wisdom; understanding of the Company’s business environment; and willingness to devote adequate time to Board duties.

4. Resignation Policy

The Board has adopted a resignation policy for Directors.  Under that policy, except as prohibited by law or by the Articles of Incorporation of the Company, any nominee for election as a director at a meeting of shareholders duly called and at which a quorum is present, in an uncontested election, who receives a greater number of votes cast “withheld” for his or her election than “for” such election shall promptly tender his or her resignation for consideration to the Corporate Governance Committee, or its successor.  The Corporate Governance Committee, or its successor shall evaluate the Director’s tendered resignation taking into account the best interests of the Company and its shareholders and shall recommend to the Board whether to accept or reject such resignation.  In making its recommendation, the Corporate Governance Committee, or its successor may consider, among other things, the effect of the exercise of cumulative voting in the election.  The Board shall act within 120 days following certification of the shareholder vote and publicly disclose its decision and the underlying rationale.  Any director who tenders his or her resignation pursuant to this provision shall not participate in any committee or Board consideration thereof.

5. Retirement Policy.

The Board has adopted a retirement policy for Directors.  Under that policy, no Director after having attained the age of 72 years shall be nominated for re-election or reappointment to the Board.

6. Employment of Directors.

Each Director shall apprise the Corporate Governance Committee of a substantial change in the Director’s primary business position and should offer his or her resignation for consideration to the Corporate Governance Committee.  This does not necessarily mean that such Director should leave the Board; rather, the Corporate Governance Committee will recommend to the Board the action, if any, to be taken with respect to the resignation.

7. Board Compensation.

The form and amount of Director compensation is recommended to the full Board of Directors by the Human Resources Committee in accordance with its Charter.  Board compensation should reflect both the workload and scope of responsibilities associated with Board service, with due consideration being given to applicable rules and regulations.

The Company’s executive officers shall not receive additional compensation for their service as Directors.

8. Board and Committee Self-Assessment.

The Board, the Audit Committee, the Corporate Governance Committee, the Finance, Nuclear and Operating Committee, and the Human Resources Committee shall conduct an annual self-assessment to determine whether the Board and such committees are functioning effectively.  The Corporate Governance Committee is responsible for developing the Board and Board Committee self-assessments, implementing the self-assessment process, and reporting back to the Board.  The Board’s self-assessment form will address and provide the opportunity to comment on individual Director performances.  Any other Board Committee shall conduct a self-assessment at such times as it deems necessary.  Any Director has the opportunity at any time to comment on the Board’s, Board Committee’s, or any individual Director’s performance.

9. Board Access to Management.

Directors shall have full and free access to the management of the Company.

10.  Board and Committee Retention of Outside Advisors.

The majority of the Board and each Board Committee may retain outside advisors, as necessary and appropriate and at the Company's expense, to fulfill their respective responsibilities.

11. Director Orientation and Continuing Education.

All new Directors will participate in the Company’s orientation program, which will be conducted shortly after a new Director is elected or appointed.  Continuing education shall be available to Directors in areas related to their service on the Board.

12. Lead Director

(a) Qualifications.  The Chairman of the Corporate Governance Committee serves as the Lead Director and must be independent within the meaning of New York Stock Exchange listing standards.  Without limiting the generality of the foregoing, the Lead Director must be a non-management director and, except as specifically authorized under “Duties and Responsibilities” below, is not authorized to engage in management functions. 

(b) Duties and Responsibilities.  The Lead Director shall have the following specific duties and responsibilities:

 Effective as of April 8, 2008.