• Quarterly on-going earnings improve
• Company remains focused on regulatory settlement for benefit of customers and other stakeholders

PHOENIX – Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders of $186.7 million, or $1.84 per diluted share of common stock, for the quarter ended September 30, 2009. This result compares with $151.6 million, or $1.50 per diluted share, for the same period in 2008.

The Company’s on-going consolidated earnings in the 2009 third quarter were $199.1 million, or $1.96 per share, compared with $161.1million, or $1.59 per share, in the comparable 2008 quarter. On-going earnings for both quarters exclude results for the Company’s real estate segment, which is being restructured through the sale of a substantial majority of its properties. A reconciliation of our reported earnings to on-going earnings is provided at the end of this release.

The 2009 third-quarter on-going results were positively impacted by the following factors:

• Improved mark-to-market valuations of fuel contracts as a result of favorable changes in commodity market prices contributed $0.22 per share to the quarterly earnings comparison.
• Higher revenues resulting from retail rate increases implemented in 2009 improved earnings by $0.17 per share.Of this amount, $0.13 is related to interim retail rates implemented in January. The balance is attributable to a retail transmission rate increase implemented in early August.
• Operations and maintenance expenses were lower by $0.08 per share, primarily due to cost savings and efficiency efforts.
• Warmer weather – which included the hottest month ever recorded in Arizona – improved the Company’s earnings by $0.05 per share. The average temperature for July was 98.4 degrees, which includes the morning lows and afternoon highs. The previous record was 97.6 degrees, set in July 2003. Further, in the 2009 third quarter, there were 2,721 cooling degree-days (a proxy for the effects of weather) – 5.2 percent more than normal and 7.4 percent more than the year-ago quarter.

These positive factors were offset in part by the following items:

• Costs related to various infrastructure additions and upgrades to APS’ distribution and transmission facilities, as well as existing fossil and nuclear generating plants, decreased earnings by $0.14 a share. The cost increases included interest expense, net of capitalized financing costs, of $0.09 per share; property taxes of $0.03 a share; and depreciation and amortization expenses of $0.02 per share.
• A net decrease in kilowatt-hour sales, excluding the effects of weather, reduced earnings by $0.04 per share. The decrease was primarily related to reduced consumption by commercial and industrial customers as a result of the current economic slowdown and the Company’s energy efficiency programs. Total retail electricity sales, on a weather-normalized basis, decreased 1.3 percent in the third quarter of 2009 compared to the 2008 period. Excluding the effects of weather, the average APS business customer used 2.5 percent less electricity during the period than the same period a year ago, while the average residential customer consumed about 1.4 percent less.

The net decrease in kilowatt-hour sales, however, was offset partially by customer growth in both the residential and business customer sectors. The average number of residential and business electric customers increased by 0.5 percent and 0.8 percent, respectively, in the 2009 third quarter compared with the year-earlier quarter.

Looking forward, the Company expects customer growth to average about 1 percent annually through 2011. Additionally, weather-normalized sales are expected to remain relatively flat through 2011 on a year-over-year comparison, due to the effects of APS’ energy efficiency programs, and cyclical business conditions related to Arizona’s housing market and the national economy.

“I am pleased with the third-quarter results from an operational perspective,” said Pinnacle West Chairman Don Brandt. “In these challenging economic times, we remain keenly focused on controlling costs to help keep customer rates as low as possible, while providing clean, reliable and cost-effective electricity to power the State’s energy needs.

“Additionally, we and our customers benefited from strong performance at the Palo Verde Nuclear Generating Station, which operated at full capacity throughout the quarter and generated its highest-ever summer production of about 11.5 million megawatt-hours of electricity.”

Brandt added that Arizona Public Service Co. (APS) continues to develop programs that ensure clean energy sources and help customers use electricity more efficiently. “The ability to carry these programs forward and pay for them depends on positive outcomes in our proposed retail regulatory settlement,” he said. “If approved as proposed, the settlement will increase our electricity prices by less than 1 percent over current rates for an average residential customer, and will provide significant benefits to customers, shareholders and other stakeholders, alike.”

The net price increase would reflect an early reset under the power supply adjustment mechanism, decreasing rates for fuel and purchased power.

For the third quarter of 2009, APS reported net income of $197.1 million, compared with net income of $159.8 million for the same period a year ago.

Real Estate Segment
Pinnacle West’s real estate segment reported a net loss of $12.4 million for the third quarter of 2009, compared with a net loss of $6.0 million in the prior-year period. The loss was related to additional real estate impairment charges totaling $22.6 million in the 2009 period, partially offset by the sale of certain real estate assets. The Company’s real estate subsidiary, SunCor Development Co., continues to pursue the sale of its remaining assets.

2009 and 2010 On-going Earnings Outlooks Unchanged
The Company continues to estimate its on-going consolidated earnings for 2009 will be within a reasonable range around $2.30 per share, excluding the results of its real estate segment.

For 2010, the Company continues to estimate its on-going consolidated earnings will be within a reasonable range around $3.00 per share, excluding the impacts of itsreal estate segment.

The Company’s earnings forecasts are subject to numerous risks, including those described under “Forward-Looking Statements” below and under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Conference Call and Web Cast
Pinnacle West invites interested parties to listen to the live web cast of management’s conference call to discuss the Company’s 2009 third-quarter earnings and recent developments at 12 noon (ET) today, October 29. The web cast can be accessed at www.pinnaclewest.com/presentations and will be available for replay on the web site for 30 days. To access the live conference call by telephone, dial (877) 356-3961 and enter Conference ID 16246283. A replay of the call also will be available until 11:55 p.m. (ET), Friday, November 6, 2009, by calling (800) 642-1687 in the U.S. and Canada or (706) 645-9291 internationally and entering the same Conference ID number as above.

General Information
Pinnacle West is a Phoenix-based company with consolidated assets of about $11.8 billion. Through its subsidiaries, the Company generates, sells and delivers electricity and sells energy-related products and services to retail and wholesale customers in the western United States.

Dollar amounts in this news release are after income taxes. Earnings per share amounts are based on average diluted common shares outstanding. For more information on Pinnacle West’s operating statistics and earnings, please visit www.pinnaclewest.com/investors.

PINNACLE WEST CAPITAL CORPORATION
ARIZONA PUBLIC SERVICE COMPANY

NON-GAAP FINANCIAL MEASURE RECONCILIATION
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
(GAAP MEASURE) TO ON-GOING EARNINGS (NON-GAAP FINANCIAL MEASURE)

NON-GAAP FINANCIAL INFORMATION

In this press release, we refer to “on-going earnings.” On-going earnings is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We believe on-going earnings provide investors with a useful indicator of our results that is comparable among periods because it excludes the effects of unusual items that may occur on an irregular basis. Investors should note that these non-GAAP financial measures involve judgments by management, including whether an item is classified as an unusual item. We use on-going earnings, or similar concepts, to measure our performance internally in reports for management.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements regarding our 2009 and 2010 earnings outlook, and neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, unless otherwise required by applicable securities laws. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume” and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. In addition to the Risk Factors described in Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2008, these factors include, but are not limited to:

• regulatory and judicial decisions, developments and proceedings, including the outcome and timing of APS’ pending retail rate case;
• our ability to achieve timely and adequate rate recovery of our costs;
• our ability to reduce capital expenditures and other costs while maintaining reliability and customer service levels;
• variations in demand for electricity, including those due to weather, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures;
• power plant performance and outages;
• volatile fuel and purchased power costs;
• fuel and water supply availability;
• new federal legislation or regulation relating to greenhouse gas emissions, renewable energy mandates and energy efficiency standards;
• our ability to meet renewable energy requirements and recover related costs;
• risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty;
• competition in retail and wholesale power markets;
• the duration and severity of the economic decline in Arizona and current credit, financial and real estate market conditions;
• the cost of debt and equity capital and the ability to access capital markets when required;
• restrictions on dividends or other burdensome provisions in our credit agreements and ACC orders;
• our ability, or the ability of our subsidiaries, to meet debt service obligations;
• changes to our credit ratings;
• the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement benefit plans and the resulting impact on future funding requirements;
• liquidity of wholesale power markets and the use of derivative contracts in our business;
• potential shortfalls in insurance coverage;
• new accounting requirements or new interpretations of existing requirements;
• transmission and distribution system conditions and operating costs;
• the ability to meet the anticipated future need for additional baseload generation and associated transmission facilities in our region;
• the ability of our counterparties and power plant participants to meet contractual or other obligations;
• technological developments in the electric industry; and
• economic and other conditions affecting the real estate and credit markets in SunCor Development Company’s market areas, which include Arizona, Idaho, New Mexico and Utah.

Contacts

Media:
Alan Bunnell, (602) 250-3376

Analyst:
Rebecca Hickman, (602) 250-5668