UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Pinnacle West Capital Corporation

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

NOTICE AND PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
Wednesday, May 19, 2010

To our Shareholders:

          On behalf of our Board of Directors, you are invited to attend the 2010 Annual Meeting of Shareholders of Pinnacle West Capital Corporation (the “Company” or “Pinnacle West”) to be held at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona 85004-1323, at 10:30 a.m., Mountain Standard Time, on Wednesday, May 19, 2010. 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)		Election of 11 directors to serve until the 2011 Annual Meeting of Shareholders (Proposal 1);
	(2)		Amendment to the Company’s Bylaws to permit shareholders to call special shareholder meetings (Proposal 2); and
	(3)		Ratification of the appointment of the Company’s independent accountants for the year ending December 31, 2010 (Proposal 3).

          All shareholders of record at the close of business on March 22, 2010 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,

DAVID P. FALCK
Executive Vice President, General Counsel and Secretary

TABLE OF CONTENTS

		Page
GENERAL INFORMATION			1
Place, Date and Time			1
Notice of Internet Availability			1
Record Date; Shareholders Entitled to Vote			1
Voting			1
Quorum			1
Vote Required			2
Attendance at the Annual Meeting			2
Delivery of Annual Reports and Proxy Statements to a Shared Address; Obtaining a Copy of the Annual Report			2
Shareholder Proposals or Director Nominations for 2011 Annual Meeting			3
Proxy Solicitation Cost			3
INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE			3
Director Independence			3
Board Meetings and Attendance			5
Board Committees			5
The Audit Committee			5
The Human Resources Committee			5
The Corporate Governance Committee			6
The Finance, Nuclear and Operating Committee			6
The Board’s Leadership Structure			7
Lead Director			7
Chairman and CEO Positions			7
The Board’s Role in Risk Oversight			7
Director Qualification; Selection of Nominees for the Board			8
Director Qualifications			8
Selection of Nominees for the Board			8
Director Resignation Due to Substantial Change in Their Primary Business Position			8
Communication with the Board			8
Company Code of Business Conduct and Ethics; Strategic Framework			9
Ethics Policy and Standards of Business Practices			9
Code of Ethics for Financial Executives			9
The Company’s Strategic Framework			9
DIRECTOR COMPENSATION			10
2009 Directors’ Compensation			10
2010 Directors’ Compensation			11
Director Stock Ownership Guidelines			12
PROPOSAL 1 – ELECTION OF DIRECTORS			13
Current Nominees			13

TABLE OF CONTENTS

		Page
Nominees for Directors (Term Expiring at 2011 Annual Meeting)			13
Current Directors Not Standing for Reelection			17
SHARES OF PINNACLE WEST STOCK OWNED BY MANAGEMENT AND LARGE SHAREHOLDERS			17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			19
RELATED PARTY TRANSACTIONS			19
REPORT OF THE AUDIT COMMITTEE			20
REPORT OF THE HUMAN RESOURCES COMMITTEE			21
EXECUTIVE COMPENSATION			22
Compensation Discussion and Analysis			22
Introduction			22
The HR Committee			23
Compensation Objectives			23
Setting Executive Compensation			23
Role of Executive Officers in Determining Executive Compensation			23
Role of Compensation Consultants			23
HR Consultant’s Report			24
Peer Group			24
Application of HR Committee’s Judgment			26
Compensation Design Overview			27
Executive Compensation Components			28
Base Salary			29
Annual Incentives			29
Other Payments			34
Long-Term Incentives			34
Pension Programs, Deferred Compensation Programs and Change-in-Control Agreements			37
Perquisites			37
Taxation and Accounting Considerations Regarding Executive Compensation			37
Stock Ownership Guidelines			38
Summary Compensation Table			39
2009 Grants of Plan-Based Awards			42
Employment Arrangements			44
2009 Outstanding Equity Awards at Fiscal Year-End			46
2009 Option Exercises and Stock Vested			49
2009 Pension Benefits			50
Discussion of Pension Benefits			51
Retirement Plan and Supplemental Plan			51
APS Plan			54
2009 Nonqualified Deferred Compensation			54

TABLE OF CONTENTS

		Page
Discussion of Nonqualified Deferred Compensation			55
DCP and 2005 Plan			55
Other Deferred Compensation Arrangements			56
Potential Payments Upon Termination or Change-In-Control			57
2009 Incentive Plans			57
Performance Shares			57
RSUs			58
Retention Units			58
Retirement Benefits			58
Deferred Compensation Plans			59
Change-in-Control Agreements			60
Severance Benefit			62
Other Agreements			62
OVERALL COMPENSATION PROGRAM			63
HR COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			63
PROPOSAL 2 – BYLAW AMENDMENT			63
PROPOSAL 3 – RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS OF THE COMPANY			64
Ratification			64
The Independent Accountants			64
Audit Fees			64
Pre-Approval Policies			65
APPENDIX A			66

GENERAL INFORMATION

Place, Date and Time

          This proxy statement contains information regarding the Company’s 2010 Annual Meeting of Shareholders (“Annual Meeting”), which will be held at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona 85004-1323, at 10:30 a.m., Mountain Standard Time, on Wednesday, May 19, 2010.

Notice of Internet Availability

          Unless you elected to receive printed copies of the proxy materials in prior years, you will receive a Notice of Internet Availability of Proxy Materials by mail (the “Internet Notice”). The Internet Notice will instruct you as to how you may access and review the proxy materials. If you received an Internet Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions included in the Internet Notice.

          The Internet Notice is first being sent to shareholders on or about April 8, 2010. The proxy statement and the form of proxy relating to the Annual Meeting are first being made available to shareholders on or about April 8, 2010.

Record Date; Shareholders Entitled to Vote

          All shareholders at the close of business on March 22, 2010 (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 “Vote Required – Election of directors” on page 2 of this proxy statement). At the close of business on the record date, there were 101,531,971 shares of common stock outstanding.

Voting

Vote by Internet. The website address for Internet voting is on the Internet Notice. 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.

Vote by mail. If you have requested and received a copy of our proxy materials, promptly mark, date, sign and mail a proxy card (a postage-paid envelope is provided for mailing in the United States).

If you vote by telephone or Internet, DO NOT mail a proxy card.

          You may change or revoke your vote at any time before the proxy is exercised by: filing with our Corporate Secretary either a notice of revocation or a signed proxy card bearing a later date; revoting by telephone; or revoting by Internet. Your proxy 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.

          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.

Quorum

          The presence, in person or by proxy, of a majority of the outstanding shares of our common stock is necessary to constitute a quorum at the Annual Meeting. In counting the votes to determine whether a quorum exists, shares that are entitled to vote but 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 purposes of determining whether there is a quorum. Shares owned by the Company are not considered outstanding or present at the meeting.

Vote Required

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 for any one nominee, or by distributing them among two or more nominees. Abstentions will not be counted towards a nominee’s total and will have no affect on the election of directors. You may not cumulate your votes against a nominee. If you hold shares beneficially through a broker, trustee or other nominee and wish to cumulate votes for any one or more (but less than all) nominees, you should contact your broker, trustee or nominee. Cumulative voting applies only to the election of directors. If you would like to exercise your cumulative voting rights, you must do so by mail. The Company’s Bylaws provide that, in an uncontested election, a director nominee who receives a greater number of votes cast “withheld” for his or her election than “for” such election will promptly tender his or her resignation to the Corporate Governance Committee (the “CG Committee”). The CG Committee is required to evaluate the resignation, taking into account the best interests of the Company and its shareholders, and will recommend to the Company’s Board of Directors (the “Board”) whether to accept or reject the resignation.

The New York Stock Exchange (“NYSE”) recently eliminated broker discretionary voting for the election of directors. This means that unlike in prior years, your broker is not able to vote on your behalf in any director election unless you give your broker specific voting instructions. We encourage you to provide instructions so that your shares will be counted in the election of directors.

The Bylaw amendment and ratification of the appointment of the independent accountants. The affirmative vote of a majority of the shares voted on that item will be required for approval of the Bylaw amendment and the ratification of the appointment of the independent accountants for the year ending December 31, 2010. Abstentions and broker non-votes will have no affect on the outcome of these proposals.

The Board recommends a vote:

	•		FOR election of the nominated slate of directors (Proposal 1);
	•		FOR amending the Bylaws to permit shareholders to call special shareholder meetings (Proposal 2); and
	•		FOR ratification of the appointment of Deloitte & Touche LLP as the Company’s independent accountants for the year ending December 31, 2010 (Proposal 3).

          The Board 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 or, if no recommendations are given, in accordance with their own judgment.

Attendance at 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.

Delivery of Annual Reports and Proxy Statements to a Shared Address; Obtaining a Copy of the Annual Report

          If you and one or more shareholders share the same address, it is possible that only one Internet Notice, Annual Report or proxy statement was delivered to your address. Registered shareholders at the same address who wish to receive separate copies of the Internet Notice, the Annual Report or proxy statement may:

	•		call the Company’s Shareholder Services at 1-602-250-5511;
	•		mail a request to Shareholder Services at P.O. Box 53999, Mail Station 8602, Phoenix, AZ 85072-3999; or
	•		e-mail a request to: shareholderdept@pinnaclewest.com.

The Company will promptly deliver to you the information requested.

          Shareholders who own Company stock through a broker and who wish to receive separate copies of the Internet Notice, Annual Report or proxy statement should contact their broker.

          You can access our Annual Report via the Internet or request a copy as described in the Internet Notice. A copy of the Annual Report is available on 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 above.

Shareholder Proposals or Director Nominations for 2011 Annual Meeting

          To be included in the proxy materials for the 2011 Annual Meeting of Shareholders (the “2011 Annual Meeting”), any shareholder proposal intended to be presented at that meeting must be received by our Corporate Secretary no later than December 9, 2010 at the following address:

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

          A shareholder who intends to present a proposal at the 2011 Annual Meeting, but does not wish it to be included in the 2011 proxy materials, must submit the proposal by the close of business on February 18, 2011, but not earlier than January 19, 2011. Nominations for the Board must be received by November 20, 2010. In all cases, shareholders must also comply with the applicable rules of the SEC and our Bylaws.

Proxy Solicitation Cost

          The Board is soliciting the enclosed proxy. The Company may solicit shareholders over the Internet, by telephone or by mail. The Company has retained Georgeson Inc. to assist in the distribution of proxy solicitation materials and the solicitation of proxies for $8,500, plus customary expenses. The costs of the solicitation will be paid by the Company. As required, the Company will reimburse brokerage houses and others for their out-of-pocket expenses in forwarding documents to beneficial owners of stock.

INFORMATION ABOUT OUR BOARD AND CORPORATE GOVERNANCE

Director Independence

          NYSE rules require companies whose securities are traded 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 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.

          Based on the Board’s review, the Board has determined that two of the Company’s 14 directors are not independent and that 12 of the directors are independent. The 12 independent directors are Messrs. Basha, Gallagher, Jamieson, Lopez, Nordstrom, Parker and Stewart, Drs. Cortese and Herberger and Mses. Clark-Johnson, Grant and

Munro. Mr. Brandt is not independent under the NYSE rules or the Director Independence Standards because of his employment with the Company. Mr. Post is not independent under the NYSE rules or the Director Independence Standards due to his former employment with the Company.

          In accordance with the 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 considering the independence of Mr. Gallagher, the Board considered that the law firm of Gallagher & Kennedy, P.A. (“Gallagher & Kennedy”) where Mr. Gallagher is Chairman Emeritus, provided legal services to the Company in prior years and in 2009, and is expected to perform legal services for the Company in 2010. However, since: (a) the amounts paid to Gallagher & Kennedy, were less than the dollar thresholds set forth in the NYSE rules and the Director Independence Standards; (b) Mr. Gallagher does not furnish legal services to the Company; and (c) he has advised the Company that he receives no compensation or benefits from Gallagher & Kennedy as a result of the firm providing legal services to the Company, the Board determined that Mr. Gallagher was independent.

          Mr. Parker is Chairman and Chief Executive Officer of US Airways Group, Inc. and US Airways, Inc. (collectively “US Airways”), a commercial airline headquartered in Phoenix, Arizona, where the Company is also headquartered. In considering the independence of Mr. Parker, the Board considered the fact that directors and employees of the Company and its subsidiaries purchase air travel and freight services from time to time for business purposes from US Airways or its affiliates. The Board determined that these matters do not impact Mr. Parker’s independence because they are ordinary course, arms-length transactions that are not material to either the Company or US Airways, and the amounts paid to US Airways are less than the dollar thresholds set forth in the NYSE rules and the Director Independence Standards and are less than one percent of the Company’s and US Airways’ revenues for fiscal year 2009.

          Ms. Clark-Johnson is an employee of Arizona State University (“ASU”) in her capacity as the Executive Director of the Morrison Institute for Public Policy. Dr. Cortese is also an employee of ASU in his capacity as Director of the ASU Health Care Delivery and Policy Program and a Foundation Professor in the Department of Biomedical Informatics, Ira A. Fulton School of Engineering and in the School of Health Management and Policy, W.P. Carey School of Business. ASU is considered a part of the reporting entity for the State of Arizona (the “State”) for financial reporting purposes and, as such, the State is the entity considered in applying the independence tests. In considering the independence of Ms. Clark-Johnson and Dr. Cortese, the Board considered the fact that transactions between the State and the Company and its affiliates consist of providing electric service, utility-related construction, building and parking leases, and the payment of various state fees and taxes. The Board determined that these matters do not impact Ms. Clark-Johnson’s or Dr. Cortese’s independence since amounts paid to or received from the State are less than the dollar thresholds set forth in the NYSE rules and the Director Independence Standards. In addition, neither of these directors benefit financially, directly or indirectly, from ASU’s business relationships with the Company, most of which consist of receiving electric service at regulated rates.

          With respect to all of the directors, the Board considered that many of the directors and/or businesses of which they are officers, directors, shareholders, or employees are located in APS’ service territory and receive electricity from APS. The Board considered these relationships in determining the directors’ independence, but, because the rates and charges for electricity provided by APS are fixed by the Arizona Corporation Commission (“ACC”), 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 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 also serves as an executive officer of such charitable or non-profit organizations, the Board determined these payments did not impact any director’s independence.

Board Meetings and Attendance

          In 2009, our Board held nine meetings and each director attended at least 75% of the Board meetings and any meetings of committees on which he or she served. The Corporate Governance Guidelines provide that each director is expected to be present at the Annual Meeting. All of the Board members attended the 2009 Annual Meeting.

Board Committees

          The Board has a standing Audit Committee, Human Resources Committee (“HR Committee”), CG Committee and Finance, Nuclear and Operating Committee (“FNO Committee”). The Audit Committee, HR Committee and CG Committee are made up of independent directors. All members of the Audit Committee, the HR Committee, and the CG Committee meet the independence requirements of the NYSE rules, Securities and Exchange Commission (“SEC”) rules, and the Director Independence Standards. All of the charters of the Board’s committees, the Director Independence Standards, and the Corporate Governance Guidelines are publicly available on the Company’s website (www.pinnaclewest.com).

          The Audit Committee

          The Company’s Audit Committee held six meetings in 2009. Among other things, the Audit Committee:

	•		oversees the integrity of the Company’s financial statements;
	•		appoints the independent accountants and is responsible for their qualifications, independence, performance, and compensation;
	•		reviews the performance of the Company’s internal audit function; and
	•		monitors the Company’s compliance with legal and regulatory requirements.

          The Board has determined that each member of the Audit Committee meets the NYSE experience requirements and that Mr. Nordstrom, the Chair of the Audit Committee, is an “audit committee financial expert” under applicable SEC rules.

          The Human Resources Committee

          In 2009, the HR Committee met seven times. Among other things, the HR Committee:

	•		reviews management’s programs for the attraction, retention, and development of the Company’s human resources;
	•		approves policies on compensation, benefits, and perquisites, including incentive cash compensation plans and equity participation;
	•		recommends persons for election or appointment as officers to the full Board;
	•		annually reviews the goals and performance of our officers;
	•		approves corporate goals and objectives relevant to the compensation of our Chief Executive Officer (“CEO”), assesses the CEO’s performance in light of these goals and objectives, and sets the CEO’s compensation level based on this assessment;
	•		makes recommendations to the Board with respect to non-CEO executive compensation and director compensation; and
	•		acts as the “committee” under our long-term incentive plans.

          Under the HR Committee’s charter, the HR Committee may delegate authority to subcommittees, but did not do so in 2009.

          The Corporate Governance Committee

          In 2009, all of the Company’s non-management directors were given notice of and could attend the meetings of the CG Committee. The CG Committee met five times in 2009. Among other things, the CG Committee:

	•		develops the Company’s Corporate Governance Guidelines;
	•		develops and recommends to the full Board criteria for selecting new directors;
	•		identifies and evaluates individuals qualified to become members of the Board, consistent with criteria approved by the Board;
	•		recommends director nominees to the full Board; and
	•		recommends to the Board the directors who should serve on each of the Board’s committees.

          The CG Committee formed a Nomination Subcommittee and delegated to the Subcommittee the duties to: develop and recommend to the full Board the Board’s criteria for selecting new directors; identify and evaluate individuals qualified to become members of the Board consistent with criteria approved by the Board; recommend director nominees to the full Board; and recommend to the Board who should serve on each of the Board committees.

          The Finance, Nuclear and Operating Committee

          The FNO Committee held three meetings in 2009. Among other things, the FNO Committee:

	•		reviews and assesses reports from the Palo Verde Nuclear Oversight Committee (the “NOC”), which formally reports to the FNO Committee and APS’ Chief Executive Officer;
	•		reviews the results of major inspections and evaluations by external oversight groups, such as the Nuclear Regulatory Commission (“NRC”) and the Institute of Nuclear Power Operations;
	•		reviews the Company’s historical and projected financial performance, annual budgets and the Company’s financing plan and recommends approval of credit facilities and the issuance of long-term debt and common equity;
	•		reviews and recommends approval of short-term investments and borrowing guidelines;
	•		reviews and recommends to the Board the Company’s dividend actions, including stock dividends and other distributions;
	•		reviews and monitors the performance of the Company’s environmental policies; and
	•		reviews and monitors the customer and power plant operations of the Company.

          The NOC is an independent committee of individuals who have extensive and recognized experience and expertise in the design, operation, management, and regulation of nuclear power plants. The purpose of the NOC is to provide the Board and APS executive management with 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, with a particular emphasis on safe operation of the facility and protection of public health, safety, and the environment.

The Board’s Leadership Structure

          Lead Director. Ms. Munro serves as the Company’s Lead Director and chairs the CG Committee. The Lead Director performs the following functions:

	•		serves as a liaison between the Chairman of the Board (the “Chairman”) and the independent directors;
	•		advises the Chairman as to an appropriate schedule of Board meetings, reviews and provides the Chairman with input regarding agendas for the Board meetings and, as appropriate or as requested, reviews and provides the Chairman with input regarding information sent to the Board;
	•		presides at all meetings at which the Chairman is not present, including executive sessions of the non-management and the independent directors. Executive sessions are scheduled as part of each Board meeting. The independent directors meet in executive session at least once a year;
	•		calls meetings of the non-management and the independent directors when necessary and appropriate;
	•		oversees the Board and Board committee self-assessment process;
	•		is available for consultation and direct communication with the Company’s shareholders and other interested parties; and
	•		performs such other duties as the non-management directors may from time to time delegate.

          Chairman and CEO Positions. The Chairman is Donald E. Brandt, the Company’s CEO. The Board believes that combining the roles of the CEO and Chairman enhances the Board’s ability to communicate clearly and effectively with management, and that an independent Board Chairman would create an additional level of hierarchy that would only duplicate the activities already being vigorously carried out by its Lead Director.

The Board’s Role in Risk Oversight

          The Board’s oversight of the Company’s risk management function is designed to provide assurance that the Company’s risk management processes are well adapted to and consistent with the Company’s business and strategy, and are functioning as intended. The Board focuses on fostering a culture of risk awareness and risk-adjusted decision-making and ensuring that an appropriate “tone at the top” is established. The Board regularly discusses and updates a listing of areas of risk and allocates responsibility for them among the Board committees, which list includes, among other things, regulatory risk, safety, nuclear operations and compliance, and business continuity. Each committee:

	•		receives periodic presentations from management about its assigned risk areas;
	•		assesses the effectiveness of the risk identification and mitigation measures being employed; and
	•		discusses their assessments and recommendations with the full Board at least annually.

          Consistent with the requirements of the NYSE’s corporate governance standards, the Audit Committee discusses the comprehensiveness of the Board’s risk oversight process, and plays a coordinating role designed to ensure that no gaps exist in the coverage by the Board committees of risk areas. The Audit Committee also discusses risk management activities with the Company’s executive risk management committee described below. In recommending the composition of the Board’s committees and the selection of committee Chairs, the CG Committee takes into account the effective functioning of the risk oversight role of each Board committee, and the risk areas assigned to it. The Board also periodically reviews the Company’s internal organization of the risk management function. In this organization:

	•		the business area leaders are responsible for identifying, assessing, and managing their risks;
	•		the internal risk management group (reporting to the Vice President, Strategic Initiatives and Risk, who reports to the President of APS) is responsible for implementing a consistent risk management framework and reporting process across the Company and APS; and

•

an executive risk management committee (chaired by the Chief Financial Officer) is responsible for approving the framework, developing guidelines and practices, and setting risk tolerance limits.

Director Qualification; Selection of Nominees for the Board

          Director Qualifications. The Company’s Corporate Governance Guidelines contain Board membership criteria that apply to nominees recommended by the Nomination Subcommittee 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 Board membership, the Nomination Subcommittee considers the following qualities, among others: integrity; knowledge, including regulatory and political knowledge, and nuclear expertise at the strategic level; judgment; understanding of the Company’s business environment; the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which the Board desires to have represented, including large organizational leadership, public company experience, risk management experience, and shareholder value experience; and willingness to devote adequate time to Board duties.

          Selection of Nominees for the Board. The Nomination Subcommittee uses a variety of methods to identify and evaluate nominees for a director position. The Nomination Subcommittee regularly assesses the appropriate size of the Board, whether any vacancies on the Board are expected due to retirement or otherwise, and whether the Board reflects the appropriate balance of knowledge, skills, expertise, and diversity required for the Board as a whole. In the event that vacancies are anticipated, or otherwise arise, the Nomination Subcommittee may consider various potential candidates. Candidates may come to the attention of the Nomination Subcommittee through current Board members, professional search firms, shareholders, or other persons. The Nomination Subcommittee evaluates all nominees against the same criteria regardless of the source of the nomination. Any shareholder nominations proposed for consideration by the Nomination Subcommittee should include the nominee’s name and qualifications for Board membership and should be addressed to:

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

          Any shareholder who wishes to submit a nomination for a director to the Board must deliver that nomination to our Corporate Secretary by November 20, 2010 and comply with the information requirements in the Company’s Bylaws.

          Candidates may be considered by the Nomination Subcommittee at any point during the year. The Nomination Subcommittee recommended Dr. Cortese for Board membership in September 2009. Dr. Cortese became a director effective January 1, 2010.

Director Resignation Due to Substantial Change in Their Primary Business Position

          Under the Company’s Corporate Governance Guidelines, upon a substantial change in a director’s primary business position, a director is required to apprise the CG Committee and should offer his or her resignation for consideration to the CG Committee. The CG Committee will recommend to the Board the action, if any, to be taken with respect to the tendered resignation.

Communication with the Board

          Shareholders and other parties interested in communicating with the Board may do so by writing to Board of Directors, Pinnacle West Capital Corporation, 400 North Fifth Street, Mail Station 9068, P.O. Box 53999, Phoenix, Arizona 85072-3999. You should send communications that are intended specifically for the non-management directors to the same address to the attention of the CG Committee Chair.

Company Code of Business Conduct and Ethics; Strategic Framework

          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 Executives, both of which are described below:

          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 and directors receive a copy of “Doing the Right Thing” when they join the Company and are provided updates periodically. 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.

          Code of Ethics for Financial Executives. The Company has adopted a Code of Ethics for Financial Executives, 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. “Financial Executive” means the Company’s CEO, Chief Financial Officer, Chief Accounting Officer, Controller, Treasurer, and persons performing similar functions at any of the Company’s subsidiaries.

          The Company provides periodic on-line training and examination covering the principles in the Ethics Policy and Standards of Business Practices and in the Code of Ethics for Financial Executives. This training includes extensive discussion of the Company’s values, an explanation of Company ethical standards, application of ethical standards in typical workplace scenarios, assessment questions to help measure understanding, and an electronic sign-off. All of the employees of the Company and APS, except those on a leave of absence or newly-hired employees, and all of our directors have completed the training. The codes of conduct are available at the Company’s website (www.pinnaclewest.com).

          The Company’s Strategic Framework. APS has adopted a strategic framework that defines its vision, mission, areas of focus, and values. APS’ vision is to create a sustainable energy future for Arizona. APS’ mission is to safely and efficiently generate and deliver reliable electric power and related services to its customers. The areas of focus are employees, operational excellence, environmental stewardship, continuous improvement, customers and communities, and shareholder value. The framework affirms our corporate values of safety, integrity and trust, accountability, and respect.

DIRECTOR COMPENSATION

2009 Directors’ Compensation

          Compensation of the directors for 2009 was as follows:

	Name1			Fees Earned					Stock					Option					Non-Equity					Change in					All Other					Total
				or Paid in					Awards					Awards					Incentive Plan					Pension Value					Compensation					($)
				Cash					($)3					($)					Compensation					and					($)5
				($)2															($)					Nonqualified
																								Deferred
																								Compensation
																								Earnings4
																								($)
	Edward N. Basha, Jr.				70,500					49,088					0					0					0					5,056					124,644
	Donald E. Brandt6				0					0					0					0					0					0					0
	Susan Clark-Johnson				67,500					49,088					0					0					0					5,056					121,644
	Michael L. Gallagher				85,083					49,088					0					0					23,540					5,056					162,767
	Pamela Grant				76,583					49,088					0					0					0					5,056					130,727
	Roy A. Herberger, Jr., Ph.D.				88,000					49,088					0					0					16,367					2,306					155,761
	William S. Jamieson				72,000					49,088					0					0					14,364					56					135,508
	Humberto S. Lopez				78,083					49,088					0					0					29,003					1,556					157,730
	Kathryn L. Munro				84,000					49,088					0					0					7,343					5,056					145,487
	Bruce J. Nordstrom				87,997					49,088					0					0					12,078					4,056					153,219
	W. Douglas Parker				63,000					49,088					0					0					0					56					112,144
	William J. Post6				—					—					0					0					0					—					—
	William L. Stewart				92,000					49,088					0					0					0					56					141,144

2010 Directors’ Compensation

          The HR Committee makes recommendations to the Board for compensation, equity participation, and other benefits for directors. The HR Committee and the Board generally review director compensation every two years. In December of 2009, following a review by the HR Committee of director compensation programs of other companies in the peer group, management conducted a study of corporate board compensation and pay practices based on the peer group discussed in the Compensation Discussion and Analysis (“CDA”) under the heading “Setting Executive Compensation – HR Consultant’s Report” on page 24 of this proxy statement. The study demonstrated that, overall, the current directors’ compensation was below the 25^th percentile of the peer group. The HR Committee’s compensation consultant, Frederic W. Cook & Co. (“Cook & Co.”) reviewed the study, validated the methodology and supported management’s recommendations.

          As a result, in January of 2010, management proposed and the Board approved revisions to the director compensation program. The revised program positions the directors’ compensation program at the median of the peer group. The revised program eliminates board, committee and subsidiary meeting fees in favor of a flat retainer and simplifies the equity grants.

          The revised program will go into effect for the 2010-2011 term of the Board beginning in May of 2010. Compensation before and after the change consists of the following components:

	Compensation Component			Until May 19, 2010
	• Annual Retainer			$30,000
	• Annual Retainer for those who serve on the APS Energy Services Company, Inc. (“APSES”), El Dorado Investment Company (“El Dorado”) or SunCor Development Company (“SunCor”) Boards			$5,000
	• Board and Committee meeting fees			$1,500/meeting
	• APSES, El Dorado or SunCor Board meeting fees			$500/meeting
	• Audit Committee Chair Annual Retainer			$10,000
	• CG Committee, HR Committee, and FNO Committee Chair Annual Retainer			$7,500
	• NOC Liaison			$20,000
	• Director Matching Gift Program			A match of up to $5,000 to charities meeting certain requirements
	• Initial Equity Grant for New Director			1,600 shares
	• Equity Grant on July 1			1,600 shares1

	Compensation Component			After May 19, 2010
	• Annual Retainer			$80,000
	• Audit Committee, HR Committee and FNO Committee Chair Annual Retainer			$12,500
	• NOC Liaison			$20,000
	• Lead Director Annual Retainer (Lead Director serves as Chair of CG Committee for no additional compensation)			$15,000
	• Equity Grant on July 1			Shares equal to $75,000

          Below is a comparison of compensation payable to a director under the current and revised compensation programs, assuming the director attends 11 Board meetings, serves on two committees that each meet six times a year, does not serve on a subsidiary board other than APS, and is not the Chair of a committee or serves as the Company’s lead director:

		Current Program				Revised Program
Cash:
Annual Retainer			$30,000				$80,000
Board and Committee Fees			$34,500				$0
Total Cash:			$64,500				$80,000
Equity:			$49,088				$75,000
		(1,600 shares at $30.68)
Total Cash and Equity:			$113,588				$155,000

          Only non-management directors are compensated for Board service. Company directors also serve as APS directors for no additional compensation. The Company reimburses Board members for expenses associated with Board meetings and director education programs.

Director Stock Ownership Guidelines

          The Company believes that directors should have meaningful financial stakes in the Company to align their personal financial interests with those of the Company’s shareholders. Under the 2009 ownership requirement, each individual who was a non-management director as of July 1 of a calendar year received 1,600 shares of the Company’s common stock (the “Director’s Grant”) if the director met the following ownership requirements. In the first calendar year of a non-management director’s election to the Board, he or she must own at least 900 shares of the Company’s common stock as of December 31 of the same calendar year to receive a grant of 1,600 shares of the Company’s common stock. In each subsequent year, the number of shares of the Company’s common stock the non-employee director must own on July 1 to receive a grant of 1,600 shares increases by 900 shares, until reaching a maximum of 4,500 shares.

          In an effort to further align the interests of the Board and shareholders and encourage the long-term management of the Company for the benefit of the shareholders, in January 2010, the Board adopted a revised stock ownership policy for non-management directors in lieu of the above ownership program. Each director is required to hold Company stock with a value of at least three times the annual cash retainer fee paid to directors. Directors will have until the later of January 2013 or three years following the date they become a director to reach the required ownership level. The CG Committee has the discretion to grant a temporary waiver of the ownership policy to a director due to financial hardship or other good cause shown.

PROPOSAL 1 – ELECTION OF DIRECTORS

Current Nominees

          The 11 nominees for election as directors are set forth in the following table, where we provide a description of their occupation, business background and other directorships as well as a discussion of the specific skills that the Board believes qualifies each of our nominees to serve as a director.

Nominees for Directors (Term Expiring at 2011 Annual Meeting)

Name		Age				Occupation, Business & Directorships		Director
		(as of 3/22/2010)						Since
Edward N. Basha, Jr.			72			Chairman of the Board and Chief Executive Officer of Bashas’ supermarket chain since 1968. On July 12, 2009, Bashas’ filed voluntary Chapter 11 petitions in the United States Bankruptcy Court, District of Arizona. Mr. Basha serves on the Company’s Audit Committee, HR Committee and CG Committee. Mr. Basha is an Arizona native and prominent business, civic and political leader involved in multiple Arizona community projects. His family-owned business is comprised of more than 120 grocery and specialty stores in Arizona, California and New Mexico. In addition to his executive experience, Mr. Basha brings a strong marketing background to the Board, as well as the perspective of being one of the Company’s commercial electricity customers.			1999
Donald E. Brandt			55			Chairman of the Board, President and CEO of the Company. Chairman of the Board and CEO since April 2009 and President since March 2008. Chairman of the Board of APS since April 2009 and Chief Executive Officer since March 2008. President of APS from December 2006 to January 2009. Mr. Brandt has served as an officer of the Company in the following additional capacities: March 2008 to April 2009 as Chief Operating Officer; September 2003 to March 2008 as Executive Vice President; December 2002 to September 2003 as Senior Vice President; and as Chief Financial Officer from December 2002 to March 2008. Mr. Brandt serves on the Company’s FNO Committee. As Chairman of the Board, President and CEO of the Company and as Chairman of the Board and Chief Executive Officer of APS, with nearly three decades of experience in the utility industry, Mr. Brandt has a broad understanding of the factors affecting the Company’s business. In addition, Mr. Brandt currently serves on the boards of the Institute of Nuclear Power Operations (“INPO”), the Nuclear Energy Institute (“NEI”), the Edison Electric Institute (“EEI”), and Nuclear Electric Insurance Limited (“NEIL”), all major industry organizations that provide insights into operational, financial and policy matters of great importance to the Company.			2009

Name		Age				Occupation, Business & Directorships		Director
		(as of 3/22/2010)						Since
Susan Clark-Johnson			63			Executive Director of the Morrison Institute for Public Policy, ASU, since May 2009. President, Gannett Newspaper Division, Gannett Co., Inc. (newspaper publishing) from September 2005 until her retirement in May of 2008. Ms. Clark-Johnson was Chairman and Chief Executive Officer of Phoenix Newspapers, Inc. from August 2000 to September 2005. Ms. Clark-Johnson is also a director of Chyron Corporation. Ms. Clark-Johnson serves on the Company’s FNO Committee, CG Committee and the HR Committee. Ms. Clark-Johnson brings a breadth of operational and managerial experience from running a major division of a Fortune 500 company. Also, as the former Publisher of the Arizona Republic, Ms. Clark-Johnson has a keen understanding of Arizona’s political, economic and cultural spheres.			2008
Denis A. Cortese, M.D.			66			Director of the ASU Health Care Delivery and Policy Program, Foundation Professor in the Department of Biomedical Informatics, Ira A. Fulton School of Engineering and in the School of Health Management and Policy, W.P. Carey School of Business. Emeritus President and Chief Executive Officer, Mayo Clinic (medical clinic and hospital services) since November 2009 and President and Chief Executive Officer of Mayo Clinic from March 2003 until his retirement in November 2009. Dr. Cortese serves on the Company’s FNO Committee. As former President and Chief Executive Officer of the Mayo Clinic, Dr. Cortese has extensive experience in leading complex organizations with multiple constituencies and has led an organization that delivers strong and efficient customer service, which parallels the Company’s strategies. Further, his background in public policy development, science and technology brings valuable perspectives to issues in the areas that face the Company.			2010
Michael L. Gallagher			65			Chairman Emeritus of Gallagher & Kennedy, Phoenix, Arizona (Arizona-based law firm) since 2001. Mr. Gallagher served as President of Gallagher & Kennedy from 1978 through 2000. Mr. Gallagher is also a director of AMERCO, Omaha World-Herald Company and a trustee of the Peter Kiewit Foundation. Within the past five years, Mr. Gallagher was also a director of Action Performance Companies, Inc. Mr. Gallagher chairs the Company’s FNO Committee and serves on the CG Committee and Nomination Subcommittee. Mr. Gallagher has represented a broad and diverse spectrum of corporate clients. Mr. Gallagher provides guidance and judgment to the diverse issues regularly considered by the Board. His knowledge and experience from participating on the boards of other publicly-traded companies provides valuable perspective to the Company.			1999

Name		Age				Occupation, Business & Directorships		Director
		(as of 3/22/2010)						Since
Pamela Grant			71			Civic leader. President of TableScapes, Inc. (party supply rentals) from July 1989 through January 1995. Ms. Grant was President and Chief Executive Officer 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, Chairman and Chief Executive Officer of Goldwaters Department Stores, a division of Associated Dry Goods. Ms. Grant serves on the Company’s Audit Committee, HR Committee and CG Committee. Ms. Grant brings continuity and institutional knowledge to the Board gained over 25 years of service. As the former top executive of a large department store chain, Ms. Grant possesses skills associated with merger and acquisition activities, corporate governance and competitive retail markets.			1985
Roy A. Herberger, Jr., Ph.D.			67			President Emeritus of Thunderbird School of Global Management (graduate management school) since November 2004. Dr. Herberger was President of Thunderbird from 1989 until August 2004. Dr. Herberger is also a director of the Apollo Group. Within the past five years, Dr. Herberger was also a director of MedAire, Inc., ECO2 Plastics Inc., and Action Performance Companies, Inc. Dr. Herberger chairs the Company’s HR Committee and serves on the CG Committee, Nomination Subcommittee, and FNO Committee. Dr. Herberger has both management experience and a strong understanding of business and economic trends. He also has extensive corporate board service, which aids his contributions to the Company’s Board. Dr. Herberger’s service as a director of the Apollo Group, a Fortune 500 company, including his service as Chair of its Compensation Committee, and his service as a Trustee for the Mayo Clinic, contributes to the strength of the Company’s governance and human resources processes.			1992
Humberto S. Lopez			64			President of HSL Properties, Inc. (real estate development and investment), Tucson, Arizona since 1975. Mr. Lopez serves on the Company’s Audit Committee, HR Committee and CG Committee. In addition to management and business knowledge, Mr. Lopez brings extensive investment and real estate development expertise to the Company. His understanding of real estate and associated markets has proven a valuable asset to the Company because of the importance of those markets in Arizona. Mr. Lopez also is familiar with the State’s historic economic cycles, which helps the Company plan for future growth and energy needs.			1995

Name		Age				Occupation, Business & Directorships		Director
		(as of 3/22/2010)						Since
Kathryn L. Munro			61			Principal of BridgeWest, LLC (investment company) since July 2003. Ms. Munro was Chairman of BridgeWest, LLC from February 1999 until July 2003. From 1996 to 1998, Ms. Munro served as Chief Executive Officer of Bank of America’s (“BofA”) Southwest Banking Group and was President of BofA Arizona from 1994 to 1996. Prior to that, Ms. Munro held a variety of senior positions during her 20-year career with BofA. Ms. Munro is also a director of FLOW International Corporation and Knight Transportation, Inc. Within the past five years, Ms. Munro was a director of Capital Bancorp, Ltd. Ms. Munro is the Company’s Lead Director and, as such, she chairs the CG Committee. She also serves as Chair of the Nomination Subcommittee and serves on the Audit Committee and FNO Committee. As principal of an Arizona investment company, and as former Chief Executive Officer of BofA’s Southwest Banking Group and President of BofA Arizona, Ms. Munro brings business acumen and financial knowledge to the Company. Her experience with the cycles in Arizona’s economy assists a growing infrastructure company like Pinnacle West in accessing capital and meeting its financing needs. Ms. Munro is also an experienced director, currently serving on the boards of FLOW International Corp., Knight Transportation, and Premera Blue Cross.			2000
Bruce J. Nordstrom			60			President of and certified public accountant at the firm of Nordstrom and Associates, PC, Flagstaff, Arizona, since 1988. Mr. Nordstrom chairs the Company’s Audit Committee and serves on the CG Committee, Nomination Subcommittee and FNO Committee. As the president of a Flagstaff, Arizona-based accounting firm, Mr. Nordstrom is a certified public accountant and has an extensive accounting, auditing and financial skill set. Additionally, he provides familiarity with principles of risk management, oversight and perspectives of customers in the Northern Arizona service territory of APS.			2000

Name		Age				Occupation, Business & Directorships		Director
		(as of 3/22/2010)						Since
W. Douglas Parker			48			Chairman of the Board and Chief Executive Officer of US Airways (airline carrier) since September 2005. Mr. Parker was President of US Airways from September 2005 to October 2006. Mr. Parker served as Chairman of the Board and Chief Executive Officer of America West Holdings (“AWH”) and of America West Airlines (“AWA”) from September 2001 to September 2007, and served as a director of AWH and AWA from 1999 to September 2007. Mr. Parker also served as President of AWH and AWA from September 2001 to October 2006. Mr. Parker is also a director of US Airways Group, Inc. Within the past five years, Mr. Parker also served as a director of Clear Channel Outdoor. Mr. Parker serves on the Company’s Audit Committee, CG Committee and FNO Committee. Mr. Parker has extensive executive management and leadership experience operating in a highly regulated and volatile industry. His background and expertise are valuable to the Company as the electric utility business model evolves. Mr. Parker has significant experience addressing issues facing public companies as a result of his various positions with US Airways.			2007

Current Directors Not Standing for Reelection

          Messrs. William S. Jamieson, William J. Post and William L. Stewart will retire from the Board effective at the Annual Meeting. The Board expresses their appreciation and thanks to Messrs. Jamieson, Post and Stewart for their many years of contribution and dedicated service.

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

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, Hatfield, Edington, Falck and Robinson, who are the Company’s named executive officers under applicable SEC rules (the “Named Executive Officers”), our directors and executive officers as a group 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 22, 2010, the record date for the Annual Meeting.

		Number of Shares				Percent of
Name		Beneficially Owned1				Class
Directors:
Edward N. Basha, Jr.			14,835				*
Donald E. Brandt			23,487				*
Susan Clark-Johnson			4,300				*
Denis A. Cortese, M.D.			1,600				*
Michael L. Gallagher			18,684				*
Pamela Grant			26,256				*
Roy A. Herberger, Jr., Ph.D.			21,212				*
William S. Jamieson			15,890				*
Humberto S. Lopez			42,132				*
Kathryn L. Munro			16,747				*
Bruce J. Nordstrom			19,253				*
W. Douglas Parker			4,300				*
William J. Post			314,351				*
William L. Stewart			36,763				*
Other Named Executive Officers:
James R. Hatfield			15,927				*
David P. Falck			4,107				*
Randall K. Edington			8,611				*
Donald G. Robinson			22,768				*
All Directors and Executive Officers as a Group (22 Persons):			632,641				*
5% Beneficial Owners:2
BlackRock, Inc.			7,187,079				7.1
40 East 52nd Street
New York, NY 10022
Franklin Resources, Inc. and certain related entities			6,182,100				6.1
One Franklin Parkway
San Mateo, CA 94403-1906
State Street Corporation			7,537,794				7.4
One Lincoln Street
Boston, MA 02111
T. Rowe Price Associates, Inc.			7,949,223				7.8
100 E. Pratt Street
Baltimore, MD 21202

¹Shares listed include shares that could be acquired within 60 days of March 22, 2010 under the Company’s equity incentive plans. Mr. Post holds 238,000 options which are currently exercisable. See the 2009 Outstanding Equity Awards at Fiscal Year-End table on page 46 of this proxy statement for more information about these options. The following shares are held in joint tenancy: Directors: Dr. Herberger – 13,751; and Mr. Stewart – 36,763; Officer: Mr. Hatfield – 4,840; and all Directors and Executive Officers as a group: 73,083. The following shares are held in joint trusts: Directors: Dr. Cortese – 1,600; Mr. Gallagher – 18,684; Mr. Lopez – 42,132; and Ms. Munro – 15,562; and all Directors and Executive Officers as a Group: 77,978. Mr. Basha has donated 14,575 of his shares to a charitable foundation and 260 of his shares are held in a custodial account; however, he has shared voting rights with respect to such shares.

² BlackRock, Inc. Schedule 13G filing, dated January 20, 2010, reports beneficial ownership collectively of 7,187,079 shares, with sole voting and sole dispositive power as to 7,187,079 shares. Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. Schedule 13G/A filing, dated February 8, 2010, reports beneficial ownership collectively of 6,182,100 shares, with sole voting power as to 6,055,000 shares and sole dispositive power as to 6,180,000 shares in Franklin Advisers, Inc.,

and sole voting power and sole dispositive power as to 2,100 shares in Fiduciary Trust Company International. State Street Corporation Schedule 13G filing, dated February 12, 2010, reports beneficial ownership of 7,537,794 shares, with shared voting power and dispositive power as to 7,537,794 shares. The Company maintains normal commercial relationships with State Street Corporation and its subsidiaries. The Company does not consider these relationships to be material. T. Rowe Price Associates, Inc. Schedule 13G/A filing, dated February 12, 2010, reports beneficial ownership of 7,949,223 shares with sole voting power as to 2,046,144 shares and sole dispositive power as to 7,933,023 shares. The Company makes no representations as to the accuracy or completeness of such information and believes these filings represent share ownership as of the dates reflected in the individual filings.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

          Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive 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, executive officers, and greater than 10% beneficial owners complied with their respective Section 16(a) reporting requirements for fiscal year 2009 on a timely basis.

RELATED PARTY TRANSACTIONS

          The CG Committee is responsible for reviewing and approving all transactions with any Related Party, as defined below. A Related Party is any of our directors, director nominees, executive officers, shareholders owning more than 5% of the Company’s common stock and, with respect to each of them, their immediate family members and certain entities in which they are an officer or a shareholder, partner, member or other participant who, directly or indirectly, has a substantial ownership in or otherwise substantially controls or shares control of such entity (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, as defined in the Policy, each year the Company 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 must be approved or ratified by the CG Committee. A Related Party Transaction is any transaction or a series of similar transactions in which the Company or any of its subsidiaries is or was a participant, where the amount involved exceeds $120,000 in the aggregate, and in which any Related Party has a direct or indirect material interest, other than:

	•		transactions in which rates or charges are fixed in conformity with law or governmental authority (such as APS rates approved by the ACC);
	•		the rates or charges are determined by competitive bid; or
	•		the payment of compensation by the Company to the executive officers, directors, or nominees for directors.

REPORT OF THE AUDIT COMMITTEE

          The Audit Committee 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 (a) the integrity of the Company’s financial statements, (b) the independent accountants’ qualifications and independence and performance, (c) the performance of the Company’s internal audit function, and (d) the Company’s compliance with legal and regulatory requirements. The Audit Committee is directly responsible for the appointment, compensation, retention, and oversight of the Company’s independent accountants. 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 accountants 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 Audit Committee’s responsibility is to monitor these processes.

          In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from Deloitte & Touche LLP, the Company’s independent accountants, the formal written disclosures and the letter required by applicable requirements of the Public Accounting Oversight Board. The Committee discussed with the accountants any relationships that may impact the accountants’ objectivity and independence and satisfied itself as to the accountants’ independence. The Audit Committee further determined that the other services provided to the Company for which the accountants received the fees disclosed below were compatible with maintaining the accountants’ independence.

          The Audit 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, as adopted by the Public Company Accounting Oversight Board in Rule 3200T and, with and without management present, discussed and reviewed the results of the independent accountants’ 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, 2009, with the Company’s management, the Company’s Director of Audit Services and the independent accountants.

          Based on the foregoing, the Audit 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, 2009, for filing with the SEC.

		AUDIT COMMITTEE CHAIR		AUDIT COMMITTEE MEMBERS
		Bruce J. Nordstrom		Edward N. Basha, Jr.
				Pamela Grant
				William S. Jamieson
				Humberto S. Lopez
				Kathryn L. Munro
				W. Douglas Parker

REPORT OF THE HUMAN RESOURCES COMMITTEE

          The HR Committee submitted the following report:

          The HR Committee is composed of six 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 HR Committee discussed and reviewed the Compensation Discussion and Analysis beginning on page 22 of this proxy statement with management and, based on those discussions and review, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

		HR COMMITTEE CHAIR		HR COMMITTEE MEMBERS
		Roy A. Herberger, Jr., Ph.D.		Edward N. Basha, Jr.
				Susan Clark-Johnson
				Pamela Grant
				William S. Jamieson
				Humberto S. Lopez

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

          Introduction

          In this section, we review the Company’s executive compensation program and discuss the 2009 compensation decisions regarding our Named Executive Officers.

          In summary, the Company’s executive compensation objectives are:

	•		the alignment of compensation with shareholder interests;
	•		business performance accountability;
	•		individual performance accountability;
	•		retention; and
	•		competitiveness.

          The elements of our executive compensation program are:

	•		base salary;
	•		annual cash incentives;
	•		long-term equity incentives;
	•		pension and deferred compensation programs; and
	•		limited perquisites.

          We allocate compensation among these elements to provide an appropriate mix of:

	•		short-term and long-term incentives;
	•		cash and equity compensation; and
	•		fixed and variable compensation.

          In 2009:

	•		base salaries for the Named Executive Officers were not increased except for Mr. Brandt, whose base salary was increased in connection with his promotion to Chairman of the Board and CEO, and Mr. Robinson, whose base salary was increased in connection with his promotion to President and Chief Operating Officer of APS;
	•		earnings and strong performance drove payouts under the annual cash incentive plans; performance results included:

	o		a comprehensive settlement in the APS rate case;
	o		Palo Verde being removed from enhanced NRC oversight in March 2009;
	o		strong operational performance, including Palo Verde having the second highest generation total in the plant’s 22-year history; and
	o		the Company recording its best annual safety record ever; and

•

the metrics for the performance shares granted in 2007 were not met and, as a result, no performance shares paid out in 2009. The HR Committee revised the performance metrics for the 2009 Performance Shares, as defined herein, to increase the effectiveness of the grants as an incentive, recruiting and retention vehicle.

          The HR Committee

          The HR Committee monitors executive officer compensation throughout the year and undertakes a thorough analysis of our executive officer compensation each fall. This review includes consideration of competitive positions relative to specified labor markets, the mix of elements of compensation, the degree and type of performance focus, and a consideration of individual officer evaluations. From December through February, the HR Committee then makes any necessary adjustments to executive officer compensation, including salary, cash incentives and non-cash incentives.

          Compensation Objectives

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

	•		Alignment with Shareholder Interests. A significant portion of compensation should be tied to the Company’s stock performance through performance-based or other stock incentives so that executives’ interests are tied to the success of the Company and aligned with those of our shareholders.
	•		Business Performance Accountability. Compensation should be tied to the Company’s performance in several key areas, including customer satisfaction, safety, and operational performance, 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.
	•		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 levels and programs.

          Setting Executive Compensation

                    Role of Executive Officers in Determining Executive Compensation. The HR Committee makes all compensation decisions relating to our CEO’s compensation, makes awards under the 2007 Long-Term Incentive Plan (the “2007 Plan”), and determined the awards under the 2009 Incentive Plans (as defined on page 30 of this proxy statement). The HR Committee recommends other executive officer compensation decisions, which are approved by the Board. Management works with the HR Committee in establishing the agenda for HR Committee meetings and in preparing meeting information. Management conducts evaluations and provides information on the performance of the executive officers for the HR Committee’s consideration and provides such other information as the HR Committee may request. Management also assists the HR Committee in recommending salary levels, annual incentive plan structure and design, including corporate and business unit performance targets or other goals, long-term incentive plan structure and design, including award levels, and the type, structure, and amount of other awards. The executive officers are also available to the HR Committee’s compensation consultant to provide information as requested by the consultant. At the request of the Chair of the HR Committee, the CEO or other officers may attend and participate in portions of the HR Committee’s meetings.

                    Role of Compensation Consultants. The HR Committee’s charter gives the HR Committee the sole authority to retain and terminate any consulting firm used by the HR Committee in evaluating non-employee director and officer compensation. In the fall of 2008, the HR Committee engaged Cook & Co. to assist the HR Committee in its evaluation of 2009 compensation for our executive officers (the “HR Consultant”). The HR Committee instructed the HR Consultant to prepare a competitive analysis of the compensation of the Named Executive Officers and other officers of the Company and of APS, and to make recommendations for changes to the existing compensation program. The HR Consultant does not provide any other services to the Company or any of its subsidiaries.

                    HR Consultant’s Report. The HR Consultant reviewed our executive compensation practices against the market and considered the extent to which these practices support our executive compensation strategy. Mr. Falck did not join the Company until July 2009 and thus was not included in the analysis.

                    As part of this study, the HR Consultant performed competitive pay comparisons for our executive officers based on:

	•		compensation information from 2008 proxy statements and Form 8-Ks for a 17-company peer group described below;
	•		general industry data based on surveys published by Hewitt Associates, Inc. (averaging data for companies in the $2.5 – $5 billion revenue bracket and the $5 – $10 billion revenue bracket) and Towers, Perrin, Forster & Crosby, Inc. (“Towers Perrin”)(averaging data for companies in the $3 – $6 billion revenue bracket and the $6 – $10 billion revenue bracket); and
	•		industry specific survey data from the Towers Perrin Energy Services Industry Survey (reflecting the average between companies in the $3 – $6 billion revenue bracket and companies with revenues greater than $6 billion).

                    From these sources, the HR Consultant developed a competitive consensus, with industry-specific data generally assigned a two-thirds weighting and general industry data assigned a one-third weighting. For the Named Executive Officers with position matches in all three peer sets (Messrs. Post, Brandt, Hatfield and Edington), the data reflects one-third proxy, one-third Energy Services Industry Survey, and one-third general industry surveys. Mr. Brandt’s position was adjusted upward by 10% to better reflect the level of his position with the Company and APS versus comparable officer positions. For the Named Executive Officer without a matching proxy position (Mr. Robinson), the data reflects two-thirds Energy Services Industry Survey and one-third general industry surveys.

                    Peer Group.

                    2008: Prior to 2008, the Company used a 14-company comparator group. The HR Committee periodically evaluates the continuing relevance of the comparator group, with input from management and the HR Consultant, and re-reviewed the peer group in 2007 and 2008. The original 14 companies in the comparator group were:

Original Comparator Group

Ameren Corporation		DTE Energy Company		Entergy Corporation
FPL Group Inc.		Great Plains Energy Inc.		OGE Energy Corporation
PPL Corporation		Progress Energy, Inc.		Puget Energy Inc.
SCANA Corporation		Southern Company		TECO Energy, Inc.
Wisconsin Energy		Xcel Energy Inc.
Corporation

                    Factors in choosing the companies in the 14-company comparator group included that they:

	•		be strongly represented by nuclear companies because the Company is a large nuclear operator;
	•		include representation of companies in the S&P 1500 Super Composite Electric Utility Index (the “Index”) because the Company’s performance shares are partially earned based on financial performance compared to this Index;
	•		include some companies smaller than the companies in the Index to balance the peer group from a size perspective; and
	•		have a solid reputation and long-term prospects.

                    Compared to this comparator group, the Company is generally smaller in revenues, assets, market cap, and total megawatts owned. The HR Consultant adjusted the peer group using regression based on revenues to take this into account. If regression was not available, the HR Consultant used the median of the peer group as the best predictor of pay for a position. In addition, the HR Consultant adjusted Company revenues to take managed assets into account, such as the various jointly-owned power plants managed by APS.

                    2009: As part of the executive compensation review for 2009, the HR Committee reviewed the comparator group for its continued appropriateness with the assistance of the HR Consultant. As a result of such review, the HR Committee revised the comparator group to a 17-company comparator group that is broadly similar to the Company with respect to industry, complexity, business lines, and size. The revised group results in a larger number of utilities and positions the Company closer to the median with respect to revenues, assets, market cap, and total megawatts owned or managed. The revised comparator group consists of the following companies:

Revised Comparator Group

Allegheny Energy		Alliant Energy		Ameren Corporation
DTE Energy Company		Entergy Corporation		FPL Group Inc.
Northeast Utilities		NV Energy, Inc.		OGE Energy Corporation
PPL Corporation		Progress Energy, Inc.		Puget Energy Inc.
SCANA Corporation		Southern Company		TECO Energy, Inc.
Wisconsin Energy Corporation		Xcel Energy Inc.

                    In evaluating this group, the HR Consultant noted certain key distinguishing characteristics of APS, including its large and complex nuclear operations and its significant operations related to managing generating facilities owned by others. The HR Consultant considered that the Company’s reported revenues do not reflect the actual size and complexity of its operations since APS is a minority owner in both the Palo Verde and Four Corners power plants, but manages the facilities on behalf of all the owners. This issue was addressed by adjusting Company revenues to take revenues attributable to managed assets into account. Based on the revised peer group, the HR Consultant determined that peer company revenues need not be further adjusted by regression.

                    In providing information to the HR Committee with respect to setting 2009 compensation, the HR Consultant 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 the survey data discussed above.

                    In its analysis, the HR Consultant looked at actual compensation paid to the Named Executive Officers as compared to the competitive median and the 75^th percentile (data was treated at the median or the 75^th percentile if it was within +/- 10%). The conclusions of the report as to the comparative positions of the actual compensation of the Named Executive Officers at the time the analysis was performed based on the comparative median and 75^th percentile are as follows:

Officer1

Base Salary

Actual Annual

Long Term

Actual Total

Actual Total

Cash

Incentive

Direct

Direct

Compensation2

(“LTI”)

Compensation

Compensation

(Using LTI

(Adjusted

Grant Values)3

LTI Values)4

Mr. Post

below the median

at the median

below the median

below the median

below the median

Mr. Brandt

at the median

at the 75th percentile

below the median

at the median

at the median

Mr. Hatfield

below the median

--5

below the median

--5

--5

Mr. Edington

above the 75th percentile

above the 75th percentile

at the median

at the 75th percentile

approaching the 75th percentile

Mr. Robinson

at the median

at the median

below the median

below the median

below the median

          ¹ Mr. Falck did not join the Company until July 2009 and thus was not included in the analysis.

          ² Current salary as of November 2008 plus actual annual incentives earned for performance in 2007.

          ³ Current salary as of November 2008 plus actual annual incentives earned for performance in 2007 plus 2008 long-term incentive grant values.

          ⁴ Current salary as of November 2008 plus actual annual incentives earned for performance in 2007 plus 2008 long-term incentive grant values, adjusted assuming the performance share component was 50% of the normal grant level to simulate the impact of historical actual payout levels.

          ⁵ Mr. Hatfield joined the Company on July 14, 2008 and did not receive an annual incentive for performance in 2007.

                    Application of HR Committee’s Judgment. The analysis in the HR Consultant report and its recommendations regarding the competitiveness and structure of compensation are factors that the HR Committee takes into account in its evaluation of compensation for the Named Executive Officers. In addition, the HR Committee considers how the HR Consultant’s recommendations regarding particular elements of compensation may differ from management’s recommendations. The HR Committee also focuses on the individual executives and their individual responsibilities, skills, expertise, value added through performance, internal equity, and other external factors, and applies these views in conjunction with the information provided by the HR Consultant. The performance of each officer is formally reviewed in the fourth quarter of each year by management and shared with the HR Committee. Individual performance evaluations consider individual goals and include a discussion of the officer’s strengths, developmental plan, and overall value to the Company. Each officer has a development plan and prepares an annual self-evaluation. CEO performance is separately reviewed by the HR Committee based on Company performance goals.

                    The HR Committee also considers written commitments in determining or recommending executive pay. For example, under the offer letters pursuant to which Mr. Edington, Mr. Hatfield, and Mr. Falck were hired, each is entitled to a fixed starting salary and other specified benefits that are described in more detail below under the heading “Employment Arrangements” beginning on page 44 of this proxy statement. The HR Committee approved the terms of these offer letters after considering the entire compensation package in the context of the desirability of hiring these officers.

                    In making any decision regarding an executive’s compensation, the HR Committee considers the officer’s total compensation, but with an increased emphasis on performance-based or other long-term compensation. While compensation competitiveness is a priority, Company, business unit, and individual officer performance are the primary factors determining the level of total direct compensation for the Named Executive Officers. While the HR Committee considers internal pay equity in making compensation decisions, we do not have a policy requiring any set levels of internal pay differentiation. Finally, the HR Committee considers other factors that it considers relevant, such as the financial condition of the Company and APS. The Company does not have a pre-established policy or target for allocation between cash and non-cash compensation or between short-term and long-term incentive compensation.

          Compensation Design Overview

          The Company’s compensation program is designed to reward 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 cash-based. The Company believes annual incentives promote superior operational performance, disciplined cost management, and increased productivity and efficiency that contribute significantly to positive results for Pinnacle West shareholders.

          Long-term incentives in our compensation program are principally stock-based. The HR Committee generally grants 50% of our long-term incentive awards in performance shares and 50% in restricted stock units (“RSUs”). The aim of the program is to motivate long-term performance while promoting key employee retention. The performance shares promote shareholders’ interests in part through a focus on Company financial performance relative to companies in a peer index and in part through a comparison of Company performance in a number of performance metrics to comparator companies. The RSUs have solely time-based vesting, encouraging employee retention, although the value of the RSUs increases or decreases with the value of the Company stock, which also aligns the officer’s interests with the interests of our shareholders. Until January 2010, the RSUs allowed the recipient to elect to receive the value of the RSUs in either stock or cash. In January 2010, we modified the election as it applies to future grants to either stock or half stock and half cash in order to encourage greater stock ownership.

          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 and market requirements. Our consistent practice of generally setting base salaries in the median competitive range, together with 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 CEO, promotes accountability and does not reward poor performance through the payment of significant severance benefits traditionally paid under employment agreements.

          The HR Committee evaluates the potential for unacceptable risk taking in compensation design on an ongoing basis. We believe that the design of our executive compensation program does not unduly incentivize our executives to take actions that may conflict with our long-term best interests. Material risk in our compensation design is mitigated in several ways:

	•		base salaries are intended to constitute a sufficient component of total compensation to discourage inappropriate risk-taking;
	•		earnings goals and award opportunities in our annual cash incentive programs are at levels intended to be attainable without the need to take inappropriate risks;
	•		approximately 50% of our long-term incentives are time-based RSUs that vest over a multi-year period and the other 50% are in the form of performance shares that are earned over a multi-year period, both of which provide upside potential and downside risk; moreover, the use of RSUs in our long-term incentive program mitigates the likelihood of risk taking because RSUs, as opposed to stock options, for example, retain some value even in a depressed market;
	•		payouts are capped under the annual and long-term incentive plans;
	•		more than one performance metric is used in our long-term performance share awards, and the award opportunities under our annual incentive program are also based on multiple considerations, thereby minimizing the ability of the executive to manipulate results;

	•		the stock components inherent in our long-term incentive program, combined with our stock ownership guidelines and retention requirements, align the interests of our executives with a goal of long-term appreciation of shareholder value;
	•		compensation is generally targeted to the median of the competitive consensus and compensation elements used by comparator companies are considered in compensation design, thereby avoiding unusually high pay opportunities relative to Company peers;
	•		our program is consistent throughout the Company so that no one area or group is incentivized in a manner that would encourage risk-taking; and
	•		although the Company may pay hiring bonuses and agree to certain severance benefits for limited periods as part of a hiring package for senior executives, the Company’s executives generally do not have guaranteed bonuses or high-value severance packages on a normal termination.

          Executive Compensation Components

          The Company’s 2009 compensation program consists of the following components:

          In addition, the Company provides pension programs, deferred compensation programs, change-in-control arrangements and limited perquisites.

          The Company believes that a significant portion of each Named Executive Officer’s total compensation opportunity should be performance-based, reflecting both upside potential and downside risk. The illustrations that follow show the allocation of the Named Executive Officers’ total compensation between non-performance based (base salary and hiring and retention payments) and performance based (annual and other cash incentive, performance shares, and RSUs) components.

2009 Average for CEO Total Compensation		2009 Average for Other NEO Total Compensation

                    Base Salary. Base salary is used by the Company to attract and retain qualified and experienced executives. The HR 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, except that a starting annual base salary is often specified when an officer is hired. In considering individual salaries, the HR Committee reviews the scope of job responsibilities, internal equity, individual contributions, business performance, retention concerns, and current compensation compared to market practices. In setting base salaries, the HR Committee also considers that base salary is used as the basis for calculating annual incentive awards and, along with regular annual incentives, in calculating payments that may be made on a change-in-control event as described under the heading “Change-in-Control Agreements” on page 60 of this proxy statement.

                    Mr. Brandt’s base salary was adjusted in January 2009 to $900,000 in connection with his appointment as Chairman of the Board of the Company and APS and CEO of the Company and Mr. Robinson’s base salary was adjusted in January 2009 to $500,000 in connection with his appointment as President and Chief Operating Officer of APS. The HR Committee did not adjust 2009 base salaries for the other Named Executive Officers.

                    In December of 2009, the HR Committee made the following adjustments to the base salaries of the Named Executive Officers listed below. These adjustments are related to fiscal year 2010 and will be discussed in the 2011 proxy statement.

Name		Prior Base Salary		New Base Salary
		($)		($)
Mr. Brandt		900,000		960,000
Mr. Hatfield		450,000		468,000
Mr. Falck		450,000		459,000
Mr. Robinson		500,000		550,000

                    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 generally focus on the following objectives: shareholder value creation, customer service, financial strength, operating performance, safety, and an assessment of individual performance (the “General Performance Objectives”). We believe that the annual incentive programs have been effective in achieving the General Performance Objectives.

                    In order to promote specific goals for 2009, in January 2009, the HR Committee approved the CEO component of the 2009 Pinnacle West Employee Incentive Plan (the “2009 PNW CEO Plan”) and the Board, acting on the HR Committee’s recommendation, adopted the 2009 APS Employee Incentive Plan (the “2009 APS Incentive

Plan” and, together with the 2009 PNW CEO Plan, the “2009 Incentive Plans”). Mr. Post did not participate in the 2009 Incentive Plans due to his retirement effective April 30, 2009. From January 1, 2009 through April 30, 2009, when he assumed the positions of Chairman of the Board and Chief Executive Officer of Pinnacle West, Mr. Brandt’s incentive opportunity was under the 2009 APS Incentive Plan, and, after May 1, 2009, he was subject to the 2009 PNW CEO Plan. Mr. Brandt’s incentive opportunities under these plans were pro-rated based on the number of months he was subject to each such plan. The 2009 APS Incentive Plan applied to Messrs. Hatfield, Falck, Edington and Robinson.

                    Messrs. Hatfield, Falck and Edington were granted an incentive opportunity up to 100% of their base salary. Messrs. Brandt and Robinson were granted an incentive opportunity up to 150% of their base salary. In this way, the individuals with the greatest overall responsibility for Company performance were granted larger incentive opportunities, so as to weigh their overall pay mix more heavily towards performance-based compensation.

                    Incentive Opportunity Under the 2009 PNW CEO Plan. The award opportunity under the 2009 PNW CEO Plan (based on a percentage of base pay) was as follows:

                    Incentive Opportunity Under the 2009 APS Incentive Plan. The award opportunity under the 2009 APS Incentive Plan (based on a percentage of base pay) was as follows:

                    The following chart summarizes (a) the awards granted to the participating Named Executive Officers under the 2009 Incentive Plans and (b) the performance measurements under the 2009 Incentive Plans and the related maximum award opportunities.

Summary of Awards

Name

Performance Measurement and Weighting as a

Maximum

Actual

Percentage of Base Salary1

Award

Award

Opportunity ($)

Amount ($)

Mr. Brandt

Pinnacle West Earnings (150% x 8 months) APS Earnings (150% x 4 months)

1,440,000

1,232,136

Mr. Hatfield

APS Earnings (50%) Shared Services Business Unit Performance (50%)

468,000

382,824

Mr. Edington

APS Earnings (50%) Palo Verde Business Unit Performance (50%)

800,000

632,000

Mr. Falck2

APS Earnings (50%) Shared Services Business Unit Performance (50%)

191,250

157,694

Mr. Robinson

APS Earnings (150%)

825,000

708,675

          ¹ As discussed below, the HR Committee also considers the General Performance Objectives and other factors.

          ² Mr. Falck’s award opportunity and award amount were prorated based on his hiring date.

                    Under both the 2009 PNW CEO Plan and the 2009 APS Incentive Plan, participants were not eligible for an incentive payment unless a minimum earnings level was met. In designing the 2009 Incentive Plans, the HR Committee attempted to set the midpoint earnings target based on a reasonable range of expectations for the year, while taking into account prior year performance and current economic conditions. Individual business unit goals that could be directly correlated to earnings were set at levels that, if achieved at target, would contribute to earnings being achieved at target. However, some of the metrics, like safety and customer satisfaction, are not directly correlated to earnings, and are instead set based on prior year performance and a reasonable range of expectations of performance of comparable companies in our industry. Notwithstanding the achievement of earnings or business unit targets, the amount of incentive payments under the 2009 Incentive Plans remained in the sole discretion of the HR Committee.

                    The following table details the performance targets under the 2009 Incentive Plans and compares the targets to actual results:

Performance Measurements: Targets and Results

	Performance			2009 Targets					2009 Results
	Measurement
	Pinnacle West Earnings			Threshold:		$192 Million			$235 Million1
				Midpoint:		$213 Million
				Maximum:		$234 Million
	APS Earnings			Threshold:		$216 Million			$251 Million
				Midpoint:		$240 Million
				Maximum:		$264 Million
	Fossil Business Unit Metrics			-Safety (based on OSHA recordables) -Environmental Performance (based on environmental incidents, monitoring system availability and self-assessments) -Production (based on capacity and equivalent availability factors and O&M and capital budgets)					88.6% achievement of cumulative targets
	Palo Verde Business Unit Metrics			-Safety (based on OSHA recordables, closure of NRC Confirmatory Action Letter, industrial safety accident rate, completion of					85% achievement of cumulative targets

				voluntary protective program milestones, and achievement of collective radiation exposure milestones)
				-Performance Improvement (based on equipment reliability and the achievement of corrective action program, employee performance, and site operational objectives)
				-Production (based on site capacity factor and 2009 outage durations)
				-Financial Performance (O&M and capital budgets)
	Customer Service,			-Safety (based on OSHA recordables)			92.8% achievement of
	Delivery and			-Customer Experience Survey			cumulative targets
	Regulatory Business			-Business Performance Trends (based on reliability,
	Unit Metrics			expenditures, system compliance, call center performance, customer satisfaction, construction scheduling and metering program)
				-Customer Reliability -Environmental Incidents
	Shared Services			-Average of Fossil and Palo Verde Business Unit			90.6% achievement of
	Business Unit Metrics			Achievement Levels			cumulative targets
				-Customer Service, Delivery and Regulatory Business Unit Achievement Level
				-Financial Performance (based on O&M, construction, and below-the-line costs)
				-Safety (based on OSHA recordables)

          ¹ Consistent with the 2009 PNW CEO Plan, Pinnacle West earnings excluded SunCor impairment charges for purposes of computing Pinnacle West earnings under the 2009 PNW CEO Plan.

                         Determination of 2009 Incentive Awards for the Named Executive Officers.

                              Mr. Brandt and Mr. Robinson. The award opportunity for Mr. Brandt (prior to his promotion) and Mr. Robinson under the 2009 APS Incentive Plan was based on the achievement of the 2009 APS earnings targets. Each officer had an award opportunity of up to 37.5% of his base salary if the threshold earnings level was met, up to 75% of his base salary if the target earnings level was met, and up to 150% of his base salary if the maximum earnings level was met. APS’ 2009 earnings were $251 million, which exceeded the midpoint level of $240 million.

                              The award opportunity for Mr. Brandt (after his promotion) under the 2009 PNW CEO Plan was based on the achievement of the 2009 Pinnacle West earnings targets. Mr. Brandt had an award opportunity of up to 50% of his base salary if the threshold earnings level was met, up to 100% of his base salary if the target earnings level was met, and up to 150% of his base salary if the maximum earnings level was met. Pinnacle West’s 2009 earnings, adjusted to exclude SunCor impairment charges, were $235 million, which exceeded the maximum level of $234 million.

                              In addition to considering Pinnacle West earnings (in the case of Mr. Brandt) and APS earnings (in the case of Mr. Brandt and Mr. Robinson), the HR Committee considered the General Performance Objectives in determining the incentive awards for Mr. Brandt and Mr. Robinson. In doing so, the HR Committee considered the average performance of the business units, which, based on the achievement percentage for the four business units described in the “Performance Measurements” chart, was 89.3%. The Committee did not consider any other factors. In light of the relevant earnings targets and the average performance of the business units, the HR Committee determined to award (a) Mr. Brandt $408,197 under the 2009 APS Incentive Plan (compared to a possible award of

$475,200) and $823,939 under the 2009 PNW CEO Plan (compared to a possible award of $964,800), and (b) Mr. Robinson $708,675 under the 2009 APS Incentive Plan, compared to a maximum award potential of $825,000. In paying less than the maximum amounts, the HR Committee noted that APS did not meet the maximum earnings level and that the Fossil Business Unit Metrics for safety and production, the Customer Service, Delivery and Regulatory Business Unit Metrics for business performance trends, customer reliability and environmental performance, the Palo Verde Business Unit Metrics for production and safety, and the Shared Services Business Unit Metrics for safety, were not met at the maximum level.

                              Mr. Hatfield, Mr. Edington and Mr. Falck. Messrs. Hatfield, Edington and Falck were each eligible for a maximum incentive award equal to 100% of his base salary. Fifty percent of the award opportunity was based on the achievement of the 2009 APS earnings targets and 50% of the award opportunity was based on the achievement of specific business unit metrics.

                              Under the 2009 APS Incentive Plan, Messrs. Hatfield, Edington and Falck each had an award opportunity of up to 25% of his base salary if the midpoint earnings level was met and up to 50% of his base salary if the maximum earnings level was met. APS’ 2009 earnings were $251 million, which exceeded the midpoint level of $240 million. After determining that APS had exceeded the minimum earnings level, the HR Committee considered for Messrs. Hatfield and Falck the achievement of the Shared Services Business Unit metrics and for Mr. Edington the achievement of Palo Verde Business Unit metrics. In light of APS’ earnings and the 90.6% achievement of cumulative targets in the Shared Services Business Unit, the HR Committee determined to award Mr. Hatfield $382,824, compared to a maximum award potential of $468,000, and Mr. Falck $157,694, compared to a maximum award potential of $191,250 (which award amount and maximum potential were pro-rated based on his July 2009 hire date). In light of APS’ earnings and the 85% achievement of cumulative targets in the Palo Verde Business Unit, the HR Committee determined to award Mr. Edington $632,000, compared to a maximum award potential of $800,000.

                              2009 Operational Results.

                              As demonstrated by the achievement of the Business Unit Metrics, the Company performed well in 2009. Some of the highlights of the Company’s operational results and achievements for 2009 include the following:

	•		The ACC approved a comprehensive and broadly supported settlement agreement. The agreement, signed by APS and 21 other parties brings broad benefits to Arizona with only a modest price increase for the average residential customer.
	•		In 2009, APS recorded a 10% decrease in recordable injuries, resulting in APS’ best-ever year for employee safety. This was the second consecutive year APS experienced a decrease in its total number of recordable injuries.
	•		Palo Verde cleared an outstanding Confirmatory Action Letter and moved from Column 4 to Column 1 of the NRC Action Matrix in March 2009. The NRC concluded that Palo Verde had effectively addressed the causes that led to the safety performance decline and had notably improved safety performance. Palo Verde established programs and procedures that are designed to assure that the performance improvements are sustainable.
	•		Palo Verde had the second highest generation totals in the plant’s 22-year history. In addition, the plant exceeded its capacity factor goal of 88 percent, reaching 88.9 percent.
	•		Mr. Brandt was named the “Utility CEO of the Year” by the Solar Electric Power Association at the Solar Power International 2009 conference.
	•		APS ranked fifth among the 13 West Region utilities in the annual JD Power Residential Customer Satisfaction survey. The JD Power performance was highlighted by a 10th-place ranking of 59 large segment utilities in reliability, the component that contributes most to the overall satisfaction category. In fact, customers rated APS in the top quartile nationally among

large segment investor-owned utilities for most components of overall satisfaction and among the top 10 in customer awareness of its energy efficiency programs and community efforts.

	•		APS exceeded all five targets for measuring customer reliability in such categories as outage frequency and average outage duration. For 2009, APS customers experienced an average of 0.89 outages per customer, compared to a 2008 industry median of 1.27 outages per customer.
	•		For the fifth consecutive year, the Company was named one of the most sustainable large companies in the world. The Company was just one of only two Arizona companies, one of only three U.S. utilities, and one of only 20 U.S. corporations to make the list.

                              On December 16, 2009, the Board, acting on the recommendation of the HR Committee, approved the 2010 annual incentive award plans for Company and APS employees (the “2010 Incentive Plans”). We described these plans and the award opportunities under those plans in our Current Report on Form 8-K filed with the SEC on December 21, 2009. The 2010 Incentive Plans are tied solely to 2010 performance. We do not believe that the specifics of the 2010 Incentive Plans are necessary to an understanding of the Named Executive Officer’s 2009 compensation.

               Other Payments. In December 2009, the APS Board approved a separate $125,000 award to Mr. Edington for the achievement of various Palo Verde operational targets during 2009. We describe this award in more detail under the heading “Employment Arrangements” on page 44 of this proxy statement. In addition, the APS Board awarded Mr. Edington $50,000 in light of the outstanding progress achieved in fulfilling the Palo Verde improvement plan. In December of 2009, the APS Board approved the 2010 Palo Verde Specific Compensation Opportunity, which gives Mr. Edington the opportunity to receive up to $125,000 upon the achievement of metrics tied to 2010 performance. We do not believe that the specifics of this incentive are necessary to an understanding of Mr. Edington’s 2009 compensation. They will be described in our 2011 proxy statement.

               As part of his hiring package, Mr. Falck received an initial hiring incentive of $200,000. He will also receive a second year hiring incentive of $150,000 payable within two weeks of his one-year anniversary. However, he must repay the second year incentive if he resigns for any reason or his employment is terminated for cause within two years after the second year incentive payment is made.

               On March 18, 2009, the HR Committee approved a Career Recognition Award for Mr. Post, who retired on April 30, 2009 after 38 years of service. Pursuant to the award, the Company credited a non-cash amount of $1 million to a record keeping account on behalf of Mr. Post. Mr. Post fully vested in the account on his retirement date and amounts will be paid to him or his designated beneficiary in 10 annual installments of $100,000, plus interest on the unpaid balance at the same Plan Rate as provided under the DCP described under the heading “Discussion of Nonqualified Deferred Compensation” on page 55 of this proxy statement. The HR Committee also granted Mr. Post an award opportunity with respect to 59,500 shares, consisting of 50% of RSUs and 50% of performance shares, consistent with the grants made to other officers in February 2009 as described below.

               Long-Term Incentives. Long-term incentives generally consist of 50% performance shares and 50% RSUs. We use performance shares because we believe they best tie long-term compensation to shareholder value, and we use RSUs to allow us to balance the goals of maximizing performance and promoting officer retention. Time-based RSUs also assist in mitigating risk incentives.

               To determine the amount of performance share and RSU awards, the HR Committee first establishes a target compensation value for each officer that it wants to deliver through long-term equity awards opportunities. The HR Committee considers various factors, including the retention value of the total compensation package, the long-term equity component in light of the competitive environment, and individual performance. The HR Committee also considers target value in light of the Company’s budget and performance. Once the target value is established, the HR Committee determines the number of shares subject to the awards by reference to the then current market value of the Company’s common stock. In determining the amount of the initial equity awards to Mr. Falck, the HR Committee took into consideration equity grants from his prior employer that Mr. Falck forfeited when he became an employee of the Company.

               Performance Shares. We use performance shares to promote long-term performance. We issued performance shares to our Named Executive Officers in the first quarter of 2009 for a three-year performance period from January 1, 2009 to December 31, 2011 (the “2009 Performance Shares”). In connection with Mr. Falck’s hiring, he was granted an award of 8,580 performance shares with a performance period from January 1, 2008 to December 31, 2010 and 13,000 performance shares with a performance period from January 1, 2009 to December 31, 2011.

               Performance share awards granted in 2006 through 2008 were based on the Company’s earnings per share growth rate over a three-year performance period compared to the earnings per share growth rates of the companies in the Index, and performance shares granted prior to 2006 used the earnings per share growth rates of the companies in the S&P 500 Electric Utilities Index. The HR Committee revised the performance share metrics for 2009 so that the performance share metrics would better align with the current operating and strategic focus of the Company. The HR Committee grants each award recipient a specified number of performance shares, which is considered the “Base Grant.” The maximum award opportunity is 150% of the Base Grant. The 2009 Performance Shares now have two distinct performance elements:

50% of the Base Grant

If the Company’s Earnings Per Share Compound		The Number of Performance
Growth Rate Over The Performance Period as		Shares will be:
Compared to the Earnings Per Share Growth
Rates of the Companies in the Index is:
75th Percentile		75% of the Base Grant
50th Percentile		50% of the Base Grant
25th Percentile		25% of the Base Grant
Less than 25th Percentile		None

               Earnings per share growth rate is the compounded annual growth rate of a company’s earnings per share from continuing operations, on a fully-diluted basis, excluding with respect to the Company, SunCor’s earnings or losses. We anticipate that the common stock payout, if any, related to this performance element will be made on or about April 1, 2012.

50% of the Base Grant

If the Company’s Average Performance with		The Number of Performance
respect to the Performance Metrics is:		Shares will be:
75th Percentile		75% of the Base Grant
50th Percentile		50% of the Base Grant
25th Percentile		25% of the Base Grant
Less than 25th Percentile		None

               The Company’s “Average Performance” with respect to the Performance Metrics will be the average of the Company’s percentile ranking for each of the following Performance Metrics during each of the three years of the performance period:

	•		the J.D. Power Residential Survey percentile ranking of the Company relative to other participating companies;
	•		the Edison Electric Institute (“EEI”) quartile ranking (or percentile ranking, if available) associated with the Company’s customer reliability results relative to other participating companies;

	•		the Company’s ranking for a customer-to-employee ratio, based on data provided by SNL, an independent third party data system (“SNL”), relative to other companies reported in the SNL data;
	•		the Company’s percentile ranking based on the OSHA rate (All Incident Injury Rate) relative to other companies reported in the EEI data;
	•		the Company’s percentile ranking based on nuclear generation capacity factors relative to other companies reported in the SNL data; and
	•		the Company’s percentile ranking based on coal generation capacity factors relative to other companies reported in the SNL data.

               The revised metrics attempt to add factors that will more effectively motivate performance while still achieving desired goals of the Company. The metrics selected encompass performance inclusive of all departments and are direct indicators of key business performance success. The metrics can be readily benchmarked and will provide a clear barometer of top-tier performance excellence. We believe a focus on these performance metrics over a three-year period will align long-term compensation with key operational goals, thereby enhancing overall Company performance. We anticipate that the common stock payout, if any, related to this performance element will be made on or about November 30, 2012.

               The recipient must also remain employed with the Company throughout the performance period, unless the recipient retires. In the case of the recipient’s retirement, the employee is deemed to have been employed through the end of the performance period. 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 from the date of grant to the date of payment, plus a specified annual rate of interest, compounded quarterly, which, in the case of the 2009 Performance Shares, is 5.0%. The cash payment is made when the related common stock payout is made.

               We include the 2009 Performance Shares in the Summary Compensation Table on page 39 of this proxy statement in the column under “Stock Awards” and in the 2009 Grants of Plan-Based Awards table on page 42 of this proxy statement. These awards have been valued in the tables in accordance with SEC rules; however, if the performance thresholds for the 2009 awards are not achieved, the executives will receive nothing from these awards.

               RSUs. We granted RSUs to our Named Executive Officers in early 2009, other than Mr. Falck, who received awards of RSUs in July 2009 as part of his initial employment package. RSUs 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 RSU represents the fair market value of one share of our common stock on the applicable vesting date. The 2009 RSUs:

	•		vest and are released for Messrs. Brandt, Edington and Hatfield in 25% increments, beginning on February 20, 2010, so that they will be fully vested on February 20, 2013; for Mr. Falck, 6,500 of his RSUs will vest on February 20, 2010, 6,500 will vest on February 20, 2011, 6,500 will vest on February 20, 2012, and 3,250 will vest on February 20, 2013; and, for Messrs. Post and Robinson, who are already vested due to Mr. Post’s retirement and Mr. Robinson’s qualification for early retirement but are released in the same manner as Messrs. Brandt’s, Edington’s and Hatfield’s RSUs;

•

fully vest before the end of the regular vesting period if the participant retires (unvested RSUs are forfeited if the participant’s employment is terminated for any other reason);

•

are payable in stock or cash to the participant (the election to receive cash or stock was made by the participant within the election period set forth in the form of award) as the RSUs vest, in an amount equal to the number of RSUs vesting multiplied by the fair market value of a share of our common stock on the vesting date (in the case of a participant’s retirement before the end of the

vesting period the RSUs 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 RSU held, with the dividend rights payable only on the RSUs that actually vest, plus interest at the rate of 5% per annum, compounded quarterly; and
	•		are not included in the calculation of pension benefits.

               In January 2010, the Committee authorized the issuance of performance shares, with a performance period from January 1, 2010 to December 31, 2012, and RSUs. We do not believe that the specifics of the performance shares and RSUs issued in 2010, which are tied to 2010 performance and beyond, are necessary to an understanding of the Named Executive Officers’ 2009 compensation. These performance shares and RSUs will be described in our 2011 proxy statement.

               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. However, we generally consider the value in the deferred compensation plan to be the participant’s own money and do not give this amount significant weight in making compensation decisions. Similarly, change-in-control agreements do not have a significant impact on compensation design. However, in setting annual incentives, we do consider that the change-in-control payment, if triggered, would be based on the average of these amounts for the prior four years.

               We describe our pension plans under the heading “Discussion of Pension Benefits” beginning on page 51 of this proxy statement, deferred compensation plans under the heading “Discussion of Nonqualified Deferred Compensation” beginning on page 55 of this proxy statement, and change-in-control agreements under the heading “Potential Payments Upon Termination or Change-in-Control – Change-in-Control Agreements” beginning on page 60 of this proxy statement. Our change-in-control agreements are customary “double trigger” agreements that provide severance benefits if, during a specified period following a change-in-control, the Company terminates an employee without “cause” or the employee terminates employment “for good reason” (“Change-in-Control Agreements”). We believe that the possibility of strategic transactions or unsolicited offers creates job uncertainty for executives, and that change-in-control agreements are effective tools to provide incentives for executives to stay with the Company in light of these uncertainties. In addition, we believe that if the agreements are appropriately structured, as we believe ours to be, they do not deter takeovers or disadvantage shareholders. The Company’s agreements are terminable on six months prior notice, prior to a change-in-control. In May of 2009, in connection with a review of its executive compensation practices, the Company determined that, on a going forward basis, it would no longer provide excise tax gross-up payments in new and materially amended Change-in-Control Agreements with its Named Executive Officers. In unusual circumstances where the Company believes that accommodations have to be made to recruit a new executive to the Company, limited reimbursement for taxes payable may be included in executives’ contracts, but even in those circumstances, the excise tax gross-ups will be limited to payments triggered by both a change-in-control and termination of employment and will be subject to a three-year sunset provision.

               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 5 to the Summary Compensation Table on page 39 of this proxy statement.

          Taxation and Accounting Considerations 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 below $1 million. To the extent the awards do exceed $1 million, the Company generally believes that it is in the shareholders’ best interest to consider what components qualify for the deduction but to also preserve flexibility in designing a compensation program. For example, the RSUs described above do not qualify as performance-based compensation under the applicable tax provisions. The HR Committee and the Board also take into account other tax and accounting consequences of the 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.

          Stock Ownership Guidelines

          We believe that linking a significant portion of an officer’s current and potential future net worth to the Company’s success, as reflected in our stock price, helps to ensure that officers have a stake similar to that of our shareholders. Stock ownership guidelines also encourage the long-term management of the Company for the benefit of the shareholders.

          The Company’s Stock Ownership Guidelines (the “Guidelines”) for 2009, which were revised in 2010, are based on the officer’s position and his or her base salary. The ownership requirements are shown in the table below in respect of the indicated officer position:

Officer		Multiple of Base Salary
Chief Executive Officer		3 times Base Salary
APS President and all Executive		2 times Base Salary
and Senior Vice Presidents
All Other Vice Presidents and Officers		1 times Base Salary

          Each officer is expected to meet his or her ownership requirement within five years of the later of the effective date of the Guidelines or such officer’s election (the “Phase-In Period”). In the event of (i) a promotion that would cause the officer to move into a higher multiple level or (ii) a base salary increase of more than 20% over the officer’s previous base salary, an officer will have an additional three years to meet his or her applicable ownership requirement.

          The types of ownership arrangements counted toward the Guidelines are: common stock, whether held individually or jointly or in trust with or for the benefit of an immediate family member; shares issued upon the vesting of RSUs or the payout of performance shares; and unvested RSUs to the extent they will result in the issuance of common stock to the officer.

          Officers may not sell, pledge, margin, hedge, or otherwise grant an economic interest in (“Dispose”) any shares of Company stock received by them pursuant to any of the Company’s compensation or benefit programs (net of shares sold or surrendered to meet tax withholding or exercise requirements) until his or her ownership requirement has been met. Thereafter, the officer may Dispose of any shares to the extent such transaction would not cause the officer’s share ownership to fall below his or her applicable requirement. The retention requirement applies both during and after the Phase-in Period. If the officer does not attain compliance with his or her ownership requirement by the end of the Phase-in Period, any subsequent grants of equity compensation to such officer will be payable solely in shares of stock until the ownership requirement is met. Under the Guidelines, the CEO may grant, on a case-by-case basis, special dispensation for hardship, promotion, new hires, or other special circumstances.

Summary Compensation Table

          The following table provides information concerning total compensation earned or paid to the Company’s Named Executive Officers (the two individuals who served as Chief Executive Officer during 2009, our Chief Financial Officer and our three other most highly compensated executive officers) for services rendered in fiscal years 2007, 2008 and 2009; however, because Mr. Robinson was not a Named Executive Officer in 2007 or 2008 and Mr. Falck was hired in July of 2009, we are including information for them only for 2009. Mr. Hatfield was hired in July of 2008, so we are including information for him only for 2008 and 2009.

	Name and			Year					Salary					Bonus					Stock					Non-Equity					Change in Pension					All Other					Total
	Principal Position								($)					($)1					Awards					Incentive					Value and					Compensation					($)
																			($)2					Plan					Nonqualified					($)5
																								Compensation					Deferred
																								($)3					Compensation
																													Earnings
																													($)4
	William J. Post, Chairman of the Board and CEO and Chairman of the Board and CEO, APS6				2009 2008 2007					374,161 950,000 950,000					0 0 0					1,612,748 2,201,500 1,862,888					0 0 1,300,000					2,190,577 1,807,516 2,595,365					1,155,966 32,390 30,522					5,333,452 4,991,406 6,738,775
	Donald E. Brandt, Chairman of the Board, President and CEO and Chairman of the Board and CEO, APS6				2009 2008 2007					890,568 725,000 599,999					0 0 0					1,825,460 1,868,142 828,950					1,232,136 0 766,800					613,982 162,224 440,417					25,736 25,074 24,815					4,587,882 2,780,440 2,660,981
	James R. Hatfield, Senior Vice President, Chief Financial Officer and Treasurer				2009 2008					450,750 201,136					100,000 200,000					214,760 455,353					382,824 0					169,380 67					394,240 71,115					1,711,954 927,671
	Randall K. Edington, Executive Vice President and Chief Nuclear Officer, APS				2009 2008 2007				800,000 738,7507 547,955						150,000 100,000 266,000					490,880 1,146,446 505,660					758,625 108,860 432,300					325,400 424,821 1,251					152,667 535,078 419,247					2,677,572 3,053,955 2,172,413
	David P. Falck, Executive Vice President, General Counsel and Secretary				2009					182,761					200,000					1,319,778					157,694					3,617					124,854					1,988,704
	Donald G. Robinson, President and Chief Operating Officer, APS				2009					490,152					0					813,020					708,675					833,493					21,986					2,867,326