Good afternoon. My name is Sarah and I will be your conference operator today. At this time I'd like to welcome everyone to the second quarter 2009 earnings conference call. (Operator Instructions) Ms. Hickman, you may begin your conference.

Thank you, [Sarah]. I'd like to thank everyone for participating in this conference call to review our second quarter earnings, recent developments and operating performance. We know today is an especially busy day for you, with a number of conference calls. Our speakers today will be our Chairman and CEO, Don Brandt, and our CFO, Jim Hatfield. Don Robinson, who is President and Chief Operating Officer of APS, is also here with us. Before I turn the call over to our speakers I need to cover a few details with you. First, I encourage you to check the quarterly earnings and statistics section of our website. It contains extensive supplemental information on our earnings variances and quarterly operating statistics. Second, please note that all of our references to per share amounts will be after income taxes and based on diluted shares outstanding. Third, we will be referring to slides today during this conference call and webcast. The slides are available on our Investor Relations website, with the webcast and with the Form 8-K filed this morning. During our prepared remarks we will give you verbal cues as we move through the slides. Looking at Slide 2, it is my responsibility to advise you that this call and our slides contain forward-looking statements based on current expectations and the company assumes no obligation to update these statements. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Please refer to the Forward-Looking Statements and the MD&A sections contained in our second quarter 2009 Form 10-Q, which was filed with the SEC this morning, as well as the Risk Factors section of our 2008 Form 10-K, all of which identify important factors that could cause actual results to differ materially from those contained in our forward-looking statements. Next, during this call we will discuss certain non-GAAP financial measures. Our press release, the slides accompanying this webcast, and our filings with the SEC, all of which are posted on our Investor Relations website, contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. A replay of this call will be available on our website, www.pinnaclewest.com, for the next 30 days. It will also be available by telephone through August 11th. Finally, this call and webcast are the property of Pinnacle West Capital Corporation and any copying, transcription, redistribution, retransmission or rebroadcast of this call, in whole or in part, without Pinnacle West's written consent is prohibited. At this point I'll turn the call over to Jim.

Thank you, Becky. As shown on Slide 3, the topics I will cover today are: The second quarter results for Pinnacle West and the main variances to 2008's second quarter, our earnings outlook for 2009 and 2010, and I want to briefly update you on our liquidity situation. Beginning on Slide 4 with second quarter results, we reported on a GAAP basis consolidated net income attributable to common shareholders of $68 million or $0.68 per share in this year's second quarter as compared with $134 million or $1.33 per share in 2008's second quarter. I plan to focus my remarks on our ongoing earnings, which exclude results from the Real Estate segment for both quarters, as well as a $30 million second quarter 2008 income tax credit related to prior years. Consolidated ongoing earnings in the second quarter, a non-GAAP measure, were $77 million or $0.77 per share, compared with $89 million or $0.88 per share in the prior year period. A reconciliation of our GAAP earnings per share to our ongoing earnings per share is available on Slide 5. We've excluded the Real Estate segment from our ongoing earnings because of the major restructuring under way at SunCor and the implications for that business moving forward. We still expect a substantial majority of SunCor to move into discontinued operations for financial reporting purposes this year. Ultimately we expect the restructuring to be complete around the end of this year as execution of this plan is under way. Don will provide a brief update on the SunCor restructuring in a few moments. Moving to Slide 6, the variances that made up the ongoing earnings per share reduction of $0.11 per share were as follows: First, miscellaneous items added $0.04 per share; the lack of investment losses in this year's quarter…

Thanks, Jim, and thank you all for spending time with us this morning on this call. Today I'll discuss several issues that I believe are at the top of investors' minds. Jim's already touched on our intrinsic growth and the Arizona economy. I'll update you on these items: The pending rate settlement, our renewable resource announcements, our recent operating performance, the SunCor restructuring, and my key priorities as the company's Chief Executive Officer. Regarding our pending retail rate settlement, APS's proposed settlement demonstrates positive movement in Arizona's regulatory environment; however, it is critical for this settlement to be approved as proposed so that our customers, investors, APS and other stakeholders may realize the settlement's benefits. The terms of the settlement were released just before our last earnings conference call. The definitive agreement is supported by 22 of the 24 parties to the rate case. Only one party filed opposing testimony and that testimony was limited to objections to the lack of free footage allowances in APS's line extension policy as it was approved by the Arizona Corporation Commission in 2008. The settlement offers a wide variety of benefits for our customers, our communities and other Arizona stakeholders. From an investor's perspective, the primary benefits of the settlement are as follows: First, the settlement strengthens APS's financial position, supports the current common dividend, and improves APS's ability to attract capital for infrastructure additions needed to sustain Arizona's energy future. Second, it provides a greater level of cost recovery and return on investment for APS while providing a measure of rate stability for our customers. We estimate that approval of the settlement as proposed would improve APS's earned return on equity to between 9% and 9.5% in 2010, up from about 7% in 2009. The earned return will still be well below…

(Operator Instructions) Your first question comes from Paul Ridzon - Keybanc Capital Markets.

One thing that we have seen is that large reductions in C&I tend to have a smaller-than-expected earnings impact because a lot of the revenues are structured more as capacity reservation. Are you less than others in that regard? I was surprised by the $0.08 degradation of earnings.

Well, if you look at where we've had our reduction, it's really been manufacturing, 17%, warehouse, about 10%, and really retail and office and that category. In terms of contribution we saw, like I said, over 80% of that sales reduction in the C&I. So in terms of the $0.08 degradation relative to C&I, I'm not sure the rate designs of others but our rate design is structured so that we're trying to levelize those more across the board with residential. Don, do you have anything specific on rate design you want to add to that?

I don't.

How hot has July been?

Well, we had the hottest July on record. We had several days in July where the average temperature was 100, so just from a relative basis, significantly above normal. I don't have degree days in front of me, Paul, but the fact that it was the hottest on record I think gives the magnitude of the heat in July. And August is sort of starting off the same as July ended up, at least through the first four or five days.

So that should be a nice tailwind.

Well, we're hoping.

And then just lastly just an update on potential tapping the equity markets. Is that still a '10 event?

Correct, no change in terms of equity plans at this point.

Your next question comes from Greg Gordon - Morgan Stanley.

So the degradation you saw in sales, that might have been partly from weak weather in the second quarter. Would it be fair to say that the four or five weeks you've had in July and August have sort of put you back on track?

Yes, just a couple things. You know, I talked about this at length in the first quarter, you know, the role of weather and what's usage. I can tell you that even through sort of normal weather residential sales were down 3% and humidity was 10% below normal. What's that do vis-à-vis normal? I'm not sure. But certainly July, we feel good about the 230 and about sales and don't think that anything so far is off track to achieve our numbers.

Don, I know you're trying to keep things extremely positive when you talk about the dependency of the vote on the rate settlement, as you should. What would you guys have to do in terms of changing the financial strategy of the company to react to either a rejection of the settlement or a material modification of the settlement?

Well, we're focused now on getting the settlement approved, Greg. As I mentioned, we've got 22 out of the 24 parties supporting it; only one party objecting and that's on a very limited aspect. We've had, I think, a level of spirit of cooperation in this settlement process that we have not had before. The settlement addresses a wide variety of factors other than earnings and rate issues relative to environmental aspects, renewable energy, low income customers. I think once it's explained and reviewed by the Commission in detail the Commissioners will find it a very attractive result of the settlement process.

Your next question comes from Daniele Seitz - Dudack Research Group.

Could you give us some details on the cost of the solar plant and is there a special regulatory treatment for these types of plants in Arizona?

In terms of solar, Daniele?

Yes, yes. And if you could give us an idea of the cost and how will you recover those costs?

Well, the cost is confidential according to our agreements. We'll enter into PSAs with the two large ones and those will be passed through the PSA 100%. And right now I guess I would characterize it as the state is very positive on solar. We have all the attributes for solar that you would want. We're planning on continuing to increase our renewable energy and under the framework of Arizona regulation that is passed through the PSA at 100% and through the RES. So there's really no net costs from a shareholder perspective because that's all being recovered.

Okay, so it's pure purchased power cost? You're not involved in the investment?

Correct.

Your next question comes from Paul Patterson - Glenrock Associates.

Just on the customer growth outlook and weather-normalized sales, looking at your release if I'm reading it correctly it appears that you guys have had about 0.7 of 1% customer growth yet a decline weather normalized. And you mentioned, as you guys did previously, that you still expect 1% growth.

In customers, that's correct.

How shall we think about the outlook for actual kilowatt hours through this 2009 through 2011 period?

As I said when I was talking about that issue, we're planning on flat sales year-over-year really driven by the economy as well as energy efficiency efforts.

That's this year.

And that would be a statement that we see it through 2011 at this point.

Oh, really, through 2011 you don't expect any significant growth in kilowatt hour sales?

That's correct.

Is that because of the economy or is that efficiency? How do we think about that? I mean, that seems like a pretty less-than-robust outlook from what you guys have traditionally have.

Well, I think you have to look at it in two ways. One of the things we're doing - and we filed this with the Commission - we're getting about 0.4 of 1% reduction in sales just through our energy efficiency efforts so far, so, for your thinking, that's where that's going. The other is just, like we said, an economy that needs to absorb these 30,000-plus houses that are available out there before we see any meaningful pickup. From a C&I perspective the only growth year-to-date has been in hospitals and schools, which have been very modest sales growth. So we're just seeing that pattern continue until we get back to what we believe will be more traditional growth in customers and kWh sales.

So basically it's real estate dependent, I guess, is the way to think about the big driver in Arizona?

It's real estate dependent and tourism driven, and that's been our drivers. We expect we'll continue to see robust growth once economic factors point to a positive direction. But keep in mind with the 30,000-plus homes here, we have a lot to absorb before we get back on that growth track.

Your next question comes from [Tom O'Neill] - Green Arrow.

I have a longer-term question just on how you're evaluating rate-based opportunities in solar. I guess A) your thoughts on that, and then B) what filing you might need to do to address the self-build moratorium that I think would keep you from that.

The self-build moratorium doesn't apply to renewable resources, so we have the ability to build renewable resources and that is one of the things that we are looking at as we go forward and what should our investment in those be. And we're evaluating different structures right now because clearly, as we go long term, we are going to be a large player in the solar development in the state and I think ownership of a portion of those plants are where we're going. Jim, you want to anything?

I would just say from a financial perspective we're not opposed to PPAs; however, without any ability to earn on those commitments we're seeing a negative impact to the capital structure through imputed debt and I think that's something that we have to keep in mind as we address this issue going forward.

And just along those lines, how would you envision a regulatory compact that you would get comfortable with just to avoid some of the lag problems of the past?

I think we would go out to the Commission in the front end just like we would for any new baseload generation that we would be looking at and get an agreement from them on how we would be paying for this and when we would recover costs along the way as [WIP] or some other innovative process so we are not waiting until the end of the period to recover our total costs. We're not going to do that.

Your next question comes from Chris Shelton - Millennium Partners.

I just wanted to clarify, actually. It seems like there's a couple of moving parts in the guidance for '09. I guess you're ahead on weather - it sounds like July was pretty warm - but usage is tracking a little bit behind, and I just wanted to see which of those or if any was kind of assumed in the 230 for '09?

I want to just clarify your first point. I don't think we're ahead on weather; I think July sort of brought us back to close the gap. As I said earlier, even though second quarter was normal it was a hot May and a cool June and we saw residential cooling degree days off 3%. So I think July just was more of a catch-up. From a usage pattern what July told us, I mean, we understand the C&I industrial pattern and we have planned for that. July residential sales, we saw robust residential sales which is consistent with the weather pattern, so I don't think there's any real impact on usage that we're seeing today. Energy efficiency's been built into the outlook. And weather, we look at sort of normal weather over the course of the year and I think July is bringing us back to that bogey.

The usage, I guess, is tracking for flat for the year still? Is that fair?

Usage is tracking or weather adjusted would track more toward a flat '09 over an '08.

And then also to clarify, July bringing weather back to normal, that was assumed in the 230 also, right?

Exactly. We did get the benefit of July behind us when we looked at that. I also want to point out there is a lot of unsold homes in the service territory and those homes count as customers although their usage is de minimis at best at this point. And that's also a factor when we look at usage, but we believe we've built all of those things into the 2009 guidance.

Don, when you were talking about not earning a 9% ROE under the settlement, do you have the rate base on the equity layer that you were assuming in that or maybe which year you were assuming?

I was talking about actual reported earnings for 2010, those levels of return on equity.

And we've provided CapEx updates for the utility as well and we're assuming a 54% equity at APS, which is consistent with the cap structure in the settlement.

Okay, so just to clarify, the rate base would be a projected 2010 rate base not the rate base in the settlement or 2009?

Correct.

Who's objecting to the settlement at this point?

Just one party relative to our line extension agreement, where the Commission two years ago changed it. There was generally a 1,000-foot free allowance for new residential development and that was eliminated.

And who's the party objecting, I guess, or is that the only objection.

It's a group basically representing development. I don't have a name, but [Barbara Wylie] is the person whose name it is.

It's the developers, though? That makes sense.

(Operator Instructions) Your next question comes from Paul Ridzon - Keybanc Capital Markets.

What have we seen out of the Commission as far as data points to how the new Commissioners think about the world?

Relative to our case, Paul, they really haven't had an opportunity to comment on it. We have the hearings starting. I think that'll give us a reasonable perspective. Again, both in the settlement and part of the aim of the parties putting together the settlement was to address the issues that we thought were important to all the parties and to the Commission and the state as a whole and our customers, most importantly, again, besides the rate and earnings issues for APS and our investors, but also renewable energy, environmental benefits, low income assistance for customers, rate design issues. Again, I think when they have the opportunity to review with all the parties the aspects of the case they'll find it's a very attractive proposal before them.

I think, Paul, most recently we had our implementation of the retail rates of the TCA; that was approved. That went into impact in August. That's probably the latest data point as it relates particularly to APS.

Have there been cases outside of APS where they've looked more or less constructive than historically?

Well, I mean, Tucson got their settlement last year. They're [inaudible]. Southwest Gas was late last year. I haven't really seen anything as it relates to a rate.

They just had a rate case regarding a company called Trico that was approved in the last opening meeting, I believe.

Right. And that was July. And that's been about it; most of the others have been more normal course - renewable energy, energy efficiency, demand-side management type programs.

Your next question comes from [Vedula Merti - CDP US].

A couple things I just want to make sure I have clarified. The time period for the rate base that constitutes settlement is, again, which time period?

It's 2007 with some pretty much what's in service in 2008.

Now, the next opportunity you would have under the settlement to go in would be during I it's 2011. Is that correct?

June 1, 2011. And we would do that on a 2010 test year, so we would pick up '09 and '10 in that timeframe.

If one takes a look at the CapEx less DD&A and everything like that, would we be talking like somewhere in the range of about $1 billion of incremental rate base between the two periods in terms of the rate cases?

Yes, roughly in that area. Our CapEx that we previously talked about as an estimation for '10 has not really changed and it is down from 2009.

Okay, so then the period in which you would then be able to realize hopefully a reasonable rate of return on that incremental rate base would then be some time during 2012, 2013, so this period while you're in the reasonableness range of $3 give or take and your other cost management efforts and things of that nature to manage things, your next potential increment in terms of realizing better returns on your rate base would then become 2012 basically?

That's correct, yes. Again, because the parties are going to use their best efforts to try to get that process in '12, which would imply potentially a mid-year 2012 increase.

And is there any opportunity do you think as part of that process that even though you'd have a 2010 test year that things that are fairly known or measurable or significant that would be 2011 items could be reflected as well?

It could be. It really depends upon the framework going forward, and we've talked about that before. But at this point we're looking at the schedule that's in front of us.

Your final question comes from Daniele Seitz - Dudack Research Group.

Could you give us update on the restructuring of SunCor? What are your goals and timing?

Yes, great question. First of all, we stated before our goal is really to optimize the assets and to pay down debt and be left with sort of a de minimis impact from SunCor. Where we are in the process is the Hayden Ferry Lakeside Condos is in escrow and will close this month. Homebuilding, we have LOIs and we're working that sales process; we still expect a 2009 close. Golf course bids are due on Friday; still expect a 2009 close. We have various Palm Valley partials that are in escrow or LOIs and we're still working that process for a 2009 close. And the Hayden Ferry Lakeside development project is in process at this point. We still appear to be on track for around a year end 2009 completing the restructuring and the goal is to pay the banks down to zero. And, as we said before, there's some consolidated tax benefit. But nothing at this point tells us that the restructuring won't be what we've planned all along in terms of sort of assets and timing and dollars.

And no estimates in terms of potential write-offs or anything like that?

No, we had about $6 million of additional impairment charge in the second quarter but, like I said, everything right now is sort of meeting expectations, with some things still ahead of us to go at this point.

There are no further questions at this time.

Thank you, again, for joining us today. Meanwhile, if you need any additional information or further details about earnings please contact me or Lisa Malagon. This concludes our call.