Good morning. My name is Mason and I'll be your conference operator today. At this time I'd like to welcome everyone to the Pinnacle West Capital first quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I'll now turn the call over to Ms. Becky Hickman. You may now begin.

Thank you, Mason. Good morning. I would like to take this opportunity to thank everyone for participating in this conference call and webcast to review our first quarter earnings, recent developments and operating performance. 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, the slides we refer to today are available on our right investor relations website along with the webcast, the Form 8-K filed this morning, supplemental information on our earnings variances and quarterly operating statistics and our earnings release. The slides and press release contain reconciliations of certain non-GAAP financial information. Please note that all of our references to per-share amounts today will be after income taxes and based on diluted shares outstanding. Also, 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 the 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 contained in our first quarter 2010 Form 10-Q which was filed with the SEC this morning, as well as the MD&A section, which identifies risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements. A replay of this call will be available on our website, www.pinnaclewest.com. It will also be available by telephone through May 13th. At this point I'll turn the call over to Jim.

Thank you, Becky. The topics I will discuss today are shown on Slide 4. First I'll review the consolidated quarterly results and discuss the main variances from last year's corresponding quarter. Second, I'll provide a brief update on the economic outlook for Arizona. Then I will discuss our earnings guidance for 2010 and '11 and I'll close with brief comments on our financing activity and liquidity. Slide 5 summarizes our reported and our ongoing earnings for the quarter. On a GAAP basis, for this year's first quarter we reported a consolidated net loss attributable to common shareholders of $6 million or $0.06 per share, compared with a loss of $157 million or $1.55 per share for the prior year's first quarter. From an ongoing earnings perspective, first quarter earnings improved significantly over last year. For the 2010 first quarter, we had consolidated ongoing earnings of $7 million or $0.07 per share, versus an ongoing loss of $25 million or $0.25 per share for the comparable quarter a year ago. A reconciliation of our first quarter GAAP EPS to our ongoing EPS is shown on Slide 6. Both periods exclude results from the real estate segment because of SunCor's major restructuring launched in early 2009. I will provide update on SunCor in a few moments. I will focus my remaining comments on first quarter results on an ongoing basis. Moving to Slide 7, the variance that makes up the change in quarterly ongoing earnings per share; first, an increase in our regulated electricity gross margin added $0.20 per share over the prior year's first quarter. There are several components to this net variance and I will cover those variances in more detail on the next slide. Second, our effective income tax rate for the year decreased from 38% to 35%, which…

Thanks, Jim and again, thank you all for taking the time to join us on the call this morning. We appreciate your time and your interest. Jim's already touched on one of the issues that's important to our investors, our growth in the Arizona economy. Although the recession has slowed our growth, Arizona's intrinsic economic strength remains an attractive fundamental characteristic for our company. During the first quarter we made progress in key strategic areas and continued our record of excellence in operations. I'll update you on the following topics today. One, the Arizona regulatory developments; two, our strong commitment to renewable resources, particularly solar and three, our recent operating performance which demonstrates solid execution. Looking first at Arizona regulation, given our history over the past several years, it's unusual for me not to be discussing a pending retail rate matter. APS's recent regulatory settlement with a set rate that became effective January 1st, was progressive and contained broad ranging benefits for all parties. With that settlement in place, we are continuing to work with the Arizona Corporation Commission and various stakeholders to further enhance the state's regulatory framework to benefit APS's customers and other stake holders. The commission has been conducting workshops on several generic policy topics that address topics such, decoupling to enable and encourage utilities to meet energy efficiency goals, feed-in tariffs for renewables, externalities and line extensions; the workshops or inquiries to gather information from various stakeholders about broad policy issues. Although, these workshops are in early stages, we view the Commission's consideration of these issues to be positive steps that can further enhance the regulatory environment in Arizona. The elections this fall will result in change of the Commission as two of the five seats will be on the ballot. Chairman Mayes is term limited,…

(Operator Instructions). Your first question comes from the line of Daniel Eggers from Credit Suisse. Your line is now open. Daniel Eggers – Credit Suisse: Hey, good afternoon\morning. First question Jim; can you talk a little bit more about the tax rate in the quarter and kind of for the full year and what was the impact of settling up all the outstanding tax returns?

Sure. And simply what happened is, we're now cleared through IRS audit through '07 and we just adjusted our accruals. I want to also point out any quarter like the first quarter where you're typically zero net income, your tax rates are going to be screwy. But if we look at overall, over the year the impacts it will have for 2010, in the first quarter it was about $0.08. I think for the year that's going to run at a 35% rate, somewhere in the vicinity of about $0.13 – $0.14 over the course of the year just from my lowering of the tax rate, assuming we hit the midpoint of the guidance. Daniel Eggers – Credit Suisse: Is that – should we be thinking that's the right tax rate in the future or is this because of the true-ups of the past returns, the rates were a bit lower?

I would not assume a 35% tax rate beyond 2010. It's just reflective of the sort of adjusting our accruals to clear the prior years. Daniel Eggers – Credit Suisse: And so we should assume it kind of goes back to the old 37%, 38% level?

Yes. Daniel Eggers – Credit Suisse: Okay. I guess kind of the next question, Don, maybe, you could talk a little bit about the decoupling conversation in Arizona, where is that going, kind of what are the swing factors, the commissions looking forward as the discussion moves forward with principals for our program and given the challenging volume environment, how does that affect your thought process?

Dan, good question. Let me have Don Robinson speak to that.

Hi, Dan. What we really – the workshops have really just got started and the thing I can tell you at this point is the one thing that people have agreement on, is the company needs to have some sort of decoupling mechanism to continue to provide us an incentive to go forward with energy efficiency so we are not financial harmed on that. The process hasn’t even gone along far enough yet to tell, for us to give you a good sense of where it's headed in terms of what principals they are other than people recognize the need for it and I believe we can work through that successfully. Daniel Eggers – Credit Suisse: I guess either of the Dons, your thought process on what kind of drivers should go into it; obviously you've had a good history of good population growth. Is that something that seems amenable or you'd say your decoupling to customer growth rate rather than a volumetric growth rate?

That is clearly one of the things we're looking at very closely. Daniel Eggers – Credit Suisse: Okay, is there any other major principles that we should be watching in this conversation?

Not at this point. Daniel Eggers – Credit Suisse: Okay and any feel for a time when we will have some sort of master plan from all parties and maybe thoughts on when the Commission could act on a final decision?

Dan, the one thing I've learned after all of these years is, it is impossible to predict the Commission's timing on a workshop process. Because there are so many parties involved and there are so many different issues and different areas they want to have workshops in, I don't even want to hazard a guess of what it would take. Daniel Eggers – Credit Suisse: Is it a priority for the outgoing or prospectively outgoing commissioners if this gets done in 2010?

It is a priority for them. I'm not sure whether there is enough time to get it done, even if they desire to get it done. So it may or may not happen this year.

And Dan, almost anything is possible but it is very likely that the details, as they would apply to any specific company, would get discussed and resolved in an actual rate proceeding. Daniel Eggers – Credit Suisse: So does that mean Don that it would be likely that this wouldn't show up until the go effective with the next rate case or could it go in before the next rate case is resolved.

I would doubt. I can't imagine a scenario where it would go in before the next rate case. Daniel Eggers – Credit Suisse: Okay. Got it. Thank you, guys.

Thank you, Dan.

Your next question comes from the line of Ali Agha from SunTrust Robinson Humphrey. Your line is now open. Ali Agha – SunTrust Robinson Humphrey: Thank you, good morning.

Good morning. Ali Agha – SunTrust Robinson Humphrey: Jim or Don, would there ever – when you talk about your 2010 guidance and you talked about the variances from your own little assumptions and Jim, you mentioned the tax rate alone probably gives you an extra $0.13 to $0.14 for the year. Was there any other offsets to that? I know you talked sales coming down a bit but any reason why you would not raise your 2010 guidance? I mean, that's a pretty big incremental earnings pickup for the year?

Well, keep in mind we see softer sales after really four months of 2010 in the C&I segment especially and if you look at, really across the board, they're all off on a usage basis. And again, that's reflecting a lot of energy efficiency and distributed solar and likewise, especially as it relates to schools. And so we think sales could potentially be weaker than we thought going into the year. That trend continues. And looking at historical regression analysis, sales growth is highly correlated to job growth in Arizona and again, we don't see a big pickup in job growth. In fact, the Department of Commerce sees a loss of jobs in 2010. So I think while we're getting the positive benefit of the lower tax rate, we are seeing the effect on gross margin from that. I would not necessarily say it's a one-to-one correlation, but it all fits inside the current guidance. Ali Agha – SunTrust Robinson Humphrey: Okay. But just to be clear, other than the projection for software sales, there's nothing else either higher cost or some other offsets that we should think about?

Not at this point. We're on track in my opinion on our cost savings targets and everything else appears to be going well other than the continued softness in sales growth. Ali Agha – SunTrust Robinson Humphrey: Okay. And also Jim, could you remind us what is the implied utility ROE that's embedded in that guidance?

It would be in the sort of 9.5% range. Ali Agha – SunTrust Robinson Humphrey: 9.5% range. Okay. And with regards to the renewable program, should we also assume that as you laid out the earnings contribution, incremental earnings should be sort of directly correlated with when those facilities actually come on line? Is that when you start booking the earnings?

That's correct, that's correct. And as Don talked about, we're going through the RFP evaluation process. In my opinion, unlikely we'll see a contribution in '10. But, it really depends how quickly we can get contracted and get these projects going. The quicker the better from an earnings perspective. Ali Agha – SunTrust Robinson Humphrey: Certainly. Thank you.

Your next question comes from the line of Paul Ridzon from KeyBanc. Your line is now open. Paul Ridzon – KeyBanc: Jim, did you say it was unlikely to see a contribution in '10?

Correct. Paul Ridzon – KeyBanc: Okay, and then just an update on Solana and where that is with the DOE. And if that doesn't happen, what you're thinking about your capital opportunities?

This Don Robinson. Solana, Abengoa continues to work with DOE. We expect that they'll get some answer in the next few months. That continues to be a moving target. On the second part of the question, of what happens if it doesn't go, as Don mentioned in his comments, we had an extraordinarily high response to our request for proposals for solar so that if something were to happen there, we would just move on to other options and do some other projects instead of that. Still hopeful that Abengoa will go on but we just wait like everybody to get through that federal process. Paul Ridzon – KeyBanc: Are you thinking PPAs or like what's the self build opportunity?

Paul Ridzon – KeyBanc: I imagine the Commission is cognizant of the imputed debt issues there as well.

They are and they also are seeing that if it's dependent on everybody else doing it, we run into as many more problems or more than if we were doing it ourself. Paul Ridzon – KeyBanc: Okay. Thank you very much.

Your next question comes from the line of Chris Ellinghaus from Wellington Shields. Your line is now open. Chris Ellinghaus – Wellington Shields: Hey everybody. How are you?

Hi, Chris, how are you? Chris Ellinghaus – Wellington Shields: Good. Can you just discuss your CapEx potential in regards to – you have an RFP for wind in addition to solar – just generally comment about, what if you were a little more aggressive on renewables. That seems to sort of mesh with the Commission's sort of attitude. And secondly, in terms of the legislative and regulatory action likely on greenhouse gases and generically the environment, what are your thoughts in terms of what might have to CapEx related to that debate.

Well, as I've said on the first one Chris, on the CapEx potential, we've said the Arizona signed up to $500 million for those 100 megawatts. We have RFPs on wind. Wind is generally running $2,000 a KW. So depending on the amount of the projects, that's an opportunity. I do think we have to be cognizant going down this path of right basing renewable. While it's clear we have Commission's support to do some in rate base, we can't rely totally on a PPA model and I think the Chairman Mayes made that clear in the open meeting with me. And so I think we're going to continue to try to pick and choose our opportunities to rate base. Wind gets done at least much easier than solar. So, that will be a factor. And so at this point while there may be some CapEx potential upside on renewables, other than Arizona Sun, there is not a clear path right now. On the environmental I'll just speak to the dollars. I think it really depends on what we get. The range is broad. We put out there $400 million to $700 million or $800 million depending upon what standard we ultimately get. I think that is the wild card but Don, I don’t know if you have any additional comments.

Yes, Chris, this is Don Brandt. I don't think we have got certainly any clarity on carbon legislation and I doubt we'll have much clarity for another year or so in that regard. And that is – one of the various business factors why we're driving on renewables and particularly solar is we can actually deploy solar and it's a good hedge against potential costs and consequences of future carbon legislation. Chris Ellinghaus – Wellington Shields: Can you just elaborate a little bit about what major issues may come up as a result in terms of what kind of projects you might envision?

For renewables or…? Chris Ellinghaus – Wellington Shields: No, for the environmental aspects of the debate.

This is Don Robinson. Clearly at the coal plants we have got the FCRs and those issues, just like every other coal plant would be looking at and facing during that. We have nothing unusual in that respect. Chris Ellinghaus – Wellington Shields: Yes, I'm just thinking in broad terms if there is some potential CapEx uplift from a lot of different points of view, and just thinking about what other things might come down the pike. Thanks for the clarity.

Okay. Thanks, Chris.

Your next question comes from the line of Daniele Seitz from Dudack Research. Your line is now open. Daniele Seitz – Dudack Research: Thanks. Actually along the lines with Chris's questions, do you have a feel for what type of rate-based growth you are looking at, given the addition of those new projects at this time?

Well, I think, including Arizona Sun, we're looking at about 6% annual growth in rate-base according to our latest CapEx plan. Obviously rules around carbon could change that both positively and negatively but we'll just have to wait and see. If this becomes an issue we need clarity to be able to definitively answer those questions. Daniele Seitz – Dudack Research: Okay. And this includes the Arizona Sun, right?

Correct. Daniele Seitz – Dudack Research: Okay. And then, do you have a feel for what the Commission is looking at in term of the mix of purchase power versus build? Did they give you a hint as to which way they would like you to go? I guess 50-50, something like that?

There has been no clear target on that. The dialog was much along we can't sustain a PPA model without facing non-investment grade status at some point and they're understanding that not adverse to rate-basing some of this stuff going forward but it can't be a sole model of rate-basing. I don't know that anybody has really thought through an ideal mix. From our perspective, obviously, the more rate-base, the greater earnings opportunity. But we do have robust wholesale market in Arizona and I don't think anybody is going to try to ignore that. Daniele Seitz – Dudack Research: Just on a general basis, what type of capacity factor in your region this sort of plant will provide? Do you have a feel for that?

This is Don Robinson. The capacity factor for solar projects would generally be in the 30% to 40% range on a year-wide basis. But if you look at solar thermal like we proposed at Solana, it will be on – the capacity factor will be very high during the on-peak periods and with photovoltaic it will also be relatively high during the on-peak periods. So if you look at an annual capacity factor, it looks relatively low obviously because the evenings are not running. Daniele Seitz – Dudack Research: But they're running when you need them. I understand. Thank you very much. I appreciate it.

Thank you, Danielle.

(Operator Instructions). Your next question comes from the line of Paul Patterson from Glenrock Associates. Your line is open. Paul Patterson – Glenrock Associates: All right, most of my questions have been answered but I want to follow up on the solar. Could you give us a flavor again of what the cost you're seeing per megawatt-hour, just what the range is roughly speaking for solar?

Well, large-scale solar is under confidentiality agreement. So we really can't talk about that. With the Arizona Sun, the original projections were about $5,000 a KW. We're sorting through the RFPs now. It remains to be seen if that continues to be the cost going forward. Paul Patterson – Glenrock Associates: Okay, but on a megawatt-hour basis and capacity factor that Daniele was just asking about, what does that come out to in terms of roughly speaking? I'm not asking for anything. Just sort of a rough idea?

Paul, this is Don Robinson. Actually, under the terms of RFP and the confidentiality, we can't even give out rough numbers on what our megawatt-hour numbers are. Paul Patterson – Glenrock Associates: Okay, can you give us an idea about what the potential impact to customers might be? I did notice that there was sort of a strange legislative thing a couple of months ago where they did pass something and then they took it away I guess because of jobs and location of factories, I believe was part of the issue.

Let's go back though, and talk about the legislation. The legislation was something that was proposed and pulled. So it never actually was our action by the legislature on that. In terms of impact to customers, it's going to depend on two things over the long term. One is gas prices and the other, what happens to carbon. So we know from a capital cost, these things tend to be a little more expensive. But the benefit we have with solar is our conditions and our high capacity factors on-peak when we need them most. Paul Patterson – Glenrock Associates: Okay. Thanks a lot.

Your next question comes from the line of Yiktat Fung from Zimmer Lucas Partners. Your line is open. Yiktat Fung – Zimmer Lucas Partners: Congratulations on a solid quarter.

Thanks, Yiktat. Yiktat Fung – Zimmer Lucas Partners: I would just like to clarify sales forecast. Do you now expect '11-'12 sales to be flat to the new 2010 sales which is slightly lower than 2009?

No, '10 through '12 we see flat sales sort of in the aggregate. So right now we're looking at maybe slightly negative sales that are not in '10. That would imply a slight pickup really in '12. But over the three-year period you're going to see sales pretty much flat lined. Yiktat Fung – Zimmer Lucas Partners:

That’s correct. Yiktat Fung – Zimmer Lucas Partners: Okay. And just to check up on the legislature, has the legislation about kayak [ph] also been pulled?

It's Jim. The recession is over in Arizona. So there was no action on that either. There is a workshop going on as well on line extension, and back to Don's original comment on decoupling, nobody really knows the timing of that moving forward. Yiktat Fung – Zimmer Lucas Partners: Okay, thank you, very much.

Yup.

Okay. Thank you, Yiktat.

There are no further questions at this time. I'll turn the call back over to leadership for any further comments.

Okay. Well, thank you for your time again this morning. We appreciate your interest. If you have any other questions don't hesitate to call any one of us. Have a great day.

This concludes today's conference call. You may now disconnect.