Greetings and welcome to the Pinnacle West Capital Corporation Second Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Becky Hickman, Director of Investor Relations. Thank you. Ms. Hickman, you may now begin.

Thank you, [Christine] and thank you everyone for participating in this conference call and webcast to review our second 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 Investor Relations website along with our earnings release, supplemental information on our earnings variances and quarterly operating statistics, the webcast and the Form 8-K filed this morning. Please note that the slides contain reconciliations of certain non-GAAP financial information. Also all of our references to per share amount will be after income taxes and based on diluted shares outstanding. 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. Our second quarter of 2011 Form 10-Q was filed this morning. Please refer to that document for the forward-looking statements 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, for the next 30 days. It will also be available by telephone through August 9. At this point, I'll turn the call over to Jim.

Thank you, Becky and good morning everyone. The topics I will discuss today are outlined on slide four. First, I'll review the consolidated second quarter results and discuss the main variances from last year’s corresponding quarter. Second, I'll provide a brief update on the status and outlook for the Arizona economy. Third, I'll discuss our 2011 earnings guidance, and lastly, I will close with brief comments on our credit ratings, liquidity and financing activities. Slide five summarizes our reported and ongoing earnings for the quarter. On a GAAP basis for this year second quarter, we reported a consolidated net income attributable to common shareholders of $87 million or $0.79 per share compared with net income of $115 million or $1.7 per share for the prior year second quarter. Our on-going earnings decreased $0.04 per share. For the 2011 second quarter, we’ve consolidated ongoing earnings of $86 million or $0.78 per share versus ongoing earnings of $89 million or $0.82 per share for the comparable quarter a year ago. Slide six contains a reconciliation of our second quarter GAAP earnings per share to our ongoing earnings. The amounts for both quarters exclude the results related to our discontinued operations. The discontinued operations amounts relate primarily to APS energy services. My remaining comments on the quarter will focus on the ongoing results. Moving to slide seven, you see the variances that drove the change in quarterly ongoing earnings per share. First, an increase in our regulated electricity segment gross margin added $0.01 per share compared with the prior year second quarter. Several pluses and minuses comprise this net variance and I will cover those items in more detail on the next slide. Second, lower operations on maintenance expenses improved earnings by $0.03 per share. The decrease largely reflects lower generation cost related…

Thanks Jim and thank you all for taking the time to join us this morning. Since our last earnings call, we made distinct progress in key areas and continued our track record of operation excellence. Today, I'll update you on the following topics. One, Arizona regulatory developments. Two, our renewable and other generation investments. And three, our recent operating performance. We know Arizona regulations and APS recently filed retail rate case are top of mind for investors and analyst. So I’ll start with those topics. Progress is been made in Arizona’s regulatory environment, and we appreciate the opportunity to continue working with the Arizona Corporation Commission and various stakeholders to further enhance the states regulatory framework to address several regulatory and operational issues and find solutions that balance the interest of customers, shareholders and other stakeholders alike. With this goal in mind, we look forward to continuing this dialogue in our ongoing state regulatory proceedings. On June 1, APS filed the general retail rate case; the key provisions of the case were in line with expectations set for stakeholders through APS’s 120 day notice filed back in February. Today I’ll highlight the key request of the case and their benefits. For your reference these items as well as key underlying assumptions are summarized in the appendix to today’s slide [deck]. The rate case provisions contain a number of benefits for our customers, the communities we serve and our shareholders. The requested regulatory treatment would build upon the constructive regulatory framework established in the 2009 settlement and would provide the financial support APS needs to achieve Arizona’s ambitious energy goals. Through the rate application, APS has requested a $95 million net base rate increase effective July 1 of 2012. The proposed rate changes include, a non-fuel base rate increase of $194…

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Thank you. Our first question is from Greg Gordon with ISI Group. Please proceed with your question. Greg Gordon – ISI Group: Hey, gentlemen, good afternoon.

Hi, Greg. Greg Gordon – ISI Group: The Phase II Arizona Sun, so this is your first disclosure of this opportunity, correct? So this is incremental to Four Corners and others sort of rate base growth drivers, should it be approved that we should think about sort of post 2012. Is that fair?

That's right, Greg. We filed this annual filing on July 1 of this year. So this would be the first cycle where we’d be talking about it publicly. Greg Gordon – ISI Group: Okay. So should you be permitted to make these investments, it would obviously wrap into your assessment of your capital needs. But would it change the sort of statement you made earlier that you would need equity no sooner than 12 at the earliest?

On the first point, yeah, this would be incremental capital. And I think it’s reflected, 12 is reflected in our QV Arizona Sun too, but it's not a change our statement on equity before 12. Greg Gordon – ISI Group: Great. Second question, you obviously had a relatively mild second quarter last year. I think street consensus presumed it would get better, it actually got a little bit worse. But in terms of what we should think about in terms of the revenue requirement that you’ve asked for in the rate case, that does presume normal weather next year, is that right?

Yes, right.

Yes, Greg. Greg Gordon – ISI Group: And then on tax rate, I mean if I'm doing the math correctly, your – are you, these new tax rates just going affect in the second quarter? Is that the first, is it the first, if I look back at your comments on what your drivers were in Q1, you didn’t mention higher tax rates then, so.

You mean property tax? Greg Gordon – ISI Group: Yes.

Yes. I think when we came into the year, obviously we had a significant increase last year. We plan for a significant increase this year as well as we went through the budget process, we’re now beginning to get looks at the bills and we’re seeing rates that are higher than we thought. Greg Gordon – ISI Group: Okay. So there were sort of – you're getting the bills for the full-year, but you’re getting them now?

Yeah. Greg Gordon – ISI Group: I got you. That’s just like my call-up here in New York. And it looks like the run rate, am I right that the tax run rate looks like it’s $30 million to $40 million higher, pre-tax, just closing up the $0.05 on an annualized basis? Or is that not a fair assessment?

That’s not a fair assessment Greg Gordon – ISI Group: It is or it is not?

It is not, Greg Greg Gordon – ISI Group: Can you tell us what you think or is it sort of a work in progress?

No, no. If you look at sort of what we did with the ranges, we increased operating expenses by approximately $10 million to reflect the increased property tax at this point. Greg Gordon – ISI Group: Got you.

And we reduced interest expense by about $5 million, keep in mind these are ranges, to reflect lower interest expense for the year. Greg Gordon – ISI Group: And that lower interest expense is partly reflective of the borrowing cost savings you’ll be getting from being able to access the commercial paper market?

Yes, it's less need to borrow cheaper rate because of the change to A2 or P2, in that case, so. Greg Gordon – ISI Group: Great, great. And then final question, to the extent that these property taxes are running higher, are you going to be able to make post period adjustments to your rate case to reflect that?

Well, we always try to make post test year adjustments and we’ll certainly look at any operating expenses on a measurable and try to account for that. Greg Gordon – ISI Group: Okay. So we should assume that under normal course of business, these are recoverable expenses?

They are recoverable expenses. Greg Gordon – ISI Group: Thank you.

Our next question comes from Daniel Eggers with Credit Suisse. Please proceed with your question. Daniel Eggers – Credit Suisse: Hey guys, just real quick on the rate case process. You guys does look comfortable with the schedule formerly out that you can get this done by July, worst case scenario?

Yes, very much so, Dan. Daniel Eggers – Credit Suisse: And then from a settlement discussion perspective, nothing is going to open up until after Thanksgiving and there’s effectively a month long window basically to get something resolved?

Yes. Daniel Eggers – Credit Suisse: Okay. And then whether have you guys seen any sort of turnabout in – as July has moved on, if you look at the forecasts as far as August is concerned, set the reduction for the third quarter is already captured in the books or have you guys put more question in for what things are better?

We’ve taken account of whether, kind of like right up to yesterday and we're seeing a little bit of a rebound. I think for today and tomorrow we're supposed to hit 110 or 111 but then it start cooling down. After this week, it's anybody's guess.

And Dan, I'll say that you keep in mind that May, June, July all big summer months for us. We are sort of down and not a whole lot of time left to offset this. Daniel Eggers – Credit Suisse: Okay. And now I guess on Four Corners read something about the Department of Interior kind of preempting EPA action and then the need for investment. Do you see that change in perspective to the plants at Navajo or do you see upgrades ultimately going to be required?

Well, I think it's premature to talk about Navajo. We and the other partners are still in early stages of discussions with EPA and other parties. Daniel Eggers – Credit Suisse: Okay. Thank you.

Our next question comes from Brian Russo with Ladenburg Thalmann. Brian Russo – Ladenburg Thalmann: Just a follow-up on the revised 2011 guidance. It looks like the gross margin is down about $40 million and I would imagine that's almost entirely related to weather.

Correct. Brian Russo – Ladenburg Thalmann: And then it looks like for the first half of 2011 the weather impact was negative 27 million versus normal which I assume your previous guidance was based on.

Correct. Brian Russo – Ladenburg Thalmann: So given that, and since the revision is for the first seven months, does that kind of imply that July mild weather impacted margins by negative 13 million?

Well, I don't think you can just try to add the two together and get exactly the seven-month impact. But the implication of it is, July was below normal. I don't have the stats yet but we do get daily weather statistics – or sales statistics and we know we're under from what would be normal weather. Brian Russo – Ladenburg Thalmann: Okay, and Phase 2 of the Arizona AZ Sun program that you laid out, is that needed to get to your RPS standard by 2015 or is some of that incremental?

The Arizona Sun 2 is a piece of the incremental renewable power we need to meet the standard we agreed to on 2015. Brian Russo – Ladenburg Thalmann: Okay. Thank you very much.

Our next question comes from Paul Ridzon with KeyBanc Capital Markets. Paul Ridzon – KeyBanc Capital Markets: I had a follow-up on the property tax question.

Sure. Paul Ridzon – KeyBanc Capital Markets: Jim, you talked about a lag effect, how should we think about that in the form of lag in 2012 once you’ve got new rates, I mean is this going to happen every year for a couple of years as these counties try to stake hold?

Well, I can’t predict what counties are going to do in 2012. I think the implication is what we’re now seeing is the steep drop in ’08, ‘09 work its way through assessment ratios. The housing slide we showed shows EBIT fairly flat over the last 12 to 18 months and if that relationship solve, I would think property tax would be fairly flat next year. Paul Ridzon – KeyBanc Capital Markets: Okay, so season capture this and post test, you should be (inaudible)?

Well, what we capture, I mean 20% reduction, which is pretty significant. So I can’t imagine we’re missing another big piece of property tax. Paul Ridzon – KeyBanc Capital Markets: And just in 2011 where are line extension revenues tracking relative to plan?

They’re tracking pretty much on plan to the first six months of the year. Keep in mind, those things are very volatile, just because they’re based on builders’ schedule. So I mean we still expect to be where we thought we’d be, but we’ll see what happens throughout the year. Paul Ridzon – KeyBanc Capital Markets: And then the two post tests, your planned additions, are those captured in your, I think, the $198 million, is that going to be incremental?

No, that's captured in our ask. Paul Ridzon – KeyBanc Capital Markets: Great. Thank you very much.

Thanks, Paul.

Our next question comes from Ali Agha with Suntrust. Please proceed with your question. Ali Agha – Suntrust Robinson Humphrey: Thank you. Jim, could you remind us in your revised guidance, what is the assumed utility earned ROV and just remind us what was the actual for ‘10?

The actual for ‘10 was 9.3 and we assume high eight in guidance. Ali Agha – Suntrust Robinson Humphrey: Okay. And secondly also to clarify the rate case proceeding, is it fair to assume if you were to go the settlement route and that were to play out to the end, would the new rate still go into effect July 1 or could they change based on the settlement?

No, the assumption of all the parties with the 12-month cycle is they’d be affected July 1, ’12. Ali Agha – Suntrust Robinson Humphrey: Okay, okay. So regardless of which path ultimately place out?

That's correct. And it's also consistent with our settlement, with set rates and affect no earlier than July 1, ’12. Ali Agha – Suntrust Robinson Humphrey: Right, right, right. And the AZ Sun II Program, also just to be clear on that, I think I heard you on this, but just to be clear. So that CapEx that you would spend which you have not I guess budgeted today, would not offset some other spending, this would all be incremental and could be absorbed based on your liquidity and cash flows et cetera.

Ali, let’s clarify. We do have the twelfth portion in our 10-Q updated CapEx. Keep in mind this will probably be a later ‘11 approval, which means it’s hard to get a whole lot started in ‘12 or probably ‘13 and later, loaded it would be incremental the way we see it today. But I am very confident about our liquidity and ability to fund these projects. Ali Agha – Suntrust Robinson Humphrey: Okay. And Jim, as you’ve said in the past, from the equity issuance point of view the key there still remains the timing of the future rate case filing and the texture that goes with that as opposed to the CapEx needs for the business. Is that still a fair way to think about it?

Yes. Ali Agha – Suntrust Robinson Humphrey: Got it. Thank you.

(Operator Instructions) Our next question is from Neil Mehta with Goldman Sachs. Please proceed with your question. Neil Mehta – Goldman Sachs Group: Good afternoon.

Hi, Neil.

Hi, Neil. Neil Mehta – Goldman Sachs Group: So, surplus gas and intervenors filed the settlement in Arizona last week in their base rate case. It looked good, there were some partial decoupling and more experienced timeline. What read over if any is there to the pending APS case?

I’ve said in the past it’s hard to look at a gas settlement and relate that to electric utility, just like it’s hard to look at electric utility settlement related to another company. I’d think from that perspective. Again, I think not been involved shows parties wanting to come together and settle cases and dialogue around decoupling and that’s really mildly read on that. Neil Mehta – Goldman Sachs Group: And retail usage per customer increased again this quarter, we saw it last quarter as well. How does that impact the way you think about decoupling because you’d be given any upside from higher customer usage?

Well, I would say two things. One is, we’re seeing a rebound from absolute declines and so we don’t think that this big increase in customer usage is an ongoing pattern and we think it’s just that rebound effect going forward with flat sales being taken with decoupling and energy efficiency, decoupling is very important for us to have as a mechanism. Neil Mehta – Goldman Sachs Group: All right and then final question on transmission projects, any new developments or key projects we should be keeping our eyes on?

No. Not this time. Neil Mehta – Goldman Sachs Group: Okay. Great, thanks guys.

Ms. Hickman there are no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Christine, thank you. And thank you again for joining us today. As always, if you need further information about our earnings or other information about our company, please contact me or Geoff Wendt. This concludes our call.

Ladies and gentleman our teleconference has concluded. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.