Greetings, and welcome to the Pinnacle West Capital Corporation 2011 first quarter earnings conference call. At this time, all participants are in a listen-only mode. A 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 begin.

Thank you, Claudia. I’d like to thank everyone for participating in this conference call and webcast to review our first quarter 2012 earnings, recent developments and operating performance. Our speakers today will be our Chairman and CEO, Don Brandt; and our CFO, Jim Hatfield. Jeff Guldner, who is APS Vice President of Rates and Regulation 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 to which we refer are available on our Investor Relations website, along with our earnings release and related information. Please note that the slides contain reconciliations of certain non-GAAP financial information. Also, all of our references to per share amounts 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 the actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Our first quarter 2012 Form 10-Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language 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 May 10. At this point, I’ll turn the call over to Jim.

Thank you, Becky. The topics I will discuss today are outlined on slide four. First I will review the consolidated first-quarter results and discuss the main variances from last year's corresponding quarter. Second I'll provide a brief update on the status outlook for the Arizona economy and last I will close with brief comments on our liquidity and financing activities. Slide five summarizes our reported and ongoing earnings for the quarter. On GAAP basis for this year's first quarter we reported a consolidated net loss attributable to common shareholders of $8 million or $0.08 per share compared to a net loss of $15 million or $0.14 per share for the prior year's first quarter. Our ongoing earnings increased $0.08 per share. For the 2012 first quarter we had consolidated ongoing loss of $7 million or $0.07 per share versus an ongoing loss of $16 million or $0.15 per share for the comparable quarter a year ago. Slide six contains a reconciliation of our first quarter GAAP earnings per share to our ongoing earnings per share. The amount for both quarters exclude results related to our discontinued real estate and energy services businesses. My remaining comments on the quarter will focus on our 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 gross margins added one penny per share compared against the prior year's first-quarter earnings. Several plusses and minuses comprises positive net variance and I will cover those items in more detail on the next slide. Second lower operations and maintenance expense improved earnings by $0.07 per share. The expense decrease largely reflects lower fossil plant maintenance cost as a result of less work being completed early in the year compared to 2011 as…

Thanks Jim. And thank you all for joining us today. I will update you on developments in the following areas. Arizona regulation and APS’ pending retail rates supplement, our investments in generations including renewable resources and our overall operating performance. I will start with APS’ pending rate settlement. On January 6, we filed a proposed settlement of APS’ pending retail rate case which was signed by 22 of the 24 active parties to the proceedings. Very late yesterday, the Arizona Corporation Commission’s Chief Administrative Law Judge issued her recommendation that the settlement be improved without material modifications. Collectively, the settlement terms would produce a net $0 change to existing change to existing base rates 2012, an important benefit for APS customers. In addition to the base rate change is a settlement contained a number of key financial provisions which we discussed during last quarter’s conference call. Details of the settlement as well as key underlying assumptions are outlined on slides 13 to 17 in the appendix to your slide space. The settlement contains a number of benefits for our customers, the communities we serve and our shareholders. Notably the requested regulatory treatment would build upon the constructive framework established in the 2009 settlement and provide financial support for APS will help us achieve Arizona’s energy goals over the next four years. The settlement also includes a four year stay out for the next general retail rate case. Under this provision, APS’ may file its next general rate case on or after May 31, 2015 for based rate to become effective not earlier than July 1, 2016. We believe several factors will support us financially during the stay out period. These factors include first APS’ rate adjustment mechanisms such as the power supply adjustor and the transmission cost adjustor. Second, provision…

Thank you. (Operator Instructions) Our first question is coming from the line of Shar Pourreza with Citigroup. Please state your question.

Just a quick question, Jim I know you mention that you would look to issue 2012 APS guidance following a final order in the GFC and then Don did a great a job presenting some growth drivers outside of base rates during his prepared remarks. Given that you could be in a multi-year duration under the settlement, could you also issue some kind of EPS growth trajectory during the stay-out period when you begin to issue guidance again? Thank.

A great question Shar and the answer to that is, yes. And if you remember our last settlement, we issued guidance over a couple of year period and we would look to do some sort of EPS growth looking over the settlement period again to give investor’s comfort of our ability to manage through that.

Our next question is coming from the line of Kevin Cole with Credit Suisse. Please state your question.

Yeah, I was just checking whether for AGA it will mid 90 so we can, is it still too early to have any really cooling driven weather at all or how does that….

A couple of weekends ago we had a record 106 degrees we believe on Saturday and Sunday. It’s gotten hot here before in May. I think you might have a pleasant visit for AGA.

And so I guess with the Four Corners approval a couple of weeks ago, does this impulsively approve the $300 million of environmental CapEx then also treatment of Units 1, 2, 3?

From a CapEx perspective, I would say no. From units 1, 2 and 3, the answer would be yes.

And what is the process for getting the $300 million of environmental CapEx approved?

Well, assuming we close, we will put our CapEx plan pain upon when that’s needed to be in service 2016. The 2018 will be in design and engineering work for the plant which is consistent with what was filed in our IRP back on March 30th?

And then with the $700 million of equity, I think you guys kind of agreed to in the last settlement, I guess from my chair it doesn’t look like you need that much and from an expensive form of financing. With this new settlement are you able to rebase that number or does it kind of nullify the previous number?

It does not nullify it, Kevin but obviously if we don't believe we need that amount of equity by 2014 we will certainly make our case to the settlement parties in 2009 and I would not expect that they would want to issue the most expensive form of cost of money if it's not needed and keep in mind too since that last settlement in 2009 we have been upgraded as well which helps the situation.

Our next question is coming from the line of the (inaudible) with Goldman Sachs. Please state your question.

So with an earnings uplift likely upcoming pending the implementation of new rates, how do you think about dividend growth, you have been kind of in a flat dividend trajectory for the last couple of years. How do you think about that going forward?

Well obviously assuming the settlement is approved and the ability really to have a sort of runway now to the next filing I would expect a dialog with the board on the appropriate dividend level for Pinnacle West going forward?

Okay, but you haven't talked about historically a targeted dividend payout level, have you?

No and I don’t think we would specifically say a payout level. I think we would consistent with earnings growth of X, look at a dividend growth rate of X minus or something to that regard as opposed saying an explicit payout ratio.

Thanks Jim and any notable changes from this morning's announcement in terms of the settlement terms with ALJ recommendation?

No

And then the last question I had, has there been any update in terms of what happened with the Southwest utilities outage last year, there's been some headlines that's been coming across our screens here?

The report out at this point that's all we know is the report’s out.

The next question is coming from the line of Greg Gordon with ISI Group.

So one of the things that jumped out from the release was while you are seeing some signs of pick up in economic growth you also had significant impact of energy efficient, from energy efficiency and demand side management in the quarter?

That's correct.

So, can you refresh our memories on how the recovery writer prospectively will work to sort of incentivize you to continue to sue those and/or compensate you for continuing to pursue those types of savings?

Sure the mechanism of loss fixed costs recovery mechanism envisions that we will file the first recovery in March of 2013 and it recovers that distribution fixed costs associated with lost cells through those mechanisms.

So assuming approval of this as filed prospectively, there will be an offsetting revenue to the extent that you see incremental energy efficiency driven load reductions?

That's correct. I would not characterize it as a one that will offset but you do get a partial revenue pick up from what's lost through the programs.

And you currently do not get anything like that, correct.

Correct.

Okay. Second question with regard to financing plans, you said 2013 at the earliest for equity but when I just think about regulated utility model the fact, that filing a rate case till 2014 for at the earliest 2014, for rates in ’15 and that you have an historic test period what are the factors that are going to go into the timing of the equity issuance, it would seemed to me that it would be reviewed sort of try time it more concurrently with when you would need to update your capital structure for the next rate review which is some time away.

Yeah, Greg I think you are exactly right there that it would be certainly no sooner than we needed and the driving force would be rebalancing our capital structure going into that test year.

Our next question is coming from the line of Ali Agha with SunTrust.

Jim, I wanted to just be clear, the Four Corners acquisition assuming that it does close as planned. The earnings that you are to book for that increment, will that be timed with when it goes into retail rate base? In other words July 1 onwards of ’13 is when we should see earnings?

That's correct Ali.

Okay. And the four year or so stay-out period, I know the segment obviously has not been approved yet but assuming it is, should we also assume as you will be planning through that time period that you are fairly confident that ROEs will be maintained. We won't see any erosion. Is that a fair way to be thinking about that period when you have the stay-out?

Well, I think to say, you wouldn't see any erosion over that timeframe is probably a bit strong. I think depending upon factors, including our ability to have CapEx at the right level and control expenses I think over the timeframe you would see ROEs in the mid 9s.

And lastly I just clarifying you’ve made a couple of comments on the need for equity in the future but how much of that is also been driven by liquidity and credit rating concerns. As you said you've been obviously upgraded and so on, but you know in terms of what would be causing you to issue equity in 13 if you were to do it? What are the main issues in your mind, obviously the rate case would not be one of them?

That’s correct and back to Don's earlier comments. We’re not going to issue equity any sooner than we needed, but I think the factors that go into that are obviously liquidity which we have ample liquidity. So I am not necessarily worried about that, but we do have to watch our credit ratios as well which will be part of the equation. And that’s going to be driven obviously by fund some operation CapEx going forward. I mean I think there is a balance there between try to maintain ratings and not pile on too much debt but it's going to be the latest long as possible.

Our next question is coming from the line of Brian Russo with Ladenburg Thalmann. Please state your question.

Just to follow on the equity needs question. Could you maybe be more specific on the target ratios that we should monitor that you know maybe to equity or push equity out and preserve your credit rating?

Sure, from a regulatory ROE, our regulatory equity layer, our last case was 539 which was our actual capital structure, long before that was 538. So it's in that range and at sort of a consolidated level it's 50-50. What we also have to monitor is imputed debt and the other factors that S&P puts into the rating.

And in terms of when Four Corners gets added into rates, I guess July of ‘13, will there be some regulatory lag in terms of when the purchase is completed, no earlier than December of ‘12 and we could see some incremental D&A and operating expenses without the rate offset, is that accurate?

Well, we get to defer the cost associated with four and five. We get a debt return. So the real lag from an earnings perspective is just the offset of the equity return. It’s more of a cash flow issue than it’s going to be a book issue during that timeframe.

And then lastly, just could you remind us how the property tracker works, is there any sort of cap and inherent risk of under recovering those taxes?

Well, so the deferral started 25% in 2012 and ramps up to 75%. So yeah, there is a risk there obviously of property taxes. The assessment rates continue to go up. Property tax assessment rates typically are about 18 month lag to values. So it’s really depend upon what happens in and around in property values in Arizona between now and the next decade.

(Operator Instructions) Our next question is coming from Jim Krapfel with Morningstar. Please state your question.

Hi, recent net migration from Mexico has recently turned negative for the US; (inaudible) is going to have impact on the growth opportunities?

It won’t have an impact on us at this point. Keep in mind, our migration into Arizona really follows job opportunities and that’s not going to happen until we see the absorption of housing and construction pickup again.

Our next question is coming from Paul Patterson with Glenrock Associates. Please repeat your question.

Just on a touch basis you guys on sales growth, you guys are projecting flat sales growth growing forward and that’s because of customer growth being offset by energy efficiency; correct?

That’s correct Paul

And what would it be without energy -- what is the energy efficiency impact and is this completely APS’ efforts or is it just stuff that we are seeing as well in other parts or others efforts that might be going on underway?

Well, that’s pretty hard to track exactly Paul, but I would say, I know we have energy efficiency standard and a distributor generation standard. We can track pretty much what we’re doing; customers are also doing things as well. But primarily, I would say yes, it’s the ACC compliance program that’s involved.

And what is that versus what the -- what would the growth rate be with out your efforts I guess?

Well over this time frame probably slightly less than 2%

Little over 2% growth, correct?

Correct.

For the quarter, you had a decrease in sales growth of 0.9% was that adjusted?

That’s correct.

And does that include leap year?

Yeah, it would.

So it would even be lower; I mean is there anything in particular with this quarter that would still be causing that or is that something that…?

The leap year is one day out of three months and the first quarter is not a big sales month for us, so not a big impact from that.

There are no further questions at this time. I will now turn the floor back over to management for closing remarks.

Thank you again for joining us today. As always, if you need further details about our earnings or other information about our company please contact us. This concludes our call.

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.