
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   ----------
                                    FORM 10-K
(Mark One)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______

                         COMMISSION FILE NUMBER 1-8962.

                        PINNACLE WEST CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

             ARIZONA                                     86-0512431
   (State or other jurisdiction             (I.R.S. Employer Identification No.)
 of incorporation or organization)

400 East Van Buren Street, Suite 700                     (602) 379-2500
       Phoenix, Arizona 85004                    (Registrant's telephone number,
(Address of principal executive                        including area code)
  offices, including zip code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
================================================================================
                                                      NAME OF EACH EXCHANGE ON
         TITLE OF EACH CLASS                              WHICH REGISTERED
--------------------------------------------------------------------------------
Common Stock, ........................................  New York Stock Exchange
No Par Value                                            Pacific Stock Exchange
================================================================================
                                                          AGGREGATE MARKET VALUE
                                                            OF SHARES HELD BY
   TITLE OF EACH CLASS            SHARES OUTSTANDING AS    NON-AFFILIATES AS OF
   OF VOTING STOCK                  OF MARCH 27, 2000        MARCH 27, 2000
--------------------------------------------------------------------------------

Common Stock, No Par Value ......       84,722,640          $2,271,625,785(a)

----------
(a)  Computed by reference to the closing price on the  composite  tape on March
     27, 2000, as reported by the Wall Street Journal.
================================================================================

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.
                                 Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
================================================================================
                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's  definitive Proxy Statement  relating to its Annual
Meeting of Shareholders to be held on May 17, 2000 are incorporated by reference
into Part III hereof.
================================================================================
<PAGE>
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
GLOSSARY .................................................................   1

PART I
   Item 1.  Business......................................................   2
   Item 2.  Properties....................................................  13
   Item 3.  Legal Proceedings.............................................  17
   Item 4.  Submission of Matters to a Vote of
              Security Holders............................................  17
   Supplemental Item.
            Executive Officers of the Registrant..........................  18

PART II
  Item 5.  Market for Registrant's Common Stock and
             Related Security Holder Matters..............................  20
  Item 6.  Selected Consolidated Financial Data...........................  21
  Item 7.  Financial Review...............................................  23
  Item 7A. Quantitative and Qualitative Disclosures about Market Risk.....  30
  Item 8.  Financial Statements and Supplementary Data....................  37
  Item 9.  Changes In and Disagreements with Accountants on Accounting
           and Financial Disclosure.......................................  58

PART III
   Item 10. Directors and Executive Officers of the Registrant............  58
   Item 11. Executive Compensation........................................  58
   Item 12. Security Ownership of Certain Beneficial Owners
             and Management...............................................  58
   Item 13. Certain Relationships and Related Transactions................  58

PART IV
   Item 14. Exhibits, Financial Statements, Financial Statement
             Schedules, and Reports on Form 8-K ..........................  59

SIGNATURES................................................................  78

                                       i
<PAGE>
                                    GLOSSARY

ACC -- Arizona Corporation Commission

ACC STAFF -- Staff of the Arizona Corporation Commission

AFUDC -- Allowance for Funds Used During Construction

ANPP -- Arizona Nuclear Power Project, also known as Palo Verde

APS -- Arizona Public Service Company

APSES-- APS Energy Services Company, Inc.

CC&N -- Certificate of convenience and necessity

CHOLLA -- Cholla Power Plant

CHOLLA 4 -- Unit 4 of the Cholla Power Plant

COMPANY -- Pinnacle West Capital Corporation

EL DORADO -- El Dorado Investment Company

EPA -- United States Environmental Protection Agency

FASB -- Financial Accounting Standards Board

FERC -- Federal Energy Regulatory Commission

FOUR CORNERS -- Four Corners Power Plant

GAAP -- Generally accepted accounting principles

ITC -- Investment tax credit

KW -- Kilowatt, one thousand watts

KWH -- Kilowatt-hour, one thousand watts per hour

MW -- Megawatt hours, one million watts

MWH -- Megawatt hours, one million watts per hour

NGS -- Navajo Generating Station

NRC -- Nuclear Regulatory Commission

PALO VERDE -- Palo Verde Nuclear Generating Station

PINNACLE WEST ENERGY -- Pinnacle West Energy Corporation

SEC -- Securities and Exchange Commission

SALT RIVER  PROJECT -- Salt River  Project  Agricultural  Improvement  and Power
  District

SUNCOR -- SunCor Development Company

                                       1
<PAGE>
                                     PART I

                                ITEM 1. BUSINESS

THE COMPANY

     GENERAL

     We were incorporated in 1985 under the laws of the State of Arizona and are
engaged,  through  our  subsidiaries,  in  the  generation,   transmission,  and
distribution of electricity and selling energy,  products and services;  in real
estate development;  and in venture capital investment.  Our principal executive
offices are located at 400 East Van Buren Street,  Suite 700,  Phoenix,  Arizona
85004 (telephone 602-379-2500).

     At December  31,  1999,  we  employed  about 7,534  people,  including  the
employees of our subsidiaries.  Of these employees,  6,234 were employees of our
major subsidiary, APS, and employees assigned to joint projects of APS where APS
serves as a project manager, and about 1,300 were our employees and employees of
our other subsidiaries.

     Our other subsidiaries,  in addition to APS, include SunCor, El Dorado, APS
Energy  Services and Pinnacle West Energy.  See "Business of SunCor  Development
Company,"  "Business of El Dorado Investment  Company,"  "Business of APS Energy
Services Company,  Inc.," and "Business of Pinnacle West Energy  Corporation" in
this Item for further information regarding these businesses.

     This document contains "forward-looking  statements" that involve risks and
uncertainties.  Words such as "estimates,"  "expects,"  "anticipates,"  "plans,"
"believes,"   "projects,"  and  similar  expressions  identify   forward-looking
statements.  These risks and uncertainties  include, but are not limited to, the
ongoing  restructuring of the electric  industry;  the outcome of the regulatory
proceedings  relating to the restructuring;  regulatory,  tax, and environmental
legislation;  the ability of APS to successfully compete outside its traditional
regulated  markets;  regional economic  conditions,  which could affect customer
growth;  the cost of debt  and  equity  capital;  weather  variations  affecting
customer usage;  technological  developments in the electric industry; Year 2000
issues;  the strength of the stock market  (particularly the technology  sector)
and the strength of the real estate  market.  See  "Business  of Arizona  Public
Service Company -- Competition" for a discussion of some of these factors.

                   BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY

     Following is a discussion of the business of APS, our major subsidiary.

GENERAL

     APS was  incorporated  in 1920  under the laws of  Arizona  and is  engaged
principally  in  serving  electricity  in the State of  Arizona.  Our  principal
executive offices are located at 400 North Fifth Street, Phoenix,  Arizona 85004
(telephone  602-250-1000).  We own all of the outstanding  shares of APS' common
stock.

     APS is Arizona's  largest electric  utility,  with 827,000  customers.  APS
provides  wholesale or retail  electric  service to the entire state of Arizona,
with the  exception  of Tucson and about  one-half of the Phoenix  area.  During
1999, no single  purchaser or user of energy accounted for more than 2% of total
electric revenues. See Note 18 of Notes to Financial Statements for a discussion
of business  segments.  At December 31, 1999, APS employed  6,234 people,  which
includes employees assigned to joint projects where APS is project manager.

                                       2
<PAGE>
COMPETITION

     RETAIL

     The ACC has  regulatory  authority  over APS in matters  relating to retail
electric rates, the issuance of securities, and the transaction of business with
affiliated parties.  See Note 3 of Notes to Financial Statements in Item 8 for a
discussion of the electric  industry  restructuring  in Arizona,  including APS'
1999  Settlement  Agreement,  ACC rules for the  introduction of retail electric
competition,  and Arizona legislative initiatives.  See also "Financial Review -
Competition  and  Industry   Restructuring"  in  Item  7.  In  addition  to  the
introduction  of competition  pursuant to the  Settlement  Agreement and the ACC
rules,  APS is subject to varying degrees of competition in certain  territories
adjacent to or within  areas that APS serves that are also  currently  served by
other utilities in its region (such as Tucson Electric Power Company,  Southwest
Gas  Corporation,  and  Citizens  Utility  Company)  as  well  as  cooperatives,
municipalities,   electrical  districts,   and  similar  types  of  governmental
organizations (principally Salt River Project).

     APS faces  competitive  challenges  from low-cost  hydroelectric  power and
natural  gas fuel,  as well as the  access  of some  utilities  to  preferential
low-priced  federal  power and other  subsidies.  In addition,  some  customers,
particularly industrial and large commercial,  may own and operate facilities to
generate their own electric energy requirements. Such facilities may be operated
by the customers themselves or by other entities engaged for such purpose.

     WHOLESALE

     APS competes with other utilities,  power marketers,  and independent power
producers in the sale of electric  capacity and energy in the wholesale  market.
APS expects that competition to sell capacity will remain  vigorous.  APS' rates
for wholesale power sales and transmission services are subject to regulation by
the FERC.  During 1999,  approximately  23% of its electric  operating  revenues
resulted from such sales and charges.

     The National Energy Policy Act of 1992 has promoted  increased  competition
in the wholesale electric power markets.  The Energy Act reformed  provisions of
the Public  Utility  Holding  Company Act of 1935 and the  Federal  Power Act to
remove  certain  barriers  to  competition  for the supply of  electricity.  For
example,  the Energy Act permits the FERC to order transmission access for third
parties to transmission  facilities  owned by another entity so that independent
suppliers  and other third  parties can sell at wholesale to customers  wherever
located.  The  Energy Act does not,  however,  permit the FERC to issue an order
requiring transmission access to retail customers.

     Effective  July 9, 1996, a FERC  decision  requires all electric  utilities
subject to the FERC's  jurisdiction to file  transmission  tariffs which provide
competitors   with  access  to   transmission   facilities   comparable  to  the
transmission owners' access for wholesale transactions,  establishes information
requirements,  and provides for recovery of certain  wholesale  stranded  costs.
Retail stranded costs  resulting from a  state-authorized  retail  direct-access
program are the responsibility of the states,  unless a state lacks authority to
impose rates to recover such costs,  in which case FERC will consider  doing so.
APS has filed a revised open access tariff in accordance with this decision. APS
does not believe that this decision will have a material  adverse  impact on its
results of operations or financial position.

     REGULATORY ASSETS

     APS'  major   regulatory   assets  are  deferred   income  taxes  and  rate
synchronization  cost  deferrals.  As a result of APS' September 1999 Settlement
Agreement,  APS has  discontinued  the  application  of  Statement  of Financial
Accounting  Standards  No. 71,  "Accounting  for the Effects of Certain Types of
Regulation," for its generation  operations.  This means that regulatory assets,
unless  reestablished as recoverable  through ongoing regulated cash flows, were
eliminated and the generation assets were tested for impairment.  APS determined
that the generation assets were not impaired. Prior to the Settlement Agreement,
under a 1996  regulatory  agreement,  the ACC  accelerated  the  amortization of
substantially  all of APS' regulatory  assets to an eight-year period that would
have ended June 30, 2004. See Notes 1, 3, and 4 of Notes to Financial Statements
in Item 8 for additional information.

                                       3
<PAGE>
     COMPETITIVE STRATEGIES

     APS  is  pursuing  strategies  to  maintain  and  enhance  its  competitive
position. These strategies include (i) cost management,  with an emphasis on the
reduction of variable costs (fuel, operations,  and maintenance expenses) and on
increased productivity through technological efficiencies;  (ii) a focus on APS'
core  business  through  customer  service,   distribution  system  reliability,
business  segmentation,  and the anticipation of market opportunities;  (iii) an
emphasis on good regulatory relationships; (iv) asset maximization (e.g., higher
capacity factors and lower forced outage rates);  (v)  strengthening its capital
structure  and financial  condition;  (vi)  leveraging  core  competencies  into
related  areas,  such as energy  management  products  and  services;  and (vii)
operating a trading floor and implementing a risk management  program to provide
for more  stability  of prices  and the  ability  to retain or grow  incremental
margins through more competitive pricing and risk management.  Underpinning APS'
competitive  strategies  are the strong  growth  characteristics  of its service
territory.  As competition in the electric utility industry continues to evolve,
APS will continue to evaluate  strategies and alternatives that will position it
to compete effectively in a more competitive, restructured industry.

GENERATING FUEL AND PURCHASED POWER

     1999 ENERGY MIX

     APS'  sources of energy  during 1999 were:  coal - 29.9%;  nuclear - 22.4%;
purchased power - 43.2%; gas - 4.4%; and other - 0.1%.

     COAL SUPPLY

     LEASES NGS and Four Corners are located on the Navajo  Reservation and held
under  easements  granted by the federal  government  as well as leases from the
Navajo Nation.  See  "Properties-  Plant Sites Leased from the Navajo Nation" in
Item 2. Most of the coal for Cholla is supplied by a coal supplier who mines all
of the coal under a long-term lease of coal reserves owned by the Navajo Nation,
the federal government, and private landholders. Remaining coal requirements are
purchased on the spot market. All of the coal for Four Corners is purchased from
a coal  supplier  with a long-term  lease of coal  reserves  owned by the Navajo
Nation.  The coal for NGS comes from a supplier with a long-term  lease with the
Navajo Nation and the Hopi Tribe.  See Note 12 of Notes to Financial  Statements
in Item 8 for information regarding our obligation for coal mine reclamation.

     CONTRACTS Cholla  presently has sufficient coal under current  contracts to
ensure a reliable fuel supply through 2005.  Portions of the fuel supply are bid
on the spot market to take advantage of competitive  pricing options.  Following
expiration  of current  contracts,  there are numerous  competitive  fuel supply
options available to ensure continuous plant operation.  Cholla also has certain
requirements  for low  sulfur  coal and the  current  supplier  is  expected  to
continue to provide  most of Cholla's low sulfur coal  requirements  through the
current  contract.  There are  sufficient  reserves of low sulfur coal available
from other suppliers to ensure the continued  operation of Cholla for its useful
life.  The sulfur  content of coal at Cholla for 1999 was 0.47%.  Average prices
paid for all coal supplied from reserves dedicated under existing contracts were
slightly lower than,  but  comparable  to, 1998. For the years  remaining on the
contracts after 2000, prices will be reduced.

     Four Corners is a  mine-mouth  operation  which is under  contract for coal
through  2004.  There are options to extend the contract  through the plant site
lease  expiration in 2017.  The sulfur content of Four Corners coal for 1999 was
0.77%, and the units are equipped with scrubbers. The average price paid for all
coal  supplied  under  the  existing  contract  was  slightly  lower  than,  but
comparable  to,  1998.  The Four  Corners  lease  waives,  until July 2001,  the
requirement  that APS, as well as its fuel  supplier,  pay certain  taxes to the
Navajo Nation.  In September 1997, a settlement  agreement was finalized between
the coal  supplier,  the Navajo  Nation,  and Four Corners  participants,  which
settled  certain  issues  in the  lease  regarding  the  obligation  of the fuel
supplier to pay taxes prior to the  expiration of tax waivers in 2001.  Pursuant
to this agreement, the coal supplier currently pays a possessory interest tax to
the Navajo  Nation,  which is  contractually  reimbursed  by  participants.  The
parties also agreed to

                                       4
<PAGE>
investigate  alternative  contractual  arrangements  and business  relationships
before 2001 in an effort to permit the electricity  generated at Four Corners to
be priced competitively. APS anticipates that additional taxes will be levied by
the Navajo Nation upon the  expiration of the tax waivers;  however,  APS cannot
currently  predict the  outcome of this  matter or the amount of the  additional
taxes.

     NGS is under contract with its coal supplier  through 2011, with options to
extend through the plant site lease.  The sulfur content of coal at NGS for 1999
was 0.53%,  and the units are equipped  with  scrubbers.  Average price paid for
coal supplied in 1999 under the existing contract was lower than, but comparable
to, 1998.  The NGS lease waives  certain taxes  through the lease  expiration in
2019. The lease  provides for the potential to  renegotiate  the coal royalty in
2007 and 2017, which may impact the fuel price.

     NATURAL GAS SUPPLY

     APS is a party to  contracts  with a number of natural gas  suppliers  that
allow  it to  purchase  natural  gas in the  method  it  determines  to be  most
economic.  Currently,  APS  is  purchasing  the  majority  of  its  natural  gas
requirements  from numerous  companies under these  contracts.  APS' natural gas
supply is transported pursuant to a firm transportation service contract with El
Paso Natural Gas Company.  APS  continues to analyze the market to determine the
most favorable source and method of meeting its natural gas requirements.

     NUCLEAR FUEL SUPPLY

     The fuel cycle for Palo Verde is comprised of the following stages:

       *  the  mining  and  milling  of  uranium  ore  to  produce  uranium
          concentrates,
       *  the conversion of uranium concentrates to uranium hexafluoride,
       *  the enrichment of uranium hexafluoride,
       *  the fabrication of fuel assemblies,
       *  the utilization of fuel assemblies in reactors and
       *  the storage of spent fuel and the disposal thereof.

The Palo  Verde  participants  have  made  contractual  arrangements  to  obtain
quantities  of  uranium  concentrates  anticipated  to  be  sufficient  to  meet
operational  requirements  through 2002. Existing contracts and options could be
utilized to meet  approximately 88% of requirements in 2003, 88% of requirements
in 2004,  49% of  requirements  in  2005,  and 16% of  requirements  in 2006 and
beyond.  Spot purchases on the uranium market will be made, as  appropriate,  in
lieu of any uranium that might be obtained through contractual options.

     The  Palo  Verde   participants  have  contracted  for  uranium  conversion
services. Existing contracts and options could be utilized to meet approximately
70% of requirements in 2000, 75% of requirements in 2001 and 80% of requirements
in 2002. The Palo Verde participants have an enrichment services contract and an
enriched uranium product contract that furnish enrichment  services required for
the operation of the three Palo Verde units through 2003. In addition,  existing
contracts  will provide fuel assembly  fabrication  services until at least 2015
for each Palo Verde unit.

     SPENT NUCLEAR FUEL AND WASTE DISPOSAL. Pursuant to the Nuclear Waste Policy
Act of 1982, as amended in 1987, the United States  Department of Energy ("DOE")
is  obligated  to  accept  and  dispose  of all  spent  nuclear  fuel and  other
high-level  radioactive  wastes  generated by domestic power reactors.  The NRC,
pursuant to the Waste Act, requires operators of nuclear power reactors to enter
into spent fuel  disposal  contracts  with DOE.  Under the Waste Act, DOE was to
develop the  facilities  necessary for the storage and disposal of spent nuclear
fuel and to have the first such facility in operation by 1998. That facility was
to be a permanent  repository.  DOE has  announced  that such a  repository  now
cannot be  completed  before  2010.  In July 1996,  the United  States  Court of
Appeals for the District of Columbia  Circuit (D.C.  Circuit) ruled that the DOE
has an obligation to start disposing of spent nuclear fuel no later than January
31, 1998. By way of letter dated  December 17, 1996,  DOE informed APS and other
contract  holders  that  DOE  anticipates  that it  would  be  unable  to  begin
acceptance of spent nuclear

                                       5
<PAGE>
fuel for disposal in a  repository  or interim  storage  facility by January 31,
1998. In November  1997, the D.C.  Circuit issued a Writ of Mandamus  precluding
DOE from  excusing  its own delay on the grounds that DOE has not yet prepared a
permanent  repository  or interim  storage  facility.  On May 5, 1998,  the D.C.
Circuit  issued a ruling  refusing to order DOE to begin  moving  spent  nuclear
fuel.  See  "Palo  Verde  Nuclear  Generating  Station"  in Note 12 of  Notes to
Financial  Statements  in Item 8 for a discussion  of interim spent fuel storage
costs.

     Several  bills  have  been   introduced  in  Congress   contemplating   the
construction of a central interim storage facility; however, there is resistance
to certain features of these bills both in Congress and the Administration.

     Facility funding is a further complication. While all nuclear utilities pay
into a so-called  nuclear  waste fund an amount  calculated  on the basis of the
output of their respective plants, the annual  Congressional  appropriations for
the permanent  repository  have been for amounts less than the amounts paid into
the  waste  fund  (the  balance  of  which is being  used for  other  purposes).
According to DOE spokespersons,  the fund may now be at a level less than needed
to achieve a 2010 operational date for a permanent  repository.  No funding will
be available for a central interim facility until one is authorized by Congress.

     APS has  storage  capacity  in existing  fuel  storage  pools at Palo Verde
which,  with certain  modifications,  could  accommodate all fuel expected to be
discharged from normal operation of Palo Verde through about 2002.  Construction
of a new facility  for on-site dry storage of spent fuel is underway.  Once this
facility is completed and  approvals  are granted,  APS believes that spent fuel
storage or disposal methods will be available for use by Palo Verde to allow its
continued operation beyond 2002.

     A new low-level  waste facility was built in 1995 on-site which could store
an amount of waste  equivalent  to ten years of normal  operation at Palo Verde.
Although some low-level waste has been stored on-site, APS is currently shipping
low-level  waste to off-site  facilities.  APS  currently  believes that interim
low-level  waste storage  methods are or will be available for use by Palo Verde
to allow its  continued  operation and to safely store  low-level  waste until a
permanent disposal facility is available.

     APS believes that  scientific and financial  aspects of the issues of spent
fuel and low-level  waste  storage and disposal can be resolved  satisfactorily.
However,  APS also  acknowledges  that  their  ultimate  resolution  in a timely
fashion  will  require  political  resolve and action on national  and  regional
scales which APS is less able to predict.

PURCHASED POWER AGREEMENTS

     In  addition  to that  available  from  its own  generating  capacity  (see
"Properties"  in Item 2), APS purchases  electricity  from other utilities under
various arrangements. One of the most important of these is a long-term contract
with Salt River Project.  This contract may be canceled by Salt River Project on
three years' notice and requires Salt River Project to make  available,  and APS
to pay for,  certain amounts of electricity.  The amount of electricity is based
in large part on customer demand within certain areas now served by APS pursuant
to a related  territorial  agreement.  The generating  capacity available to APS
pursuant to the contract was 316 MW January  through May 1999, and starting June
1999 changed to 302 MW. In 1999,  APS received  approximately  1,056,200  MWh of
energy under the contract and paid about $43.9 million for capacity availability
and  energy  received.  See  Note  3 of  Notes  to  Financial  Statements  for a
discussion of amendments to this contract and other  agreements  with Salt River
Project.

     In September 1990, APS entered into a thirty year agreement under which APS
and PacifiCorp engage in one-for-one  seasonal capacity exchanges.  APS receives
electricity from PacifiCorp during APS' summer peak season. APS will have 480 MW
of generating capacity available to it under the agreements until 2020. In 1999,
APS had 480 MW of generating capacity available from PacifiCorp and APS received
approximately 572,382 MWh of energy under the capacity exchange.

                                       6
<PAGE>
CONSTRUCTION PROGRAM

     During the years 1997 through 1999, APS incurred approximately $962 million
in capital expenditures. Utility capital expenditures for the years 2000 through
2002 are expected to be primarily for expanding  transmission  and  distribution
capabilities to meet customer growth,  upgrading  existing  facilities,  and for
environmental  purposes.  Capitalized  expenditures,  including expenditures for
environmental  control  facilities,  for the years 2000  through  2002 have been
estimated as follows:

                       (MILLIONS OF DOLLARS)
          BY YEAR                               BY MAJOR FACILITIES
          -------                               -------------------
2000                  $  384        Production                           $  255
2001                     342        Transmission and Distribution           691
2002                     334        General                                 114
                      ------                                             ------
     Total            $1,060             Total                           $1,060
                      ======                                             ======

     The amounts for 2000 through 2002 exclude  capitalized  interest  costs and
include  capitalized  property  taxes and about  $30-$35  million  each year for
nuclear fuel. APS conducts a continuing review of its construction program.

MORTGAGE REPLACEMENT FUND REQUIREMENTS

     So  long  as any of APS'  first  mortgage  bonds  are  outstanding,  APS is
required for each  calendar  year to deposit with the trustee under its mortgage
cash in a formularized  amount related to net additions to its mortgaged utility
plant. APS may satisfy all or any part of this "replacement fund" requirement by
utilizing  redeemed  or retired  bonds,  net  property  additions,  or  property
retirements.   For  1999,  the   replacement   fund   requirement   amounted  to
approximately  $143  million.  Certain  of the  bonds APS has  issued  under the
mortgage that are callable  prior to maturity are  redeemable at their par value
plus accrued  interest with cash APS deposits in the  replacement  fund. This is
subject  in many cases to a period of time after the  original  issuance  of the
bonds during which they may not be so redeemed.

ENVIRONMENTAL MATTERS

     EPA ENVIRONMENTAL REGULATION

     CLEAN AIR ACT. APS is subject to a number of  requirements  under the Clean
Air Act. Pursuant to the Clean Air Act, the EPA adopted regulations that address
visibility  impairment  in  certain   federally-protected  areas  which  can  be
reasonably  attributed to specific sources.  In September 1991, the EPA issued a
final rule that  limited  sulfur  dioxide  emissions at NGS. One NGS unit had to
comply  with this  rule in 1997,  one in 1998,  and the last unit in 1999.  Salt
River Project is the NGS operating agent. Salt River Project estimates a capital
cost  of  $430  million  and  annual   operations  and   maintenance   costs  of
approximately   $14  million  for  all  three  units,  for  NGS  to  meet  these
requirements.  APS is required to fund 14% of these  expenditures.  About all of
these capital costs have been incurred.

     The Clean Air Act also addresses, among other things:

          *  "acid rain,"
          *  visibility in certain specified areas,
          *  hazardous air pollutants and
          *  areas  that  have  not  attained  national  ambient  air  quality
             standards.

With  respect to "acid rain," the Clean Air Act  establishes  a system of sulfur
dioxide emissions  "allowances." Each existing utility unit is granted a certain
number  of  "allowances."  For  Phase II  plants,  which  include  APS'  plants,
allowances  will be required  beginning  in the year 2000 to operate the plants.
Based on EPA allowance allocations,

                                       7
<PAGE>
APS has  sufficient  allowances to permit  continued  operation of its plants at
current levels without installing additional equipment.

     The Clean Air Act also  requires the EPA to set nitrogen  oxides  emissions
limitations.  These  limitations  require  certain plants to install  additional
pollution control equipment. In December 1996, the EPA issued rules for nitrogen
oxides emissions  limitations that would have required APS to install additional
pollution  control equipment at Four Corners by January 1, 2000. On February 14,
1997,  APS filed a Petition for Review in the United States Court of Appeals for
the District of Columbia.  APS alleged that the EPA improperly  classified  Four
Corners Unit 4 in these rules,  thereby  subjecting  Unit 4 to a more  stringent
emission   limitation.   ARIZONA  PUBLIC   SERVICE   COMPANY  V.  UNITED  STATES
ENVIRONMENTAL  PROTECTION  AGENCY,  No.  97-1091.  In February  1998,  the Court
vacated  the  Unit 4  emission  limitation  and  remanded  the  issue to EPA for
reconsideration.  In December 1999,  EPA's direct final rule,  which  classified
Four Corners Unit 4 as APS had proposed,  became  final.  APS does not currently
expect this rule to have a material impact on its financial  position or results
of operations.

     With respect to protection of visibility in certain  specified  areas,  the
Clean  Air  Act  requires  the EPA to  conduct  a  study  concerning  visibility
impairment  in  those  areas  and  to  identify  sources  contributing  to  such
impairment.  Interim findings of this study indicate that any beneficial  effect
on  visibility  as a result of the  Clean  Air Act  would be offset by  expected
population and industry growth. The Clean Air Act also requires EPA to establish
a  "Grand  Canyon  Visibility  Transport  Commission"  to  complete  a study  on
visibility  impairment in the "Golden Circle of National  Parks" in the Colorado
Plateau.  NGS,  Cholla,  and Four Corners are located near the Golden  Circle of
National  Parks.  The  Commission  completed  its  study  and on June  10,  1996
submitted its final recommendations to the EPA.

     On April 22, 1999, the EPA announced  final regional haze rules.  These new
regulations require states to submit, by 2008,  implementation  plans containing
requirements to eliminate all man-made emissions causing  visibility  impairment
in certain specified areas, including the Golden Circle of National Parks in the
Colorado Plateau. The 2008 implementation plans must also include  consideration
and potential  application of best available  retrofit  technology  ("BART") for
major  stationary  sources  which came into  operation  between  August 1962 and
August 1977, such as the Navajo Generating Station,  Cholla Power Plant and Four
Corners Power Plant. The nine western states and tribes that participated in the
Grand Canyon  Visibility  Transport  Commission  process will have the option to
follow an alternate implementation plan and schedule for areas considered by the
Commission.   Under  this   option,   those   states  and  tribes  would  submit
implementation  plans by 2003,  which would  incorporate the emission  reduction
scheme adopted in the  Commission's  recommendations  and application of BART by
2018,  possibly using an emission  trading  program.  Any states and tribes that
implement this option will also have to submit revised  implementation  plans in
2008 to address  visibility in certain  specified areas that were not considered
by the Commission.  Because Arizona and the Navajo Nation have the discretion to
choose  between the  national or  Commission  options and a variety of pollution
controls to meet the  requirements of the regional haze rules, the actual impact
on APS cannot be determined at this time.

     Also, in July 1997,  EPA  promulgated  final  National  Ambient Air Quality
Standards for ozone and  particulate  matter.  Pursuant to the rules,  the ozone
standard is more  stringent and a new ambient  standard for very fine  particles
has been  established.  Congress  has enacted  legislation  that could delay the
implementation of regional haze requirements and the particulate  matter ambient
standard.  These standards were  challenged and the court  determined that EPA's
promulgation  of  the  standards  violated  the  constitutional  prohibition  on
delegation of legislative power. The court remanded the ozone standard,  vacated
the coarse  particulate  matter  standard,  and invited the parties to brief the
court on vacating or remanding the fine particulate matter standard.  APS cannot
currently  predict EPA's response to this decision.  Because the actual level of
emissions controls,  if any, for any unit cannot be determined at this time, APS
currently cannot estimate the capital  expenditures,  if any, which would result
from the final rules. However, APS does not currently expect these rules to have
a material adverse effect on its financial position or results of operations.

     With respect to hazardous air pollutants  emitted by electric utility steam
generating  units,  the Clean Air Act requires  two studies.  The results of the
first  study  indicated  an impact  from  mercury  emissions  from such units in
certain  unspecified  areas.  The EPA has not yet stated  whether or not mercury
emissions limitations will be

                                       8
<PAGE>
imposed.  Secondly,  the EPA will  complete  a general  study by  December  2000
concerning  the necessity of regulating  hazardous air pollutant  emissions from
such  units  under the Clean Air Act.  Because  APS cannot  speculate  as to the
ultimate  requirements  by the EPA,  APS cannot  currently  estimate the capital
expenditures, if any, which may be required as a result of these studies.

     Certain  aspects  of the  Clean  Air Act may  require  APS to make  related
expenditures,  such as permit  fees.  APS does not expect any of these to have a
material impact on its financial position or results of operations.

     FEDERAL  IMPLEMENTATION PLAN. In September 1999, the EPA proposed a Federal
Implementation  Plan  ("FIP") to set air  quality  standards  at  certain  power
plants,  including  the Navajo  Generating  Station and the Four  Corners  Power
Plant.  The comment  period on this proposal  ended in November 1999. The FIP is
similar to current Arizona  regulation of NGS and New Mexico  regulation of Four
Corners,  with minor modifications.  APS does not currently expect FIP to have a
material impact on its financial position or results of operations.

     SUPERFUND.  The Comprehensive  Environmental  Response,  Compensation,  and
Liability Act ("Superfund")  establishes  liability for the cleanup of hazardous
substances  found  contaminating  the soil,  water, or air. Those who generated,
transported,  or disposed of hazardous  substances  at a  contaminated  site are
among  those  who are  potentially  responsible  parties  ("PRPs").  PRPs may be
strictly, and often jointly and severally,  liable for the cost of any necessary
remediation of the substances.  The EPA had previously  advised APS that the EPA
considers APS to be a PRP in the Indian Bend Wash  Superfund  Site,  South Area.
Our  Ocotillo  Power  Plant is located in this  area.  APS is in the  process of
conducting an  investigation  to determine the extent and scope of contamination
at the  plant  site.  Based  on the  information  to date,  including  available
insurance  coverage  and an EPA estimate of cleanup  costs,  APS does not expect
this matter to have a material  impact on its  financial  position or results of
operations.

     MANUFACTURED  GAS PLANT SITES.  APS is currently  investigating  properties
which  APS now owns or  which  were at one  time  owned by APS or its  corporate
predecessors,  that  were at one  time  sites  of,  or  sites  associated  with,
manufactured gas plants. The purpose of this investigation is to determine if:

          *    waste materials are present
          *    such materials constitute an environmental or health risk and
          *    APS has any responsibility for remedial action.

Where appropriate, APS has begun remediation of certain of these sites. APS does
not expect  these  matters to have a material  adverse  effect on its  financial
position or results of operations.

     PURPORTED NAVAJO ENVIRONMENTAL REGULATION

     Four  Corners  and NGS are located on the Navajo  Reservation  and are held
under  easements  granted by the federal  government  as well as leases from the
Navajo Nation. APS is the Four Corners operating agent. APS owns a 100% interest
in Four Corners  Units 1, 2, and 3, and a 15%  interest in Four Corners  Units 4
and 5. APS owns a 14% interest in NGS Units 1, 2, and 3.

     In July 1995,  the Navajo  Nation  enacted the Navajo  Nation Air Pollution
Prevention  and Control Act, the Navajo Nation Safe Drinking  Water Act, and the
Navajo Nation Pesticide Act  (collectively,  the "Acts").  Pursuant to the Acts,
the Navajo Nation  Environmental  Protection  Agency is authorized to promulgate
regulations  covering air quality,  drinking  water,  and pesticide  activities,
including  those that occur at Four Corners and NGS. By separate  letters  dated
October 12 and October  13,  1995,  the Four  Corners  participants  and the NGS
participants  requested the United  States  Secretary of the Interior to resolve
their dispute with the Navajo Nation regarding  whether or not the Acts apply to
operations  of Four  Corners  and NGS.  On October 17,  1995,  the Four  Corners
participants and the NGS participants each filed a lawsuit in the District Court
of the Navajo  Nation,  Window Rock  District,  seeking,  among other things,  a
declaratory judgment that

                                       9
<PAGE>
          *    their  respective  leases  and  federal  easements  preclude  the
               application of the Acts to the operations of Four Corners and NGS
               and
          *    the Navajo  Nation and its agencies and courts lack  adjudicatory
               jurisdiction  to  determine  the  enforceability  of the  Acts as
               applied to Four Corners and NGS.

On October 18, 1995, the Navajo Nation and the Four Corners and NGS participants
agreed to indefinitely stay these proceedings so that the parties may attempt to
resolve the dispute without litigation.  The Secretary and the Court have stayed
these  proceedings  pursuant to a request by the parties.  APS cannot  currently
predict the outcome of this matter.

     In  February  1998,  the  EPA  promulgated   regulations  specifying  those
provisions  of the  Clean Air Act for which it is  appropriate  to treat  Indian
tribes in the same manner as states. The EPA indicated that it believes that the
Clean Air Act generally would supersede pre-existing binding agreements that may
limit the scope of tribal  authority over  reservations.  On April 10, 1998, APS
filed a  Petition  for  Review in the United  States  Court of  Appeals  for the
District  of  Columbia.   ARIZONA  PUBLIC  SERVICE   COMPANY  V.  UNITED  STATES
ENVIRONMENTAL  PROTECTION  AGENCY,  No.  98-1196.  On February 19, 1999, the EPA
promulgated  regulations  setting  forth the EPA's  approach to issuing  Federal
operating permits to covered stationary sources on Indian reservations. On April
15, 1999,  APS filed a Petition for Review in the United States Court of Appeals
for the District of Columbia.  ARIZONA PUBLIC  SERVICE  COMPANY V. UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY, No. 99-1146.

WATER SUPPLY

     Assured supplies of water are important for APS' generating  plants. At the
present time,  APS has adequate  water to meet its needs.  However,  conflicting
claims to  limited  amounts  of water in the  southwestern  United  States  have
resulted in numerous court actions in recent years.

     Both  groundwater  and surface water in areas  important to APS' operations
have been the subject of inquiries,  claims,  and legal  proceedings  which will
require a number of years to  resolve.  APS is one of a number of  parties  in a
proceeding  before a state court in New Mexico to adjudicate  rights to a stream
system from which water for Four  Corners is derived.  (STATE OF NEW MEXICO,  IN
THE RELATION OF S.E. REYNOLDS, STATE ENGINEER VS. UNITED STATES OF AMERICA, CITY
OF FARMINGTON,  UTAH  INTERNATIONAL,  INC., ET AL., San Juan County, New Mexico,
District Court No. 75-184). An agreement reached with the Navajo Nation in 1985,
however,  provides  that if Four  Corners  loses a portion  of its rights in the
adjudication,  the Navajo  Nation will  provide,  for a  then-agreed  upon cost,
sufficient water from its allocation to offset the loss.

     A summons  served on APS in early 1986 required all water  claimants in the
Lower Gila River Watershed in Arizona to assert any claims to water on or before
January 20, 1987, in an action pending in Maricopa County Superior Court. (IN RE
THE GENERAL ADJUDICATION OF ALL RIGHTS TO USE WATER IN THE GILA RIVER SYSTEM AND
SOURCE,  Supreme Court Nos. WC-79-0001 through WC-79-0004  (Consolidated) [WC-1,
WC-2, WC-3 and WC-4 (Consolidated)],  Maricopa County Nos. W-1, W-2, W-3 and W-4
(Consolidated)). Palo Verde is located within the geographic area subject to the
summons. APS' rights and the rights of the Palo Verde participants to the use of
groundwater  and effluent at Palo Verde is  potentially at issue in this action.
As project  manager of Palo Verde,  APS filed  claims  that  dispute the court's
jurisdiction  over the Palo  Verde  participants'  groundwater  rights and their
contractual rights to effluent relating to Palo Verde. Alternatively,  APS seeks
confirmation of such rights.  Three of APS' less-utilized  power plants are also
located within the geographic  area subject to the summons.  APS' claims dispute
the court's  jurisdiction  over its  groundwater  rights  with  respect to these
plants.  Alternatively,  APS seeks  confirmation  of such  rights.  The  Arizona
Supreme Court recently  issued a decision  confirming  that certain  groundwater
rights may be available to the federal  government  and Indian  tribes.  APS and
other  parties  have  petitioned  the U.S.  Supreme  Court  for  review  of this
decision.  Another  issue  important  to the  claims is pending on appeal to the
Arizona  Supreme Court.  No trial date  concerning  APS' water rights claims has
been set in this matter.

                                       10
<PAGE>
     APS has also filed claims to water in the Little  Colorado River  Watershed
in Arizona in an action pending in the Apache County Superior Court.  (IN RE THE
GENERAL  ADJUDICATION  OF ALL RIGHTS TO USE WATER IN THE LITTLE  COLORADO  RIVER
SYSTEM AND SOURCE,  Supreme Court No.  WC-79-0006 WC-6, Apache County No. 6417).
APS'  groundwater  resource  utilized  at Cholla is within the  geographic  area
subject to the adjudication  and is therefore  potentially at issue in the case.
APS' claims  dispute  the  court's  jurisdiction  over its  groundwater  rights.
Alternatively,  APS seeks  confirmation  of such rights.  The parties are in the
process of settlement  negotiations  with respect to this matter.  No trial date
concerning APS' water rights claims has been set in this matter.

     Although the foregoing  matters remain subject to further  evaluation,  APS
expects that the described litigation will not have a material adverse impact on
its financial position or results of operations.

                     BUSINESS OF SUNCOR DEVELOPMENT COMPANY

     SunCor was  incorporated in 1965 under the laws of the State of Arizona and
is engaged primarily in the acquisition,  ownership, development, operation, and
sale of land and other real property,  including homes and commercial buildings.
The  principal  executive  offices of SunCor are located at 3838 North  Central,
Suite 1500,  Phoenix,  Arizona 85012  (telephone  602-285-6800).  SunCor and its
subsidiaries,   excluding  SunCor  Resort  &  Golf  Management,   Inc.  ("Resort
Management"), employ approximately 140 persons. Resort Management, which manages
the Wigwam Resort and Country Club (the  "Wigwam"),  employs between 620 and 750
persons at the Wigwam,  depending on the Wigwam's operating season. In addition,
Resort  Management  operates  four golf courses and three  family  entertainment
operations, which together employ about 350 people.

     SunCor's assets consist  primarily of land and  improvements and other real
estate  investments.  SunCor's  major  asset is the Palm Valley  project,  which
consists  of over  7,000  acres and is  located  west of  Phoenix in the area of
Goodyear/Litchfield  Park,  Arizona  ("Palm  Valley").  SunCor has completed the
master  plan  for  development  of  Palm  Valley.  There  has  been  significant
residential  and  commercial  development  at Palm Valley by SunCor and by other
developers  that have acquired  land from SunCor or entered into joint  ventures
with  SunCor.   Development  at  Palm  Valley  currently  includes   residential
communities,  including  a  retirement  community,  with golf  courses,  hotels,
restaurants,  commercial  and retail  outlets,  a  hospital,  and  assisted-care
facilities.

     Other  SunCor  projects  under  development  include  seven  master-planned
communities and four commercial projects.  The four commercial projects and four
of the  master-planned  communities  are  located  in the  Phoenix  area.  Other
master-planned  communities are located near Sedona,  Arizona, St. George, Utah,
and Santa Fe, New Mexico. Several of the master-plan and commercial projects are
joint ventures with other developers, financial partners, or landowners.

     For the past three years,  SunCor's  operating  revenues were about:  1999,
$130.2 million;  1998, $125.4 million;  and 1997, $123.6 million. For those same
periods, SunCor's net income was about: 1999, $6.1 million; 1998, $44.7 million;
and 1997,  $5.3  million.  About  $37.2  million  of  SunCor's  1998 net  income
represents  income  related  to the  recognition  of a deferred  tax asset.  The
deferred  tax  asset  relates  to  net  operating   losses  and  book/tax  basis
differences.  SunCor is expected to realize these benefits in subsequent periods
pursuant to an intercompany tax allocation  agreement.  On a consolidated basis,
there was no impact to consolidated  net income.  SunCor's capital needs consist
primarily of capital expenditures for land development and home construction for
SunCor's  homebuilding  subsidiary,  Golden Heritage Homes, Inc. On the basis of
projects now under development, SunCor expects capital needs over the next three
years to be 2000, $53 million; 2001, $43 million; and 2002, $51 million.

     At December 31, 1999,  SunCor had total assets of about $437  million.  See
Note  6 of  Notes  to  the  Consolidated  Financial  Statements  in  Item  8 for
information  regarding  SunCor's  long-term debt. SunCor intends to continue its
focus  on  real  estate  development  in  homebuilding  and the  development  of
residential, commercial, and industrial projects.

                                       11
<PAGE>
                    BUSINESS OF EL DORADO DEVELOPMENT COMPANY

     El Dorado was  incorporated  in 1983 under the laws of the State of Arizona
and is engaged principally in the business of making equity investments in other
companies.  El  Dorado's  short-term  goal is to  convert  its  venture  capital
portfolio to cash as quickly and as advantageously  as possible.  On a long-term
basis,  we may  use El  Dorado,  when  appropriate,  as our  subsidiary  for new
ventures  that  are  strategic  to  our   principal   business  of   generating,
distributing,  and marketing electricity. El Dorado's offices are located at 400
East  Van  Buren  Street,   Suite  800,   Phoenix,   Arizona  85004   (telephone
602-379-2589).

     At December  31, 1999,  El Dorado had an  investment  in a venture  capital
partnership at a carrying amount of $21.3 million. In addition,  El Dorado had a
54% interest in a privately  held company and limited  partnership  interests in
two professional sports teams.

     For the past three  years,  El Dorado's  net income was:  $11.5  million in
1999,  $4.5 million in 1998,  and $8.2 million in 1997. At December 31, 1999, El
Dorado had total assets of $36.6 million.

                  BUSINESS OF APS ENERGY SERVICES COMPANY, INC.

     APS Energy Services was incorporated in 1998 under the laws of the State of
Arizona and is engaged  principally in the business of selling unregulated power
and related services.  APS Energy Services' principal offices are located at 400
East Van Buren Street,  Station 8103,  Phoenix,  Arizona 85004  (telephone (602)
250-5000).

                  BUSINESS OF PINNACLE WEST ENERGY CORPORATION

     Pinnacle West Energy Corporation was incorporated in 1999 under the laws of
the  State  of  Arizona  and  is  engaged  principally  in the  business  of the
development  and  production  of wholesale  energy.  Pinnacle West Energy is the
subsidiary through which we intend to conduct our future unregulated  generation
operations.  Pinnacle West Energy's  principal  offices are located at 400 North
Fifth Street, Station 8987, Phoenix, Arizona 85004 (telephone (602) 250-4145).

     Pinnacle  West  Energy's  capital  expenditures  in 1999 were $21  million.
Projected  capital  expenditures are $152 million in 2000; $240 million in 2001;
and $245 million in 2002.

                                       12
<PAGE>
                               ITEM 2. PROPERTIES

ACCREDITED CAPACITY

     APS' present generating facilities have an accredited capacity as follows:

                                                                   Capacity(kW)
                                                                   ------------
Coal:
  Units 1, 2, and 3 at Four Corners ............................     560,000
  15% owned Units 4 and 5 at Four Corners ......................     222,000
  Units 1, 2, and 3 at Cholla Plant ............................     615,000
  14% owned Units 1, 2, and 3 at the Navajo Plant ..............     315,000
                                                                   ---------
                                                                   1,712,000
                                                                   ---------
Gas or Oil:
  Two steam units at Ocotillo and two steam units at Saguaro....     435,000(1)
  Eleven combustion turbine units ..............................     493,000
  Three combined cycle units ...................................     255,000
                                                                   ---------
                                                                   1,183,000
                                                                   ---------
Nuclear:
  29.1% owned or leased Units 1, 2, and 3 at Palo Verde ........   1,086,300
                                                                   ---------

Other ..........................................................       5,600
                                                                   ---------

  Total ........................................................   3,986,900
                                                                   =========
----------
(1)  West Phoenix steam units (108,300 kW) are currently mothballed.

                                   ----------
RESERVE MARGIN

     APS' 1999 peak  one-hour  demand on its  electric  system was  recorded  on
August 24,  1999 at  4,934,700  kW,  compared to the 1998 peak of  5,027,000  kW
recorded on July 16. Taking into account  additional  capacity then available to
APS under  traditional  long-term  purchase power  contracts as well as APS' own
generating capacity, APS' capability of meeting system demand on August 24, 1999
amounted to 4,754,600 kW, for an installed  reserve margin of (4.4%).  The power
actually available to APS from its resources fluctuates from time to time due in
part to planned  outages and technical  problems.  The  available  capacity from
sources actually operable at the time of the 1999 peak amounted to 3,587,100 kW,
for  a  margin  of  (27.5%).  Firm  purchases,   including  short-term  seasonal
purchases,  totaling 1,643,000 kW were in place at the time of the peak ensuring
the ability to meet the load requirement, with an actual reserve margin of 9.1%.

                                       13
<PAGE>
PLANT SITES LEASED FROM NAVAJO NATION

     LEASES NGS and Four Corners are located on land held under  easements  from
the federal  government and also under leases from the Navajo Nation.  These are
long term agreements with options to extend, and we do not believe that the risk
with respect to  enforcement  of these  easements  and leases is  material.  The
majority  of coal  contracted  for use in these  plants and  certain  associated
transmission lines are also located on Indian reservations. See "Generating Fuel
and Purchased Power -- Coal Supply" in Item 1.

     TAX AND ROYALTY See "Generating Fuel and Purchased Power -- Coal Supply" in
Item 1 for a  discussion  of  changes  in the  amount of  royalty  payments  and
expiration of tax waivers under the NGS and Four Corners leases.

PALO VERDE NUCLEAR GENERATING STATION

     PALO VERDE LEASES

     See Note 10 of Notes to Consolidated  Financial  Statements in Item 8 for a
discussion of three sale and leaseback  transactions  related to Palo Verde Unit
2.

     REGULATORY

     Operation  of each of the three  Palo Verde  units  requires  an  operating
license from the NRC. The NRC issued full power operating licenses for Unit 1 in
June 1985,  Unit 2 in April 1986,  and Unit 3 in November  1987.  The full power
operating licenses, each valid for a period of approximately 40 years, authorize
APS, as operating agent for Palo Verde, to operate the three Palo Verde units at
full power.

     NUCLEAR DECOMMISSIONING COSTS

         The NRC recently amended its rules on financial assurance  requirements
for the  decommissioning  of nuclear  power  plants.  The amended  rules  became
effective on November 23, 1998.  The amended  rules  provide that a licensee may
use an external sinking fund as the exclusive  financial  assurance mechanism if
the licensee  recovers  estimated  total  decommissioning  costs through cost of
service  rates or  through  a  "non-bypassable  charge."  Other  mechanisms  are
prescribed,  including prepayment, if the requirements for exclusive reliance on
the external  sinking fund  mechanism are not met. APS  currently  relies on the
external sinking fund mechanism to meet the NRC financial assurance requirements
for its interests in Palo Verde Units 1, 2, and 3. The decommissioning  costs of
Palo Verde Units 1, 2, and 3 are currently included in ACC jurisdictional rates.
ACC rules regarding the  introduction of retail electric  competition in Arizona
(see Note 3 of Notes to Consolidated  Financial  Statements)  currently  provide
that decommissioning  costs would be recovered through a non-bypassable  "system
benefits"  charge,  which would allow APS to maintain its external  sinking fund
mechanism.  See Note 2 of Notes to Consolidated  Financial  Statements in Item 8
for additional information about nuclear decommissioning costs.

     PALO VERDE LIABILITY AND INSURANCE MATTERS

     See  "Palo  Verde  Nuclear  Generating  Station"  in  Note 12 of  Notes  to
Consolidated  Financial  Statements  in Item 8 for a discussion of the insurance
maintained by the Palo Verde participants, including APS, for Palo Verde.

OTHER INFORMATION REGARDING PROPERTIES

     See  "Environmental  Matters" and "Water  Supply" in Item 1 with respect to
matters having possible impact on the operation of certain of APS' power plants.

                                       14
<PAGE>
     See  "Construction  Program"  in Item 1 and  "Financial  Review -- Capital
Needs and Resources" in Item 7 for a discussion of APS' construction plans.

     See Notes 6, 10, and 11 of Notes to  Consolidated  Financial  Statements in
Item 8 with  respect to property of the Company not held in fee or held  subject
to any major encumbrance.

INFORMATION REGARDING PROPERTIES OF SUNCOR

     See  "Business of SunCor  Development  Company" for  information  regarding
SunCor's properties.

                                       15
<PAGE>

                                   [MAP PAGE]

     In accordance  with Item 304 of Regulation S-T of the  Securities  Exchange
Act of 1934, APS' Service  Territory map contained in this Form 10-K is a map of
the State of Arizona  showing APS' service area, the location of its major power
plants and principal  transmission lines, and the location of transmission lines
operated by APS for others.  The major  power  plants  shown on such map are the
Navajo Generating Station located in Coconino County,  Arizona; the Four Corners
Power Plant located near Farmington, New Mexico; the Cholla Power Plant, located
in Navajo County,  Arizona;  the Yucca Power Plant,  located near Yuma, Arizona;
and the Palo Verde Nuclear  Generating  Station,  located about 55 miles west of
Phoenix, Arizona (each of which plants is reflected on such map as being jointly
owned  with  other  utilities),  as well as the  Ocotillo  Power  Plant and West
Phoenix Power Plant, each located near Phoenix,  Arizona,  and the Saguaro Power
Plant, located near Tucson, Arizona. APS' major transmission lines shown on such
map are  reflected  as running  between the power plants named above and certain
major cities in the State of Arizona. The transmission lines operated for others
shown on such map are reflected as running from the Four Corners Plant through a
portion of northern Arizona to the California border.

                                       16
<PAGE>
                            ITEM 3. LEGAL PROCEEDINGS

     APS In June 1999,  the Navajo  Nation  served  Salt  River  Project  with a
lawsuit  naming  Salt River  Project,  several  Peabody  Coal  Company  entities
("Peabody"), Southern California Edison Company and other defendants, and citing
various  claims in connection  with the  renegotiations  of the coal royalty and
lease  agreements  under  which  Peabody  mines  coal for the  Navajo and Mohave
Generating Stations. THE NAVAJO NATION V. PEABODY HOLDING COMPANY, INC., ET AL.,
United States District Court for the District of Columbia,  CA-99-0469-EGS.  APS
is a 14% owner of Navajo Generating Station,  which Salt River Project operates.
The suit alleges,  among other things,  that the defendants obtained a favorable
coal  royalty  rate  by  improperly   influencing   the  outcome  of  a  federal
administrative process under which the royalty rate was to be adjusted. The suit
seeks $600 million in damages, treble damages, punitive damages of not less than
$1 billion,  and the ejection of defendants  "from all possessory  interests and
Navajo Tribal lands" arising out of the [primary coal lease]. Salt River Project
has advised APS that it denies all charges and will  vigorously  defend  itself.
Because the litigation is in preliminary  stages,  APS cannot currently  predict
the outcome of this matter.

     See  "Environmental  Matters"  and  "Water  Supply"  in Item 1 in regard to
pending or threatened litigation and other disputes. See "Regulatory Matters" in
Note 3 of Notes to Consolidated  Financial Statements in Item 8 for a discussion
of  competition  and the rules  regarding the  introduction  of retail  electric
competition  in Arizona and related  litigation.  In December  1999, APS filed a
lawsuit to protect its legal rights  regarding  the rules,  and in the complaint
APS asked the Court for (i) a judgment vacating the retail electric  competition
rules, (ii) a declaratory  judgment that the rules are unlawful  because,  among
other things,  they were entered into without  proper legal  authorization,  and
(iii) a permanent  injunction barring the ACC from enforcing or implementing the
rules and from  promulgating  any other  regulations  without lawful  authority.
ARIZONA PUBLIC SERVICE COMPANY V. ARIZONA CORPORATION COMMISSION, CV99-21907. On
August 28,  1998,  APS filed two  lawsuits to protect its legal rights under the
stranded cost order and in its  complaints the Company asked the Court to vacate
and set aside the order.  ARIZONA PUBLIC SERVICE COMPANY V. ARIZONA  CORPORATION
COMMISSION,  CV 98-15728.  ARIZONA PUBLIC SERVICE COMPANY V. ARIZONA CORPORATION
COMMISSION, 1-CA-CC-98-0008.

                       ITEM 4. SUBMISSION OF MATTERS TO A
                            VOTE OF SECURITY HOLDERS

     Not applicable.

                                       17
<PAGE>
                               SUPPLEMENTAL ITEM.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are as follows:

Name                Age at March 1, 2000   Position(s) at March 1, 2000
----                --------------------   ----------------------------
Robert S. Aiken             43             Vice President, Federal Affairs
John G. Bohon               54             Vice President, Corporate Services &
                                             Human Resources
Jack E. Davis               53             President, APS Energy Delivery &
                                             Sales
Armando B. Flores           56             Executive Vice President, Corporate
                                             Business Services
Edward Z. Fox               46             Vice President, Communications,
                                             Environment & Safety
Chris N. Froggatt           42             Vice President & Controller
Barbara M. Gomez            45             Treasurer
James L.  Kunkel            62             Vice President
James M. Levine             50             Executive Vice President, APS
                                             Generation
Nancy C. Loftin             46             Vice President & General Counsel
Michael V. Palmeri          41             Vice President, Finance
William J.  Post            49             President and Chief Executive
                                             Officer(1)
Martin L. Shultz            55             Vice President, Government Affairs
Richard Snell               69             Chairman of the Board of
                                             Directors (1)
William L. Stewart          56             President, APS Generation
Faye Widenmann              51             Vice President and Secretary

----------
(1)  member of the Board of Directors

     The  executive  officers  of the  Company  are  elected  no less often than
annually  and may be removed by the Board of  Directors  at any time.  The terms
served  by the named  officers  in their  current  positions  and the  principal
occupations  (in addition to those stated in the table) of such officers for the
past five years have been as follows:

     Mr. Aiken was elected to his present  position in July 1999.  Prior to that
time he was the Company's Manager, Federal Affairs (November 1986-July 1999).

     Mr. Bohon was elected to his present  position in July 1999.  Prior to that
time he was Vice  President,  Corporate  Services  and  Human  Resources  of APS
(October 1998-July 1999), Vice President, Procurement of APS (April 1997-October
1998) and Director, Corporate Services of APS (December 1989-April 1997).

     Mr.  Davis was elected to his present  position in October  1998.  Prior to
that  time  he  was  Executive  Vice  President,  Commercial  Operations  of APS
(September 1996-October 1998) and Vice President, Generation and Transmission of
APS (June 1993-September 1996). Mr. Davis is a director of APS.

     Mr. Flores was elected to his present  position in July 1999. Prior to that
time,  he was  Executive  Vice  President,  Corporate  Business  Services of APS
(October 1998-July 1999), Senior Vice President,  Corporate Business Services of
APS (September  1996-October  1998) and Vice  President,  Human Resources of APS
(December 1991-September 1996).

     Mr. Fox was  elected to his present  position  in July 1999.  Prior to that
time he was  Vice  President,  Environmental/Health/Safety  and  New  Technology
Ventures of APS  (October  1995-July  1999),  Director,  Arizona  Department  of
Environmental  Quality and Chairman,  Wastewater Management Authority of Arizona
(July 1991-September 1995).

                                       18
<PAGE>
     Mr.  Froggatt  was elected to his present  position in July 1999.  Prior to
that  time  he was  Controller  of  APS  (July  1997-July  1999)  and  Director,
Accounting Services of APS (December 1992-July 1997).

     Ms. Gomez was elected to her present position in August 1999. Prior to that
time,  she was Manager,  Treasury  Operations  of APS  (1997-1999)  and Manager,
Financial Planning of APS (1994-1997).  She was also elected Treasurer of APS in
October 1999.

     Mr. Kunkel was elected Vice President effective December 15, 1997. Prior to
December 1997, he was a partner with the accounting firm PricewaterhouseCoopers,
successor to Coopers & Lybrand,  in both their Los Angeles and Phoenix  offices.
Mr. Kunkel is also a director of Aztar Corporation.

     Mr. Levine was elected to his present  position in July 1999. Prior to that
time  he was  Senior  Vice  President,  Nuclear  Generation  of  APS  (September
1996-July  1999)  and  Vice  President,  Nuclear  Production  of APS  (September
1989-September 1996).

     Ms.  Loftin  was  elected to her  present  position  in July 1999.  She was
elected to the  positions of Vice  President  and Chief Legal  Counsel of APS in
September 1996.  Prior to that time, she was Secretary of APS (since April 1987)
and Corporate  Counsel of APS (since February  1989).  She was also elected Vice
President and General Counsel of APS in July 1999.

     Mr.  Palmeri was elected to his present  position in August 1999.  Prior to
that time he was Treasurer of APS and Pinnacle West (July 1997-September  1999),
Assistant  Treasurer of Pinnacle West (February  1994-July  1997) and Manager of
Finance of Pinnacle  West (June  1990-February  1994).  He also was elected Vice
President, Finance of APS in October 1999.

     Mr. Post was elected President effective August,  1999, and Chief Executive
Officer  effective  February  1999.  He has served as an officer of the  Company
since 1995 in the following capacities: from August 1999 to present as President
and  Chief  Executive  Officer;  from  February  1999 to  August  1999 as  Chief
Executive  Officer;  from February 1997 to February 1999 as President;  and from
June 1995 to February  1997 as  Executive  Vice  President.  He was also elected
President and Chief Executive  Officer of APS in February 1997. In October 1998,
he resigned as President and maintained the position of Chief Executive  Officer
of APS. He was APS' Chief Operating Officer (September  1994-February  1997), as
well as a Senior  Vice  President  of APS since  June 1993.  Mr.  Post is also a
director of APS and Blue Cross-Blue Shield of Arizona.

     Mr. Shultz was elected to his current  position in July 1999. Prior to that
time he held the position of Director of Government Relations for APS (1988-July
1999).

     Mr. Snell has been Chairman of the Board of the Company and Chairman of the
Board of APS  since  February  1990.  Until  February  1999,  he was also  Chief
Executive  Officer of the Company,  and until February 1997, he was President of
the  Company.  Mr.  Snell is also a director  of Aztar  Corporation  and Central
Newspapers, Inc.

     Mr. Stewart was elected to his present  position in October 1998.  Prior to
that  time  he was  Executive  Vice  President,  Generation  of  APS  (September
1996-October   1998),  and  Executive  Vice  President,   Nuclear  of  APS  (May
1994-September 1996). Mr. Stewart is a director of APS.

     Ms.  Widenmann was elected to her current  position in July 1999.  Prior to
that time, she held the position of Secretary (since 1985) and Vice President of
Corporate  Relations and  Administration  (since  November  1986).  She was also
elected Vice President and Secretary of APS in July 1999.


                                       19
<PAGE>
                                     PART II

                     ITEM 5. MARKET FOR REGISTRANT'S COMMON
                    STOCK AND RELATED SECURITY HOLDER MATTERS

     Our common stock is publicly held and is traded on the New York and Pacific
Stock  Exchanges.  At the close of business on March 27, 2000,  our common stock
was held of record by approximately 42,645 shareholders.

     The chart below sets forth the common stock price  ranges on the  composite
tape, as reported in the Wall Street  Journal for 1999 and 1998.  The chart also
sets forth the dividends  declared during each of the four quarters for 1999 and
1998.

                     COMMON STOCK PRICE RANGES AND DIVIDENDS

                        HIGH             LOW          DIVIDEND PER SHARE(a)
                        ----             ---          ---------------------
    1999
    1st Quarter        43 3/8          35 15/16            $ .325
    2nd Quarter        42 15/16        36 1/4                .650
    3rd Quarter        41 5/16         34 11/16                --
    4th Quarter        38 1/8          30 3/16               .350

    1998
    1st Quarter        45              39 3/8              $ .300
    2nd Quarter        46 3/16         42                    .600
    3rd Quarter        45 9/16         40 1/16                 --
    4th Quarter        49 1/4          41 5/8                .325

----------
(a)  Dividends for the third quarter of 1999 and 1998 were declared in June.

                                       20
<PAGE>
ITEM 6. SELECTED CONSOLIDATED DATA
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                 1999            1998         1997           1996            1995
                                             -----------     -----------   -----------    -----------     -----------
<S>                                          <C>             <C>           <C>            <C>             <C>
OPERATING RESULTS
Operating revenues
 Electric                                    $ 2,293,184     $ 2,006,398   $ 1,878,553    $ 1,718,272     $ 1,614,952
 Real estate                                     130,169         124,188       116,473         99,488          54,846
Income from continuing operations            $   269,772     $   242,892   $   235,856    $   211,059 (a) $   199,608
Discontinued operations                           38,000 (d)          --            --         (9,539)(b)          --
Extraordinary charge - net of income tax        (139,885)(e)          --            --        (20,340)(c)     (11,571)(c)
                                             -----------     -----------   -----------    -----------     -----------
      Net income                             $   167,887     $   242,892   $   235,856    $   181,180     $   188,037
                                             ===========     ===========   ===========    ===========     ===========
Common Stock Data

Book value per share - year-end              $     26.00     $     25.50   $     23.90    $     22.51     $     21.49
Earnings (loss) per average common
 share outstanding
 Continuing operations - basic               $      3.18     $      2.87   $      2.76    $      2.41 (a) $      2.28
 Discontinued operations                            0.45              --            --          (0.11)             --
 Extraordinary charge                              (1.65)             --            --          (0.23)          (0.13)
                                             -----------     -----------   -----------    -----------     -----------
 Net income - basic                          $      1.98     $      2.87   $      2.76    $      2.07     $      2.15
                                             ===========     ===========   ===========    ===========     ===========
 Continuing operations - diluted             $      3.17     $      2.85   $      2.74    $      2.40 (a) $      2.27
 Net income - diluted                        $      1.97     $      2.85   $      2.74    $      2.06     $      2.14
Dividends declared per share                 $     1.325     $     1.225   $     1.125    $     1.025     $     0.925
Indicated annual dividend rate - year-end    $      1.40     $      1.30   $      1.20    $      1.10     $      1.00
Average common shares outstanding - basic     84,717,135      84,774,218    85,502,909     87,441,515      87,419,300
Average common shares outstanding - diluted   85,008,527      85,345,946    86,022,709     88,021,920      87,884,226

TOTAL ASSETS                                 $ 6,608,506     $ 6,824,546   $ 6,850,417    $ 6,989,289     $ 6,997,052
                                             -----------     -----------   -----------    -----------     -----------
LIABILITIES AND EQUITY

Long-term debt less current maturities       $ 2,206,052     $ 2,048,961   $ 2,244,248    $ 2,372,113     $ 2,510,709
Other liabilities                              2,196,721       2,516,993     2,407,572      2,428,180       2,336,695
                                             -----------     -----------   -----------    -----------     -----------
                                               4,402,773       4,565,954     4,651,820      4,800,293       4,847,404
Minority interests
 Non-redeemable preferred stock of APS                --          85,840       142,051        165,673         193,561
 Redeemable preferred stock of APS                    --           9,401        29,110         53,000          75,000
Common stock equity                            2,205,733       2,163,351     2,027,436      1,970,323       1,881,087
                                             -----------     -----------   -----------    -----------     -----------
      Total liabilities and equity           $ 6,608,506     $ 6,824,546   $ 6,850,417    $ 6,989,289     $ 6,997,052
                                             ===========     ===========   ===========    ===========     ===========
</TABLE>

(a)  Includes  an  after-tax  charge of $18.9  million  ($0.22  per share) for a
     voluntary  severance  program  and about $12  million  ($0.13 per share) of
     income tax benefits related to capital loss carryforwards.
(b)  Charges,  net of tax,  associated  with the  settlement  of a legal  matter
     related to MeraBank, A Federal Savings Bank.
(c)  Charges  associated  with  the  repayment  or  refinancing  of  the  parent
     company's high-coupon debt.
(d)  Tax benefit  stemming from the resolution of income tax matters  related to
     MeraBank, A Federal Savings Bank.
(e)  Charges associated with a regulatory disallowance.

                                       21
<PAGE>
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                           1999           1998           1997           1996           1995
                                       -----------    -----------    -----------    -----------    -----------
<S>                                    <C>            <C>            <C>            <C>            <C>
ELECTRIC OPERATING REVENUES
Residential                            $   805,173    $   766,378    $   746,937    $   721,877    $   669,762
Commercial                                 733,038        699,016        687,988        678,130        653,425
Industrial                                 159,329        172,296        164,696        162,324        156,501
Irrigation                                   7,374          7,288          8,706          9,448          9,596
Other                                       11,708         10,644         11,842         13,078         12,631
                                       -----------    -----------    -----------    -----------    -----------
    Total retail                         1,716,622      1,655,622      1,620,169      1,584,857      1,501,915
Sales for resale                           506,877        300,698        226,828         98,560         86,510
Transmission for others                     11,348         11,058         10,295         10,240          9,390
Miscellaneous services                      58,337         39,020         21,261         24,615         17,137
                                       -----------    -----------    -----------    -----------    -----------
    Net electric operating revenues    $ 2,293,184    $ 2,006,398    $ 1,878,553    $ 1,718,272    $ 1,614,952
                                       ===========    ===========    ===========    ===========    ===========
ELECTRIC SALES (MWh)
Residential                              8,774,822      8,310,689      7,970,309      7,541,440      6,848,905
Commercial                               9,543,853      8,697,397      8,524,882      8,233,762      7,768,289
Industrial                               2,561,349      3,279,430      3,123,283      3,039,357      2,933,459
Irrigation                                  99,669         84,640        112,363        121,775        119,580
Other                                       94,877         90,927         86,090         84,362         78,478
                                       -----------    -----------    -----------    -----------    -----------
    Total retail                        21,074,570     20,463,083     19,816,927     19,020,696     17,748,711
Sales for resale                        15,693,834     10,317,391      9,233,573      3,367,234      2,720,704
                                       -----------    -----------    -----------    -----------    -----------
    Total electric sales                36,768,404     30,780,474     29,050,500     22,387,930     20,469,415
                                       ===========    ===========    ===========    ===========    ===========
ELECTRIC CUSTOMERS - END OF YEAR
Residential                                735,359        708,215        680,478        654,602        625,352
Commercial                                  86,707         83,506         81,246         78,178         75,105
Industrial                                   3,183          3,084          3,192          3,055          2,913
Irrigation                                     754            710            764            841            837
Other                                          932            895            851            828            786
                                       -----------    -----------    -----------    -----------    -----------
    Total retail                           826,935        796,410        766,531        737,504        704,993
Sales for resale                                73             67             50             48             39
                                       -----------    -----------    -----------    -----------    -----------
    Total electric customers               827,008        796,477        766,581        737,552        705,032
                                       ===========    ===========    ===========    ===========    ===========
</TABLE>

See "Financial Review" on pages 22-29 for a discussion of certain information in
the table above.

QUARTERLY STOCK PRICES AND DIVIDENDS STOCK SYMBOL: PNW

                                                                   Dividends
                                                                     Per
    1999               High             Low            Close        Share(a)
    ----               ----             ---            -----        --------
    1st  Quarter      43 3/8          35 15/16        36 3/8        $0.325
    2nd  Quarter      42 15/16        36 1/4          40 1/4        $0.650
    3rd  Quarter      41 5/16         34 11/16        36 3/8        $   --
    4th  Quarter      38 1/8          30 3/16         30 9/16       $0.350

                                                                  Dividends
                                                                    Per
     1998               High          Low           Close          Share(a)
     ----               ----          ---           -----          --------
     1st  Quarter      45            39 3/8        44 7/16         $0.300
     2nd  Quarter      46 3/16       42            45              $0.600
     3rd  Quarter      45 9/16       40 1/16       44 13/16        $   --
     4th  Quarter      49 1/4        41 5/8        42 3/8          $0.325

(a) Dividends for the 3rd quarter of 1999 and 1998 were declared in June.

                                       22
<PAGE>
ITEM 7. FINANCIAL REVIEW

In this  section,  we explain  the  results  of  operations,  general  financial
condition,  and outlook for Pinnacle West and our subsidiaries:  APS, SunCor, El
Dorado, APS Energy Services, and Pinnacle West Energy, including:

*  the changes in our earnings from 1998 to 1999 and from 1997 to 1998

*  the factors  impacting  our  business,  including  competition  and  electric
   industry restructuring

*  the effects of regulatory agreements on our results and outlook

*  our capital needs and resources - for APS and our other operations, and

*  our management of market risks.

APS,  our  major  subsidiary  and  Arizona's  largest  electric  utility,   with
approximately 827,000 customers,  provides wholesale and retail electric service
to the entire  state with the  exception  of Tucson  and about  one-half  of the
Phoenix  area.  APS  also  generates,   sells,  and  delivers   electricity  and
energy-related  products and services to wholesale  and retail  customers in the
western United States.  SunCor is a developer of  residential,  commercial,  and
industrial  projects on some 15,000 acres in Arizona,  New Mexico,  and Utah. El
Dorado is a  venture  capital  firm with a  diversified  portfolio.  APS  Energy
Services  was formed in 1998 and sells  energy and  energy-related  products and
services in competitive  retail  markets in the western United States.  Pinnacle
West Energy, which was formed in 1999, is the subsidiary through which we intend
to conduct our future unregulated generation operations.

Throughout this Financial  Review,  we refer to specific "Notes" in the Notes to
Consolidated Financial Statements that begin on page 37. These Notes add further
details to the discussion.

RESULTS OF OPERATIONS

1999 COMPARED WITH 1998

Our 1999  consolidated net income was $168 million compared with $243 million in
1998. The following is a summary:

                                                       1999            1998
                                                       ----            ----
                                                      (millions of dollars)

       APS                                            $ 267           $ 246
       APS Energy Services                               (9)             --
       SunCor                                             6              45
       El Dorado                                         11               5
       Parent Company                                    (5)            (53)
                                                      -----           -----
       Income from Continuing Operations                270             243
       Income Tax Benefit from
        Discontinued Operations                          38              --
       Extraordinary Charge --
        Net of Income Taxes of $94                     (140)             --
                                                      -----           -----
       Net Income                                     $ 168           $ 243
                                                      =====           =====

The income tax benefit from discontinued  operations resulted from resolution of
tax issues related to a former subsidiary, MeraBank, A Federal Savings Bank.

The  extraordinary  charge related to a regulatory  disallowance  which resulted
from APS'  comprehensive  Settlement  Agreement that was approved by the Arizona
Corporation  Commission  (ACC) in September  1999. See  "Regulatory  Agreements"
below  and  Notes  1 and 3  for  additional  information  about  the  regulatory
disallowance and the Settlement Agreement.

APS' earnings before extraordinary charge increased
$21 million - a 9% increase - over 1998 earnings  primarily because of increases
in the number of  customers  and in the average  amount of  electricity  used by
customers and lower financing costs. These positive impacts more than offset the
effects of retail electricity price reductions and higher utility operations and
maintenance  expense.  See Note 3 for  additional  information  about  the price
reductions.

In 1999,  electric  operating  revenues increased $287 million primarily because
of:

*  increased power marketing and trading revenues ($219 million)

*  increases in the number of customers  and the average  amount of  electricity
   used by customers ($81 million) and

*  miscellaneous factors ($9 million).

                                       23
<PAGE>
As mentioned above,  these positive factors were partially offset by the effects
of reductions in retail prices ($22 million).

The  increase  in power  marketing  revenues  resulted  from  higher  prices and
increased  activity  in western  U.S.  bulk power  markets.  The  revenues  were
accompanied  by  an  increase  in  purchased  power  expenses.   Although  these
activities  contributed positively to earnings in both periods, the contribution
in 1999 was lower than in 1998.

APS' utility operations and maintenance expenses increased $18 million primarily
because of $19 million of  non-recurring  items  recorded  in 1999,  including a
provision for certain  environmental costs. Other increases primarily related to
customer  growth  were more  than  offset by lower  employee  benefit  costs and
movement of certain marketing functions to APS Energy Services in early 1999.

APS Energy Services recorded a loss of $9 million in 1999,
its first  year of  operations.  Income  tax  benefits  related  to the loss are
recorded  at the  parent  company.  In 1999,  the loss  consisted  primarily  of
operating expenses, which were partially offset by revenues as new markets began
to open for retail electricity competition.

Our real estate subsidiary, SunCor Development,  reported earnings of $6 million
in 1999 compared with $45 million in 1998.  SunCor's 1998 earnings  included $37
million related to the recording of a deferred tax asset by SunCor in connection
with its  intercompany  tax sharing  agreement with Pinnacle West.  Income taxes
related to SunCor's  pretax  income are now being  recorded by SunCor.  Prior to
1998,  the income tax  effects  related to  SunCor's  income and losses were not
recorded  at SunCor  due to net  operating  losses.  On an  after-tax  basis and
excluding  the effects of the  deferred  tax asset,  SunCor's  contributions  to
consolidated  earnings  were $6  million  in  1999  and $5  million  in 1998 - a
significant  percentage  increase  in net income  from  operations  for the real
estate subsidiary.

El Dorado Investment Company,  our investment  subsidiary,  reported earnings of
$11 million in 1999 compared with $5 million in 1998.  The  improvement  related
primarily   to  the   increased   value   of  El   Dorado's   investment   in  a
technology-related venture capital partnership; this investment is revalued on a
quarterly basis.

1998 COMPARED WITH 1997

Our 1998  consolidated net income was $243 million compared with $236 million in
1997 - a 3.0% increase. The following is a summary:


                                                   1998            1997
                                                   ----            ----
                                                   (millions of dollars)

       APS                                         $246           $ 239
       SunCor                                        45               5
       El Dorado                                      5               8
       Parent Company                               (53)            (16)
                                                   ----           -----
       Net Income                                  $243           $ 236
                                                   ====           =====

APS' 1998  earnings  increased  $7 million - a 3%  increase  over 1997  earnings
primarily  because of an increase in  customers,  expanded  power  marketing and
trading activities, and lower financing costs. In the comparison, these positive
factors  more than  offset  the  effects  of milder  weather,  the prior  year's
benefits of the two fuel-related  settlements recorded in 1997, and retail price
reductions. See Note 3 for additional information about the price reductions.

In 1998,  electric  operating  revenues increased $128 million primarily because
of:

*  increased power marketing and trading revenues ($94 million)

*  increases in the number of customers  and the average  amount of  electricity
   used by customers ($77 million) and

*  miscellaneous factors ($8 million).

As mentioned above,  these positive factors were partially offset by the effects
of milder weather ($33 million) and reductions in retail prices ($18 million).

                                       24
<PAGE>
The  increase  in power  marketing  revenues  resulted  from  higher  prices and
increased  activity in western U.S. bulk power  markets.  The revenue  increases
were  accompanied by an increase in purchased power expenses.  These  activities
contributed positively to earnings in both periods; the contribution in 1998 was
higher than in 1997.

The two  fuel-related  settlements  increased 1997 pretax  earnings by about $21
million.  The income statement  reflects these settlements as reductions in fuel
expense and as other income.

Operations and maintenance  expense  increased $14 million  primarily because of
customer growth, initiatives related to competition,  and expansion of our power
marketing and trading function.

Depreciation and amortization expense increased $11 million because APS had more
plant in service.

Financing costs decreased by $16 million  primarily  because of lower amounts of
outstanding debt and APS preferred stock.

Before the effects of recording  deferred taxes under its tax sharing agreement,
the earnings  contribution from our real estate subsidiary,  SunCor Development,
increased  $3  million  as a  result  of an  increase  in land  sales.  SunCor's
stand-alone net income in 1998 was $45 million,  of which $37 million represents
income  related to the  recognition  of a deferred  tax asset.  The deferred tax
asset relates to net operating losses and book/tax basis differences.  SunCor is
expected to realize these benefits in subsequent  periods  pursuant to an inter-
company tax allocation  agreement.  On a consolidated  basis,  Pinnacle West had
already  recognized the income tax benefits;  therefore,  there was no impact on
consolidated net income in 1998.

The contribution from El Dorado, our investment subsidiary, decreased $3 million
as a result of a decrease in investment sales.

REGULATORY AGREEMENTS

Regulatory agreements approved by the ACC affect the results of APS' operations.
The following  discussion  focuses on three agreements  approved by the ACC: the
1999  Settlement  Agreement to implement  retail  electric  competition;  a 1996
agreement that  accelerated the  amortization of APS' regulatory  assets;  and a
1994  settlement  that  included  accelerated   amortization  of  APS'  deferred
investment tax credits (ITCs).

As part of the 1999 Settlement  Agreement,  APS reduced rates for standard offer
service for  customers  with loads less than 3  megawatts  in a series of annual
retail electric price  reductions of 1.5% beginning July 1, 1999 through July 1,
2003, for a total of 7.5%. The first reduction of approximately $24 million ($14
million  after income  taxes)  included  the July 1, 1999 retail price  decrease
related to the 1996 regulatory agreement (see below). For customers having loads
3  megawatts  or  greater,  standard  offer  rates  will be  reduced  in  annual
increments that total 5% through 2002.

Also,  under the  Settlement  Agreement a regulatory  disallowance  removed $234
million  before  income  taxes ($183  million net  present  value) from  ongoing
regulatory cash flows and was recorded as a net reduction of regulatory  assets.
This   reduction   ($140   million  after  income  taxes)  was  reported  as  an
extraordinary  charge on the income statement.  Before the ACC approved the 1999
Settlement  Agreement,  APS was recovering  substantially  all of its regulatory
assets through  accelerated  amortization  over an eight-year  period that would
have ended June 30, 2004 under the 1996 agreement. For more details, see Note 1.

The regulatory  assets to be recovered under this  Settlement  Agreement are now
being amortized as follows:

                              (millions of dollars)

                                                         1/1-6/30
      1999       2000      2001       2002       2003      2004       Total
      ----       ----      ----       ----       ----      ----       -----
      $164       $158      $145       $115        $86       $18       $686

                                       25
<PAGE>
Also,  as  part  of the  1996  regulatory  agreement,  APS  reduced  its  retail
electricity  prices by 3.4%  effective July 1, 1996.  This  reduction  decreased
annual  revenue by about $49 million  annually ($29 million after income taxes).
APS also agreed to share future cost savings with its customers  during the term
of the  agreement,  which  resulted in the  following  additional  retail  price
reductions:

*  $18 million  annually ($11 million after income  taxes),  or 1.2%,  effective
   July 1, 1997,

*  $17 million  annually ($10 million after income  taxes),  or 1.1%,  effective
   July 1, 1998, and

*  $11 million annually ($7 million after income taxes), or 0.7%, effective July
   1, 1999,  which was included in the July 1, 1999 1.5% price  reduction  under
   the 1999 Settlement Agreement.

As  part  of  the  1994  rate  settlement,   APS  accelerated   amortization  of
substantially all deferred investment tax credits (ITCs) over a five-year period
that ended on December 31,  1999.  The  amortization  of ITCs  decreased  annual
consolidated income tax expense by approximately $24 million. Beginning in 2000,
no further  benefits  will be  reflected  in income tax  expense  related to the
accelerated amortization of ITCs (see Note 4).

CAPITAL NEEDS AND RESOURCES

PINNACLE WEST (PARENT COMPANY)

During the past three years, our primary cash needs were for:

*  dividends to our shareholders

*  interest payments and

*  optional and mandatory repayment of principal on our long-term debt.

In addition, as part of the 1996 agreement with the ACC, we invested $50 million
annually in APS for the years 1996 through  1999.  The 1999 payment was the last
payment  under the 1996  regulatory  agreement  (see Note 3).  During  1997,  we
repurchased  $80 million of common  stock,  reducing our shares  outstanding  at
year-end 1997 by 2.7 million shares.

Our primary  sources of cash are dividends from our  subsidiaries.  During 1999,
APS paid $170 million in dividends to the parent.  In 1999, SunCor and El Dorado
declared  dividends to the parent of $20 million and $10 million,  respectively.
Combined  dividends  from  SunCor and El Dorado are  expected to be at least $25
million annually during the next several years; however, the aggregate amount of
those  dividends  depends  somewhat  on the status of the real  estate and stock
markets (particularly the technology sector).

Our long-term debt at December 31, 1999 was $106 million compared to $92 million
at December 31, 1998. We have a $250 million line of credit,  under which we had
$56 million of borrowings  outstanding  at December 31, 1999. We do not have any
principal debt repayment obligations until 2001.

APS

APS' capital requirements consist primarily of capital expenditures and optional
and  mandatory   redemptions  of  long-term  debt.  APS  pays  for  its  capital
requirements  with  cash  from its  operations  and,  to the  extent  necessary,
external financing.

As part of the 1996  regulatory  agreement,  APS received  annual cash infusions
from Pinnacle West of $50 million from 1996 through 1999. During the period from
1997 through 1999, APS paid for all of its capital  expenditures  with cash from
its operations. APS expects to do so in 2000 through 2002 as well.

APS' capital expenditures in 1999 were $332 million. APS'
projected  capital  expenditures  for the next three years are:  $384 million in
2000;  $342 million in 2001;  and $334 million in 2002.  These  amounts  include
about  $30-$35  million  each year for nuclear  fuel.  In  general,  most of the
projected capital expenditures are for:

*  expanding transmission and distribution  capabilities to meet customer growth

*  upgrading existing utility property and

*  environmental purposes.

                                       26
<PAGE>
During 1999,  APS redeemed  about $323 million of long-term debt and $96 million
of preferred stock, including premiums,  with cash from operations and long- and
short-term  debt.  APS no  longer  has  any  outstanding  preferred  stock.  Its
long-term debt redemption  requirements and payment obligations on a capitalized
lease for the next three years are  approximately:  $115  million in 2000;  $253
million  in 2001;  and $125  million in 2002.  In  addition,  APS made  optional
redemptions  of about $89 million of long-term  debt in January  2000.  Based on
market   conditions  and  optional  call  provisions,   APS  may  make  optional
redemptions of long-term debt from time to time.

As of December 31, 1999, APS had credit  commitments from various banks totaling
about $350  million,  which were  available  either to support  the  issuance of
commercial paper or to be used as bank  borrowings.  At the end of 1999, APS had
about  $38  million  of  commercial  paper and $50  million  of  long-term  bank
borrowings outstanding.

In February  1999,  APS issued $125 million of unsecured  long-term  debt and in
November 1999, APS issued $250 million of unsecured long-term debt.

Although  provisions  in APS' first  mortgage  bond  indenture and ACC financing
orders establish maximum amounts of additional first mortgage bonds that APS may
issue,  APS does not expect any of these provisions to limit its ability to meet
its capital requirements.

PINNACLE WEST ENERGY

We  are  currently  planning,  through  Pinnacle  West  Energy,  a  650-megawatt
expansion of our West Phoenix  Power Plant,  and the  construction  of a natural
gas-fired electric  generating station of up to 2,120 megawatts near Palo Verde,
called  Redhawk.  Pinnacle West Energy's  capital  expenditures in 1999 were $21
million.  Projected capital  expenditures for these projects are $152 million in
2000;  $240 million in 2001;  and $245 million in 2002. We are also  considering
additional expansion over the next several years, which may result in additional
expenditures.  Pinnacle West Energy's capital  expenditures  will be funded with
debt  proceeds,  and with  internally  generated cash and debt proceeds from the
parent  company.  Assuming  all  approvals  are  granted,  we  expect  to  begin
construction at West Phoenix in the second quarter of 2000.

Pinnacle  West  Energy has signed a joint  development  agreement  with  Reliant
Energy Power Generation,  Inc. (Reliant) covering  construction and operation of
three new merchant  plants.  Pinnacle West Energy plans to contribute  the first
two units  (1,060  megawatts)  of the  Redhawk  project to the joint  agreement.
Construction  is expected to start in the third quarter of 2000, with commercial
operation  scheduled in the summer of 2002.  Reliant plans to contribute two new
natural gas-fired projects (1,500 megawatts) in Nevada to the venture.

OTHER SUBSIDIARIES

During the past three years,  SunCor and El Dorado each funded all of their cash
requirements with cash from operations and their own external financings.

SunCor's  capital  needs  consist  primarily  of capital  expenditures  for land
development,  retail and office building construction, and home construction. On
the basis of projects now under  development,  SunCor expects capital needs over
the next three  years to be: $53 million in 2000;  $43 million in 2001;  and $51
million in 2002. Capital resources to meet these requirements include funds from
operations and SunCor's own external financings.

As of December 31, 1999,  SunCor had a $100 million line of credit,  under which
$94  million  of  borrowings  were  outstanding.  SunCor has no  principal  debt
repayment requirements for 2000, $30 million for 2001, and $64 million for 2002.

                                       27
<PAGE>
COMPETITION AND INDUSTRY RESTRUCTURING

The  electric  industry  is  undergoing  significant  change.  It is moving to a
competitive,   market-based   structure  from  a  highly-regulated,   cost-based
environment in which  companies have been entitled to recover their costs and to
earn fair returns on their invested capital in exchange for commitments to serve
all customers within designated service territories.  See "Results of Operations
-  Regulatory  Agreements"  and Note 3 for  additional  information  about  APS'
Settlement  Agreement  with the ACC  related  to the  implementation  of  retail
electric   competition,   the  ACC  rules  that  provide  a  framework  for  the
introduction of retail electric  competition in Arizona,  and other  competitive
developments, including an agreement with Salt River Project.

In May  1998,  a law  was  enacted  by the  Arizona  legislature  to  facilitate
implementation  of  retail  electric  competition  in the  state.  Additionally,
legislation  related to  electric  competition  has been  proposed in the United
States Congress. See Note 3 for a discussion of legislative developments.

We cannot  accurately  predict  the  impact of full  retail  competition  on our
financial position, cash flows, or results of operations.  As competition in the
electric industry  continues to evolve, we will continue to evaluate  strategies
and alternatives that will position us to compete  effectively in a restructured
industry.

APS prepares its financial  statements in accordance with Statement of Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types
of Regulation." SFAS No. 71 requires a cost-based,  rate-regulated enterprise to
reflect the impact of  regulatory  decisions in its financial  statements.  As a
result  of  the  Settlement   Agreement  (see  Note  3),  APS  discontinued  the
application  of SFAS No. 71 for its generation  operations.  This meant that the
generation  assets were tested for  impairment and the portion of the regulatory
assets  deemed to be  unrecoverable  through  ongoing  regulated  cash flows was
eliminated.  APS  determined  that the  generation  assets were not impaired.  A
regulatory  disallowance  ($140  million  after income taxes) was reported as an
extraordinary  charge  on  the  income  statement.  See  Note  1 for  additional
information on regulatory  accounting  and Note 3 for additional  information on
the Settlement Agreement.

YEAR 2000 READINESS DISCLOSURE

Some  companies  expected  to face  problems on January 1, 2000 in the case that
computer  systems and equipment  would not properly  recognize  calendar  dates.
During 1997, APS had initiated a comprehensive company-wide Year 2000 program to
review and resolve all Year 2000 issues in mission  critical systems in a timely
manner to ensure the reliability of electric  service to its customers.  We have
spent about $5 million to be Year 2000 ready.  To date, we have not  experienced
any material Year 2000 related  problems,  and we do not  anticipate  any in the
future.

ACCOUNTING MATTERS

We describe a new  standard on  accounting  for  derivatives  in Note 2. The new
standard on derivatives is effective for us in 2001. We are currently evaluating
what impact it will have on our  financial  statements.  Also,  see Note 2 for a
description of a proposed standard on accounting for certain liabilities related
to closure or removal of long-lived assets.

                                       28
<PAGE>
RISK MANAGEMENT

Our  operations  include  managing  market risks  related to changes in interest
rates,  commodity  prices,  and investments held by the nuclear  decommissioning
trust fund.

INTEREST RATE AND EQUITY RISK

Our major financial  market risk exposure is changing  interest rates.  Changing
interest  rates will affect  interest  paid on  variable-rate  debt and interest
earned by the nuclear decommissioning trust fund (see Note 13). Our policy is to
manage  interest  rates  through  the use of a  combination  of  fixed-rate  and
floating-rate debt. The nuclear  decommissioning  fund also has risks associated
with changing market values of equity investments. Nuclear decommissioning costs
are recovered in regulated electricity prices.

The tables below present  contractual  balances of our long-term and  short-term
debt at the  expected  maturity  dates  as  well  as the  fair  value  of  those
instruments  on December  31, 1999 and December  31,  1998.  The interest  rates
presented in the table below represent the weighted  average  interest rates for
the years ended December 31, 1999 and December 31, 1998.

<TABLE>
<CAPTION>
EXPECTED MATURITY/PRINCIPAL REPAYMENT - DECEMBER 31, 1999 (thousands of dollars)

                      Short-Term                Variable Long-Term             Fixed Long-Term
                ----------------------      -------------------------     -------------------------
                Interest Rates    Amount    Interest Rates     Amount     Interest Rates     Amount
                --------------    ------    --------------     ------     --------------     ------
<S>                 <C>          <C>            <C>           <C>             <C>           <C>
2000                5.33%        $38,300        10.25%        $     87        5.79%       $  114,711
2001                  --              --         7.00%         336,117        6.70%           27,488
2002                  --              --         8.47%          64,085        8.13%          125,000
2003                  --              --         5.51%          50,118        6.87%           25,000
2004                  --              --        10.25%             130        6.17%          205,000
Years thereafter      --              --         3.19%         479,727        7.87%          900,483
                                 -------                      --------                    ----------
Total                            $38,300                      $930,264                    $1,397,682
                                 -------                      --------                    ----------
Fair Value                       $38,300                      $930,264                    $1,366,968
                                 =======                      ========                    ==========

EXPECTED MATURITY/PRINCIPAL REPAYMENT - DECEMBER 31, 1998 (thousands of dollars)

                      Short-Term                Variable Long-Term             Fixed Long-Term
                ----------------------      -------------------------     -------------------------
                Interest Rates    Amount    Interest Rates     Amount     Interest Rates     Amount
                --------------    ------    --------------     ------     --------------     ------
1999                5.88%       $178,830        7.30%         $  3,268        7.24%       $  164,777
2000                  --              --        7.32%           25,756        5.79%          114,711
2001                  --              --        6.57%           93,472        6.70%           27,488
2002                  --              --       10.25%              119        8.13%          125,000
2003                  --              --        5.94%          125,131        6.87%           25,000
Years thereafter      --              --        3.43%          459,803        7.75%        1,058,963
                                --------                      --------                    ----------
Total                           $178,830                      $707,549                    $1,515,939
                                --------                      --------                    ----------
Fair Value                      $178,830                      $707,549                    $1,577,365
                                ========                      ========                    ==========
</TABLE>

                                       29
<PAGE>
COMMODITY PRICE RISK

APS  is  exposed  to  the  impact  of  market  fluctuations  in  the  price  and
distribution costs of electricity,  natural gas, coal, and emissions allowances.
APS employs established  procedures to manage risks associated with these market
fluctuations   by   utilizing   various   commodity    derivatives,    including
exchange-traded futures and options, and over-the-counter forwards, options, and
swaps.  As part of its overall risk  management  program,  APS enters into these
derivative  transactions for trading and to hedge certain natural gas in storage
as  well  as  purchases  and  sales  of   electricity,   fuels,   and  emissions
allowances/credits.

As of December 31, 1999, a  hypothetical  adverse  price  movement of 10% in the
market price of APS'  commodity  derivative  portfolio  would  decrease the fair
market value of these contracts by approximately $6 million.  This analysis does
not include the favorable impact this same hypothetical price move would have on
the underlying position being hedged with the commodity derivative portfolio.

APS is exposed to credit losses in the event of  non-performance  or non-payment
by  counterparties.  APS uses a credit management  process to assess and monitor
its  financial  exposure  to  counterparties.  APS does not expect  counterparty
defaults to materially impact its financial condition, results of operations, or
net cash flow.

FORWARD-LOOKING STATEMENTS

The above discussion contains forward-looking  statements that involve risks and
uncertainties.  Words such as "estimates,"  "expects,"  "anticipates,"  "plans,"
"believes,"   "projects,"  and  similar  expressions  identify   forward-looking
statements.  These risks and uncertainties  include, but are not limited to, the
ongoing  restructuring of the electric  industry;  the outcome of the regulatory
proceedings  relating to the restructuring;  regulatory,  tax, and environmental
legislation;  the ability of APS to successfully compete outside its traditional
regulated  markets;  regional economic  conditions,  which could affect customer
growth;  the cost of debt  and  equity  capital;  weather  variations  affecting
customer usage;  technological  developments in the electric industry; Year 2000
issues;  the strength of the stock market  (particularly the technology  sector)
and the strength of the real estate market.

These factors and the other matters  discussed above may cause future results to
differ  materially  from  historical  results,  or from  results or  outcomes we
currently expect or seek.

ITEM 7A. QUANTITATIVE AND QUALITAVE DISCLOSURES ABOUT MARKET RISK

See "Financial  Review" in Item 7 for a discussion of quantitative and qualitave
disclosures about market risk.

                                       30
<PAGE>
               ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE

Report of Management...................................................... 32
Independent Auditors' Report.............................................. 32
Consolidated Statements of Income for 1999, 1998, and 1997................ 33
Consolidated Balance Sheets as of December 31, 1999 and 1998 ............. 34
Consolidated Statements of Cash Flows for 1999, 1998 and 1997............. 36
Consolidated Statements of Retained Earnings for 1999, 1998 and 1997...... 37
Notes to Consolidated Financial Statements................................ 37
Financial Statement Schedule for 1999, 1998 and 1997
 Schedule II - Valuation and Qualifying Accounts for 1999,
 1998 and 1997............................................................ 58


See  Note  14 of  Notes  to  Financial  Statements  for the  selected  quarterly
financial data required to be presented in this Item.

                                       31
<PAGE>
REPORT OF MANAGEMENT AND INDEPENDENT AUDITORS' REPORT

REPORT OF MANAGEMENT

     The primary  responsibility for the integrity of our financial  information
rests with management,  which has prepared the accompanying financial statements
and related  information.  Such  information  was  prepared in  accordance  with
generally accepted accounting principles  appropriate in the circumstances,  and
based on management's best estimates and judgments.  These financial  statements
have been audited by independent auditors and their report is included.

     Management  maintains  and  relies  upon  systems  of  internal  accounting
controls.  A limiting  factor in all systems of internal  accounting  control is
that the cost of the  system  should  not exceed  the  benefits  to be  derived.
Management  believes that our system  provides the  appropriate  balance between
such costs and benefits.

     Periodically the internal accounting control system is reviewed by both our
internal auditors and our independent  auditors to test for compliance.  Reports
issued by the internal auditors are released to management,  and such reports or
summaries  thereof  are  transmitted  to the  Audit  Committee  of the  Board of
Directors and the independent auditors on a timely basis.

     The  Audit  Committee,   composed  solely  of  outside   directors,   meets
periodically  with the internal  auditors and  independent  auditors (as well as
management)  to review the work of each. The internal  auditors and  independent
auditors have free access to the Audit Committee, without management present, to
discuss the results of their audit work.

     Management  believes  that our  systems,  policies and  procedures  provide
reasonable  assurance that  operations are conducted in conformity  with the law
and with management's commitment to a high standard of business conduct.

William J. Post                         Chris N. Froggatt
President and                           Vice President and Controller
Chief Executive Officer


INDEPENDENT AUDITORS' REPORT

     We have audited the  accompanying  consolidated  balance sheets of Pinnacle
West Capital  Corporation and its  subsidiaries as of December 31, 1999 and 1998
and the related  consolidated  statements of income,  retained earnings and cash
flows for each of the three years in the period ended  December 31, 1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  such consolidated  financial statements present fairly, in
all  material  respects,   the  financial  position  of  Pinnacle  West  Capital
Corporation  and its  subsidiaries at December 31, 1999 and 1998 and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1999 in conformity with generally accepted  accounting
principles.

Deloitte & Touche LLP

Deloitte & Touche LLP
Phoenix, Arizona

February 18, 2000

                                       32
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                          -------------------------------------------
                                                              1999            1998            1997
                                                          -----------     -----------     -----------
<S>                                                       <C>             <C>             <C>
OPERATING REVENUES
 Electric                                                 $ 2,293,184     $ 2,006,398     $ 1,878,553
 Real estate                                                  130,169         124,188         116,473
                                                          -----------     -----------     -----------
      Total                                                 2,423,353       2,130,586       1,995,026
                                                          -----------     -----------     -----------
OPERATING EXPENSES
 Fuel and purchased power                                     796,109         545,297         443,571
 Utility operations and maintenance                           446,777         419,433         405,605
 Real estate operations                                       119,516         115,331         111,628
 Depreciation and amortization (Note 1)                       385,568         379,679         368,285
 Taxes other than income taxes                                 96,606         103,718         108,431
                                                          -----------     -----------     -----------
      Total                                                 1,844,576       1,563,458       1,437,520
                                                          -----------     -----------     -----------

OPERATING INCOME                                              578,777         567,128         557,506
                                                          -----------     -----------     -----------
OTHER INCOME (EXPENSE)
 Preferred stock dividend requirements of APS                  (1,016)         (9,703)        (12,803)
 Net other income and expense                                  10,793             609           4,569
                                                          -----------     -----------     -----------
      Total                                                     9,777          (9,094)         (8,234)
                                                          -----------     -----------     -----------

INCOME BEFORE INTEREST AND INCOME TAXES                       588,554         558,034         549,272
                                                          -----------     -----------     -----------
INTEREST expense
 Interest charges                                             162,381         169,145         182,838
 Capitalized interest                                         (11,664)        (18,596)        (19,703)
                                                          -----------     -----------     -----------
      Total                                                   150,717         150,549         163,135
                                                          -----------     -----------     -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES         437,837         407,485         386,137

INCOME TAXES (NOTE 4)                                         168,065         164,593         150,281
                                                          -----------     -----------     -----------

INCOME FROM CONTINUING OPERATIONS                             269,772         242,892         235,856
 Income tax benefit from discontinued operations               38,000              --              --
 Extraordinary charge - net of income taxes of $94,115       (139,885)             --              --
                                                          -----------     -----------     -----------

NET INCOME                                                $   167,887     $   242,892     $   235,856
                                                          ===========     ===========     ===========
AVERAGE COMMON SHARES OUTSTANDING - BASIC                  84,717,135      84,774,218      85,502,909

AVERAGE COMMON SHARES OUTSTANDING - DILUTED                85,008,527      85,345,946      86,022,709

EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
 Continuing operations - basic                            $      3.18     $      2.87     $      2.76
 Net income - basic                                              1.98            2.87            2.76
 Continuing operations - diluted                                 3.17            2.85            2.74
 Net income - diluted                                            1.97            2.85            2.74

DIVIDENDS DECLARED PER SHARE                              $     1.325     $     1.225     $     1.125
                                                          ===========     ===========     ===========
</TABLE>
See Notes to Consolidated Financial Statements.

                                       33
<PAGE>
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)

<TABLE>
<CAPTION>
                                                                       December 31,
                                                               --------------------------
                                                                  1999            1998
                                                               ----------      ----------
<S>                                                            <C>             <C>
ASSETS

CURRENT ASSETS
 Cash and cash equivalents                                     $   20,705       $  20,538
 Customer and other receivables - net                             244,599         233,876
 Accrued utility revenues                                          72,919          67,740
 Materials and supplies (at average cost)                          69,977          69,074
 Fossil fuel (at average cost)                                     21,869          13,978
 Deferred income taxes (Note 4)                                     8,163           3,999
 Other current assets                                              60,562          47,594
                                                               ----------      ----------
      Total current assets                                        498,794         456,799
                                                               ----------      ----------
INVESTMENTS AND OTHER ASSETS
 Real estate investments - net (Note 6)                           344,293         331,021
 Other assets (Note 13)                                           267,458         236,562
                                                               ----------      ----------
      Total investments and other assets                          611,751         567,583
                                                               ----------      ----------
UTILITY PLANT (NOTES 6, 10 AND 11)
 Electric plant in service and held for future use              7,546,314       7,265,604
 Less accumulated depreciation and amortization                 3,026,194       2,814,762
                                                               ----------      ----------
      Total                                                     4,520,120       4,450,842
 Construction work in progress                                    209,281         228,643
 Nuclear fuel, net of amortization of $66,357 and $68,569          49,114          51,078
                                                               ----------      ----------
      Net utility plant                                         4,778,515       4,730,563
                                                               ----------      ----------
DEFERRED DEBITS
 Regulatory assets (Notes 3 and 4)                                613,729         980,084
 Other deferred debits                                            105,717          89,517
                                                               ----------      ----------
      Total deferred debits                                       719,446       1,069,601
                                                               ----------      ----------
TOTAL ASSETS                                                   $6,608,506      $6,824,546
                                                               ==========      ==========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       34
<PAGE>
(thousands of dollars)

<TABLE>
<CAPTION>
                                                                       December 31,
                                                               --------------------------
                                                                  1999            1998
                                                               ----------      ----------
<S>                                                            <C>             <C>
LIABILITIES AND EQUITY

CURRENT LIABILITIES
 Accounts payable                                              $  186,524      $  155,800
 Accrued taxes                                                     70,510          62,520
 Accrued interest                                                  33,253          31,866
 Short-term borrowings (Note 5)                                    38,300         178,830
 Current maturities of long-term debt (Note 6)                    114,798         168,045
 Customer deposits                                                 26,098          28,510
 Other current liabilities                                         26,007          14,632
                                                               ----------      ----------
      Total current liabilities                                   495,490         640,203
                                                               ----------      ----------

LONG-TERM DEBT LESS CURRENT MATURITIES (NOTE 6)                 2,206,052       2,048,961
                                                               ----------      ----------
DEFERRED CREDITS AND OTHER
 Deferred income taxes (Note 4)                                 1,183,855       1,343,536
 Deferred investment tax credit (Note 4)                            3,830          27,345
 Unamortized gain - sale of utility plant                          73,212          77,787
 Other                                                            440,334         428,122
                                                               ----------      ----------
      Total deferred credits and other                          1,701,231       1,876,790
                                                               ----------      ----------

COMMITMENTS AND CONTINGENCIES (NOTES 3, 12 AND 13)

MINORITY INTERESTS (NOTE 7)
 Non-redeemable preferred stock of APS                                 --          85,840
                                                               ----------      ----------
 Redeemable preferred stock of APS                                     --           9,401
                                                               ----------      ----------
COMMON STOCK EQUITY (NOTE 8)
 Common stock, no par value; authorized 150,000,000
  shares; issued and outstanding 84,824,947 at end
  of 1999 and 1998                                              1,537,449       1,550,643
 Retained earnings                                                668,284         612,708
                                                               ----------      ----------
      Total common stock equity                                 2,205,733       2,163,351
                                                               ----------      ----------

TOTAL LIABILITIES AND EQUITY                                   $6,608,506      $6,824,546
                                                               ==========      ==========
</TABLE>
                                       35
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                    -----------------------------------------
                                                       1999            1998           1997
                                                    ---------       ---------       ---------
<S>                                                 <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations                   $ 269,772       $ 242,892       $ 235,856
Items not requiring cash
  Depreciation and amortization                       385,568         379,679         368,285
  Nuclear fuel amortization                            31,371          32,856          32,702
  Deferred income taxes - net                         (17,413)         41,262          24,809
  Deferred investment tax credit                      (23,514)        (23,516)        (23,518)
  Other - net                                         (12,476)          1,190          (3,854)
Changes in current assets and liabilities
  Customer and other receivables - net                (10,723)        (50,369)        (14,270)
  Accrued utility revenues                             (5,179)         (9,181)         (3,089)
  Materials, supplies and fossil fuel                  (8,794)         (2,797)          7,793
  Other current assets                                (12,968)         (6,186)           (109)
  Accounts payable                                     28,193          34,386         (54,882)
  Accrued taxes                                        12,591         (22,090)          2,197
  Accrued interest                                      1,387          (1,108)         (6,678)
  Other current liabilities                            15,047          (5,235)        (23,087)
(Increase) decrease in land held                      (12,542)         33,405          33,010
Other - net                                            (4,720)        (39,350)         48,254
                                                    ---------       ---------       ---------
Net Cash Flow Provided By Operating Activities        635,600         605,838         623,419
                                                    ---------       ---------       ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                 (343,448)       (319,142)       (307,876)
Capitalized interest                                  (11,664)        (18,596)        (19,703)
Other - net                                           (16,143)         (2,144)         (3,124)
                                                    ---------       ---------       ---------
Net Cash Flow Used For Investing Activities          (371,255)       (339,882)       (330,703)
                                                    ---------       ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt                            607,791         148,229         146,013
Short-term borrowings - net                          (140,530)         48,080         113,850
Dividends paid on common stock                       (112,311)       (103,849)        (96,160)
Repurchase and retirement of common stock                  --              --         (79,997)
Repayment of long-term debt                          (510,693)       (286,314)       (325,526)
Redemption of preferred stock                         (96,499)        (75,517)        (47,201)
Other - net                                           (11,936)         (3,531)         (2,897)
                                                    ---------       ---------       ---------
Net Cash Flow Used For Financing Activities          (264,178)       (272,902)       (291,918)
                                                    ---------       ---------       ---------

NET CASH FLOW                                             167          (6,946)            798

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR         20,538          27,484          26,686
                                                    ---------       ---------       ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR            $  20,705       $  20,538       $  27,484
                                                    =========       =========       =========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       36
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(thousands of dollars)

<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                    -----------------------------------------
                                                       1999            1998           1997
                                                    ---------       ---------       ---------
<S>                                                 <C>             <C>             <C>
Retained Earnings At Beginning of Year              $ 612,708       $ 473,665       $ 333,969

Net Income                                            167,887         242,892         235,856

Common Stock Dividends                               (112,311)       (103,849)        (96,160)
                                                    ---------       ---------       ---------

Retained Earnings at End of Year                    $ 668,284       $ 612,708       $ 473,665
                                                    =========       =========       =========
</TABLE>

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION AND NATURE OF OPERATIONS

     The consolidated financial statements include the accounts of Pinnacle West
and our subsidiaries:  APS, SunCor, El Dorado, APS Energy Services, and Pinnacle
West Energy.

     APS, our major  subsidiary and Arizona's  largest  electric  utility,  with
approximately  827,000 customers,  provides wholesale or retail electric service
to the entire  state with the  exception  of Tucson  and about  one-half  of the
Phoenix  area.  APS  also  generates,   sells,  and  delivers   electricity  and
energy-related  products and services to wholesale  and retail  customers in the
western United States.  SunCor is a developer of  residential,  commercial,  and
industrial  projects on some 15,000 acres in Arizona,  New Mexico,  and Utah. El
Dorado is a  venture  capital  firm with a  diversified  portfolio.  APS  Energy
Services  was formed in 1998 and sells  energy and  energy-related  products and
services in competitive  retail  markets in the western United States.  Pinnacle
West Energy, which was formed in 1999, is the subsidiary through which we intend
to conduct our future unregulated generation operations.

ACCOUNTING RECORDS

     Our accounting records are maintained in accordance with generally accepted
accounting  principles  (GAAP).  The  preparation  of  financial  statements  in
accordance with GAAP requires the use of estimates by management. Actual results
could differ from those estimates.

REGULATORY ACCOUNTING

     APS is regulated by the ACC and the Federal  Energy  Regulatory  Commission
(FERC). The accompanying financial statements reflect the ratemaking policies of
these  commissions.   For  regulated  operations,  APS  prepares  its  financial
statements in accordance with Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation." SFAS No. 71
requires  a  cost-based,  rate-regulated  enterprise  to  reflect  the impact of
regulatory decisions in its financial statements.

     During  1997,  the  Emerging  Issues  Task  Force  (EITF) of the  Financial
Accounting Standards Board (FASB) issued EITF 97-4. EITF 97-4 requires that SFAS
No. 71 be discontinued no later than when  legislation is passed or a rate order
is issued that contains sufficient detail to determine its effect on the portion
of the  business  being  deregulated,  which  could  result  in  write-downs  or
write-offs  of  physical  and/or  regulatory  assets.  Additionally,   the  EITF
determined  that  regulatory  assets should not be written off if they are to be
recovered from a portion of the entity which continues to apply SFAS No. 71.

     In September  1999,  the APS  Settlement  Agreement was approved by the ACC
(see  Note 3 for a  discussion  of the  agreement).  APS  has  discontinued  the
application  of SFAS No. 71 for its generation  operations.  This means that the
generation  assets were  tested for  impairment  and the  portion of  regulatory
assets  deemed to be  unrecoverable  through  ongoing  regulated  cash flows was
eliminated.  APS  determined  that the  generation  assets were not impaired.  A
regulatory  disallowance  removed $234 million  pretax ($183 million net present
value)  from  ongoing  regulatory  cash  flows  and this was  recorded  as a net
reduction of regulatory assets. This reduction ($140 million after income taxes)
was reported as an extraordinary  charge on the consolidated  income  statement.
Prior to the Settlement Agreement, under the 1996 regulatory agreement (see Note
3), the ACC accelerated the amortization of substantially all of APS' regulatory
assets to an  eight-year  period  that  would  have  ended  June 30,  2004.

                                       37
<PAGE>
     The regulatory  assets to be recovered under this Settlement  Agreement are
now being amortized as follows:

(millions of dollars)

                                                         1/1-6/30
      1999       2000      2001       2002       2003      2004       Total
      ----       ----      ----       ----       ----      ----       -----
      $164       $158      $145       $115        $86       $18       $686

     The majority of the regulatory  assets relate to deferred income taxes (see
Note 4) and rate synchronization cost deferrals (see "Rate  Synchronization Cost
Deferrals" in this Note).

     The balance sheets  include the amounts listed below for generation  assets
not subject to SFAS No. 71:

(thousands of dollars)
                                                            December 31,
                                                    ---------------------------
                                                        1999            1998
                                                    -----------     -----------

Electric plant in service and held for future use   $ 3,770,234     $ 3,680,482
Accumulated depreciation and amortization            (1,817,589)     (1,681,099)
Construction work in progress                            87,819         107,324
Nuclear fuel, net of amortization                        49,114          51,078


UTILITY PLANT AND DEPRECIATION

     Utility  plant is the term we use to describe  the  business  property  and
equipment  that  supports  electric  service.  We  report  utility  plant at its
original cost, which includes:

    *   material and labor

    *   contractor costs

    *   construction overhead costs (where applicable) and

    *   capitalized interest or an allowance for funds used during construction.

     We charge retired utility plant,  plus removal costs less salvage realized,
to accumulated depreciation. See Note 2 for information on a proposed accounting
standard that impacts accounting for removal costs.

     We record  depreciation on utility  property on a straight-line  basis. For
the years 1997 through 1999 the rates, as prescribed by our  regulators,  ranged
from a low of 1.51%  to a high of 20%.  The  weighted-average  rate for 1999 was
3.34%.  APS  depreciates  non-utility  property and equipment over the estimated
useful lives of the related assets, ranging from 3 to 50 years.

VENTURE CAPITAL INVESTMENTS

     El Dorado has investments in venture capital  partnerships that account for
their  investments  at fair  value.  Since El Dorado  uses the equity  method of
accounting for its partnership  interests,  it must record its share of realized
and unrealized gains and losses in net income.

CAPITALIZED INTEREST

     Capitalized  interest  represents  the cost of debt  funds  used to finance
construction of utility plant. Plant construction costs,  including  capitalized
interest,  are expensed through  depreciation when completed projects are placed
into commercial operation.  Capitalized interest does not represent current cash
earnings.  The rate used to calculate  capitalized interest was a composite rate
of 6.65% for 1999, 6.88% for 1998, and 7.25% for 1997.

REVENUES

     We record electric  operating revenues on the accrual basis, which includes
estimated  amounts  for  service  rendered  but  unbilled  at the  end  of  each
accounting period.

RATE SYNCHRONIZATION COST DEFERRALS

     As authorized by the ACC,  operating costs  (excluding  fuel) and financing
costs of Palo Verde Units 2 and 3 were  deferred from the  commercial  operation
dates (September 1986 for Unit 2 and January 1988 for Unit 3) until the date the
units were included in a rate order (April 1988 for Unit 2 and December 1991 for
Unit 3). In accordance with the 1999 Settlement Agreement,  APS is continuing to
accelerate the amortization of the deferrals over an eight-year period that will
end June 30, 2004.  Amortization  of the deferrals is included in  "Depreciation
and Amortization" expense on the Statements of Income.

NUCLEAR FUEL

     APS charges  nuclear fuel to fuel  expense by using the  unit-of-production
method. The unit-of-production method is an amortization method that is based on
actual physical usage.  APS divides the cost of the fuel by the estimated number
of thermal units that APS expects to produce with that fuel. APS then multiplies
that rate by the number of thermal  units that it  produces  within the  current
period. This calculation determines the current period nuclear fuel expense.

     APS also charges  nuclear fuel expense for the permanent  disposal of spent
nuclear fuel. The United States  Department of Energy (DOE) is  responsible  for
the permanent  disposal of spent nuclear fuel, and it charges APS $0.001 per kwh
of nuclear  generation.  See Note 12 for  information  about spent  nuclear fuel
disposal. In addition, Note 13 has information on nuclear decommissioning costs.

                                       38
<PAGE>
INCOME TAXES

     We file our federal income tax return on a  consolidated  basis and we file
our state income tax returns on a consolidated  or unitary basis.  In accordance
with our intercompany tax sharing agreement,  federal and state income taxes are
allocated to each subsidiary as though each  subsidiary  filed a separate income
tax return.  Any  difference  between  the  aforementioned  allocations  and the
consolidated  (and  unitary)  income tax  liability is  attributed to the parent
company.

REACQUIRED DEBT COSTS

     For debt related to the regulated  portion of APS' business,  APS amortizes
those gains and losses incurred upon early retirement over the remaining life of
the debt. In accordance with the 1999 Settlement Agreement, APS is continuing to
accelerate  reacquired  debt costs over an eight-year  period that will end June
30, 2004.  The  accelerated  portion of the  regulatory  asset  amortization  is
included in "Depreciation and Amortization" expense in the Statements of Income.

STATEMENTS OF CASH FLOWS

     We consider temporary cash investments and marketable securities to be cash
equivalents for purposes of reporting cash flows. During 1999, 1998, and 1997 we
paid  interest,  net of amounts  capitalized,  income  taxes,  and  dividends on
preferred stock of APS as follows:

(millions of dollars)

                                                       Years Ended December 31,
                                                      -------------------------
                                                      1999       1998      1997
                                                      ----       ----      ----
Interest paid                                         $141       $144       $163
Income taxes paid                                      200        165        146
Dividends paid on preferred stock of APS                 1         10         13

RECLASSIFICATIONS

     We have  reclassified  certain prior year amounts for  comparison  purposes
with 1999.

2. ACCOUNTING MATTERS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities,"  which  is
effective  for us in 2001.  SFAS No. 133 requires  that  entities  recognize all
derivatives  as either  assets or  liabilities  on the balance sheet and measure
those  instruments at fair value. The standard also provides  specific  guidance
for  accounting  for  derivatives  designated  as  hedging  instruments.  We are
currently  evaluating  what  impact  this  standard  will have on our  financial
statements.

     In 1999 we adopted EITF 98-10, "Accounting for Contracts Involved in Energy
Trading and Risk  Management  Activities."  EITF 98-10  requires  energy trading
contracts  to be measured  at fair value as of the  balance  sheet date with the
gains and losses included in earnings and separately  disclosed in the financial
statements or footnotes. The effects of adopting EITF 98-10 were not material to
our financial statements.

     In  February  1996,  the FASB  issued an exposure  draft,  "Accounting  for
Certain  Liabilities  Related to Closure or Removal of Long-Lived  Assets." This
proposed  standard  would  require the  estimated  present  value of the cost of
decommissioning  and certain  other removal costs to be recorded as a liability,
along with an  offsetting  plant asset when a  decommissioning  or other removal
obligation  is incurred.  The FASB issued a revised  exposure  draft in February
2000 and we are evaluating the impacts.

3. REGULATORY MATTERS

ELECTRIC INDUSTRY RESTRUCTURING

STATE

     SETTLEMENT  AGREEMENT.  On May 14, 1999,  APS entered into a  comprehensive
Settlement  Agreement with various parties,  including  representatives of major
consumer groups,  related to the implementation of retail electric  competition.
On September 23, 1999, the ACC voted to approve the Settlement  Agreement,  with
some modifications. On December 13, 1999, two parties filed lawsuits challenging
the ACC's approval of the Settlement  Agreement.  One of the parties  questioned
the  authority of the ACC to approve the  Settlement  Agreement and both parties
challenged several specific provisions of the Settlement Agreement.

     The following  are the major  provisions of the  Settlement  Agreement,  as
approved:

    *   APS will reduce  rates for standard  offer  service for  customers  with
        loads less than 3 megawatts in a series of annual retail  electric price
        reductions of 1.5%  beginning  July 1, 1999 through July 1, 2003,  for a
        total of 7.5%.  The first  reduction of  approximately  $24 million ($14
        million  after  income  taxes)  includes  the July 1, 1999 retail  price
        decrease of approximately  $11 million annually ($7 million after income
        taxes) related to the 1996 regulatory  agreement.  See "1996  Regulatory
        Agreement"  below.  For having  loads 3 megawatts  or greater,  standard
        offer rates will be reduced in annual  increments  that total 5% through
        2002.

                                       39
<PAGE>
    *   Unbundled  rates  being  charged by APS for  competitive  direct  access
        service (for  example,  distribution  services)  became  effective  upon
        approval of the Settlement  Agreement,  retroactive to July 1, 1999, and
        also will be subject  to annual  reductions  beginning  January 1, 2000,
        that vary by rate class, through January 1, 2004.

    *   There will be a moratorium  on retail price  changes for standard  offer
        and unbundled  competitive  direct access  services  until July 1, 2004,
        except  for the  price  reductions  described  above and  certain  other
        limited  circumstances.  Neither the ACC nor APS will be prevented  from
        seeking or  authorizing  rate changes prior to July 1, 2004 in the event
        of conditions or circumstances that constitute an emergency,  such as an
        inability to finance on reasonable  terms,  or material  changes in APS'
        cost of service  for  ACC-regulated  services  resulting  from  federal,
        tribal,  state  or  local  laws,   regulatory   requirements,   judicial
        decisions, actions or orders.

    *   APS will be permitted to defer for later recovery prudent and reasonable
        costs of  complying  with the ACC  electric  competition  rules,  system
        benefits costs in excess of the levels  included in current  rates,  and
        costs  associated  with the "provider of last resort" and standard offer
        obligations  for  service  after  July 1,  2004.  These  costs are to be
        recovered through an adjustment clause or clauses  commencing on July 1,
        2004.

    *   APS'  distribution  system opened for retail access effective  September
        24, 1999.  Customers  will be eligible for retail  access in  accordance
        with the  phase-in  adopted  by the ACC under the  electric  competition
        rules  (see  "Retail  Electric   Competition  Rules"  below),   with  an
        additional   140   megawatts    being   made   available   to   eligible
        non-residential  customers.  Unless  subject to judicial  or  regulatory
        restraint,  APS will open its  distribution  system to retail access for
        all customers on January 1, 2001.

    *   Prior to the Settlement Agreement,  APS was recovering substantially all
        of its  regulatory  assets  through  July 1, 2004,  pursuant to the 1996
        regulatory agreement.  In addition, the Settlement Agreement states that
        APS has demonstrated that its allowable stranded costs, after mitigation
        and  exclusive  of  regulatory  assets,  are at least $533  million  net
        present  value.  APS will not be  allowed to recover  $183  million  net
        present value of the above amounts.  The Settlement  Agreement  provides
        that APS will have the  opportunity  to recover $350 million net present
        value through a competitive  transition charge (CTC) that will remain in
        effect through  December 31, 2004, at which time it will terminate.  Any
        over/under-recovery  will be credited/debited  against the costs subject
        to recovery under the adjustment clause described above.

    *   APS will form a separate corporate  affiliate or affiliates and transfer
        to that affiliate(s) its generating  assets and competitive  services at
        book value as of the date of transfer,  which  transfer shall take place
        no later than December 31, 2002.  APS will be allowed to defer and later
        collect,  beginning  July 1, 2004,  sixty-seven  percent of its costs to
        accomplish the required transfer of generation assets to an affiliate.

    *   When the Settlement  Agreement  approved by the ACC is no longer subject
        to  judicial  review,  APS will move to  dismiss  all of its  litigation
        pending  against the ACC as of the date APS entered into the  Settlement
        Agreement.  To protect its rights,  APS has several  lawsuits pending on
        ACC orders  relating to stranded  cost  recovery  and the  adoption  and
        amendment  of the  ACC's  electric  competition  rules,  which  would be
        voluntarily dismissed at the appropriate time under this provision.

     As discussed  in Note 1 above,  APS has  discontinued  the  application  of
Statement of Financial  Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation," for its generation operations.

     RETAIL ELECTRIC  COMPETITION RULES. On September 21, 1999, the ACC voted to
approve  the rules  that  provide a  framework  for the  introduction  of retail
electric  competition in Arizona (Rules).  If any of the Rules conflict with the
Settlement Agreement,  the terms of the Settlement Agreement govern. On December
8, 1999,  APS filed a lawsuit to protect its legal rights  regarding  the Rules.
This  lawsuit  is  pending,  along with  several  other  lawsuits  on ACC orders
relating to stranded  cost  recovery and the adoption or amendment of the Rules,
but two related cases filed by other utilities have been partially  decided in a
manner  adverse to those  utilities'  positions.  On January 14, 2000, a special
action was filed  requesting the Arizona Supreme Court to enjoin  implementation
of the Rules and decide whether the ACC can allow the  competitive  marketplace,
rather  than  the ACC,  to set  just and  reasonable  rates  under  the  Arizona
Constitution.  The issue of  competitively  set rates has been  decided by lower
Arizona  courts  in favor  of the ACC in four  separate  lawsuits,  two of which
relate to  telecommunications  companies.  The Supreme  Court denied to hear the
case as a special  action on March 17,  2000.  The lower court  litigation  will
continue.

                                       40
<PAGE>
     The Rules approved by the ACC include the following major provisions:

    *   They apply to virtually all Arizona electric utilities  regulated by the
        ACC, including APS.

    *   The  Rules  require  each  affected  utility,  including  APS,  to  make
        available  at least  20% of its  1995  system  retail  peak  demand  for
        competitive  generation  supply  beginning  when  the ACC  makes a final
        decision on each  utility's  stranded  costs and unbundled  rates (Final
        Decision  Date) or January  1,  2001,  whichever  is  earlier,  and 100%
        beginning  January 1, 2001.  Under the  Settlement  Agreement,  APS will
        provide retail access to customers representing the minimum 20% required
        by the ACC and an additional  140 megawatts of  non-residential  load in
        1999, and to all customers as of January 1, 2001, or such other dates as
        approved by the ACC.

    *   Subject  to the 20%  requirement,  all  utility  customers  with  single
        premise   loads  of  one  megawatt  or  greater  will  be  eligible  for
        competitive electric services on the Final Decision Date, which for APS'
        customers was the approval of the  Settlement  Agreement.  Customers may
        also aggregate smaller loads to meet this one megawatt requirement.

    *   When  effective,  residential  customers  will be phased in at 1.25% per
        quarter  calculated  beginning  on January  1, 1999,  subject to the 20%
        requirement above.

    *   Electric  service  providers that get  Certificates  of Convenience  and
        Necessity  (CC&Ns)  from the ACC can supply only  competitive  services,
        including  electric  generation,   but  not  electric  transmission  and
        distribution.

    *   Affected  utilities  must  file ACC  tariffs  that  unbundle  rates  for
        non-competitive services.

    *   The ACC shall allow a reasonable opportunity for recovery of unmitigated
        stranded costs.

    *   Absent an ACC waiver,  prior to January 1, 2001,  each affected  utility
        (except  certain  electric  cooperatives)  must transfer all competitive
        generation  assets and services either to an unaffiliated  party or to a
        separate  corporate  affiliate.  Under  the  Settlement  Agreement,  APS
        received a waiver to allow transfer of its competitive generation assets
        and services to affiliates no later than December 31, 2002.

     1996  REGULATORY  AGREEMENT.  In April 1996,  the ACC approved a regulatory
agreement  between the ACC Staff and APS. Based on the price  reduction  formula
authorized  in the  agreement,  the  ACC  approved  retail  price  decreases  of
approximately $49 million ($29 million after income taxes),  or 3.4%,  effective
July 1, 1996;  approximately  $18 million ($11 million after income  taxes),  or
1.2%,  effective  July 1, 1997;  approximately  $17 million ($10  million  after
income taxes),  or 1.1%,  effective July 1, 1998; and  approximately $11 million
($7 million after income taxes), or 0.7%, effective as of July 1, 1999. The July
1,  1999 rate  decrease  was  included  in the first  rate  reduction  under the
Settlement Agreement discussed above. The regulatory agreement also required the
parent  company  to infuse  $200  million  of common  equity  into APS in annual
payments of $50 million from 1996 through  1999.  All of these equity  infusions
were made by December 31, 1999.

     LEGISLATION. In May 1998, a law was enacted to facilitate implementation of
retail  electric  competition in Arizona.  The law includes the following  major
provisions:

    *   Arizona's  largest  government-operated  electric  utility  (Salt  River
        Project) and, at their option,  smaller municipal  electric systems must
        (i) make at least 20% of their 1995  retail  peak  demand  available  to
        electric  service  providers  by  December  31,  1998 and for all retail
        customers by December 31, 2000; (ii) decrease rates by at least 10% over
        a ten-year period beginning as early as January 1, 1991; (iii) implement
        procedures and public processes  comparable to those already  applicable
        to public service  corporations for establishing the terms,  conditions,
        and pricing of  electric  services  as well as certain  other  decisions
        affecting retail electric competition;

    *   describes  the  factors  which form the basis of  consideration  by Salt
        River Project in determining stranded costs; and

    *   metering and meter  reading  services  must be provided on a competitive
        basis  during  the  first two years of  competition  only for  customers
        having  demands in excess of one  megawatt  (and that are  eligible  for
        competitive  generation  services),  and  thereafter  for all  customers
        receiving competitive electric generation.

     In addition,  the Arizona legislature will review and make  recommendations
for the 1999-2000 legislative session on certain competitive issues.

GENERAL

     APS cannot accurately  predict the impact of full retail competition on its
financial position,  cash flows, or results of operation.  As competition in the
electric industry continues to evolve, APS will continue to evaluate  strategies
and  alternatives  that  will  position  it to  compete  in the  new  regulatory
environment.

FEDERAL

     The Energy Policy Act of 1992 and recent  rulemakings by FERC have promoted
increased  competition in the wholesale  electric

                                       41
<PAGE>
power markets.  APS does not expect these rules to have a material impact on its
financial statements.

     Several electric utility industry  restructuring bills have been introduced
during the 106th Congress. Several of these bills are written to allow consumers
to choose their electricity suppliers beginning in 2000 and beyond. These bills,
other bills that are expected to be introduced,  and ongoing  discussions at the
federal  level  suggest a wide  range of opinion  that will need to be  narrowed
before any  comprehensive  restructuring  of the electric  utility  industry can
occur.

AGREEMENT WITH SALT RIVER PROJECT

     On April 25, 1998,  APS entered into a  Memorandum  of Agreement  with Salt
River Project in anticipation of, and to facilitate,  the opening of the Arizona
electric  industry.  The ACC  approved the  Agreement on February 18, 1999.  The
Agreement contains the following major components:

    *   Both parties amended the Territorial Agreement to remove any barriers to
        the provision of  competitive  electricity  supply and  non-distribution
        services.

    *   Both parties amended the Power Coordination Agreement to lower the price
        that APS pays Salt River Project for purchased  power.  During 1999, the
        price APS paid Salt River  Project  for  purchased  power was reduced by
        approximately  $3 million  (pretax)  and we estimate  the decrease to be
        approximately  $16 million  (pretax) in 2000 and lesser  annual  amounts
        through 2006.

    *   Both parties agreed on certain legislative  positions regarding electric
        utility restructuring at the state and federal levels.

     Certain  provisions  of the  Agreement  (including  those  relating  to the
amendments of the Territorial  Agreement and the Power  Coordination  Agreement)
became  effective  upon  the   introduction  of  competition.   See  "Settlement
Agreement" and "ACC Rules" above.

4. INCOME TAXES

INVESTMENT TAX CREDIT

     Because of a 1994 rate settlement agreement, we accelerated amortization of
substantially  all of our investment tax credits (ITCs) over a five-year  period
(1995-1999).

INCOME TAX BENEFIT FROM DISCONTINUED OPERATIONS

     The  income  tax  benefit  from  discontinued  operations  for $38  million
resulted from resolution of tax issues related to a former subsidiary, Merabank,
A Federal Savings Bank.

INCOME TAXES

     Certain  assets and  liabilities  are reported  differently  for income tax
purposes  than  they  are for  financial  statements.  The tax  effect  of these
differences is recorded as deferred taxes. We calculate deferred taxes using the
current income tax rates.

     APS has recorded a regulatory  asset related to income taxes on its Balance
Sheet in  accordance  with SFAS No. 71.  This  regulatory  asset is for  certain
temporary  differences,  primarily  the  allowance  for equity funds used during
construction.   APS  amortizes  this  amount  as  the  differences  reverse.  In
accordance with the 1999 Settlement  Agreement,  APS is continuing to accelerate
its  amortization  of the  regulatory  asset for income taxes over an eight-year
period  that  will  end June 30,  2004  (see  Note  1).  We are  including  this
accelerated  amortization  in  depreciation  and  amortization  expense  on  the
Statements  of Income.  The  components  of income tax  expense  for  continuing
operations are:

(thousands of dollars)

                                                 Year Ended December 31,
                                        ---------------------------------------
                                          1999            1998           1997
                                        ---------      ---------      ---------
Current
  Federal                               $ 171,491      $ 105,922      $ 105,818
  State                                    37,501         40,621         43,172
                                        ---------      ---------      ---------
Total current                             208,992        146,543        148,990

Deferred                                  (17,413)        41,566         28,729
Change in valuation allowance                  --             --         (3,920)
ITC amortization                          (23,514)       (23,516)       (23,518)
                                        ---------      ---------      ---------
Total expense                           $ 168,065      $ 164,593      $ 150,281
                                        =========      =========      =========


                                       42
<PAGE>
     The following  chart  compares  pretax income at the 35% federal income tax
rate to income tax expense:

(thousands of dollars)

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                          ---------------------------------------
                                                            1999            1998           1997
                                                          ---------      ---------      ---------
<S>                                                      <C>            <C>            <C>
Federal income tax expense at 35% statutory rate          $ 153,243      $ 142,620      $ 135,148
Increases (reductions) in tax expense resulting from:
  Tax under book depreciation                                14,575         17,848         14,694
  Preferred stock dividends of APS                              356          3,396          4,481
  ITC amortization                                          (23,514)       (23,516)       (23,518)
  State income tax net of federal income tax benefit         23,030         22,764         24,497
  Change in valuation allowance                                  --             --         (3,400)
  Other                                                         375          1,481         (1,621)
                                                          ---------      ---------      ---------
Income tax expense                                        $ 168,065      $ 164,593      $ 150,281
                                                          =========      =========      =========
</TABLE>

     The components of the net deferred income tax liability were as follows:

(thousands of dollars)

                                                        Year Ended December 31,
                                                       -------------------------
                                                          1999           1998
                                                       ----------     ----------

DEFERRED TAX ASSETS
  Deferred gain on Palo Verde Unit 2 sale/leaseback    $   29,446     $   31,285
  Other                                                   133,748        127,903
                                                       ----------     ----------
      Total deferred tax assets                           163,194        159,188
                                                       ----------     ----------
DEFERRED TAX LIABILITIES
  Plant-related                                         1,104,769      1,117,253
  Regulatory asset for income taxes                       234,117        381,472
                                                       ----------     ----------
      Total deferred tax liabilities                    1,338,886      1,498,725
                                                       ----------     ----------
Accumulated deferred income taxes - net                $1,175,692     $1,339,537
                                                       ==========     ==========

5. LINES OF CREDIT

     APS had  committed  lines of credit with  various  banks of $350 million at
December 31, 1999 and $400 million at December  31, 1998,  which were  available
either  to  support  the  issuance  of  commercial  paper or to be used for bank
borrowings. The commitment fees at December 31, 1999 and 1998 for these lines of
credit ranged from 0.07% to 0.125% per annum.  APS had long-term bank borrowings
of $50 million  outstanding at December 31, 1999 and $125 million outstanding at
December 31, 1998.

     APS' commercial paper  borrowings  outstanding were $38 million at December
31, 1999 and $179 million at December 31, 1998.  The weighted  average  interest
rate on commercial  paper  borrowings  was 5.33% for the year ended December 31,
1999 and 5.88% for  December  31,  1998.  By Arizona  statute,  APS'  short-term
borrowings cannot exceed 7% of its total  capitalization  unless approved by the
ACC.

     Pinnacle  West had a revolving  line of credit of $250  million at December
31, 1999 and 1998. The commitment fees were 0.10% in 1999 and 1998.  Outstanding
amounts at December  31, 1999 were $56 million and at December 31, 1998 were $42
million.

     SunCor had revolving lines of credit totalling $100 million at December 31,
1999 and $55 million at December 31, 1998.  The  commitment  fees were 0.125% in
1999 and 1998.  SunCor had $94 million  outstanding at December 31, 1999 and $38
million outstanding at December 31, 1998.

                                       43
<PAGE>
6. LONG-TERM DEBT

     Borrowings   under  the  APS  mortgage   bond   indenture  are  secured  by
substantially all utility plant; SunCor's debt is collateralized by interests in
certain real property;  Pinnacle  West's debt is unsecured.  The following table
presents the components of consolidated  long-term debt  outstanding at December
31, 1999 and December 31, 1998:

(thousands of dollars)
<TABLE>
<CAPTION>
                                                                                           December 31,
                                            Maturity       Interest               --------------------------
                                            Dates (a)       Rates                    1999               1998
                                            ---------       -----                    ----               ----
<S>                                          <C>           <C>                   <C>               <C>
APS
First mortgage bonds                          1999          7.625%                $       --        $  100,000
                                              2000          5.75%                    100,000           100,000
                                              2002          8.125%                   125,000           125,000
                                              2004          6.625%                    80,000            85,000
                                              2020          10.25%                   100,550           100,550
                                              2021          9.5%                      45,140            45,140
                                              2021          9%                        72,370            72,370
                                              2023          7.25%                     70,650            91,900
                                              2024          8.75%                    121,668           121,668
                                              2025          8%                        47,075            88,300
                                              2028          5.5%                      25,000            25,000
                                              2028          5.875%                   154,000           154,000
Unamortized discount and premium                                                      (5,860)           (6,482)
Pollution control bonds                    2024-2034        Adjustable rate(b)       476,860           456,860
Funds held in trust account for
 certain pollution control bonds                                                      (1,236)               --
Collateralized loan                        1999-2000        5.375%-6.125%             10,000            20,000
Unsecured notes                               2004          5.875%                   125,000                --
Unsecured notes                               2005          6.25%                    100,000           100,000
Floating rate notes                           2001          Adjustable rate(c)       250,000                --
Senior notes (d)                              1999          6.72%                         --            50,000
Senior notes (d)                              2006          6.75%                     83,695           100,000
Debentures                                    2025          10%                       75,000            75,000
Bank loans                                    2003          Adjustable rate(e)        50,000           125,000
Capitalized lease obligation               1999-2001        7.48%(f)                   7,199            11,612
                                                                                  ----------        ----------
                                                                                   2,112,111         2,040,918
                                                                                  ----------        ----------
SUNCOR
Revolving credit                           2001-2002          (g)                     94,000            38,139
Bank loan                                     2001            (h)                         --            42,061
Notes payable                              1998-2006          (i)                      3,404             3,888
Bonds payable                                 2039          5.85%                      5,335                --
                                                                                  ----------        ----------
                                                                                     102,739            84,088
                                                                                  ----------        ----------
PINNACLE WEST
Revolving credit                              2001            (j)                     56,000            42,000
Senior notes                               2001-2003          (k)                     50,000            50,000
                                                                                  ----------        ----------
                                                                                     106,000            92,000
                                                                                  ----------        ----------
Total long-term debt                                                               2,320,850         2,217,006
Less current maturities                                                              114,798           168,045
                                                                                  ----------        ----------
Total long-term debt less current maturities                                      $2,206,052        $2,048,961
                                                                                  ==========        ==========
</TABLE>

                                       44
<PAGE>
(a)  This  schedule  does not reflect the timing of  redemptions  that may occur
     prior to maturity.
(b)  The  weighted-average  rate for the year ended  December 31, 1999 was 3.15%
     and for December 31, 1998 was 3.39%.  Changes in short-term  interest rates
     would affect the costs associated with this debt.
(c)  The weighted-average rate for the year ended December 31, 1999 was 6.8525%.
(d)  APS currently has  outstanding $84 million of first mortgage bonds ("senior
     note mortgage  bonds")  issued to the senior note trustee as collateral for
     the senior  notes.  The senior note  mortgage  bonds have the same interest
     rate, interest payment dates,  maturity,  and redemption  provisions as the
     senior notes. APS' payments of principal,  premium,  and/or interest on the
     senior notes satisfy its  corresponding  payment  obligations on the senior
     note mortgage  bonds.  As long as the senior note mortgage bonds secure the
     senior notes, the senior notes will effectively rank equally with the first
     mortgage bonds. When APS repays all of its first mortgage bonds, other than
     those that secure  senior  notes,  the senior note  mortgage  bonds will no
     longer secure the senior notes and will cease to be outstanding.
(e)  The weighted-average rate for the year ended December 31, 1999 was 5.5% and
     for December 31, 1998 was 5.94%. Changes in short-term interest rates would
     affect the costs associated with this debt.
(f)  Represents  the present value of future lease  payments  (discounted  at an
     interest rate of 7.48%) on a combined  cycle plant that was sold and leased
     back (see Note 10).
(g)  The  weighted-average  rate at December  31, 1999 was 8.51% and at December
     31, 1998 was 7.41%.  Interest  for 1999 and 1998 was based on LIBOR plus 2%
     or prime plus 0.5%.
(h)  The weighted-average rate at December 31, 1998 was 7.76%. Interest for 1998
     was based on LIBOR plus 2% or prime plus 0.5%.
(i)  Multiple notes  primarily with variable  interest rates based mostly on the
     lenders' prime plus 1.75%.
(j)  The  weighted-average  rate at December 31, 1999 was 6.825% and at December
     31,  1998 was  5.66%.  Interest  for 1999 and 1998 was based on LIBOR  plus
     0.33%.
(k)  Includes  two  series  of notes:  $25  million  at 6.62% due 2001,  and $25
     million at 6.87% due 2003.

     The following is a list of principal  payments due on total  long-term debt
and sinking fund requirements through 2004:

    *   $115 million in 2000
    *   $364 million in 2001
    *   $189 million in 2002
    *   $75 million in 2003 and
    *   $205 million in 2004.

     First mortgage  bondholders share a lien on substantially all utility plant
assets  (other than nuclear  fuel,  transportation  equipment,  and the combined
cycle plant). The mortgage bond indenture  restricts the payment of common stock
dividends under certain  conditions.  These conditions did not exist at December
31, 1999.

7. PREFERRED STOCK OF APS

On March 1, 1999,  APS  redeemed all of its  preferred  stock.  Preferred  stock
balances of APS at December 31, 1999 and 1998 are shown below:

<TABLE>
<CAPTION>
(dollars in thousands,
 except per share amounts)    Number of Shares Outstanding             Par Value Outstanding
                                      December 31,                          December 31,
                           -----------------------------------    ---------------------------------
                                                                  Par Value
                           Authorized      1999         1998      Per Share      1999         1998
                           ----------      ----         ----      ---------      ----         ----
<S>                          <C>         <C>           <C>         <C>           <C>        <C>
NON-REDEEMABLE:
$1.10 preferred              160,000        --         139,030     $ 25.00       $ --       $ 3,476
$2.50 preferred              105,000        --          86,440       50.00         --         4,322
$2.36 preferred              120,000        --          32,520       50.00         --         1,626
$4.35 preferred              150,000        --          62,986      100.00         --         6,299
Serial preferred:          1,000,000
 $2.40 Series A                             --         200,587       50.00         --        10,029
 $2.625 Series C                            --         214,895       50.00         --        10,745
 $2.275 Series D                            --          90,691       50.00         --         4,534
 $3.25 Series E                             --         304,475       50.00         --        15,224
Serial preferred:          4,000,000
 Adjustable rate
  Series Q                                  --         295,851      100.00         --        29,585
                                           ---       ---------                   ----       -------
Total                                       --       1,427,475                   $ --       $85,840
                                           ===       =========                   ====       =======
REDEEMABLE:
Serial preferred:
 $10.00 Series U                            --          94,011     $100.00       $ --       $ 9,401
                                           ===       =========                   ====       =======
</TABLE>

                                       45
<PAGE>
     Redeemable  preferred  stock  transactions  of APS during each of the three
years in the period ended December 31, 1999 are as follows:

(dollars in thousands)

                                                    Number of         Par Value
                                                     Shares             Amount
                                                    --------           --------

Balance, December 31, 1996                           530,000           $ 53,000
Retirements
 $10.00 Series U                                    (118,902)           (11,890)
 $7.875 Series V                                    (120,000)           (12,000)
                                                    --------           --------

Balance, December 31, 1997                           291,098             29,110
Retirements
 $10.00 Series U                                    (197,087)           (19,709)
                                                    --------           --------

Balance, December 31, 1998                            94,011              9,401
Retirements
 $10.00 Series U                                     (94,011)            (9,401)
                                                    --------           --------
Balance, December 31, 1999                                --           $     --
                                                    ========           ========

8. COMMON STOCK

     Our common stock issued  during each of the three years in the period ended
December 31, 1999 is as follows:

(dollars in thousands)

                                                 Number of
                                                  Shares             Amount (a)
                                                -----------         -----------

Balance, December 31, 1996                       87,515,847         $ 1,636,354
 Common stock expense - net                              --              (2,586)
 Common stock retired                            (2,690,900)            (79,997)
                                                -----------         -----------
Balance, December 31, 1997                       84,824,947           1,553,771
 Common stock expense - net                              --              (3,128)
                                                -----------         -----------
Balance, December 31, 1998                       84,824,947           1,550,643
 Common stock expense - net                              --             (13,194)
                                                -----------         -----------
Balance, December 31, 1999                       84,824,947         $ 1,537,449
                                                ===========         ===========

(a) Including premiums and expenses of preferred stock issues of APS.

                                       46
<PAGE>
9. RETIREMENT PLANS AND OTHER BENEFITS

PENSION PLANS

     Through 1999,  Pinnacle West and its  subsidiaries  each sponsored  defined
benefit  pension  plans for their own  employees.  As of January 1, 2000,  these
plans were  consolidated  and now a single pension plan is sponsored by Pinnacle
West for the employees of Pinnacle West and its subsidiaries.  A defined benefit
plan  specifies  the amount of benefits a plan  participant  is to receive using
information about the participant.  The plan covers nearly all of our employees.
Our  employees do not  contribute  to this plan.  Generally,  we  calculate  the
benefits under these plans based on age, years of service,  and pay. We fund the
plan by contributing at least the minimum amount required under Internal Revenue
Service  regulations  but no more than the maximum  tax-deductible  amount.  The
assets in the plan at December 31, 1999 were mostly  domestic and  international
common stocks and bonds and real estate.

     Pension expense, including administrative costs, was:

    *   $4 million in 1999
    *   $11 million in 1998 and
    *   $9 million in 1997.

     The  following  table  shows the  components  of net  pension  cost  before
consideration of amounts capitalized or billed to others:

(thousands of dollars)
                                                   1999       1998       1997
                                                 --------   --------   --------
Service cost - benefits earned during
 the period                                      $ 24,982   $ 24,817   $ 20,435
Interest cost on projected benefit obligation      52,905     51,524     48,402
Expected return on plan assets                    (68,335)   (54,513)   (47,959)
Amortization of:
  Transition asset                                 (3,226)    (3,226)    (3,226)
  Prior service cost                                2,078      2,078      2,078
                                                 --------   --------   --------
Net periodic pension cost                        $  8,404   $ 20,680   $ 19,730
                                                 ========   ========   ========

     The  following  table shows a  reconciliation  of the funded  status of the
plans to the amounts recognized in the balance sheets:

(thousands of dollars)
                                                           1999          1998
                                                        ---------     ---------
Funded status - pension plan assets more than
 (less than) projected benefit obligation               $  37,275     $ (41,034)
Unrecognized net transition asset                         (20,008)      (23,235)
Unrecognized prior service cost                            20,636        22,715
Unrecognized net actuarial gains                         (101,153)      (38,668)
                                                        ---------     ---------
Net pension amount recognized in the balance sheets     $ (63,250)    $ (80,222)
                                                        =========     =========

                                       47
<PAGE>
     The following table sets forth the defined benefit pension plans' change in
projected benefit obligation for the plan years 1999 and 1998:

(thousands of dollars)
                                                           1999          1998
                                                        ---------     ---------
Projected pension benefit obligation at
 beginning of year                                      $ 731,305     $ 708,144
Service cost                                               24,982        24,817
Interest cost                                              52,905        51,524
Benefit payments                                          (29,694)      (29,636)
Actuarial gains                                           (36,860)      (23,544)
                                                        ---------     ---------
Projected pension benefit obligation at end of year     $ 742,638     $ 731,305
                                                        =========     =========

     The following table sets forth the defined benefit pension plans' change in
the fair value of plan assets for the plan years 1999 and 1998:

(thousands of dollars)
                                                           1999          1998
                                                        ---------     ---------
Fair value of pension plan assets at
 beginning of year                                      $ 690,271     $ 619,412
Actual return on plan assets                               93,977        86,527
Employer contributions                                     25,359        13,968
Benefit payments                                          (29,694)      (29,636)
                                                        ---------     ---------
Fair value of pension plan assets at end of year        $ 779,913     $ 690,271
                                                        =========     =========

     We made the assumptions below to calculate the pension liability:

                                                           1999          1998
                                                        ---------     ---------

Discount rate                                              7.75%         7.00%
Rate of increase in compensation levels                    4.25%         3.50%
Expected long-term rate of return on assets               10.00%        10.00%

EMPLOYEE SAVINGS PLAN BENEFITS

     Through 1999,  Pinnacle West and its  subsidiaries  each sponsored  defined
contribution savings plans for their own employees. As of January 1, 2000, these
plans were  consolidated and now a single defined  contribution  savings plan is
sponsored  by  Pinnacle  West  for  the  employees  of  Pinnacle  West  and  its
subsidiaries.  In a defined  contribution  plan, the benefits a participant will
receive result from regular  contributions  they make to a participant  account.
Under this plan, we make matching  contributions  to  participant  accounts.  We
recorded expenses for this plan of approximately $4 million for each of the last
three years (1997-1999).

POSTRETIREMENT PLANS

     We provide  medical  and life  insurance  benefits  to  retired  employees.
Employees must retire to become eligible for these  retirement  benefits,  which
are based on years of service and age. For the medical insurance plans, retirees
make  contributions to cover a portion of the plan costs. For the life insurance
plan,  retirees do not make  contributions to cover a portion of the plan costs.
We retain the right to change or eliminate these benefits.

     Funding is based upon actuarially  determined  contributions  that take tax
consequences into account.  Plan assets consist primarily of domestic stocks and
bonds. The postretirement benefit expense was:

    *   $ 7 million for 1999
    *   $ 9 million for 1998 and
    *   $10 million for 1997.

                                       48
<PAGE>
     The following  table shows the  components  of net periodic  postretirement
benefit costs before consideration of amounts capitalized or billed to others:

(thousands of dollars)


                                                   1999       1998       1997
                                                 --------   --------   --------
Service cost - benefits earned during
 the period                                      $  8,939   $  7,890   $  7,046
Interest cost on accumulated benefit obligation    17,366     15,763     14,441
Expected return on plan assets                    (18,454)   (12,001)    (8,706)
Amortization of:
  Transition asset                                  7,698      7,698      7,698
  Net actuarial gains                              (5,117)    (2,952)    (2,685)
                                                 --------   --------   --------
Net periodic postretirement benefit cost         $ 10,432   $ 16,398   $ 17,794
                                                 ========   ========   ========

     The following table shows a reconciliation of the funded status of the plan
to the amounts recognized in the balance sheets:

(thousands of dollars)
                                                           1999          1998
                                                        ---------     ---------
Funded status - postretirement plan assets more
 than (less than) projected benefit obligation          $  25,549     $ (24,269)
Unrecognized net obligation at transition                 100,145       107,842
Unrecognized net actuarial gains                         (128,309)      (86,692)
                                                        ---------     ---------
Net postretirement amount recognized in
 the balance sheets                                     $  (2,615)    $  (3,119)
                                                        =========     =========

     The following table sets forth the postretirement  benefit plans' change in
accumulated benefit obligation for the plan years 1999 and 1998:

(thousands of dollars)
                                                           1999          1998
                                                        ---------     ---------
Accumulated postretirement benefit obligation at
 beginning of year                                      $ 237,679     $ 199,348
Service cost                                                8,939         7,890
Interest cost                                              17,366        15,763
Benefit payments                                           (8,761)      (10,378)
Actuarial (gains) losses                                  (23,234)       25,056
                                                        ---------     ---------
Accumulated postretirement benefit obligation
 at end of year                                         $ 231,989     $ 237,679
                                                        =========     =========

     The following table sets forth the postretirement  benefit plans' change in
the fair value of plan assets for the plan years 1999 and 1998:

(thousands of dollars)
                                                           1999          1998
                                                        ---------     ---------
Fair value of postretirement plan assets at
 beginning of year                                    $ 213,410       $ 151,146
Actual return on plan assets                             42,975          47,284
Employer contributions                                    9,914          25,327
Benefit payments                                         (8,761)        (10,347)
                                                      ---------       ---------
Fair value of postretirement plan assets
 at the end of year                                   $ 257,538       $ 213,410
                                                      =========       =========

                                       49
<PAGE>
     We made the assumptions below to calculate the postretirement liability:

                                                             1999          1998
                                                             ----          ----

Discount rate                                                7.75%         7.00%
Expected long-term rate of return on assets - after tax      8.77%         8.73%
Initial health care cost trend rate - under age 65           7.00%         7.50%
Initial health care cost trend rate - age 65 and over        6.00%         6.50%
Ultimate health care cost trend rate (reached
 in the year 2002)                                           5.00%         5.00%

     Assuming a 1% increase in the health care cost trend rate, the 1999 cost of
postretirement  benefits other than pensions would increase by  approximately $5
million and the  accumulated  benefit  obligation  as of December 31, 1999 would
increase by approximately $38 million.

     Assuming a 1% decrease in the health care cost trend rate, the 1999 cost of
postretirement  benefits other than pensions would decrease by  approximately $4
million and the  accumulated  benefit  obligation  as of December 31, 1999 would
decrease by approximately $30 million.

10. LEASES

     In 1986,  APS sold about 42% of its share of Palo Verde Unit 2 and  certain
common  facilities in three separate sale leaseback  transactions.  APS accounts
for these leases as operating leases. The gain of approximately $140 million was
deferred and is being  amortized  to  operations  expense  over 29.5 years,  the
original  term of the  leases.  There are  options  to renew the  leases for two
additional  years and to purchase  the property for fair market value at the end
of the lease terms. Consistent with the ratemaking treatment, an amount equal to
the annual lease  payments is included in rent  expense.  A regulatory  asset is
recognized for the difference between lease payments and rent expense calculated
on a straight-line basis.

     The  average  amounts  to be paid for the  Palo  Verde  Unit 2  leases  are
approximately  $46  million in 2000 and  approximately  $49  million per year in
2001-2015.

     In  accordance  with the 1999  Settlement  Agreement,  APS is continuing to
accelerate  amortization  of the regulatory  asset for leases over an eight-year
period that will end June 30, 2004 (see Note 1). The accelerated amortization is
included in depreciation and  amortization  expense on the Statements of Income.
The balance of this regulatory asset at December 31, 1999 was $43 million. Lease
expense was approximately $42 million in each of the years 1997 through 1999.

     APS has a capital lease on a combined cycle plant, which it sold and leased
back. The lease requires  semiannual  payments of $3 million  through June 2001,
and includes  renewal and purchase options based on fair market value. The plant
is included in plant in service at its original cost of $54 million; accumulated
amortization at December 31, 1999 was $51 million.

     In addition, we lease certain land, buildings, equipment, and miscellaneous
other items through operating rental agreements with varying terms,  provisions,
and expiration dates.  Miscellaneous lease expense was approximately $10 million
in 1999, $13 million in 1998, and $11 million in 1997.

     Estimated  future minimum lease  commitments,  excluding the Palo Verde and
combined cycle leases, are as follows:

     (dollars in millions)

     Year
     ----

     2000                                          $ 17
     2001                                            19
     2002                                            20
     2003                                            20
     2004                                            20
     Thereafter                                     138
                                                   ----
     Total future commitments                      $234
                                                   ====

                                       50
<PAGE>
11. JOINTLY-OWNED FACILITIES

     APS shares ownership of some of its generating and transmission  facilities
with  other  companies.  The  following  table  shows  APS'  interest  in  those
jointly-owned  facilities  at December  31, 1999.  APS' share of  operating  and
maintaining  these  facilities is included in the income statement in operations
and maintenance expense.

(dollars in thousands)
<TABLE>
<CAPTION>
                                                               Percent        Plant                      Construction
                                                               Owned by        in          Accumulated     Work In
                                                                 APS         Service       Depreciation    Progress
                                                                 ---         -------       ------------    --------
<S>                                                           <C>         <C>             <C>             <C>
Generating Facilities:
  Palo Verde Nuclear Generating Station Units 1 and 3           29.1%       $1,829,633      $  751,567      $ 7,220
  Palo Verde Nuclear Generating Station Unit 2 (see Note 10)    17.0%          572,574         240,696       17,145
  Four Corners Steam Generating Station Units 4 and 5           15.0%          139,209          71,333          364
  Navajo Steam Generating Station Units 1, 2, and 3             14.0%          230,536          94,332        4,555
  Cholla Steam Generating Station Common Facilities (a)         62.8%(b)        68,643          38,068        1,679

Transmission Facilities:
  ANPP 500 KV System                                            35.8%(b)        68,133          21,446            7
  Navajo Southern System                                        31.4%(b)        27,364          17,550           42
  Palo Verde - Yuma 500 KV System                               23.9%(b)        11,728           4,388           36
  Four Corners Switchyards                                      27.5%(b)         3,071           1,855           --
  Phoenix - Mead System                                         17.1%(b)        36,434           1,768           --
</TABLE>

(a)  PacifiCorp  owns  Cholla  Unit 4 and APS  operates  the unit for them.  The
     common facilities at the Cholla Plant are jointly-owned.
(b)  Weighted average of interests.

12. COMMITMENTS AND CONTINGENCIES

LITIGATION

     We are party to various claims,  legal actions,  and complaints  arising in
the ordinary  course of business.  In our opinion,  the ultimate  resolution  of
these  matters  will  not  have a  material  adverse  effect  on  our  financial
statements.

PALO VERDE NUCLEAR GENERATING STATION

     Under the  Nuclear  Waste  Policy Act,  DOE was to develop  the  facilities
necessary  for the storage and disposal of spent fuel and to have the first such
facility in operation by 1998.  That facility was to be a permanent  repository,
but DOE has  announced  that such a repository  now cannot be  completed  before
2010. In response to lawsuits filed over DOE's obligation to accept used nuclear
fuel, the United States Court of Appeals for the D.C. Circuit has ruled that DOE
had an obligation to begin  accepting  used nuclear fuel in 1998.  However,  the
Court  refused  to issue an order  compelling  DOE to begin  moving  used  fuel.
Instead,  the Court ruled that any damages to  utilities  should be sought under
the standard  contract  signed  between DOE and  utilities,  including  APS. The
United States  Supreme  Court has refused to grant review of the D.C.  Circuit's
decision.

     APS has capacity in existing fuel storage  pools at Palo Verde which,  with
certain modifications, could accommodate all fuel expected to be discharged from
normal operation of Palo Verde through about 2002, and believes it could augment
that wet storage with new  facilities  for on-site dry storage of spent fuel for
an  indeterminate  period of  operation  beyond 2002,  subject to obtaining  any
required governmental approvals. APS currently estimates that it will incur $113
million (in 1999 dollars) over the life of Palo Verde for its share of the costs
related to the on-site interim storage of spent nuclear fuel. As of December 31,
1999,  APS had recorded a liability  and a  regulatory  asset of $37 million for
on-site  interim  nuclear fuel storage  costs  related to nuclear fuel burned to
date. APS currently believes that spent fuel storage or disposal methods will be
available for use by Palo Verde to allow its continued operation beyond 2002.

     The Palo Verde  participants have insurance for public liability  resulting
from nuclear  energy  hazards to the full limit of liability  under federal law.
This potential  liability is covered by primary

                                       51
<PAGE>
liability  insurance provided by commercial  insurance carriers in the amount of
$200  million  and the  balance  by an  industry-wide  retrospective  assessment
program. If losses at any nuclear power plant covered by the programs exceed the
accumulated funds, APS could be assessed retrospective premium adjustments.  The
maximum  assessment  per reactor under the program for each nuclear  incident is
approximately  $88  million,  subject  to an  annual  limit of $10  million  per
incident.  Based upon the 29.1%  interest  in the three Palo Verde  units,  APS'
maximum  potential  assessment per incident for all three units is approximately
$77 million, with an annual payment limitation of approximately $9 million.

     The Palo Verde participants maintain "all risk" (including nuclear hazards)
insurance for property damage to, and decontamination of, property at Palo Verde
in the aggregate  amount of $2.75 billion,  a substantial  portion of which must
first be applied to  stabilization  and  decontamination.  APS has also  secured
insurance  against  portions of any  increased  cost of  generation or purchased
power and business interruption resulting from a sudden and unforeseen outage of
any of the  three  units.  The  insurance  coverage  discussed  in this  and the
previous paragraph is subject to certain policy conditions and exclusions.

FUEL AND PURCHASED POWER COMMITMENTS

     APS is a party to various fuel and  purchased  power  contracts  with terms
expiring from 2000 through 2020 that include required purchase  provisions.  APS
estimates its 2000 contract requirements to be about $177 million. However, this
amount may vary  significantly  pursuant to certain provisions in such contracts
that permit APS to decrease its required purchases under certain circumstances.

     APS must  reimburse  certain coal  providers for amounts  incurred for coal
mine  reclamation.  APS estimates its share of the total  obligation to be about
$103 million.  The portion of the coal mine  reclamation  obligation  related to
coal already burned is about $57 million at December 31, 1999 and is included in
"Deferred Credits-Other" in the Balance Sheet.

     A regulatory  asset has been established for amounts not yet recovered from
ratepayers.  In accordance with the 1999 Settlement  Agreement with the ACC, APS
is continuing to accelerate the  amortization  of the regulatory  asset for coal
mine  reclamation  over an  eight-year  period  that  will end  June  30,  2004.
Amortization  is  included  in  depreciation  and  amortization  expense  on the
Statements of Income.  The balance of the regulatory  asset at December 31, 1999
was about $41 million.

CONSTRUCTION PROGRAM

     Consolidated capital expenditures in 2000 are estimated at $591 million.

GENERATION EXPANSION

     We are currently  planning,  through  Pinnacle West Energy,  a 650-megawatt
expansion of our West Phoenix  Power Plant,  and the  construction  of a natural
gas-fired electric  generating station of up to 2,120 megawatts near Palo Verde,
called  Redhawk.  Pinnacle West Energy's  capital  expenditures in 1999 were $21
million.  Projected capital  expenditures for these projects are $152 million in
2000;  $240 million in 2001;  and $245 million in 2002. We are also  considering
additional expansion over the next several years, which may result in additional
expenditures.  Pinnacle West Energy's capital  expenditures  will be funded with
debt proceeds,  and internally  generated cash and debt proceeds from the parent
company.  Assuming all approvals are granted, we expect to begin construction at
West Phoenix in the second quarter of 2000.

     Pinnacle West Energy has signed a joint development  agreement with Reliant
Energy Power Generation,  Inc. (Reliant) covering  construction and operation of
three new merchant  plants.  Pinnacle West Energy plans to contribute  the first
two units  (1,060  megawatts)  of the  Redhawk  project to the joint  agreement.
Construction  is expected to start in the third quarter of 2000, with commercial
operation  scheduled in the summer of 2002.  Reliant plans to contribute two new
natural gas-fired projects (1,500 megawatts) in Nevada to the venture.

13. NUCLEAR DECOMMISSIONING COSTS

     APS recorded $11 million for nuclear decommissioning expense in each of the
years 1999,  1998, and 1997. APS estimates it will cost about $1.8 billion ($472
million in 1999 dollars) to decommission its 29.1% share of the three Palo Verde
units.  The  decommissioning  costs are  expected to be incurred  over a 14-year
period beginning in 2024. APS charges decommissioning costs to expense over each
unit's operating license term and includes them in the accumulated  depreciation
balance until each unit is retired.  Nuclear decommissioning costs are recovered
in rates.

     APS' current  estimates  are based on a 1998  site-specific  study for Palo
Verde that assumes the prompt  removal/dismantlement  method of decommissioning.
An  independent  consultant  prepared this study.  APS is required to update the
study every three years.

     To fund the costs APS  expects  to incur to  decommission  the  plant,  APS
established   external   decommissioning   trusts  in  accordance  with  Nuclear
Regulatory  Commission  (NRC)  regulations.  The trust  accounts are reported in
"Investments  and Other  Assets"  on the  Consolidated  Balance  Sheets at their
market  value of $176  million at December 31, 1999 and $146 million at December
31, 1998.

                                       52
<PAGE>
     APS  invests the trust  funds  primarily  in fixed  income  securities  and
domestic  stock  and  classifies  them  as  available  for  sale.  Realized  and
unrealized gains and losses are reflected in accumulated depreciation.

     See Note 2 for a proposed  accounting  standard on  accounting  for certain
liabilities related to closure or removal of long-lived assets.

14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     Consolidated  quarterly  financial  information  for  1999  and  1998 is as
follows:

<TABLE>
<CAPTION>
(dollars in thousands, except per share amounts)                                 1999
                                                         --------------------------------------------------
QUARTER ENDED                                            March 31     June 30    September 30   December 31
                                                         --------     -------    ------------   -----------
<S>                                                      <C>          <C>          <C>            <C>
Operating revenues
  Electric                                               $413,983     $511,434     $ 867,630      $500,137
  Real estate                                              24,533       32,697        26,640        46,299
Operating income (a)                                     $ 91,599     $148,968     $ 240,294      $ 97,916
Income from continuing operations                        $ 30,690     $ 68,702     $ 125,579      $ 44,801
Income tax benefit from discontinued operations                --           --        38,000            --
Extraordinary charge - net of income tax                       --           --      (139,885)           --
                                                         --------     --------     ---------      --------
Net income                                               $ 30,690     $ 68,702     $  23,694      $ 44,801
                                                         ========     ========     =========      ========
Earnings (loss) per average common share outstanding
  Continuing operations - basic                          $   0.36     $   0.81     $    1.48      $   0.53
  Discontinued operations - basic                              --           --          0.45            --
  Extraordinary charge - basic                                 --           --         (1.65)           --
                                                         --------     --------     ---------      --------
  Net Income - basic                                     $   0.36     $   0.81     $    0.28      $   0.53
                                                         ========     ========     =========      ========
  Continuing operations - diluted                        $   0.36     $   0.81     $    1.48      $   0.53
  Discontinued operations - diluted                            --           --          0.45            --
  Extraordinary charge - diluted                               --           --         (1.65)           --
                                                         --------     --------     ---------      --------
  Net Income - diluted                                   $   0.36     $   0.81     $    0.28      $   0.53
                                                         ========     ========     =========      ========
Dividends declared per share (b)                         $  0.325     $   0.65     $      --      $   0.35


(dollars in thousands, except per share amounts)                                 1998
                                                         --------------------------------------------------
QUARTER ENDED                                            March 31     June 30    September 30   December 31
                                                         --------     -------    ------------   -----------
Operating revenues
  Electric                                               $380,423     $441,715      $740,734      $443,526
  Real estate                                              34,161       28,916        18,276        42,835
Operating income (a)                                     $ 90,837     $122,605      $251,838      $101,848
Net income                                               $ 31,086     $ 48,997      $127,281      $ 35,528

Earnings per average common share outstanding
  Net income - basic                                     $   0.37     $   0.58      $   1.50      $   0.42
  Net income - diluted                                   $   0.36     $   0.57      $   1.49      $   0.42
Dividends declared per share (b)                         $   0.30     $   0.60      $     --      $  0.325
</TABLE>

(a)  APS' utility  business is seasonal in nature,  with the peak sales  periods
     generally occurring during the summer months. Comparisons among quarters of
     a year may not represent overall trends and changes in operations.

(b)  Dividends for the quarters ending September 30, 1999 and September 30, 1998
     were declared in June.

                                       53
<PAGE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS

     We believe that the carrying amounts of our cash equivalents and commercial
paper are  reasonable  estimates  of their fair values at December  31, 1999 and
1998 due to their short maturities.

     We hold  investments in debt and equity  securities for purposes other than
trading.  The December 31, 1999 and 1998 fair values of such investments,  which
we determine by using quoted market values or by discounting cash flows at rates
equal to our cost of capital, approximate their carrying amount.

     The carrying  value of our long-term  debt  (excluding a capitalized  lease
obligation) was $2.31 billion on December 31, 1999, with an estimated fair value
of $2.29 billion. On December 31, 1998, the carrying value of our long-term debt
(excluding a capitalized lease obligation) was $2.21 billion,  with an estimated
fair value of $2.27 billion. The fair value estimates are based on quoted market
prices of the same or similar issues.

16. EARNINGS PER SHARE

     In 1997 we adopted  SFAS No.  128,  "Earnings  Per Share."  This  statement
requires the  presentation  of both basic and diluted  earnings per share on the
financial  statements.  The following table presents earnings per average common
share outstanding (EPS):

                                               1999          1998        1997
                                               ----          ----        ----
Basic EPS:
  Continuing operations                       $ 3.18        $2.87       $2.76
  Discontinued operations                       0.45           --          --
  Extraordinary charge                         (1.65)          --          --
                                              ------         -----      -----
  Net income                                  $ 1.98        $2.87       $2.76
                                              ======        =====       =====
Diluted EPS:
  Continuing operations                       $ 3.17        $2.85       $2.74
  Discontinued operations                       0.45           --          --
  Extraordinary charge                         (1.65)          --          --
                                              ------         -----      -----
  Net income                                  $ 1.97         $2.85      $2.74
                                              ======         =====      =====

     Dilutive  stock options  increased  average  common shares  outstanding  by
291,392  shares in 1999,  571,728  shares in 1998,  and 519,800  shares in 1997.
Total average common shares outstanding for the purposes of calculating  diluted
earnings per share were 85,008,527  shares in 1999,  85,345,946  shares in 1998,
and 86,022,709 shares in 1997.

     Options to purchase 506,734 shares of common stock were outstanding  during
the last quarter of 1999 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares.

17. STOCK-BASED COMPENSATION

     Pinnacle   West  offers  two  stock   incentive   plans  for  our  and  our
subsidiaries' officers and key employees.

     The most recent plan provides for the granting of new options (which may be
non-qualified  stock  options or incentive  stock  options) of up to 3.5 million
shares at a price per option not less than the fair market value on the date the
option is granted. The plan also provides for the granting of any combination of
shares of restricted stock, stock appreciation rights or dividend equivalents.

     The awards  outstanding  under the  incentive  plans at  December  31, 1999
approximate 1,441,124 non-qualified stock options, 159,837 restricted stock, and
no incentive stock options, stock appreciation rights or dividend equivalents.

     The FASB issued SFAS No. 123,  "Accounting  for  Stock-Based  Compensation"
which was effective  beginning in 1996. The statement  encourages,  but does not
require,  that a company  record  compensation  expense  based on the fair value
method.  We continue to recognize  expense based on Accounting  Principles Board
Opinion No. 25,  "Accounting  for Stock Issued to Employees."

                                       54
<PAGE>
     If we had recorded compensation expense based on the fair value method, our
net income would have been reduced to the following pro forma amounts:

(thousands of dollars)
                                            1999           1998           1997
                                          --------       --------       --------
Net income
  As reported                             $167,887       $242,892       $235,856
  Pro forma (fair value method)           $166,913       $242,177       $235,446
Net income per share - basic
  As reported                             $   1.98       $   2.87       $   2.76
  Pro forma (fair value method)           $   1.97       $   2.86       $   2.75

     We did not consider  compensation  costs for stock options  granted  before
January 1, 1995. Therefore, future reported net income may not be representative
of this  compensation  cost  calculation.  In order  to  present  the pro  forma
information  above,  we calculated  the fair value of each fixed stock option in
the incentive plans using the Black-Scholes option-pricing model. The fair value
was  calculated  based  on the  date  the  option  was  granted.  The  following
weighted-average assumptions were also used in order to calculate the fair value
of the stock options:

                                              1999          1998          1997
                                              ----          ----          ----

Risk-free interest rate                       5.68%         4.54%         5.66%
Dividend yield                                3.33%         3.03%         4.50%
Volatility                                   20.50%        18.80%        15.63%
Expected life (months)                          60            60            60

     The following table is a summary of the status of our stock option plans as
of December  31,  1999,  1998,  and 1997 and changes  during the years ending on
those dates:

<TABLE>
<CAPTION>
                                               1999 Weighted               1998 Weighted               1997 Weighted
                                      1999        Average         1998        Average         1997        Average
                                     Shares    Exercise Price    Shares    Exercise Price    Shares    Exercise Price
                                     ------    --------------    ------    --------------    ------    --------------
<S>                                <C>             <C>          <C>            <C>          <C>            <C>
Outstanding at beginning of year   1,563,512       $27.95       1,554,631      $24.38       1,739,576      $21.51
Granted                              458,450        35.95         244,200       46.78         260,450       39.56
Exercised                           (516,838)       18.19        (217,317)      23.09        (409,975)      21.60
Forfeited                            (64,000)       40.36         (18,002)      33.42         (35,420)      27.10
                                   ---------                    ---------                   ---------
Outstanding at end of year         1,441,124        33.45       1,563,512       27.95       1,554,631       24.38
                                   ---------                    ---------                   ---------
Options exercisable at year-end      835,381        29.69       1,106,165       22.04       1,075,014       19.52
                                   ---------                    ---------                   ---------
Weighted average fair value of
 options granted during the year                     7.05                        8.15                        5.83
</TABLE>
                                       55
<PAGE>
     The following table summarizes  information about our stock option plans at
December 31, 1999:

                                                   Weighted Average
    Exercise                                          Remaining        Options
Prices Per Share                    Outstanding     Contract Life    Exercisable
----------------                    -----------     -------------    -----------
   $10.06                               7,000            1.50           7,000
    11.25                              15,500            0.90          15,500
    15.75                              17,500            1.90          17,500
    16.25                               3,500            0.50           3,500
    17.68                              10,775            2.10          10,775
    18.13                              28,000            2.50          28,000
    19.00                              82,370            4.90          82,370
    19.56                              32,000            2.90          32,000
    22.13                              71,584            4.00          71,584
    23.25                              28,000            3.50          28,000
    27.44                             126,837            5.90         126,837
    31.44                             157,874            6.90         157,874
    34.66                             348,450            9.90           9,679
    36.56                               5,000            9.80             417
    39.75                             213,534            8.00         142,356
    41.00                              70,000            9.10          21,389
    46.78                             223,200            8.90          80,600
                                    ---------                         -------
   $10.06-$46.78                    1,441,124                         835,381
                                    =========                         =======

18. BUSINESS SEGMENTS

     Historically,  we reported our operations as a single,  integrated business
segment.  The basis of our reporting in previous years was due to APS' regulated
operating  environment.  The ACC  authorized a combined  rate for  supplying and
delivering  electricity  to customers  which was  cost-based and was designed to
recover APS' operating expenses and investment in electric utility assets and to
provide a return on the investment.

     As a result of the 1999 Settlement Agreement, our generation operations are
now deregulated for accounting purposes. For the purposes of complying with SFAS
No. 131,  "Disclosures about Segments of an Enterprise and Related  Information"
(SFAS No.  131),  we are  required to disclose  information  about its  business
segments  separately.  Accordingly,  APS  has  separated  identifiable  expenses
between the two segments and has allocated  revenues and other  expenses using a
study that  identifies  the portion of its base rates related to generation  and
delivery. APS then used that information to develop the financial information of
the business segments for each of the three years ended December 31, 1999 (or as
of December  31, 1999 and 1998,  with  respect to assets).  None of our revenues
from external customers are attributed to, and none of our long-lived assets are
located in, any foreign country.

     Beginning in 1999, we have two principal  business segments  (determined by
products,  services, and regulatory environment) which consist of the generation
of  electricity   (generation  business  segment),   and  the  transmission  and
distribution of electricity  (delivery  business  segment).  The "Other" amounts
include activity relating to other subsidiaries including SunCor, El Dorado, and
APS Energy Services.  Intercompany eliminations primarily relate to intercompany
sales of  electricity.  Financial  data for  business  segments  is  provided as
follows:

                                       56
<PAGE>
BUSINESS SEGMENTS FOR YEAR ENDED DECEMBER 31, 1999 (in thousands)

<TABLE>
<CAPTION>
                                       Generation      Delivery          Other       Eliminations        Total
                                       ----------      --------          -----       ------------        -----
<S>                                   <C>             <C>              <C>            <C>             <C>
Operating revenues                    $  853,755      $2,292,798       $130,555       $(853,755)      $2,423,353
Operating expense                        522,925       1,672,169        106,876        (853,755)       1,448,215
                                      ----------      ----------       --------       ---------       ----------
   Operating margin                      330,830         620,629         23,679              --          975,138
Depreciation and amortization            121,683         260,374          3,511              --          385,568
Interest and preferred stock
 dividend requirements                    40,753         101,855          9,125              --          151,733
                                      ----------      ----------       --------       ---------       ----------
   Pretax margin                         168,394         258,400         11,043              --          437,837
Income taxes                              47,976         111,512          8,577              --          168,065
Income tax benefit from
 discontinued operations - PNW                --              --         38,000              --           38,000
Extraordinary charge - net
 of income tax of $94,115                     --        (139,885)            --              --         (139,885)
                                      ----------      ----------       --------       ---------       ----------
Earnings for common stock             $  120,418      $    7,003       $ 40,466       $      --       $  167,887
                                      ==========      ==========       ========       =========       ==========
Total assets                          $2,342,291      $3,795,846       $470,369       $      --       $6,608,506
                                      ==========      ==========       ========       =========       ==========
Capital expenditures                  $  110,798      $  241,469       $126,581       $      --       $  478,848
                                      ==========      ==========       ========       =========       ==========

BUSINESS SEGMENTS FOR YEAR ENDED DECEMBER 31, 1998 (in thousands)

                                       Generation      Delivery          Other       Eliminations        Total
                                       ----------      --------          -----       ------------        -----
Operating revenues                    $  858,340      $2,006,398       $124,188       $(858,340)      $2,130,586
Operating expense                        522,696       1,414,753        104,061        (858,340)       1,183,170
                                      ----------      ----------       --------       ---------       ----------
   Operating margin                      335,644         591,645         20,127              --          947,416
Depreciation and amortization            135,406         241,168          3,105              --          379,679
Interest and preferred stock
 dividend requirements                    37,045         108,670         14,537              --          160,252
                                      ----------      ----------       --------       ---------       ----------
   Pretax margin                         163,193         241,807          2,485              --          407,485
Income taxes                              49,969         109,487          5,137              --          164,593
                                      ----------      ----------       --------       ---------       ----------
Earnings for common stock             $  113,224      $  132,320       $ (2,652)      $      --       $  242,892
                                      ==========      ==========       ========       =========       ==========
Total assets                          $2,399,560      $3,993,740       $431,246       $      --       $6,824,546
                                      ==========      ==========       ========       =========       ==========
Capital expenditures                  $   85,767      $  241,638       $ 73,133       $      --       $  400,538
                                      ==========      ==========       ========       =========       ==========

BUSINESS SEGMENTS FOR YEAR ENDED DECEMBER 31, 1997 (in thousands)

                                       Generation      Delivery          Other       Eliminations        Total
                                       ----------      --------          -----       ------------        -----
Operating revenues                    $  803,647      $1,878,553       $116,473       $(803,647)      $1,995,026
Operating expense                        471,992       1,297,802         98,519        (803,647)       1,064,666
                                      ----------      ----------       --------       ---------       ----------
   Operating margin                      331,655         580,751         17,954              --          930,360
Depreciation and amortization            131,684         233,987          2,614              --          368,285
Interest and preferred stock
 dividend requirements                    50,311         104,410         21,217              --          175,938
                                      ----------      ----------       --------       ---------       ----------
   Pretax margin                         149,660         242,354         (5,877)             --          386,137
Income taxes                              44,898         108,426         (3,043)             --          150,281
                                      ----------      ----------       --------       ---------       ----------
Earnings for common stock             $  104,762      $  133,928       $ (2,834)      $      --       $  235,856
                                      ==========      ==========       ========       =========       ==========
Capital expenditures                  $   84,960      $  217,047       $ 67,248       $      --       $  369,255
                                      ==========      ==========       ========       =========       ==========
</TABLE>
                                       57
<PAGE>
                        PINNACLE WEST CAPITAL CORPORATION
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                  Column A       Column B           Column C              Column D       Column E
                                                    Additions
                                              ----------------------
                                 Balance at   Charged to    Charged                      Balance
                                 beginning    cost and      to other                     at end of
        Description              of Period    Expenses      Accounts     Deductions (a)  Period
        -----------              ---------    --------      --------     ----------      ------
<S>                              <C>          <C>           <C>          <C>             <C>
                                                           (Thousands of Dollars)

                                                 YEAR ENDED DECEMBER 31, 1999

Real Estate Valuation Reserves   $15,000      $   ---       $   ---    $ 7,000         $ 8,000
                                                 YEAR ENDED DECEMBER 31, 1998

Real Estate Valuation Reserves   $23,000      $   ---       $   ---    $ 8,000         $15,000

                                                 YEAR ENDED DECEMBER 31, 1997

Real Estate Valuation Reserves   $41,000      $   ---       $   ---    $18,000         $23,000
</TABLE>
----------
(a)  Represents pro-rata allocations for sale of land.

              ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

                                    PART III

                        ITEM 10. DIRECTORS AND EXECUTIVE
                           OFFICERS OF THE REGISTRANT

     Reference  is hereby made to  "Election  of  Directors"  and to "General --
Section 16(a) Beneficial Ownership Reporting  Compliance" in the Company's Proxy
Statement  relating to the Annual Meeting of  Shareholders to be held on May 17,
2000 (the "2000 Proxy  Statement") and to the  Supplemental  Item --- "Executive
Officers of the Registrant" in Part I of this report.

                         ITEM 11. EXECUTIVE COMPENSATION

     Reference  is hereby  made to the  fourth  and fifth  paragraphs  under the
heading "The Board and its Committees," to "Executive  Compensation,"  to "Human
Resources   Committee  Report,"  to  "Stock  Performance   Comparisons"  and  to
"Executive Benefit Plans" in the 2000 Proxy Statement.

                         ITEM 12. SECURITY OWNERSHIP OF
                    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Reference  is hereby made to  "Certain  Securities  Ownership"  in the 2000
Proxy Statement.

             ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Reference is hereby made to  "Executive  Benefit Plans ---  Employment  and
Severance Arrangements" and to "General-Business Relationship" in the 2000 Proxy
Statement.

                                       58
<PAGE>
                                     PART IV

          ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
                       SCHEDULES, AND REPORTS ON FORM 8-K

Financial Statements

         See the  Index  to  Consolidated  Financial  Statements  and  Financial
Statement Schedule in Part II, Item 8.

EXHIBITS FILED

EXHIBIT NO.                      DESCRIPTION
-----------                      -----------

10.1(a)   -- 2000 Management Variable Incentive Plan (Pinnacle West)

10.2(a)   -- 2000 Senior Management Variable Incentive Plan (Pinnacle West)

10.3(a)   -- 2000 Officer Variable Incentive Plan (Pinnacle West)

10.4(a)   -- 2000 Management Variable Incentive Plan (APS)

10.5(a)   -- 2000 Senior Management Variable Incentive Plan (APS)

10.6(a)   -- 2000 Officers Variable Incentive Plan (APS)

10.7(a)   -- First  Amendment  effective as of January 1, 1999,  to the Pinnacle
             West Capital  Corporation,  Arizona Public Service Company,  SunCor
             Development  Company  and El  Dorado  Investment  Company  Deferred
             Compensation Plan

10.8(a)   -- Fourth  Amendment  dated  December  28, 1999 to the Arizona  Public
             Service Company Directors Deferred Compensation Plan

10.9(a)   -- Letter Agreement dated December 13, 1999 between APS and William L.
             Stewart

10.10(a)  -- Second  Amendment  effective  January 1, 2000 to the Pinnacle  West
             Capital  Corporation,   Arizona  Public  Service  Company,   SunCor
             Development  Company  and El  Dorado  Investment  Company  Deferred
             Compensation Plan

10.11(a)  -- First Amendment dated December 7, 1999 to the Pinnacle West Capital
             Corporation Stock Option and Incentive Plan

10.12(a)  -- First Amendment dated December 7, 1999 to the Pinnacle West Capital
             Corporation 1994 Long-Term Incentive Plan

10.13(a)  -- Pinnacle  West  Capital  Corporation  Supplemental  Excess  Benefit
             Retirement Plan, as amended and restated, dated December 7, 1999

10.14(a)  -- Trust for the Pinnacle  West Capital  Corporation,  Arizona  Public
             Service   Company   and   SunCor   Development   Company   Deferred
             Compensation Plans dated August 1, 1996

10.15(a)  -- First  Amendment  dated  December  7,  1999  to the  Trust  for the
             Pinnacle  West Capital Corporation,  Arizona Public Service Company
             and SunCor Development Company Deferred Compensation Plans

                                       59
<PAGE>
10.16(a)  -- Letter Agreement dated July 28, 1995 between Arizona Public Service
             Company and Armando B. Flores

10.17(a)  -- Letter  Agreement  dated  October 3, 1997  between  Arizona  Public
             Service Company and James M. Levine

21        -- Subsidiaries of the Company

23.1      -- Consent of Deloitte & Touche LLP

27.1      -- Financial Data Schedule

     In addition to those Exhibits shown above, the Company hereby  incorporates
the  following  Exhibits  pursuant  to Exchange  Act Rule 12b-32 and  Regulation
ss.229.10(d) by reference to the filings set forth below:

<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
3.1           Articles of Incorporation,         19.1 to the Company's             1-8962         11-14-88
              restated as of July 29, 1988       September 1988 Form 10-Q
                                                 Report

3.2           Bylaws, amended as of              4.1 to the Company's              1-8962          1-20-00
              December 15, 1999                  Registration Statement on
                                                 Form S-8 No. 333-95035

4.1           Mortgage and Deed of Trust         4.1 to APS' September 1992        1-4473          11-9-92
              Relating to APS' First             Form 10-Q Report
              Mortgage Bonds, together
              with forty-eight indentures
              supplemental thereto

4.2           Forty-ninth Supplemental           4.1 to APS' 1992 Form 10-K        1-4473          3-30-93
              Indenture                          Report

4.3           Fiftieth Supplemental              4.2 to APS' 1993 Form 10-K        1-4473          3-30-94
              Indenture                          Report

4.4           Fifty-first Supplemental           4.1 to APS' August 1, 1993        1-4473          9-27-93
              Indenture                          Form 8-K Report

4.5           Fifty-second Supplemental          4.1 to APS' September 30, 1993    1-4473         11-15-93
              Indenture                          Form 10-Q Report

4.6           Fifty-third Supplemental           4.5 to APS' Registration          1-4473           3-1-94
              Indenture                          Statement No. 33-61228 by
                                                 means of February 23, 1994
                                                 Form 8-K Report

4.7           Fifty-fourth Supplemental          4.1 to APS' Registration          1-4473         11-22-96
              Indenture                          Statements Nos. 33-61228,
                                                 33-55473, 33-64455 and
                                                 333-15379 by means of
                                                 November 19, 1996 Form 8-K
                                                 Report
</TABLE>

                                       60
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
4.8           Fifty-fifth Supplemental           4.8 to APS' Registration          1-4473           4-9-97
              Indenture                          Statement Nos. 33-55473, 33-
                                                 64455 and 333-15379 by means
                                                 of April 7, 1997 Form 8-K
                                                 Report

4.9           Agreement, dated March 21,         4.1 to APS' 1993 Form 10-K        1-4473          3-30-94
              1994, relating to the filing       Report
              of instruments defining the
              rights of holders of APS
              long-term debt not in excess
              of 10% of APS' total assets

4.10          Indenture dated as of January      4.6 to APS' Registration          1-4473          1-11-95
              1, 1995 among APS and The          Statement Nos. 33-61228 and
              Bank of New York, as               33-55473 by means of January
              Trustee                            1, 1995 Form 8-K Report

4.11          First Supplemental Indenture       4.4 to APS' Registration          1-4473          1-11-95
              dated as of January 1, 1995        Statement Nos. 33-61228 and
                                                 33-55473 by means of January
                                                 1, 1995 Form 8-K Report

4.12          Indenture dated as of              4.5 to APS' Registration          1-4473         11-22-96
              November 15, 1996 among            Statements Nos. 33-61228,
              APS and The Bank of New            33-55473, 33-64455 and 333-
              York, as Trustee                   15379 by means of November
                                                 19, 1996 Form 8-K Report

4.13          First Supplemental Indenture       4.6 to APS' Registration          1-4473         11-22-96
                                                 Statements Nos. 33-61228,
                                                 33-55473, 33-64455 and 333-
                                                 15379 by means of November
                                                 19, 1996 Form 8-K Report

4.14          Second Supplemental                4.10 to APS' Registration         1-4473           4-9-97
              Indenture                          Statement Nos. 33-55473, 33-
                                                 64455 and 333-15379 by means
                                                 of April 7, 1997 Form 8-K
                                                 Report
</TABLE>

                                       61
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
4.15          Specimen Certificate of            4.2 to the Company's 1988         1-8962          3-31-89
              Pinnacle West Capital              Form 10-K Report
              Corporation Common Stock,
              no par value

4.16          Agreement, dated March 29,         4.1 to the Company's 1987         1-8962          3-30-88
              1988, relating to the filing of    Form 10-K Report
              instruments defining the
              rights of holders of long-term
              debt not in excess of 10% of
              the Company's total assets

4.17          Indenture dated as of January      4.10 to APS' Registration         1-4473          1-16-98
              15, 1998 among APS and             The Statement Nos. 333-15379
              and Chase Manhattan Bank, as       333-27551 by means of January
              Trustee                            13, 1998 Form 8-K Report

4.18          First Supplemental Indenture       4.3 to APS' Registration          1-4473          1-16-98
              dated as of January 15, 1998       Statement Nos. 333-15379 and
                                                 333-27551 by means of January
                                                 13, 1998 Form 8-K Report

4.19          Second Supplemental                4.3 to APS' Registration          1-4473          2-22-99
              Indenture dated as of              Statement Nos. 333-27551
              February 15, 1999                  and 333-58445 by means of
                                                 February 18, 1999
                                                 Form 8-K Report

4.20          Third Supplemental Indenture       4.5 to APS' Registration          1-4473          11-5-99
              dated as of November 1, 1999       Statement No. 333-58445 by
                                                 means of November 2, 1999
                                                 Form 8-K Report

4.21          Amended and Restated Rights        4.1 to the Company's March 22,    1-8962          4-19-99
              Agreement, dated as of March       1999 Form 8-K Report
              26, 1999, between Pinnacle
              West Capital Corporation and
              BankBoston, N.A., as Rights
              Agent, including (i) as Exhibit
              A thereto the form of Amended
              Certificate of Designation of
              Series A Participating Preferred
              Stock of Pinnacle West Capital
              Corporation, (ii) as Exhibit B
              thereto the form of Rights
              Certificate and (iii) as Exhibit
              C thereto the Summary of Right
              to Purchase Preferred Shares

</TABLE>

                                       62
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
10.18(a)      Employment Agreement,              10.1 to the Company's 1990       2-96386          3-28-91
              effective as of February 5,        Form 10-K Report
              1990, between Richard Snell
              and the Company

10.19         Two separate                       10.2 to APS' September 1991       1-4473         11-14-91
              Decommissioning Trust              Form 10-Q Report
              Agreements (relating to
              PVNGS Units 1 and 3,
              respectively), each dated July
              1, 1991, between APS and
              Mellon Bank, N.A., as
              Decommissioning Trustee

10.20         Amendment No. 1 to                 10.1 to APS' 1994 Form 10- K      1-4473          3-30-95
              Decommissioning Trust              Report
              Agreement (PVNGS Unit 1),
              dated as of December 1, 1994

10.21         Amendment No. 1 to                 10.2 to APS' 1994 Form 10-K       1-4473          3-30-95
              Decommissioning Trust              Report
              Agreement (PVNGS Unit 3),
              dated as of December 1, 1994

10.22         Amendment No. 2 to APS             10.4 to APS' 1996 Form 10-K       1-4473          3-28-97
              Decommissioning Trust              Report
              Agreement (PVNGS Unit 1)
              dated as of July 1, 1991

10.23         Amendment No. 2 to APS             10.6 to APS' 1996 Form 10-K       1-4473          3-28-97
              Decommissioning Trust              Report
              Agreement (PVNGS Unit 3)
              dated as of July 1, 1991

</TABLE>

                                       63
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>

10.24         Amended and Restated               10.1 to the Company's 1991        1-8962          3-26-92
              Decommissioning Trust              Form 10-K Report
              Agreement (PVNGS Unit 2)
              dated as of January 31, 1992,
              among APS, Mellon Bank, N.A.,
              as Decommissioning Trustee,
              and State Street Bank and Trust
              Company, as successor to The
              First National Bank of Boston,
              as Owner Trustee under two
              separate Trust Agreements,
              each  with a separate Equity
              Participant, and as Lessor
              under two separate Facility
              Leases, each relating to
              an undivided interest in PVNGS
              Unit 2

10.25         First Amendment to                 10.2 to APS' 1992 Form 10-K       1-4473          3-30-93
              Amended and Restated               Report
              Decommissioning Trust
              Agreement (PVNGS Unit 2),
              dated as of November 1, 1992

10.26         Amendment No. 2 to                 10.2 to APS' 1994 Form 10-K       1-4473          3-30-95
              Amended and Restated               Report
              Decommissioning Trust
              Agreement (PVNGS Unit 2),
              dated as of November 1, 1994

10.27         Amendment No. 3 to                 10.1 to APS' June 1996 Form       1-4473          8-9-96
              Amended and Restated               10-Q Report
              Decommissioning Trust
              Agreement (PVNGS Unit 2),
              dated as of November 1, 1994

10.28         Amendment No. 4 to                 APS 10.5 to APS' 1996 Form 10-K   1-4473          3-28-97
              Amended and Restated               Report
              Decommissioning Trust
              Agreement (PVNGS Unit 2)
              dated as of January 31, 1992

10.29         Asset Purchase and Power           10.1 to APS' June 1991 Form       1-4473           8-8-91
              Exchange Agreement dated           10-Q Report
              September 21, 1990 between
              APS and PacifiCorp, as
              amended as of October 11,
              1990 and as of July 18, 1991
</TABLE>

                                       64
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
10.30         Long-Term Power                    10.2 to APS' June 1991 Form       1-4473           8-8-91
              Transaction Agreement dated        10-Q Report
              September 21, 1990 between
              APS and PacifiCorp, as
              amended as of October 11,
              1990, and as of July 8, 1991

10.31         Amendment No. 1 dated              10.3 to APS' 1995 Form 10-K       1-4473          3-29-96
              April 5, 1995 to the               Report
              Long-Term Power
              Transaction Agreement and
              Asset Purchase and Power
              Exchange Agreement
              between PacifiCorp and APS

10.32         Restated Transmission              10.4 to APS' 1995 Form 10-K       1-4473          3-29-96
              Agreement between                  Report
              PacifiCorp and APS
              dated April 5, 1995

10.33         Contract among PacifiCorp,         10.5 to APS' 1995 Form 10-K       1-4473          3-29-96
              APS and United States              Report
              Department of Energy
              Western Area Power
              Administration, Salt Lake
              Area Integrated Projects for
              Firm Transmission Service
              dated May 5, 1995

10.34         Reciprocal Transmission            10.6 to APS' 1995 Form 10-K       1-4473          3-29-96
              Service Agreement between          Report
              APS and PacifiCorp dated as
              of March 2, 1994

10.35         Contract, dated July 21, 1984,     10.31 to the Company's Form       2-96386         3-13-85
              with DOE providing for the         S-14 Registration Statement
              disposal of nuclear fuel
              and/or high-level radioactive
              waste, ANPP

10.36         Indenture of Lease with            5.01 to APS' Form S-7             2-59644          9-1-77
              Navajo Tribe of Indians, Four      Registration Statement
              Corners Plant

10.37         Supplemental and Additional        5.02 to APS' Form S-7             2-59644          9-1-77
              Indenture of Lease, including      Registration Statement
              amendments and supplements
              to original lease with Navajo
              Tribe of Indians, Four
              Corners Plant

10.38         Amendment and Supplement           10.36 to the Company's            1-8962          7-25-85
              No. 1 to Supplemental and          Registration Statement on Form
              Additional Indenture of Lease      8-B Report
              Four Corners, dated April 25,
              1985
</TABLE>

                                       65
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
10.39         Application and Grant of           5.04 to APS' Form S-7             2-59644          9-1-77
              multi-party rights-of-way          Registration Statement
              and easements, Four Corners
              Plant Site

10.40         Application and Amendment          10.37 to the Company's            1-8962          7-25-85
              No. 1 to Grant of multi-party      Registration Statement on Form
              rights-of-way and easements,       8-B
              Four Corners Power Plant
              Site dated April 25, 1985

10.41         Application and Grant of           5.05 to APS' Form S-7             2-59644          9-1-77
              Arizona Public Service             Registration Statement
              Company rights-of-way and
              easements, Four Corners
              Plant Site

10.42         Application and Amendment          10.38 to the Company's            1-8962          7-25-85
              No. 1 to Grant of Arizona          Registration Statement on Form
              Public Service Company             8-B
              rights-of-way and easements,
              Four Corners Power Plant Site
              dated April 25, 1985

10.43         Indenture of Lease, Navajo         5(g) to APS' Form S-7             2-36505         3-23-70
              Units 1, 2, and 3                  Registration Statement

10.44         Application and Grant of           5(h) to APS' Form S-7             2-36505         3-23-70
              rights-of-way and easements,       Registration Statement
              Navajo Plant

10.45         Water Service Contract             5(1) to APS' Form S-7             2-394442        3-16-71
              Assignment with the United         Registration Statement
              States Department of Interior,
              Bureau of Reclamation,
              Navajo Plant

10.46         Arizona Nuclear Power              10.1 to APS' 1988 Form 10-K       1-4473           3-8-89
              Project Participation
              Agreement, dated August 23, 1973,
              among APS Salt River Project
              Agricultural Improvement and
              Power District, Southern California
              Edison Company, Public Service
              Company of New Mexico, El Paso
              Electric Company, Southern California
              Public Power Authority,
              and Department of Water and Power of
              the City of Los Angeles,
              and amendments 1-12 thereto
</TABLE>

                                       66
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
10.47         Amendment No. 13, dated as         10.1 to APS' March 1991 Form      1-4473          5-15-91
              of April 22, 1991, to Arizona      10-Q
              Nuclear Power Project
              Participation Agreement,
              dated August 23, 1973,
              among APS, Salt River
              Project Agricultural
              Improvement and Power
              District, Southern California
              Edison Company, Public
              Service Company of New
              Mexico, El Paso Electric
              Company, Southern
              California Public Power
              Authority, and Department of
              Water and Power of the City
              of Los Angeles

10.48(c)      Facility Lease, dated as of        4.3 to APS' Form S-3             33-9480         10-24-86
              August 1, 1986, between            Registration Statement
              State Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, in its capacity as
              Owner Trustee, as Lessor,
              and APS, as Lessee

10.49(c)      Amendment No. 1, dated as          10.5 to APS' September 1986       1-4473          12-4-86
              of November 1, 1986, to            Form 10-Q Report by means of
              Facility Lease, dated as of        Amendment No. on December
              August 1, 1986, between            3, 1986 Form 8
              State Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, in its capacity as
              Owner Trustee, as Lessor,
              and APS, as Lessee

10.50(c)      Amendment No. 2 dated as of        10.3 to APS' 1988 Form 10-K       1-4473           3-8-89
              June 1, 1987 to Facility Lease     Report
              dated as of August 1, 1986
              between State Street Bank
              and Trust Company, as
              successor to The First
              National Bank of Boston,
              as Lessor, and APS, as Lessee

10.51(c)      Amendment No. 3, dated as          10.3 to APS' 1992 Form 10-K       1-4473          3-30-93
              of March 17, 1993, to Facility
              Report Lease, dated as of August
              1, 1986, between State Street
              Bank and Trust Company, as
              successor to The First National
              Bank of Boston, as Lessor, and
              APS, as Lessee
</TABLE>

                                       67
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
10.52         Facility Lease, dated as of        10.1 to APS' November 18          1-4473          1-20-87
              December 15, 1986, between         1986 Form 8-K Report
              State Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, in its capacity as
              Owner Trustee, as Lessor,
              and APS, as Lessee

10.53         Amendment No. 1, dated as          4.13 to APS' Form S-3             1-4473          8-24-87
              of August 1, 1987, to Facility     Registration Statement No.
              Lease, dated as of December        33-9480 by means of August 1,
              15, 1986, between State            1987 Form 8-K Report
              Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, as Lessor, and APS,
              as Lessee

10.54         Amendment No. 2, dated as          10.4 to APS' 1992 Form 10-K       1-4473          3-30-93
              of March 17, 1993, to              Report
              Facility Lease, dated as of
              December 15, 1986, between
              State Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, as Lessor, and APS,
              as Lessee

10.55(a)      Directors' Deferred                10.1 to APS' June 1986 Form       1-4473          8-13-86
              Compensation Plan, as              10-Q Report
              restated, effective January 1,
              1986

10.56(a)      Second Amendment to the            10.2 to APS' 1993 Form 10-K       1-4473          3-30-94
              Arizona Public Service             Report
              Company Deferred
              Compensation Plan, effective
              as of January 1, 1993

10.57(a)      Third Amendment to the             10.1 to APS' September 1994       1-4473        11-10-94
              Arizona Public Service             Form 10-Q
              Company Directors' Deferred
              Compensation Plan, effective
              as of May 1, 1993

10.58(a)      Arizona Public Service             10.4 to APS' 1988 Form 10-K       1-4473           3-8-89
              Company Deferred                   Report
              Compensation Plan, as
              restated, effective January 1,
              1984, and the second and third
              amendments thereto, dated December
              22, 1986, and December 23,
              1987 respectively
</TABLE>

                                       68
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>

10.59         Third Amendment to the             10.3 to APS' 1993 Form 10-K       1-4473          3-30-94
              Arizona Public Service             Report
              Company Deferred
              Compensation Plan, effective
              as of January 1, 1993

10.60(a)      Fourth Amendment to the            10.2 to APS' September 1994       1-4473         11-10-94
              Arizona Public Service             Form 10-Q Report
              Company Deferred
              Compensation Plan effective
              as of May 1, 1993

10.61(a)      Fifth Amendment to the             10.3 to APS' 1996 Form 10-K       1-4473          3-28-97
              Arizona Public Service             Report
              Company Deferred
              Compensation Plan

10.62(a)      Pinnacle West Capital              10.10 to APS' 1995 Form 10-K      1-4473          3-29-96
              Corporation, Arizona Public        Report
              Service Company, SunCor
              Development Company and
              El Dorado Investment
              Company Deferred
              Compensation Plan as
              amended and restated
              effective January 1, 1996

10.63(a)      Arizona Public Service             10.11 to APS' 1995 Form 10-K      1-4473          3-29-96
              Company Supplemental               Report
              Excess Benefit Retirement
              Plan as amended and restated
              on December 20, 1995

10.64(a)      Pinnacle West Capital              10.7 to APS' 1994 Form 10-K       1-4473          3-30-95
              Corporation and Arizona            Report
              Public Service Company
              Directors' Retirement Plan,
              effective as of January 1, 1995

10.65(a)      Letter Agreement dated             10.7 to APS' 1994 Form 10-K       1-4473          3-30-96
              December 21, 1993, between         Report
              APS and William L. Stewart

10.66(a)      Letter Agreement dated as of       10.8 to APS' 1995 Form 10-K       1-4473          3-29-96
              January 1, 1996 between APS        Report
              and Robert G. Matlock &
              Associates, Inc. for
              consulting services

10.67(a)      Letter Agreement dated             10.8 to APS' 1996 Form 10-K       1-4473          3-28-97
              August 16, 1996 between            Report
              APS and William L. Stewart

10.68(a)      Letter Agreement between           10.2 to APS' September 1997       1-4473         11-12-97
              APS and William L. Stewart         Form 10-Q Report
</TABLE>

                                       69
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
10.69(ad)     Key Executive Employment and       10.1 to June 1999                 1-8962          8-16-99
              Severance Agreement between        Form 10-Q Report
              Pinnacle West and certain
              executive officers of Pinnacle
              West and its subsidiaries

10.70(a)      Pinnacle West Capital              10.1 to APS' 1992 Form 10-K       1-4473          3-30-93
              Corporation Stock Option and       Report
              Incentive Plan

10.71(a)      Pinnacle West Capital              A to the Proxy Statement for the  1-8962          4-16-94
              Corporation 1994 Long-Term         Plan Report for the Company's
              Incentive Plan, effective as of    1994 Annual Meeting of
              March 23, 1994                     Shareholders

10.72(a)      Pinnacle West Capital              B to the Proxy Statement for the  1-8962          4-16-94
              Corporation Director Equity        Plan Report for the Company's
              Participation Plan                 1994 Annual Meeting of
                                                 Shareholders

10.73         Agreement No. 13904                10.3 to APS' 1991 Form 10-K       1-4473          3-19-92
              (Option and Purchase of            Report
              Effluent) with Cities of
              Phoenix, Glendale, Mesa,
              Scottsdale, Tempe, Town of
              Youngtown, and Salt River
              Project Agricultural
              Improvement and
              Power District, dated April 23, 1973

10.74         Agreement for the Sale and         10.4 to A PS' 1991 Form 10-K      1-4473          3-19-92
              purchase of Wastewater             Report
              Effluent with City of Tolleson
              and Salt River Agricultural
              Improvement and Power
              District, dated June 12, 1981,
              including Amendment No. 1
              dated as of November 12,
              1981 and Amendment No. 2
              dated as of June 4, 1986

10.75(a)      First Amendment to                 10.2 to the Company's 1995        1-8962           4-1-96
              Employment Agreement,              Form 10-K Report
              effective March 31, 1995,
              between Richard Snell and
              the Company

10.76(a)      Second Amendment to                10.2 to the Company's 1996        1-8962          3-31-97
              Employment Agreement,              Form 10-K Report
              effective February 5, 1997,
              between Richard Snell and
              the Company

10.77(a)      APS Director Equity Plan           10.1 to September 1997 Form       1-4473        11-12-97
                                                 10-Q Report
</TABLE>

                                       70
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>

10.78         Territorial Agreement              10.1 to APS' March 1998           1-4473          5-15-98
              between the Company                Form 10-Q Report
              and Salt River Project

10.79         Power Coordination                 10.2 to APS' March 1998           1-4473          5-15-98
              Agreement between                  Form 10-Q Report
              the Company and Salt
              River Project

10.80         Memorandum of Agreement            10.3 to APS' March 1998           1-4473          5-15-98
              between the Company and            Form 10-Q Report
              Salt River Project

10.81         Addendum to Memorandum             10.2 to APS' May 19, 1998         1-4473          6-26-98
              of Agreement between APS           Form 8-K Report
              and Salt River Project dated
              as of May 19, 1998

99.1          Collateral Trust Indenture         4.2 to APS' 1992 Form 10 K        1-4473          3-30-93
              among PVNGS II Funding             Report
              Corp., Inc., APS and
              Chemical Bank, as Trustee

99.2          Supplemental Indenture to          4.3 to APS' 1992 Form 10 K        1-4473          3-30-93
              Collateral Trust Indenture         Report
              among PVNGS II Funding
              Corp., Inc., APS and
              Chemical Bank, as Trustee

99.3(c)       Participation Agreement,           28.1 to APS' September 1992       1-4473          11-9-92
              dated as of August 1, 1986,        Form 10-Q Report
              among PVNGS Funding
              Corp., Inc., Bank of America
              National Trust and Savings
              Association, State Street
              Bank and Trust Company, as
              successor to The First
              National Bank of Boston, in
              its individual capacity and as
              Owner Trustee, Chemical
              Bank, in its individual
              capacity and as Indenture
              Trustee, APS, and the Equity
              Participant named therein
</TABLE>

                                       71
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
99.4(c)       Amendment No. 1 dated as of        10.8 to APS' September 1986       1-4473          12-4-86
              November 1, 1986, to               Form 10-Q Report by means of
              Participation Agreement,           Amendment No. 1, on
              dated as of August 1, 1986,        December 3, 1986 Form 8
              among PVNGS Funding
              Corp., Inc., Bank of America
              National Trust and Savings
              Association, State Street
              Bank and Trust Company, as
              successor to The First
              National Bank of Boston, in
              its individual capacity and as
              Owner Trustee, Chemical
              Bank, in its individual
              capacity and as Indenture
              Trustee, APS, and the Equity
              Participant named therein

99.5(c)       Amendment No. 2, dated as          28.4 to APS' 1992 Form 10-K       1-4473          3-30-93
              of March 17, 1993, to              Report
              Participation Agreement,
              dated as of August 1, 1986,
              among PVNGS Funding
              Corp., Inc., PVNGS II
              Funding Corp., Inc., State
              Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, in its individual
              capacity and as Owner
              Trustee, Chemical Bank, in
              its individual capacity and as
              Indenture Trustee, APS, and
              the Equity Participant named
              therein

99.6(c)       Trust Indenture, Mortgage,         4.5 to APS' Form S-3             33-9480         10-24-86
              Security Agreement and             Registration Statement
              Assignment of Facility Lease,
              dated as of August 1, 1986,
              between State Street Bank
              and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee, and Chemical
              Bank, as Indenture Trustee
</TABLE>

                                       72
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
99.7(c)       Supplemental Indenture No.         10.6 to APS' September 1986       1-4473          12-4-86
              1, dated as of November 1,         Form 10-Q Report by means of
              1986 to Trust Indenture,           Amendment No. 1 on December
              Mortgage, Security                 3, 1986 Form 8
              Agreement and Assignment
              of Facility Lease, dated as of
              August 1, 1986, between
              State Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, as Owner Trustee,
              and Chemical Bank,
              as Indenture Trustee

99.8(c)       Supplemental Indenture No. 2       28.14 to APS' 1992 Form 10-K      1-4473          3-30-93
              to Trust Indenture, Mortgage,      Report
              Security Agreement and
              Assignment of Facility Lease,
              dated as of August 1, 1986,
              between State Street Bank
              and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee, and Chemical
              Bank, as Lease Indenture
              Trustee

99.9(c)       Assignment, Assumption and         28.3 to APS' Form S-3            33-9480         10-24-86
              Further Agreement, dated as        Registration Statement
              of August 1, 1986, between
              APS and State Street Bank
              and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee

99.10(c)      Amendment No. 1, dated as          10.10 to APS' September 1986      1-4473          12-4-86
              of November 1, 1986, to            Form 10-Q Report by means of
              Assignment, Assumption and         Amendment No. l on December
              Further Agreement, dated as        3, 1986 Form 8
              of August 1, 1986, between
              APS and State Street Bank
              and Trust Company,
              as successor to The First
              National Bank of Boston, as
              Owner Trustee

99.11(c)      Amendment No. 2, dated as          28.6 to APS' 1992 Form 10-K       1-4473          3-30-93
              of March 17, 1993, to              Report
              Assignment, Assumption and
              Further Agreement, dated as
              of August 1, 1986, between
              APS and State Street Bank
              and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee
</TABLE>

                                       73
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
99.12         Participation Agreement,           28.2 to APS' September 1992       1-4473          11-9-92
              dated as of December 15,           Form 10-Q Report
              1986, among PVNGS Funding Report
              Corp., Inc., State Street Bank
              and Trust Company, as successor
              to The First National Bank of
              Boston, in its individual capacity
              and as Owner Trustee,
              Chemical Bank, in its individual
              capacity and as Indenture
              Trustee under a Trust Indenture,
              APS, and the Owner Participant
              named therein

99.13         Amendment No. 1, dated as          28.20 to APS' Form S-3            1-4473          8-10-87
              of August 1, 1987, to              Registration Statement No.
              Participation Agreement,           33-9480 by means of a
              dated as of December 15,           November 6, 1986 Form 8-K
              1986, among PVNGS                  Report
              Funding Corp., Inc. as
              Funding Corporation, State
              Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, as Owner Trustee,
              Chemical Bank, as Indenture
              Trustee, APS, and the Owner
              Participant named therein

99.14         Amendment No. 2, dated as          28.5 to APS' 1992 Form 10-K       1-4473          3-30-93
              of March 17, 1993, to              Report
              Participation Agreement,
              dated as of December 15,
              1986, among PVNGS
              Funding Corp., Inc., PVNGS
              II Funding Corp., Inc., State
              Street Bank and Trust
              Company, as successor to
              The First National Bank of
              Boston, in its individual
              capacity and as Owner
              Trustee, Chemical Bank, in
              its individual capacity and as
              Indenture Trustee, APS, and
              the Owner Participant named
              therein
</TABLE>

                                       74
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
99.15         Trust Indenture, Mortgage          10.2 to APS' November 18,         1-4473          1-20-87
              Security Agreement and             1986 Form 10-K Report
              Assignment of Facility Lease,
              dated as of December 15,
              1986, between State Street
              Bank and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee, and Chemical
              Bank, as Indenture Trustee

99.16         Supplemental Indenture No.         4.13 to APS' Form S-3             1-4473          8-24-87
              1, dated as of August 1, 1987,     Registration Statement No.
              to Trust Indenture, Mortgage,      33-9480 by means of August 1,
              Security Agreement and             1987 Form 8-K Report
              Assignment of Facility Lease,
              dated as of December 15,
              1986, between State Street
              Bank and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee, and Chemical
              Bank, as Indenture Trustee

99.17         Supplemental Indenture No. 2       4.5 to APS' 1992 Form 10-K        1-4473          3-30-93
              to Trust Indenture Mortgage,       Report
              Security Agreement and
              Assignment of Facility Lease,
              dated as of December 15,
              1986, between State Street
              Bank and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee, and Chemical
              Bank, as Lease Indenture
              Trustee

99.18         Assignment, Assumption and         10.5 to APS' November 18,         1-4473          1-20-87
              Further Agreement, dated as        1986 Form 8-K Report
              of December 15, 1986,
              between APS and State Street
              Bank and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee

99.19         Amendment No. 1, dated as          28.7 to APS' 1992 Form 10-K       1-4473          3-30-93
              of March 17, 1993, to              Report
              Assignment, Assumption and
              Further Agreement, dated as
              of December 15, 1986,
              between APS and State Street
              Bank and Trust Company, as
              successor to The First
              National Bank of Boston, as
              Owner Trustee
</TABLE>

                                       75
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.   Description                        Originally Filed as Exhibit:     File No.b    Date Effective
-----------   -----------                        ----------------------------     --------     --------------
<S>           <C>                                <C>                               <C>            <C>
99.20(c)      Indemnity Agreement dated          28.3 to APS' 1992 Form 10-K       1-4473          3-30-93
              as of March 17, 1993 by APS        Report

99.21         Extension Letter, dated as of      28.20 to APS' Form S-3            1-4473          8-10-87
              August 13, 1987, from the          Registration Statement No.
              signatories of the                 33-9480 by means of a
              Participation Agreement to         November 6, 1986 Form 8-K
              Chemical Bank                      Report

99.22         Arizona Corporation                28.1 to APS' 1991 Form 10-K       1-4473          3-19-92
              Commission Order dated             Report
              December 6, 1991

99.23         Arizona Corporation                10.1 to APS' June 1994 form       1-4473          8-12-94
              Commission Order dated             10-Q Report
              June 1, 1994

99.24         Rate Reduction Agreement           10.1 to APS' December 4, 1995     1-4473         12-14-95
              dated December 4, 1995             8-K Report
              between APS and the ACC
              Staff

99.25         ACC Order dated April 24,          10.1 to APS' March 1996 Form      1-4473          5-14-96
              1996                               10-Q Report

99.26         Arizona Corporation                99.1 to APS' 1996 Form 10-K       1-4473          3-28-97
              Commission Order, Decision         Report
              No. 59943, dated December
              26, 1996, including the Rules
              regarding the introduction of
              retail competition in Arizona

99.27         Retail Electric                    10.1 to APS' June 1998            1-4473          8-14-98
              Competition Rules                  Form 10-Q Report

99.28         Arizona Corporation Commission     10.1 to APS' September            1-4473         11-15-99
              Order, Decision No. 61973, dated   1999 10-Q Report
              October 6, 1999, approving APS'
              Settlement Agreement

99.29         Arizona Corporation Commission     10.2 to APS' September            1-4473         11-15-99
              Order, Decision No. 61969, dated   1999 10-Q Report
              September 29, 1999, including the
              Retail Electric Competition Rules
</TABLE>

                                       76
<PAGE>
----------
(a)  Management  contract or compensatory  plan or arrangement to be filed as an
     exhibit pursuant to Item 14(c) of Form 10-K.

(b)  Reports  filed under File No. 1-4473 and 1-8962 were filed in the office of
     the Securities and Exchange Commission located in Washington, D.C.

(c)  An additional document, substantially identical in all material respects to
     this  Exhibit,  has been entered  into,  relating to an  additional  Equity
     Participant. Although such additional document may differ in other respects
     (such as dollar amounts,  percentages,  tax indemnity matters, and dates of
     execution),  there are no material  details in which such document  differs
     from this Exhibit.

(d)  Additional agreements,  substantially identical in all material respects to
     this Exhibit have been entered into with additional persons.  Although such
     additional  documents may differ in other  respects (such as dollar amounts
     and  dates of  execution),  there are no  material  details  in which  such
     agreements differ from this Exhibit.

REPORTS ON FORM 8-K

During the quarter ended December 31, 1999, and the period ended March 29, 2000,
the Company filed the following Report on Form 8-K:

Report  dated  September  29, 1999  regarding  our plan to construct an electric
generating plant of up to 2,120 megawatts near Palo Verde.

                                       77
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        PINNACLE WEST CAPITAL CORPORATION
                                                  (Registrant)

Date: March 29, 2000                    William J. Post
                                        ----------------------------------------
                                        (William J. Post, President
                                        and Chief Executive Officer)

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

    Signature                                  Title                  Date
    ---------                                  -----                  ----


William J. Post                           Principal Executive     March 29, 2000
--------------------------------------    Officer and Director
(William J. Post, President and
Chief Executive Officer)


Michael V. Palmeri                        Principal Financial     March 29, 2000
--------------------------------------    Officer
(Michael V. Palmeri, Vice President,
Finance)


Chris N. Froggatt                         Principal Accounting    March 29, 2000
--------------------------------------    Officer
(Chris N. Froggatt, Vice President
and Controller)


Richard Snell                             Director                March 29, 2000
--------------------------------------
(Richard Snell, Chairman of the
Board of Directors)


Edward N. Basha, Jr.                      Director                March 29, 2000
--------------------------------------
(Edward N. Basha, Jr.)


Michael L. Gallagher                      Director                March 29, 2000
--------------------------------------
(Michael L. Gallagher)


Pamela Grant                              Director                March 29, 2000
--------------------------------------
(Pamela Grant)


Roy A. Herberger, Jr.                     Director                March 29, 2000
--------------------------------------
(Roy A. Herberger, Jr.)

                                       78
<PAGE>
Martha O. Hesse                           Director                March 29, 2000
--------------------------------------
(Martha O. Hesse)


William S. Jamieson, Jr.                  Director                March 29, 2000
--------------------------------------
(William S. Jamieson, Jr.)


Humberto S. Lopez                         Director                March 29, 2000
--------------------------------------
(Humberto S. Lopez)

                                       79
<PAGE>
                                                   Commission File Number 1-8962
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------











                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                              --------------------

                                  EXHIBITS TO

                                   FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1999

                              --------------------

                       Pinnacle West Capital Corporation
               (Exact name of registrant as specified in charter)








--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                INDEX TO EXHIBITS
Exhibit No.       Description
-----------       -----------

10.1(a)        2000 Management Variable Incentive Plan (Pinnacle West)

10.2(a)        2000 Senior Management Variable Incentive Plan (Pinnacle West)

10.3(a)        2000 Officer Variable Incentive Plan (Pinnacle West)

10.4(a)        2000 Management Variable Incentive Plan (APS)

10.5(a)        2000 Senior Management Variable Incentive Plan (APS)

10.6(a)        2000 Officers Variable Incentive Plan (APS)

10.7(a)        First Amendment  effective as of January 1, 1999, to the Pinnacle
               West Capital Corporation,  Arizona Public Service Company, SunCor
               Development  Company and El Dorado  Investment  Company  Deferred
               Compensation Plan

10.8(a)        Fourth  Amendment  dated  December 28, 1999 to the Arizona Public
               Service Company Directors Deferred Compensation Plan

10.9(a)        Letter  Agreement dated December 13, 1999 between APS and William
               L. Stewart

10.10(a)       Second Amendment  effective  January 1, 2000 to the Pinnacle West
               Capital  Corporation,  Arizona  Public  Service  Company,  SunCor
               Development  Company and El Dorado  Investment  Company  Deferred
               Compensation Plan

10.11(a)       First  Amendment  dated  December  7, 1999 to the  Pinnacle  West
               Capital Corporation Stock Option and Incentive Plan

10.12(a)       First  Amendment  dated  December 7, 1999  to  the Pinnacle  West
               Capital Corporation 1994 Long-Term Incentive Plan

10.13(a)       Pinnacle West Capital  Corporation  Supplemental  Excess  Benefit
               Retirement Plan, as amended and restated, dated December 7, 1999

10.14(a)       Trust for the Pinnacle West Capital  Corporation,  Arizona Public
               Service   Company  and  SunCor   Development   Company   Deferred
               Compensation Plans dated August 1, 1996

10.15(a)       First  Amendment  dated  December  7,  1999 to the  Trust for the
               Pinnacle West Capital Corporation, Arizona Public Service Company
               and SunCor Development Company Deferred Compensation Plans

10.16(a)       Letter  Agreement  dated July 28,  1995  between  Arizona  Public
               Service Company and Armando B. Flores

10.17(a)       Letter  Agreement  dated October 3, 1997 between  Arizona  Public
               Service Company and James M. Levine

21             Subsidiaries of the Company

23.1           Consent of Deloitte & Touche LLP

27.1           Financial Data Schedule
<PAGE>
----------
(a)  Management  contract or  compensatory  plan or  arrangement  required to be
     filed as an exhibit pursuant to Item 14(c) of Form 10-K.

For a description of the Exhibits incorporated in this filing by reference,  see
Part IV, Item 14.
