                                                                    Exhibit 99.2

                    BEFORE THE ARIZONA CORPORATION COMMISSION


WILLIAM MUNDELL
     Chairman
JIM IRVIN
     Commissioner
MARC SPITZER
     Commissioner

IN THE MATTER OF THE APPLICATION OF
ARIZONA PUBLIC SERVICE COMPANY FOR AN
ORDER OR ORDERS AUTHORIZING IT TO ISSUE,        DOCKET NO. E-01345A-02-____
INCUR, OR ASSUME EVIDENCES OF LONG-
TERM INDEBTEDNESS; TO ACQUIRE A
FINANCIAL INTEREST OR INTERESTS IN AN
AN AFFILIATE OR AFFILIATES; TO LEND                    APPLICATION
MONEY TO AN AFFILIATES OR AFFIILIATES;
AND TO GUARANTEE THE OBLIGATIONS OF AN
AFFILIATE OR AFFILIATES

     Pursuant to  A.R.S.ss.ss.40-285;  40-301,  ET SEQ.;  and A.A.C.  R14-2-804,
Arizona Public Service Company ("APS" or "Company")  hereby requests one or more
orders from the Arizona Corporation Commission ("Commission"):

     (a)  authorizing  APS to  assume,  issue,  or incur up to  $500,000,000  in
          aggregate principal amount of Recapitalization  Debt (as discussed and
          defined herein) in connection with the refinancing or recapitalization
          of costs  incurred by Pinnacle  West  Capital  Corporation  ("Pinnacle
          West") and Pinnacle West Energy Corporation  ("PWEC") in the financing
          of PWEC's construction of West Phoenix CC Units 4 and 5, Redhawk Units
          1 and 2, and Saguaro CT Unit 3 (collectively  referred to as the "PWEC
          Assets");

     (b)  finding  that such  Recapitalization  Debt will not be  classified  or
          treated as Continuing Debt (as discussed and defined below);

     (c)  authorizing  APS to guarantee the  obligations  (including  principal,
          interest, and associated fees, charges and expenses)(1) of PWEC and/or
          PWCC  ("APS  Guarantees")  up  to an  aggregate  principal  amount  of
          $500,000,000  (less any  Recapitalization  Debt)  for a period  not to
          exceed a weighted average life of 10 years;

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(1) These items are also incurred by APS in any direct  issuance of debt and are
not unique to guarantees.
<PAGE>
     (d)  finding that such APS Guarantees  will not be classified or treated as
          Continuing Debt;

     (e)  authorizing  APS to obtain a  financial  interest  in PWEC or Pinnacle
          West in the form of an  inter-affiliate  loan,  APS  Guarantees,  or a
          combination of the two up to a maximum  aggregate  principal amount of
          $500,000,000; and

     (f)  authorizing  APS to make  such  expenditures,  sign and  deliver  such
          documents,  and negotiate such terms and conditions with  underwriters
          or  selling  agents,  purchasers  and/or  lenders,  including  but not
          limited  to  those   pertaining  to  terms,   rates,   and  collateral
          requirements (if any), all as described  herein,  as may be reasonably
          necessary to economically  effectuate the other authorizations granted
          by the Commission.

APS further requests that the  Commission's  Hearing Division issue a Procedural
Order, as called for by Decision No. 65154 (September 10, 2002),  establishing a
procedural conference and a procedural schedule for timely consideration of this
Application.

     This  Application is filed to address the serious and unique financial harm
faced by APS, PWEC and Pinnacle West as a result of the  Commission's  "reversal
of course" on the issue of APS generation asset divestiture.  The damages to the
Company and its  affiliates  resulting  from their good faith  efforts to comply
with a  long-standing  Commission  regulation  mandating  divestiture  and their
detrimental    reliance   on   the   promise   of   divestiture    made   in   a
Commission-encouraged,   approved,   and  adopted  Settlement  Agreement  ("1999
Settlement")   are  significant  and  should  be  promptly   addressed  by  this
Commission.  The instant  Application  is just one step,  but an  important  and
necessary first step, in that process.(2)

                                  INTRODUCTION

     In  Decision  No.  65154,  the  Commission   significantly  modified  those
provisions of the 1999 Settlement directing the divestiture of APS generation to
PWEC. PWEC was the APS generation affiliate created by Pinnacle West pursuant to
and in compliance with Decision No. 61973 (October 6, 1999),  which Decision had
previously adopted and approved the 1999 Settlement.

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(2) The Company  also  intends to seek  reconsideration  of Decision  No.  65154
within the period permitted by law.

                                      -2-
<PAGE>
     Although  Decision No. 65154 provides for the possibility of "unifying" the
PWEC Assets with those of APS under the  corporate  name of APS, the mere change
of legal title to the PWEC Assets from PWEC to APS, without more, does little to
resolve the total bifurcation issue. This issue was identified last April in the
Company's Motion for Threshold Determination. The "unification" sought by APS in
that Motion and  testified to at the recent Track A hearing was the  restoration
of the Commission's  promise to provide a common financial and regulatory regime
for all of the combined generation of APS and PWEC. With Decision No. 65154, the
long-anticipated  regulatory regime of unregulated  generation competition is no
longer  possible.  Traditional  cost-of-service  regulation,  or  an  acceptable
surrogate for such  unregulated  competition,  must now be  substituted  as that
common regulatory  regime. It is that concept of "unification" that APS believes
was postponed in the  Commission's  deliberations  on Decision No. 65154.(3) For
this  reason,  the  Company  must  now find a  financial  remedy  rather  than a
structural  remedy--one that will permit the PWEC Assets to remain at PWEC until
the Commission determines the final rate treatment of the PWEC Assets.

     By seeking  this  remedy,  APS does not intend or desire to  foreclose  the
possibility  that it may seek to acquire  all or part of the PWEC  Assets in the
future.  APS may also  propose  that the PWEC  Assets  should be included in the
Company's rate base or otherwise afforded  cost-of-service  regulatory treatment

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(3) The Sixth  Ordering  Paragraph in Decision No. 65154,  which was added by an
amendment to the Recommended  Order, when combined with the  Administrative  Law
Judge's  pre-existing  language in the Fourth Ordering Paragraph,  would (by the
Company's  interpretation)  appear to effectively  preclude the inclusion of the
PWEC  Assets in APS' rate  base at this  time,  despite  other  language  in the
Decision  seeming to leave this issue open.  This is because assets  included in
rate  base  cannot,  as a  practical  matter,  be  "contestable"  by the sort of
competitive procurement process presently being discussed in Track B.

                                      -3-
<PAGE>
to the extent the PWEC Assets are used to serve APS customers.(4)  Indeed, these
would be  appropriate  topics in the Company's  upcoming 2003 general rate case.
Decision No. 65154  specifically  states that there will be no  pre-judgement by
the  Commission  of the eventual rate  treatment of these assets.  (Decision No.
65154 at p.34, lines 3-4.)

     APS also wishes to make clear that this  Application does not affect nor is
it  intended  to affect  the  Commission's  consideration  of, or the  Company's
position on, any of the "Track B" issues  identified  in  Commission  Docket No.
E-00000A-02-0051.  This too was an  express  part of the  Commission's  order in
Decision No. 65154. (ID. at pp.33-34, Tenth Ordering Paragraph.)

     The Company did not support  generation  divestiture  when Commission Staff
first  proposed  it in 1998.  APS also was aware  that a  start-up,  stand-alone
generation  company  would lack the initial  cash flow  necessary to support the
investment-grade  financing needed to be fully competitive in the market.  Thus,
APS was only willing to agree to the 1999  Settlement  on terms that allowed all
APS-owned   generation   and   anticipated   future   generation   to  enjoy  an
investment-grade rating.

     For  these  reasons,  the  impact  of  Decision  No.  65154 on PWEC is both
inequitable  and dramatic.  Prior to Decision No. 65154,  PWEC had an investment
grade debt rating once divestiture was complete.(5)  With no divestiture,  or no
prospect of a long-term  purchase power agreement such as APS proposed last fall
in  substitution  for full market  dependence,  PWEC is simply not  sufficiently
creditworthy  under present  market  conditions  absent credit support from APS.
Under the best of market  conditions,  a start-up  merchant  generator with only
some 2000 megawatts of localized,  uncommitted,  gas-fired  generation would not

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(4) If the PWEC Assets or any portion  thereof were to be acquired by APS in the
future, APS could receive  appropriate credit for any amounts loaned to PWEC and
then still outstanding.

(5) In its  press  release  describing  its  contingent  award to PWEC of a BBB+
rating,  Fitch  stated:  "The  generating  assets  and  associated  debt will be
transferred  to PWEC by December 31,  2002.  THE RATING IS  CONTINGENT  UPON THE
SUCCESSFUL  TRANSFER OF A MAJORITY OF APS' ELECTRIC  GENERATING ASSETS TO PWEC."
EMPHASIS SUPPLIED.

                                      -4-
<PAGE>
have the  investment  grade  rating  needed  to  compete  with  investment-grade
companies. Being non-investment grade means more than just being unable to raise
capital in bad markets (such as today) or doing so at significantly  higher cost
in  good  markets;  it  directly  impacts  the  ongoing  competitiveness  of the
enterprise.  Thus,  it should come as no surprise that APS would not have agreed
to the 1999  Settlement  and that PWEC  would  never have  constructed  the PWEC
Assets absent the promised  unification of generation under the 1999 Settlement.
In fact, PWEC would never have existed.

     Pinnacle West is likewise  adversely affected by Decision No. 65154. As the
parent company of APS and PWEC,  Pinnacle West was compelled to provide  interim
bridge financing for  construction of the PWEC Assets.  Because of the impending
divestiture of APS  generation to PWEC,  the market always  regarded this bridge
financing as necessarily being only a temporary situation,  i.e., one that would
only be in place until the divestiture  promised by the 1999 Settlement had been
accomplished.  Then,  PWEC  could  recapitalize  that  debt on its  own  through
long-term financing.  In a very real sense, it was the 1999 Settlement that Wall
Street accepted as collateral for Pinnacle West's bridge  financing.  Indeed, it
was in reliance on that 1999 Settlement that Pinnacle West has been permitted by
the rating agencies to carry significantly more debt than likely would otherwise
have been permitted by these same rating agencies without a downgrade.(6) But as
noted above,  the PWEC credit rating  required for that permanent  financing was
itself  always  expressly  contingent  upon  receipt by PWEC of the  present APS
generation  assets  pursuant to the  provisions of Decision No. 61973 and A.A.C.
R14-2-1615  (A)  ["Rule  1615(A)"].   Project  specific  financing--a  far  more
expensive  option for PWEC even under good market  conditions and one that would

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(6) In a report dated  September  10, 2002,  Moody's  (after  noting the adverse
implications  of Decision No. 65154)  stated:  "The rating outlook [for Pinnacle
West] is stable and assumes the Pinnacle  bridge  financing is  refinanced at an
operating  subsidiary  in the  intermediate  term.  Failure  to do so could have
negative rating implications."

                                      -5-
<PAGE>
have made the PWEC Assets  non-competitive--is  simply unavailable to PWEC under
today's market conditions.

     Given its debt burden and with no prospect of APS generation divestiture to
PWEC,  Pinnacle West's ability to refinance the aforementioned  bridge financing
of the PWEC Assets, on even a short-term basis and without a credit downgrading,
is in serious  question.(7) A credit  downgrading would  significantly  increase
Pinnacle West's own cost of capital.  The historical cost of even a single level
credit  drop  (from  BBB to BBB- or from  Baa2 to Baa3)  would be some 150 basis
points  or over  $17,000,000  per  year.  The loss of  investment  grade  rating
altogether would add another 150 or more basis points to the damage caused. This
amounts to approximately $350,000,000 over a ten-year period.

     It is also  dangerous to assume that APS could remain wholly  unaffected by
these events. Some rating agencies,  such as S&P, already evaluate the Company's
credit   quality  in  the   overall   context   of   Pinnacle   West.   And  the
Commission-induced  financial disruption of the Company's parent corporation and
generation  affiliate,  when combined with the  unilateral  revision to the 1999
Settlement  ordered in Decision No. 65154,  would  undoubtedly add a significant
regulatory  risk  premium  to the  Company's  cost of  obtaining  and  retaining
capital.

     The Company's  Application is evidence of the Company's continued desire to
find a solution to the need to  permanently  recapitalize  the  financing of the
PWEC Assets,  as was discussed at great length by the  Commissioners  during the
August 27th Special Open Meeting that resulted in Decision No.  65154.(8) At the
same time,  it  satisfies  the stated  desire of some of the parties to maintain

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(7) Much of the Pinnacle West bridge  financing will come due next summer,  with
the balance  maturing in early 2004.  Any issuance of debt,  as is  contemplated
herein,  will take several months to plan and even longer to actually implement.
Thus, a ruling on the Application before the end of 2002 is needed.

(8) The Company had, in fact,  previously  suggested a purchase power  agreement
between APS and Pinnacle West covering the PWEC Assets. This would have resolved
the refinancing  problem  described  herein in a manner APS continues to believe
would be more  advantageous  to the  Company's  customers  over  the  long  run.
Acquisition  by APS  of the  PWEC  Assets  and  their  future  inclusion  in the
Company's rate base is also an option, but one not chosen by the Company at this
time given the  apparent  rejection  by the  Commission  of that  option for the
present and the  Commission's  admonition  (in Decision No.  65154) that APS not

                                      -6-
<PAGE>
separation  between APS'  regulated  assets and the PWEC Assets.  Thus, as noted
above,  and in an  effort  to deal  solely  with  the  financing  impact  of the
Commission's  reversal  on  divestiture,  the  Company is  proposing a financing
solution that keeps the PWEC Assets at PWEC.

     That solution is a loan from APS to PWEC (or  potentially  to Pinnacle West
for  the  benefit  of  PWEC,  if such  is  more  cost-effective  for APS and its
affiliates),  which is in turn  secured  by a note  back to APS.  Alternatively,
there could be the guarantee by APS of PWEC obligations (or potentially those of
Pinnacle  West incurred on behalf of PWEC,  if such is more  cost-effective  for
both APS and its  affiliates),  which  would then be secured by a  reimbursement
agreement in favor of APS. Or APS could use a combination of these two financial
vehicles. In either or both cases, the amount of credit support would not exceed
an aggregate  principal  amount of  $500,000,000  plus  interest and the type of
associated fees, expenses and charges previously discussed in this Application.

     Therefore,  and in support of this  Application,  the Company  respectfully
states as follows:

                                    BACKGOUND

     1. APS, Pinnacle West and PWEC are corporations duly organized and existing
under the laws of the State of Arizona.  Their corporate headquarters are at 400
North Fifth Street, Phoenix, Arizona 85004.

     2. APS is a public service  corporation  principally  engaged in furnishing
electricity  in the State of Arizona.  APS provides  either  retail or wholesale
electric  service to substantially  all of the state of Arizona,  with the major
exceptions  of the Tucson  metropolitan  area and about  one-half of the Phoenix
metropolitan  area. The Company also  generates  and,  through the Pinnacle West
marketing  and trading  division,  sells and delivers  electricity  to wholesale
customers in the western United States.

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seek a  ratemaking  determination  in this filing and that the filing not affect
"the amount, timing, and manner of the competitive procurement process [in Track
B]." (ID. at 34.)

<PAGE>
     3. PWEC is principally engaged in the generation of electric power for sale
to APS at wholesale and was created  pursuant to Commission  Decision No. 61973,
which  Decision  also  specifically  found that the  creation of PWEC was in the
public interest.

     4. Pinnacle West is the parent company of both APS and PWEC.

     5. The attorneys for APS in this proceeding, and the individuals upon which
all notices and pleadings should be served, are:

               Thomas L. Mumaw, Esq.
               Pinnacle West Capital Corporation
               Law Department
               P.O. Box 53999
               Mail Station 8695
               400 N. 5th Street
               Phoenix Arizona 85072-3999

               and

               Matthew P. Feeney. Esq.
               Jeffrey B. Guldner, Esq.
               Snell & Wilmer, LLP
               One Arizona Center
               400 E. Van Buren
               Phoenix, Arizona 85004-0001.

                                 THE BRIDGE DEBT

     6.  As  of  July  1,  2002,   Pinnacle  West  had  incurred   approximately
$635,000,000  in  primarily  short-dated  debt  ("Bridge  Debt") to finance  the
construction of the PWEC Assets.  This has raised total Pinnacle West debt as of
that date to  $959,000,000.  The Bridge Debt is expected to further  increase to
$765,000,000  by the middle of 2003.  Some  $550,000,000  of the  aforementioned
Bridge Debt will mature in 2003. Another $215,000,000 of Bridge Debt will mature
in early  2004.  The  Company's  efforts  to  refinance  this  Bridge  Debt must
necessarily begin some months in advance of the maturity date thereof.

     7. Based upon Decision No. 65154 in Track A of Docket No.  E-0000A-02-0051,
the Company  will not be permitted  to divest its  generating  assets to PWEC as

                                      -8-
<PAGE>
unconditionally  authorized and required by Decision No. 61973 and Rule 1615(A).
In view of the  need to  obtain  recapitalization  of the  PWEC  Assets  through
refinancing of the Bridge Debt and given the current generally  favorable market
conditions for the Company's issuance of long-term debt, APS proposes to provide
for the  recapitalization  of the PWEC Assets  through a direct loan or loans to
PWEC or via the guarantee of PWEC  obligations  relating to the PWEC  Assets.(9)
The net  proceeds  of such  APS  loan(s)  to PWEC or the net  proceeds  from any
issuance of  APS-guaranteed  PWEC debt would be  transferred by PWEC to Pinnacle
West to repay or refinance a significant portion of the Bridge Debt.

                      THE CONTINUING LONG-TERM INDEBTEDNESS

     8. At June 30, 2002, APS had total outstanding long-term indebtedness in an
aggregate  principal amount of approximately  $2,206,780,000  (including current
maturities of long-term  indebtedness).  A schedule  showing the  calculation of
this amount is attached to this Application as Exhibit A.

     9. Decision No. 55017 (May 6, 1986) (the "1986 Order") allows APS to, among
other things, have outstanding at any one time (subject to a thirty-day "window"
described  in the 1986 Order) up to an aggregate  principal  amount of long-term
indebtedness (including current maturities thereof) of $2,698,917,000. A copy of
the 1986 Order is attached to this Application as Exhibit B.

     10. The 1986 Order superseded the long-term indebtedness limitation granted
to APS in Decision No. 54230  (November 8, 1984) ("the 1984  Order").  A copy of
the 1984 Order is attached to this Application as Exhibit C.(10)

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(9) There is a possibility that the loans and/or guarantees might be to Pinnacle
West for the reasons discussed in the Introduction  section of this Application.
By the reference to only PWEC in this and other  paragraphs of the  Application,
APS does not mean to preclude that possibility but only to simplify the verbiage
of the Application itself.

(10) The 1984 Order also included, among other things, authority for the Company
to have, at any one time outstanding,  up to $576,301,000 in aggregate par value
of the Company's preferred stock and to issue, reissue,  refund,  refinance,  or
roll-over  short-term  debt  in  an  amount  up to 7%  of  the  Company's  total

                                      -9-
<PAGE>
     11. As noted in the 1986 Order, "[t]he financing  flexibility sought herein
and as  previously  granted by Decision No. 54230 [the 1984 Order] has permitted
APS to take  advantage  of rapid  and  sometimes  unanticipated  changes  in the
capital  markets."(11)  As described  herein,  this "financing  flexibility" has
served the Company's  customers and  shareholders  extremely  well for almost 18
years by allowing APS to access frequently  volatile capital markets in a timely
and  efficient  manner,  thereby  reducing  the  Company's  financing  costs and
eventually  the  cost  of  capital   reflected  in  customers'  rates.  APS  has
continuously  complied  with each of the terms and  conditions of the 1986 Order
and of the 1984 Order (to the extent not  superceded  by the 1986  Order) in all
respects  and  is in  compliance  with  such  Orders  as of  the  date  of  this
Application.

     12. Also based on the Company's  outstanding  long-term  indebtedness as of
June 30, 2002 and the present  Continuing  Debt limit,  APS had the authority to
incur up to $492,137,000  in additional  long-term debt. The amount of this debt
margin (below the Continuing Debt limit) has varied  significantly over the past
18  years,  but has  been a  critical  component  of the  financing  flexibility
afforded by the 1986 Order.

     13. The Company  requests that the  Commission  maintain the current margin
under the Continuing  Debt limit by finding that the  Recapitalization  Debt (as
described  and  defined  hereinafter)  should  not be  classified  or treated as
Continuing Debt as set forth in the 1984 and 1986 Orders.

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capitalization.  SEE A.R.S. ss.  40-302(D).  The 1986 Order did not affect these
prior authorizations, and it is not intended that thE authorization requested in
this Application  will supersede or limit, or in any other way affect,  the 1984
Order and its effectiveness as to short-term debt and preferred stock.

(11)  During  the  period  from  1985  to  the  present,  APS  has  issued  over
$5,000,000,000  in  long-term  debt,  taking  advantage  of every  trough in the
interest  rate cycle and turning over the Company's  entire debt  capitalization
more  than  twice.  As a  result,  embedded  weighted  long-term  debt  costs (a
component used to set APS rates) have dropped from 10.7% in 1985 to less than 6%
today. In 1992 alone, the Company voluntarily  refinanced  $650,000,000 of debt,
producing total interest  savings of some  $120,000,000  over the then remaining
life of the  refinanced  debt.  And the amount of  long-term  debt has  actually
dropped since 1985 to the present,  despite the continued  growth of the Company
during that same period.

                                      -10-
<PAGE>
                            THE RECAPITALIZATION DEBT

     14. In connection  with such  recapitalization  or  refinancing of the PWEC
Assets,  APS  may  incur  additional  long-term  indebtedness  in  an  aggregate
principal  amount  of up to  $500,000,000.(12)  This  would  occur  through  the
issuance or incurring by APS of new indebtedness  (such indebtedness is referred
to in this Application as the "Recapitalization Debt").

     15. Consistent with the 1986 Order and the 1984 Order, the Company proposes
to  determine  the terms of any such  Recapitalization  Debt (or the  individual
components  of each if more than one),  the  maturities  thereof,  the  interest
and/or  discount  rates  thereon,  the  necessity  for any form of any  security
therefor,  the applicable  financial  markets  (whether  domestic or foreign) or
lenders,  the nature of the offerings (whether public or private) or borrowings,
and the type or types of  transaction in which debt would be sold or incurred by
reference  to  conditions  in the  financial  markets  at the  time or  times of
commitment.  Maturity, interest rate, discount, and other related determinations
would be negotiated  with the intent of obtaining the most  favorable  terms for
the  Company  and  would  bear a  close  relationship  to  those  of  comparable
borrowings of other comparable borrowers,  as applicable at or about the time of
incurrence of the Company's own debt with respect to the  appropriate  financial
market,  and would  further  reflect  negotiations  between  the Company and the
underwriters  or selling  agents,  ultimate  purchasers  or  lenders  of, or the
receipt by the Company of competitive  bids relating to, such debt.  Although it
is the  Company's  firm  intent  to  use  unsecured  debt  for  purposes  of the
Recapitalization Debt, it is always possible that market conditions will dictate
otherwise. Therefore, the security, if any, for any such debt by APS may consist
of a mortgage  lien on all or a portion  of the  Company's  assets,  third-party

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(12) This  represents  the  Company's  present  estimate of the amount of credit
support  necessary  through  APS to  restore  PWEC  and  Pinnacle  West to their
pre-Decision  No.  65154  credit  status.  If this  proves to be  inadequate  in
practice,  APS  reserves  the  right to  submit a second  financing  application
seeking such additional credit support in the future.

                                      -11-
<PAGE>
credit support or other form of security  acceptable to both APS and the lender.
Third-party credit support may include a letter of credit, draws on which may be
reimbursable  by the Company  immediately or over time and, to such extent,  may
involve  the  issuance  of  a  separate   evidence  or  separate   evidences  of
indebtedness.  In this  regard,  APS notes that the 1984 Order  states  that any
indebtedness  arising to the issuer of a letter of credit  which  results from a
draw  under  such  letter of credit  does not  require  separate  or  additional
Commission  approval under A.R.S.  ss. 40-301,  ET SEQ., if the underlying  debt
which the letter of credit secured was itself authorized by the Commission.(13)

     16. The proceeds  from the issuance of the  Recapitalization  Debt would be
loaned by APS to PWEC in  exchange  for a note or notes (the  "Repayment  Note")
reimbursing   APS  for  the  all-in   cost  of   issuing   and   servicing   the
Recapitalization  Debt  over  the  term or  terms  of the  Repayment  Note.  The
Repayment  Note would also require full  repayment of principal  and interest to
APS.

     17. In  addition  to the  Recapitalization  Debt,  the balance of the funds
needed for the  permanent  recapitalization  of the PWEC  Assets  (estimated  at
approximately $532,000,000) is presently planned to come from one or more equity
infusions from Pinnacle West. These may be in the form of contribution(s) of (i)
cash or property; (ii) forgiveness of indebtedness; (iii) internal generation of
funds at PWEC; or (iv) a combination  of the  foregoing.  This will result in an
appropriately conservative capital structure for PWEC.

                              THE GUARANTEE OPTION

     18. As an  alternative to the issuance or incurrence of all or a portion of
the  Recapitalization  Debt, APS also seeks authorization to provide PWEC with a

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(13) This is  because  the draw down on the  letter of credit  would  reduce the
underlying  debt,  thus  resulting  in no  overall  increase  in the  amount  of
outstanding APS obligations.

                                      -12-
<PAGE>
corporate guarantee or guarantees ("APS Guarantees") of indebtedness  (including
principal,  interest,  and  associated  fees,  charges  and  expenses)  up to an
aggregate principal amount of $500,000,000 for a period not to exceed a weighted
average life of 10 years. Such APS Guarantees would be reduced dollar for dollar
by the aggregate  principal  amount of any  Recapitalization  Debt such that the
total of the two  principal  amounts  could not  exceed an  aggregate  principal
amount of $500,000,000.

     19. In exchange for the APS  Guarantees,  APS shall receive a reimbursement
agreement  from PWEC and/or  Pinnacle West providing for repayment to APS of all
amounts (if any) paid by APS pursuant to such APS Guarantees.

             CONSEQUENCES IF THE INSTANT APPLICATION IS NOT GRANTED

     20.   Pinnacle   West  is  presently   carrying  more  debt  than  its  own
capitalization  and income could support under the ratings criteria  established
by national  ratings  agencies such as S&P,  Moody's,  and Fitch. Any attempt to
refinance at Pinnacle West a significant  portion of the  aforementioned  Bridge
Debt would likely result in a loss of Pinnacle West's present credit rating.

     21. The loss of  Pinnacle  West's  present  credit  rating  would raise its
overall  cost of issuing  new debt,  including  the  refinancings  discussed  in
Paragraph  No. 6, by as much as 150 basis  points.  This  would  translate  into
higher annual  interest  costs of some  $17,000,000.  A loss of Pinnacle  West's
investment grade ratings altogether would more than double that amount.

     22.  PWEC's  credit  rating  was  expressly  contingent  on  receiving  the
Company's  generating assets, and without such rating, a public offering of debt
at present is impossible. The alternatives of project or bank financing are more
expensive  under the best of market  conditions  and  unavailable  under present
market conditions.

                                      -13-
<PAGE>
     23.  Without  permanent  financing in place and with no potential to obtain
financing on commercially  reasonable terms, if at all, PWEC cannot  effectively
compete in the competitive wholesale market under the present credit constraints
in that market.

     24. If PWEC could not  recapitalize  the PWEC Assets itself at any cost, it
would be  forced  to sell them  into the  presently  depressed  market at a very
substantial loss compared to both their cost and their going concern value under
the  assumption  that  PWEC had  received  the  Company's  generation  assets as
promised in Decision No. 61973.

     25. Timely  Commission  approval of the instant  Application could mitigate
all or a portion of the adverse consequences described above.

                             APS FINANCIAL CONDITION

     26. The Company's most current public  financial  statements for the period
ending June 30, 2002 are attached to this Application as Exhibit D.

     27. The Company's current credit ratings are shown in Exhibit E.

     28. Attached to this  Application as Exhibit F are the estimated  financial
impacts  of the  increased  debt  authorizations  sought  herein  under  varying
assumptions as to interest rates.

     29. Exhibit F also provides the relevant financial indicators for APS debt.
Exhibit F shows these  indicators both with and without any amounts  received by
APS under the Repayment Note or the reimbursement agreement.

     30.  Exhibit  F  indicates  that APS can  accommodate  the  increased  debt
authorizations sought by the Application without a loss of the Company's overall
credit quality or debt rating.  Such debt would have an immaterial effect on the
Company's cost of capital.

     31. APS would not be  primarily  liable for the  payment of  principal  and
interest under the APS Guarantees,  but rating agencies would probably treat the
APS  Guarantees as APS debt in  determining  the amount of leverage and interest
coverage for debt ratings  purposes.  Thus,  the  financial  analysis of the APS
Guarantees on the Company would be very similar to that set forth in Exhibit F.

                                      -14-
<PAGE>
                         GENERAL STATUTORY FINDINGS(14)

     32. In the Company's  opinion,  the proposed  issuance or incurrence of the
Recapitalization   Debt,  or  the  issuance  of  the  APS  Guarantees,   all  as
contemplated  herein,  are for lawful  purposes  which are within its  corporate
powers  and are  compatible  with the  public  interest,  with  sound  financial
practices, and with the proper performance by the Company of service as a public
service corporation and will not impair its ability to perform that service.

     33. APS is further of the opinion that the foregoing authorizations, all as
contemplated  herein, are reasonably  necessary or appropriate for such purposes
and that such purposes,  except as otherwise set forth herein, are not wholly or
in part, reasonably chargeable to the Company's operative expenses or to income.
To the extent that the purposes set forth  herein may be  considered  reasonably
chargeable  to operative  expenses or to income,  the Company  requests that the
order or  orders of the  Commission  in this  matter  authorize  such  charge or
charges.

             NOTICE, TIMING, AND EFFECTIVE DATE OF COMMISSION ORDER

     34. APS requests that notice of the filing of this  Application be given in
conformity  with A.R.S.  ss. 40-302 by a single  publication of such notice in a
newspaper of general  circulation  within its electric  service  area.  APS will
either cause such notice to be given or will agree to reimburse  the  Commission
for any costs  incurred by the  Commission  in preparing and  distributing  such
notice.

     35. APS requests issuance of the order or orders sought by this Application
by December 31, 2002.

----------
(14) These  findings are  required by  A.R.S.ss.ss.40-301  and 40-302.  They are
standard "boilerplate" in all financing orders of the Commission.

                                      -15-
<PAGE>
     36. APS requests that the order or orders sought by this Application become
effective immediately upon the issuance thereof.

                                PRAYER FOR RELIEF

     WHEREFORE,  the Company asks that the Commission cause notice of the filing
of this Application to be given as  above-requested;  issue the Procedural Order
described  in Decision  No.  65154;  hold such  hearing or hearings at a time or
times to be  specified  by such  Procedural  Order,  and making such  inquiry or
investigation  as the  Commission  may deem of  assistance;  make  any  findings
required  by law  relative  to purposes of the  issuance  and  incurring  of the
Recapitalization Debt, and/or the issuance by the Company of the APS Guarantees,
all  as  contemplated  herein;  and  thereafter  make  one or  more  immediately
effective orders which, together:

          (i)    authorize  the  Company  to  assume,  issue,  or  incur  up  to
                 $500,000,000 in aggregate  principal amount of Recapitalization
                 Debt;

          (ii)   authorize  the Company to determine the terms  associated  with
                 the Recapitalization Debt, including whether any portion of the
                 Recapitalization  Debt will be  secured  by all or a portion of
                 the Company's assets;

          (iii)  authorize  the  Company  to  provide  the  APS   Guarantees  in
                 accordance with the Application;

          (iv)   authorize  the Company to determine the terms  associated  with
                 the APS  Guarantees,  including  whether any portion of the APS
                 Guarantees will be secured by all or a portion of the Company's
                 assets; (v) provide that the Recapitalization  Debt and the APS
                 Guarantees  will not be  classified  or counted  as  Continuing
                 Debt;

          (vi)   find that the issuance and incurrence of Recapitalization Debt,
                 and the issuance of the APS Guarantees are reasonably necessary
                 or appropriate  for the purposes set forth in this  Application
                 and that such  purposes  are within  those  permitted by A.R.S.
                 ss.40-301, ET SEQ.;

                                      -16-
<PAGE>
          (vii)  permit  such  purposes  to the  extent  they may be  reasonably
                 chargeable  to  operative  expenses  or to income and allow the
                 payment of related expenses as contemplated herein; and

          (viii) authorize  APS to  obtain  a  financial  interest  in  PWEC  or
                 Pinnacle  West in the  form  of an  inter-affiliate  loan,  APS
                 Guarantees,  or a  combination  of  the  two  up  to a  maximum
                 aggregate principal amount of $500,000,000; and

          (ix)   authorize APS to make such expenditures,  sign and deliver such
                 documents,   and  negotiate  such  terms  and  conditions  with
                 underwriters  or selling  agents,  purchasers  and/or  lenders,
                 including but not limited to those pertaining to terms,  rates,
                 and collateral  requirements (if any), all as described herein,
                 as may be reasonably  necessary to economically  effectuate the
                 other authorizations granted herein; and

          (x)    grant the  Company  such  additional  relief as is  appropriate
                 under the circumstances.

          RESPECTFULLY SUBMITTED this 16th day of September 2002.


                                        SNELL & WILMER


                                        By: Jeffrey B. Guldner
                                            ------------------------------------
                                            Matthew P. Feeney, Esq.
                                            Jeffrey B. Guldner, Esq.

                                                           and

                                        PINNACLE WEST CAPITAL CORPORATION
                                        LAW DEPARTMENT


                                        By: Thomas L. Mumaw
                                            ------------------------------------
                                            Thomas L. Mumaw, Esq.

                                        Attorneys for Arizona Public Service
                                        Company

                                      -17-
<PAGE>
                                                                       Exhibit A

ARIZONA PUBLIC SERVICE
SCHEDULE OF LONG TERM DEBT AND CURRENT MATURITIES
AS OF JUNE 30, 2002

                                   DATE OF       DATE OF             DEBT
FIRST MORTGAGE BONDS                ISSUE        MATURITY         OUTSTANDING
--------------------               --------      --------       ---------------

8.000% SERIES                      02/09/93      02/01/25            33,075,000
7.250% SERIES                      08/10/93      08/01/23            54,150,000
5.500% SERIES  PC                  09/02/93      08/15/28            25,000,000
5.875% SERIES  PC                  09/02/93      08/15/28           141,150,000
5.875% SERIES  PC                  09/02/93      08/15/28            12,850,000
6.625% SERIES                      03/02/94      03/01/04            80,000,000
6.75% SENIOR NOTES                 11/22/96      11/15/06            83,695,000
                                                                ---------------

   SUB TOTAL                                                    $   429,920,000

P.C. BONDS
----------

1994 A MARICOPA                    05/25/94      05/01/29            45,000,000
1994 B MARICOPA                    05/25/94      05/01/29            45,000,000
1994 C MARICOPA                    05/25/94      05/01/29            57,000,000
1994 D MARICOPA                    05/25/94      05/01/29            35,000,000
1994 E MARICOPA                    05/25/94      05/01/29            35,000,000
1994 F MARICOPA                    05/25/94      05/01/29            36,980,000
1994 A FARMINGTON                  05/25/94      05/01/24            49,400,000
1994 B FARMINGTON                  09/14/94      09/01/24            65,750,000
1994 C FARMINGTON                  09/14/94      09/01/24            31,500,000
1994 A COCONINO                    10/12/94      10/01/29            32,650,000
1996 A COCONINO                    12/12/96      12/01/31             6,710,000
1998 COCONINO                      11/16/98      11/01/33            16,870,000
1999 COCONINO                      04/07/99      04/01/34            20,000,000
                                                                ---------------

   SUB-TOTAL                                                    $   476,860,000

OTHER LONG TERM DEBT
--------------------

6.25% UNSECURED NOTE               1/13/98       1/15/05          $ 100,000,000
5.875% UNSECURED NOTE              2/24/99       2/15/04          $ 125,000,000
7.625% UNSECURED NOTE              08/07/00      8/1/005          $ 300,000,000
6.375% UNSECURED NOTE              10/05/01      10/15/11         $ 400,000,000
6.50% UNSECURED NOTE               3/1/2002      3/1/2012         $ 375,000,000
                                                                ---------------

   SUB-TOTAL                                                    $ 1,300,000,000


TOTAL LONG TERM DEBT & CURRENT MATURITIES                         2,206,780,000
                                                                ---------------
<PAGE>
                                                                       Exhibit B

                    BEFORE THE ARIZONA CORPORATION COMMISSION

RENZ D. JENNINGS
     CHAIRMAN
MARCIA WEEKS
     COMMISSIONER
SHARON B. MEGDAL
     COMMISSIONER

IN THE MATTER OF THE APPLICATION        )        DOCKET NO. U-1345-86-003
OF ARIZONA PUBLIC SERVICE COMPANY       )
FOR AN ORDER OR ORDERS AUTHORIZING IT   )
TO ISSUE, INCUR AND AMEND EVIDENCES OF  )        DECISION NO. 55017
LONG-TERM INDEBTEDNESS, TO ISSUE OR     )
INCUR NUCLEAR FUEL DEBT, AND TO         )
EXECUTE A NEW SUPPLEMENTAL INDENTURE OR )
INDENTURES.                             )

                                                 ORDER

Open Meeting
April 30, 1986
Phoenix, Arizona

BY THE COMMISSION:

     On December 31, 1985,  Arizona  Public  Service  Company  ("APS")  filed an
Application with the Arizona Corporation  Commission  ("Commission") wherein APS
sought authorization to, among other things, implement various financings.

     On February 25, 1986, the  Residential  Utility  Consumer  Office  ("RUCO")
filed an  Application  to  Intervene  herein.  Said  Application  was granted by
Procedural Order dated March 4, 1986.

     On April 17, 1986, the  Commission's  Utilities  Division  Staff  ("Staff")
filed  a  Memorandum  recommending  approval  without  hearing  of the  proposed
financing program. Attached thereto was written testimony by a Staff Senior Rate
Analyst, which testimony supported Staff's overall recommendation.

             *         *         *         *         *         *

     Having  considered  the  Application,  the  exhibits  and  draft  testimony
submitted therewith,  as well as Staff's memorandum and attached testimony,  and
being fully advised in the premises,  the Commission finds, concludes and orders
that:


                                      -1-                     DECISION NO. 55017
<PAGE>
                                                                   U-1345-86-003

                                FINDINGS OF FACT

     1.   APS is an Arizona corporation engaged in providing electric service to
the public  within  portions of Arizona  pursuant to  authority  granted by this
Commission.

     2.   By its  Application,  as supplemented by APS's draft testimony in this
matter, APS requests one or more orders seeking the following:

          (a)  authorization  to issue,  sell,  and incur in 1986 or pursuant to
               lending,  purchase, or underwriting commitments obtained in 1986.
               in one or more  transactions,  up to  $275,000,000  in  aggregate
               principal   amount   of   additional   evidences   of   long-term
               indebtedness  (all such  evidences  of  indebtedness  hereinafter
               being  referred to as "New Debt"),  it being  specified  that the
               nature  and  terms of all such  issuances  and  sales of New Debt
               would be  determined  by APS by  reference to  conditions  in the
               financial markets at the time or times of commitment;

          (b)  authorization to increase the long-term  indebtedness  limitation
               authorized in the Commission's Order in Decision No. 54230, dated
               November 8, 1984, that allowed APS, among other things,  to have,
               at any one  time  outstanding  in 1985 or  thereafter,  long-term
               indebtedness   (including  current  maturities   thereof)  in  an
               aggregate principal amount of $2,374,093,000,  so as to allow APS
               to  have,  at  any  one  time  outstanding,  up to  an  aggregate
               principal  amount of long-term  indebtedness  (including  current
               maturities  thereof) of  $2,698,917,000,  such  authorization  to
               permit any redemptions, refinancings,


                                      -2-                     DECISION NO. 55017
<PAGE>
                                                                   U-1345-86-003

               refundings,  renewals,  reissuances  and  roll-overs  of any such
               outstanding  indebtedness,  the  incurrence  or  issuance  of any
               additional long-term indebtedness,  and the amendment or revision
               of any  terms  of  provisions  of or  relating  to any  long-term
               indebtedness,  as long as total long-term indebtedness at any one
               time  outstanding  does not exceed  (without  further  Commission
               authorization)  $2,698,917,000  during  any  period  of more than
               thirty days, it being  specified that the nature and terms of all
               such issuances and sales of such long-term  indebtedness would be
               determined  by APS by reference to  conditions  in the  financial
               markets  at the  time  or  times  of  such  issuances  (all  such
               long-term   indebtedness   to  be   issued   pursuant   to   this
               authorization being herein referred to as "Continuing Debt"), and
               such  authorization  to  supercede  the  long-term   indebtedness
               limitation authorized by Decision No. 54230.

          (c)  authorization  in connection with providing  security for any New
               Debt or  Continuing  Debt, to execute and deliver one or more new
               supplemental  indentures to its Mortgage and Deed of Trust in the
               event it is deemed appropriate by APS to do so;

          (d)  authorization for APS to finance its nuclear fuel requirements in
               connection   with  the   operation  of  the  Palo  Verde  Nuclear
               Generating  Station by instituting a financing  program involving
               the issuance of APS of commercial paper, intermediate-term notes,

                                      -3-                     DECISION NO. 55017
<PAGE>
                                                                   U-1345-86-003

               and/or other evidences of indebtedness in an aggregate  principal
               amount  of  up to  $200,000,000,  all  of  which  may  constitute
               long-term debt  (collectively,  the "Nuclear Fuel Debt").  and in
               connection therewith, to issue or incur evidences of indebtedness
               in  1986 or  thereafter,  and to  refund  or  roll-over  all or a
               portion of the  Nuclear  Fuel  Debt,  any  short-term  debt to be
               issued in  connection  therewith to be in addition to  short-term
               debt  previously  authorized  by the  Commission  or permitted by
               A.R.S.  Section 40-302.D,  it being specified that the nature and
               terms of any  issuances  and sales of Nuclear  Fuel Debt would be
               determined by APS by reference to  conditions  in the  financial.
               markets at the time or times of commitment.

     3.   On April 17,  1986,  Staff filed a  Memorandum  and written  testimony
supporting the Application and recommending summary approval thereof.

     4.   The New Debt  and the  Continuing  Debt  will be  utilized  for  APS's
construction program, the refinancing,  retirement, or redemption of outstanding
securities,   the  repayment  of  short-term  debt  which  previously   financed
construction  projects,  and,  if  necessary,  the  payment  of certain of APS's
working captial and other cash requirements.  The Nuclear Fuel Debt will be used
to finance APS's nuclear fuel requirements for the Palo Verde Nuclear Generating
Station, and/or to refund or roll-over the Nuclear Fuel Debt.

     5.   The costs of  nuclear  fuel will be charged  to  operating  expense or
income as such fuel is consumed.

     6.   The  Nuclear  Fuel  Debt  would  not  exceed  $200,000,000  through  a
combination  of  intermediate-term  domestically  issued  debt  (not  to  exceed
$50,000,000), a European commercial paper program, and a short-term European

                                      -4-                     DECISION NO. 55017
<PAGE>
                                                                   U-1345-86-003

loan  facility.  The Nuclear  Fuel Debt may exceed APS's net nuclear fuel assets
(up to the $200,000,000 limit).

     7.   The exact timing of any issuances to be made pursuant to the requested
authorization  would be dictated by then prevailing  market  conditions as would
the terms and  conditions  of such  issuances,  including  the type of  security
(mortgage,  deed of trust, letter of credit, standby purchase agreement,  etc.),
if any, provided therefor.

     8.   The  reasonableness  of such timing as well as of terms and conditions
of sale would be  governed  by the  exercise  in good faith of prudent  business
judgement.

     9.   APS does not anticipate that it will actually have to issue all of the
debt for which authorization is being sought.

     10.  The financing  flexibility  sought herein and as previously granted by
Decision No. 54230 has  permitted  APS to take  advantage of rapid and sometimes
unanticipated changes in the capital markets.

     11.  Upon the  issuance of all the debt for which  authorization  is sought
herein,  APS would have  adequate  operating  income to service  such debt under
existing rates for electric service.

     12.  After  issuance  of all the debt for  which  authorization  is  sought
herein,  APS's financial  ratios as to interest  coverage,  long-term debt, cash
flow,  and common  equity would be below those of  comparable  investment  grade
investor-owned   utilities,   thus   creating  some  risk  of   down-rating   to
sub-investment grade.

     13.  Although such a down-rating would be significantly harmful to both APS
and its  ratepayers,  the risk of its  occurrence  is small  and can be  further
reduced by either APS receiving  rate relief in its pending rate  application or
by a reduction in discretionary expenditures or by a combination of both.

     14.  There is no reason to believe that any other form of long-term

                                      -5-                     DECISION NO. 55017
<PAGE>
                                                                   U-1345-86-003

financing would on a risk adjusted basis prove to be less expensive to APS and
its ratepayers.

     15.  With the  possible  exception of the Nuclear Fuel Debt and the payment
of certain of APS's  working  captial and other cash  requirements,  none of the
purposes  for which debt is to be issued  pursuant to the  authorization  sought
herein is reasonably chargeable to operating expense or income.

     16.  The proposed financing and the authorizations in connection  therewith
are  reasonably  necessary  for  the  purposes  set  forth  herein  and  in  the
Application.

     17.  The proposed  financing  program is  compatible  with sound  financial
practices and with APS's  obligations as a public service  corporation  and will
not impair its ability to provide service to the public.

     18.  The  proposed  financing  program has been  approved by APS's board of
directors.

                               CONCLUSIONS OF LAW

     1.   APS is a public service  corporation  within the meaning of Article XV
of the Arizona Constitution and A.R.S. ss40-301, et seq.

     2.   The Commission has jurisdiction  over APS and of the subject matter of
the Application.

     3.   The  proposed  financing  plan,  as  described  herein  and  in  APS's
Application,  is for lawful purposes  within the corporate  powers of APS and is
compatible with the public interest.

                                     ORDER

     IT IS THEREFORE  ORDERED that Arizona  Public  Service  Company be, and the
same is hereby authorized:"

          (a)  to  issue,  sell,  and  incur  up to  $275,000,000  in  aggregate
               principal  amount of New  Debt,  to  issue,  sell,  and incur the
               Continuing Debt, and to amend the terms and provisions of

                                      -6-                     DECISION NO. 55017
<PAGE>
                                                                   U-1345-86-003

               outstanding long-term indebtedness:

          (b)  to execute and deliver one or more supplemental indentures to the
               Arizona  Public Service  Company's  Mortgage and Deed of Trust as
               may be deemed  appropriate by Arizona  Public Service  Company in
               connection with the New Debt and Continuing Debt:

          (c)  to  issue,  sell,  and  incur  up to  $200,000,000  in  aggregate
               principal amount of Nuclear Fuel Debt: and,

          (d)  to pay related  expenses,  all as contemplated in the Application
               and by the exhibits and testimony filed in connection therewith.

     IT IS  FURTHER  ORDERED  that  Arizona  Public  Service  Company  is hereby
authorized to sign and deliver such  documents and to engage in such acts as are
reasonably necessary to effectuate the authorization granted hereinabove.

     IT IS FURTHER ORDERED that the purposes for which the proposed issuances of
New Debt and  Continuing  Debt are herein  authorized  are to augment  the funds
available  from  all  sources  to  finance  Arizona  Public  Service   Company's
construction  program, to redeem or retire outstanding  securities,  to repay or
refund other  outstanding  long-term  debt, to repay  short-term  debt which has
previously financed  construction  projects,  and, if necessary,  to meet cetain
working capital and other cash  requirements,  regardless of the extent to which
such purposes may be reasonably chargeable to operative expenses or to income.

     IT IS FURTHER ORDERED that the purposes for which the proposed issuances of
Nuclear  Fuel Debt are herein  authorized  are to  finance  the  Arizona  Public
Service  Company's nuclear fuel requirements in connection with the operation of
the Palo Verde  Nuclear  Generating  Station,  and/or to refund or roll-over the
Nuclear Fuel Debt, which purposes are hereby specifically  authorized regardless
of the extent to which they may be reasonably  chargeable to operative  expenses
or to income.

                                      -7-                     DECISION NO. 55017
<PAGE>
                                                                   U-1345-86-003

     IT IS FURTHER  ORDERED  that the  Commission's  authorization  of the above
financing  does not  constitute  approval of any  particular  expenditure of the
proceeds derived thereby for the purposes of setting just and reasonable rates.

     IT  IS  FURTHER   ORDERED  that  this  Decision   shall  become   effective
immediately.

     BY ORDER OF THE ARIZONA CORPORATION COMMISSION.

/s/ Renz D. Jennings                                        /s/ Sharon B. Megdal
--------------------------------------------------------------------------------
CHAIRMAN                          COMMISSIONER                      COMMISSIONER

                         IN  WITNESS  WHEREOF,  I,  JAMES  MATTHEWS,   Executive
                         Secretary of the Arizona Corporation  Commission,  have
                         hereunto  set my hand and caused the  official  seal of
                         this  Commission  to be affixed at the Capitol,  in the
                         City of Phoenix, this 6 day of May, 1986.

                                        /s/ James Matthews

                                        JAMES MATTHEWS
                                        Executive Secretary



DISSENT   /s/ Marcia Weeks
TLM/djp   ------------------------

                                      -8-                     DECISION NO. 55017
<PAGE>
                                                                       Exhibit C

                    BEFORE THE ARIZONA CORPORATION COMMISSION

RICHARD KIMBALL
     CHAIRMAN
JUNIUS HOFFMAN
     COMMISSIONER
MARIANNE M. JENNINGS
     COMMISSIONER

IN THE MATTER OF THE APPLICATION of     )       DOCKET NO. U-1345-84-220
ARIZONA PUBLIC SERVICE COMPANY FOR AN   )
ORDER AUTHORIZING IT TO ISSUE, INCUR    )
AND AMEND EVIDENCES OF LONG-TERM        )       DECISION NO. 54230
INDEBTEDNESS, TO EXECUTE A NEW          )
SUPPLEMENTAL INDENTURE OR INDENTURES,   )
TO ISSUE SHARES OF COMMON AND PREFERRED )
STOCK AND TO ISSUE AND INCUR EVIDENCES  )
OF SHORT-TERM INDEBTEDNESS.             )       OPINION AND ORDER

DATE OF HEARING:    October 4, 1984

PLACE OF HEARING:   Phoenix, Arizona

PRESIDING OFFICER:  Thomas L. Mumaw

IN ATTENDANCE:      Marianne M. Jennings, Commissioner

APPEARANCES:        Jaron  B.  Norberg,   Senior  Vice-President  and  Corporate
                    Counsel;  Snell & Wilmer,  by Steven M. Wheeler and James A.
                    Martin, on behalf of Arizona Public Service Company

                    Timothy M. Hogan, Attorney, Legal Division, on behalf of the
                    Arizona Corporation Commission Staff

                    Roger A. Schwartz,  Attorney,  on behalf of the  Residential
                    Utility Consumer Office

                    Tim Gerin, Intervenor, in propria persona

BY THE COMMISSION:

     On September 12, 1984, Arizona Public Service Company  ("Company") filed an
Application  ("Application") with the Commission requesting an order authorizing
the Company, among other things, to implement various proposed financings during
1984 and subsequent years.

     Notions  requesting  Leave to Intervene herein were filed by Robert Foucher
and Tim Gerin,  as well as by the  Residential  Utility  Consumer  Office.  Said
Motions  were granted by the  Presiding  Officer  herein prior to the  scheduled
hearing on the Application held at the Commission's offices in Phoenix,

                                      -1-                     DECISION NO. 54230
<PAGE>
                                                                   U-1345-84-220

Arizona, on October 4, 1984.

               *    *    *    *    *    *    *    *    *    *

     Having  considered  the entire record herein and being fully advised in the
premises, the Commission finds, concludes, and orders that:

                                FINDINGS OF FACT

     1.   The Company is an Arizona  corporation  engaged in providing  electric
and gas service to the public  within  various  portions of Arizona  pursuant to
authority granted by this Commission.

     2.   By its Application,  the Company requests one or more orders approving
various financings and certain other matters as follows:

          (a)  authorization  to issue  and sell  (or,  in the case of the below
               mentioned indebtedness,  to otherwise incur), in 1985 or pursuant
               to firm lending, purchase or underwriting commitments obtained in
               1985,  in one or more  transactions,  (i) up to  $400,000,000  in
               aggregate  principal amount of additional  evidences of long-term
               indebtedness,  (ii) up to $75,000,000 in par value of one or more
               new series of additional  Serial  Preferred Stock and (iii) up to
               2,000,000 new shares of its Common Stock,  $2.50 par value,  (all
               such  evidences of  indebtedness,  shares of Preferred  Stock and
               shares of Common  Stock  hereinafter  being  referred  to as "New
               Debt,"   "New   Preferred   Stock"   and  "New   Common   Stock,"
               respectively),  it being  specified  that the nature and terms of
               all such issuances and sales of New Debt, New Preferred Stock and
               New Common Stock would be  determined by the Company by reference
               to conditions  in the  financial  markets at the time or times of
               commitment;

          (b)  authorization to issue or incur, in 1984 or thereafter,

                                      -2-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

               evidences of indebtedness,  long or short-term,  in the aggregate
               principal  amount of up to  $75,000,000  (over and above  amounts
               previously  authorized by this Commission),  and to refinance all
               or a portion of such  amount,  in  connection  with the  proposed
               program to finance and/or refinance  pollution control facilities
               located  at the Palo  Verde  Nuclear  Generation  Station  ("Palo
               Verde"), it being specified that the nature and terms of all such
               issuances of such indebtedness would be determined by the Company
               by reference to conditions  in the financial  markets at the time
               or times of commitments (all such evidences of indebtedness to be
               issued pursuant to this authorization being herein referred to as
               the "Pollution Control Financings");

          (c)  authorization  to have,  at any one time  outstanding  in 1985 or
               thereafter,   (i)  long-term   indebtedness   including   current
               maturities   thereof  in  an   aggregate   principal   amount  of
               $2,374,093,000  (including  the New Debt and long-term  Pollution
               Control Financings), and (ii) $576,301,000 in aggregate par value
               of the Company's  preferred  stock  (including  the New Preferred
               Stock),   such   authorization   to   permit   any   redemptions,
               refinancings,  refundings, renewals, reissuances and rollovers of
               any  such  outstanding   indebtedness  or  preferred  stock,  the
               incurrence or issuance of any additional  long-term  indebtedness
               or preferred stock, and the amendment or revision of any terms or
               provisions of or relating to any long-term indebtedness,  as long
               as total  long-term  indebtedness  or preferred  stock at any one
               time outstanding does not exceed the levels set forth in this

                                      -3-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

               subparagraph (c), it being specified that the nature and terms of
               all such  issuances and sales of such long-term  indebtedness  or
               preferred  stock would be  determined by the Company by reference
               to conditions  in the  financial  markets at the time or times of
               such  issuances (all such  long-term  indebtedness  and preferred
               stock to be issued  pursuant to this  authorization  being herein
               referred  to  as  "Continuing  Debt"  and  "Continuing  Preferred
               Stock," respectively);

          (d)  authorization  in connection with providing  security for any New
               Debt,  Continuing  Debt,  or  Pollution  Control  Financings,  to
               execute and deliver one or more new  supplemental  indentures  to
               its  Mortgage  and Deed of  Trust,  and to enter  into and  issue
               evidences  of  indebtedness  pursuant  to one or more  letter  of
               credit or other security arrangements or agreements, in the event
               it is deemed  appropriate  by the  Company  to do so,  including,
               without limitation and specifically with respect to any Pollution
               Control Financings, any reimbursement agreements and standby bond
               purchase agreements;

          (e)  authorization  to issue,  incur and sell, and to have outstanding
               at any one time in 1984 or  thereafter,  notes  and  indebtedness
               payable at periods of not more than twelve  months after the date
               incurred or issued (and not separately authorized by any Order of
               this Commission) ("Short-Term Debt") in an amount up to seven (7)
               percent of the Company's  total  capitalization,  and to reissue,
               renew  and  resell  any  such  Short-Term  Debt  and  to  refund,
               refinance  or  rollover  any such  Short-Term  Debt  with or into
               additional Short-Term Debt

                                      -4-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

               so long as such seven (7) percent limit is not exceeded, it being
               specified  that the  nature and terms of all such  issuances  and
               incurrences  of such  Short-Term  Debt would be determined by the
               Company by reference to conditions  in the  financial  markets at
               the time or times of such  issuances  or  incurrences  (any  such
               Short-Term Debt to be issued pursuant to this authorization being
               herein referred to as "Authorized Short-Term Debt");

          (f)  authorization  to borrow  funds  pursuant  to a credit  agreement
               dated as of May 15, 19$4 ("Credit  Agreement")  among the Company
               and various banks,  for the term of that Credit Agreement and any
               extensions or renewals  thereof,  such borrowings,  to the extent
               they are  long-term,  to be authorized and allowed in addition to
               and over and above the Continuing  Debt  limitation,  and, to the
               extent  repayable at periods of not more than twelve months after
               the date of borrowing,  to be authorized  and allowed in addition
               to and over and above (i) any indebtedness  which may be incurred
               by the  Company  pursuant  to Arizona  Revised  Statutes  Section
               40-302(D), and (ii) any Authorized Short-Term Debt;

          (g)  confirmation that (i) letters of credit securing any indebtedness
               or security of the Company  constitute  evidences of indebtedness
               only to the extent of draws thereon,  (ii) the indebtedness which
               arises from a draw under any such letter of credit is  authorized
               to  the  extent  thereof,   and  does  not  require  separate  or
               additional  approval  or  authorization,  if the  issuance of the
               indebtedness  or security  which the letter of credit secures was
               authorized by the Commission, and (iii)

                                      -5-                     DECISION NO. 54230


<PAGE>
                                                                   U-1345-84-220

               the  indebtedness  which arises from a draw under any such letter
               of credit  does not  require  authorization  as any other type of
               indebtedness or security other than that indebtedness or security
               which the letter of credit  secures  and does not reduce or apply
               against any  authorization  for any other type of indebtedness or
               security.

     3.   The Company intends to use the net proceeds from the sale of New Debt,
New Preferred  Stock and New Common Stock,  and the issuance of Continuing  Debt
and Continuing  Preferred Stock for its construction  program, the redemption or
retirement  of  outstanding  securities,  the  repayment  or  refunding of other
outstanding   long-term  debt,  and  the  repayment  of  short-term  debt  which
previously financed construction projects.

     4.   In the event any portion of the New Debt or Continuing  Debt takes the
form of  indebtedness  owed to, or the  guarantee of  indebtedness  owed by, the
Company's  wholly-owned  finance  subsidiary,  a  portion  of the  New  Debt  or
Continuing  Debt may be incurred for the purpose of  contributing to the capital
of such subsidiary to maintain its debt to equity ratio at a satisfactory level.

     5.   Any   amendments  to  the  terms  and   provisions  of  any  long-term
indebtedness  shall be for the purpose of improving terms or cost thereof to the
Company or obtaining other benefits or advantages for the Company.

     6.   The  proceeds  of any  issuance,  sale,  or  subsequent  refunding  of
Pollution Control Financings will be used to pay construction costs of pollution
control facilities at Palo Verde, to reimburse the Company for such construction
costs previously  incurred,  and/or to refund any pollution control financing or
financings then in effect.

     7.   The  Company  intends  to  use  the  proceeds  from  the  issuance  or
incurrence of the Authorized Short-Term Debt to augment funds available to the

                                      -6-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

Company to finance the Company's  construction  program, to maintain and provide
an adequate  level of working  capital,  to contribute  capital to the Company's
finance  subsidiary  as  necessary  to  maintain  its debt to equity  ratio at a
satisfactory  level, and to refund,  refinance,  rollover,  renew or reissue any
notes or  indebtedness  payable at periods of not more than twelve  months after
the date  issued or  incurred  and  otherwise  issued  or  incurred  for  proper
purposes.

     8.   The Company intends to use funds available under the Credit  Agreement
as a  standby  line of credit in the  event of any  disruptions  in the  capital
markets, and, as such, these funds say be used to augment funds available to the
Company to meet its capital  requirements  as specified in Findings of Fact Nos.
3, 4, 6, and 7, hereinabove.

     9.   The letters of credit referred to in the Application and any evidences
of  indebtedness  arising  thereunder are or will be for the purpose of securing
other evidences of indebtedness or securities  otherwise authorized and approved
by this Commission.

     10.  The Company's  proposed issuances of New Debt, New Preferred Stock and
New Common Stock,  and the issuance of Continuing Debt and Continuing  Preferred
Stock,  are reasonably  necessary and appropriate for the purposes of augmenting
the funds  available  from all  sources to finance  the  Company's  construction
program,  redeeming or retiring  outstanding  securities,  repaying or refunding
other outstanding  long-term debt, and repaying short-term debt which previously
financed construction projects.

     11.  In connection  with any New Debt or Continuing  Debt, the execution of
one or more new  supplemental  indentures to the Company's  Mortgage and Deed of
Trust,  and the issuance or incurrence of any  indebtedness  in up to a matching
amount as the result of any use of a related letter of credit security device or
other similar arrangements, are also reasonably necessary for such purposes.

                                      -7-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

     12.  Additionally,  capital  contributions  to the  Company's  wholly-owned
finance subsidiary which are to be a part of the New Debt or Continuing Debt are
reasonably  necessary  and  appropriate  in order to maintain its debt to equity
ratio at satisfactory levels.

     13.  The  proposed  pollution  control  financing  or  financing:  and  the
Company's  issuance or;  incurrence  of  indebtedness  in  connection  with such
pollution  control   financing  or  financings  are  reasonably   necessary  and
appropriate  to  pay  construction   costs  associated  with  pollution  control
facilities  at or related to Palo  Verde,  to  reimburse  the  Company  for such
construction costs previously  incurred,  and/or to refund any pollution control
financing or financings then in effect.

     14.  The  execution  of one or  more  new  supplemental  indentures  to the
Company's  Mortgage  and Deed of Trust,  and the issuance or  incurrence  of any
indebtedness  in up to a  matching  amount as the result of any use of a related
letter of credit  security  device,  standby  bond  purchase  agreement or other
security arrangements, are also reasonably necessary for such purposes.

     15.  The  Company's   proposed   issuance,   or  incurrence  of  Authorized
Short-Term  Debt is  reasonably  necessary and  appropriate  for the purposes of
augmenting funds available to the Company to finance the Company's  construction
program,  maintaining  and providing an adequate level of working  capital,  and
refunding,  refinancing,  rolling  over,  renewing  or  reissuing  any  notes or
indebtedness  payable at periods of not more than twelve  months  after the date
issued or incurred and otherwise issued or incurred for proper purposes.

     16.  Additionally,  capital  contributions  to the  Company's  wholly-owned
finance  subsidiary  with the  proceeds of the  Authorized  Short-Term  Debt are
reasonably  necessary  and  appropriate  in order to maintain its debt to equity
ratio at satisfactory levels.

     17.  Certain working capital uses of the proceeds of Authorized

                                      -8-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

Short-Term  Debt of any  debt  refunded  by  Authorized  Short-Term  Debt say be
chargeable to operative expenses or to income.

     18.  The Company's  proposed  issuance of evidences of  indebtedness in the
form of  borrowings  under the Credit  Agreement  is  reasonably  necessary  and
appropriate for the purpose of augmenting funds available to the Company to meet
its capital requirements as specified in paragraphs 3 and 5 above.

     19.  Certain working capital uses of the proceeds of such borrowings may be
chargeable to operative expenses or to income.

     20.  The  Company's  proposed  issuance of any  evidences  of  indebtedness
arising under letters of credit is reasonably  necessary and appropriate for the
purpose of securing  other  evidences of  indebtedness  or securities  otherwise
authorized and approved by this Commission.

     21.  The Company's  proposed issuances of New Debt, New Preferred Stock and
New Common Stock,  the issuance of  Continuing  Debt and  Continuing  Preferred)
Stock, the proposed  pollution control financing or financings,  the issuance or
incurrence of Authorized  Short-Term  Debt, and the issuance of any evidences of
indebtedness  pursuant to the Credit  Agreement or any letter of credit securing
debt of the Company,  all as  contemplated  in the  Application,  testimony  and
exhibits relating to this matter, are compatible with the public interest,  with
sound  financial  practices,  and with the proper  performance by the Company of
service as a public  service  corporation  and will not  impair  its  ability to
perform that service.

     22.  The Company's  propsed  issuances of New Debt, New Preferred Stock and
New Common  Stock,  the issuance of  Continuing  Debt and  Continuing  Preferred
Stock, the proposed  pollution control financing or financings,  the issuance or
incurrence of Authorized  Short-Term  Debt, and the issuance of any evidences of
indebtedness  pursuant to the Credit  Agreement or any letter of credit securing
debt of the Company, all as contemplated in the Application, testimony and

                                      -9-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

exhibits  relating to this matter,  are reasonably  necessary or appropriate for
lawful  purposes  (as set forth  above) and such  purposes,  other  than  those'
relating to the issuance,  or incurrence of Authorized  Short-Term  Debt and the
issuance of any evidences of indebtedness  pursuant to the Credit  Agreement are
not,  wholly or in part,  reasonably  chargeable  to  operative  expenses  or to
income, except as set forth at Findings of Fact Nos. 17 and 19, hereinabove.

                               CONCLUSIONS OF LAW

     1.   The  Company is a public  service  corporation  within the  meaning of
Article XV, of the Arizona Constitution and A.R.S. Sections 40-301 and 40-302.

     2.   The  Commission has  jurisdiction  over the Company and of the subject
matter of the Application.

     3.   The Company's  proposed  issuance of New Debt, New Preferred Stock and
New Common  Stock,  the issuance of  Continuing  Debt and  Continuing  Preferred
Stock, the proposed  pollution control financing or financings,  the issuance or
incurrence of Authorized  Short-Term  Debt, and the issuance of any evidences of
indebtedness  pursuant to the Credit  Agreement or any letter of credit securing
debt of the  Company,  are for lawful  purposes  which are within the  Company's
corporate powers.

     4.   The Company's proposed pollution control financing or financings,  the
issuance or incurrence of indebtedness in connection therewith, and the issuance
or incurrence of any  indebtedness in a matching amount as the result of any use
of a related letter of credit security device,  standby bond purchase  agreement
or other  security  arrangements,  are for lawful  purposes which are within the
Company's corporate powers.

     5.   The  Company's  financing  requests,  as well as the other matters set
forth in the  Application,  exhibits  and  testimony  herein  are in the  public
interest and should be approved.

....

                                     -10-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

                                      ORDER

     IT IS THEREFORE ORDERED that the Company is hereby authorized (i) to issue,
sell, and incur up to $400,000,000 in aggregate principal amount of New Debt, to
issue, sell and incur the Continuing Debt, and to amend the terms and provisions
of outstanding long-term indebtedness,  (ii) to issue and sell up to $75,000,000
in par value of one or more series of New Preferred Stock and, to issue and sell
the Continuing  Preferred Stock,  (iii) to issue and sell up to 2,000,000 shares
of New Common Stock (iv) to carry out and effect the proposed  Pollution Control
Financings and to issue or incur  evidences of  indebtedness  in an amount up to
$75,000,000 in connection therewith, (v) to issue, sell and incur the Authorized
Short-Term  Debt, (vi) to make borrowings and issue evidences of indebtedness in
connection with the Credit  Agreement,  (vii) to execute and deliver one or more
new  supplemental  indentures  or enter  into  such  letter  of  credit or other
security  arrangements or agreements as may be deemed appropriate by the Company
in  connection  with  the  New  Debt,  Continuing  Debt  and  Pollution  Control
Financings,  and (viii) to pay all related expenses,  all as contemplated in the
Application  and by the exhibits and testimony  presented  during the hearing in
the above-captioned matter.

     IT IS FURTHER ORDERED that the operation and effect of any letter of credit
securing  any  indebtedness  or  security  of the  Company,  as set forth in the
Application, is hereby confirmed.

     IT IS FURTHER ORDERED that the purposes for which the proposed issuances of
New Debt, New Preferred  Stock, New Common Stock, and the issuance of Continuing
Debt and Continuing  Preferred Stock are herein  authorized to augment the funds
available  from all sources to finance the Company's  construction  program,  to
redeem or retire  outstanding  securities,  to repay or refund other outstanding
long-term debt, to repay short-term debt which previously financed  construction
projects and to make capital contributions to

                                     -11-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220

the  Company's  finance  subsidiary  as necessary to maintain its debt to equity
ratio at a satisfactory level. The proposed issuances in connection with the New
Debt or Continuing Debt of any evidences of  indebtedness  arising under letters
of credit are for the above  purposes  and for the purpose of  securing  the New
Debt and Continuing Debt.

     IT IS FURTHER  ORDERED that the purposes  for which the  Pollution  Control
Financings  and  the  issuance  or  incurrence  of  indebtedness  in  connection
therewith,  are herein authorized are to pay construction  costs associated with
pollution  control  facilities  at or related to Palo Verde,  to  reimburse  the
Company  for such  construction  costs  previously  incurred,  and/or  to refund
pollution control financing or financings then in effect. The proposed issuances
or  incurrences  in  connection  with  Pollution  Control   Financings  of  any'
indebtedness  as the  result of any use of a letter of credit  security  device,
standby bond  purchase  agreement or other  security  arrangements  are for the,
above  purposes  and  for  the  purpose  of  securing  the  Pollution   Control'
Financings.

     IT IS FURTHER  ORDERED  that the  purposes  for which the  issuance  of the
Authorized  Short-Term Debt are herein authorized are to augment funds available
to the Company to finance the Company's  construction  program, to maintain and'
provide an adequate level of working capital, to make capital  contributions to!
the  Company's  finance  subsidiary  as necessary to maintain its debt to equity
ratio at a satisfactory  level,  and to refund,  refinance,  rollover,  renew or
reissue  any notes or  indebtedness  payable at periods of not more than  twelve
months  after the date  issued or incurred  and  otherwise  incurred  for proper
purposes regardless of the extent to which they may be reasonably  chargeable to
operative expenses or to income.

     IT IS FURTHER ORDERED that the purposes for which the proposed issuances of
evidences of indebtedness pursuant to the Credit Agreement are herein

                                     -12-                     DECISION NO. 54230

<PAGE>
                                                                   U-1345-84-220


authorized  are to augment  funds  available  from all  sources  to finance  the
Company's construction program, to redeem or retire outstanding  securities,  to
repay or refund other outstanding long-term debt, to repay short-term debt which
previously financed  construction  projects, to maintain and provide an adequate
level of working capital, to make capital contributions to the Company's finance
subsidiary  as necessary to maintain its debt to equity ratio at a  satisfactory
level,  and to  refund,  refinance,  rollover,  renew or  reissue  any  notes or
indebtedness  payable at periods of not more than twelve  months  after the date
issued or incurred and otherwise incurred for proper purposes  regardless of the
extent to which they may be reasonably  chargeable  to operative  expenses or to
income.

     IT  IS  FURTHER   ORDERED  that  this  Decision   shall  become   effective
immediately.

     BY ORDER OF THE ARIZONA CORPORATION COMMISSION

                             /s/ JUNIUS HOFFMAN         /s/ MARIANNE M. JENNINGS
--------------------------------------------------------------------------------
CHAIRMAN                        COMMISSIONER                        COMMISSIONER

                         IN WITNESS WHEREOF, I, LORRIE DROBNY,
                         Executive   Secretary   of  the   Arizona   Corporation
                         Commission,  have  hereunto  set my hand and caused the
                         official  seal of this  Commission to be affixed at the
                         Capitol,  in the  City  of  Phoenix,  this  8th  day of
                         November, 1984.

                                        /s/ Lorrie Drobny

                                        LORRIE DROBNY
                                        Executive Secretary

DISSENT   /s/ RICHARD KIMBALL
          ------------------------
jg

                                     -13-                     DECISION NO. 54230
<PAGE>
                                    Exhibit D

ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)

                                                                Six Months
                                                           Ended June 30, 2002
                                                          ----------------------
                                                          (Dollars in Thousands)

ELECTRIC OPERATING REVENUES:
  Retail segment ..........................................     $   891,452
  Marketing and trading segment ...........................          13,062
                                                                -----------
     Total ................................................         904,514
                                                                -----------

PURCHASED POWER AND FUEL COSTS:
  Retail segment ..........................................         184,643
  Marketing and trading segment ...........................          12,367
                                                                -----------
     Total ................................................         197,010
                                                                -----------
OPERATING REVENUES LESS PURCHASED POWER AND FUEL COSTS ....         707,504
                                                                -----------

OTHER OPERATING EXPENSES:
  Operations and maintenance excluding purchased power
    and fuel cost .........................................         232,266
  Depreciation and amortization ...........................         196,812
  Income taxes ............................................          65,274
  Other taxes .............................................          54,376
                                                                -----------
     Total ................................................         548,728
                                                                -----------
OPERATING INCOME ..........................................         158,776
                                                                -----------

OTHER INCOME (DEDUCTIONS):
  Income taxes ............................................           2,370
  Other income ............................................           3,859
  Other expense ...........................................          (9,219)
                                                                -----------
     Total ................................................          (2,990)
                                                                -----------
INCOME BEFORE INTEREST DEDUCTIONS .........................         155,786
                                                                -----------

INTEREST DEDUCTIONS:
  Interest on long-term debt ..............................          64,038
  Interest on short-term borrowings .......................           2,299
  Debt discount, premium and expense ......................           1,340
  Capitalized interest ....................................          (8,093)
                                                                -----------
     Total ................................................          59,584
                                                                -----------

INCOME BEFORE ACCOUNTING CHANGE ...........................          96,202

  Cumulative Effect of a Change in Accounting for
    Derivatives - net of income tax benefit of $1,793 .....              --
                                                                -----------

NET INCOME ................................................     $    96,202
                                                                ===========
<PAGE>
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF INCOME
(Unaudited)

                                                              Twelve Months
                                                           Ended June 30, 2002
                                                          ----------------------
                                                          (Dollars in Thousands)

ELECTRIC OPERATING REVENUES:
  Retail segment...........................................     $ 2,301,416
  Marketing and trading segment............................          87,479
                                                                -----------
     Total ................................................       2,388,895
                                                                -----------

PURCHASED POWER AND FUEL COSTS:
  Retail segment...........................................         837,661
  Marketing and trading segment............................          46,937
                                                                -----------
     Total ................................................         884,598
                                                                -----------
OPERATING REVENUES LESS PURCHASED POWER AND FUEL COSTS.....       1,504,297
                                                                -----------

OTHER OPERATING EXPENSES:
  Operations and maintenance excluding purchased power
    and fuel cost .........................................         462,234
  Depreciation and amortization ...........................         409,366
  Income taxes ............................................         162,506
  Other taxes .............................................         104,709
                                                                -----------
     Total ................................................       1,138,815
                                                                -----------
OPERATING INCOME ..........................................         365,482
                                                                -----------

OTHER INCOME (DEDUCTIONS):
  Income taxes ............................................           4,659
  Other income ............................................           9,860
  Other expense ...........................................         (19,368)
                                                                -----------
     Total ................................................          (4,849)
                                                                -----------
INCOME BEFORE INTEREST DEDUCTIONS  ........................         360,633
                                                                -----------

INTEREST DEDUCTIONS:
  Interest on long-term debt ..............................         126,336
  Interest on short-term borrowings  ......................           4,230
  Debt discount, premium and expense ......................           2,655
  Capitalized interest ....................................         (15,233)
                                                                -----------
     Total ................................................         117,988
                                                                 ----------

INCOME BEFORE ACCOUNTING CHANGE............................         242,645

  Cumulative Effect of Change in Accounting for Derivatives -
    net of income tax benefit of $8,099 and $1,793.........         (12,446)
                                                                -----------

NET INCOME  ...............................................     $   230,199
                                                                ===========
<PAGE>
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS

ASSETS
(Dollars in Thousands)

                                                                   June 30, 2002
                                                                   -------------
                                                                    (Unaudited)

UTILITY PLANT:
Electric plant in service and held for future use ...............   $ 8,134,802
Less accumulated depreciation and amortization ..................     3,383,422
                                                                    -----------
   Total ........................................................     4,751,380
Construction work in progress ...................................       308,425
Intangible assets, net of accumulated amortization ..............        90,446
Nuclear fuel, net of accumulated amortization ...................        51,661
                                                                    -----------
   Utility plant - net ..........................................     5,201,912
                                                                    -----------

INVESTMENTS AND OTHER ASSETS:
Decommissioning trust accounts...................................       208,641
Assets from risk management and trading activities - long-term ..        30,620
Other assets ....................................................        37,514
                                                                    -----------
   Total investments and other assets ...........................       276,775
                                                                    -----------

CURRENT ASSETS:
Cash and cash equivalents .......................................         7,776
Accounts receivable:
   Service customers ............................................       159,564
   Other ........................................................       208,251
   Allowance for doubtful accounts ..............................        (1,450)
Accrued utility revenues ........................................       110,689
Materials and supplies, at average cost .........................        82,300
Fossil fuel, at average cost ....................................        31,105
Assets from risk management and trading activities ..............         9,907
Other ...........................................................        43,047
                                                                    -----------
   Total current assets  ........................................       651,189
                                                                    -----------

DEFERRED DEBITS:
Regulatory assets................................................       291,473
Unamortized debt issue costs ....................................        15,319
Other  ..........................................................        52,862
                                                                    -----------
   Total deferred debits ........................................       359,654
                                                                    -----------

   TOTAL ASSETS..................................................   $ 6,489,530
                                                                    ===========
<PAGE>
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES
(Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                          June 30, 2002
                                                                          -------------
                                                                           (Unaudited)
<S>                                                                        <C>
CAPITALIZATION:
Common stock ..........................................................    $  178,162
Additional paid-in capital ............................................     1,246,804
Retained earnings .....................................................       801,491
Accumulated other comprehensive loss ..................................       (36,092)
                                                                           ----------
   Common stock equity ................................................     2,190,365

Long-term debt less current maturities ................................     2,199,837
                                                                           ----------

   Total capitalization ...............................................     4,390,202
                                                                           ----------

CURRENT LIABILITIES:
Commercial paper ......................................................       198,000
Current maturities of long-term debt ..................................           451
Accounts payable ......................................................        82,022
Accrued taxes .........................................................       157,385
Accrued interest ......................................................        41,504
Customer deposits .....................................................        33,317
Deferred income taxes .................................................         3,244
Liabilities from risk management and trading activities ...............        21,811
Other .................................................................        73,991
                                                                           ----------
   Total current liabilities ..........................................       611,725
                                                                           ----------

DEFERRED CREDITS AND OTHER:
Deferred income taxes .................................................     1,011,032
Liabilities from risk management and trading activities - long-term ...        46,996
Unamortized gain - sale of utility plant ..............................        61,772
Customer advances for construction ....................................        67,598
Other .................................................................       300,205
                                                                           ----------
   Total deferred credits and other ...................................     1,487,603
                                                                           ----------

COMMITMENTS AND CONTINGENCIES  (Note 12)

   TOTAL LIABILITIES AND EQUITY .......................................    $6,489,530
                                                                           ==========
</TABLE>
<PAGE>
ARIZONA PUBLIC SERVICE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
                                                                       Six Months Ended
                                                                         June 30, 2002
                                                                    ----------------------
                                                                    (Dollars in Thousands)
<S>                                                                       <C>
Cash Flows from Operating Activities:
  INCOME BEFORE ACCOUNTING CHANGE ................................        $  96,202
  Items not requiring cash:
    Depreciation and amortization ................................          196,812
    Nuclear fuel amortization ....................................           15,214
    Deferred income taxes - net ..................................          (30,722)
    Mark-to-market gains - trading ...............................               --
    Mark-to-market (gains) losses - system .......................           (6,697)
  Changes in certain current assets and liabilities:
    ACCOUNTS RECEIVABLE - NET ....................................          (31,642)
    Accrued utility revenues .....................................          (34,558)
    Materials, supplies and fossil fuel ..........................           (5,167)
    Other current assets .........................................           (1,038)
    Accounts payable .............................................          (13,522)
    Accrued taxes ................................................           49,790
    Accrued interest .............................................              461
    Other current liabilities ....................................          (39,126)
  Increase in regulatory assets ..................................           (5,992)
  Changes in risk management trading investments - at cost .......          (24,030)
  Other net long term assets .....................................          (15,768)
  Other net long term liabilities ................................             (964)
                                                                          ---------
Net cash flow provided by operating activities ...................          149,253
                                                                          ---------

Cash Flows from Investing Activities:
  Trust fund for bond redemption .................................               --
  Capital expenditures ...........................................         (253,829)
  Capitalized interest ...........................................           (8,093)
  Other ..........................................................           38,808
                                                                          ---------
      Net cash flow used for investing activities ................         (223,114)
                                                                          ---------

Cash Flows from Financing Activities:
  Issuance of long-term debt .....................................          369,930
  Short-term borrowings - net ....................................           26,838
  Dividends paid on common stock .................................          (85,000)
  Repayment and reacquisition of long-term debt ..................         (246,952)
                                                                          ---------
      Net cash flow provided by (used for) financing activities ..           64,816
                                                                          ---------

Net increase (decrease) in cash and cash equivalents .............           (9,045)
Cash and cash equivalents at beginning of period .................           16,821
                                                                          ---------
Cash and cash equivalents at end of period .......................        $   7,776
                                                                          =========

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the period for:
    Interest (excluding capitalized interest) ....................        $  57,726
    Income taxes .................................................        $  48,943
</TABLE>
<PAGE>
                                    Exhibit E

                               APS Credit Ratings

                                                MOODY'S      S & P       FITCH
                                                -------     -------     -------

Senior Secured Debt                                A3          A-          A-

Senior Unsecured Debt                             Baa1        BBB         BBB+

Secured Lease Obligation Bonds                    Baa2        BBB         BBB

Commercial Paper                                   P2          A2          F2
<PAGE>
                                    Exhibit F

                    Financial Impact of Recapitalization Debt
                                    in ($000)

CURRENT APS                                 WITH RECAPITALIZATION DEBT
-----------                                 --------------------------

Current APS Debt               $2,206,780   Additional Debt             $500,000

Weighted Cost of Debt               5.93%   Additional Interest @ 6.0%   $30,000
                                            Additional Interest @ 6.5%    32,500
Annualized Long-Term Interest    $130,862   Additional Interest @ 7.0%    35,000

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

                              Financial Indicators

                                                                    S&P "BBB"
                                                                Targets Business
                                         June 2002   + $500M       Position 5
                                         ---------   -------    ----------------
DEBT RATIO

Adj. Total Debt / Total Capital              54%        59%         47% - 55%

COVERAGE RATIOS

Pretax Interest Coverage                    3.80       3.10        2.40 - 3.50

Adj. Pre-Interest FFO Interest Coverage     4.53       3.92        3.00 - 4.00

Adj. FFO / Avg. Total Debt                   23%        21%         21% - 27%

