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<CONFORMED-NAME>PINNACLE WEST CAPITAL CORP
<CIK>0000764622
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<STREET1>400 E VAN BUREN ST PO BOX 52132
<STREET2>P O BOX 52132
<CITY>PHOENIX
<STATE>AZ
<ZIP>85072-2132
<PHONE>6022501000
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<DATE-CHANGED>19870506
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<TYPE>8-K
<SEQUENCE>1
<FILENAME>e-8976.txt
<DESCRIPTION>CURRENT REPORT DTD. 09/10/2002
<TEXT>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 8-K
                                 CURRENT REPORT


                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934


      Date of Report (Date of earliest event reported): September 10, 2002


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


          Arizona                       1-8962                  86-0512431
(State or other jurisdiction         (Commission              (IRS Employer
     of incorporation)               File Number)         Identification Number)


400 North Fifth Street, P.O. Box 53999, Phoenix, Arizona        85072-3999
       (Address of principal executive offices)                 (Zip Code)


                                 (602) 250-1000
              (Registrant's telephone number, including area code)


                                      NONE
          (Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS

ARIZONA ELECTRIC INDUSTRY RESTRUCTURING

     TRACK A ORDER

     On September 10, 2002, the Arizona Corporation Commission ("ACC") issued
its written order on "Track A" issues (the "Track A Order") related to the
generic docket established by the ACC in January 2002. The Track A Order
documents decisions made by the ACC at an open meeting on August 27, 2002, as
previously reported in the Report on Form 8-K of Pinnacle West Capital
Corporation (the "Company"), dated August 27, 2002. A copy of the Track A Order
is attached to this Report as Exhibit 99.1. Arizona Public Service Company
("APS") intends to file a motion for reconsideration of the Track A Order on or
before September 30, 2002. The major provisions of the Track A Order include,
among other things:

     Provisions related to the reversal of the generation asset transfer
requirement:

     *    The ACC reversed its decision, as reflected in the ACC's electric
          competition rules, to require APS to transfer its generation assets
          either to an unrelated third party or to a separate corporate
          affiliate (see the Track A Order, first Ordering Paragraph); and

     *    The ACC unilaterally modified the 1999 settlement agreement, which
          authorized APS' transfer of its generating assets, and directed APS to
          cancel its activities to transfer its generation assets to Pinnacle
          West Energy ("PWEC") (see the Track A Order, Conclusion of Law No. 7
          and the first Ordering Paragraph).

     Provisions related to the wholesale competitive energy procurement process
("Track B" issues):

     *    The ACC stayed indefinitely the requirement of the ACC's electric
          competition rules that APS acquire 100% of its energy needs for its
          standard offer customers from the competitive market, with at least
          50% obtained through a competitive bid process (see the Track A Order,
          second Ordering Paragraph);

     *    The ACC established a requirement that APS competitively procure, at a
          minimum, any required power that it cannot produce from its existing
          assets in accordance with the ultimate outcome of the Track B
          proceedings (see the Track A Order, fourth Ordering Paragraph);

     *    The ACC directed the parties to develop a competitive procurement
          ("bidding") process that can begin by March 1, 2003 (instead of
          January 1, 2003) (see the Track A Order, sixth Ordering Paragraph);
          and
<PAGE>
     *    The ACC stated that "the PWEC generating assets that APS may acquire
          from PWEC shall not be counted as APS assets in determining the
          amount, timing and manner of the competitive solicitation" for Track B
          purposes, thereby bifurcating the regulatory treatment of the existing
          APS assets and the PWEC assets (see the Track A Order, sixth Ordering
          Paragraph).

     The ACC Staff is conducting workshops on the Track B issues with various
parties to determine and define the appropriate process to be used for
competitive power procurement. On September 13, 2002, the ACC Staff issued a
"proposal and request for comments" describing a process by which APS would
procure power not supplied by its own resources. Comments from parties
participating in the Track B process are due by September 18, 2002. The Company
cannot predict when the ACC Staff will issue its final report on the Track B
issues or when the ACC commissioners will make a final decision in this matter.
As described above, the ACC has directed the parties to complete the Track B
proceedings such that the competitive procurement process can begin by March 1,
2003.

     FINANCING APPLICATION

     The Track A Order stated that if APS wished to acquire PWEC's generating
assets, as suggested in a letter APS filed with the ACC on July 11, 2002, APS
must file an appropriate application with the ACC. On September 16, 2002, APS
filed an application with the ACC (the "Financing Application") requesting the
ACC to allow APS to borrow up to $500 million and to lend the proceeds to PWEC;
to guarantee up to $500 million of PWEC's debt; or a combination of both, not to
exceed $500 million in the aggregate. The loan and/or the guarantee would be
used to refinance debt incurred to fund the construction of PWEC generation
assets. A copy of the Financing Application is attached to this Report as
Exhibit 99.2.

     The Financing Application addresses, among other things, the following
matters:

     *    APS noted that its April 19, 2002 filing with the ACC had sought
          unification of "PWEC Assets" (West Phoenix Combined Cycle Units 4 and
          5, Redhawk Units 1 and 2, and Saguaro Combustion Turbine Unit 3) and
          APS generation assets under a common financial and regulatory regime.
          APS further noted that the Track A Order's language regarding the
          treatment of the PWEC Assets for Track B purposes (see the last bullet
          point under "Track A Order" above) appears to postpone a decision
          regarding the inclusion of the PWEC Assets in APS' rate base, thereby
          effectively precluding the consolidation of the PWEC Assets at APS
          under a common financial and regulatory regime.

     *    APS stated that it did not intend or desire to foreclose the
          possibility that it would acquire all or part of the PWEC Assets or
          that it may propose that the PWEC Assets be included in APS' rate base
          or afforded cost-of-service regulatory treatment to the extent the
          PWEC Assets are used by APS customers. APS stated that these issues
          would be appropriate topics in APS' 2003 general rate case and noted
          that the Track A Order specifically stated that the ACC would not
          pre-judge the eventual rate treatment of the PWEC Assets (see the
          Track A Order, tenth Ordering Paragraph).

                                       2
<PAGE>
     *    APS stated that the Track A Order's reversal of the generation asset
          transfer requirement and the resulting bifurcation of generation
          assets between APS and PWEC under different regulatory regimes results
          in PWEC being unable to attain investment grade credit ratings. This,
          in turn, precludes PWEC from accessing capital markets to refinance
          the bridge financing provided by the Company to fund the construction
          of the PWEC Assets or from effectively competing in the wholesale
          markets. APS noted that PWEC had previously received investment grade
          credit ratings contingent upon its receipt of APS generation assets,
          and that the Company's credit ratings could be adversely affected if
          PWEC is unable to finance its capital requirements.

     *    APS stated that the amount of the requested loan and/or guarantee is
          APS' present estimate of the amount of credit support necessary
          through APS to restore PWEC and the Company to their credit status
          prior to the ACC's issuance of the Track A Order. APS further stated
          that if the requested amount proves to be inadequate, APS reserves the
          right to submit a second financing application seeking additional
          credit support.

     *    APS requested ACC approval of the requested loan and/or guarantee by
          December 31, 2002.

     The Company cannot currently predict the outcome of the matters discussed
in this Report, and continues to evaluate its legal and regulatory options.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.

     (c)  Exhibits.

     Exhibit No.    Description
     -----------    -----------

       99.1         Arizona Corporation Decision No. 65154, dated September 10,
                    2002.

       99.2         Arizona Public Service Company Application filed with the
                    Arizona Corporation Commission on September 16, 2002.

                                       3
<PAGE>
                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.



                                        PINNACLE WEST CAPITAL CORPORATION
                                        (Registrant)


Dated: September 16, 2002               By: Michael V. Palmeri
                                            -----------------------------
                                            Michael V. Palmeri
                                            Vice President, Finance

                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>ex99-1.txt
<DESCRIPTION>ARIZONA CORPORATION DECISION NO. 65154
<TEXT>
                                                                    Exhibit 99.1

                    BEFORE THE ARIZONA CORPORATION COMMISSION

WILLIAM A. MUNDELL
     CHAIRMAN
JIM IRVIN
     COMMISSIONER
MARC SPITZER
     COMMISSIONER

IN THE MATTER OF THE GENERIC                  DOCKET NO. E-00000A-02-0051
PROCEEDINGS CONCERNING ELECTRIC
RESTRUCTURING ISSUES.

IN THE MATTER OF ARIZONA PUBLIC               DOCKET NO. E-01345A-01-0822
SERVICE COMPANY'S REQUEST FOR
VARIANCE OF CERTAIN REQUIREMENTS OF
A.A.C. R14-2-1606.

IN THE MATTER OF THE GENERIC                  DOCKET NO. E-00000A-01-0630
PROCEEDING CONCERNING THE ARIZONA
INDEPENDENT SCHEDULING ADMINISTRATOR.

IN THE MATTER OF TUCSON ELECTRIC              DOCKET NO. E-01933A-02-0069
POWER COMPANY'S APPLICATION FOR A
VARIANCE OF CERTAIN ELECTRIC
COMPETITION RULES COMPLIANCE DATES.

IN THE MATTER OF THE APPLICATION OF           DOCKET NO. E-1933A-98-0471
TUCSON ELECTRIC POWER COMPANY FOR             DECISION NO. 65154
APPROVAL OF ITS STRANDED COST
RECOVERY.                                     OPINION AND ORDER


DATES OF HEARING:                  June 14, 2002 (pre-hearing); June 17, 18, 19,
                                   20, 21, 27, and 28, 2002

PLACE OF HEARING:                  Phoenix, Arizona

ADMINISTRATIVE LAW JUDGE:          Lyn Farmer

IN ATTENDANCE:                     William A. Mundell, Chairman
                                   Marc Spitzer, Commissioner

APPEARANCES:                       Mr. Jay L. Shapiro,  FENNEMORE  CRAIG and Mr.
                                   Michael  R.  Engleman,   DICKSTEIN,  SHAPIRO,
                                   MORIN &  OSHINSKY  on  behalf  of Panda  Gila
                                   River, L.P.;

                                   Mr. Lindy Funkhouser, Director, and Mr. Scott
                                   S. Wakefield, Chief Counsel, on behalf of the
                                   Residential Utility Consumer Office;

                                   Mr.   Thomas  L.  Mumaw,   Senior   Attorney,
                                   PINNACLE WEST  CORPORATION and Mr. Jeffrey B.

                                       1
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


                                   Guldner, SNELL & WILMER; on behalf of Arizona
                                   Public Service Company;

                                   Mr.  Raymond  S.  Heyman,  ROSHKA,  HEYMAN  &
                                   DeWULF;  on behalf of Tucson  Electric  Power
                                   Company;

                                   Mr.  Lawrence  V.   Robertson,   Jr.,  MUNGER
                                   CHADWICK,   on  behalf   of   Sempra   Energy
                                   Resources and Southwestern Power Group II;

                                   Mr. William P.  Sullivan,  and Mr. Michael A.
                                   Curtis, MARTINEZ & CURTIS, P.C., on behalf of
                                   Reliant Energy Resources;

                                   Mr.  Steven  Lynn  Wene,  MOYES,  STOREY;  on
                                   behalf of PPL Southwest  Generation Holdings,
                                   LLC;  PPL  EnergyPlus,  LLC; and PPL Sundance
                                   Energy, LLC;

                                   Mr.  Walter W. Meek on behalf of the  Arizona
                                   Utility Investors Association;

                                   Mr.  Randall  H.  Warner,  JONES,  SKELTON  &
                                   HOCHULI,  P.C.,  and Mr. Daniel W.  Douglass,
                                   LAW OFFICES OF DANIEL W. DOUGLASS,  on behalf
                                   of  AES  NewEnergy   and  Strategic   Energy,
                                   L.L.C.;

                                   Mr. Greg Patterson on behalf of the Alliance;

                                   Mr. Roger K. Ferland, QUARLES & BRADY STREIGH
                                   LANG,   L.L.P.,   on  behalf  of   Harquahala
                                   Generating Company;

                                   Mr.  Gary A.  Dodge,  HATCH,  JAMES &  DODGE,
                                   P.C.,  on behalf of  Arizona  for  Choice and
                                   Electric Competition;

                                   Mr.  Robert J. Metli,  CHEIFETZ & IANNITELLI,
                                   on behalf of Citizens Communications Company;
                                   and

                                   Mr. Christopher K. Kempley, Chief Counsel and
                                   Ms. Janet F. Wagner,  Staff  Attorney,  Legal
                                   Division, on behalf of the Utilities Division
                                   of the Arizona Corporation Commission.

BY THE COMMISSION:

     On October 18, 2001, Arizona Public Service Company ("APS") filed a Request
for a Partial  Variance to A.A.C.  R14-2-1606(B)  and for Approval of a Purchase
Power Agreement ("Variance/PPA") (Docket No. E-01345A-01-0822).

.. . .

                                       2                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     A Procedural Conference was held on December 5, 2001, to discuss procedural
issues and the appropriate  scope of the proceeding.  APS filed direct testimony
on December 12, 2001, and the parties filed briefs on December 19, 2001.

     By Procedural  Order issued January 22, 2002,  the  Commission  opened this
generic  docket on electric  restructuring  (Docket No.  E-00000A-02-0051).  The
Commissioners,  through a series of letters,  requested that the parties respond
to questions about electric competition.

     On January 28, 2002,  Tucson Electric Power Company ("TEP") filed a Request
for Variance (Docket No. E-01933A-02-0069).

     On January 30, 2002, the  Commission's  Utilities  Division Staff ("Staff")
filed a Response to the  Procedural  Order  establishing  the generic docket and
requested  consolidation of all related electric competition dockets,  including
the generic docket,  the APS variance  request,  the TEP variance  request,  the
Arizona  Independent  Scheduling  Administrator  ("AISA")  inquiry,  and the TEP
request to amend its market generation credit, Docket No. E-01933A-98-0471.

     A Procedural conference was held on January 31, 2002, to discuss procedural
issues and on February 8, 2002, a Procedural Order was issued  consolidating the
dockets,  ordering  Staff to file a Staff  Report  in the  Generic  Docket,  and
establishing a hearing date on APS' Variance/PPA application.

     Intervention was granted to the following: the Residential Utility Consumer
Office  ("RUCO");  Reliant  Resources,  Inc.  ("Reliant");  Panda Gila River, LP
(Panda");  Arizona  Competitive  Power  Alliance  ("Alliance");   Arizonans  for
Electric  Choice  and  Competition  ("AECC");  Harquahala  Generating  Co.,  LLC
("Harquahala");  Arizona Utility Investors Association  ("AUIA");  Sempra Energy
Resources ("Sempra"); Southwestern Power Group II, Inc. ("SWPG"); AES New Energy
Inc. ("AES NE"); Strategic Energy, LLC ("Strategic"); Toltec Power Station, LLC;
Bowie Power  Station,  LLC; PG&E National  Energy  Group;  Arizona  Transmission
Dependent Utility Group;  Duke Energy Arlington  Valley,  LLC; Duke Energy North
America,  LLC;  Kroger  & Co.;  Land  &  Water  Fund  of  the  Rockies;  Arizona
Cogeneration   Association;   Conoco,  Inc.;  APS  Energy  Services  Co.,  Inc.;
Department  of  Defense;  Stirling  Energy  System;  Arizona  Consumer  Council;
Southwest Energy Efficiency  Project;  and Arizona Community Action  Association
("ACAA").

     On March 19, 2002,  Panda Gila River,  L.P.  ("Panda")  filed a Request for
Order to Show Cause.

     On March 22, 2002,  Staff filed its Staff  Report in this  Generic  Docket,
summarizing  the parties'  answers to the  Commissioners'  questions  and making
recommendations about electric restructuring.

                                       3                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     On April 22, 2002, APS filed a Motion for Determination of Threshold Issue,
which  indicated that APS intended to submit its "30-day  letter"  regarding the
asset transfer on approximately August 1, 2002, irrespective of the Commission's
resolution  of the  Variance/PPA  request  or  the  proceedings  in the  generic
electric docket.(1)

     On April 25, 2002, the Commission  held a Special Open Meeting at which the
Commission  stayed the APS Variance/PPA  hearing,  denied Panda's Request for an
OSC, and directed that certain issues be addressed in the Generic Docket.

     By Procedural  Order issued on May 2, 2002, a hearing was set on the issues
identified by the Commission,  including:  the transfer of assets and associated
market  power  issues;   Code  of  Conduct;   Affiliated   Interest  Rules;  and
jurisdictional  issues raised by Chairman Mundell,  collectively  referred to as
"Track A" issues. Track B, Competitive  Procurement,  was also established.  The
Procedural  Order also put the parties and the general public on notice that the
Commission may initiate rulemaking(s),  or, pursuant to A.R.S. ss. 40-252, after
hearing,   enter  such  orders  as  may  be  appropriate  relating  to  electric
restructuring, including variances from Commission rules and/or Decisions.

     Notice of the hearing was published in newspapers of general circulation in
the APS and TEP service areas and statewide between May 26 and June 6, 2002.(2)

     The hearing  was held as  scheduled.  No members of the public  appeared to
make public  comment.  Witnesses  testified on behalf of APS, TEP,  AUIA,  AECC,
RUCO, Panda, Harquahala, Sempra/SWPG, Reliant, AES NE/Strategic, and Staff.

     By Procedural Order issued on July 10, 2002, TEP's application to amend its
market generation credit was removed from this consolidated proceeding.

     On July 10, 2002, the parties filed briefs.

                                   BACKGROUND

     On May  20,  1994,  the  Commission  opened  Docket  No.  U-0000-94-165  to
investigate the  introduction of retail  electric  competition.  On December 26,
1996, the Commission issued Decision No. 59943, which adopted A.A.C.  R14-2-1601
through  1616,  the Retail  Electric  Competition  Rules.  Hearings were held on
generic  stranded  cost issues,  and on June 28,  1998,  the  Commission  issued
Decision No. 60977 on Stranded Costs. On August 10, 1998, in Decision No. 61071,

----------
(1) See footnote 3 to the Motion.
(2) Arizona  Republic,  Bisbee Daily  Review,  Sierra Vista  Herald,  Tri-Valley
Dispatch,  Douglas  Daily  Dispatch,   Flagstaff  Arizona  Daily  Sun,  Holbrook
Tribune/Silver  Creek Herald,  Parker  Pioneer,  Payson Round Up, Prescott Daily
Courier,  Sedona Red Rock  News/Cottonwood  Journal  Extra/Camp  Verde  Journal/
Wickenburg Sun, Winslow Mail, Yuma Daily Sun, Arizona Daily Star, and the Tucson
Citizen.

                                       4                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


the Commission  adopted amended rules on an emergency basis, and on December 11,
1998, adopted the emergency rules on a permanent basis in Decision No. 61272. On
January 11, 1999, the  Commission  issued  Decision No. 61311,  which stayed the
Retail Electric Competition Rules and related decisions,  including Decision No.
60977.

     On April 27, 1999, the Commission issued Decision No. 61677,  which amended
Decision No. 60977, the Commission's prior Stranded Cost decision.  Decision No.
61677 ordered the Hearing  Division to issue a Procedural Order to set dates for
consideration of stranded costs and unbundled tariffs for each Affected Utility.
The revised Retail Electric Competition Rules were published on May 14, 1999 and
public comment  sessions were held. On May 18, 1999, APS filed for approval of a
settlement agreement and on June 9, 1999, TEP filed for approval of a settlement
agreement.  Hearings were held on both  applications,  and the Commission issued
Decision No. 61973  (October 6, 1999) in the APS docket,  and Decision No. 62103
(November  30, 1999) in the TEP docket.  On September 29, 1999,  the  Commission
issued   Decision  No.  61969,   which  approved  the  revised  Retail  Electric
Competition Rules ("Retail Electric  Competition  Rules"). In Decision No. 62924
(October 10, 2000) the  Commission  adopted  clarifying  revisions to the Retail
Electric Competition Rules.

     The  Settlement  Agreements  provided  and  Decision  Nos.  61973 and 62103
granted two-year extensions of time, until December 31, 2002, for APS and TEP to
separate  assets  (A.A.C.  1615(A)(3))  and also  granted  a  "similar  two-year
extension" for compliance  with A.A.C.  R14-2-1606(B)(4).  APS planned to divest
its competitive  generation assets to a yet-to-be formed  generation  affiliate.
The Addendum to APS'  Settlement  Agreement  also  provided  that:  "[a]fter the
extensions granted in Section 4.1 have expired, APS shall procure generation for
Standard  Offer  customers  from the  competitive  market as provided for in the
Electric Competition Rules. An affiliated  generation company formed pursuant to
this Section 4.1 may  competitively bid for APS' Standard Offer load, but enjoys
no automatic  privilege  outside of the market bid on account of its affiliation
with APS." (4.1(3)).

.. . .

----------
(3)  A.A.C.  R14-2-1615(A)  provides:  "All  competitive  generation  assets and
competitive  services  shall be  separated  from an  Affected  Utility  prior to
January 1, 2001. Such separation shall either be to an unaffiliated  party or to
a separate corporate affiliate or affiliates.  If an Affected Utility chooses to
transfer  its  competitive  generation  assets  or  competitive  services  to  a
competitive electric affiliate,  such transfer shall be at a value determined by
the Commission to be fair and reasonable." ("Rule 1615(A)")
(4) A.A.C. R14-2-1606(B) provides: "After January 1, 2001, power purchased by an
investor owned Utility  Distribution Company for Standard Offer Service shall be
acquired from the competitive market through prudent, arm's length transactions,
and with at least 50% through a competitive bid process." ("Rule 1606(B)")

                                       5                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     APS'  Variance/PPA  application  stated that  "adherence to the competitive
bidding  requirements  of the  Electric  Competition  Rules will not produce the
intended  result of reliable  electric  service for Standard Offer  customers at
reasonable  rates" and requested that the Commission grant a partial variance to
R14-2-1606(B) that would otherwise obligate APS to acquire all of its customers'
Standard Offer  generation  requirements  from the  competitive  market,  and to
approve a long-term  purchase power agreement with its affiliate,  Pinnacle West
Capital Corporation ("PWCC").

     TEP's Variance application requested that the Commission grant an extension
of the compliance  dates in Rule 1606(B) and Rule 1615(A) to either December 31,
2003,  or six  months  after the  Commission  has  issued a final  order in this
docket, whichever occurs later.

     By Procedural Order issued February 8, 2002, the Commission determined that
APS' Variance/PPA application required proceeding according to A.R.S. ss. 40-252
in addition to  proceeding  as a request for a rule  variance.  Our May 2, 2002,
Procedural Order in this proceeding also stated that the parties and the general
public are put on notice that the  Commission  may  initiate  rulemaking(s)  or,
pursuant  to A.R.S.  ss.  40-252,  after  hearing,  enter such  orders as may be
appropriate  relating  to  electric  restructuring,   including  variances  from
Commission  rules and/or Decisions and required notice to be given that provided
as full notice and  opportunity for  participation  on the part of the public as
possible.

     The Track A issues to be resolved in this portion of the docket are:  Issue
#1 Market  Power;  Issue # 2  Divestiture;  Issue # 3 Code of  Conduct/Affiliate
Transactions; and Issue # 4 Jurisdictional Issues.

                             ISSUE # 1 MARKET POWER

STAFF

On the  issue  of the  condition  of  the  wholesale  market,  Staff  finds  and
recommends:

     1.   The wholesale market is not currently workably competitive; therefore,
          reliance on that market will not result in just and reasonable rates.

     2.   APS has market power in its Phoenix Valley and Yuma load pockets.

     3.   TEP has market power in its Tucson load pocket.

     4.   The  Commission  should  require APS and TEP to produce  market  power
          studies accompanied by market mitigation plans before allowing them to
          divest.

     5.   The wholesale  market  applicable to Arizona is poorly  structured and
          susceptible to possible malfunction and manipulation.

                                       6                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


APS

     APS argues that the  evidence  presented at hearing  demonstrated  that its
generation affiliate,  Pinnacle West Electric Corporation ("PWEC") will not have
unmitigated  market  power  post-divestiture.  APS states that all parties  that
conducted the Supply Margin  Assessment  ("SMA") analysis as used by the Federal
Energy  Regulatory  Commission  ("FERC") "came to the conclusion that APS passes
the most recent and stringent  market power test proposed by FERC in determining
whether or not a wholesale  electric market is functionally  competitive."  (APS
Brief at pp 19-20).  APS  believes  that the market power of  generation  owners
within  transmission-constrained areas is not caused by divestiture and will not
be ameliorated by retention of load pocket generation,  but will be mitigated by
the "must-run"  provisions of the AISA and the WestConnect  protocols.  Further,
APS points out that A.A.C.  R14-2-1609(I) requires that contracts for "must-run"
generation  must be in place prior to  divestiture.  APS  believes  that Staff's
proposed new market power study is  "unnecessary  and assumes the existence of a
problem requiring a solution." (APS Brief at p. 21)

TEP

     TEP  believes  that there is not  sufficient  consensus  in the record upon
which the Commission can make a decision as to how to quantify  market power and
how to resolve market power issues as they arise.  Consequently,  TEP recommends
that the issue of market power should be subject to further evaluation.

PANDA

     Panda agrees with APS' witness, Dr. Hieronymus'  definition of market power
as  "the  ability  to  profitably  sustain  an  above-competitive  price  in the
marketplace."   Panda's  witness,  Dr.  Roach,   testified  that  APS  has  both
transmission  and generation  market power in both the APS Market as a whole and
in the APS Valley Market. Dr. Roach's load  pocket-specific SMA analysis for the
Phoenix load center  found that APS' market  power in the Valley  Market is even
more significant than its market power in the region at large.  (Roach direct at
p.15) Panda recommends that the Commission should find that APS has market power
today, and that its affiliate will have market power in the future.

     Although  Panda does not believe that  additional  market power studies are
necessary,  it advises that if the Commission decides that market power analysis
is essential,  the SMA test,  as adjusted by Dr. Roach,  is the best approach to
measuring  market power.  Dr. Roach  identified  three  assumptions that tend to
overstate  the  supply  margin,   which,   according  to  him,   results  in  an
understatement  of market power.  He recommends  modifying the SMA as applied by
FERC to adjust  for those  factors.  Dr.  Roach  criticized  APS'  witness,  Dr.

                                       7                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


Hieronymus'  SMA  analysis  for  not  accounting  for the  SMA  test's  inherent
overstatement  of  supply  margin;  for  not  accounting  for  capacity  that is
foreclosed  from  competing by APS;  and for  significantly  overstating  import
capacity into the APS region by including transmission  facilities that APS does
not own or control.

     Panda believes that APS' market power can be mitigated through  competitive
procurement. Panda believes that the market power problem in Arizona is not that
there is an insufficient number of competitors, but that APS is in a position to
foreclose the  opportunity  for those  competitors to compete,  such as with its
proposed PPA which would allow APS to use its  existing  market power to protect
two facilities  built and owned as merchant  plants by its  affiliates,  thereby
harming  ratepayers by forcing them to pay higher prices and bearing more market
risk than necessary.

     Panda  also  believes  that  APS'  position  on market  power is  "ironic".
According to Panda,  when APS discusses whether it has market power, APS says it
does not  because  of a "vast  wholesale  market  and over  11,000  MW of import
capacity",  but when  claiming  it cannot  competitively  bid,  it cites lack of
competitors and existing transmission constraints. (Panda Brief at pp. 6-7)

RELIANT

     Reliant  states that most parties  "recognize  that the transfer of all UDC
generation  assets to an  affiliate  will  result in a  concentration  of market
resources that provide the  opportunity  for the affiliate to exert market power
on the wholesale generation market." (Reliant Brief at p. 4).

     Reliant  proposed a "two-prong"  approach that it believes  alleviates both
the market power and transmission-constraint issues. Reliant proposes a capacity
auction that allows wholesale market  participants to acquire specific  portions
of the  output  of  capacity  transferred  by the  UDC  to an  affiliate,  and a
competitive  solicitation  process  structured  as "slice of  system"  auctions.
Bidders  would  compete  to  provide a  specific  percentage  of APS' daily load
requirement,  using  staggered  delivery  dates and  varying  contract  lengths.
Reliant  believes  that this is a  potential  market-based  solution to concerns
about  short-term  market  power.  It  would  avoid  unnecessary  delay  in  the
implementation  of competition  for Arizona  Standard  Offer load,  resulting in
consumers  receiving the benefits of competition  in a timely  manner.  Further,
Reliant  asserts,  it allows for the divestiture of generation  assets and makes
further market power studies unnecessary.

.. . .

.. . .

.. . .

.. . .

                                       8                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


AECC

     AECC  signed  and  supports  the  APS  and TEP  Settlement  Agreements  and
continues to believe they are in the public interest. However, the AECC does not
want the Commission to ignore critical policy issues such as "the potential that
market power could unfairly impact retail prices after divestiture and after the
termination  of existing  price caps".  (AECC Brief at p. 3) AECC notes that the
"concerns  expressed  by APS and others  about the  near-term  viability  of the
wholesale  market make it difficult for  divestiture  to proceed within the time
frame contemplated by the APS Settlement Agreement.  [footnote omitted] APS, for
example,  has  characterized  the western  wholesale  market as `not functioning
properly' because liquidity has `gone in the tank'" (AECC Brief at p. 5, quoting
Jack Davis).  Further, AECC notes that to "the extent that the Commission is not
enamored  with the proposed PPA, but  otherwise  shares APS' concerns  about the
wholesale market, the Commission will naturally be hesitant to allow divestiture
to move forward on the current schedule without sufficient  protections in place
to protect the public  interest."  (AECC Brief at pp. 5-6). AECC recommends that
the  parties,  including  the  Commission,  should seek a consensus  approach to
market power testing,  monitoring,  and mitigation,  and should proactively seek
adoption of that approach by FERC.

AUIA

     AUIA believes  that the threat of market power has been vastly  overstated,
and that the  solution  to the threat of market  power can  probably be found in
Track B.

RUCO

     RUCO believes that electric deregulation is "in trouble." (RUCO Brief at p.
1) As support, RUCO states that "[e]lectricity  wholesale markets in the western
United States are dysfunctional and remain under federal price-cap controls" and
that  competition  and its benefits have not  materialized  for Arizona's  small
retail customers, who will be charged for the costs of transition. RUCO supports
Staff's   recommendation   that  before  divestiture  is  allowed  to  occur,  a
comprehensive market power study for the Arizona regional wholesale power market
needs to be done.  RUCO  believes  that  the  study  should  be  performed  on a
cooperative basis with input from all parties through a technical advisory team,
using computer-based  modeling of strategic behavior.  The results would be used
to determine the future of electric restructuring in Arizona.

.. . .

.. . .

.. . .

.. . .

                                       9                    DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


             ISSUE # 2 DIVESTITURE OF COMPETITIVE GENERATION ASSETS

STAFF

     On the issue of asset transfer, Staff recommends:

     1.   The  Commission  should  immediately  issue an order  that  stays Rule
          1606.B, Rule 1615.A, and the transfer provisions of Decision No. 61973
          and 62103 until the Commission can conclude that the wholesale  market
          is workably competitive.

     2.   The Commission  should initiate a rulemaking  proceeding to amend Rule
          1615.A.

     3.   The  utilities  should  not  be  prohibited  from  transferring  their
          generation  assets.  However,  such transfers  should not be permitted
          unless the transfer will serve the public interest.

     4.   Asset transfers will promote competition, and thereby serve the public
          interest, as long as the wholesale market is workably competitive.

     5.   In order to transfer its assets,  a utility should file a market power
          study, a market  mitigation  plan, and a proposed code of conduct.  It
          may be  feasible  for the  Commission  to  consider  these  items in a
          consolidated proceeding.

     Staff points out that when the Commission approved the Electric Competition
Rules  and the  Settlement  Agreements,  all the  parties  thought  that  retail
competition was imminent - that the wholesale market would be competitive;  that
a significant  number of retail  competitors  would be entering the market;  and
that customers would leave the incumbent utility and purchase power from the new
competitors.  Instead, Staff argues, the "wholesale market has faltered, the new
competitors  have failed to materialize,  and incumbent  utilities have not lost
customers in any meaningful  number." (Staff Brief at p. 2). Staff believes that
the timing of the transfer is  problematic.  Staff states that "APS has admitted
that  implementation of the terms of the rules and the settlement  agreements as
they currently  stand will put the public at risk." (Staff Brief at p. 5, citing
testimony of APS witness Davis).

     In response to some  witnesses'  recommendations  to rely on FERC to police
the market,  Staff cites the General Accounting Offices' ("GAO") conclusion that
FERC has not yet defined or  implemented  an effective  regulatory and oversight
approach for competitive energy markets,  which means that FERC "lacks assurance
that today's energy markets are producing  interstate  wholesale natural gas and
electricity prices that are just and reasonable." (Mundell Ex. A at pp. 5-6) The
timing  problem  is  also  apparent  in  the  lack  of  a  functioning  Regional
Transmission  Organization  ("RTO").  According to Staff,  it is not possible to
comply with the  competitive  bidding  requirements of 1606(B) by the end of the
year, and even APS seems to agree.

                                       10                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     Because the circumstances  that the rules were designed to address have not
developed,  because asset transfer combined with an ineffective wholesale market
places the public at substantial  risk, and because it "appears that reliance on
FERC to police the wholesale  market may be ill advised",  Staff recommends that
the  Commission  should not allow asset  transfer until it is convinced that the
transfer is in the public  interest.  Staff advises that  "[w]ithout  conditions
designed to address market structure concerns, the transfer is NOT in the public
interest." (Staff Brief at p. 4, emphasis original).

     Staff  believes  that before the  Commission  decides  whether a particular
utility  should be allowed to divest,  the utility  should  indicate  whether it
wants to divest.(5)  If a Company  wants to divest,  it should file market power
studies and a proposed code of conduct, Track B should be concluded,  and in any
event, no reliability  must-run  generation ("RMR") should be divested.  Staff's
states that its  recommendations on divestiture may have implications for future
rate  setting,  because if a utility  chooses to retain  its  assets,  the Staff
believes  that the  Commission  should  apply  cost of service  principles  when
setting rates.

     In response to APS' argument that the Commission is bound by the Settlement
Agreement,  Staff argues that the Commission is not contractually  bound.  Staff
states that if a regulatory agency finds a proposed settlement to be reasonable,
the terms of the  settlement  form the  substance  of a decision  that binds all
parties to the proceeding,  and the approved  agreement assumes the nature of an
agency decision enacted in the public interest,  losing its private  contractual
character.  (Citing CAJUN ELEC.  POWER COOP.,  INC. V. F.E.R.C.,  924 F.2d 1132,
1135 (D.C. Cir. 1991). Staff also argues that it is unlikely that a contract was
formed due to the Commission's amendments to the agreement. Staff further argues
that,  assuming  for  the  sake  of  argument  that  a  contract  exists,  it is
unenforceable  because the  "alleged  contract  was based on the  existence of a
workably competitive wholesale market, and because a workably competitive market
does not exist, the purpose of the alleged contract has been frustrated, thereby
excusing performance." (Staff Brief at p. 19)

APS

     APS believes  that  divestiture  will benefit APS customers in the long run
and will not harm them in the short run. It  acknowledges  that the  benefits of
divesture  are more  long-term  in nature,  while the "risks of the market  loom
today".  (APS  Brief  at p.  12) APS  points  out that  through  its  Settlement
Agreement,  its customers have protection  against the market through June 2004,
and that intermediate to long-term protection for consumers is available through
the proposed PPA.

----------
(5) Staff recommends that utilities should inform the Commission  within 30 days
of the conclusion of Track B.

                                       11                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     APS  argues  that no party has  presented  a  compelling  argument  against
divestiture.  APS cites other  jurisdictions  that have  authorized  divestiture
without  harm to  consumers  and in  furtherance  of industry  restructuring  as
support  for its own  divestiture.  APS argues  that  Staff's  preconditions  to
divestiture  are  so  ambiguous  and  onerous  as  to  make  timely  divestiture
impossible  from both a regulatory  and commercial  standpoint.  APS states that
claims of  horizontal  market power  concerns  were not raised in 1999; no party
suggested that another code of conduct was necessary to address other  affiliate
issues;  and that  competitive  bidding has always been tied to divestiture  and
divestiture must occur first. APS believes that the parties'  arguments on these
issues  are  attempts  to   indefinitely   delay  or   unnecessarily   condition
divestiture.

     APS states that divestiture has already been finally authorized by Decision
No. 61073 and Rule 1615(A), and cannot be delayed or stayed in these proceedings
without breaching the APS Settlement.  According to APS, the Commission  entered
into a binding contract,  and this interpretation has been upheld by the Arizona
Court of  Appeals.  APS states that  Staff's  claimed  change in  circumstances,
including the "failure of retail  competition to develop as apparently Staff had
envisioned back in 1999, the existence of market power during a few hours of the
year in transmission  constrained  areas of APS service  territory,  the alleged
`loss'  of  Commission   jurisdiction   over  electric   generation,   and  some
non-specific  concerns over the efficacy of the wholesale  market"  actually are
not a change in circumstances or "represent  changes  irrelevant to the issue of
divesture." (APS Brief at p. 9). APS believes that the "failure of the wholesale
competitive  market  to  develop  as  quickly  as was  once  envisioned  and the
apparently  inherent  volatility and  unpredictability of the wholesale electric
market is a legitimate concern." (APS Brief at p. 10) However,  APS' solution to
that "legitimate concern" is approval of its PPA, not to delay divestiture.  APS
also argues that another  "dramatic change of circumstances  since 1999" was the
creation of a new and separate generation affiliate.(6)

TEP

     TEP has requested, in its Variance, an "extension of the compliance date in
Rule  1615.A,  which  requires  that  all  competitive   generation  assets  and
competitive  services be separated  from TEP." TEP believes that the date should
be  extended to either  December  31,  2003 or six months  after the  Commission
issues a final order in this proceeding, whichever occurs later. In its Variance

----------
(6) Although APS claims that "APS has been REQUIRED by this Commission to create
a new and separate generation affiliate" (APS Brief at p.9, emphasis added), the
Electric  Competition  Rules  (1615(A))  contemplate  divestiture  to  either an
"unaffiliated  party or to a separate corporate  affiliate or affiliates" and in
Decision No. 61973 at page 10, we state that "[w]e also recognize the Company is
making a business  decision to transfer  the  generation  assets to an affiliate
instead of an  unrelated  third  party",  indicating  that it was APS' choice to
create a "new and separate generation affiliate".

                                       12                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


application,  TEP states that "given the recent history - and current state - of
the western power markets,  TEP believes that neither an immediate transition to
the 50% competitive bid requirement or the generation separation  requirement is
prudent at this time." (Variance Application at p. 4)

PANDA

     Generally,   Panda  supports  the  proposed  divestiture  of  APS  and  TEP
generation  assets  to an  affiliate  on the terms  that  were  agreed to in the
Settlement  Agreements  (i.e. that  divestiture  would be  contemporaneous  with
competitive  procurement).  Panda  believes that any  divestiture  of generation
assets to affiliates  should be conditioned on implementation of the competitive
procurement   framework  as   established   in  Track  B.  According  to  Panda,
"[c]ompetitive procurement will yield substantial benefits to Arizona ratepayers
because  there is an  emerging  oversupply  of  generation  capacity in the near
term." (7) (Panda Brief at p. 3) Panda  believes  that  competitive  procurement
will benefit Arizona ratepayers with or without  divestiture.  Panda argues that
"[e]ven leaving aside replacement of inefficient or environmentally  undesirable
generation owned by APS today, APS needs  significant  additional  generation to
meet its needs in the  future.  APS should  not be  allowed to meet these  needs
without a reasonable market test to determine whether its arrangements for doing
so are in the public  interest.  Specifically,  the new RedHawk and West Phoenix
plants built by APS' merchant generation  affiliate must be subject to challenge
through  competitive  procurement to assure  Arizona  ratepayers are getting the
best deal in terms of price, risk, and reliability.  Neither of these plants has
gone through prudence review and neither is in rate base." (Panda Brief at p. 4)

     Panda believes that the concerns about divestiture  raised by other parties
can be addressed  through a competitive  bidding  framework  and an  appropriate
prudence review, but if the  "above-market,  self-dealing PPA is the only way to
mitigate the market power of APS affiliates,  then the Commission  should reject
divestiture." (Panda Brief at p.8).

RELIANT

     Reliant believes that allowing divestiture without appropriate  competitive
solicitation  procedures in place and underway  will  "severely  jeopardize  the
long-term  viability of competition  among  wholesale  suppliers in Arizona" and
"places at risk the  long-term  viability  of the  existing  and new  generation
projects constructed to serve the region's electrical demand." (Reliant Brief at

----------
(7) According to Panda,  APS' projected summer 2003 load is approximately  6,000
MW and by that time or soon thereafter,  6,500 MW of new competitive supply will
be on-line in the APS  service  territory,  for a total of 12,500 MW of capacity
potentially competing to serve 6,000 MW of load. (Panda Brief at p. 3)

                                       13                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


pp. 7 & 9) Reliant  believes  that by  requesting  a variance  to  1606(B),  APS
effectively  "stagnates the wholesale  market in Arizona."  (Reliant Brief at p.
10)

AECC

     AECC recommends  that the Commission  should "direct the parties to the APS
and TEP settlement  agreements (and other parties of interest) to make a prompt,
good faith effort to address the  following  issues  within the framework of the
settlement agreements:

     (a)  timing of divestiture - the parties should consider the need to modify
          the timing of divestiture,  as necessary,  to comport with the Track B
          findings,  (e.g.,  in the event that  competitive  bidding is delayed,
          then  divestiture  may  be  delayed);  alternatively,  APS  can  bring
          forward,   for  the   consideration  of  the  other  parties  and  the
          Commission,  a power  purchase  agreement  that  provides a short-term
          `bridge'  through  2003,  to the  extent  such a product  is needed to
          supplement  APS'  standard  offer  requirements  in  light  of Track B
          findings;

     (b)  longer-term power purchase agreement - APS can bring forward,  for the
          consideration  of the  other  parties  and  the  Commission,  a  power
          purchase  agreement that provides  long-term  resources  using today's
          rate-based  generation  as part of a  portfolio  that  is  limited  to
          meeting  demand  BEYOND  the  standard  offer  requirements  that  are
          competitively  bid (as  determined  in Track B)."  (AECC  Brief at pp.
          3-4).

AUIA

     AUIA  believes  that the  Commission  can safely  allow APS to transfer its
assets to PWEC and conduct a competitive  solicitation within the limits imposed
by the marketplace,  or in the  alternative,  the Commission can examine the PPA
concept  proposed  by  APS.  AUIA  states  that if none  of  these  options  are
acceptable,  the Commission  should suspend the electric  competition  rules and
continue  cost-of-service  regulation until it has completed a re-examination of
electric competition in Arizona.

AUIA believes that the "Commission has a legal and moral  obligation to abide by
the terms of the 1999  Settlement  Agreement it entered into with APS,  absent a
demonstration  that  extraordinary  circumstances  have intervened  since then."
(AUIA Brief at p. 6) AUIA  believes  that there has been no such showing in this
proceeding.

SEMPRA/SWPG

     Sempra and SWPG argue that because Rule 1606(B) and 1615 are "intrinsically
interwoven",  and  because  of market  power  concerns,  the  Commission  should
"establish as a fundamental  principle that generation  asset transfers will not
be allowed to occur under Rule 1615 until the  competitive  procurement  process

                                       14                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


contemplated  by and  provided  for under Rule  1606(B)  has been  implemented."
(Sempra/SWPG Brief at p. 4). Sempra/SWPG define  "implemented" to include:  "(i)
contracts for the provision of electric power have been awarded by UDCs pursuant
to a Commission - approved competitive  procurement process, (ii) the results of
that  process  have  been  publicly  announced  and (iii)  the  resulting  power
procurement  contracts  have been  reviewed  and  approved  by the  Commission."
(Sempra/SWPG Brief at p. 4)

     Sempra/SWPG  believes  that it is premature to alter the  deadlines for the
asset transfers and competitive  power  procurement  because they believe that a
viable competitive  procurement  process may still be put in place by January 1,
2003;  that APS and TEP could  both  still  complete  asset  transfers  prior to
January 1, 2003; and that market power studies could be completed, evaluated and
used constructively  before the end of the year.  Sempra/SWPG believe that asset
transfer and  implementation  of competitive  procurement could be phased in, to
the extent, and when market power problems do not exist.

HARQUAHALA

     Harquahala  believes that  contracting for competitive  procurement  should
occur  prior to  divestiture  and that it should not  include  existing  network
transmission service rights.

RUCO

     RUCO recommends:

     1.   Until the  Commission  is assured that FERC is  adequately  overseeing
          Arizona's wholesale electric market, the Commission should suspend the
          divestiture requirement.

     2.   Once the Commission is confident that the wholesale market is workable
          and free of market power pricing, divestiture should be accompanied by
          purchase power  agreements  that assure  Standard Offer customers have
          access to electricity at cost-based prices.

     3.   If the Commission decides to allow divestiture without a PPA in place,
          it should  delay  divestiture  for at least a year to conduct  further
          study,  including  strategic behavior  modeling,  to accurately assess
          market conditions.

     4.   The Commission must balance the need for further study with the costs.

                ISSUE # 3 CODE OF CONDUCT/AFFILIATE TRANSACTIONS

STAFF

     On the  issues  of Code  of  Conduct  and  Affiliate  Relationships,  Staff
recommends:

                                       15                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     1.   Any  investor-owned  utility  that  wants to  purchase  power  from an
          affiliate within twelve months of a Commission decision in this docket
          must file a Code of Conduct for Commission approval within ninety days
          of a Commission decision in this docket.

     2.   Any  investor-owned  utility that has already  purchased power from an
          affiliate must file a Code of Conduct for Commission  approval  within
          ninety days of a Commission decision in this docket.

     3.   Any  investor-owned  utility that has not made a filing in response to
          #s 1 & 2 above  but in the  future  plans to  purchase  power  from an
          affiliate must obtain Commission  approval of a Code of Conduct before
          executing any affiliate transactions.

     4.   Prior  to  a  transfer  of  generation  assets  to  an  affiliate,  an
          investor-owned  utility  must file a code of  conduct  for  Commission
          approval  unless  such  Code of  Conduct  has  already  been  filed in
          response to recommendations #s 1, 2, or 3 above.

     5.   The  Commission  should adopt a Code of Conduct to fill the gaps among
          existing Codes of Conduct.

APS

     On the issue of Code of Conduct/Affiliate  Transactions, APS argues that it
already  has  both a  Commission-approved  Code  of  Conduct  and  Policies  and
Procedures to effectuate the Code,  and  FERC-imposed  Standards of Conduct,  in
addition to the affiliated  interest rules,  and that nothing is "broken" and in
need of  "fixing".  However,  APS states that if  divestiture  is  permitted  in
accordance  with the  Settlement  Agreement,  APS would be  willing  to submit a
revised Code of Conduct  covering  PWEC,  PWM&T,  and APS Energy  Services.  APS
believes that divestiture should not be held up pending Commission consideration
and approval of any amended Code of Conduct.

PANDA

     Panda  believes that the "existing  Code of Conduct and Affiliate  Interest
Rules do not adequately address problems of self-dealing, preferential treatment
of affiliates and  cross-subsidization of competitive services." (Panda Brief at
p. 32) Panda agrees with Staff that "before divesting  generation or transacting
with an  affiliate  in any  way,  a UDC  should  be  required  to file  with the
Commission a proposed Code of Conduct that mitigates any potential for conflicts
of interest,  affiliate abuse,  self-dealing or  cross-subsidization,  and which
strictly limits access to commercially  sensitive or confidential  information."
(Id. at 32) Further, Panda believes that notice should be provided to interested
parties  and an  opportunity  to  comment  on such a Code of  Conduct  should be

                                       16                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


provided,  with a complaint process before the Commission if a UDC or any of its
affiliates violates the Code of Conduct.

RELIANT

     Reliant agrees with Staff that further consideration of Codes of Conduct is
appropriate to ensure that ratepayers do not subsidize non-regulated competitive
operations,  but that it should  not cause a material  delay in the  competitive
procurement of Standard Offer load.

SEMPRA/SWPG

     Sempra/SWPG  support Staff's  recommendation on adopting additional Code of
Conduct  requirements,  but suggest  that the  Commission  hold public  hearings
and/or an oral and written  comment  procedure on the Codes of Conduct  filed in
response to Staff's recommendations,  and that such Codes of Conduct be in place
by January 1, 2003.

                         ISSUE #4 JURISDICTIONAL ISSUES

STAFF

     On   the   Jurisdictional/Legal    issues,   Staff   made   the   following
recommendations:

     1.   If an asset transfer  occurs,  the Commission will lose its ratemaking
          jurisdiction  over those assets and will have no jurisdiction over any
          power purchase agreement that occurs after the transfer of assets.

     2.   Once an asset  transfer  occurs,  APS'  acquisition  of power would be
          wholesale transactions under the jurisdiction of the FERC.

     3.   The FERC has jurisdiction over both profit and not-for-profit RTOs.

     4.   The  Commission  is not  contractually  bound  by the  APS  Settlement
          Agreement

APS

     On the  issue of  jurisdiction  of the  Commission,  APS  asserts  that the
Commission will not lose any meaningful  jurisdiction over the setting of retail
rates as a result of generation divestiture. APS states that "[s]tate regulators
have never had jurisdiction over most wholesale  transactions." (APS Brief at p.
28) APS states that just as the  Commission  could not "deny rate  recovery to a
prudently  acquired and operated  resource  that is used and useful in providing
service" to a vertically  integrated  electric utility,  the "Commission  cannot
deny rate  recovery of a prudently  acquired  and  administered  purchase  power
expense  that  is  used  and  useful  in  providing  service  to  the  Company's
customers." (APS Brief at p. 29) APS states that the  Commission's  jurisdiction
is not affected by the formation of or participation in a "for profit" RTO.

.. . .

                                       17                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


TEP

     On  the  jurisdictional  issue,  TEP  states  that  it is  unaware  of  any
jurisdictional impact attributable to the "for-profit" status of WestConnect.

PANDA

     Panda  argues  that  with   divestiture,   the  Commission  will  not  lose
jurisdiction over "the most important aspect of its mandate:  what APS' Standard
Offer  Service  customers  pay for APS  purchases  from its  affiliate and other
merchant  generators  for  the  capacity  necessary  to  supply  Standard  Offer
customers." (Panda Brief at p. 31) Panda recommends that the "Commission can and
should  condition  any  divestiture  . . . on APS'  agreeing  to a  market  test
prudency  standard."  (Id.) Panda  further  believes  that the  Commission  will
maintain substantial  jurisdiction by its control of the competitive procurement
process.  Panda believes that the issue of for-profit or not-for profit RTO form
does not affect the Commission's jurisdiction.

                              MISCELLANEOUS ISSUES

TRANSMISSION

     On the issue of Transmission, Staff recommends:

     1.   The  Commission   should  encourage  an  industry-wide   collaborative
          planning process to resolve  transmission  constraints  (Smith Direct,
          Ex. S-13 at 25)

     2.   Staff   recommends   that  the  Commission   initiate  an  appropriate
          proceeding to consider the adoption of the following standards:

          a.   There should be  sufficient  transmission  import  capability  to
               reliably  serve all loads in a  utility's  service  area  without
               limiting  consumer  access or benefit to more  economical or less
               polluting generation located external to the service area.

          b.   A power plant must have  sufficient  interconnected  transmission
               capacity  to  reliably  deliver  its full  output  without use of
               remedial action schemes for single  contingency  (N-1) outages or
               displacing  a  priori  generation   interconnected  at  the  same
               switchyard or on the same transmission lines.

     3.   The Commission  should order  jurisdictional  utilities to resolve RMR
          generation concerns. Specifically, the utilities should be ordered to:

          a.   perform a study within  thirty days of a  Commission  decision in
               Track A  analyzing  the  merits  of  existing  dependence  on RMR
               generation  instead of  building  transmission  to resolve  local
               transmission import reliability constraints;

          b.   perform a study  analyzing the merits of any future  contemplated
               utilization of RMR to defer transmission projects; and

          c.   file such RMR study reports with the Commission for review within
               thirty days of their completion and prior to implementing any new
               RMR generation strategies.

                                       18                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     4.   Staff  recommends  that the  Commission  should  consider  appropriate
          avenues to establish the following criteria:

          a.   Future  power  plant  applications  for CECs should be denied for
               sufficiency  purposes if they have not  fulfilled  the  statutory
               technical  study  requirements  demonstrating  the  impact of the
               project on the existing Arizona transmission system; and

          b.   Power  plants  that fail to  demonstrate  the ability to reliably
               deliver  to a  market  without  displacing  a  priori  generation
               interconnected  at  the  same  location  or  utilizing  the  same
               interconnected transmission system should not be granted a CEC.

     5.   Both transmission providers and merchant power plants should share the
          burden and obligation to resolve Arizona's transmission constraints.

     In  response  to Staff's  recommendation,  APS states  that the  Commission
should  continue to monitor  transmission  issues and complete the next Biennial
Transmission  Assessment.  APS and  Staff  agree  that  successful  transmission
planning will require collaboration with all affected parties, including parties
not subject to the Commission's regulatory jurisdiction. APS believes that there
are no "must run" or  transmission  market power  issues that should  affect the
timing of divestiture.

PWEC'S GENERATION

     APS added an additional issue: termed the "West Phoenix and Redhawk" issue.
APS states that  although the West  Phoenix  Power Plant  Expansion  and Redhawk
Power Units 1 and 2 are being  constructed  by PWEC and are therefore  "merchant
plants",  they are being built to meet the  reliability  needs of APS'  Standard
Offer customers.

     APS also wants the  Commission  to address  what it calls the  "bifurcation
issue" and states that the  Commission  should allow APS and its  affiliates  to
recover all costs incurred in reliance on the provisions of the APS  Settlement.
Specifically,  APS believes that the  Commission  should:  "indicate that APS is
entitled to recover all reasonable  incurred and increased  costs  occasioned by
the Commission's change in position" (including costs of its affiliates);  allow
"APS to acquire  and  finance  the  Dedicated  Units  presently  owned by PWEC";
reconsider  other aspects of the APS  Settlement  during the Company's next rate
proceeding  or in a  separate  proceeding  held  prior  to the next  rate  case,
including  how to restore the "$234  million  write-off"  and "the  one-third of
divestiture-related  costs the Company was forced to absorb  under  Decision No.
61973." (APS Brief at pp. 42-43.)

     Panda believes that APS introduced  significant testimony going well beyond
the identified  Track A issues,  mainly that the "PWEC merchant  facilities were
constructed 'for the benefit of APS customers.' Tr. At 130". Panda believes that

                                       19                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


whether PWEC's merchant facilities (RedHawk 1 & 2 and West Phoenix 4 & 5) should
be transferred to APS is not before the Commission at this time.

     Panda notes that while APS presented evidence of steps it took to divest in
reliance  on the  Settlement  Agreement,  there is  nothing in the record of any
reasonable,  timely  efforts to comply  with the  requirement  to  competitively
procure power for its Standard Offer customers.  Specifically, Panda states that
there  is "no  evidence  that  APS  ever  issued  an  RFP,  made  a  competitive
solicitation on any significant  scale for any period following entry of the APS
Settlement  Agreement,  circulated its long-term energy or capacity requirements
to any  party,  other  than its  merchant  affiliate,  to allow the market to be
responsive to those needs, or otherwise sought a competitive  alternative to its
affiliate's construction projects. .. .In fact, the testimony in this proceeding
demonstrated  that APS is relying on affiliate  transactions  to supply needs in
2002,  again  without  any  apparent  effort to  solicit  those  needs  from the
competitive market." (Panda Brief at p. 6)

     In a footnote in its brief, Reliant states that PWEC must not be allowed to
transfer RedHawk and West Phoenix to APS if divestiture does not occur, as these
were built as competitive assets.  According to Reliant,  "[a]ny non-competitive
transfer to APS will effectively  eliminate the possibility of creating a robust
competitive  wholesale  market,  and the  benefits to retail  customers . . . ."
(Reliant brief at p. 10)

RETAIL COMPETITION

     TEP  proposed  that if retail  electric  competition  is to proceed at this
time,  the  Commission  should allow only  customers with a load of 3 MW or more
direct access for now.

     AES NE/Strategic discussed only one issue in their brief: TEP's proposal to
deny retail  customer  choice to all of Arizona's  residential  customers and to
commercial and industrial customers with load requirements of less than 3 MW.

     AES NE/Strategic believe that TEP's proposal is a fundamental breach of its
Settlement  Agreement.  According  to  AES  NE/Strategic,  retail  choice  was a
fundamental and significant element of the settlement; TEP seeks to preserve its
own benefits  gained under the  Settlement  while denying a fundamental  benefit
achieved by other parties to the  Settlement;  and TEP has failed to comply with
its obligations to defend the Amended Settlement Agreement and has taken actions
that are inconsistent with its provisions.

     AES  NE/Strategic  notes that TEP did not make any  effort to  discuss  the
issue or consult  with other  parties to the  Settlement  Agreement,  but made a
unilateral  proposal in its testimony in this proceeding.  AES NE/Strategic also
argues that TEP's efforts to declare  competition dead ignores TEP's own role in

                                       20                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


forestalling  competition,  citing  as the  primary  reason  why  direct  access
customers  returned to bundled  service  with TEP, the failure of TEP to pay the
required  competitive  transition  charge to direct access customers when market
prices spiked in the west.

     AES  NE/Strategic  believes  that if the  Commission  were to "accept TEP's
anti-competitive  proposal,  the end result for  retail  competition  in Arizona
would be the same as if the  Commission  acted to  repeal  the  Retail  Electric
Competition  Rules  adopted in  September  1999 - it would be the death knell to
retail competition in Arizona." (AES NE/Strategic Brief at p. 11)

     AECC  criticized  TEP and RUCO for  introducing  into the  record  proposed
changes to Arizona's  retail direct access program,  which are outside the scope
of this Track A proceeding.  AECC strongly objects to the proposed changes,  and
views  TEP's  proposal  as a "bad faith  attempt to advance  its  pre-settlement
agreement objectives." (AECC Brief at p. 2) Accordingly,  AECC did not brief the
issue,  but reserved its right to argue  against the  positions  advanced in the
appropriate forum.

     RUCO's witness testified that TEP's recommendation that only customers with
loads of 3 MW or greater be allowed to  participate  in retail  competition is a
reasonable  option to consider,  if traditional  cost-of-service  bundled retail
rates are maintained for all other customers, and if divestiture does not occur.

                                    ANALYSIS

MARKET POWER

     All the  parties to the  proceeding,  with the  exception  of APS and AUIA,
agree that market power/market abuse issues are real and should be addressed. We
find that APS and TEP have market power today in their Phoenix Valley,  Yuma and
Tucson  load  pockets,  respectively.  Moreover,  we note  that  there is no RTO
currently  in existence in Arizona and believe that it is desirable to establish
a  process  that  builds  upon,  but goes  beyond,  the  Arizona  ISA  "must-run
generation"  protocol to evaluate the long-term  infrastructure needs of service
to load  pockets.  We  disagree  that market  power in the load  pockets is best
addressed  through sole  reliance on the "must-run  generation"  protocol of the
Arizona ISA. We believe that it is  appropriate  to conduct market power studies
that focus not only on regional  market  power,  but on how market  power can be
exercised in Arizona specific areas, and how it can best be mitigated.  Although
Reliant posed an interesting  concept to mitigate  market power through a supply
auction,  we are not convinced that such a process is workable or appropriate in
Arizona at this time.  Accordingly,  we adopt Staff's  recommendations  and will
require  APS and TEP to  produce  market  power  studies  accompanied  by market
mitigation plans before allowing them to divest. Further, we agree with AECC and

                                       21                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


RUCO that the parties should seek a consensus  approach to market power testing,
monitoring, and mitigation.

     Our  findings  about  market  power are intended to be used for purposes of
this  proceeding only as they relate to the issue of asset  divestiture.  We are
not making any finding regarding any FERC determination of market power, and our
findings  about market power are not intended to be used in any FERC  proceeding
or in another forum.

DIVESTITURE

     In  retrospect,  it was a good idea to delay  divestiture  and  competitive
procurement in the APS and TEP Settlement Agreements, given what has happened in
the last two or so years,  including the  experience in  California;  the market
volatility and illiquidity;  and the lack of public confidence in the transition
to electric  deregulation  and ability of  regulators  to prevent  price spikes,
ensure reliable  service,  and prevent  bankruptcies.  Even today,  there is not
agreement amongst economists,  much less regulators, as to why and what happened
in California, happened, and how to prevent a similar or related occurrence.

     It is clear that the  Commission  and all parties  expected  benefits  from
retail  competition,  yet  there is no  active  retail  competition,  so  actual
benefits  are  still  unknown.  It is said  that  consumers  will  benefit  from
wholesale  competition,   but  not  without  the  proper  market  structure  and
regulatory  framework that will support it. It was anticipated  that at the time
that APS and TEP  divested,  ESPs  would be  providing  direct  access to retail
customers.  In actuality,  no retail competition exists; market power is held by
the incumbent  utilities;  no RTO is in effect;  transmission  constraints exist
that potentially  exacerbate  market abuse; the GAO has issued a negative report
on FERC's ability to manage  competitive  markets;  both TEP and APS recognize a
problem - one wants to postpone its  divestiture  while the other is affected by
its parent's and  affiliates'  adverse  financial  considerations;  proposed new
generation may be cancelled if it is not able to find a market; more protections
are needed against self-dealing and inappropriate  affiliate  transactions;  and
investigations are ongoing into market manipulations and improprieties. Contrary
to what APS  argues,  these  changes  relate  to the  question  of  divestiture,
especially  to our  willingness  to transfer our  ratemaking  jurisdiction  over
generation  assets to FERC,  given its recent  history  regulating the wholesale
market and the conclusions contained in the recent GAO report.

     We find that due to circumstances outside our control or the control of any
party, and in order to protect the public interest,  we must take further action
to regulate the  transition to  competition.  We want to take action in a manner
that is fair to all parties and that protects ratepayers. Neither the Commission

                                       22                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


nor any party to this  proceeding  anticipated  the  current  state of  electric
competition nor caused the problems that have been  identified.  Therefore,  the
wise course of action is to try to minimize  the effects and figure out a way to
move forward that will  ultimately  result in a market  structure  that performs
efficiently  and  rationally,  and that will  result in the  benefits  that were
promoted in the move to competition. As a constitutionally created state agency,
our  overriding  concern is the public  interest.  This  means  maintaining  the
ability,  through our jurisdiction,  to insure that Arizona  ratepayers  receive
reliable, safe, economic, and efficient electric power.

     Therefore,  we find that the public interest  requires that the divestiture
requirement found in A.A.C. R14-2-1615(A) and our extensions of that requirement
until January 1, 2003, found in Decision Nos. 61973 and 62103,  must be modified
in the following manner: TEP is granted a waiver of A.A.C. R14-2-1615(A); APS is
granted a waiver of A.A.C. R14-2-1615(A); and both companies are hereby directed
to cancel any plans to divest interests in any generating assets.  Should either
company wish to pursue the divestiture  outlined in R14-2-1615(A) in the future,
they should file applications to that effect for Commission consideration.  This
determination is consistent with our planned transition to competition and as we
said in Decision  No.  61973,  ". . . the  Commission  must be able to make rule
changes/other  future  modifications that become necessary over time." (Decision
No.  61973  at p. 9) As we also  said in  Decision  No.  61973,  it is "not  the
Commission's  intent to undermine the benefits that parties have bargained for."
(Id.)  Recognizing  this,  it is incumbent  upon all parties to work together in
such a manner that will allow  competition and its expected  benefits to develop
in whatever  timeframe is needed to make it successful,  while ensuring that the
citizens  of Arizona  have safe,  reliable  and fairly  priced  electric  power.
Accordingly,  we will  modify  Decision  Nos.  61973 and 62103 to stay the asset
transfer provisions as outlined above.

     Further,  we will modify  R14-2-1606(B) and Decision Nos. 61973 and 62103's
requirement that 100 percent of power purchased for Standard Offer Service shall
be acquired  from the  competitive  market,  with at least 50 percent  through a
competitive  bid process;  but effective upon  implementation  of the outcome of
Track B, we will require APS and TEP to acquire,  at a minimum(8),  any required
power  that  cannot  be  produced  from its own  existing  assets,  through  the
competitive  procurement  process as developed in the Track B proceeding.(9) The
amount of power, the timing,  and the form of procurement shall be determined in
the Track B proceeding.  We believe that in this way we can encourage a phase-in
to  competition,  encourage the  development  of a robust  wholesale  market for

----------
(8) APS and TEP may  decide  to  retire  or  displace  inefficient,  uneconomic,
environmentally undesirable plants.
(9) The Commission  will closely  monitor APS' and TEP's power  procurement  for
potential  affiliate concerns until the Track B competitive  procurement process
is implemented.

                                       23                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


generation,  and  obtain  some of the  benefits  of the new  Arizona  generation
resources, while at the same time protecting ratepayers.

     The waivers and actions  ordered herein should allow the market power issue
and  any   necessary   future   market  power   studies  to  be  performed   and
recommendations  made; allow FERC to gain experience and expertise in regulating
competitive wholesale markets; increase the supply of new generation;  allow for
necessary revisions to the Electric  Competition Rules; allow the development of
an effective RTO or other such entity;  allow for some transmission  constraints
to be resolved;  allow the Commission,  APS, TEP, and the parties to develop and
implement  a  phased-in   competitive   procurement   process;   and  allow  all
participants  to analyze and learn from the events that have occurred during the
past two years. We agree with TEP that the overriding  concern of the Commission
must continue to be "ensuring  that the citizens of Arizona have safe,  reliable
and fairly priced electric power".

     APS' request for a change to the  competitive  procurement  requirement  of
1606(B)  is no  different  than a  request  for a change to the  requirement  of
divestiture  in 1615(A).(10) Although APS tries to argue that the Commission can
modify one provision  (1606(B)) but not the other provision  (1615(A)),  the two
provisions  have  always  been  paired  together.  Even APS  witness  Jack Davis
testified to their  linkage.  When asked  whether  divestiture  and  competitive
bidding  under Rule 1606(B) are linked,  he responds:  "Absolutely,  both in the
historical context of the Electric  Competition Rules and in the practical sense
.. . . Even during the approval process of the 1999 APS Settlement Agreement, the
variance  granted to Rule  1606(B) was referred to as a  'corresponding  delay,'
that is,  'corresponding'  to the delay in  implementation of Rule 1615." (Davis
Direct at pp. 9-10)

     Both were  treated  the same in  Decision  No.  61973 -  granted  "two-year
extensions",  therefore, if granting a "variance" from 1606(B) would not violate
the Settlement Agreement,  then granting a "stay" or "variance" of 1615(A) would
similarly  not violate the  Settlement  Agreement.  To the extent that any party
believes  that such a  variance  to  1615(A) is a  violation  of the  Settlement
Agreement,  the Commission  once again(11) urges the parties to meet and work to
resolve the issue.  Even if we were to believe that  granting a stay or variance

----------
(10) Although upon redirect  examination,  Mr. Davis  testified that neither the
decision  approving the settlement nor the addendum filed on December 1, 1999 in
accordance with the  Commission's  order  mentioned  1606(B),  the  Variance/PPA
application  at page 5  states  "Decision  No.  61973  provided  : '[A]  similar
two-year   extension   shall  be   authorized   for   compliance   with   A.A.C.
R14-2-1606(B).' ID. at 9.", which quote is also found in the addendum at page 3,
in paragraph 5, as set forth in 4.1(1).
(11) See February 8, 2002 Procedural Order at page 8, lines 22-23.

                                       24                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


of the divestiture requirement would necessitate  modification of the Settlement
Agreement, the public interest requires such action.

CODE OF CONDUCT/AFFILIATED INTEREST

     We agree with Staff that the Codes of Conduct we have already approved need
additional  provisions  and  should  cover an  investor-owned  electric  utility
regulated  by the  Commission  and  all  affiliates  in  energy-related  fields,
including  affiliates  who sell  power.  The  Commission  has an interest in and
jurisdiction  over  affiliate  wholesale  purchases used to serve Arizona retail
customers. At a minimum, the Code of Conduct should address the items identified
by  Staff,  including:   arm's  length  transactions;   access  to  confidential
information;  cross-subsidization;  preferential treatment to affiliates;  joint
employment and employee transfer issues; sharing of office space, equipment, and
services;   proprietary  customer  information;   financing   arrangements  with
affiliates; and conflicts of interest.  Accordingly, we will require APS and TEP
to submit  modifications  as  suggested  by Staff to their  Codes of  Conduct as
adopted in Decision No. 62416 (April 3, 2000) and Decision No. 62767  (August 2,
2000).  Such proposed  revisions shall be filed with the Commission and provided
to any  requesting  party,  with a hearing to be held as provided in R14-2-1616.
Regarding  Panda's  request for a complaint  procedure,  we note that 1616(B)(9)
currently provides for a complaint process.

JURISDICTIONAL ISSUES

     The parties  are in  agreement  that once an asset  transfer  occurs,  APS'
acquisition of power would be wholesale  transactions  under the jurisdiction of
the FERC and that FERC has  jurisdiction  over both  profit  and  not-for-profit
RTOs. The parties agree that the Commission's  jurisdiction  over public service
corporations  is  unaffected  whether an RTO approved by FERC is  for-profit  or
not-for-profit.

MISCELLANEOUS ISSUES

     We  agree  with  Staff's  recommendation  to form an  Electric  Competition
Advisory Group. This will facilitate communication and information sharing among
Staff,  stakeholders,  and market  participants.  Additionally,  we believe that
Staff should prepare and file quarterly  reports detailing the activities of the
Advisory Group.

     We are in general agreement with the Staff  recommendations on transmission
issues,   and  we  encourage  an  industry-wide   planning  process  to  resolve
transmission  constraints.  We  believe  that both  transmission  providers  and
merchant  power  plants  should  share the  burden  and  obligation  to  resolve
Arizona's transmission  constraints.  Further, we will order APS and TEP to work
with Staff to develop a 2002 study process to resolve RMR  generation  concerns,
such  study  plan  results  to be  included  in the 2004  Biennial  Transmission
Assessment.  This would  include  studying and  analyzing the merits of existing

                                       25                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


dependence  on RMR  generation  instead  of  building  transmission  to  resolve
transmission  import  reliability  constraints  and  the  merits  of any  future
contemplated  utilization of RMR to defer transmission projects.  Until the 2004
Biennial Transmission Assessment is issued with RMR study plan results resolved,
APS and TEP shall file annual RMR study  reports with the  Commission in concert
with their January 31 annual ten year plan for review prior to implementing  any
new RMR generation strategies.

     We recognize  that APS has  asserted  that the  generation  units owned and
built by its affiliate,  PWEC,  should be acquired by APS. This issue is not the
subject of this Track A proceeding,  and there is not sufficient evidence on the
record to make a finding thereon, nor have parties had an opportunity to present
evidence on the issue.  If APS wishes to pursue  this issue,  it should file the
appropriate  application(s) by September 15, 2002. The results of the proceeding
on such  application  shall not affect  the  amount,  timing,  and manner of the
competitive   procurement  process.  This  proceeding  should  not  address  the
ratemaking treatment of these assets. In authorizing this proceeding, we are not
predetermining  the  relative  merits  of the  issues to be  addressed.  Once an
Application  is filed,  the Hearing  Division  shall promptly issue a Procedural
Order scheduling a procedural conference to discuss the scope of the proceeding.

     Although TEP made a recommendation  concerning changing the availability of
Retail Competition, this was not an issue the Commissioners agreed to be decided
in  Track  A,  and  there  is  insufficient  evidence  in the  record  to make a
determination on this issue.  Accordingly,  we will not modify the direct access
provisions of the Retail Electric Competition Rules at this time.

     Staff  recommends that the following Rules and/or  Decisions may need to be
stayed/amended:    A.A.C.   R14-2-1606(B);    A.A.C.    R14-2-1611(A);    A.A.C.
R14-2-1615(A);  Decision No. 61973 (APS Settlement); and Decision No. 62103 (TEP
Settlement).

     APS essentially argues that it does not recommend any changes,  but that if
divestiture is not allowed, it recommends a comprehensive review of all Electric
Competition Rules to determine if other rules are also implicated, and also with
other Commission decisions,  such as Decision No. 62416 which approved APS' Code
of Conduct but also prohibited APS from providing competitive generation.

     As contained in the  discussions  above, we have granted a waiver of A.A.C.
R14-2-1615(A) and found that A.A.C.  R14-2-1606(B)  and A.A.C.  R14-2-1611(A) as
applied to TEP and APS' captive  customers,  should be stayed,  and Decision No.
61973 (APS Settlement);  Decision No. 62103 (TEP Settlement); Decision No. 62416
(APS Code of Conduct) and  Decision  No.  62767 (TEP Code of Conduct)  should be

                                       26                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


modified as discussed herein.  Further, we agree with APS that there should be a
comprehensive  review of all  Electric  Competition  Rules to determine if other
rules  or  Commission   decisions  are  also  implicated  as  a  result  of  our
determinations in Track A, and we also believe that such a review and rulemaking
may be  appropriate at the  conclusion of Track B.  Accordingly,  we will direct
Staff to open a rulemaking  docket to address any required changes to rules, and
will keep  this  docket  open for  parties  to file  comments  upon  what  other
decisions/issues may need to be revisited.

                     *   *   *   *   *   *   *   *   *   *

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

                                FINDINGS OF FACT

     1. On October 18, 2001,  Arizona Public Service Company filed a Request for
a Partial Variance to A.A.C.  R14-2-1606(B) and for Approval of a Purchase Power
Agreement.

     1. By Procedural Order issued January 22, 2002, the Commission  opened this
generic  docket on electric  restructuring  (Docket No.  E-00000A-02-0051).  The
Commissioners,  through a series of letters,  requested that the parties respond
to questions about electric competition.

     2. On January 28, 2002,  Tucson  Electric Power Company filed a Request for
Variance (Docket No. E-01933A-02-0069).

     3. Intervention was granted to numerous parties.

     4. On March 19, 2002,  Panda Gila River,  L.P. filed a Request for Order to
Show Cause.

     5. On March 22, 2002,  Staff filed its Staff Report in the generic  docket,
summarizing  the parties'  answers to the  Commissioners'  questions  and making
recommendations about electric restructuring.

     6. On April 22,  2002,  APS filed a Motion for  Determination  of Threshold
Issue, which indicated that APS intended to submit its "30-day letter" regarding
the  asset  transfer  on  approximately  August  1,  2002,  irrespective  of the
Commission's  resolution of the  Variance/PPA  request or the proceedings in the
generic electric docket.

     7. On April 25, 2002, the  Commission  held a Special Open Meeting at which
the Commission stayed the APS Variance/PPA  hearing,  denied Panda's Request for
an OSC, and directed that certain issues be addressed in the Generic Docket.

     8. By  Procedural  Order  issued on May 2, 2002,  a hearing  was set on the
issues  identified  by the  Commission,  including:  the  transfer of assets and
associated market power issues; Code of Conduct;  Affiliated Interest Rules; and
jurisdictional  issues raised by Chairman Mundell,  collectively  referred to as
"Track A" issues. Track B, Competitive Procurement, was also established.

                                       27                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     9. The May 2, 2002  Procedural  Order also put the  parties and the general
public on notice that the Commission may initiate rulemaking(s), or, pursuant to
A.R.S.  ss.  40-252,  after  hearing,  enter such  orders as may be  appropriate
relating to electric  restructuring,  including  variances from Commission rules
and/or Decisions.

     10.   Notice  of  the  hearing  was  published  in  newspapers  of  general
circulation  in the APS and TEP service areas and  statewide  between May 26 and
June 6, 2002.

     11. The hearing was held as scheduled. No members of the public appeared to
make public  comment.  Witnesses  testified on behalf of APS, TEP,  AUIA,  AECC,
RUCO, Panda, Harquahala, Sempra/SWPG, Reliant, AES NE/Strategic, and Staff.

     12. By Procedural Order issued on July 10, 2002, TEP's application to amend
its market generation credit was removed from this consolidated proceeding.

     13. On July 10, 2002, the parties filed briefs.

     14. The  Commission  has an interest  in and  jurisdiction  over  affiliate
wholesale purchases used to serve Arizona retail customers.

     15. Market power could unfairly impact retail prices after  divestiture and
after the termination of existing price caps.

     16. The wholesale  market  applicable to Arizona is poorly  structured  and
susceptible to possible malfunction and manipulation.

     17. APS has market power in its Phoenix Valley and Yuma load pockets.

     18. TEP has market power in its Tucson load pocket.

     19. APS and TEP have market power today in their Phoenix  Valley,  Yuma and
Tucson load pockets,  respectively.  Full divestiture of their generating assets
would limit the  jurisdictional  ability of this  Commission to ensure that such
market power does not and will not exist in the future.  Thus,  we find that the
provisions of A.A.C. R14-2-1615(A) requiring full divestiture are, at this time,
not in the public interest.

     20. APS and TEP's market power cannot be mitigated  solely through reliance
on competitive procurement at this time.

     21.  Our  findings  about  market  power  are  intended  to be used for the
purposes  of  this  proceeding  only  as  they  relate  to the  issue  of  asset
divestiture.  We are not making any finding regarding any FERC  determination of
market power, and our findings about market power are not intended to be used in
any FERC proceeding or in another forum.

                                       28                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     22. Asset transfers  should not be permitted unless the transfer will serve
the public interest.

     23. The waiver of the asset transfer  requirements of A.A.C.  R14-2-1615(A)
serves the public  interest and  recognizes  the current  state of the wholesale
market in Arizona.

     24.  Absent  conditions  in place to  address  market  structure  concerns,
generation  asset transfers as contemplated  in prior  Commission  Decisions and
A.A.C. R14-2-1616(A) are not in the public interest.

     25. The wholesale market is not currently workably competitive;  therefore,
reliance  on  that  market  without  recognizing  its  current  uncertainty  and
limitations will not result in just and reasonable rates for captive customers.

     26. The FERC has not yet defined or implemented an effective regulatory and
oversight approach for competitive energy markets,  so assurance is lacking that
wholesale electricity prices are just and reasonable.

     27. In order to  transfer  assets,  a utility  should  file a market  power
study, a market mitigation plan, and revisions to its Code of Conduct.

     28. At the time that the Commission approved the Electric Competition Rules
and the Settlement  Agreements,  the parties thought that retail competition was
imminent and that the wholesale market would be competitive;  that a significant
number of retail  competitors  would be entering the market;  and that customers
would leave the incumbent utility and purchase power from the new competitors.

     29. Contrary to the parties'  expectations and  assumptions,  the wholesale
market  has  faltered,  the new  competitors  have  failed to  materialize,  and
incumbent utilities have not lost customers in any meaningful number.

     30. The  competitive  conditions  that  formed the basis of the  Settlement
Agreement  and the adoption of the Retail  Electric  Competition  Rules have not
occurred as expected.

     31.  Competition and its benefits have not materialized for Arizona's small
retail customers.

     32. In its  Variance/PPA  application,  APS concluded that adherence to the
competitive  bidding  requirements  of the Electric  Competition  Rules will not
produce the intended  result of reliable  retail  electric  service for Standard
Offer customers at reasonable rates.

     33. The Codes of Conduct  that we have  already  approved  need  additional
provisions and should cover an investor-owned  electric utility regulated by the
Commission and all affiliates in energy-related fields, including affiliates who
sell power at wholesale.

                                       29                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     34. APS and TEP shall submit modifications as recommended by Staff to their
Codes of Conduct as adopted in Decision  No.  62416 (April 3, 2000) and Decision
No. 62767  (August 2, 2000).  Such  proposed  revisions  shall be filed with the
Commission  and provided to any requesting  party,  with a hearing to be held as
provided in A.A.C. R14-2-1616.

     35. A.A.C. R14-2-1615(A) should be waived and Decision Nos. 61973 and 62103
should be modified as directed herein.

     36. A.A.C. R14-2-1606(B) should be stayed and Decision Nos. 61973 and 62103
should be modified to stay the  requirement  that 100 percent of power purchased
for Standard Offer Service shall be acquired from the competitive  market,  with
at least 50 percent  through a  competitive  bid  process;  but  effective  upon
implementation  of the  outcome  of  Track  B,  we will  require  APS and TEP to
acquire,  at a minimum,  any required power that cannot be produced from its own
existing assets, through the competitive procurement process as developed in the
Track B proceeding. The amount of power, the timing, and the form of procurement
shall be determined in the Track B proceeding.

     37. We believe  that  requiring  some  power to be  purchased  through  the
competitive  procurement  process developed in Track B will encourage a phase-in
to  competition,  encourage the  development  of a robust  wholesale  market for
generation,  and  obtain  some of the  benefits  of the new  Arizona  generation
resources,  while at the same time protecting ratepayers.  We direct the parties
to continue their efforts in Track B of this proceeding to develop a competitive
solicitation  process  that can begin by March 1, 2003.  For the purposes of the
competitive procurement process, the pwec generating assets that APS may seek to
acquire from pwec shall not be counted as aps assets in determining  the amount,
timing, and manner of the competitive procurement.

     38. Staff's  recommendation to form an Electric  Competition Advisory Group
is adopted, and Staff should prepare and file quarterly reports during the first
two years  following  the  effective  date of this  decision,(12)  detailing the
activities  of the Advisory  Group,  with the first such report filed in January
2003 and detailing activities conducted during the third quarter of this year.

     39. Both transmission  providers and merchant power plants should share the
burden and obligation to resolve Arizona's transmission constraints.

     40. APS and TEP should  work with Staff to develop a 2002 study  process to
resolve RMR generation  concerns,  such study plan results to be included in the
2004 Biennial Transmission Assessment.  This includes studying and analyzing the
merits of existing dependence on RMR generation instead of building transmission

----------
(12) After two years, the reports should be filed on a semi-annual basis.

                                       30                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


to resolve  transmission  import  reliability  constraints and the merits of any
future contemplated utilization of RMR to defer transmission projects.

     41.  Until the 2004  Biennial  Transmission  Assessment  is issued with RMR
study plan  results  resolved,  APS and TEP shall file annual RMR study  reports
with the  Commission  in concert with their  January 31 annual ten year plan for
review prior to implementing any new RMR generation strategies.

     42.  Nothing in the Retail  Electric  Competition  Rules  abrogates APS and
TEP's  responsibility to provide reliable and reasonably priced service to their
customers.

     43. The issue of APS acquiring PWEC's  generation assets is not the subject
of this Track A proceeding,  and there is not sufficient  evidence on the record
to make a finding,  nor have parties had an opportunity  to present  evidence on
the issue.  If APS wishes to pursue this issue,  it should file the  appropriate
application(s)  by September  15, 2002.  The results of the  proceeding  on such
application shall not affect the amount,  timing,  and manner of the competitive
procurement process. This proceeding should not address the ratemaking treatment
of these assets. In authorizing this proceeding,  we are not  predetermining the
relative merits of the issues to be addressed. Once an Application is filed, the
Hearing Division shall promptly issue a Procedural Order scheduling a procedural
conference to discuss the scope of the proceeding.

     44. The continued  availability  of retail direct access is not an issue in
this  proceeding  and there is  insufficient  evidence  in the  record to make a
determination on this issue.

     45.  The  parties  agree that the  Commission's  jurisdiction  over  public
service corporations is unaffected whether an RTO approved by FERC is for-profit
or not-for profit.

     46. It is incumbent upon all parties to work together in such a manner that
will  allow  competition  and its  expected  benefits  to  develop  in  whatever
timeframe is needed to make it  successful,  while ensuring that the citizens of
Arizona have safe, reliable and fairly priced electric power.

                               CONCLUSIONS OF LAW

     1. The Commission has jurisdiction over these proceedings.

     2. Notice of these proceedings was given as required by law.

     3.  Pursuant  to  Article  15,  ss.  3 of  the  Arizona  Constitution,  the
Commission has full power to make and enforce reasonable rules, regulations, and
orders for convenience,  comfort,  and safety and the preservation of the health
of the employees and patrons of public service corporations.

     4. Pursuant to A.R.S. ss. 40-361,  every public service  corporation  shall
furnish and maintain such service,  equipment and facilities as will promote the

                                       31                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


safety,  health,  comfort and  convenience  of its  patrons,  employees  and the
public, and as will be in all respects adequate, efficient, and reasonable.

     5. Pursuant to  A.R.S.ss.ss.40-321  and 40-331,  the  Commission  has broad
authority to regulate the service and facilities of public service  corporations
in order to protect the public.

     6. The evidence  presented in this  proceeding  demonstrates  that, at this
time, pursuant to Article 15, ss.3 of the Arizona Constitution and A.R.S. ss.ss.
40-361,  -321, and -331, the public interest requires the suspension of the time
deadline requirements of A.A.C. R14-2-1606(B), as amended by Decision Nos. 61973
and 62103, pending a Decision in these dockets on the Track B issues.

     7. The evidence  presented in this  proceeding  demonstrates  that, at this
time,   pursuant   to  Article   15,ss.3  of  the   Arizona   Constitution   and
A.R.S.ss.ss.40-361,  -321, and -331, the public interest  requires the waiver of
A.A.C. R14-2-1615(A),  as amended by Decision Nos. 61973 and 62103, and further,
to prohibit the transfer of generation assets.

     8. The evidence  presented in this  proceeding  demonstrates  that, at this
time,   pursuant   to  Article   15,ss.3  of  the   Arizona   Constitution   and
A.R.S.ss.ss.40-361  the  public  interest  requires  the  suspension  of  A.A.C.
R14-2-1611(A)'s applicability to APS and TEP's captive customers.

     9. The Codes of Conduct as adopted in Decision  No.  62416  (April 3, 2000)
and Decision No. 62767  (August 2, 2000) must be revised in order to protect the
public interest.

     10. A rulemaking proceeding to review the Retail Electric Competition Rules
in light of our decisions  herein and to address issues resolved in Track B, and
to amend A.A.C. R14-2-1615(A),  A.A.C.  R14-2-1606(B),  and A.A.C. R14-2-1611(A)
should be initiated immediately.

     11. The  Commission's  jurisdiction  over public  service  corporations  is
unaffected  by  whether  such  public  service  corporations  participate  in  a
for-profit or not-for profit RTO.

     12. Our findings about market power are intended to be used for purposes of
this  proceeding only as they relate to the issue of asset  divestiture.  We are
not making any finding regarding any FERC determination of market power, and our
findings  about market power are not intended to be used in any FERC  proceeding
or in another forum.

                                      ORDER

     IT IS THEREFORE  ORDERED  that Tucson  Electric  Power  Company and Arizona
Public Service  Company are granted  waivers of A.A.C.  R14-2-1615(A),  Decision
Nos.  61973 and 62103 are modified as discussed  herein,  and both companies are
hereby ordered to cancel any plans to divest interests in any generating assets.

                                       32                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


     IT IS FURTHER ORDERED that A.A.C. R14-2-1606(B) is stayed and Decision Nos.
61973 and 62103 are modified to stay the  requirement  that 100 percent of power
purchased for Standard  Offer  Service  shall be acquired  from the  competitive
market, with at least 50 percent through a competitive bid process.

     IT IS FURTHER ORDERED that A.A.C. R14-2-1611(A)'s  applicability to APS and
TEP's captive customers is stayed.

     IT IS FURTHER ORDERED that upon  implementation  of the outcome of Track B,
APS shall acquire, at a minimum, any required power that cannot be produced from
its  own  existing  assets,  through  the  competitive  procurement  process  as
developed in the Track B proceeding.  The minimum  amount of power,  the timing,
and the form of procurement shall be determined in the Track B proceeding.

     IT IS FURTHER ORDERED that upon  implementation  of the outcome of Track B,
TEP shall acquire, at a minimum, any required power that cannot be produced from
its  own  existing  assets,  through  the  competitive  procurement  process  as
developed in the Track B proceeding.  The minimum  amount of power,  the timing,
and the form of procurement shall determined in the Track B proceeding.

     IT IS FURTHER  ORDERED  that the  parties are  directed  to continue  their
efforts  in Track B of this  proceeding  to develop a  competitive  solicitation
process  that can begin by March 1, 2003.  For the  purposes of the  competitive
solicitation  process,  the PWEC generating  assets that APS may seek to acquire
from PWEC, shall not be counted as APS assets in determining the amount,  timing
and manner of the competitive solicitation.

     IT IS FURTHER  ORDERED  that Staff  shall open a  rulemaking  to review the
Retail  Electric  Competition  Rules  in light of our  decisions  herein  and to
address issues  resolved in Track B, and to amend A.A.C.  R14-2-1615(A),  A.A.C.
R14-2-1606(B), and A.A.C. R14-2-1611(A).

     IT IS FURTHER  ORDERED  that APS and TEP shall work with Staff to develop a
plan as discussed herein to resolve reliability  must-run  generation  concerns.
Staff shall  include  results of such a plan in the 2004  Biennial  Transmission
Assessment.

     IT IS  FURTHER  ORDERED  that APS and TEP  shall  file  annual  reliability
must-run  generation  study  reports with the  Commission  in concert with their
January  31 ten  year  plan,  for  review  prior  to  implementing  any  new RMR
generation strategies until the 2004 Biennial Transmission Assessment is issued.

     IT IS FURTHER  ORDERED  that if APS wishes to pursue the issue of acquiring
PWEC's  generation  assets,  it shall  file the  appropriate  application(s)  by

                                       33                   DECISION NO. _______
<PAGE>
                                              DOCKET NO. E-00000A-02-0051 ET AL.


September 15, 2002. The results of the proceeding on such application  shall not
affect the amount,  timing, and manner of the competitive  procurement  process.
This proceeding should not address the ratemaking  treatment of these assets. In
authorizing this proceeding,  we are not  predetermining  the relative merits of
the issues to be addressed.  Once an Application is filed,  the Hearing Division
shall promptly issue a Procedural  Order  scheduling a procedural  conference to
discuss the scope of the proceeding.

     IT IS  FURTHER  ORDERED  that APS and TEP  shall  submit  modifications  as
recommended  by Staff to their Codes of Conduct as adopted in Decision No. 62416
(April 3, 2000) and Decision No. 62767 (August 2, 2000). Such proposed revisions
shall be filed with the Commission and provided to any requesting party,  within
60 days of the effective date of this Decision.

     IT IS FURTHER ORDERED that an Electric Competition Advisory Group is hereby
formed in order to facilitate communication and information sharing among Staff,
stakeholders, and market participants.

     IT IS FURTHER  ORDERED that Staff shall prepare and file reports  detailing
the activities of the Advisory Group, as directed herein.

     IT IS  FURTHER  ORDERED  that  APS and TEP  shall  comply  with  all of the
findings and orders discussed herein.

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

                 BY ORDER OF THE ARIZONA CORPORATION COMMISSION.


--------------------------------------------------------------------------------
CHAIRMAN                         COMMISSIONER                       COMMISSIONER


                                        IN WITNESS WHEREOF,  I, BRIAN C. McNEIL,
                                        Executive   Secretary   of  the  Arizona
                                        Corporation  Commission,  have  hereunto
                                        set my hand and caused the official seal
                                        of the  Commission  to be affixed at the
                                        Capitol,  in the City of  Phoenix,  this
                                        day of _________, 2002.



                                        --------------------------
                                        BRIAN C. McNEIL
                                        EXECUTIVE SECRETARY



DISSENT ____________
LAF

                                       34                   DECISION NO. _______
<PAGE>
SERVICE LIST FOR:                            GENERIC PROCEEDINGS, ARIZONA PUBLIC
                                             SERVICE COMPANY and TUCSON ELECTRIC
                                             POWER COMPANY

DOCKET NOS.:                                 E-00000A-02-0051, E-01345A-01-0822,
                                             E-00000A-01-0630, E-01933A-02-0069

<TABLE>
<S>                                                    <C>
Lindy Funkhouser                                       COLUMBUS ELECTRIC COOPERATIVE, INC.
Scott S. Wakefield                                     P.O. Box 631
RUCO                                                   Deming, New Mexico 88031
1110 W. Washington, Suite 220
Phoenix, Arizona 85007                                 CONTINENTAL DIVIDE ELECTRIC COOPERATIVE
                                                       P.O. Box 1087
Michael A. Curtis                                      Grants, New Mexico 87020
William P. Sullivan
Paul R. Michaud                                        DIXIE ESCALANTE RURAL ELECTRIC ASSOCIATION
MARTINEZ & CURTIS, P.C.                                CR Box 95
2712 North 7th Street                                  Beryl, Utah 84714
Phoenix, Arizona 85006
Attorneys for Arizona Municipal Power                  GARKANE POWER ASSOCIATION, INC.
Users' Association, Mohave Electric                    P.O. Box 790
Cooperative, Inc., Navopache Electric                  Richfield, Utah 84701
Cooperative, Inc., Reliant Resources,
Inc. & Primesouth, Inc.                                ARIZONA DEPT OF COMMERCE
                                                       ENERGY OFFICE
Walter W. Meek, President                              3800 North Central Avenue, 12th Floor
ARIZONA UTILITY INVESTORS ASSOCIATION                  Phoenix, Arizona 85012
2100 N. Central Avenue, Suite 210
Phoenix, Arizona 85004                                 ARIZONA COMMUNITY ACTION ASSOC.
                                                       2627 N. 3rd Street, Suite 2
Rick Gilliam                                           Phoenix, Arizona 85004
Eric C. Guidry
LAND AND WATER FUND OF THE ROCKIES                     TUCSON ELECTRIC POWER CO.
ENERGY PROJECT                                         Legal Dept - DB203
2260 Baseline Road, Suite 200                          220 W 6th Street
Boulder, Colorado 80302                                P.O. Box 711
                                                       Tucson, Arizona 85702-0711
Terry Frothun
ARIZONA STATE AFL-CIO                                  A.B. Baardson
5818 N. 7th Street, Suite 200                          NORDIC POWER
Phoenix, Arizona 85014-5811                            6464 N. Desert Breeze Ct.
                                                       Tucson, Arizona 85750-0846
Norman J. Furuta
DEPARTMENT OF THE NAVY                                 Jessica Youle
900 Commodore Drive, Building 107                      PAB300
San Bruno, California 94066-5006                       SALT RIVER PROJECT
                                                       P.O. Box 52025
Barbara S. Bush                                        Phoenix, Arizona 85072-2025
COALITION FOR RESPONSIBLE ENERGY EDUCATION
315 West Riviera Drive                                 Joe Eichelberger
Tempe, Arizona 85252                                   MAGMA COPPER COMPANY
                                                       P.O. Box 37
Sam Defraw (Attn. Code 00I)                            Superior, Arizona 85273
Rate Intervention Division
NAVAL FACILITIES ENGINEERING COMMAND                   Craig Marks
Building 212, 4th Floor                                CITIZENS UTILITIES COMPANY
901 M Street, SE                                       2901 N. Central Avenue, Suite 1660
Washington, DC  20374-5018                             Phoenix, Arizona 85012-2736

Rick Lavis                                             Barry Huddleston
ARIZONA COTTON GROWERS ASSOCIATION                     DESTEC ENERGY
4139 East Broadway Road                                P.O. Box 4411
Phoenix, Arizona 85040                                 Houston, Texas 77210-4411

Steve Brittle                                          Steve Montgomery
DON'T WASTE ARIZONA, INC.                              JOHNSON CONTROLS
6205 South 12th Street                                 2032 West 4th Street
Phoenix, Arizona 85040                                 Tempe, Arizona 85281
</TABLE>

                                       35                   DECISION NO. _______
<PAGE>
<TABLE>
<S>                                                    <C>
Terry Ross                                             Michael Grant
CENTER FOR ENERGY AND                                  GALLAGHER & KENNEDY
ECONOMIC DEVELOPMENT                                   2575 East Camelback Road
P.O. Box 288                                           Phoenix, Arizona 85016-9225
Franktown, Colorado 80116-0288                         Attorneys for AEPCO, Graham County Electric
                                                       Cooperative, and Duncan Valley Electric
Clara Peterson                                         Cooperative.
AARP
HC 31, Box 977                                         Vinnie Hunt
Happy Jack, Arizona 86024                              CITY OF TUCSON
                                                       Department of Operations
Larry McGraw                                           4004 S. Park Avenue, Building #2
USDA-RUS                                               Tucson, Arizona 85714
6266 Weeping Willow
Rio Rancho, New Mexico 87124                           Ryle J. Carl III
                                                       INTERNATION BROTHERHOOD OF
Jim Driscoll                                           ELECTRICAL WORKERS, L.U. #1116
ARIZONA CITIZEN ACTION                                 750 S. Tucson Blvd.
5160 E. Bellevue Street, Apt. 101                      Tucson, Arizona 85716-5698
Tucson, AZ  85712-4828
                                                       Carl Dabelstein
William Baker                                          CITIZENS COMMUNICATIONS
ELECTRICAL DISTRICT NO. 6                              2901 N. Central Ave., Suite 1660
7310 N. 16th Street, Suite 320                         Phoenix, Arizona 85012
Phoenix, Arizona 85020
                                                       William J. Murphy
Robert Julian                                          CITY OF PHOENIX
PPG                                                    2631 S. 22nd Avenue
1500 Merrell Lane                                      Phoenix, Arizona 85009
Belgrade, Montana 59714
                                                       Russell E. Jones
C. Webb Crockett                                       WATERFALL ECONOMIDIS CALDWELL HANSHAW &
Jay L. Shapiro                                         VILLAMANA, P.C.
FENNEMORE CRAIG, PC                                    5210 E. Williams Circle, Suite 800
3003 N. Central Avenue, Suite 2600                     Tucson, Arizona 85711
Phoenix, Arizona 85012-2913                            Attorneys for Trico Electric Cooperative, Inc.
Attorneys for Panda Gila River, L.P.
                                                       Christopher Hitchcock
Robert S. Lynch                                        HITCHCOCK & HICKS
340 E. Palm Lane, Suite 140                            P.O. Box 87
Phoenix, Arizona 85004-4529                            Bisbee, Arizona 85603-0087
Attorney for Arizona Transmission Dependent            Attorney for Sulphur Springs Valley
  Utility Group                                                 Electric Cooperative, Inc.

K.R. Saline                                            Andrew Bettwy
K.R. SALINE & ASSOCIATES                               Debra Jacobson
Consulting Engineers                                   SOUTHWEST GAS CORPORATION
160 N. Pasadena, Suite 101                             5241 Spring Mountain Road
Mesa, Arizona 85201-6764                               Las Vegas, Nevada 89150-0001

Carl Robert Aron                                       Barbara R. Goldberg
Executive Vice President and COO                       OFFICE OF THE CITY ATTORNEY
ITRON, INC.                                            3939 Civic Center Blvd.
2818 N. Sullivan Road                                  Scottsdale, Arizona 85251
Spokane, Washington 99216
                                                       Bradford A. Borman
Douglas Nelson                                         PACIFICORP
DOUGLAS C. NELSON PC                                   201 S. Main, Suite 2000
7000 N. 16th Street, Suite 120-307                     Salt Lake City, Utah 84140
Phoenix, Arizona 85020-5547
Attorney for Calpine Power Services                    Timothy M. Hogan
                                                       ARIZONA CENTER FOR LAW
Lawrence V. Robertson Jr.                                IN THE PUBLIC INTEREST
MUNGER CHADWICK, PLC                                   202 E. McDowell Rd., Suite 153
333 North Wilmot, Suite 300                            Phoenix, Arizona 85004
Tucson, Arizona 85711-2634
Attorney for PG&E Energy Services Corp                 Marcia Weeks
                                                       18970 N. 116th Lane
Albert Sterman                                         Surprise, Arizona 85374
ARIZONA CONSUMERS COUNCIL
2849 East 8th Street
Tucson, Arizona 85716
</TABLE>

                                       36                   DECISION NO. _______
<PAGE>
<TABLE>
<S>                                                    <C>
John T. Travers                                        Jay I. Moyes
William H. Nau                                         MOYES STOREY
272 Market Square, Suite 2724                          3003 N. Central Ave., Suite 1250
Lake Forest, Illinois 60045                            Phoenix, Arizona 85012
                                                       Attorneys for PPL Southwest Generation
Timothy Michael Toy                                    Holdings, LLC; PPL EnergyPlus, LLC and PPL
WINTHROP, STIMSON, PUTNAM & ROBERTS                    Sundance Energy, LLC
One Battery Park Plaza
New York, New York 10004-1490                          Stephen L. Teichler
                                                       Stephanie A. Conaghan
Raymond S. Heyman                                      DUANE MORRIS & HECKSCHER, LLP
Michael W. Patten                                      1667 K Street NW, Suite 700
ROSHKA HEYMAN & DEWULF, PLC                            Washington, DC  20006
400 E. Van Buren, Suite 800
Phoenix, Arizona 85004                                 Kathy T. Puckett
Attorneys for Tucson Electric Power Co.                SHELL OIL COMPANY
                                                       200 N. Dairy Ashford
Chuck Miessner                                         Houston, Texas  77079
NEV SOUTHWEST LLC
P.O. Box 711, Mailstop-DA308                           Andrew N. Chau
Tucson, Arizona 85702-0711                             SHELL ENERGY SERVICES CO., LLC
                                                       1221 Lamar, Suite 1000
Billie Dean                                            Houston, Texas 77010
AVIDD
P O Box 97                                             Peter Q. Nyce, Jr.
Marana, Arizona  85652-0987                            DEPARTMENT OF THE ARMY
                                                       JALS-RS Suite 713
Raymond B. Wuslich                                     901 N. Stuart Street
WINSTON & STRAWN                                       Arlington, Virginia 22203-1837
1400 L Street, NW
Washington, DC  20005                                  Michelle Ahlmer
                                                       ARIZONA RETAILERS ASSOCIATION
Steven C. Gross                                        224 W. 2nd Street
PORTER SIMON                                           Mesa, Arizona 85201-6504
40200 Truckee Airport Road
Truckee, California  96161-3307                        Dan Neidlinger
Attorneys for M-S-R Public Power Agency                NEIDLINGER & ASSOCIATES
                                                       3020 N. 17th Drive
Donald R. Allen                                        Phoenix, Arizona 85015
John P. Coyle
DUNCAN & ALLEN                                         Chuck Garcia
1575 Eye Street, N.W.,, Suite 300                      PNM, Law Department
Washington, DC  20005                                  Alvardo Square, MS 0806
                                                       Albuquerque, New Mexico  87158
Ward Camp
PHASER ADVANCED METERING SERVICES                      Sanford J. Asman
400 Gold SW, Suite 1200                                570 Vinington Court
Albuquerque, New Mexico  87102                         Dunwoody, Georgia  30350-5710

Theresa Drake                                          Patricia Cooper
IDAHO POWER COMPANY                                    AEPCO/SSWEPCO
P.O. Box 70                                            P.O. box 670
Boise, Idaho  83707                                    Benson, Arizona 85602

Libby Brydolf                                          Steve Segal
CALIFORNIA ENERGY MARKETS NEWSLETTER                   LEBOEUF, LAMB, GREENE, & MACRAE
2419 Bancroft Street                                   633 17th Street, Suite 2000
San Diego, California 92104                            Denver, Colorado  80202-3620

Paul W. Taylor                                         Holly E. Chastain
R W BECK                                               SCHLUMBERGER RESOURCE
14635 N. Kierland Blvd., Suite 130                       MANAGEMENT SERVICES, INC.
Scottsdale, Arizona 85254-2769                         5430 Metric Place
                                                       Norcross, Georgia  30092-2550
James P. Barlett
5333 N. 7th Street, Suite B-215                        Leslie Lawner
Phoenix, Arizona 85014                                 ENRON CORP
Attorney for Arizona Power Authority                   712 North Lea
                                                       Roswell, New Mexico  88201

                                                       Alan Watts
                                                       Southern California Public Power Agency
                                                       529 Hilda Court
                                                       Anaheim, California  92806
</TABLE>

                                       37                   DECISION NO. _______
<PAGE>
<TABLE>
<S>                                                    <C>
Frederick M. Bloom                                     Steven Lavigne
Commonwealth Energy Corporation                        DUKE ENERGY
15991 Red Hill Avenue, Suite 201                       4 Triad Center, Suite 1000
Tustin, California  92780                              Salt Lake City, Utah 84180
                                                       Dennis L. Delaney
Margaret McConnell                                     K.R. SALINE & ASSOC.
Maricopa Community Colleges                            160 N. Pasadena, Suite 101
2411 W. 14th Street                                    Mesa, Arizona 85201-6764
Tempe, Arizona 85281-6942
                                                       Kevin C. Higgins
Brian Soth                                             ENERGY STRATEGIES, LLC
FIRSTPOINT SERVICES, INC.                              30 Market Street, Suite 200
1001 S.W. 5th Ave, Suite 500                           Salt Lake City, Utah 84101
Portland, Oregon 92704
                                                       Michael L. Kurtz
Jay Kaprosy                                            BORHM KURTZ & LOWRY
PHOENIX CHAMBER OF COMMERCE                            36 E. Seventh Street, Suite 2110
201 N. Central Ave., 27th Floor                        Cincinnati, Ohio 45202
Phoenix, Arizona 85073
                                                       David Berry
Kevin McSpadden                                        P.O. Box 1064
MILBANK, TWEED, HADLEY AND                             Scottsdale, Arizona 85252
  MCCLOY, LLP
601 S. Figueroa, 30th Floor                            William P. Inman
Los Angeles, California 90017                          Dept. of Revenue
                                                       1600 W. Monroe, Room 911
M.C. Arendes, Jr.                                      Phoenix, Arizona 85007
C3 COMMUNICATIONS, INC.
2600 Via Fortuna, Suite 500                            Robert Baltes
Austin, Texas 78746                                    ARIZONA COGENERATION ASSOC.
                                                       7250 N. 16th Street, Suite 102
Patrick J. Sanderson                                   Phoenix, Arizona 85020-5270
ARIZONA INDEPENDENT SCHEDULING
  ADMINISTRATOR ASSOCIATION                            Jana Van Ness
P.O. Box 6277                                          APS
Phoenix, Arizona 85005-6277                            Mail Station 9905
                                                       P.O. Box 53999
Roger K. Ferland                                       Phoenix, Arizona 85072-3999
QUARLES & BRADY STREICH LANG, L.L.P.
Renaissance One                                        David Couture
Two North Central Avenue                               TEP
Phoenix, Arizona 85004-2391                            4350 E. Irvington Road
                                                       Tucson, Arizona 85714
Charles T. Stevens
Arizonans for Electric Choice & Competition            Kelly Barr
245 W. Roosevelt                                       Jana Brandt
Phoenix, Arizona 85003                                 SRP
                                                       Mail Station PAB211
Mark Sirois                                            P.O. Box 52025
Arizona Community Action Assoc.                        Phoenix, Arizona 85072-2025
2627 N. Third Street, Suite 2
Phoenix, Arizona 85004                                 Randall H. Warner
                                                       JONES SKELTON & HOCHULI PLC
Jeffrey Guldner                                        2901 N. Central Avenue, Suite 800
Thomas L. Mumaw                                        Phoenix, Arizona 85012
SNELL & WILMER
400 E. Van Buren,                                      John A. LaSota, Jr.
One Arizona Center                                     MILLER LASOTA & PETERS, PLC
Phoenix, Arizona 85004-0001                            5225 N. Central Ave., Suite 235
                                                       Phoenix, Arizona 85012
Steven J. Duffy
RIDGE & ISAACSON PC                                    Peter W. Frost
3101 N. Central Avenue, Suite 740                      Conoco Gas and Power Marketing
Phoenix, Arizona 85012                                 600 N. Dairy Ashford, CH-1068
                                                       Houston, Texas 77079
Greg Patterson
5432 E. Avalon                                         Joan Walker-Ratliff
Phoenix, Arizona 85018                                 Conoco Gas and Power Marketing
                                                       1000 S. Pine, 125-4 ST UPO
John Wallace                                           Ponca City, Oklahoma 74602
Grand Canyon State Electric Co-op
120 N. 44th Street, Suite 100
Phoenix, Arizona 85034-1822
</TABLE>

                                       38                   DECISION NO. _______
<PAGE>
<TABLE>
<S>                                                    <C>
Vicki G. Sandler                                       Larry F. Eisenstat
C/o Linda Spell                                        Frederick D. Ochsenhirt
APS Energy Services                                    Michael R. Engleman
P.O. Box 53901                                         DICKSTEIN SHAPIRO MORIN & OSHINSKY LLP
Mail Station 8103                                      2101 L Street, NW
Phoenix, Arizona 85072-3901                            Washington, DC 20037-1526

Lori Glover                                            David A. Crabtree
STIRLING ENERGY SYSTEMS                                Dierdre A. Brown
2920 E. Camelback Rd., Suite 150                       TECO POWER SERVICES CORP.
Phoenix, Arizona 85016                                 P.O. Box 111
                                                       Tampa, Florida 33602
Jeff Schlegel
SWEEP                                                  Michael A. Trentel
1167 Samalayuca Drive                                  Patrick W. Burnett
Tucson, Arizona 85704-3224                             PANDA ENERGY INTERNATIONAL INC
                                                       4100 Spring Valley, Suite 1010
Howard Geller                                          Dallas, Texas 75244
SWEEP
2260 Baseline Rd., Suite 200                           Theodore E. Roberts
Boulder, Colorado 80302                                SEMPRA ENERGY RESOURCES
                                                       101 Ash Street, HQ 12-B
Mary-Ellen Kane                                        San Diego, California 92101-3017
ACAA
2627 N. 3rd Street, Suite Two                          Jesse Dillon
Phoenix, Arizona 85004                                 PPL Services Corp.
                                                       2 N. Ninth Street
Aaron Thomas                                           Allentown, Pennsylvania 18101-1179
AES NewEnergy
350 S. Grand Avenue, Suite 2950                        Gary A. Dodge
Los Angeles, California 90071                          HATCH, JAMES & DODGE
                                                       10 W. Broadway, Suite 400
Theresa Mead                                           Salt Lake City, Utah 84101
AES NewEnergy
P.O. Box 65447                                         Christopher Kempley, Chief Counsel
Tucson, Arizona 85728                                  ARIZONA CORPORATION COMMISSION
                                                       1200 W. Washington Street
Peter Van Haren                                        Phoenix, Arizona 85007
CITY OF PHOENIX
Attn: Jesse W. Sears                                   Ernest G. Johnson, Utilities Division
200 W. Washington Street, Suite 1300                   ARIZONA CORPORATION COMMISSION
Phoenix, Arizona 85003-1611                            1200 West Washington Street
                                                       Phoenix, Arizona 85007
Robert Annan
ARIZONA CLEAN ENERGY INDUSTRIES ALLIANCE
6605 E. Evening Glow Drive
Scottsdale, Arizona 85262

Curtis L. Kebler
RELIANT RESOURCES, INC.
8996 Etiwanda Avenue
Rancho Cucamonga, California 91739

Philip Key
RENEWABLE ENERGY LEADERSHIP GROUP
10631 E. Autumn Sage Drive
Scottsdale, Arizona 85259

Paul Bullis
OFFICE OF THE ATTORNEY GENERAL
1275 W. Washington Street
Phoenix, Arizona 85007

Laurie Woodall
OFFICE OF THE ATTORNEY GENERAL
15 S. 15th Avenue
Phoenix, Arizona 85007

Donna M. Bronski
CITY OF SCOTTSDALE
3939 N. Drinkwater Blvd
Scottsdale, Arizona 85251
</TABLE>

                                       39                   DECISION NO. _______

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>4
<FILENAME>ex99-2.txt
<DESCRIPTION>ARIZONA PUBLIC SERVICE COMPANY APPLICATION
<TEXT>
                                                                    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;

----------
(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.

----------
(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

----------
(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

----------
(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

----------
(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

----------
(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.

----------
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)

----------
(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.

----------
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

----------
(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

----------
(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%

</TEXT>
</DOCUMENT>
</SUBMISSION>
