EXHIBIT 99.8

Last Updated 10/24/2003

Pinnacle West Capital Corporation
Earnings Variance Explanations
For Periods Ended September 30, 2003 and 2002

     This discussion explains the changes in our consolidated earnings for the three, nine and twelve month periods ended September 30, 2003 and 2002. Condensed Consolidated Statements of Income for the three, nine and twelve months ended September 30, 2003 and 2002 follow this discussion. We will file our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 on or before November 14, 2003. We suggest this section be read in connection with the Pinnacle West Capital Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003 and June 30, 2003. We have reclassified certain prior period amounts to conform to our current period presentation. Additional operating and financial statistics and a glossary of terms are available on our website (www.pinnaclewest.com).

Earnings Contributions By Subsidiary And Business Segment

     We have three principal business segments (determined by products, services and the regulatory environment):

	•		our regulated electricity segment, which consists of regulated traditional retail and wholesale electricity businesses and related activities and includes electricity generation, transmission and distribution;
	•		our marketing and trading segment, which consists of our competitive energy business activities, including wholesale marketing and trading and APS Energy Services’ commodity-related energy services; and
	•		our real estate segment, which consists of SunCor’s real estate development and investment activities.

     The following tables summarize net income and segment details for the three, nine and twelve months ended September 30, 2003 and the comparable prior year periods for Pinnacle West and each of our subsidiaries (dollars in millions):

																		Marketing and
		Total								Regulated Electricity								Trading								Real Estate (a)								Other (d)
Three months ended		2003				2002				2003				2002				2003				2002				2003				2002				2003				2002
September 30,
Arizona Public Service (APS) (b)		$	100			$	87			$	104			$	86			$	(4	)		$	1			$	—			$	—			$	—			$	—
Pinnacle West Energy (b)			3				10				3				10				—				—				—				—				—				—
APS Energy Services (c)			1				7				—				—				—				7				—				—				1				—
SunCor			6				(1	)			—				—				—				—				6				(1	)			—				—
El Dorado (c)			1				(15	)			—				—				—				—				—				—				1				(15	)
Parent company (c)			(1	)			13				—				(8	)			(1	)			16				—				—				—				5
Net income (loss)		$	110			$	101			$	107			$	88			$	(5	)		$	24			$	6			$	(1	)		$	2			$	(10	)

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																		Marketing and
		Total								Regulated Electricity								Trading								Real Estate (a)								Other (d)
Nine months ended		2003				2002				2003				2002				2003				2002				2003				2002				2003				2002
September 30,
Arizona Public Service (APS) (b)		$	159			$	183			$	156			$	182			$	3			$	1			$	—			$	—			$	—			$	—
Pinnacle West Energy (b)			11				12				12				12				(1	)			—				—				—				—				—
APS Energy Services (c)			13				20				—				—				10				18				—				—				3				2
SunCor			10				2				—				—				—				—				10				2				—				—
El Dorado (c)			6				(18	)			—				—				—				—				—				—				6				(18	)
Parent company (c)			(15	)			24				(13	)			(9	)			—				30				—				—				(2	)			3
Income (loss) from continuing operations			184				223				155				185				12				49				10				2				7				(13	)
Income from discontinued operations – net of tax			7				7				—				—				—				—				7				7				—				—
Net income (loss)		$	191			$	230			$	155			$	185			$	12			$	49			$	17			$	9			$	7			$	(13	)

																		Marketing and
		Total								Regulated Electricity								Trading								Real Estate (a)								Other (d)
Twelve months ended		2003				2002				2003				2002				2003				2002				2003				2002				2003				2002
September 30,
Arizona Public Service (APS) (b)		$	176			$	222			$	173			$	218			$	3			$	4			$	—			$	—			$	—			$	—
Pinnacle West Energy (b) (e)			(20	)			15				(22	)			15				2				—				—				—				—				—
APS Energy Services (c)			21				21				—				—				15				20				—				—				6				1
SunCor			18				3				—				—				—				—				18				3				—				—
El Dorado (c)			(31	)			(19	)			—				—				—				—				—				—				(31	)			(19	)
Parent company (c)			4				17				(11	)			(11	)			4				22				—				—				11				6
Income (loss) from continuing operations			168				259				140				222				24				46				18				3				(14	)			(12	)
Income from discontinued operations – net of tax			9				7				—				—				—				—				9				7				—				—
Cumulative effect of change in accounting – net of tax (f)			(66	)			—				—				—				(66	)			—				—				—				—				—
Net income (loss)		$	111			$	266			$	140			$	222			$	(42	)		$	46			$	27			$	10			$	(14	)		$	(12	)

	(a)		See “Real Estate Activities” discussion below.
	(b)		Consistent with APS’ October 2001 Arizona Corporation Commission (“ACC”) filing, APS entered into contracts with its affiliates to buy power through June 2003. The contracts reflected prices based on the fully-dispatchable dedication of the Pinnacle West Energy generating assets to APS’ native load customers (customers receiving power under traditional cost-based rate regulation). Beginning July 1, 2003, under the ACC Track B Order, APS was required to solicit bids for certain estimated capacity and energy requirements. Pinnacle West Energy bid on and entered into a contract to supply most of these purchase power requirements in summer months through September 2006.
	(c)		APS Energy Services’ net income prior to 2003 and El Dorado’s net income (loss) are primarily reported before income taxes. The income tax expense or benefit for these subsidiaries was recorded at the parent company.
	(d)		The “Other” segment primarily includes activities related to El Dorado’s investment in NAC International Inc. (“NAC”). We recorded pretax losses of $16 million in the three months ended September 30, 2002 and $21 million in the nine and twelve months ended September 30, 2002, primarily related to NAC contracts with two customers. In the twelve months ended September 30, 2003, we recorded an additional $33 million in pretax losses related to these same contracts, partially offset by a contract settlement.
	(e)		In the fourth quarter of 2002, Pinnacle West Energy recorded a charge related to the cancellation of Redhawk Units 3 and 4 of approximately $30 million after income taxes ($49 million pretax).
	(f)		We recorded a $66 million after-tax charge as of October 1, 2002 for the cumulative effect of a change in accounting for trading activities, for the early adoption of EITF 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.”

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Results of Operations

General

     Throughout the following explanations of our results of operations, we refer to “gross margin.” With respect to our regulated electricity segment and our marketing and trading segment, gross margin refers to electric operating revenues less purchased power and fuel costs. Our real estate segment gross margin refers to real estate revenues less real estate operations costs of SunCor. Other gross margin refers to other operating revenues less other operating expenses, which primarily includes El Dorado’s investment in NAC, which we began consolidating in our financial statements in July 2002. Other gross margin also includes amounts related to APS Energy Services’ energy consulting services.

     Consistent with APS returning to a vertically integrated utility, as evidenced by APS’ recent general rate case filing, which includes the request for rate recognition of generation assets, APS has also returned to the Allowance for Funds Used During Construction (“AFUDC”) method, which is a more traditional method of capitalizing interest and equity costs associated with construction projects in a regulated utility. This change increased earnings by $8 million in the third quarter of 2003.

Operating Results – Three-month period ended September 30, 2003 compared with Three-month period ended September 30, 2002

     Our consolidated net income for the three months ended September 30, 2003 was $110 million compared with $101 million for the prior period. The $9 million increase in the period-to-period comparison reflects the following changes in earnings by segment:

	•		Regulated Electricity Segment – Net income increased $19 million primarily due to higher retail sales related to customer growth and favorable weather effects; lower operating costs primarily related to severance costs recorded in 2002; higher capitalized construction finance costs related to APS’ return to the AFUDC method of capitalizing such costs; an income tax benefit recorded in 2003; and lower regulatory asset amortization, consistent with the comprehensive settlement agreement related to the implementation of retail electric competition (the"1999 Settlement Agreement"). These favorable factors were partially offset by higher replacement power costs from plant outages due to more unplanned outages and higher market prices; higher prices for hedged gas and purchased power; a retail electricity price reduction that was effective July 1, 2003; and higher pension and other costs.
	•		Marketing and Trading Segment – Net income decreased $29 million, reflecting the effects of lower market liquidity in the wholesale power markets in the western United States on our marketing and trading activities.
	•		Real Estate Segment – Net income increased $7 million because of increased land and home sales.
	•		Other Segment – Net income increased $12 million, primarily due to the absence of NAC losses in 2003.

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     Additional details on the major factors that increased (decreased) income from continuing operations before income taxes and net income are contained in the table below (dollars in millions).

					Increase (Decrease)
					Pretax				After Tax
Regulated electricity segment gross margin:
		Higher replacement power costs from plant outages due to more unplanned outages and higher market prices			$	(22	)		$	(13	)
		Increased purchased power and fuel costs primarily due to higher prices for hedged gas and purchased power				(19	)			(11	)
		Retail electricity price reduction effective July 1, 2003				(9	)			(5	)
		Higher retail sales primarily due to customer growth, excluding weather effects				22				13
		Decreased purchased power costs due to new power plants in service				12				7
		Effects of weather on retail sales				7				4
		Miscellaneous items, net				6				3
			Net decrease in regulated electricity segment gross margin			(3	)			(2	)
Marketing and trading segment gross margin:
		Lower mark-to-market gains for future delivery due to lower market liquidity resulting in lower volumes and margins				(26	)			(16	)
		Lower realized margins on wholesale sales due to lower unit margins and lower volumes				(13	)			(8	)
		Lower unit margins on higher competitive retail sales in California by APS Energy Services				(5	)			(3	)
		Miscellaneous items, net				(2	)			(1	)
			Net decrease in marketing and trading segment gross margin			(46	)			(28	)
Net decrease in regulated electricity and marketing and trading segments’ gross margins						(49	)			(30	)
Higher income primarily related to the absence of NAC losses in 2003						17				10
Higher real estate segment contribution primarily due to increased land and home sales at SunCor						12				7
Operations and maintenance expense:
		Severance costs recorded in 2002				26				16
		Increased pension and other benefit costs				(7	)			(4	)
		Costs for new power plants in service				(4	)			(2	)
		Other items, net				(4	)			(2	)
Depreciation and amortization:
		Primarily related to increased delivery and other assets				(5	)			(3	)
		Depreciation related to new power plants in service				(4	)			(2	)
		Decreased regulatory asset amortization				7				4
Higher income resulting from APS’ return to the AFUDC method of capitalizing construction finance costs						5				8
Income tax credits related to prior years						—				7
	Net decrease in income from continuing operations before income taxes				$	(6	)
	Net increase in net income								$	9

     The increase in operating and interest costs related to new power plants placed in service by Pinnacle West Energy, net of purchased power savings and increased gross margin from generation sales other than native load, totaled approximately $3 million after income taxes in the three months ended September 30, 2003 compared with the prior-year period.

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Regulated Electricity Segment Revenues

     Regulated electricity segment revenues were $25 million lower in the three months ended September 30, 2003, compared with the same period in the prior year primarily as a result of:

	•		a $72 million decrease related to retail load hedge management wholesale sales primarily as a result of lower sales volumes;
	•		a $9 million decrease in retail revenues related to a reduction in retail electricity prices;
	•		a $33 million increase in retail revenues related to customer growth, excluding weather effects;
	•		a $14 million increase in retail revenues related to weather; and
	•		a $9 million net increase due to miscellaneous factors.

Marketing and Trading Segment Revenues

     Marketing and trading segment revenues were $67 million higher in the three months ended September 30, 2003, compared with the same period in the prior year primarily as a result of:

	•		$77 million of higher realized wholesale revenues primarily due to higher prices;
	•		a $13 million increase from higher competitive retail sales in California by APS Energy Services, partially offset by lower prices;
	•		$24 million in lower mark-to-market gains for future delivery primarily as a result of lower market liquidity; and
	•		a $1 million net increase due to miscellaneous factors.

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Operating Results – Nine-month period ended September 30, 2003 compared with Nine-month period ended September 30, 2002

     Our consolidated net income for the nine months ended September 30, 2003 was $191 million compared with $230 million for the prior year. Both periods include income from discontinued operations related to our real estate segment (see “Real Estate Activities” below). The $39 million decrease in the period-to-period comparison reflects the following changes in earnings by segment:

	•		Regulated Electricity Segment – Net income decreased $30 million primarily because of higher replacement power costs from plant outages due to higher market prices and more unplanned outages; higher costs related to new power plants, net of related gross margin benefits; higher prices for hedged gas and purchased power; two retail electricity price reductions; higher pension and other benefit costs; and higher depreciation expense related to increased delivery assets. These negative factors were partially offset by higher retail sales primarily due to customer growth; lower operating costs primarily related to severance costs recorded in 2002; lower regulatory asset amortization, consistent with the 1999 Settlement Agreement; higher income related to APS’ return to the AFUDC method of capitalizing construction finance costs; and an income tax benefit recorded in 2003.
	•		Marketing and Trading Segment – Net income decreased $37 million, reflecting lower market liquidity in the wholesale power markets in the western United States, partially offset by higher revenues related to structured contracts from prior years (including the effects of the adoption of EITF 02-3 in the fourth quarter of 2002).
	•		Real Estate Segment – Net income increased $8 million primarily due to increased home and land sales.
	•		Other Segment – Net income increased $20 million primarily due to the absence of NAC losses in 2003 and the current-period settlement of an NAC contract dispute.

     Additional details on the major factors that increased (decreased) income from continuing operations before income taxes and net income are contained in the table below (dollars in millions).

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				Increase (Decrease)
				Pretax				After Tax
Regulated electricity segment gross margin:
	Higher replacement power costs from plant outages due to higher market prices and more unplanned outages			$	(35	)		$	(21	)
	Increased purchased power and fuel costs primarily due to higher prices for hedged gas and purchased power				(24	)			(14	)
	Retail electricity price reductions effective July 1, 2002 and July 1, 2003				(21	)			(13	)
	Higher retail sales volumes due to customer growth, excluding weather effects				45				27
	Decreased purchased power costs due to new power plants in service				16				10
	Miscellaneous factors, net				(2	)			(2	)
		Net decrease in regulated electricity segment gross margin			(21	)			(13	)
Marketing and trading segment gross margin:
	Lower mark-to-market gains for future delivery due to lower market liquidity				(60	)			(36	)
	Lower realized margins on wholesale sales primarily due to lower unit margins, partially offset by higher volumes				(23	)			(14	)
	Higher revenues related to structured contracts from prior years (including the effects of the adoption of EITF 02-3)				13				8
	Increased competitive retail sales in California by APS Energy Services				5				3
	Miscellaneous factors, net				(1	)			(1	)
		Net decrease in marketing and trading segment gross margin			(66	)			(40	)
Net decrease in regulated electricity and marketing and trading segments’ gross margins					(87	)			(53	)
Higher income primarily related to the absence of NAC losses in 2003 and NAC’s settlement of a contract dispute recorded in the first quarter of 2003					28				17
Higher real estate segment contribution primarily due to increased home and land sales at SunCor					12				8
Higher interest expense on higher debt balances and lower capitalized interest primarily related to new power plants in service					(20	)			(12	)
Higher income resulting from APS’ return to the AFUDC method of capitalizing construction finance costs					5				8
Operations and maintenance expense:
	Increased pension and other benefit costs				(20	)			(12	)
	Costs for new power plants in service				(14	)			(8	)
	Severance costs recorded in 2002				26				16
	Other items, net				(10	)			(7	)
Depreciation and amortization:
	Primarily related to increased delivery and other assets				(19	)			(11	)
	Depreciation related to new power plants in service				(16	)			(10	)
	Decreased regulatory asset amortization				22				13
Income tax credits related to prior years					—				7
Miscellaneous factors, net					7				5
	Net decrease in income from continuing operations before income taxes			$	(86	)
	Net decrease in net income							$	(39	)

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     The increase in operating and interest costs related to new power plants placed in service by Pinnacle West Energy, net of purchased power savings and increased gross margin from generation sales other than native load, totaled approximately $17 million after income taxes in the nine months ended September 30, 2003 compared with the prior-year period.

Regulated Electricity Segment Revenues

     Regulated electricity segment revenues were $10 million lower in the nine months ended September 30, 2003, compared with the same period in the prior year primarily as a result of:

	•		a $72 million decrease related to retail load hedge management wholesale sales primarily as a result of lower sales volumes;
	•		a $21 million decrease in retail revenues related to reductions in retail electricity prices;
	•		a $69 million increase in retail revenues related to customer growth, excluding weather effects;
	•		a $6 million increase related to traditional wholesale sales as a result of higher sales volumes and higher prices; and
	•		an $8 million net increase due to miscellaneous factors.

Marketing and Trading Segment Revenues

     Marketing and trading segment revenues were $272 million higher in the nine months ended September 30, 2003, compared with the same period in the prior year primarily as a result of:

	•		$217 million of higher realized wholesale revenues primarily due to higher volumes, including revenues related to structured contracts from prior years (including the effects of the adoption of EITF 02-3);
	•		a $61 million increase from higher competitive retail sales in California by APS Energy Services;
	•		a $54 million increase from generation sales other than native load primarily due to higher prices and higher sales volumes, including sales from new power plants in service; and
	•		$60 million in lower mark-to-market gains for future delivery primarily as a result of lower market liquidity and higher price volatility.

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     Operating Results – Twelve-month period ended September 30, 2003 compared with Twelve-month period ended September 30, 2002

     Our consolidated net income for the twelve months ended September 30, 2003 was $111 million compared with $266 million for the prior year. Both periods include income from discontinued operations related to our real estate segment (see “Real Estate Activities” below). The $155 million decrease in the period-to-period comparison reflects the following changes in earnings by segment:

	•		Regulated Electricity Segment - Net income decreased $82 million primarily due to higher operations and maintenance costs related to the cancellation of Redhawk Units 3 and 4 and increased pension and other benefits; higher prices for hedged gas and purchased power; higher costs related to new power plants, net of related gross margin benefits; higher replacement power costs from plant outages due to higher market prices and more unplanned outages; and two retail electricity price reductions. These negative factors were partially offset by higher retail sales primarily due to customer growth; lower operating costs primarily related to severance costs recorded in 2002; 2001 charges related to purchase power contracts with Enron; higher income related to APS’ return to the AFUDC method of capitalizing construction finance costs; and an income tax benefit recorded in 2003.
	•		Marketing and Trading Segment - Net income decreased $88 million, reflecting a charge for the cumulative effect of a change in accounting for trading activities at the time of the early adoption of EITF 02-3 on October 1, 2002; and lower market liquidity in the wholesale power markets in the western United States. These negative factors were partially offset by higher revenues related to structured contracts from prior years (including the effects of the adoption of EITF 02-3); higher competitive retail sales in California by APS Energy Services; and fourth quarter 2001 charges related to Enron and its affiliates.
	•		Real Estate Segment - Net income increased $17 million primarily due to increased land and home sales.

     Additional details on the major factors that increased (decreased) income from continuing operations and net income are contained in the table below (dollars in millions).

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				Increase (Decrease)
				Pretax				After Tax
Regulated electricity segment gross margin:
	Increased purchased power and fuel costs primarily due to higher prices for hedged gas and purchased power			$	(40	)		$	(24	)
	Higher replacement power costs from plant outages due to higher market prices and more unplanned outages				(31	)			(19	)
	Retail electricity price reductions effective July 1, 2002 and July 1, 2003				(27	)			(16	)
	Effects of milder weather on retail sales				(6	)			(4	)
	Higher retail sales volumes due to customer growth, excluding weather effects				46				28
	Decreased purchased power costs due to new power plants in service				16				10
	2001 charges related to purchased power contracts with Enron				13				8
	Miscellaneous factors, net				9				5
		Net decrease in regulated electricity segment gross margin			(20	)			(12	)
Marketing and trading segment gross margin:
	Lower mark-to-market gains for future delivery due to lower market liquidity				(64	)			(38	)
	Lower realized margins on wholesale sales primarily due to lower unit margins, partially offset by higher volumes				(22	)			(13	)
	Higher revenues related to structured contracts from prior years (including the effects of the adoption of EITF 02-3)				20				12
	Increased competitive retail sales in California by APS Energy Services				12				7
	Change in prior period mark-to-market value related to trading with Enron				8				5
	Increased generation sales other than native load primarily due to higher sales volumes, including sales from new power plants in service, partially offset by lower unit margins				5				3
		Net decrease in marketing and trading segment gross margin			(41	)			(24	)
	Net decrease in regulated electricity and marketing and trading segments’ gross margins				(61	)			(36	)
Operations and maintenance expense:
	Cancellation of Redhawk Units 3 and 4 in the fourth quarter of 2002				(47	)			(28	)
	Increased pension and other benefit costs				(21	)			(13	)
	Severance costs recorded in 2002				15				9
	Costs for new power plants in service				(15	)			(9	)
	Other items, net				(22	)			(13	)
Lower income primarily related to NAC losses					(9	)			(5	)
Higher interest expense and lower capitalized interest primarily related to new power plants in service					(27	)			(16	)
Higher income resulting from APS’ return to the AFUDC method of capitalizing construction finance costs					5				8
Depreciation and amortization:
	Depreciation related to new power plants in service				(22	)			(13	)
	Primarily related to increased delivery and other assets				(25	)			(15	)
	Decreased regulatory asset amortization				29				17
Higher taxes other than income taxes due to increased property taxes on higher property balances					(10	)			(6	)
Higher real estate segment contribution primarily due to higher home and land sales, equity earnings in joint ventures and decreased miscellaneous expenses					25				16
Higher APS Energy Services non-commodity margin					6				4
Miscellaneous items, net					3				3
Income tax credits related to prior years					—				7
	Net decrease in income from continuing operations			$	(176	)			(90	)
Increase in income from discontinued operations related to SunCor – net of income tax (see “Real Estate Activities” below)									1
Decrease due to cumulative effect of a change in accounting for trading activities due to the adoption of EITF 02-3 – net of income tax									(66	)
Net decrease in net income								$	(155	)

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     The increase in operating and interest costs related to new power plants placed in service by Pinnacle West Energy, net of purchased power savings and increased gross margin from generation sales other than native load, totaled approximately $21 million after income taxes in the twelve months ended September 30, 2003 compared with the prior-year period.

Regulated Electricity Segment Revenues

     Regulated electricity segment revenues were $30 million lower in the twelve months ended September 30, 2003, compared with the same period in the prior year primarily as a result of:

	•		an $88 million decrease related to retail load hedge management wholesale sales primarily as a result of lower prices and lower sales volumes;
	•		a $27 million decrease in retail revenues related to reductions in retail electricity prices;
	•		a $9 million decrease in retail revenues related to milder weather;
	•		a $70 million increase in retail revenues related to customer growth and higher average usage, excluding weather effects;
	•		a $7 million increase related to traditional wholesale sales as a result of higher prices and higher sales volumes; and
	•		a $17 million net increase due to miscellaneous factors.

Marketing and Trading Segment Revenues

     Marketing and trading segment revenues were $368 million higher in the twelve months ended September 30, 2003, compared with the same period in the prior year primarily as a result of:

	•		$256 million of higher realized wholesale revenues primarily due to higher volumes, partially offset by lower prices, including revenues related to structured contracts from prior years (including the effects of the adoption of EITF 02-3);
	•		an $88 million increase from higher competitive retail sales in California by APS Energy Services;
	•		an $80 million increase from generation sales other than native load primarily due to higher sales volumes and higher prices, including sales from new power plants in service;
	•		an $8 million increase due to the fourth quarter 2001 write-off of prior-period mark-to-market value related to trading with Enron and its affiliates; and

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• $64 million in lower mark-to-market gains for future delivery primarily as a result of lower market liquidity and lower price volatility.

Real Estate Activities

     As discussed in our 2002 10-K, we have undertaken an aggressive effort to accelerate asset sales activities to approximately double SunCor’s annual earnings in 2003 to 2005 compared with the $19 million in earnings recorded in 2002.

     Certain components of SunCor’s real estate sales activities, which are included in the real estate segment, are required to be reported as discontinued operations on our Condensed Consolidated Statements of Income in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Among other things, SFAS No. 144 prescribes accounting for discontinued operations and defines certain real estate activities as discontinued operations. We adopted SFAS No. 144 effective January 1, 2002 and determined that activities that would have required discontinued operations reporting in 2002, 2001 and 2000 were immaterial. We currently estimate that 15% to 30% of SunCor’s net income in 2003 will be reported in discontinued operations; however, this ultimately depends on the specific properties sold.

     In the first quarter of 2003, SunCor sold its water utility company, which resulted in an after-tax gain of $5 million ($8 million pretax). The gain on the sale and operating income in the current and prior periods are classified as discontinued operations on our Condensed Consolidated Statements of Income.

     In the second quarter of 2002, SunCor sold a retail center, but maintained a significant continuing involvement through a management contract. In the first quarter of 2003, this management contract was canceled. As a result, the gain on the 2002 sale and the operating income related to this property have been reclassified as discontinued operations. The income from discontinued operations in the three, nine and twelve months ended September 30, 2002 primarily reflects this sale.

     The following chart provides a summary of SunCor’s earnings (after income taxes) for the three, nine and twelve months ended September 30, 2003 and the comparable prior periods (dollars in millions):

		Three Months								Nine Months								Twelve Months
		Ended								Ended								Ended
		September 30,								September 30,								September 30,
		2003				2002				2003				2002				2003				2002
Income from continuing operations		$	6			$	(1	)		$	10			$	2			$	18			$	3
Income from discontinued operations			—				—				7				7				9				7
Net income		$	6			$	(1	)		$	17			$	9			$	27			$	10

12

Forward-Looking Statements

     This document contains forward-looking statements based on current expectations, and we assume no obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forward-looking statements are often identified by words such as “hope,” “may,” “believe,” “anticipate,” “plan,” “expect,” “require,” “intend,” “assume” and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from results or outcomes currently expected or sought by us. These factors include, but are not limited to:

	•		the ongoing restructuring of the electric industry, including the introduction of retail electric competition in Arizona and decisions impacting wholesale competition;
	•		the outcome of regulatory and legislative proceedings relating to the restructuring;
	•		state and federal regulatory and legislative decisions and actions, including the outcome of the rate case APS filed with the ACC on June 27, 2003 and the wholesale electric price mitigation plan adopted by the FERC;
	•		regional economic and market conditions, including the results of litigation and other proceedings resulting from the California energy situation, volatile purchased power and fuel costs and the completion of generation and transmission construction in the region, which could affect customer growth and the cost of power supplies;
	•		the cost of debt and equity capital and access to capital markets;
	•		energy usage;
	•		weather variations affecting local and regional customer energy usage;
	•		conservation programs;
	•		power plant performance;
	•		the successful completion of our generation construction program;
	•		regulatory issues associated with generation construction, such as permitting and licensing;
	•		changes in accounting principles;
	•		our ability to compete successfully outside traditional regulated markets (including the wholesale market);
	•		our ability to manage our marketing and trading activities and the use of derivative contracts in our business (including the interpretation of the subjective and complex accounting rules related to these contracts);
	•		technological developments in the electric industry;
	•		the performance of the stock market, which affects the amount of our required contributions to our pension plan and nuclear decommissioning trust funds;
	•		the strength of the real estate market in SunCor’s market areas, which include Arizona, New Mexico and Utah; and
	•		other uncertainties, all of which are difficult to predict and many of which are beyond our control.

13

PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)

				THREE MONTHS ENDED
				September 30,								Increase (Decrease)
				2003				2002				Amount				Percent
Operating Revenues
	Regulated electricity segment			$	694,306			$	719,361			$	(25,055	)			3.5	%			W
	Marketing and trading segment				154,519				87,258				67,261				77.1	%			B
	Real estate segment				75,009				43,547				31,462				72.2	%			B
	Other revenues				22,736				21,224				1,512				7.1	%			B
		Total			946,570				871,390				75,180				8.6	%			B
Operating Expenses
	Regulated electricity segment purchased power and fuel				235,663				257,484				(21,821	)			8.5	%			B
	Marketing and trading segment purchased power and fuel				156,156				43,361				112,795				260.1	%			W
	Operations and maintenance				133,852				144,438				(10,586	)			7.3	%			B
	Real estate segment operations				63,196				44,041				19,155				43.5	%			W
	Depreciation and amortization				110,997				108,672				2,325				2.1	%			W
	Taxes other than income taxes				28,206				26,757				1,449				5.4	%			W
	Other expenses				19,650				34,146				(14,496	)			42.5	%			B
		Total			747,720				658,899				88,821				13.5	%			W
Operating Income					198,850				212,491				(13,641	)			6.4	%			W
Other
	Allowance for equity funds used during construction				11,194				—				11,194				100.0	%			B
	Other income				5,533				3,026				2,507				82.8	%			B
	Other expense				(5,791	)			(10,713	)			4,922				45.9	%			B
		Total			10,936				(7,687	)			18,623				242.3	%			B
Interest Expense
	Interest charges				52,571				49,255				3,316				6.7	%			W
	Capitalized interest				(2,851	)			(11,015	)			8,164				74.1	%			W
		Total			49,720				38,240				11,480				30.0	%			W
Income From Continuing Operations Before Income Taxes					160,066				166,564				(6,498	)			3.9	%			W
Income Taxes					50,528				65,851				(15,323	)			23.3	%			B
Income From Continuing Operations					109,538				100,713				8,825				8.8	%			B
Income from Discontinued Operations - Net of Income Tax Expense					510				203				307				151.2	%			B
Net Income				$	110,048			$	100,916			$	9,132				9.0	%			B
Weighted-Average Common Shares Outstanding - Basic					91,271				84,768				6,503				7.7	%
Weighted-Average Common Shares Outstanding - Diluted					91,467				84,797				6,670				7.9	%
Earnings Per Weighted-Average Common Share Outstanding
	Income From Continuing Operations - Basic			$	1.20			$	1.19			$	0.01				0.8	%			B
	Net Income - Basic			$	1.21			$	1.19			$	0.02				1.7	%			B
	Income From Continuing Operations - Diluted			$	1.20			$	1.19			$	0.01				0.8	%			B
	Net Income - Diluted			$	1.20			$	1.19			$	0.01				0.8	%			B

Certain prior year amounts have been restated to conform to the 2003 presentation.

B – Better

W – Worse

PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)

					NINE MONTHS ENDED
					September 30,								Increase (Decrease)
					2003				2002				Amount				Percent
Operating Revenues
	Regulated electricity segment				$	1,585,898			$	1,596,440			$	(10,542	)			0.7	%			W
	Marketing and trading segment					484,737				212,576				272,161				128.0	%			B
	Real estate segment					172,886				127,352				45,534				35.8	%			B
	Other revenues					64,494				28,382				36,112				127.2	%			B
		Total				2,308,015				1,964,750				343,265				17.5	%			B
Operating Expenses
	Regulated electricity segment purchased power and fuel					434,442				423,606				10,836				2.6	%			W
	Marketing and trading segment purchased power and fuel					447,499				109,625				337,874				308.2	%			W
	Operations and maintenance					408,488				390,864				17,624				4.5	%			W
	Real estate segment operations					157,297				123,219				34,078				27.7	%			W
	Depreciation and amortization					323,471				310,114				13,357				4.3	%			W
	Taxes other than income taxes					84,851				81,147				3,704				4.6	%			W
	Other expenses					51,380				39,116				12,264				31.4	%			W
			Total			1,907,428				1,477,691				429,737				29.1	%			W
Operating Income						400,587				487,059				(86,472	)			17.8	%			W
Other
	Allowance for equity funds used during construction					11,194				—				11,194				100.0	%			B
	Other income					13,886				10,139				3,747				37.0	%			B
	Other expense					(15,079	)			(26,787	)			11,708				43.7	%			B
			Total			10,001				(16,648	)			26,649				160.1	%			B
Interest Expense
	Interest charges					151,539				140,538				11,001				7.8	%			W
	Capitalized interest					(24,061	)			(38,782	)			14,721				38.0	%			W
			Total			127,478				101,756				25,722				25.3	%			W
Income From Continuing Operations Before Income Taxes						283,110				368,655				(85,545	)			23.2	%			W
Income Taxes						98,530				145,888				(47,358	)			32.5	%			B
Income From Continuing Operations						184,580				222,767				(38,187	)			17.1	%			W
Income from Discontinued Operations - Net of Income Tax Expense						6,908				7,271				(363	)			5.0	%			W
Net Income					$	191,488			$	230,038			$	(38,550	)			16.8	%			W
Weighted-Average Common Shares Outstanding - Basic						91,262				84,768				6,494				7.7	%
Weighted-Average Common Shares Outstanding - Diluted						91,432				84,859				6,573				7.7	%
Earnings Per Weighted-Average Common Share Outstanding
	Income From Continuing Operations - Basic				$	2.02			$	2.63			$	(0.61	)			23.2	%			W
	Net Income - Basic				$	2.10			$	2.71			$	(0.61	)			22.5	%			W
	Income From Continuing Operations - Diluted				$	2.02			$	2.63			$	(0.61	)			23.2	%			W
	Net Income - Diluted				$	2.09			$	2.71			$	(0.62	)			22.9	%			W

Certain prior year amounts have been restated to conform to the 2003 presentation.

B – Better

W – Worse

PINNACLE WEST CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share amounts)

				TWELVE MONTHS ENDED
				September 30,								Increase (Decrease)
				2003				2002				Amount				Percent
Operating Revenues
	Regulated electricity segment			$	2,002,481			$	2,033,006			$	(30,525	)			1.5	%			W
	Marketing and trading segment				598,092				229,996				368,096				160.0	%			B
	Real estate segment				246,615				188,447				58,168				30.9	%			B
	Other revenues				98,049				34,275				63,774				186.1	%			B
		Total			2,945,237				2,485,724				459,513				18.5	%			B
Operating Expenses
	Regulated electricity segment purchased power and fuel				510,379				520,231				(9,852	)			1.9	%			B
	Marketing and trading segment purchased power and fuel				531,913				122,979				408,934				332.5	%			W
	Operations and maintenance				602,162				512,654				89,508				17.5	%			W
	Real estate segment operations				220,003				175,433				44,570				25.4	%			W
	Depreciation and amortization				437,439				419,175				18,264				4.4	%			W
	Taxes other than income taxes				111,656				102,114				9,542				9.3	%			W
	Other expenses				117,223				45,464				71,759				157.8	%			W
		Total			2,530,775				1,898,050				632,725				33.3	%			W
Operating Income					414,462				587,674				(173,212	)			29.5	%			W
Other
	Allowance for equity funds used during construction				11,194				—				11,194				100.0	%			B
	Other income				16,591				17,729				(1,138	)			6.4	%			W
	Other expense				(19,881	)			(40,256	)			20,375				50.6	%			B
		Total			7,904				(22,527	)			30,431				135.1	%			B
Interest Expense
	Interest charges				198,513				187,257				11,256				6.0	%			W
	Capitalized interest				(29,028	)			(51,240	)			22,212				43.3	%			W
		Total			169,485				136,017				33,468				24.6	%			W
Income From Continuing Operations Before Income Taxes					252,881				429,130				(176,249	)			41.1	%			W
Income Taxes					84,870				170,557				(85,687	)			50.2	%			B
Income from Continuing Operations					168,011				258,573				(90,562	)			35.0	%			W
Income from Discontinued Operations - Net of Income Tax Expense					8,592				7,271				1,321				18.2	%			B
Cumulative Effect of a Change in Accounting for Trading Activities - Net of Income Tax Benefit					(65,745	)			—				(65,745	)			100.0	%			W
Net Income				$	110,858			$	265,844			$	(154,986	)			58.3	%			W
Weighted-Average Common Shares Outstanding - Basic					89,760				84,746				5,014				5.9	%
Weighted-Average Common Shares Outstanding - Diluted					89,919				84,851				5,068				6.0	%
Earnings Per Weighted-Average Common Share Outstanding
	Income From Continuing Operations - Basic			$	1.87			$	3.05			$	(1.18	)			38.7	%			W
	Net Income - Basic			$	1.24			$	3.14			$	(1.90	)			60.5	%			W
	Income From Continuing Operations - Diluted			$	1.87			$	3.05			$	(1.18	)			38.7	%			W
	Net Income - Diluted			$	1.23			$	3.13			$	(1.90	)			60.7	%			W

Certain prior year amounts have been restated to conform to the 2003 presentation.

B – Better

W – Worse