Good morning, and thank you for holding. My name is Bernice and I will be your conference operator today. At this time, I would like to welcome everyone to the 2008 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Ms. Hickman, you may begin your conference call.

Thank you, Bernice. I would like to thank everyone for participating in this conference call to review our third quarter earnings recent developments and operating performance. We know this is a busy time for you especially with the upcoming EEI financial conference. Today, I have with me Bill Post, our Chairman and CEO; Don Brandt, who is our President and Chief Operating Officer and also President and CEO of Arizona Public Service; and our CFO, Jim Hatfield. Before I turn the call over to our speakers, I need to cover a few details with you. First, I encourage you to check the Quarterly Statistics section of our website. It contains extensive supplemental information on our earnings variances and quarterly operating statistics. Second, please note that all of our references today to per share amount will be after income taxes and based on diluted shares outstanding. It is my responsibility to advice you that this call will contain forward-looking statements based on current expectations and the company assumes no obligation to update these statements. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Please refer to the caption entitled forward-looking statements contained in our Form 10-Q filed with the Securities and Exchange Commission this morning as well as the MD&A and risk factor section of our 2007 Form 10-K, each of which identifies some important factors that could cause actual results to differ materially from those contained in our forward-looking statements. Also, during the course of this call, we will refer to our ongoing earnings, which is the non-GAAP financial measure as defined by the SEC. Our form 8-K filed with the SEC this morning contains an area reconciliation related to ongoing earnings outlook. A replay of this call will be available on our website, www.pinnaclewest.com for the next 30 days. It will also be available by telephone through November 11th. Finally, this call and webcast are the property of Pinnacle West Capital Corporation, and any copying and transcription, redistribution, retransmission or rebroadcast of this call in whole or in part without Pinnacle West's written consent is prohibited. At this point, I'll turn the call over to Bill.

I would also like to thank you for taking the time to join us today. And before I turn the call over to Jim and Don to discuss the details of our financial results and operations, I would like to comment on two items: first, although it is Election Day, we don't have any preliminary data on today's Arizona Corporation commission race. Although this has been the most contested commission race in our history, no polling data is available. And second, as we explained to you in our last call we continued to expect that our consolidated ongoing earnings will be within a reasonable range of $2.50 per share with APS contributing substantially all of the earnings and SunCor's contribution being minimal. Now I would like to turn the call over to Jim.

Thank you, Bill. For our third quarter, we reported consolidated net income of $152 million or $1.50 per share as compared with $209 million or $2.07 per share in 2007 third quarter. Net income was down $57 million or $0.57 per share, with APS comprising a substantial majority or $0.45 of the total variances. Lower results of SunCor made up the remaining $0.12 of the difference. Earnings for the third quarter of 2007 included tax benefits related to prior years of $10 million or $0.10 per share that did not repeat in this year's third quarter. Now, I'd like to provide some detail on the consolidated variances. On a positive note, APS retail sales growth added $0.06 per share. In the third quarter of 2008, APS customer growth increased 1.2% as compared to 3.2% a year ago. As expected, the decline in Arizona's economic conditions mirrors to a large extent what is happening in the national economy. But despite the recessionary climate, our customer base continues to grow albeit at a much slower pace than in the past. We currently expect customer growth to decline to about 1% by the end of the year. Of course, it's difficult to determine the extent or severity of this economic downturn. But we currently do not anticipate a meaningful turnaround prior to 2010. Going forward, we remained confident of the long-term fundamentals of Arizona's economy and we expect to see customer growth return to the more vibrant levels as a national and state economic environments improve. Transmission rate increases under the transmission cost adjustor approved by the ACC, improved our quarterly earnings $0.07 per share. Their earnings improvements were more than offset by several factors. First, weather reduced earnings $0.14 per share. This year's third quarter was relatively normal as compared to hotter…

Thank you, sir. [Operator Instructions]. Our first question comes from Paul Ridzon, Keybanc. Your line is open, sir.

Thank you. The $720 million of CapEx cuts I was a little unclear, is that the 500 plus the 200 in January, an incremental 20 or is that an incremental of 220?

No. Paul, let's be clear about that category question. Gross CapEx cuts were $720 million, but because some of [Technical Difficulty] collect less from customer charge, the net impact CapEx reduction was $520 million.

Can you hear me?

Yes. Can you hear me?

Yes. So is it 920 less 200 of --

Previously, now $200 million.

Hello?

I'm sorry, is it 920 less 200 of line connections?

No, it's 720 less 200 of line connections for a net CapEx reduction of 520. And that would be an addition to the $200 million that was announced late last year or early this year.

Okay. It's an addition to the 200?

Yes.

Where does that given that you've materially exceeded the 500, where does that put you with regards to flexibility on your equity issue?

Well, I think again part of our plan was the these reductions in conjunction with interim relief and rate relief as requested at the ACC. So, I think we're certainly not looking at the need for equity this year. And I certainly, probably not in 2009 or we won't get an order until late in this year, which was ultimately determine what if anything we need to do.

Okay. So, we could be looking in at '10 issuances?

At the earliest would be 2010.

Thank you.

Your next question comes from Dan Eggers from Credit Suisse.

Hey, good morning, afternoon while I guess depending on the time zone. Just following up on Paul's question, the 520 was 910 and 11 CapEx right?

Correct.

Okay. And so, are you all going to give you 11 CapEx numbers at your Analyst Day since the Q only goes through '10?

Yes.

Okay, got it. How are you guys... as you think about a slowing customer account usage trends, what do we think about for O&M cost inflation of next couple of years? Do we see that come down as customer growth comes down or can you guys manages that dynamically?

Well, I think obviously, with a reduction in customer growth that's going to drive some reduction in O&M related if nothing else just as the reduction in customer growth, I think if you think about O&M going forward, you have obviously what happens to pension, what happens to consumables, we'll all be into the mix in terms of where O&M ultimately ends up going forward.

Okay. So, that's still a work-in-progress?

Yes, right.

Okay. I guess you talked about a less environment backdrop for recovery, how do we think about customer growth, how do we think about usage patterns in 2009, 2010?

Well, I think right now we're still looking at... we think will be decelerated down to about 1% customer growth in the year. I think that is the trend we see for '09 and '10. Right now, we're really not seeing any sort of degradation of per customer use. If you look at the third quarter, residential customer use weather normalized. It was seven tenth to 1% increase for customer. So, I think what is really seeing it more on the aggregate customer account than we are seeing on the usage side.

Great. Thank you.

Our next question comes from Jonathan Arnold, Merrill Lynch.

Good morning guys or good afternoon, excuse me. I'd like to ask on SunCor. I apologize I have been in and out, but I believe that the loss was $0.06 for the quarter. And you've talked about having minimal contribution. Is $0.06 a quarter kind of where the business is tracking on a run-rate type basis and you sort of make up the difference through some lumpier sales during the course of a year or how should we think about that and how does it relate to sort of way you expect it to be at this point? How much more can you do I guess to trim those ongoing losses? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: Yes,we had, Jonathan, let me talk about what we've done on the G&A front. And we've substantially reduced staffing and expenditures down to compared to this year, next year we'd expect about $2 million a quarter less of G&A. But with that said is one impact we're seeing is the liquidity in the market and their ability, SunCor's ability to transact. We had a large transaction in the second quarter. In office building, we don't have anything like that planned, but we do have plans for call it more normal run rate type of transactions that early indications are the lack of liquidity in the market is going to constrain the ability to... for buyers to close on those transactions. And that could have a negative impact next year.

Does the $0.06 from this quarter includes so that having trimmed by G&A by $2 million? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: Yes.

I mean is there any kind of reason we wouldn't assume $0.20 or so loss next year? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: We'll address that when we do guidance in January on our fourth quarter earnings conference call. But, I don't think the $0.06 because it's in this quarter is representative of what we'll see necessarily represented of going forward next year. Again, the core release with SunCor tend to vary on what transactions we have in each quarter, they tend to be lumpy. We don't expect it to be as lumpy next year as it was for instance in the second quarter from a positive perspective. But --

All right. Thank you.

Our next question comes from Paul Patterson, Glenrock Associates.

Hi, good day guys. How are you?

Hi, Paul.

The O&M increase, I just wasn't clear, it looks like it was because of our customer service expenses? And I think you were addressing this earlier, I guess it has been a completely get at with the customer growth really being as low as it is for you guys I mean 1% it seems, I think historically very low. Why is O&M increasing for customer service expenses and what's driving this?

Well, I think you have... if you think about just some of the abnormal drivers this quarter, you have the severance that we talked about, which is $6 million and that's really related to the CapEx reduction growth. You have about $3 million in strong related costs as Labor Day requirement that Don mentioned. We have an increasing collectibles and then we have this some consumable cost increases. So, I guess I would say that of that you have some that's more impacting the quarter than would be normally from a comparison perspective.

Okay. So, customer service I guess is a pretty broad area, isn't?

Yes. And that includes the collection billing, call center to the wires businesses as we call it.

Okay. And then the trading and marketing, the margins go off a bit there. Anything more you can elaborate on that?

Nothing specific related to marketing and trading. As you know, it's not a big focus for us.

All right. And then, I'm sorry if I missed it. You guys mentioned it, when do you expect ALJ to come out with their ruling on the interim rate case? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: We were waiting for that now. We would expect it in the not too distant future. And as I mentioned, we would expect the open meeting to occur in a commission decision before year end.

Okay. Not there any time now I guess? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: Yes.

Okay. Thanks a lot.

[Operator Instructions]. Our next question, re-question comes from Paul Ridzon.

Did SunCor include any severance costs?

No. The severance I have mentioned was totally related to APS.

Okay, okay. Is there any severance opportunity at SunCor or have you scaled that back already? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: We've been scaling it back over the last 18 months almost two years, so there is severance built in there, but it's been not in any one particular quarter.

Thank you.

Our next question comes from Ed Heine, Catapult Capital.

How are you doing?

Good. How are you?

Good. Just a quick question on the O&M tracking for the year, I think at the beginning of the year Don you said $40 million. And I know that there is the renewable's things running through there too. But I think even if I back that out, it looks like you're still at over $50 million for the year so far. Is there going to be a reversal on the fourth quarter, kind of is there a less plant maintenance or -- Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: No,the fourth quarter be essentially flat. We say about 50, and what Jim mentioned the severance cost should be about $6 million to $7 million ours and the storm cost were about $3 million in the third quarter and uncollectibles charge-offs and that's much of a reflection of the economy about $2 million to $3 million. So, that's basically this difference you are seeing Ted compared to 40 that I talked about earlier in the year.

Okay. So couple of cats and dogs, year-to-date and that should be flat for the rest of the year? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: Yes, exactly. The fourth quarter is literally flat, as we see it now.

Got you. And just a clarify on the CapEx again, I'm sorry, I got a little mixed up there but... so at the beginning of the year, you guys announced the $200 million reduction. And then on the second quarter call, you said you were aiming for 500 plus. So, what's the net impact for the entire year now? Is that net impact of the 720? Is that right?

Well, the 200 was looked at earlier this year began to put in place. I think that was reflected in the queue earlier this year. Second quarter call, we talked about our goal to reduce additional $500 million. We ended up getting $720 million growth. $200 million of that is also going to be a reduction of impact fees from customers. So, net additional reduction CapEx is 520. Those numbers are 2009 to 2011.

Okay. And how much with that's falling into the 11 timeframe versus 10 and 11 or 9 and 10, you said you are going to about that?

We'll talk about that Friday. We'll take that by year.

Got you. Okay. Thanks a lot.

Our next question comes from Yiktat Fung, Zimmer Lucas Partners.

Good morning.

Good morning.

Good morning. Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: Good morning.

Just a quick question about pension expense. How much of your pension expense is at the utility and are these expenses recover moving rates?

Your first question was how much, it's like 94% of total pension is really at APS. Of the pension expense, about 50% is ultimately capitalized in the plant. The rest has typically been recovered in rates.

Okay. That's all my questions. Thank you.

thanks.

Thanks.

Our next question comes from Danielle Fise [ph], Fise Research [ph].

Hi. I just was wondering, assuming the Intel and it is going to be voted by the new commission, new members or just the remaining members that attending over the hearings?

Danielle, we believe its going to be decided before the end of this year, which would be the existing members.

Okay. And then assuming it's really a under very low side of what your expectations are, would you... would that change anything to your financing schedule from your point of view of new equity, would that make a difference? Donald E. Brandt - President and Chief Operating Officer, Pinnacle West Capital Corporation; President and Chief Executive Officer, Arizona Public Service Company: No, Danielle, I think... again if you just think about the ultimate, we still have... this is just one part on the base rate increase, which is a late '09 event. So, I think we're ultimately got to see where we end up at the end of day before we make those decisions.

Thank you.

Our next question comes from Paul Ridzon, Keybanc.

Just a follow-up to Ed Heine's question. With O&M $10 million over budget but guidance maintained, what are we seeing as the offsets?

Well, I guess from offset perspective, I guess the reasonable rate of around 250 that Bill re-emphasized for '08 which include the higher O&M. There is many things to go into that guidance and I don't think you can just point O&M as the only thing impacting 2008. If we look at where we are for the year we're 278. If you take out 30 syntax benefit, we're at 248 last year I think we made about slightly positive net income in the fourth quarter, so that would still get to 250 outline people.

Thank you.

[Operator Instructions]. We have no questions in queue. Thank you.

This is Becky. Thank you for joining us today on the call. Couple of people who have missed our analyst meeting on Friday, those slides will be posted on our website and filed as an 8-K Friday morning. So, for those of you who are not be able to be with us, they will be there with respect to those who will be able to with us or who will be attending the EEI financial conference in Phoenix next week. We look forward to seeing you. Meanwhile, if you have any questions or need further details, please contact me or Lisa Malagon. And thank you for calling in.

This concludes today's conference. You may now disconnect. .