7286--2/20/2009--ARIZONA_PUBLIC_SERVICE

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{operation, natural, condition}

{capital, credit, financial}

{debt, indebtedness, cash}

{condition, economic, financial}

{cost, regulation, environmental}

{stock, price, share}

{competitive, industry, competition}

{provision, law, control}

{financial, litigation, operation}

{loan, real, estate}

{product, market, service}

APS is subject to numerous environmental laws and regulations that may increase its cost of operations, impact its business plans, or expose it to environmental liabilities. Concern over climate change could result in significant legislative and regulatory efforts to limit greenhouse gas emissions or related litigation, which may increase APS cost of operations. There are inherent risks in the ownership and operation of nuclear facilities, such as environmental, health, regulatory and financial risks and the risk of terrorist attack. The operation of power generation facilities involves risks that could result in unscheduled power outages or reduced output, which could materially affect our results of operations. The ownership and operation of power generation and transmission facilities on Indian lands could result in uncertainty related to continued easements and rights-of-way, which could have a significant impact on our business. Deregulation or restructuring of the electric industry may result in increased competition, which could have a significant adverse impact on our business and our results of operations. Changes in technology may adversely affect our business. Our results of operations can be adversely affected by weather conditions. Our results of operations can be adversely affected by current economic conditions. The lack of access to sufficient supplies of water could have a material adverse impact on our business and results of operations. Our cash flow largely depends on the performance of our subsidiaries. Our ability to meet our debt service obligations could be adversely affected because our debt securities are structurally subordinated to the debt securities and other obligations of our subsidiaries. Our inability to reduce capital expenditures could materially and adversely affect our business, financial condition and results of operation. Financial market disruptions may increase our financing costs or limit our access to the credit markets, which may adversely affect our liquidity and our ability to implement our financial strategy. A reduction in our credit ratings could materially and adversely affect our business, financial condition and results of operations. The use of derivative contracts in the normal course of our business could result in financial losses that negatively impact our results of operations. Changing interest rates and market conditions could result in financial losses that negatively impact our results of operations. The market price of our common stock may be volatile. Our stock price could be affected because a substantial number of shares of our common stock could be available for sale in the future. We may enter into credit and other agreements from time to time that restrict our ability to pay dividends. Certain provisions of our articles of incorporation and bylaws and of Arizona law make it difficult for shareholders to change the composition of our board and may discourage takeover attempts. SunCor s business and financial performance could continue to be adversely affected by a variety of factors affecting the real estate market.

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7286--2/20/2009--ARIZONA_PUBLIC_SERVICE_CO