764622--3/13/2006--ARIZONA_PUBLIC_SERVICE

related topics

{operation, natural, condition}

{loss, insurance, financial}

{capital, credit, financial}

{debt, indebtedness, cash}

{competitive, industry, competition}

There are inherent risks in the operation of nuclear facilities, such as environmental, health and financial risks and the risk of terrorist attack. Deregulation or restructuring of the electric industry may result in increased competition, which could have a significant adverse impact on our business and our financial results. Our results of operations can be adversely affected by milder weather. 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. If we are not able to access capital at competitive rates, our ability to implement our financial strategy will be adversely affected. A further 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 and changing interest rates and market conditions could result in financial losses that negatively impact our results of operations. Actual results could differ from estimates used to prepare our financial statements.

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764622--3/13/2006--ARIZONA_PUBLIC_SERVICE_CO