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Donald E. Brandt

Executive Vice President and

Chief Financial Officer

September
16, 2005

Mr. James A. Allegretto

Senior Assistant Chief Accountant

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

    Re:

    Arizona Public Service Company (“APS”)

    Form 10-K for Fiscal Year Ended December 31, 2004

    Filed March 16, 2005

    Forms 10-Q for Fiscal Quarters Ended

    March 31, 2005 and June 30, 2005

    File No. 1-4473

    Pinnacle West Capital Corporation (“Pinnacle West”)

    Form 10-K for Fiscal Year Ended December 31, 2004

    Filed March 16, 2005

    Forms 10-Q for Fiscal Quarters Ended

    March 31, 2005 and June 30, 2005

    File No. 1-8962

Dear Mr. Allegretto:

     This letter responds to the Staff’s comments on the above referenced filings, as set forth in
the Staff’s letter dated September 1, 2005. For your convenience, the headings and paragraph
numbers in our letter correspond to the headings and paragraph numbers in the Staff’s letter. APS
and Pinnacle West are collectively referred to in this response as the “Company.”

Form 10-K for Fiscal Year Ended December 31, 2004

     Note 3. Regulatory Matters, page 81

     Comment 1. We note that the transfer of PWEC Dedicated Assets from Pinnacle West Energy to APS
will result in a mandatory rate base disallowance of $150 million, which will be recognized as a
one-time after-tax net plant write-off of approximately $90 million in the period of transfer.
Please tell us the governing accounting literature you relied upon in calculating the amount

APS · APS Energy Services · Pinnacle West Energy · SunCor · El Dorado

Pinnacle West Capital Corporation Station 9042 Post Office Box 53999 Phoenix, AZ 85072-3999 Phone: 602 250-5602 Fax: (602) 250-3902 E-mail: donald.brandt@pinnaclewest.com

Mr. James A. Allegretto

September 16, 2005

Page 2

and timing of the charge. If you utilized SFAS 71, explain why SFAS 90 was not applicable. We
further note that the “Bridge PPA,” which would be in effect for 30 years should the transfer not
be approved, allows for cost-based recovery of plant based on a rate base value of $700 million.
As the book value of such assets is $850 [million] and prices under the PPA reflect
cost-of-service, please tell us what consideration you gave to applying regulatory accounting to
the plant prior to actual transfer since the “Bridge PPA” effectively converted the plant into a
regulated asset irrespective of FERC approval. On a related point, tell us whether you tested
these assets for impairment prior to transfer, the result of such test, and the governing
accounting literature used to test for impairment. Finally, tell us whether you will be earning a
return on plant and whether such return is consistent with similar productive assets.

     Response: We relied on SFAS 90, “Regulated Enterprises — Accounting for Abandonments
and Disallowances of Plant Costs” in calculating the amount and timing of the $90 million
write-off. SFAS 90 applies to rate-regulated enterprises. Pinnacle West Energy Corporation
(“PWEC”) owned the PWEC Dedicated Assets before transferring them to APS on July 29, 2005. PWEC is
not a rate-regulated enterprise and is not subject to the requirements of SFAS 71. Accordingly,
SFAS 90 does not apply to PWEC’s assets.

     SFAS 144 provides the relevant guidance for assessing the impairment of PWEC’s long-lived
assets. We tested PWEC’s assets for impairment prior to transfer to APS and found that the PWEC
Dedicated Assets were not impaired. The Bridge PPA, which was effective in April 2005, provided
for a return on the value of the PWEC Dedicated Assets that were to be included in APS’ rate base
as part of the rate case Settlement Agreement (the “Settlement Agreement”) approved by the Arizona
Corporation Commission (the “ACC”). This is the same return allowed by the ACC on other utility
plant assets owned by APS. The total of this return and the recovery of the allowed depreciation exceeded the carrying amount of the PWEC Dedicated Assets. Thus, these assets
were not impaired under SFAS 144.

     We considered whether SFAS 90 required us to record the $150 million disallowance when the
Bridge PPA became effective. As noted above, however, SFAS 90 only applies to rate-regulated
enterprises and PWEC is not a rate-regulated enterprise. As a result, it was not appropriate for
us to record the disallowance while the PWEC Dedicated Assets were on PWEC’s books. As discussed
in the previous paragraph, we tested the PWEC Dedicated Assets for impairment under the required
guidance (SFAS 144). This resulted in a different answer regarding the disallowance than would
have occurred had the PWEC Dedicated Assets been held by a rate-regulated enterprise subject to
SFAS 90.

     We also considered whether the Bridge PPA effectively converted the PWEC Dedicated Assets to
regulated assets subject to SFAS 90. We concluded that it did not. The Settlement Agreement
clearly acknowledges that Federal Energy Regulatory Commission (“FERC”) action may impact the
Settlement Agreement and provides for the Bridge PPA to be revised or even abandoned altogether
based on future FERC actions. The Bridge PPA, per the direction of the ACC, was a short-term
arrangement until the point in time that the FERC denied the transfer or the contract terminated
upon the asset transfer. The Bridge PPA met the requirements of a lease under EITF 01-8, but did
not meet the requirements of a capital lease under SFAS 13 due to its short-term nature.

Mr. James A. Allegretto

September 16, 2005

Page 3

     Please also note that, although the Staff’s question appears to address the timing of any
asset impairment recognition, Pinnacle West and APS began disclosing the existence of the potential
regulatory disallowance in August 2004, immediately following the signing of the Settlement
Agreement. See Pinnacle West’s and APS’ Form 8-Ks filed on August 18, 2004. We also disclosed in
Footnote 3 of Pinnacle West’s and APS’ December 31, 2004 Form 10-K that we would recognize the
impairment once the transfer of the PWEC Dedicated Assets to APS was complete. The transfer was
completed and we recognized the impairment in the third quarter of 2005.

     Note 8. Retirement Plans and Other Benefits, page 96

     Comment 2. Please explain to us how you calculate the market related value of plan assets as
that term is defined in SFAS 87. Since there is an alternative to how you can calculate this item,
and it has a direct effect on pension expense, we believe you should disclose how you determine
this amount in accordance with paragraph 12 of APB 22.

     Response: The market-related value of our plan assets is their fair value at the
measurement date. We will disclose this in future filings.

     Statements of Income, page 130

     Comment 3. Note 17 discloses that Pinnacle West has three principal business segments,
including the regulated electricity segment, the marketing and trading segment, and the real estate
segment. Although APS also has regulated electricity and marketing and trading businesses, we note
APS has no segment disclosures for marketing and trading. Please explain this disparity. In doing
so, please describe in greater detail the nature of the APS marketing and trading activities,
including whether they include bulk power sales to other electric utilities, and how such
activities differ from those included in the Pinnacle West marketing and trading segment. In this
regard a comparison of marketing and trading for Pinnacle West relative to APS, including whether
the latter is a subset of the former, may be helpful to our understanding. If you consider APS’
marketing and trading and regulated electricity businesses to be separate operating segments under
paragraph 10 of SFAS 131, please explain how you determined it was appropriate to aggregate them
for reporting purposes based on paragraphs 17-24 of SFAS 131. If you consider regulated
electricity and marketing and trading businesses to be one operating segment, please explain your
rationale under SFAS 131 for APS. We may have further comment.

     Response: APS’ marketing and trading activities primarily include bulk power sales to
other utilities, which have always been a part of APS’ business. While these activities are
included in Pinnacle West’s consolidated marketing and trading segment, the larger component of
such Pinnacle West segment is market based transactions at Pinnacle West. Accordingly, in SFAS 131
terms, review of the operating results and decisions about allocation of resources by the chief
decision maker are focused at the Pinnacle West level and not at the APS level. Therefore, APS
does not consider these activities to be a segment. Additionally, the APS marketing and trading
activities are immaterial to APS’ financial statements.

Mr. James A. Allegretto

September 16, 2005

Page 4

     The Company acknowledges that: the Company is responsible for the adequacy and accuracy of
the disclosure in the above-referenced filings; Staff comments or changes to disclosure in response
to Staff comments do not foreclose the Commission from taking any action with respect to the
filings; and the Company may not assert Staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States.

     I hope that the foregoing fully responds to the Staff’s comments. If you have any questions
or additional comments, please contact me at (602) 250-5602 or our Vice President and Controller,
Chris Froggatt at (602) 250-3212. The Company’s independent auditors are also available for
further discussion of these issues.

Sincerely,

/s/ Donald E. Brandt

Donald E. Brandt

DEB:cs

cc: Ms. Sarah Goldberg