Pinnacle West Capital (PNW) 8-K Results of Operations and Financial Condition

Exhibit 99.7

Last Updated 4/29/2008

Pinnacle West Capital Corporation
Earnings Variance Explanations
for the Three-Month Periods Ended March 31, 2008 and 2007

     This discussion explains the changes in our consolidated earnings for the three-month periods ended March 31, 2008 and 2007. Unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2008 and 2007 follow this discussion. We will file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 on or before May 12, 2008. We suggest that this discussion be read in connection with the Pinnacle West Capital Corporation (“Pinnacle West”) Annual Report on Form 10-K for the fiscal year ended December 31, 2007. Additional operating and financial statistics and a glossary of terms are available on our website (www.pinnaclewest.com).

EARNINGS CONTRIBUTION BY BUSINESS SEGMENT

     Pinnacle West’s two reportable business segments are:

• our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily electric service to Native Load customers) and related activities and includes electricity generation, transmission and distribution; and

• our real estate segment, which consists of SunCor’s real estate development and investment activities.

     The following table summarizes net income (loss) for the three months ended March 31, 2008 and 2007 (dollars in millions):

	Three Months Ended
	March 31,
	2008			2007
Regulated electricity segment	$	(6	)	$	4
Real estate segment		(1	)		9
All other (a)		3			4
Net income (loss)	$	(4	)	$	17

(a) Includes activities related to marketing and trading, APSES and El Dorado. None of these segments is a reportable segment.

PINNACLE WEST CONSOLIDATED – RESULTS OF OPERATIONS

Operating Results – Three-month period ended March 31, 2008 compared with three-month period ended March 31, 2007

     Our consolidated net loss for the three months ended March 31, 2008 was $4 million compared with net income of $17 million for the comparable prior-year period. Net income decreased $21 million in the period-to-period comparison and is reflected in the segments as follows:

• Regulated Electricity Segment – Net income decreased approximately $10 million primarily due to higher operations and maintenance expense related to increased costs for generation (including more planned overhauls and maintenance) and increased customer service and other costs; and higher depreciation and amortization primarily due to higher plant balances. These negative factors were partially offset by higher retail sales primarily due to customer growth.

• Real Estate Segment – Net income decreased approximately $10 million primarily due to lower land parcel sales resulting from the weak real estate market.

2

     Additional details on the major factors that increased (decreased) net income for the three-month period ended March 31, 2008 compared with the prior-year period are contained in the following table (dollars in millions):

	Increase (Decrease)
	Pretax			After Tax
Regulated electricity segment:
Higher retail sales primarily due to customer growth, excluding weather effects	$	6		$	4
Impacts of retail rate increase effective July 1, 2007 and transmission rate increase effective March 1, 2008:
Retail revenue increase primarily related to higher Base Fuel Rate		63			38
Decreased deferred fuel and purchased power costs related to higher Base Fuel Rate		(65	)		(40	)
Transmission rate increase		3			2
Operations and maintenance increases primarily due to:
Increased generation costs, including more planned overhauls and maintenance		(14	)		(9	)
Increased customer service and other costs		(10	)		(6	)
Higher depreciation and amortization primarily due to higher plant balances		(6	)		(4	)
Miscellaneous items, net		10			5
Decrease in regulated electricity segment net income		(13	)		(10	)
Lower real estate segment net income primarily due to lower land parcel sales resulting from the weak real estate market		(17	)		(10	)
Other miscellaneous items, net		(1	)		(1	)
Decrease in net income	$	(31	)	$	(21	)

Regulated Electricity Segment Revenues

     Regulated electricity segment revenues were $87 million higher for the three months ended March 31, 2008 compared with the prior-year period primarily because of:

• a $63 million increase in retail revenues due to a rate increase effective July 1, 2007;

• a $17 million increase in revenues from Off-System Sales due to higher prices and volumes;

• an $8 million increase in retail revenues primarily related to customer growth, excluding weather effects;

3

• a $3 million increase due to a transmission rate increase effective March 1, 2008;

• an $18 million decrease in retail revenues related to recovery of PSA deferrals, which had no earnings effect because of amortization of the same amount recorded as fuel and purchased power expense; and

• a $14 million net increase due to miscellaneous factors.

Real Estate Segment Revenues

     Real estate segment revenues were $29 million lower for the three months ended March 31, 2008 compared with the prior-year period primarily because of the weak real estate market.

All Other Revenues

     All other revenues were $16 million lower for the three months ended March 31, 2008 compared with the prior-year period primarily due to a $15 million decrease in marketing and trading revenues as a result of lower mark-to-market gains because of changes in forward prices and lower sales volumes.

4

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

	THREE MONTHS ENDED
	MARCH 31,						Increase (Decrease)
	2008			2007			Amount			Percent
Operating Revenues
Regulated electricity segment	$	622,801		$	536,051		$	86,750			16.2	%	B
Real estate segment		47,742			77,132			(29,390	)		38.1	%	W
Marketing and trading		57,458			72,471			(15,013	)		20.7	%	W
Other revenues		8,737			9,363			(626	)		6.7	%	W
Total		736,738			695,017			41,721			6.0	%	B
Operating Expenses
Regulated electricity segment fuel and purchased power		269,378			203,353			66,025			32.5	%	W
Real estate segment operations		48,219			61,336			(13,117	)		21.4	%	B
Marketing and trading fuel and purchased power		51,522			57,944			(6,422	)		11.1	%	B
Operations and maintenance		194,124			171,578			22,546			13.1	%	W
Depreciation and amortization		95,607			89,378			6,229			7.0	%	W
Taxes other than income taxes		33,152			34,719			(1,567	)		4.5	%	B
Other expenses		5,938			8,488			(2,550	)		30.0	%	B
Total		697,940			626,796			71,144			11.4	%	W
Operating Income		38,798			68,221			(29,423	)		43.1	%	W
Other
Allowance for equity funds used during construction		6,124			4,444			1,680			37.8	%	B
Other income		3,848			4,512			(664	)		14.7	%	W
Other expense		(4,908	)		(6,353	)		1,445			22.7	%	B
Total		5,064			2,603			2,461			94.5	%	B
Interest Expense
Interest charges		54,766			50,126			4,640			9.3	%	W
Capitalized interest		(5,679	)		(4,807	)		(872	)		18.1	%	B
Total		49,087			45,319			3,768			8.3	%	W
Income (Loss) From Continuing Operations Before Income Taxes		(5,225	)		25,505			(30,730	)		120.5	%	W
Income Taxes		(557	)		9,041			(9,598	)		106.2	%	B
Income (Loss) From Continuing Operations		(4,668	)		16,464			(21,132	)		128.4	%	W
Income From Discontinued Operations
Net of Income Taxes		195			66			129			195.5	%	B
Net Income (Loss)	$	(4,473	)	$	16,530		$	(21,003	)		127.1	%	W
Weighted-Average Common Shares Outstanding — Basic		100,521			100,045			476			0.5	%
Weighted-Average Common Shares Outstanding — Diluted		100,521			100,622			(101	)		0.1	%
Earnings Per Weighted-Average Common Share Outstanding
Income (loss) from continuing operations — basic	$	(0.05	)	$	0.16		$	(0.21	)		131.3	%	W
Net income (loss) — basic	$	(0.04	)	$	0.17		$	(0.21	)		123.5	%	W
Income (loss) from continuing operations — diluted	$	(0.05	)	$	0.16		$	(0.21	)		131.3	%	W
Net income (loss) — diluted	$	(0.04	)	$	0.16		$	(0.20	)		125.0	%	W

B	— Better
W	— Worse