Exhibit 99.4

Last Updated
2/18/11

Pinnacle West Capital Corporation
Earnings Variance Explanations
For the Three-Month and Twelve-Month Periods Ended December 31, 2010 and 2009

The following discussion includes the earnings variance explanations for Pinnacle West Capital Corporation (“Pinnacle West”) for the three months and twelve months ended December 31, 2010 and 2009. We suggest that this discussion be read in connection with the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Additional operating and financial statistics and a glossary of terms are available on our website (www.pinnaclewest.com).

RESULTS OF OPERATIONS

Pinnacle West’s reportable business segment is our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily electricity service to Native Load customers) and related activities and includes electricity generation, transmission and distribution.

Our reportable business segments reflect a change from previously reported information. As of December 31, 2010, our real estate activities are no longer considered a segment requiring separate reporting or disclosure. In 2009 our real estate subsidiary, SunCor, began disposing of its homebuilding operations, master-planned communities, land parcels, commercial assets and golf courses in order to reduce its outstanding debt (see Note 23). At December 31, 2010, SunCor had total remaining assets of about $16 million, which includes approximately $3 million of assets held for sale. Additionally, all of SunCor’s operations are reflected in discontinued operations.

Operating Results — Three-month period ended December 31, 2010 compared with three-month period ended December 31, 2009

Our consolidated net income attributable to common shareholders for the three months ended December 31, 2010 was $7 million, compared with a net loss of $30 million for the comparable prior-year period. The $37 million variance consists of a $23 million increase in income from continuing operations and a $14 million increase from discontinued operations (primarily real estate activities). As discussed in greater detail below, the improved results reflect an increase of approximately $20 million in regulated electricity segment net income primarily due to increased revenues related to APS’s retail rate increases, partially offset by increased operating expenses.

Last Updated
2/18/11

The following table presents net income (loss) attributable to common shareholders by business segment compared with the prior-year period:

		Three Months Ended
		December 31,
		2010				2009				Net Change
		(dollars in millions)
Regulated Electricity Segment:
Operating revenues less fuel and purchased power expenses		$	428			$	392			$	36
Operations and maintenance			(231	)			(219	)			(12	)
Depreciation and amortization			(107	)			(103	)			(4	)
Taxes other than income taxes			(34	)			(22	)			(12	)
Other income (expenses), net			2				(3	)			5
Interest charges, net of allowance for funds used during construction			(52	)			(55	)			3
Income taxes			5				1				4
Noncontrolling interests (Note 7)			(5	)			(5	)			—
Regulated electricity segment net income (loss)			6				(14	)			20
All other (a)			1				(2	)			3
Income (Loss) from Continuing Operations Attributable to Common Shareholders			7				(16	)			23
Loss from Discontinued Operations Attributable to Common Shareholders (primarily real estate impairment charges at SunCor)			—				(14	)			14
Net Income (Loss) Attributable to Common Shareholders		$	7			$	(30	)		$	37

Regulated electricity segment

This section includes a discussion of major variances in income and expense amounts for the regulated electricity segment.

Last Updated
2/18/11

Operating revenues less fuel and purchased power expenses Regulated electricity segment operating revenues less fuel and purchased power expenses were $36 million higher for the three months ended December 31, 2010 compared with the prior-year period. The following table describes the major components of this change:

		Increase (Decrease)
						Fuel and
						purchased
		Operating				power
		revenues				expenses				Net change
		(dollars in millions)
Retail regulatory settlement effective January 1, 2010:
Retail base rate increases, net of deferrals		$	54			$	28			$	26
Line extension revenues (Note 3)			4								4
Transmission rate decreases			(2	)							(2	)
Higher demand-side management and renewable energy surcharges (substantially offset in operations and maintenance expense)			7				1				6
Effects of weather on retail sales			7				2				5
Lower fuel and purchased power costs including the effects of higher off-system sales, net of related PSA deferrals			4				(2	)			6
Lower retail revenues related to recovery of PSA deferrals, substantially offset by lower amortization of fuel and purchased power expense			(58	)			(59	)			1
Lower retail sales primarily due to lower usage per customer, including the effects of the Company’s energy efficiency programs, but excluding the effects of weather			(9	)			(2	)			(7	)
Miscellaneous items, net			(4	)			(1	)			(3	)
Total		$	3			$	(33	)		$	36

Operations and maintenance Operations and maintenance expenses increased $12 million for the three months ended December 31, 2010 compared with the prior-year period primarily because of:

	•		An increase of $5 million related to demand-side management and renewable energy programs, which are primarily offset in operating revenues;
	•		An increase of $6 million related to employee benefits costs; and
	•		An increase of $1 million due to other miscellaneous factors.

Taxes other than income taxes Taxes other than income taxes increased $12 million for the three months ended December 31, 2010 compared with the prior-year period primarily because of higher property tax rates in the current year.

Last Updated
2/18/11

Income taxes Income taxes were $4 million lower for the three months ended December 31, 2010 compared with the prior year primarily because of $4 million of income tax benefits related to prior years that were resolved in the current year and $2 million of income tax benefits related to the extension of the Federal R&D credit, partially offset by higher pretax income in the current-year period.

Discontinued Operations

Real estate activities As of December 31, 2010, all of SunCor’s operations have been reclassified to discontinued operations. The income from discontinued operations related to real estate activities was $14 million higher for the three months ended December 31, 2010 compared with the prior-year period primarily because of real estate impairment charges recorded in the prior-year period.

Operating Results — 2010 compared with 2009

Our consolidated net income attributable to common shareholders for 2010 was $350 million, compared with $68 million for the comparable prior-year period. The improved results were primarily due to lower real estate impairment charges recorded in 2010 compared with the prior-year period by SunCor.

In addition, regulated electricity segment net income increased approximately $82 million from the prior-year period due to increased revenues related to APS’s retail rate increases and other factors. Our consolidated results for 2010 also include a gain of $25 million after income taxes related to the sale of APSES’ district cooling business.

Last Updated
2/18/11

The following table presents net income (loss) attributable to common shareholders by business segment compared with the prior-year period:

		Year Ended
		December 31,
		2010				2009				Net Change
		(dollars in millions)
Regulated Electricity Segment:
Operating revenues less fuel and purchased power expenses		$	2,134			$	1,970			$	164
Operations and maintenance			(870	)			(822	)			(48	)
Depreciation and amortization			(415	)			(407	)			(8	)
Taxes other than income taxes			(135	)			(123	)			(12	)
Other income (expenses), net			(4	)			(2	)			(2	)
Interest charges, net of allowance for funds used during construction			(204	)			(212	)			8
Income taxes			(161	)			(142	)			(19	)
Noncontrolling interests (Note 20)			(20	)			(19	)			(1	)
Regulated electricity segment net income			325				243				82
All other (a)			5				(10	)			15
Income from Continuing Operations Attributable to Common Shareholders			330				233				97
Discontinued real estate activities, primarily impairment charges at SunCor (Note 23)			(6	)			(167	)			161
All other discontinued operations (b)			26				2				24
Income (Loss) from Discontinued Operations Attributable to Common Shareholders			20				(165	)			185
Net Income Attributable to Common Shareholders		$	350			$	68			$	282

Regulated electricity segment

This section includes a discussion of major variances in income and expense amounts for the regulated electricity segment.

Last Updated
2/18/11

Operating revenues less fuel and purchased power expenses Regulated electricity segment operating revenues less fuel and purchased power expenses were $164 million higher for the year ended 2010 compared with the prior year. The following table describes the major components of this change:

		Increase (Decrease)
						Fuel and
						purchased
		Operating				power
		revenues				expenses				Net change
		(dollars in millions)
Retail regulatory settlement effective January 1, 2010:
Retail base rate increases, net of deferrals		$	269			$	128			$	141
Line extension revenues (Note 3)			19								19
Transmission rate increases			6								6
Higher demand-side management and renewable energy surcharges (substantially offset in operations and maintenance expense)			33				2				31
Higher fuel and purchased power costs offset by the effects of higher off-system sales, net of related PSA deferrals			28				26				2
Lower retail revenues related to recovery of PSA deferrals, substantially offset by lower amortization of fuel and purchased power expense			(270	)			(276	)			6
Lower retail sales primarily due to lower usage per customer, including the effects of the Company’s energy efficiency programs, but excluding the effects of weather			(28	)			(9	)			(19	)
Effects of weather on retail sales, primarily due to milder weather in the second quarter 2010			(20	)			(6	)			(14	)
Miscellaneous items, net			(5	)			3				(8	)
Total		$	32			$	(132	)		$	164

Operations and maintenance Operations and maintenance expenses increased $48 million for the year ended 2010 compared with the prior year primarily because of:

	•		An increase of $25 million related to demand-side management and renewable energy programs, which are primarily offset in operating revenues;
	•		An increase of $18 million related to employee benefits costs; and
	•		An increase of $5 million related to other miscellaneous factors.

Depreciation and Amortization Depreciation and amortization expenses were $8 million higher for the year ended 2010 compared with the prior year primarily because of increased plant in service partially offset by lower depreciation rates.

Last Updated
2/18/11

Taxes other than income taxes Taxes other than income taxes increased $12 million for the year ended 2010 compared with the prior year primarily because of higher property tax rates in the current year.

Interest charges, net of allowance for funds used during construction Interest charges, net of allowance for funds used during construction, decreased $8 million for the year ended 2010 compared with the prior year primarily because of higher rates in the current year for the allowance for equity and borrowed funds used during construction, partially offset by higher interest charges due to higher debt balances. Interest charges, net of allowance for funds used during construction are comprised of the regulated electricity segment portions of the line items interest expense and allowance for equity and borrowed funds used during construction from the Consolidated Statements of Income.

Income taxes Income taxes were $19 million higher for the year ended 2010 compared with the prior year primarily because of higher pretax income in the current-year period, partially offset by $17 million of income tax benefits related to prior years that were resolved in the current year. See Note 4.

All other

All other revenues increased $56 million partially offset by increased other expenses of $41 million resulting primarily from improved margins from APSES’ products and services business. In addition, other income was higher due to investment losses at El Dorado in 2009.

Discontinued Operations

Real estate activities During the first quarter of 2009, SunCor’s Board of Directors authorized a series of strategic transactions to dispose of SunCor’s assets. This decision resulted in impairment charges of approximately $161 million after income taxes in 2009. As of December 31, 2010, all of SunCor’s operations have been reclassified to discontinued operations (see Note 22). The after-tax impacts of the $6 million loss from real estate activities for the year ended 2010 includes real estate impairment charges of approximately $10 million (see Note 23) and other costs of $6 million, partially offset by a gain from debt restructuring of approximately $10 million (see Note 6).

All other All other earnings from discontinued operations were $24 million higher for the year ended 2010 compared to the prior-year period primarily because of a gain of $25 million after income taxes related to the sale of APSES’ district cooling business in 2010.

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

		THREE MONTHS ENDED
		DECEMBER 31,								Increase (Decrease)
		2010				2009				Amount				Percent
Operating Revenues
Regulated electricity segment		$	653,626			$	650,349			$	3,277				0.5	% B
Other revenues			29,985				10,559				19,426				184.0	% B
Total			683,611				660,908				22,703				3.4	% B
Operating Expenses
Regulated electricity segment fuel and purchased power			225,571				257,990				(32,419	)			12.6	% B
Operations and maintenance			232,991				221,462				11,529				5.2	% W
Depreciation and amortization			106,691				103,397				3,294				3.2	% W
Taxes other than income taxes			34,398				22,489				11,909				53.0	% W
Other expenses			24,642				8,672				15,970				184.2	% W
Total			624,293				614,010				10,283				1.7	% W
Operating Income			59,318				46,898				12,420				26.5	% B
Other
Allowance for equity funds used during construction			5,649				3,080				2,569				83.4	% B
Other income			2,540				1,176				1,364				116.0	% B
Other expense			(1,114	)			(5,382	)			4,268				79.3	% B
Total			7,075				(1,126	)			8,201				728.3	% B
Interest Expense
Interest charges			62,237				60,080				2,157				3.6	% W
Allowance for borrowed funds used during construction			(4,225	)			(2,112	)			(2,113	)			100.0	% B
Total			58,012				57,968				44				0.1	% W
Income (Loss) From Continuing Operations Before Income Taxes			8,381				(12,196	)			20,577				168.7	% B
Income Taxes			(3,822	)			(1,088	)			(2,734	)			251.3	% B
Income (Loss) From Continuing Operations			12,203				(11,108	)			23,311				209.9	% B
Income (Loss) From Discontinued Operations
Net of Income Taxes			298				(13,927	)			14,225				102.1	% B
Net Income (Loss)			12,501				(25,035	)			37,536				149.9	% B
Less: Net income attributable to noncontrolling interests			5,151				5,124				27				0.5	% W
Net Income (Loss) Attributable To Common Shareholders		$	7,350			$	(30,159	)		$	37,509				124.4	% B
Weighted-Average Common Shares Outstanding — Basic			108,730				101,320				7,410				7.3	%
Weighted-Average Common Shares Outstanding — Diluted			109,224				101,320				7,904				7.8	%
Earnings Per Weighted-Average Common Share Outstanding
Income (loss) from continuing operations attributable to common shareholders — basic		$	0.07			$	(0.16	)		$	0.23				143.8	% B
Net income (loss) attributable to common shareholders — basic		$	0.07			$	(0.30	)		$	0.37				123.3	% B
Income (loss) from continuing operations attributable to common shareholders — diluted		$	0.06			$	(0.16	)		$	0.22				137.5	% B
Net income (loss) attributable to common shareholders — diluted		$	0.07			$	(0.30	)		$	0.37				123.3	% B
Amounts Attributable To Common Shareholders
Income (loss) from continuing operations, net of tax		$	7,074			$	(16,063	)		$	23,137				144.0	% B
Discontinued operations, net of tax			276				(14,096	)			14,372				102.0	% B
Net income (loss) attributable to common shareholders		$	7,350			$	(30,159	)		$	37,509				124.4	% B

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

		TWELVE MONTHS ENDED
		DECEMBER 31,								Increase (Decrease)
		2010				2009				Amount				Percent
Operating Revenues
Regulated electricity segment		$	3,180,678			$	3,149,187			$	31,491				1.0	% B
Other revenues			82,967				26,723				56,244				210.5	% B
Total			3,263,645				3,175,910				87,735				2.8	% B
Operating Expenses
Regulated electricity segment fuel and purchased power			1,046,815				1,178,620				(131,805	)			11.2	% B
Operations and maintenance			877,406				831,863				45,543				5.5	% W
Depreciation and amortization			414,555				407,463				7,092				1.7	% W
Taxes other than income taxes			135,334				123,277				12,057				9.8	% W
Other expenses			65,651				24,534				41,117				167.6	% W
Total			2,539,761				2,565,757				(25,996	)			1.0	% B
Operating Income			723,884				610,153				113,731				18.6	% B
Other
Allowance for equity funds used during construction			22,066				14,999				7,067				47.1	% B
Other income			6,368				5,278				1,090				20.7	% B
Other expense			(9,764	)			(14,269	)			4,505				31.6	% B
Total			18,670				6,008				12,662				210.8	% B
Interest Expense
Interest charges			244,174				237,527				6,647				2.8	% W
Allowance for borrowed funds used during construction			(16,539	)			(10,430	)			(6,109	)			58.6	% B
Total			227,635				227,097				538				0.2	% W
Income From Continuing Operations Before Income Taxes			514,919				389,064				125,855				32.3	% B
Income Taxes			164,321				136,506				27,815				20.4	% W
Income From Continuing Operations			350,598				252,558				98,040				38.8	% B
Income (Loss) From Discontinued Operations
Net of Income Taxes			19,611				(179,794	)			199,405				110.9	% B
Net Income			370,209				72,764				297,445				408.8	% B
Less: Net income attributable to noncontrolling interests			20,156				4,434				15,722				354.6	% W
Net Income Attributable To Common Shareholders		$	350,053			$	68,330			$	281,723				412.3	% B
Weighted-Average Common Shares Outstanding — Basic			106,573				101,161				5,412				5.3	%
Weighted-Average Common Shares Outstanding — Diluted			107,138				101,264				5,874				5.8	%
Earnings Per Weighted-Average Common Share Outstanding
Income from continuing operations attributable to common shareholders — basic		$	3.10			$	2.31			$	0.79				34.2	% B
Net income attributable to common shareholders — basic		$	3.28			$	0.68			$	2.60				382.4	% B
Income from continuing operations attributable to common shareholders — diluted		$	3.08			$	2.30			$	0.78				33.9	% B
Net income attributable to common shareholders — diluted		$	3.27			$	0.67			$	2.60				388.1	% B
Amounts Attributable To Common Shareholders
Income from continuing operations, net of tax		$	330,435			$	233,349			$	97,086				41.6	% B
Discontinued operations, net of tax			19,618				(165,019	)			184,637				111.9	% B
Net Income attributable to common shareholders		$	350,053			$	68,330			$	281,723				412.3	% B