Exhibit 99.7

LAST UPDATE: 10-22-04

Pinnacle West Capital Corporation
Earnings Variance Explanations
For Periods Ended September 30, 2004 and 2003

     This discussion explains the changes in our consolidated earnings for the three and nine-month periods ended September 30, 2004 and 2003. Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2004 and 2003 follow this discussion. We will file our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004 on or before November 9, 2004. We have reclassified certain prior period amounts to conform to our current period presentation. Additional operating and financial statistics and a glossary of terms are available on our website (www.pinnaclewest.com).

Earnings Contribution by Business Segment

     We have three principal business segments (determined by services and the regulatory environment):

• 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 marketing and trading segment, which consists of our competitive energy business activities, including wholesale marketing and trading and APS Energy Services’ commodity-related energy services; and

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

     The following table summarizes net income by segment for the three and nine months ended September 30, 2004 and the comparable prior-year periods (dollars in millions):

	Three Months Ended					Nine Months Ended
	September 30					September 30
	2004		2003			2004		2003
Regulated electricity	$	90	$	108		$	146	$	158
Marketing and trading		8		(7	)		25		8
Real estate		4		7			10		10
Other (a)		2		1			25		5
Income from continuing operations		104		109			206		181
Discontinued operations – net of tax		1		1			3		10
Net income	$	105	$	110		$	209	$	191

(a) The nine months ended September 30, 2004 includes a $35 million gain ($21 million after-tax) related to the sale of El Dorado’s limited partnership interest in the Phoenix Suns.

General

     Throughout the following explanations of our results of operations, we refer to “gross margin.” With respect to our regulated electricity segment and our marketing and trading segment, gross margin refers to electric operating revenues less purchased power and fuel costs. Our real estate segment gross margin refers to real estate revenues less real estate operations costs of SunCor.

     In accordance with the 1999 regulatory settlement approved by the Arizona Corporation Commission, we completed amortizing substantially all of our regulatory assets related to the 1999 Settlement Agreement as of June 30, 2004.

Operating Results – Three-month period ended September 30, 2004
compared with the three-month period ended September 30, 2003

     Our consolidated net income for the three months ended September 30, 2004 was $105 million compared with $110 million for the prior-year period. The $5 million decrease in the period-to-period comparison reflects the following changes in earnings by segment:

• Regulated Electricity Segment – Net income decreased approximately $18 million primarily due to increased operations and maintenance costs related to customer service and personnel costs, the effects of weather on retail sales, increased purchased power and fuel costs due to higher fuel and power prices, and increased costs related to new power plants placed in service in mid-2003 and mid-2004. These negative factors were partially offset by lower replacement power costs due to fewer unplanned outages, the absence of regulatory asset amortization, and the benefit of customer growth.

• Marketing and Trading Segment – Net income increased approximately $15 million primarily due to higher forward and realized prices for wholesale sales of electricity.

     Additional details on the major factors that increased (decreased) net income are contained in the following table (dollars in millions).

2

	Increase (Decrease)
	Pretax			After Tax
Regulated electricity segment gross margin:
Lower replacement power costs due to fewer unplanned outages, partially offset by higher prices for replacement power	$	24		$	14
Higher retail sales volumes due to customer growth, excluding weather effects		17			10
Effects of weather on retail sales		(20	)		(12	)
Increased purchased power and fuel costs due to higher fuel and power prices		(11	)		(6	)
Net increase in regulated electricity segment gross margin		10			6
Marketing and trading segment gross margin:
Higher mark-to-market gains on contracts for future delivery due to higher forward prices for wholesale electricity		11			7
Higher realized margins on energy trading primarily due to higher electricity prices		9			5
Increase in generation sales other than Native Load due to higher sales volumes and higher unit margins, including sales from new power plants in service		5			3
Lower unit margins and lower competitive retail sales in California by APS Energy Services		(2	)		(1	)
Net increase in marketing and trading segment gross margin		23			14
Net increase in regulated electricity and marketing and trading segments’ gross margins		33			20
Higher operations and maintenance expense primarily related to higher customer service costs, new power plants in service and personnel costs		(27	)		(16	)
Lower real estate margins due to decreased land sales		(4	)		(2	)
Depreciation and amortization decreases (increases):
Absence of regulatory asset amortization		21			13
New power plants in service		(4	)		(2	)
Increased delivery and other assets		(4	)		(2	)
Lower income resulting from APS’ return to the AFUDC method of capitalizing construction finance costs in the third quarter of 2003		(5	)		(8	)
Interest expense net decreases (increases):
New power plants in service		(6	)		(4	)
Lower other debt balances		3			2
Higher property taxes due to increased plant in service		(3	)		(2	)
Lower income tax credits		—			(4	)
Net increase (decrease) in net income	$	4		$	(5	)

     The increase in net costs (primarily interest expense, depreciation and operations and maintenance expense, net of gross margin contributions) related to new power plants placed in service in mid-2003 and mid-2004 by Pinnacle West Energy totaled approximately $6 million after income taxes in the three months ended September 30, 2004, compared with the prior-year period.

3

Regulated Electricity Segment Revenues

     Regulated electricity segment revenues were $3 million higher for the three months ended September 30, 2004 compared with the prior-year period, primarily as a result of:

• a $38 million increase in retail sales volumes related to customer growth and higher average usage, excluding weather effects;

• a $44 million decrease in retail revenues related to weather; and

• a $9 million increase due to miscellaneous factors.

Marketing and Trading Segment Revenues

     Marketing and trading segment revenues were $46 million higher for the three months ended September 30, 2004 compared with the prior-year period, primarily as a result of:

• a $31 million increase from generation sales other than Native Load primarily due to sales volumes and higher wholesale market prices;

• $13 million of higher realized energy trading revenues primarily due to higher electricity prices;

• $11 million in higher mark-to-market gains for future-period deliveries primarily as a result of higher forward prices for wholesale electricity; and

• a $9 million decrease from lower competitive retail sales in California by APS Energy Services.

Other Revenues

     Other revenues were $7 million higher for the three months ended September 30, 2004 compared with the prior year period primarily due to higher non-commodity revenues at APS Energy Services.

Operating Results – Nine-month period ended September 30, 2004
compared with the nine-month period ended September 30, 2003

     Our consolidated net income for the nine months ended September 30, 2004 was $209 million compared with $191 million for the prior-year period. The $18 million increase in the period-to-period comparison reflects the following changes in earnings by segment:

• Regulated Electricity Segment – Net income decreased approximately $12 million primarily due to higher costs related to new power plants

4

	placed in service in mid-2003 and mid-2004, increased operations and maintenance costs related to customer service and personnel costs, higher depreciation, property taxes and interest expense related to increased delivery and other assets, a retail electricity price reduction, the effects of weather on retail sales, and increased fuel and purchased power costs due to higher fuel and power prices. These negative factors were partially offset by lower regulatory asset amortization, the benefit of customer growth, lower interest expense due to lower balances and rates, and lower replacement power costs due to fewer unplanned outages.
•	Marketing and Trading Segment – net income increased approximately $17 million primarily due to higher forward and realized prices for wholesale electricity, partially offset by lower margins in California of APS Energy Services.
•	Real Estate Segment – Net income decreased approximately $5 million primarily due to the 2003 gain on the sale of SunCor’s water utility company, which was reported as discontinued operations.
•	Other Segment – Net income increased approximately $18 million primarily due to a gain at El Dorado related to the sale of El Dorado’s limited partnership interest in the Phoenix Suns, which resulted in an after-tax gain of $21 million.

     Additional details on the major factors that increased (decreased) income from continuing operations and net income are contained in the following table (dollars in millions).

5

	Increase (Decrease)
	Pretax			After Tax
Regulated electricity segment gross margin:
Higher retail sales volumes due to customer growth, excluding weather effects	$	41		$	25
Lower replacement power costs due to fewer unplanned outages		7			4
Retail electricity price reduction effective July 1, 2003		(13	)		(8	)
Effects of weather on retail sales		(10	)		(6	)
Increased purchased power and fuel costs due to higher fuel and power prices		(10	)		(6	)
Miscellaneous factors, net		(3	)		(2	)
Net increase in regulated electricity segment gross margin		12			7
Marketing and trading segment gross margin:
Higher mark-to-market gains on contracts for future delivery due to higher forward prices for wholesale electricity		22			13
Higher realized margins on energy trading primarily due to higher electricity prices		17			10
Increase in generation sales other than Native Load due to higher sales volumes and higher unit margins, including sales from new power plants in service		6			4
Lower unit margins and lower competitive retail sales in California by APS Energy Services		(19	)		(11	)
Net increase in marketing and trading segment gross margin		26			16
Net increase in regulated electricity and marketing and trading segments’ gross margins		38			23
Higher other income net of other expense primarily due to the sale of El Dorado’s limited partnership interest in the Phoenix Suns		37			22
Higher operations and maintenance expense primarily related to customer service costs, new power plants in service and personnel costs		(29	)		(17	)
Interest expense net decreases (increases):
New power plants in service		(19	)		(11	)
Increased delivery and other assets		(7	)		(6	)
Lower other debt balances and rates		14			8
Depreciation and amortization decreases (increases):
Decreased regulatory asset amortization		47			28
New power plants in service		(14	)		(8	)
Increased delivery and other assets		(15	)		(9	)
Higher property taxes due to increased plant in service		(10	)		(6	)
Lower income tax credits		—			(2	)
Miscellaneous items, net		5			3
Net increase in income from continuing operations	$	47			25
Discontinued operations					(7	)
Net increase in net income				$	18

     The increase in net costs (primarily interest expense, depreciation and operations and maintenance expense, net of gross margin contributions) related to new power plants placed in service in mid-2003 and mid-2004 by Pinnacle West Energy totaled approximately $21 million after income taxes in the nine months ended September 30, 2004, compared with the prior-year period.

6

Regulated Electricity Segment Revenues

     Regulated electricity segment revenues were $60 million higher for the nine months ended September 30, 2004 compared with the prior-year period, primarily as a result of:

• a $86 million increase in retail revenues related to customer growth and higher average usage, excluding weather effects;

• a $27 million decrease in retail revenues related to weather;

• a $13 million decrease in retail revenues related to a reduction in retail electricity prices; and

• a $14 million increase due to miscellaneous factors.

Marketing and Trading Segment Revenues

     Marketing and trading segment revenues were $31 million higher for the nine months ended September 30, 2004 compared with the prior-year period, primarily as a result of:

• $22 million in higher mark-to-market gains for future-period deliveries primarily as a result of higher forward prices for wholesale electricity;

• $17 million of higher energy trading revenues primarily due to higher electricity prices;

• a $7 million increase from generation sales other than Native Load primarily due to higher wholesale market prices; and

• a $15 million decrease from lower competitive retail sales in California by APS Energy Services.

Real Estate Segment Revenues

     Real estate segment revenues were $21 million higher for the nine months ended September 30, 2004 compared with the prior year period primarily as a result of increased home and commercial property sales partially offset by decreased land sales.

Other Revenues

     Other revenues were $16 million higher for the nine months ended September 30, 2004 compared with the prior year period primarily due to higher non-commodity revenues at APS Energy Services.

7

Discontinued Operations

     In 2003, SunCor sold its water utility company. The amounts of the gain on the sale and operating income of the water utility company are classified as discontinued operations on our Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2004 and 2003.

     In July 2004, we entered into an agreement to sell our investment in NAC Holding Inc. and NAC International Inc. (NAC). The transaction is expected to close later this year and result in an after-tax gain of approximately $6 million, which will be classified as discontinued operations. Due to the pending sale of NAC, all revenues and expenses for NAC have been reclassified to discontinued operations for the three months and nine months ended September 30, 2004 and 2003 on our Condensed Consolidated Statements of Income.

     The following chart provides a summary of SunCor and NAC income from discontinued operations (after income taxes) for the three and nine months ended September 30, 2004 and the comparable prior periods (dollars in millions):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
SunCor	$	1	$	—	$	2	$	6
NAC		—		1		1		4
Total income from discontinued operations	$	1	$	1	$	3	$	10

8

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

	THREE MONTHS ENDED
	September 30,						Increase (Decrease)
	2004			2003			Amount			Percent
Operating Revenues
Regulated electricity segment	$	670,559		$	667,400		$	3,159			0.5	%	B
Marketing and trading segment		128,563			82,558			46,005			55.7	%	B
Real estate segment		75,072			75,009			63			0.1	%	B
Other revenues		12,585			6,035			6,550			108.5	%	B
Total		886,779			831,002			55,777			6.7	%	B
Operating Expenses
Regulated electricity segment purchased power and fuel		202,156			208,757			(6,601	)		3.2	%	B
Marketing and trading segment purchased power and fuel		107,377			84,195			23,182			27.5	%	W
Operations and maintenance		160,765			133,852			26,913			20.1	%	W
Real estate segment operations		67,079			63,196			3,883			6.1	%	W
Depreciation and amortization		97,349			110,242			(12,893	)		11.7	%	B
Taxes other than income taxes		31,649			28,206			3,443			12.2	%	W
Other expenses		9,568			5,193			4,375			84.2	%	W
Total		675,943			633,641			42,302			6.7	%	W
Operating Income		210,836			197,361			13,475			6.8	%	B
Other
Allowance for equity funds used during construction		(1,327	)		11,194			(12,521	)		111.9	%	W
Other income		2,836			5,533			(2,697	)		48.7	%	W
Other expense		(4,568	)		(5,791	)		1,223			21.1	%	B
Total		(3,059	)		10,936			(13,995	)		128.0	%	W
Interest Expense
Interest charges		49,497			52,527			(3,030	)		5.8	%	B
Capitalized interest		(4,506	)		(2,851	)		(1,655	)		58.0	%	B
Total		44,991			49,676			(4,685	)		9.4	%	B
Income From Continuing Operations Before Income Taxes		162,786			158,621			4,165			2.6	%	B
Income Taxes		58,900			49,961			8,939			17.9	%	W
Income From Continuing Operations		103,886			108,660			(4,774	)		4.4	%	W
Income from Discontinued Operations
Net of Income Tax Expense		1,514			1,388			126			9.1	%	B
Net Income	$	105,400		$	110,048		$	(4,648	)		4.2	%	W
Weighted-Average Common Shares Outstanding — Basic		91,357			91,271			86			0.1	%
Weighted-Average Common Shares Outstanding — Diluted		91,491			91,467			24			0.0	%
Earnings Per Weighted-Average Common Share Outstanding
Income From Continuing Operations — Basic	$	1.14		$	1.19		$	(0.05	)		4.2	%	W
Net Income — Basic	$	1.15		$	1.21		$	(0.06	)		5.0	%	W
Income From Continuing Operations — Diluted	$	1.14		$	1.19		$	(0.05	)		4.2	%	W
Net Income — Diluted	$	1.15		$	1.20		$	(0.05	)		4.2	%	W

Certain prior year amounts have been restated to conform to the 2004 presentation.

B — Better

W — Worse

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

	NINE MONTHS ENDED
	September 30,						Increase (Decrease)
	2004			2003			Amount			Percent
Operating Revenues
Regulated electricity segment	$	1,605,952		$	1,545,829		$	60,123			3.9	%	B
Marketing and trading segment		332,186			300,439			31,747			10.6	%	B
Real estate segment		193,965			172,886			21,079			12.2	%	B
Other revenues		32,904			16,774			16,130			96.2	%	B
Total		2,165,007			2,035,928			129,079			6.3	%	B
Operating Expenses
Regulated electricity segment purchased power and fuel		442,409			394,373			48,036			12.2	%	W
Marketing and trading segment purchased power and fuel		269,261			263,201			6,060			2.3	%	W
Operations and maintenance		437,126			408,488			28,638			7.0	%	W
Real estate segment operations		177,374			157,297			20,077			12.8	%	W
Depreciation and amortization		302,919			321,197			(18,278	)		5.7	%	B
Taxes other than income taxes		94,511			84,851			9,660			11.4	%	W
Other expenses		25,893			12,445			13,448			108.1	%	W
Total		1,749,493			1,641,852			107,641			6.6	%	W
Operating Income		415,514			394,076			21,438			5.4	%	B
Other
Allowance for equity funds used during construction		2,859			11,194			(8,335	)		74.5	%	W
Other income		50,653			13,886			36,767			264.8	%	B
Other expense		(14,444	)		(15,079	)		635			4.2	%	B
Total		39,068			10,001			29,067			290.6	%	B
Interest Expense
Interest charges		144,645			151,332			(6,687	)		4.4	%	B
Capitalized interest		(13,537	)		(24,061	)		10,524			43.7	%	W
Total		131,108			127,271			3,837			3.0	%	W
Income From Continuing Operations Before Income Taxes		323,474			276,806			46,668			16.9	%	B
Income Taxes		117,574			96,054			21,520			22.4	%	W
Income From Continuing Operations		205,900			180,752			25,148			13.9	%	B
Income from Discontinued Operations
Net of Income Tax Expense		3,566			10,736			(7,170	)		66.8	%	W
Net Income	$	209,466		$	191,488		$	17,978			9.4	%	B
Weighted-Average Common Shares Outstanding — Basic		91,322			91,262			60			0.1	%
Weighted-Average Common Shares Outstanding — Diluted		91,430			91,432			(2	)		0.0	%
Earnings Per Weighted-Average Common Share Outstanding
Income From Continuing Operations — Basic	$	2.25		$	1.98		$	0.27			13.6	%	B
Net Income — Basic	$	2.29		$	2.10		$	0.19			9.0	%	B
Income From Continuing Operations — Diluted	$	2.25		$	1.98		$	0.27			13.6	%	B
Net Income — Diluted	$	2.29		$	2.09		$	0.20			9.6	%	B

Certain prior year amounts have been restated to conform to the 2004 presentation.

B — Better

W — Worse