Arizona Public Service Company

Sara,

The following items are outstanding issues with respect to the
above-referenced ISDA:

1. Arizona Public Service Company plans on executing the ISDA as Arizona
Public Service Company, on behalf of its Bulk Power Marketing Resource
Operations Division ("BPMROD"). It is APSC's intent in the future to create
a new entity for this division, such new entity to enter into all trading
transactions. As a result, it is ASPC's desire to modify the definition of
"Specified Transaction" to only include transactions between Party A and
BPMROD.

2. Procedures for Entering into Transactions - ASPC would like 5 days to
dispute or accept confirmations. Apparently, all of their agreements provide
for 5 days, therefore any shorter time period could cause problems for them.
I had previously offered 3 days.

3. Part 5 (f) Recording - ASPC wants to consent to recordings on "trading
lines only". They do not want to consent to officers (non-traders) being
recorded if the communication does not occur on a trading line.

4. Part 5 (g)(B) - Setoff - ASPC wants to delete "or any of its Affiliates"
from this section. ASPC thinks this issue is related to their issue in #1
above. I don't see why. What do you think? I assume that we are not
willing to strike "or any of its Affiliates".

The only other issue is a credit issue which I am handling with Paul Radous.
So, we're close. Let me know what you think.

Jason