10q10k10q10k.net

What changed in Pinnacle West Capital's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Pinnacle West Capital's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+526 added−579 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-27)

Top changes in Pinnacle West Capital's 2023 10-K

526 paragraphs added · 579 removed · 370 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

137 edited+46 added−73 removed128 unchanged
Biggest changeLocation Actual/ Target Commercial Operation Date Term (Years) Net Capacity In Operation (MW AC) Net Capacity Planned/Under Development (MW AC) APS Owned Solar: AZ Sun Program: Paloma Gila Bend, AZ 2011 17 Cotton Center Gila Bend, AZ 2011 17 Hyder Phase 1 Hyder, AZ 2011 11 Hyder Phase 2 Hyder, AZ 2012 6 Chino Valley Chino Valley, AZ 2012 20 Hyder II Hyder, AZ 2013 14 Foothills Yuma, AZ 2013 38 Gila Bend Gila Bend, AZ 2014 36 Luke AFB Glendale, AZ 2015 11 Desert Star Buckeye, AZ 2015 10 Subtotal AZ Sun Program 180 — Multiple Facilities AZ Various 4 Red Rock Red Rock, AZ 2016 44 Agave Solar Arlington, AZ 2023 150 Distributed Energy: APS Owned (a) AZ Various 36 Total APS Owned 264 150 Purchased Power Agreements Solar: Solana Gila Bend, AZ 2013 30 250 RE Ajo Ajo, AZ 2011 25 5 Sun E AZ 1 Prescott, AZ 2011 30 10 Saddle Mountain Tonopah, AZ 2012 30 15 Badger Tonopah, AZ 2013 30 15 14 Table of Contents Gillespie Maricopa County, AZ 2013 30 15 CO Bar Solar A Coconino County, AZ 2023 18 80 CO Bar Solar B Coconino County, AZ 2023 18 80 Mesquite Solar 5 Tonopah, AZ 2023 20 60 Sunstreams 3 Arlington, AZ 2024 20 215 Sunstreams 4 Arlington, AZ 2025 20 300 Wind: Aragonne Mesa Santa Rosa, NM 2022 20 200 High Lonesome Mountainair, NM 2009 30 100 Perrin Ranch Wind Williams, AZ 2012 25 99 Chevelon Butte Winslow, AZ 2023 20 238 Chevelon Butte II Winslow, AZ 2024 20 216 Geothermal: Salton Sea Imperial County, CA 2006 23 10 Biomass: Snowflake Snowflake, AZ 2008 25 14 Biogas: NW Regional Landfill Surprise, AZ 2012 20 3 Total Purchased Power Agreements 736 1,189 Distributed Energy Solar (b) Third-party Owned AZ Various 1,385 137 Agreement 1 Bagdad, AZ 2011 25 15 Agreement 2 AZ 2011-2012 20-21 18 Total Distributed Energy 1,418 137 Total Renewable Portfolio 2,418 1,476 (a) Includes Flagstaff Community Power Project, APS School and Government Program, APS Solar Partner Program, and APS Solar Communities Program.
Biggest changeLocation Actual/ Target Commercial Operation Date Term (Years) Net Capacity In Operation (MW AC) Net Capacity Planned/Under Development (MW AC) APS Owned Solar: AZ Sun Program: Paloma Gila Bend, AZ 2011 17 Cotton Center Gila Bend, AZ 2011 17 Hyder Phase 1 Hyder, AZ 2011 11 Hyder Phase 2 Hyder, AZ 2012 6 Chino Valley Chino Valley, AZ 2012 20 12 Table of Contents Hyder II Hyder, AZ 2013 14 Foothills Yuma, AZ 2013 38 Gila Bend Gila Bend, AZ 2014 36 Luke AFB Glendale, AZ 2015 11 Desert Star Buckeye, AZ 2015 10 Subtotal AZ Sun Program 180 — Multiple Facilities AZ Various 4 Red Rock Red Rock, AZ 2016 44 Agave Solar Arlington, AZ 2023 150 Distributed Energy: APS Owned (a) AZ Various 37 Total APS Owned 415 — PPAs Solar: Solana Gila Bend, AZ 2013 30 250 RE Ajo Ajo, AZ 2011 25 5 Sun E AZ 1 Prescott, AZ 2011 30 10 Saddle Mountain Tonopah, AZ 2012 30 15 Badger Tonopah, AZ 2013 30 15 Gillespie Maricopa County, AZ 2013 30 15 CO Bar Solar C Coconino County, AZ 2025 20 206 Mesquite Solar 5 Tonopah, AZ 2023 20 60 Sunstreams 3 Arlington, AZ 2024 20 215 Sunstreams 4 Arlington, AZ 2025 20 300 Harquahala Sun Tonopah, AZ 2025 20 300 Serrano Solar Pima and Pinal County, AZ 2025 20 170 Yuma Solar Energy Yuma County, AZ 2024 20 70 Wind: Aragonne Mesa Santa Rosa, NM 2022 20 200 High Lonesome Mountainair, NM 2009 30 100 Perrin Ranch Wind Williams, AZ 2012 25 99 Chevelon Butte Winslow, AZ 2023 20 238 Chevelon Butte II Winslow, AZ 2024 20 216 West Camp Wind Farm Navajo County, AZ 2025 20 400 Geothermal: Salton Sea Imperial County, CA 2006 23 10 Biomass: Snowflake Snowflake, AZ 2008 25 14 Biogas: NW Regional Landfill Surprise, AZ 2012 20 3 Total PPAs 1,034 1,877 Distributed Energy Solar (b) Third-party Owned AZ Various 1,590 61 Agreement 1 Bagdad, AZ 2011 25 15 Agreement 2 AZ 2011-2012 20-21 18 Total Distributed Energy 1,623 61 Total Renewable Portfolio 3,072 1,938 (a) Includes Flagstaff Community Power Project, APS School and Government Program, APS Solar Partner Program, and APS Solar Communities Program. 13 Table of Contents (b) Includes rooftop solar facilities owned by third parties.
As a result, those generic impacts do not need to be 8 Table of Contents re-analyzed in the environmental reviews for individual licenses. The final Continued Storage Rule was subject to continuing legal challenges before the NRC and the Court of Appeals. In June 2016, the D.C.
As a result, those generic impacts do not need to be re-analyzed in the environmental reviews for individual licenses. The final Continued Storage Rule was 8 Table of Contents subject to continuing legal challenges before the NRC and the Court of Appeals. In June 2016, the D.C.
On October 28, 2021, an ACC Commissioner docketed a letter directing ACC Staff and interested stakeholders to design a 200-300 MW pilot program that would allow residential and small commercial customers of APS to elect a competitive electricity supplier. The letter also states that similar programs should be designed for other Arizona regulated electric utilities.
On October 28, 2021, an ACC Commissioner docketed a letter directing ACC Staff and interested stakeholders to design a 200 to 300 MW pilot program that would allow residential and small commercial customers of APS to elect a competitive electricity supplier. The letter also states that similar programs should be designed for other Arizona regulated electric utilities.
(b) Does not include MW of capacity planned or under development. Renewable energy purchased power agreements are described in detail below under “Current and Future Resources — Renewable Energy Standard — Renewable Energy Portfolio.” Current and Future Resources Current Demand and Reserve Margin Electric power demand is generally seasonal. In Arizona, demand for power peaks during the hot summer months.
(b) Does not include MW of capacity planned or under development. Renewable energy purchased power agreements are described in detail below under “Current and Future Resources — Renewable Energy Standard.” Current and Future Resources Current Demand and Reserve Margin Electric power demand is generally seasonal. In Arizona, demand for power peaks during the hot summer months.
On November 3, 2021, the ACC submitted questions to the Office of the Arizona Attorney General, Civil Litigation Division, Consumer Protection & Advocacy Section (“Attorney General”) requesting legal opinions related to a number of issues surrounding retail electric competition and the ACC’s ability to issue competitive certificates convenience and necessity.
On November 3, 2021, the ACC submitted questions to the Arizona Attorney General, Civil Litigation Division, Consumer Protection & Advocacy Section (“Attorney General”) requesting legal opinions related to a number of issues surrounding retail electric competition and the ACC’s ability to issue competitive certificates convenience and necessity.
In October 2011, the California Air Resources Board approved final regulations that established a state-wide cap on GHG emissions beginning on January 1, 2013, and established a GHG allowance trading program under that cap. The first phase of the program, which applies to, among other entities, importers of electricity, commenced on January 1, 2013.
In October 2011, the California Air Resources Board (“CARB”) approved final regulations that established a state-wide cap on GHG emissions beginning on January 1, 2013, and established a GHG allowance trading program under that cap. The first phase of the program, which applies to, among other entities, importers of electricity, commenced on January 1, 2013.
Gila River Adjudication. A summons served on APS in early 1986 required all water claimants in the Lower Gila River Watershed in Arizona to assert any claims to water on or before January 20, 1987, in an action pending in Arizona Superior Court. Palo Verde is located within the geographic area subject to the summons.
A summons served on APS in early 1986 required all water claimants in the Lower Gila River Watershed in Arizona to assert any claims to water on or before January 20, 1987, in an action pending in Arizona Superior Court. Palo Verde is located within the geographic area subject to the summons.
The adopted rules require 100% clean energy by 2070 and the following interim standards for carbon reduction from baseline carbon emissions level: 50% reduction by December 31, 2032; 65% reduction by December 31, 2040; 80% reduction by December 31, 2050, and 95% reduction by December 31, 2060.
The adopted rules require 100% clean energy by 2070 and the following interim standards for carbon reduction from a baseline carbon emissions level: 50% reduction by December 31, 2032; 65% reduction by December 31, 2040; 80% reduction by December 31, 2050, and 95% reduction by December 31, 2060.
Several of the units at Yucca run on either gas or oil. APS has two oil-only power plants: Fairview, located in the town of Douglas, Arizona and Yucca GT-4 in Yuma, Arizona.
Several of the units at Yucca run on either gas or oil. APS has two oil-only power plants: Douglas, located in the town of Douglas, Arizona and Yucca GT-4 in Yuma, Arizona.
A portion of the gas for these plants is financially hedged up to three years in advance of purchasing and that position is converted to a physical gas purchase one month prior to delivery. APS has long-term gas transportation agreements with three different companies, some of which are effective through 2049.
A portion of the gas for these plants is financially hedged up to three years in advance of purchasing and that position is converted to a physical gas purchase one month prior to delivery. APS has long-term gas transportation agreements with three different companies, some of which are effective through 2052.
In 2019, we signed the UNITY Pledge in support of full inclusion and equality in employment, housing, and public 28 Table of Contents accommodations for all Arizonans, including gay and transgender people. The UNITY Pledge reinforces our commitment to fostering an environment that recognizes our employees’ unique needs and celebrates the value of diverse perspectives.
In 2019, we signed the UNITY Pledge in support of full inclusion and equality in employment, housing, and public accommodations for all Arizonans, including gay and transgender people. The UNITY Pledge reinforces our commitment to fostering an environment that recognizes our employees’ unique needs and celebrates 27 Table of Contents the value of diverse perspectives.
APS has committed to end the use of coal at its remaining Cholla units by 2025. APS purchases all of Cholla’s coal requirements from a coal supplier that mines all of the coal under long-term leases of coal reserves with the federal and state governments and private landholders. The Cholla coal contract runs through 2024.
APS has committed to end the use of coal at its remaining Cholla units during 2025. APS purchases all of Cholla’s coal requirements from a coal supplier that mines all of the coal under long-term leases of coal reserves with the federal and state governments and private landholders. The Cholla coal contract runs through 2024.
If uncertainties regarding the United States government’s obligation to accept and store spent fuel are not favorably resolved, APS will evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the period of extended operation.
If uncertainties regarding the United States government’s obligation to accept and store spent fuel are not favorably resolved, APS will evaluate expanding the ISFSI, or alternative storage solutions that may obviate the need to expand the ISFSI, to accommodate all of the fuel that will be irradiated during the period of extended operation.
Apart from a subsequent proposal issued on August 14, 2019, to add a specific, health-based groundwater protection standard for boron, EPA has yet to take action on this proposal. • With respect to APS’s Cholla facility, the Company’s application for alternative closure was submitted to EPA on November 30, 2020.
Apart from a subsequent proposal issued on August 14, 2019, to add a specific, health-based groundwater protection standard for boron, EPA has yet to take action on this proposal. • With respect to APS’s Cholla facility, APS’s application for alternative closure was submitted to EPA on November 30, 2020.
The 2017 Rate Case Decision provided that all operations and maintenance expenses, property taxes, marketing and advertising expenses, and the capital carrying costs for this program will be recovered through the RES. Currently, APS has installed 11 MW of DG systems under the APS Solar Communities program.
The 2017 Rate Case Decision provided that all operations and maintenance expenses, property taxes, marketing and advertising expenses, and the capital carrying costs for this program will be recovered through the RES. Currently, APS has installed 14 MW of DG systems under the APS Solar Communities program.
Under seasonal operation, one generating unit would be shut down during seasons when electricity demand is reduced, such as the winter and spring. The other unit would remain online year-round, subject to market conditions as well as planned maintenance outages and unplanned outages.
Under seasonal operation, one generating unit would be shut down during seasons where electricity demand is reduced, such as the winter and spring. The other unit would remain online year-round, subject to market conditions as well as planned maintenance outages and unplanned outages.
During 2022, no single purchaser or user of energy accounted for more than 2.4% of our electric revenues. 3 Table of Contents The following map shows APS’s retail service territory, including the locations of its generating facilities and principal transmission lines. 4 Table of Contents Energy Sources and Resource Planning To serve its customers, APS obtains power through its various generation stations and through purchased power agreements.
During 2023, no single purchaser or user of energy accounted for more than 2.1% of our electric revenues. 3 Table of Contents The following map shows APS’s retail service territory, including the locations of its generating facilities and principal transmission lines. 4 Table of Contents Energy Sources and Resource Planning To serve its customers, APS obtains power through its various generation stations and through purchased power agreements.
While EPA has deemed APS’s application administratively “complete,” the Agency’s approval remains pending. If granted, this application would allow the continued disposal of CCR within Cholla’s existing unlined CCR surface impoundments until the required date for ceasing coal-fired boiler operations in April 2025. This 22 Table of Contents application will be subject to public comment and, potentially, judicial review.
While EPA has deemed APS’s application administratively “complete,” the Agency’s approval remains pending. If granted, this application would allow the continued disposal of CCR within Cholla’s existing unlined CCR surface impoundments until the required date for ceasing coal-fired boiler operations in April 2025. This application will be subject to public comment and, potentially, judicial review.
In light of pre-existing mitigation measures at the state level, the Tier 2a shortage is not expected at this time to materially impact water supplies for customers in APS’s service territory, nor materially impact water supplies used by APS’s fleet of generation resources.
In light of pre-existing mitigation measures at the state level, the Tier 1 shortage is not expected at this time to materially impact water supplies for customers in APS’s service territory, nor materially impact water supplies used by APS’s fleet of generation resources.
APS is strategically deploying a variety of technologies that are intended to allow customers to better manage their energy usage, minimize system outage durations and frequency, enable customer choice for new customer sited technologies, and facilitate greater cost savings to APS through improved reliability and the automation of certain delivery functions. Environmental Matters Climate Change Legislative Initiatives.
APS is strategically deploying a variety of technologies that are intended to allow customers to better manage their energy usage, minimize system outage durations and frequency, enable customer choice for new customer sited technologies, and facilitate greater cost savings to APS through improved reliability and the automation of certain delivery functions. 19 Table of Contents Environmental Matters Climate Change Legislative Initiatives.
Circuit’s August 2013 order, the NRC issued two volumes of the safety evaluation report developed as part of the Yucca Mountain construction authorization application. Publication of these volumes do not signal whether or when the NRC might authorize construction of the repository.
Circuit’s August 2013 order, the NRC issued two volumes of the safety evaluation report developed as part of the Yucca Mountain construction authorization application. Publication of these volumes does not signal whether or when the NRC might authorize construction of the repository.
Under the program, entities selling electricity into California, including APS, must hold carbon allowances to cover 20 Table of Contents GHG emissions associated with electricity sales into California from outside the state. APS is authorized to recover the cost of these carbon allowances through the PSA. Regulatory Initiatives. In 2009, EPA determined that GHG emissions endanger public health and welfare.
Under the program, entities selling electricity into California, including APS, must hold carbon allowances to cover GHG emissions associated with electricity sales into California from outside the state. APS is authorized to recover the cost of these carbon allowances through the PSA. Regulatory Initiatives. In 2009, EPA determined that GHG emissions endanger public health and welfare.
On September 23, 2022, APS filed a community solar proposal in compliance with the ACC order that was informed by a stakeholder working group. APS is proposing a small, pilot scale program size of up to 140 MW that would be selected through a competitive RFP. The ACC has not yet ruled on the proposal.
On September 23, 2022, APS filed a community solar proposal in compliance with the ACC order that was informed by a stakeholder working group. APS proposed a small, pilot scale program size of up to 140 MW that would be selected through a competitive RFP. The ACC has not yet ruled on the proposal.
The following table summarizes the resources in APS’s energy storage portfolio that are in operation and under development as of December 31, 2022. Agreements for the development and completion of future resources are subject to various conditions.
The following table summarizes the resources in APS’s energy storage portfolio that are in operation and under development as of December 31, 2023. Agreements for the development and completion of future resources are subject to various conditions.
For 2023, due to expiring purchased power contracts, APS is procuring market resources to maintain its minimum 15% planning reserve criteria. Future Resources and Resource Plan ACC rules require utilities to develop 15-year Integrated Resource Plans (“IRP”) which describe how the utility plans to serve customer load in the plan timeframe.
For 2024, due to expiring purchased power contracts, APS is procuring market resources to maintain its minimum 16% planning reserve criteria. Future Resources and Resource Plan ACC rules require utilities to develop 15-year Integrated Resource Plans (“IRP”) which describe how the utility plans to serve customer load in the plan timeframe.
APS owns and operates more than thirty small solar systems around the state. Together they have the capacity to produce approximately 4 MW of renewable energy. This fleet of solar systems includes a 3 MW facility located at the Prescott Airport and 1 MW of small solar systems in various locations across 11 Table of Contents Arizona.
APS owns and operates more than thirty small solar systems around the state. Together they have the capacity to produce approximately 4 MW of renewable energy. This fleet of solar systems includes a 3 MW facility located at the Prescott Airport and 1 MW of small solar systems in various locations across Arizona.
To comply with the CCR rule for the Navajo Plant, APS’s share of incremental costs was approximately $1 million, which has been incurred. Additionally, the CCR rule requires ongoing, phased groundwater monitoring. As of October 2018, APS has completed the statistical analyses for its CCR disposal units that triggered assessment monitoring.
To comply with the CCR rule for the Navajo Plant, APS’s share of incremental costs was approximately $1 million, which has been incurred. Additionally, the CCR rule requires ongoing, phased groundwater monitoring. As of October 2018, APS has completed the statistical analyses for its CCR disposal units that triggered assessment 22 Table of Contents monitoring.
On December 19, 2012, APS, acting on behalf of itself and the participant owners of Palo Verde, filed a second breach of contract lawsuit against the DOE in the Court of Federal Claims.
On December 19, 2012, APS, acting on behalf of itself and the participant owners of Palo Verde, filed a second breach of contract lawsuit against the DOE in the United States Court of Federal Claims.
In addition, some customers, particularly industrial and large commercial customers, may own and operate generation facilities to meet 18 Table of Contents some or all of their own energy requirements. This practice is becoming more popular with customers installing or having installed products such as rooftop solar panels to meet or supplement their energy needs.
In addition, some customers, particularly industrial and large commercial customers, may own and operate generation facilities to meet some or all of their own energy requirements. This practice is becoming more popular with customers installing or having installed products such as rooftop solar panels to meet or supplement their energy needs.
The Comprehensive Environmental Response Compensation and Liability Act (“CERCLA” or “Superfund”) establishes liability for the cleanup of hazardous substances found contaminating the soil, water, or air. Those who released, generated, transported to, or disposed of hazardous substances at a contaminated site are among the parties who are potentially responsible (each a “PRP”).
Superfund-Related Matters. The Comprehensive Environmental Response Compensation and Liability Act (“CERCLA” or “Superfund”) establishes liability for the cleanup of hazardous substances found contaminating the soil, water, or air. Those who released, generated, transported to, or disposed of hazardous substances at a contaminated site are among the parties who are potentially responsible (each a “PRP”).
The Community Power Project, approved by the ACC on April 1, 2010, was a pilot program through which APS owns, operates, and receives energy from approximately 1 MW of solar photovoltaic distributed renewable energy systems located within a certain test area in Flagstaff, Arizona.
The Community Power Project, approved by the ACC on April 1, 2010, was a pilot program through which APS owns, operates, and receives energy from approximately 1 MW of solar photovoltaic DG systems located within a certain test area in Flagstaff, Arizona.
Green Mountain Energy has requested that the ACC grant it the ability to provide competitive service in APS’s and Tucson Electric Power Company’s certificated service territories and proposes to deliver a 100% renewable energy product to residential and general service customers in those service territories. APS opposes Green Mountain Energy’s application and intends to intervene to contest it.
Green Mountain Energy has requested that the ACC grant it the ability to provide competitive service in APS’s and Tucson Electric Power Company’s certificated service territories and proposes to deliver a 100% renewable energy product to residential and general service customers in those service territories. APS opposes Green Mountain Energy’s application.
You can request a copy of these documents, excluding exhibits, by contacting Pinnacle West at the following address: Pinnacle West Capital Corporation, Office of the Corporate Secretary, Mail Station 8602, P.O. Box 53999, Phoenix, Arizona 85072-3999 (telephone 602-250-3011).
You can request a copy of these documents, excluding exhibits, by contacting Pinnacle West at the following address: Pinnacle West Capital Corporation, Office of the Corporate Secretary, Mail Station 8602, P.O. Box 53999, Phoenix, Arizona 85072-3999 (telephone 602-250-3011). 32 Table of Contents
In addition to the AZ Sun Program, APS developed the 44 MW Red Rock Solar Plant, which it owns and operates. Two of our large customers purchase renewable energy credits from APS that are equivalent to the amount of renewable energy that Red Rock is projected to generate.
In addition to the AZ Sun Program, APS developed the 44 MW Red Rock Solar Plant and the 150 MW Agave Solar Plant, each of which it owns and operates. Two of our large customers purchase renewable energy credits from APS that are equivalent to the amount of renewable energy that Red Rock is projected to generate.
See “Energy Sources and Resource Planning — Generation Facilities — Solar Facilities” above for information regarding APS-owned solar facilities and “Energy Sources and Resource Planning — Generation Facilities — Energy Storage” above for more information regarding APS-owned energy storage facilities. The following table summarizes APS’s renewable energy sources currently in operation and under development as of December 31, 2022.
See “Energy Sources and Resource Planning — Generation Facilities — Solar Facilities” above for information regarding APS-owned solar facilities and “Energy Sources and Resource Planning — Generation Facilities — Energy Storage” below for more information regarding APS-owned energy storage facilities. The following table summarizes APS’s renewable energy sources currently in operation and under development as of December 31, 2023.
In June 2021, APS and the owners of Four Corners entered into an agreement that would allow Four Corners to operate seasonally at the election of the owners beginning in fall 2023, subject to the necessary governmental approvals and conditions associated with changes in plant ownership.
In June 2021, APS and the owners of Four Corners entered into an agreement that would allow Four Corners to operate seasonally at the election of the owners as early as fall 2023, subject to the necessary governmental approvals and conditions associated with changes in plant ownership.
The RI/FS for OU3 was finalized and submitted to EPA at the end of 2022. APS cannot predict the EPA ’ s timing with respect to this matter . APS estimates that its cost related to this investigation and study is approximately $3 million.
The RI/FS for OU3 was finalized and submitted to EPA at the end of 2022. APS cannot predict the EPA’s timing with respect to this matter. APS estimates that its cost related to this investigation and study is approximately $3 million.
APS is a vertically-integrated electric utility that provides either retail or wholesale electric service to most of the State of Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in northwestern Arizona. Pinnacle West’s other subsidiaries are El Dorado, BCE and 4CA.
APS is a vertically-integrated electric utility that provides either retail or wholesale electric service to most of Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in northwestern Arizona. Pinnacle West’s other subsidiaries are El Dorado, PNW Power, and 4CA.
The Palo Verde participants have contracted for 100% of Palo Verde’s requirements for uranium concentrates through 2028 and 48% through 2029; 100% of Palo Verde’s requirements for conversion services through 2030 and 40% through 2031; 100% of Palo Verde’s requirements for enrichment services through 2026 and 28% for 2027; and 100% of Palo Verde’s requirements for fuel fabrication through 2027 for Unit 2 and Unit 1 and 2028 for Unit 3.
The Palo Verde participants have contracted for 100% of Palo Verde’s requirements for uranium concentrates through 2028 and 48% through 2029; 100% of Palo Verde’s requirements for conversion services through 2029 and 75% through 2030; 100% of Palo Verde’s requirements for enrichment services through 2026 and 28% for 2027; and 100% of Palo Verde’s requirements for fuel fabrication through 2027 for Unit 2 and Unit 1 and 2028 for Unit 3.
The renewable energy requirement is 13% of retail electric sales in 2023 and increases annually until it reaches 15% in 2025. A component of the RES is focused on stimulating development of distributed renewable energy systems. Accordingly, under the RES, an increasing percentage of that requirement must be supplied from distributed energy resources.
The renewable energy requirement is 13% of retail electric sales in 2023 and increases annually until it reaches 15% in 2025. 16 Table of Contents A component of the RES is focused on stimulating development of DG systems. Accordingly, under the RES, an increasing percentage of that requirement must be supplied from distributed energy resources.
At this time, because proposed SIPs and FIPs implementing the revised ozone NAAQSs have yet to be released, APS is unable to predict what impact the adoption of these standards may have on the Company. APS will continue to monitor these standards as they are implemented within the jurisdictions affecting APS. Superfund-Related Matters.
At this time, because proposed SIPs and FIPs implementing the revised ozone NAAQSs have yet to be released, APS is unable to predict what impact the adoption of these standards may have on APS. APS will continue to monitor these standards as they are implemented within the jurisdictions affecting APS.
See Note 3 for information regarding energy efficiency, other DSM obligations and the Energy Modernization Plan. Competitive Environment and Regulatory Oversight Retail The ACC regulates APS’s retail electric rates and its issuance of securities.
See Note 3 for information regarding energy efficiency, other DSM obligations and the Energy Modernization Plan. 17 Table of Contents Competitive Environment and Regulatory Oversight Retail The ACC regulates APS’s retail electric rates and its issuance of securities.
See “Business of Arizona Public Service Company — Energy Sources and Resource Planning — Energy Storage” above for details on our energy storage PPAs. 15 Table of Contents Purchased Power Capacity — APS’s purchased power capacity under long-term contracts as of December 31, 2022, is summarized in the table below.
See “Business of Arizona Public Service Company — Energy Sources and Resource Planning — Energy Storage” above for details on our energy storage PPAs. 14 Table of Contents Purchased Power Capacity — APS’s purchased power capacity under long-term contracts as of December 31, 2023, is summarized in the table below.
Resource planning is an important function necessary to meet Arizona’s future energy needs. APS’s sources of energy by type used to supply energy to Native Load customers during 2022 were as follows: *Renewables include energy from wind, solar, geothermal, biomass, DG, and solar PPAs.
Resource planning is an important function necessary to meet Arizona’s future energy needs. APS’s sources of energy by type used to supply energy to Native Load customers during 2023 were as follows: *Renewables include energy from wind, solar, geothermal, biogas, biomass, and DG.
Additional information for each of these companies is provided below: Principal Executive Office Address Year of Incorporation Approximate Number of Employees at December 31, 2022 Pinnacle West 400 North Fifth Street Phoenix, AZ 85004 1985 82 APS 400 North Fifth Street P.O.
Additional information for each of these companies is provided below: Principal Executive Office Address Year of Incorporation Approximate Number of Employees at December 31, 2023 Pinnacle West 400 North Fifth Street Phoenix, AZ 85004 1985 81 APS 400 North Fifth Street P.O.
In addition, APS is a party to a water contract that allows the Company to secure water for Four Corners in the event of a water shortage 26 Table of Contents and is a party to a shortage sharing agreement, which provides for the apportionment of water supplies to Four Corners in the event of a water shortage in the San Juan River Basin.
In addition, APS is a party to a water contract that allows the Company to secure water for Four Corners in the event of a water shortage and is a party to a shortage sharing agreement, which provides for the apportionment of water supplies to Four Corners in the event of a water shortage in the San Juan River Basin. 25 Table of Contents Gila River Adjudication.
In addition to reporting to the EPA, we publicly report Scope 1, 2 and 3 GHG emissions. This data is then communicated to the public in Pinnacle West’s annual Corporate Responsibility Report as performance data and in CDP Reports, which are available on our website ( www.pinnaclewest.com/corporate-responsibility ).
In addition to reporting to the EPA, we publicly report Scope 1 and 2, as well as a limited number of Scope 3, GHG emissions. This data is then communicated to the public in Pinnacle West’s annual Corporate Responsibility Report as performance data and in CDP Reports, which are available on our website ( www.pinnaclewest.com/corporate-responsibility ).
The costs for this program have been included in APS’s rate base as part of the 2017 Rate Case Decision. In the 2017 Rate Case Decision, the ACC also approved the “APS Solar Communities” program.
The costs for this program have been included in APS’s rate base as part of the 2017 Rate Case Decision. 11 Table of Contents In the 2017 Rate Case Decision, the ACC also approved the “APS Solar Communities” program.
APS prepares an annual inventory of GHG emissions from its operations. For APS’s operations involving fossil-fuel electricity generation and electricity transmission and distribution, APS’s annual GHG inventory is reported to EPA under the EPA GHG Reporting Program. APS also voluntarily tracks APS’s GHG emissions arising from APS operations.
APS prepares an annual inventory of GHG emissions from its operations. For APS’s operations involving fossil-fuel electricity generation and electricity transmission and distribution, APS’s annual GHG inventory is reported to the EPA under the EPA GHG Reporting Program.
Among other strategies, APS intends to achieve these goals through various methods such as relying on Palo Verde, the nation’s largest producer of carbon-free energy; increasing clean energy resources, including renewables; developing energy storage; ceasing the use of coal-generated electricity; managing demand with a modern interactive grid; promoting customer technology and energy efficiency; and optimizing regional resources.
Among other strategies, APS intends to achieve these goals through various methods such as relying on Palo Verde, one of the nation’s largest producers of carbon-free energy; increasing clean energy resources, including renewables; developing energy storage; exiting from coal-generated electricity; managing demand with a modern interactive grid; promoting customer technology and energy efficiency; and optimizing regional resources.
On November 26, 2021, the Administrative Law Judge issued a procedural order indicating it would not be appropriate to set a schedule until the Attorney General has provided insights on the applicable law.
On November 26, 2021, 18 Table of Contents the Administrative Law Judge issued a procedural order indicating it would not be appropriate to set a schedule until the Attorney General has provided insights on the applicable law.
As part of a 24 Table of Contents state governmental investigation into groundwater contamination in this area, on January 25, 2015, ADEQ sent a letter to APS seeking information concerning the degree to which, if any, APS’s current and former ownership of these facilities may have contributed to groundwater contamination in this area.
In addition, as part of a state governmental investigation into groundwater contamination in this area, on January 25, 2015, the ADEQ sent a letter to APS seeking information concerning the degree to which, if any, APS’s current and former ownership of these facilities may have contributed to groundwater contamination in this area. APS responded to ADEQ on May 4, 2015.
While certain changes have been prompted by utility industry petitions, others have resulted from judicial review, court-approved settlements with environmental groups, and statutory changes to RCRA.
While certain changes have been prompted by utility industry petitions, 21 Table of Contents others have resulted from judicial review, court-approved settlements with environmental groups, and statutory changes to RCRA.
This lawsuit sought to recover damages incurred due to the DOE’s breach of the Standard Contract for failing to accept Palo Verde’s spent nuclear fuel and high-level waste from January 1, 2007 through June 30, 2011, as it was required to do pursuant to the terms of the Standard Contract and the NWPA.
The lawsuit sought to recover damages incurred due to DOE’s breach of the Standard Contract for failing to accept Palo Verde’s spent nuclear fuel and high-level waste from January 1, 2007 through June 30, 2011, pursuant to the terms of the Standard Contract and the NWPA.
On July 1, 2021, APS filed its 2022 RES Implementation Plan, which was subsequently amended on December 9, 2021. On May 18, 2022, the ACC approved the 2022 RES Implementation Plan, including an 17 Table of Contents amendment requiring a stakeholder working group to convene and develop a community solar program for the Commission’s consideration at a future date.
On July 1, 2021, APS filed its 2022 RES Implementation Plan, which was subsequently amended on December 9, 2021. On May 18, 2022, the ACC approved the 2022 RES Implementation Plan, including an amendment requiring a stakeholder working group convene to develop a community solar program for the ACC’s consideration at a future date.
The community solar program was deferred to the ACC’s Hearing Division so that a formal evidentiary hearing could be held to consider issues of substance related to community solar. APS cannot predict the outcomes of these future activities.
The remainder of the community solar program policy components were deferred to the ACC’s Hearing Division so that a formal evidentiary hearing could be held to consider issues of substance related to community solar. APS cannot predict the outcomes of these future activities.
Additionally, as of December 31, 2022, 35% of our employees are ethnically or racially diverse, 26% are female, and 15% are veterans. Finally , as of December 31, 2022, 39% of the Company’s officers are female, and 18% are ethnically or racially diverse.
Additionally, as of December 31, 2023, 35% of our employees are ethnically or racially diverse, 26% are female, and 14% are veterans. Finally, as of December 31, 2023, 39% of the Company’s officers are female, and 18% are ethnically or racially diverse.
The financial impact of complying with current and future environmental rules could jeopardize the economic viability of our coal plants or the willingness or ability of power plant participants to fund any required equipment upgrades or continue their participation in these plants.
The financial impact of complying with current and future environmental rules could jeopardize the economic viability of APS’s fossil-fuel powered plants or the willingness or ability of power plant participants to fund any required equipment upgrades or continue their participation in these plants.
The economics of continuing to own certain resources, particularly our fossil-fuel powered plants, may deteriorate, warranting early retirement of those plants, which may result in asset impairments.
The economics of continuing to own certain resources, particularly our coal plants, may deteriorate, warranting early retirement of those plants, which may result in asset impairments.
Although ADEQ has taken steps to develop a CCR permitting program, including supporting the passage of new state legislation providing ADEQ with appropriate permitting authority for CCR under the state solid waste management program, it is not clear when that program will be put into effect.
Although ADEQ has taken steps to develop a CCR permitting program, and new state legislation has been adopted providing ADEQ with appropriate permitting authority for CCR under the state solid waste management program, it is not clear when that program will be put into effect.
APS has also developed solar photovoltaic distributed renewable energy systems installed as part of the Community Power Project in Flagstaff, Arizona.
APS has also developed solar photovoltaic DG systems installed as part of the Community Power Project in Flagstaff, Arizona.
The Navajo Plant site is leased from the Navajo Nation and is also subject to an easement from the federal government. The co-owners of the Navajo Plant and the Navajo Nation agreed that the Navajo Plant would remain in operation until December 2019 under the existing plant lease.
APS had a total entitlement from the Navajo Plant of 315 MW. The Navajo Plant site is leased from the Navajo Nation and is also subject to an easement from the federal government. The co-owners of the Navajo Plant and the Navajo Nation agreed that the Navajo Plant would remain in operation until December 2019 under the existing plant lease.
Type Dates Available Capacity (MW) Purchase Agreement (a) Year-round through June 14, 2023 45 Demand Response Agreement Summer seasons through 2025 75 Tolling Agreement May 1 through October 31, 2021-2027 463 Tolling Agreement Summer seasons from Summer 2020 through Summer 2025 565 Tolling Agreement June 1 through September 30, 2020-2026 570 Renewable Energy (b) Various 736 (a) Up to 45 MW of capacity is available; however, the amount of electricity available to APS under this agreement is based in large part on customer demand and is adjusted annually.
Type Dates Available Capacity (MW) Purchase Agreement (a) Year-round through June 14, 2025 46 Demand Response Agreement Summer seasons through 2025 75 Tolling Agreement May 1 through April 30, 2021-2025 463 Extension Term May 1 through October 31, 2025-2032 525 Tolling Agreement June 1 through September 30, 2020-2026 565 Extension Term May 1 through October 31, 2026-2031 565 Tolling Agreement June 1 through September 30, 2020-2026 570 Extension Term May 1 through October 31, 2027-2034 570 Renewable Energy (b) Various 1,063 (a) Up to 46 MW of capacity is available; however, the amount of electricity available to APS under this agreement is based in large part on customer demand and is adjusted annually.
Renewable Energy Portfolio To date, APS has a diverse portfolio of existing and planned renewable resources totaling 3,894 MW, including solar, wind, geothermal, biomass and biogas. Of this portfolio, 2,418 MW are currently in operation and 1,476 MW are under contract for development or are under construction.
Renewable Energy Portfolio To date, APS has a diverse portfolio of existing and planned renewable resources totaling 5,010 MW, including solar, wind, geothermal, biomass and biogas. Of this portfolio, 3,072 MW are currently in operation and 1,938 MW are under contract for development or are under construction.
On August 18, 2014, APS and the DOE entered into a settlement agreement, stipulating to a dismissal of the lawsuit and payment by the DOE to the Palo Verde owners for certain specified costs incurred by Palo Verde during the period January 1, 2007, through June 30, 2011.
On August 18, 2014, APS and DOE entered into a settlement agreement, which required DOE to pay the Palo Verde owners for certain specified costs incurred by Palo Verde during the period January 1, 2007, through June 30, 2011.
Given uncertainties that may exist until we have fully completed the corrective action assessment process, we cannot predict any ultimate impacts to the Company; however, at this time we do not believe the cost estimates for Cholla and any potential change to the cost estimate for Four Corners would have a material impact on our financial position, results of operations, or cash flows.
Given uncertainties that may exist until we have fully completed the corrective action assessment and final remedy selection process, APS cannot predict any ultimate impacts to the APS; however, at this time, APS does not believe that any potential changes to the cost estimate for Four Corners or Cholla would have a material impact on our financial condition, results of operations, or cash flows.
The Company sponsors ten employee network groups that are intended to create a sense of inclusion and belonging for employees. We continue to focus on hiring diverse employees as well as hiring employees from our veteran community. During 2022, 44% of external hires were ethnically or racially diverse, 40% were female and 7% were veterans.
The Company sponsors eleven employee network groups that are intended to create a sense of inclusion and belonging for employees. We continue to focus on hiring diverse employees as well as hiring employees from our veteran community. During 2023, 42% of external hires were ethnically or racially diverse, 35% were female and 8% were veterans.
On October 31, 2022, APS filed its ninth claim pursuant to the terms of the August 18, 2014, settlement agreement in the amount of $14.3 million (APS’s share is $4.2 million). In February 2023, the DOE approved this claim. Waste Confidence and Continued Storage — On June 8, 2012, the D.C.
On October 31, 2023, APS filed its tenth claim pursuant to the terms of the August 18, 2014, settlement agreement in the amount of $18.46 million (APS’s share is $5.4 million). In February 2024, the DOE approved $18.39 million of this claim. Waste Confidence and Continued Storage — On June 8, 2012, the D.C.
In addition, APS has a coal transportation contract that runs through 2024. Navajo Plant — The Navajo Plant was a 3-unit coal-fired power plant located in northern Arizona. Salt River Project operated the plant and APS owned a 14% interest in Units 1, 2 and 3. APS had a total entitlement from the Navajo Plant of 315 MW.
In addition, APS has a coal transportation contract that runs through 2024. 10 Table of Contents Navajo Plant — The Navajo Plant was a 3-unit coal-fired power plant located in northern Arizona. Salt River Project operated the plant and APS owned a 14% interest in Units 1, 2 and 3.
APS’s 2022 peak one-hour demand on its electric system was recorded on July 11, 2022, at 7,587 MW, compared to the 2021 peak of 7,580 MW recorded on June 18, 2021. APS’s reserve margin at the time of the 2022 peak demand, calculated using system load serving capacity, was 13%.
APS’s 2023 peak one-hour demand on its electric system was recorded on July 15, 2023, at 8,162 MW, compared to the 2022 peak of 7,587 MW recorded on July 11, 2022. APS’s reserve margin at the time of the 2023 peak demand, calculated using system load serving capacity, was 18%.
Depending on the eventual outcome, the costs associated with APS’s management of CCR could materially increase, which could affect APS’s financial position, results of operations, or cash flows. APS currently disposes of CCR in ash ponds and dry storage areas at Cholla and Four Corners.
Depending on the eventual outcome, the costs associated with APS’s management of CCR could materially increase, which could affect our financial condition, results of operations, or cash flows. APS currently disposes of CCR in ash ponds and dry storage areas at Cholla and Four Corners. The Navajo Plant disposed of CCR only in a dry landfill storage area.
APS cannot predict the outcome of these future activities. 19 Table of Contents Wholesale FERC regulates rates for wholesale power sales and transmission services. See Note 3 for information regarding APS’s transmission rates. During 2022, approximately 11.6% of APS’s electric operating revenues resulted from such sales and services.
APS cannot predict the outcome of these future activities. Wholesale FERC regulates rates for wholesale power sales and transmission services. See Note 3 for information regarding APS’s transmission rates. During 2023, approximately 7.4% of APS’s electric operating revenues resulted from such sales and services.
Human capital measures and objectives that the Company focuses on in retaining its talent and managing its business include the safety of our employees, career development, diversity, equity and inclusion, succession planning, hiring, voluntary turnover, compensation, benefits, employee experience, and engagement.
We believe the strength of our employees is one of the significant contributors to our Company’s success. Human capital measures and objectives that the Company focuses on in retaining its talent and managing its business include the safety of our employees, career development, diversity, equity and inclusion, succession planning, hiring, voluntary turnover, compensation, benefits, employee experience, and engagement.
On December 19, 2019, EPA proposed its own set of regulations governing the issuance of CCR management permits. The proposal remains pending. • On March 1, 2018, as a result of a settlement with certain environmental groups, EPA proposed adding boron to the list of constituents that trigger corrective action requirements to remediate groundwater impacted by CCR disposal activities.
The proposal remains pending. • On March 1, 2018, as a result of a settlement with certain environmental groups, EPA proposed adding boron to the list of constituents that trigger corrective action requirements to remediate groundwater impacted by CCR disposal activities.
APS operates the plant and owns 29.1% of Palo Verde Units 1 and 3 6 Table of Contents and approximately 17% of Unit 2. In addition, APS leases approximately 12.1% of Unit 2, resulting in a 29.1% combined ownership and leasehold interest in that unit. APS has a total entitlement from Palo Verde of 1,146 MW.
APS operates the plant and owns 29.1% of Palo Verde Units 1 and 3 and approximately 17% of Unit 2. In addition, APS leases approximately 12.1% of Unit 2, resulting in a 29.1% combined ownership and leasehold interest in that unit.
In the 2019 Rate Case decision, the ACC authorized APS to spend $20 million to $30 million in capital costs for the APS Solar Communities program each year for a period of three years from the effective date of the decision. Energy Storage APS deploys a number of advanced technologies on its system, including energy storage.
In the 2019 Rate Case decision, the ACC authorized APS to spend $20 million to $30 million in capital costs for the APS Solar Communities program each year for a period of three years from the effective date of the decision.
Additionally, El Dorado committed to a $25 million investment in AZ-VC (formerly invisionAZ Fund), which is a fund focused on analyzing, investing, managing, and otherwise dealing with investments in privately-held early stage and emerging growth technology companies and businesses primarily based in the State of Arizona, or based in other jurisdictions and having existing or potential strategic or economic ties to companies or other interests in the State of Arizona.
AZ-VC is a fund focused on analyzing, investing, managing, and otherwise dealing with investments in privately-held early stage and emerging growth technology companies and businesses primarily based in Arizona, or based in other jurisdictions and having existing or potential strategic or economic ties to companies or other interests in Arizona.
The ACC reviews each utility’s IRP to determine if it meets the necessary requirements and whether it should be acknowledged. Based on an ACC decision, APS was originally required to file its IRP by April 1, 2020.
The ACC reviews each utility’s IRP to determine if it meets the necessary rule requirements and whether it should be acknowledged. APS was originally required to file its IRP by August 1, 2023.
Palo Verde Leases — In 1986, APS entered into agreements with three separate lessor trust entities in order to sell and lease back approximately 42% of its share of Palo Verde Unit 2 and certain common facilities.
APS has a total entitlement from Palo Verde of 1,146 MW. 6 Table of Contents Palo Verde Leases — In 1986, APS entered into agreements with three separate lessor trust entities in order to sell and lease back approximately 42% of its share of Palo Verde Unit 2 and certain common facilities.
The amounts recovered were primarily recorded as adjustments to a regulatory liability and had no impact on reported net income. In accordance with the 2017 Rate Case Decision, this regulatory liability is being refunded to customers. See Note 3.
The DOE has approved and paid $138.2 million for these claims (APS’s share is $40.2 million). The amounts recovered were primarily recorded as adjustments to a regulatory liability and had no impact on reported net income. In accordance with the 2017 Rate Case Decision, this regulatory liability is being refunded to customers. See Note 3.

… 176 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

68 edited+19 added−11 removed110 unchanged
Biggest changeThe potential likelihood of wildfires has increased due to many of the same weather and climate change impacts existing in Arizona as those that led to the catastrophic wildfires in California. While we proactively take steps to mitigate wildfire risk in the areas of our electrical assets, wildfire risk is always present due to APS’s expansive service territory.
Biggest changeWildfires have the potential to affect communities within APS’s service territory and the surrounding areas, as well as APS’s vast network of electric transmission and distribution lines and facilities. The potential likelihood of wildfires has increased due to many of the same weather and climate change impacts existing in Arizona as those that led to catastrophic wildfires in California.
In December 2014, EPA issued final regulations governing the handling and disposal of CCR, which are generated as a result of burning coal and consist of, among other things, fly ash and bottom ash. The rule regulates CCR as a non-hazardous waste. APS currently disposes of CCR in ash ponds and dry storage areas at Cholla and Four Corners.
In December 2014, the EPA issued final regulations governing the handling and disposal of CCR, which are generated as a result of burning coal and consist of, among other things, fly ash and bottom ash. The rule regulates CCR as a non-hazardous waste. APS currently disposes of CCR in ash ponds and dry storage areas at Cholla and Four Corners.
In 2015, EPA finalized revisions to the NAAQS for ozone, which set new, more stringent standards on emissions of nitrogen oxide, a precursor to ozone, in an effort to protect human health and human welfare.
In 2015, the EPA finalized revisions to the NAAQS for ozone, which set new, more stringent standards on emissions of nitrogen oxide, a precursor to ozone, in an effort to protect human health and human welfare.
Changes in the nature of our industry and the economic viability of certain plants and facilities, including impacts resulting from types and availability of other resources, fuel costs, legislation, and regulation, together with timing considerations related to expiration of leases or other agreements for such facilities, could result in unaligned positions among co-owners.
Changes in the nature of our industry and the economic viability of certain plants and facilities, including impacts resulting from types and availability of other resources, fuel costs, legislation, and regulation, together with timing considerations related to the expiration of leases or other agreements for such facilities, could result in unaligned positions among co-owners.
Differences in the co-owners’ willingness or ability to continue their participation could lead to eventual shut down of units or facilities and uncertainty related to the resulting cost recovery of such assets.
Differences in the co-owners’ willingness or ability to continue their participation could lead to the eventual shut down of units or facilities and uncertainty related to the resulting cost recovery of such assets.
Pending or future federal or state legislative or regulatory activity or court proceedings could increase costs of providing medical insurance for our employees and retirees. Any potential changes and resulting cost impacts cannot be determined with certainty at this time. Our cash flow depends on the performance of APS and its ability to make distributions.
Pending or future federal or state legislative or regulatory activity or court proceedings could increase the costs of providing medical insurance for our employees and retirees. Any potential changes and resulting cost impacts cannot be determined with certainty at this time. Our cash flow depends on the performance of APS and its ability to make distributions.
Concerns over physical security of these assets could include damage to certain of our facilities due to vandalism or other deliberate acts that could lead to outages or other adverse effects. If APS’s facilities operate below expectations, especially during its peak seasons, it may lose revenue or incur additional expenses, including increased purchased power expenses.
Concerns over the physical security of these assets could include damage to certain of our facilities due to vandalism or other deliberate acts that could lead to outages or other adverse effects. If APS’s facilities operate below expectations, especially during its peak seasons, it may lose revenue or incur additional expenses, including increased purchased power expenses.
Changes in economic conditions, monetary policy, fiscal policy, financial regulation, rating agency treatment and/or other factors could result in higher interest rates, which would increase interest expense on our existing variable rate debt and new debt we expect to issue in the future, and thus increase the cost and/or reduce the amount of funds available to us for our current plans. 47 Table of Contents Additionally, an increase in our leverage, whether as a result of these factors or otherwise, could adversely affect us by: • causing a downgrade of our credit ratings; • increasing the cost of future debt financing and refinancing; • increasing our vulnerability to adverse economic and industry conditions; and • requiring us to dedicate an increased portion of our cash flow from operations to payments on our debt, which would reduce funds available to us for operations, future investment in our business or other purposes.
Changes in economic conditions, monetary policy, fiscal policy, financial regulation, rating agency treatment and/or other factors could result in higher interest rates, which would increase interest expense on our existing variable rate debt and new debt we expect to issue in the future, and thus increase the cost and/or reduce the amount of funds available to us for our current plans. 46 Table of Contents Additionally, an increase in our leverage, whether as a result of these factors or otherwise, could adversely affect us by: • causing a downgrade of our credit ratings; • increasing the cost of future debt financing and refinancing; • increasing our vulnerability to adverse economic and industry conditions; and • requiring us to dedicate an increased portion of our cash flow from operations to payments on our debt, which would reduce funds available to us for operations, future investment in our business or other purposes.
The lack of access to sufficient supplies of water could have a material adverse impact on APS’s business and results of operations. Assured supplies of water are important for APS’s generating plants. Water in the southwestern United States is limited, and various parties have made conflicting claims regarding the right to access and use such limited supply of water.
The lack of access to sufficient supplies of water could have a material adverse impact on APS’s business and results of operations. Assured supplies of water are important for APS’s generating plants. Water in the southwestern United States is limited, and various parties have made conflicting claims regarding the right to access and use such limited supplies of water.
Changes in laws or regulations that govern APS, new interpretations of law and regulations, or the imposition of new or revised laws or regulations could have an adverse impact on the manner in which we operate our business and our results of operations.
Changes in laws or regulations that govern APS, new interpretations of laws and regulations, or the imposition of new or revised laws or regulations could have an adverse impact on the manner in which we operate our business and our results of operations.
Environmental Clean Up. APS has been named as a PRP for a Superfund site in Phoenix, Arizona, and it could be named a PRP in the future for other environmental clean-up at sites identified by a regulatory body.
Environmental Clean Up. APS has been named as a PRP for Superfund sites in Phoenix, Arizona, and it could be named a PRP in the future for other environmental clean-up at sites identified by a regulatory body.
In addition to these rules and requirements, energy efficiency technologies and distributed energy resources continue to evolve, which may have similar impacts on demand for electricity.
In addition to these rules and requirements, energy efficiency technologies and distributed energy resources continue to evolve, which may have similar impacts on the demand for electricity.
In addition, APS is subject to retrospective premium adjustments under its nuclear property insurance policies with Nuclear Electric Insurance Limited (“NEIL”) for approximately $22.3 million if NEIL’s losses in any policy year exceed accumulated funds and if the retrospective premium assessment is declared by NEIL’s Board of Directors.
In addition, APS is subject to retrospective premium adjustments under its nuclear property insurance policies with Nuclear Electric Insurance Limited (“NEIL”) for approximately $22.4 million if NEIL’s losses in any policy year exceed accumulated funds and if the retrospective premium assessment is declared by NEIL’s Board of Directors.
If a significant cybersecurity event or breach were to occur, we may not be able to fulfill critical business functions and we could (i) experience property damage, disruptions to our business, theft of or unauthorized access to customer, employee, financial or system operation information or other information; (ii) experience loss of revenue or incur significant costs for repair, remediation and breach 41 Table of Contents notification, and increased capital and operating costs to implement increased security measures; and (iii) be subject to increased regulation, litigation and reputational damage.
If a significant cybersecurity event or breach were to occur, we may not be able to fulfill critical business functions and we could (i) experience property damage, disruptions to our business, theft of or unauthorized access to customer, employee, financial or system operation information or other information; (ii) experience loss of revenue or incur significant costs for repair, remediation and breach notification, and increased capital and operating costs to implement increased security measures; and (iii) be subject to increased regulation, litigation and reputational damage.
Both groundwater and surface water in areas important to the operation of APS’s generating plants have been and are the subject of inquiries, claims and legal proceedings. In addition, the region in which APS’s power plants are located suffer from prolonged drought conditions, which could potentially affect the plants’ water supplies.
Both groundwater and surface water in areas important to the operation of APS’s generating plants have been and are the subject of inquiries, claims and legal proceedings. In addition, the region in which APS’s power plants are located suffers from prolonged drought conditions, which could potentially affect the plants’ water supplies.
There appears to be an increasing level of activity, sophistication, and maturity of threat actors, including from both nation state and non-nation state actors, that seek to exploit potential vulnerabilities in the electric utility industry and wish to disrupt the U.S. bulk power system, our information technology systems, generation (including our Palo Verde nuclear facility), transmission and distribution facilities, and other infrastructure facilities and systems and physical assets.
There appears to be an increasing level of activity, sophistication, and maturity of threat actors, including from both nation-state and non-nation state actors, that seek to exploit potential vulnerabilities in the electric utility industry and wish to disrupt the U.S. bulk power system, our information technology systems, generation (including our Palo Verde nuclear facility), transmission and distribution facilities, and other infrastructure facilities and 40 Table of Contents systems and physical assets.
As a result, unusually mild weather could diminish APS’s financial condition, results of operations, or cash flows. Apart from the impact upon electricity demand, weather conditions related to prolonged high temperatures or extreme heat events present operational challenges.
As a result, unusually mild weather could diminish APS’s financial condition, results of operations, or cash flows. Apart from the impact on electricity demand, weather conditions related to prolonged high temperatures or extreme heat events present operational challenges.
Some of these systems are managed, hosted, provided, or used for third parties to assist in conducting our business. Malicious actors may attack vendors to disrupt the services these vendors provide to us or to use those vendors as a cyber conduit to attack us.
Some of these systems are managed, hosted, provided, or used by third parties to assist in conducting our business. Malicious actors may attack vendors to disrupt the services these vendors provide to us or to use those vendors as a cyber conduit to attack us.
Climate change is also projected to exacerbate such drought conditions. In addition, Colorado River water supplies for Arizona are subject to a Tier 2a shortage declaration, which substantially limits the quantity of water available for the state.
Climate change is also projected to exacerbate such drought conditions. In addition, Colorado River water supplies for Arizona are subject to a Tier 1 shortage declaration, which substantially limits the quantity of water available for the state.
APS is exposed to the impact of market fluctuations in the price and transportation costs of electricity, natural gas, and coal to 45 Table of Contents the extent that unhedged positions exist. We have established procedures to manage risks associated with these market fluctuations by utilizing various commodity derivatives, including exchange traded futures and over-the-counter (“OTC”) forwards, options, and swaps.
APS is exposed to the impact of market fluctuations in the price and transportation costs of electricity, natural gas, and coal to the extent that unhedged positions exist. We have established procedures to manage risks associated with these market fluctuations by utilizing various commodity derivatives, including exchange traded futures and over-the-counter (“OTC”) forwards, options, and swaps.
In particular, new or revised laws or interpretations of existing laws or regulations may impact or call into question the ACC’s permissive regulatory authority, which may result in uncertainty as to jurisdictional authority within our state, and uncertainty as to whether ACC decisions will be binding or challenged by other agencies or bodies asserting jurisdiction.
In particular, new or revised laws or interpretations of existing laws or regulations may impact or call into question the ACC’s permissive regulatory authority, which may result in uncertainty as to jurisdictional authority within our state, and uncertainty as to whether 33 Table of Contents ACC decisions will be binding or challenged by other agencies or bodies asserting jurisdiction.
See Note 3 for a discussion of the Navajo Plant and Cholla retirement and the related risks associated with APS’s continued recovery of its remaining investment in the plant. 37 Table of Contents Deregulation or restructuring of the electric industry may result in increased competition, which could have a significant adverse impact on APS’s business and its results of operations.
See Note 3 for a discussion of the Navajo Plant and Cholla retirement and the related risks associated with APS’s continued recovery of its remaining investment in the plant. Deregulation or restructuring of the electric industry may result in increased competition, which could have a significant adverse impact on APS’s business and its results of operations.
Reduced demand due to these energy efficiency requirements, distributed energy requirements and other emerging technologies, unless substantially offset through ratemaking mechanisms, could have a material adverse impact on APS’s financial condition, results of operations and cash flows. Actual and Projected Customer and Sales Growth.
Reduced demand due to these energy efficiency requirements, distributed energy requirements and other emerging technologies, unless substantially offset through ratemaking mechanisms, could have a material adverse impact on APS’s financial condition, results of operations and cash flows. 37 Table of Contents Actual and Projected Customer and Sales Growth.
Coverage for cybersecurity events continues to evolve as the industry matures. In the future, adequate insurance may not be available at rates that we believe are reasonable, and the costs of responding to and recovering from a cyber incident may not be covered by insurance or recoverable in rates.
Coverage for cybersecurity events continues to evolve as the industry matures. In the future, adequate insurance may not 41 Table of Contents be available at rates that we believe are reasonable, and the costs of responding to and recovering from a cyber incident may not be covered by insurance or recoverable in rates.
In expressing concerns about the environmental and climate-related impacts from continued extraction, transportation, delivery and combustion of fossil fuels, environmental advocacy groups and other third parties have in recent years undertaken greater efforts to oppose the permitting, construction, 40 Table of Contents and operation of fossil fuel infrastructure projects.
In expressing concerns about the environmental and climate-related impacts from continued extraction, transportation, delivery and combustion of fossil fuels, environmental advocacy groups and other third parties have in recent years undertaken greater efforts to oppose the permitting, construction, and operation of fossil fuel infrastructure projects.
These laws and regulations can result in increased capital, 35 Table of Contents operating, and other costs, particularly with regard to enforcement efforts focused on power plant emissions obligations. These laws and regulations generally require APS to obtain and comply with a wide variety of environmental licenses, permits, and other approvals.
These laws and regulations can result in increased capital, operating, and other costs, particularly with regard to enforcement efforts focused on power plant emissions obligations. These laws and regulations generally require APS to obtain and comply with a wide variety of environmental licenses, permits, and other approvals.
On February 12, 2020, ACC Staff issued its second report regarding possible modifications to the ACC’s retail electric competition rules. During a July 15, 2020, ACC Staff meeting, the ACC Commissioners discussed the possible development of a retail competition pilot program, but no action was taken.
On February 12, 2020, ACC Staff issued its second report regarding possible modifications to the ACC’s retail electric 36 Table of Contents competition rules. During a July 15, 2020, ACC Staff meeting, the ACC Commissioners discussed the possible development of a retail competition pilot program, but no action was taken.
We are subject to other employee workforce factors, such as the availability and retention of qualified personnel and the need to negotiate collective bargaining agreements with union employees. These or other employee workforce factors could negatively impact our business, financial condition, or results of operations. COVID-19 could negatively affect our business.
We are subject to other employee workforce factors, such as the availability and retention of qualified personnel and the need to negotiate collective bargaining agreements with union employees. These or other employee workforce factors could negatively impact our business, financial condition, or results of operations.
We are subject to employee workforce factors that could adversely affect our business and financial condition. Like many companies in the electric utility industry, our workforce is maturing, with approximately 30% of employees eligible to retire by the end of 2027. Although we have undertaken efforts to recruit, train and develop new employees, we face increased competition for talent.
We are subject to employee workforce factors that could adversely affect our business and financial condition. Like many companies in the electric utility industry, our workforce is maturing, with approximately 28% of employees eligible to retire by the end of 2028. Although we have undertaken efforts to recruit, train and develop new employees, we face increased competition for talent.
These trends, which 43 Table of Contents have benefited from historical and continuing government support for certain technologies, have the potential to put downward pressure on wholesale power prices throughout the western states which could make APS’s existing generating facilities less economical and impact their operational patterns and long-term viability.
These trends, which have benefited from historical and continuing government support for certain technologies, have the potential to put downward pressure on wholesale power prices throughout the western states which could make APS’s existing generating facilities less economical and impact their operational patterns and long-term viability.
To the extent the rule requires the closure or modification of these CCR units, modification or changes to the manner of closure of such units, or the construction of new CCR units beyond what we currently anticipate, APS would incur significant additional costs for CCR disposal.
To the extent the rule requires the closure or modification of these CCR units, modification or changes to the manner of closure of such units, or the 34 Table of Contents construction of new CCR units beyond what we currently anticipate, APS would incur significant additional costs for CCR disposal.
In particular, during 2021 and 2022, the United States’ economy has experienced a substantial rise in the inflation rate. There is increased uncertainty as to whether the rise in inflation will continue and for how long. Increases in inflation raise the Company’s costs for commodities, labor, materials and services.
In particular, from 2021 to 2023, the United States’ economy has experienced a substantial rise in the inflation rate. There is increased uncertainty as to whether the rise in inflation will continue and for how long. Increases in inflation raise the Company’s costs for commodities, labor, materials and services.
Retail customers in APS’s service territory increased 2.1% for the year ended December 31, 2022, compared with the prior-year period. For the three years through 2022, APS’s customer growth averaged 2.2% per year.
Retail customers in APS’s service territory increased 2.0% for the year ended December 31, 2023, compared with the prior-year period. For the three years through 2023, APS’s customer growth averaged 2.1% per year.
Weather extremes such as drought and high temperature variations are common occurrences in the southwest United States’ desert area, and these are risks that APS considers in the normal course of business in the engineering and construction of its electric system.
Physical and Operational Risks. Weather extremes such as drought and high temperature variations are common occurrences in the southwestern United States’ desert area, and these are risks that APS considers in the normal course of business in the engineering and construction of its electric system.
We currently project annual customer growth to be 1.5% to 2.5% for 2023 and the average annual growth to be in the range of 1.5% to 2.5% through 2025 based on anticipated steady population growth in Arizona during that period.
We currently project annual customer growth to be 1.5% to 2.5% for 2024 and the average annual growth to be in the range of 1.5% to 2.5% through 2026 based on anticipated steady population growth in Arizona during that period.
In addition, APS is required by the ACC to meet certain energy resource portfolio requirements, including those related to renewables development and energy efficiency measures, in addition to specific competitive resource procurement requirements.
In addition, APS is required by the ACC to meet certain energy resource portfolio 39 Table of Contents requirements, including those related to renewables development and energy efficiency measures, in addition to specific competitive resource procurement requirements.
Concern over climate change has led to significant legislative and regulatory efforts to limit CO 2 , which is a major byproduct of the combustion of fossil fuel, and other GHG emissions. 36 Table of Contents Potential Financial Risks — Greenhouse Gas Regulation, the Clean Power Plan and Potential Litigation.
Concern over climate change has led to significant legislative and regulatory efforts to limit CO 2 , which is a major byproduct of the combustion of fossil fuel, and other GHG emissions. Potential Financial Risks — Greenhouse Gas Regulation, the Clean Power Plan and Potential Litigation. Following a U.S.
APS may be required under federal law to pay up to $120.1 million (but not more than $17.9 million per year) of liabilities arising out of a nuclear incident not only at Palo Verde, but at any other nuclear power plant in the United States.
APS may be required under federal law to pay up to $144.9 million (but not more than $21.6 million per year) of liabilities arising out of a nuclear incident not only at Palo Verde, but at any other nuclear power plant in the United States.
Due to the expected rapid growth of several large data centers and new large manufacturing facilities, we currently project that annual retail electricity sales in kWh will increase in the range of 3.5% to 5.5% for 2023 and that average annual growth will be in the range of 4.5% to 6.5% through 2025, including the effects of customer conservation, energy efficiency, and distributed renewable generation initiatives, but excluding the effects of weather variations.
Due to the expected growth of several large data centers and new large manufacturing facilities, we currently project that annual retail electricity sales in kWh will increase in the range of 2.0% to 4.0% for 2024 and that average annual growth will be in the range of 4.0% to 6.0% through 2026, including the effects of customer conservation, energy efficiency, and distributed renewable generation initiatives, but excluding the effects of weather variations.
For the three years through 2022, annual retail electricity sales growth averaged 2.5%, adjusted to exclude the effects of weather variations.
For the three years through 2023, annual retail electricity sales growth averaged 2.7%, adjusted to exclude the effects of weather variations.
Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic conditions, customer growth, usage patterns and energy conservation, slower ramp-up of and/or fewer data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs, and growth in DG, 39 Table of Contents and responses to retail price changes.
Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic conditions, customer growth, usage patterns and energy conservation, slower ramp-up of and/or fewer data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs and growth in DG, responses to retail price changes, changes in regulatory standards, and impacts of new and existing laws and regulations, including environmental laws and regulations.
Alternative GHG emission limitations may arise from litigation under either federal or state common laws or citizen suit provisions of federal environmental statutes that attempt to force federal agency rulemaking or imposing direct facility emission limitations. Such lawsuits may also seek damages from harm alleged to have resulted from power plant GHG emissions. Physical and Operational Risks.
Alternative GHG emission limitations may arise from litigation under either federal or state 35 Table of Contents common laws or citizen suit provisions of federal environmental statutes that attempt to force federal agency rulemaking or impose direct facility emission limitations. Such lawsuits may also seek damages from harm alleged to have resulted from power plant GHG emissions.
While steady customer growth was offset by energy savings driven by customer conservation, energy efficiency, and distributed renewable generation initiatives, the main drivers of positive sales for this period were a strong improvement in sales to commercial and industrial customers and the ramp-up of new data center customers.
While steady customer growth was somewhat offset by weaker usage among residential customers, energy savings driven by customer conservation, energy efficiency, and distributed renewable generation initiatives, the main drivers of positive sales for this period were continued strong sales to commercial and industrial customers and the ramp-up of new data center customers.
Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 2.4% for the year ended December 31, 2022, compared with the prior-year period.
Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 1.5% for the year ended December 31, 2023, compared with the prior-year period.
The operation of power generation facilities and transmission systems involves risks that could result in reduced output or unscheduled outages, which could materially affect APS’s results of operations .
The operation of power generation facilities and transmission systems involves risks that could result in reduced output or unscheduled outages or could otherwise significantly impact APS’s results of operations .
This projected sales growth range includes the impacts of several large data centers and new large manufacturing facilities, which are expected to contribute to average annual growth in the range of 3.5% to 5.5% through 2025.
These projected sales growth ranges include the impacts of several large data centers and new large manufacturing facilities, which are expected to contribute to 2024 growth in the range of 2.5% to 3.5% and to average annual growth in the range of 3.0% to 5.0% through 2026.
Decisions made by the ACC or FERC could have a material adverse impact on our financial condition, results of operations, or cash flows. 34 Table of Contents APS’s ability to conduct its business operations and avoid negative operational and financial impacts depends in part upon compliance with federal, state and local laws, judicial decisions, statutes, regulations and ACC requirements, which may be revised from time to time by legislative or other action, and obtaining and maintaining certain regulatory permits, approvals, and certificates.
APS’s ability to conduct its business operations and avoid negative operational and financial impacts depends in part upon compliance with federal, state and local laws, judicial decisions, statutes, regulations and ACC requirements, which may be revised from time to time by legislative or other action, and obtaining and maintaining certain regulatory permits, approvals, and certificates.
The minimum contributions required under these plans are impacted by federal legislation and related regulations. Increasing liabilities or otherwise increasing funding requirements under these plans, resulting from adverse changes in legislation or otherwise, could result in significant cash funding obligations that could have a material impact on our financial position, results of operations, or cash flows.
Increasing liabilities or otherwise increasing funding requirements under these plans, resulting from adverse changes in legislation or otherwise, could result in significant cash funding obligations that could have a material impact on our financial condition, results of operations, or cash flows.
The development and operation of any generation facility is also subject to many risks, including those related to financing, siting, permitting, new and evolving technology, and the construction of sufficient transmission capacity to support these facilities.
The development and operation of any generation facility is also subject to many risks, including those related to financing, siting, permitting, new and evolving technology, extreme weather events, workforce issues, cybersecurity attacks, supply chain constraints for critical spare parts, and the construction of sufficient transmission capacity to support these facilities among others.
In addition, we anticipate that such regulations will be challenged in federal court prior to their implementation. Depending on the outcome of such judicial review, the utility industry may face alternative efforts from private parties seeking to establish alternative GHG emission limitations from power plants.
Depending on the outcome of such judicial review, the utility industry may face alternative efforts from private parties seeking to establish alternative GHG emission limitations from power plants.
APS would seek recovery in rates for the book value of any remaining investments in the plants as well as other costs related to early retirement but cannot predict whether it would obtain such recovery.
APS would seek recovery in rates for the book value of any remaining investments in the plants as well as other costs related to early retirement but cannot predict whether it would obtain such recovery. Such regulations may also act as a deterrent to future customer growth or create additional costs for existing customers, potentially slowing APS’s customer growth.
APS customers in energy efficiency and conservation programs and other demand-side management efforts, which in turn impact the demand for electricity. APS must also meet certain distributed renewable energy requirements. A portion of APS’s total renewable energy requirement must be met with an increasing percentage of distributed renewable energy resources (generally, small scale renewable technologies located on customers’ properties).
APS must also meet certain distributed renewable energy requirements. A portion of APS’s total renewable energy requirement must be met with an increasing percentage of distributed renewable energy resources (generally, small-scale renewable technologies located on customers’ properties).
These operational risks related to rising temperatures and extreme heat events could affect APS’s financial condition, results of operations, or cash flows. 38 Table of Contents Higher temperatures may decrease the snowpack, which might result in lowered soil moisture and an increased threat of forest fires. Forest fires could threaten APS’s communities and electric transmission lines and facilities.
Higher temperatures may decrease the snowpack, which might result in lowered soil moisture and an increased threat of forest fires. Forest fires could threaten APS’s communities and electric transmission lines and facilities. Any damage caused as a result of forest fires could negatively impact APS’s financial condition, results of operations, or cash flows.
Additionally, the valuation of liabilities related to our pension plan and other postretirement benefit plans are impacted by a discount rate, which is the interest rate used to discount future pension and other postretirement benefit obligations.
Declines in market values of the fixed income and equity securities held in these trusts may increase our funding requirements for the related trusts. Additionally, the valuation of liabilities related to our pension plan and other postretirement benefit plans are impacted by a discount rate, which is the interest rate used to discount future pension and other postretirement benefit obligations.
Additionally, COVID-19 severely impacted global supply chains, resulting in equipment delays and 46 Table of Contents increased costs. A failure to recover the increased costs caused by increased inflation and supply chain constraints through our rates could have a material adverse impact on our financial condition, results of operations, or cash flows.
A failure to recover the increased costs caused by increased inflation and supply chain constraints through our rates could have a material adverse impact on our financial condition, results of operations, or cash flows. 45 Table of Contents The market price of our common stock may be volatile.
To the extent that commodity markets are illiquid, we may not be able to execute our risk management strategies, which could result in greater unhedged positions than we would prefer at a given time and financial losses that negatively impact our results of operations.
To the extent that commodity markets are illiquid, we may not be able to execute our risk management strategies, which could result in greater unhedged positions than we would prefer at a given time and financial losses that negatively impact our results of operations. 44 Table of Contents The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) contains measures aimed at increasing the transparency and stability of the over-the-counter derivative markets and preventing excessive speculation.
Declining interest rates decrease the discount rate, increase the valuation of the plan liabilities, and may result in increases in pension and other postretirement benefit costs, cash contributions, regulatory assets, and charges to OCI. Changes in demographics, including increased number of retirements or changes in life expectancy and changes in other actuarial assumptions, may also result in similar impacts.
Changes in interest rates impact the discount rate and valuation of the plan liabilities, and may result in increases in pension and other postretirement benefit costs, cash contributions, regulatory assets, and charges to OCI.
Extreme heat events and rising temperatures are projected to reduce the generation capacity of thermal-power plants and decrease the efficiency of the transmission grid.
Extreme heat events and rising temperatures are projected to reduce the generation capacity of thermal-power plants and decrease the efficiency of the transmission grid. These operational risks related to rising temperatures and extreme heat events could affect APS’s financial condition, results of operations, or cash flows.
APS could be held liable for damages incurred as a result of wildfires if it was determined that they were caused by or enhanced due to APS’s negligence. Any damage caused to our assets, loss of service to our customers, or liability imposed as a result of wildfires could negatively impact APS’s financial condition, results of operations, or cash flows.
Furthermore, any damage caused to our assets, loss of service to our customers, or liability imposed as a result of wildfires could negatively impact APS’s financial condition, results of operations, or cash flows.
Widespread installation and acceptance of new technologies could also enable the entry of new market participants, such as technology companies, into the interface between APS and its customers and could have other unpredictable effects on APS’s traditional business model.
Widespread installation and acceptance of new technologies could also enable the entry of new market participants, such as technology companies, into the interface between APS and its customers and could have other unpredictable effects on APS’s traditional business model. 42 Table of Contents Deployment of renewable energy technologies is expected to continue across the western states and result in a larger portion of the overall energy production coming from these sources.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) contains measures aimed at increasing the transparency and stability of the over-the-counter derivative markets and preventing excessive speculation. The Dodd-Frank Act could restrict, among other things, trading positions in the energy futures markets, require different collateral or settlement positions, or increase regulatory reporting over derivative positions.
The Dodd-Frank Act could restrict, among other things, trading positions in the energy futures markets, require different collateral or settlement positions, or increase regulatory reporting over derivative positions.
The operation of power generation, transmission and distribution facilities involves certain risks, including the risk of breakdown or failure of equipment, fuel interruption, and performance below expected levels of output or efficiency. Unscheduled outages, including extensions of scheduled outages due to mechanical failures or other complications, occur from time to time and are an inherent risk of APS’s business.
The operation of power generation, transmission and distribution facilities involves certain risks, including the risk of breakdown or failure of equipment, fuel interruption, and performance below expected 38 Table of Contents levels of output or efficiency.
APS is unable to predict the final outcomes of pending and future approvals by the applicable sovereign governing bodies with respect to renewals of these leases, easements, and rights-of-way. 42 Table of Contents There are inherent risks in the ownership and operation of nuclear facilities, such as environmental, health, fuel supply, spent fuel disposal, regulatory and financial risks and the risk of terrorist attack that could adversely affect our business and financial condition.
There are inherent risks in the ownership and operation of nuclear facilities, such as environmental, health, fuel supply, spent fuel disposal, regulatory and financial risks and the risk of terrorist attack that could adversely affect our business and financial condition.
Prolonged and extreme drought conditions can also affect APS’s long-term ability to access the water resources necessary for thermal electricity generation operations. Reductions in the availability of water for power plant cooling could negatively impact APS’s financial condition, results of operations, or cash flows. Effects of Energy Conservation Measures and Distributed Energy Resources.
Reductions in the availability of water for power plant cooling could negatively impact APS’s financial condition, results of operations, or cash flows. Effects of Energy Conservation Measures and Distributed Energy Resources. APS customers in energy efficiency and conservation programs and other demand-side management efforts, which in turn impact the demand for electricity.
We are also subject to risks related to the provision of employee healthcare benefits and healthcare reform legislation.
We are also subject to risks related to the provision of employee healthcare benefits and healthcare reform legislation. Any inability to fully recover these costs in our utility rates would negatively impact our financial condition.
Depending on the outcome of future carbon emission rulemakings under the Clean Air Act targeting new and existing power plants, the utility industry may become subject to more stringent and expansive regulations. Depending on the means of compliance with federal emission performance standards, the electric utility industry may be forced to incur substantial costs necessary to achieve compliance.
EPA expects to take final action on this proposal in the spring or summer of 2024. Depending on the outcome of future carbon emission rulemaking under the Clean Air Act targeting new and existing power plants, the utility industry may become subject to more stringent and expansive regulations.
Any damage caused as a result of forest fires could negatively impact APS’s financial condition, results of operations, or cash flows. In addition, the decrease in snowpack can also lead to reduced water supplies in the areas where APS relies upon non-renewable water resources to supply cooling and process water for electricity generation.
In addition, the decrease in snowpack can also lead to reduced water supplies in the areas where APS relies upon non-renewable water resources to supply cooling and process water for electricity generation. Prolonged and extreme drought conditions can also affect APS’s long-term ability to access the water resources necessary for thermal electricity generation operations.
Any inability to fully recover these costs in our utility rates would negatively impact our financial condition. 44 Table of Contents We have significant pension plan and other postretirement benefits plan obligations to our employees and retirees, and legal obligations to fund our pension trust and nuclear decommissioning trusts for Palo Verde.
We have significant pension plan and other postretirement benefits plan obligations to our employees and retirees, and legal obligations to fund our pension trust and nuclear decommissioning trusts for Palo Verde. We hold and invest substantial assets in these trusts that are designed to provide funds to pay for certain of these obligations as they arise.
Removed
In 2015, EPA finalized a rule to limit CO 2 emissions from existing power plants, the Clean Power Plan, or CPP. The implementation of this rule within the jurisdictions where APS operates would have resulted in a shift in generation from coal to more natural gas and renewable generation.
Added
Decisions made by the ACC or FERC could have a material adverse impact on our financial condition, results of operations, or cash flows.
Removed
Because of a view that the federal Clean Air Act did not permit such an expansive use of administrative authority over utility generation resources, in 2019 regulations were issued that repealed the CPP and replaced it with a far narrower set of regulations focused solely on coal-fired power plant efficiency improvements. On January 19, 2021, the U.S.
Added
In addition, the EPA may in the future further increase the stringency of various NAAQS, including for ozone or other pollutants, such as particulate matter. With regard to even more stringent NAAQS requirements, additional control measures and compliance costs may become necessary for APS as well as its current and potential future customers.
Removed
Court of Appeals for the D.C. Circuit vacated the ACE regulations and remanded them back to EPA to develop new regulations governing carbon emissions from existing power plants consistent with the court’s ruling. That decision, which endorsed an expansive view of the federal Clean Air Act consistent with the CPP, was subsequently reversed by the U.S.
Added
Supreme Court decision on June 30, 2022, which substantially narrowed EPA’s authority to regulate power plant GHG emissions under the Clean Air Act, on May 23, 2023, EPA proposed new GHG emission standards for power plants.
Removed
Supreme Court on June 30, 2022. While the current administration has expressed its intent to develop new carbon emission regulations governing existing power plants in 2023, such action will be constrained by the U.S. Supreme Court’s decision that the CPP violated the Clean Air Act.
Added
In contrast to measures finalized in 2015, EPA’s May 2023 proposal is focused on limiting power plant GHG emissions through control mechanisms that can be implemented at individual power plant facilities. These mechanisms would include carbon capture and sequestration, hydrogen co-firing, natural gas co-firing, and limits on facility output, among other measures.
Removed
The impact of wildfires could negatively affect APS’s results of operations. Wildfires have the potential to affect the communities that APS serves and APS’s vast network of electric transmission and distribution lines and facilities.
Added
Depending on the means of compliance with federal emission performance standards, the electric utility industry may be forced to incur substantial costs necessary to achieve compliance. In addition, we anticipate that such regulations will be challenged in federal court prior to their implementation.
Removed
The ownership and operation of power generation and transmission facilities on Indian lands could result in uncertainty related to continued leases, easements, and rights-of-way, which could have a significant impact on our business. Four Corners and portions of certain APS transmission lines are located on Indian lands pursuant to leases, easements or other rights-of-way that are effective for specified periods.
Added
Longer term, APS has been preparing for and can serve significant load growth from residential and business customers. On top of these existing growth trends, APS is also now receiving unprecedented incremental requests for service from extra-large commercial energy users (over 25 MW) with very high energy demands that persist virtually around-the-clock.

… 18 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

13 edited+1 added−0 removed4 unchanged
Biggest change(f) APS is under contract and currently plans to add battery storage at these AZ Sun sites. See “Business of Arizona Public Service Company — Energy Sources and Resource Planning — Energy Storage” above for details related to these and other energy storage agreements.
Biggest changeSee “Business of Arizona Public Service Company — Energy Sources and Resource Planning — Energy Storage” above for details related to these and other energy storage agreements. See “Business of Arizona Public Service Company — Environmental Matters” in Item 1 with respect to matters having a possible impact on the operation of certain of APS’s generating facilities.
See “Business of Arizona Public Service Company — Energy Sources and Resource Planning — Generation Facilities — Coal-Fueled Generating Facilities — Four Corners” in Item 1 for additional information about the Four Corners right-of-way and lease matters. Certain portions of our transmission lines are located on Indian lands pursuant to rights-of-way that are effective for specified periods.
See “Business of Arizona Public Service Company — Energy Sources and Resource Planning — Generation Facilities — Coal-Fueled Generating Facilities — Four Corners” in Item 1 for additional information about the Four Corners right-of-way and lease matters. 52 Table of Contents Certain portions of our transmission lines are located on Indian lands pursuant to rights-of-way that are effective for specified periods.
In recent negotiations, certain of the affected Indian tribes have required payments substantially 51 Table of Contents in excess of amounts that we have paid in the past for such rights-of-way. The ultimate cost of renewal of certain of the rights-of-way for our transmission lines is therefore uncertain.
In recent negotiations, certain of the affected Indian tribes have required payments substantially in excess of amounts that we have paid in the past for such rights-of-way. The ultimate cost of renewal of certain of the rights-of-way for our transmission lines is therefore uncertain.
PROPERTIES Generation Facilities APS’s portfolio of owned generating facilities as of December 31, 2022 is provided in the table below: Name No. of Units % Owned (a) Principal Fuels Used Primary Dispatch Type Owned Capacity (MW) Nuclear: Palo Verde (b) 3 29.1 % Uranium Base Load 1,146 Total Nuclear 1,146 Steam: Four Corners 4, 5 (c) 2 63 % Coal Base Load 970 Cholla 1,3 2 Coal Base Load 387 Total Steam 1,357 Combined Cycle: Redhawk (d) 2 Gas Load Following 1,088 West Phoenix 5 Gas Load Following 887 Total Combined Cycle 1,975 Combustion Turbine: Ocotillo (e) 7 Gas Peaking 620 Saguaro 3 Gas Peaking 189 Douglas 1 Oil Peaking 16 Sundance 10 Gas Peaking 420 West Phoenix 2 Gas Peaking 110 Yucca 1, 2, 3 3 Gas Peaking 93 Yucca 4 1 Oil Peaking 54 Yucca 5, 6 2 Gas Peaking 96 Total Combustion Turbine 1,598 Solar: Cotton Center (f) 1 Solar As Available 17 Hyder I (f) 1 Solar As Available 17 Paloma (f) 1 Solar As Available 17 Chino Valley 1 Solar As Available 20 Gila Bend (f) 1 Solar As Available 36 Hyder II (f) 1 Solar As Available 14 Foothills (f) 1 Solar As Available 38 Luke AFB 1 Solar As Available 11 Desert Star (f) 1 Solar As Available 10 Red Rock 1 Solar As Available 44 APS Owned Distributed Energy Solar As Available 36 Multiple facilities Solar As Available 4 Total Solar 264 Total Capacity 6,340 49 Table of Contents (a) 100% unless otherwise noted.
PROPERTIES Generation Facilities APS’s portfolio of owned generating facilities as of December 31, 2023 is provided in the table below: Name No. of Units % Owned (a) Principal Fuels Used Primary Dispatch Type Owned Capacity (MW) Nuclear: Palo Verde (b) 3 29.1 % Uranium Base Load 1,146 Total Nuclear 1,146 Steam: Four Corners 4, 5 (c) 2 63 % Coal Base Load 970 Cholla 1,3 2 Coal Base Load 387 Total Steam 1,357 Combined Cycle: Redhawk 2 Gas Load Following 1,088 West Phoenix 5 Gas Load Following 887 Total Combined Cycle 1,975 Combustion Turbine: Ocotillo (d) 7 Gas Peaking 620 Saguaro 3 Gas Peaking 189 Douglas 1 Oil Peaking 16 Sundance 10 Gas Peaking 420 West Phoenix 2 Gas Peaking 110 Yucca 1, 2, 3 3 Gas Peaking 93 Yucca 4 1 Oil Peaking 54 Yucca 5, 6 2 Gas Peaking 96 Total Combustion Turbine 1,598 Solar: Cotton Center (e) 1 Solar As Available 17 Hyder I (e) 1 Solar As Available 17 Paloma (e) 1 Solar As Available 17 Chino Valley 1 Solar As Available 20 Gila Bend (e) 1 Solar As Available 36 Hyder II (e) 1 Solar As Available 14 Foothills (e) 1 Solar As Available 38 Luke AFB 1 Solar As Available 11 Desert Star (e) 1 Solar As Available 10 Red Rock 1 Solar As Available 44 Agave Solar 1 Solar As Available 150 APS Owned Distributed Energy Solar As Available 37 Multiple facilities Solar As Available 4 Total Solar 415 Total Capacity 6,491 50 Table of Contents (a) 100% unless otherwise noted.
The 2023 Ten-Year Plan includes a new 25-mile 500kV line from the Jojoba substation to the Rudd substation. The purpose of this 500kV line project is to bring in a new source to the west and southwest parts of the Phoenix metropolitan area which is experiencing rapid economic development.
The 2024 Ten-Year Plan includes a new 28-mile 500kV line from the Jojoba substation to the Rudd substation. The purpose of this 500kV line project is to bring in a new source to the west and southwest parts of the Phoenix metropolitan area which is experiencing rapid economic development.
The other participants are Salt River Project, SCE, El Paso, Public Service Company of New Mexico, Southern California Public Power Authority, and Los Angeles Department of Water & Power. (c) The other participants are Salt River Project (10%), Public Service Company of New Mexico (13%), Tucson Electric Power Company (7%) and NTEC (7%). The plant is operated by APS.
The other participants are Salt River Project, SCE, El Paso Electric Company, Public Service Company of New Mexico, Southern California Public Power Authority, and Los Angeles Department of Water & Power. (c) The other participants are Salt River Project (10%), Public Service Company of New Mexico (13%), Tucson Electric Power Company (7%) and NTEC (7%).
APS shares ownership of some of its transmission facilities with other companies. 50 Table of Contents The following table shows APS’s jointly-owned interests in those transmission facilities recorded on the Consolidated Balance Sheets at December 31, 2022: Percent Owned (Weighted-Average) Morgan — Pinnacle Peak System 64.7 % Palo Verde — Rudd 500kV System 50.0 % Round Valley System 50.0 % ANPP 500kV System 33.4 % Navajo Southern System 26.8 % Four Corners Switchyards 61.9 % Palo Verde — Yuma 500kV System 25.4 % Phoenix — Mead System 17.1 % Palo Verde — Morgan System 87.8 % Hassayampa — North Gila System 80.0 % Cholla 500kV Switchyard 85.7 % Saguaro 500kV Switchyard 60.0 % Kyrene — Knox System 50.0 % Agua Fria Switchyard 10.0 % Expansion.
APS shares ownership of some of its transmission facilities with other companies. 51 Table of Contents The following table shows APS’s jointly-owned interests in those transmission facilities recorded on the Consolidated Balance Sheets at December 31, 2023: Percent Owned (Weighted-Average) Morgan — Pinnacle Peak System 63.2 % Palo Verde — Rudd 500kV System 50.0 % Round Valley System 50.0 % ANPP 500kV System 33.4 % Navajo Southern System 25.2 % Four Corners Switchyards 57.5 % Palo Verde — Yuma 500kV System 25.3 % Phoenix — Mead System 17.1 % Palo Verde — Morgan System 87.5 % Hassayampa — North Gila System 80.0 % Cholla 500kV Switchyard 85.7 % Saguaro 500kV Switchyard 60.0 % Kyrene — Knox System 50.0 % Agua Fria Switchyard 10.0 % Expansion.
Each year APS prepares and files with the ACC a Ten-Year Transmission Plan. In APS’s 2023 Ten-Year Plan, APS projects it will develop 84 miles of new transmission lines over the next 10 years. Additionally, APS plans to upgrade 55 miles of existing transmission lines over the same horizon.
Each year, APS prepares and files with the ACC a Ten-Year Transmission Plan. In APS’s 2024 Ten-Year Plan, APS projects it will develop 109 miles of new transmission lines over the next 10 years. Additionally, APS plans to upgrade 730 miles of existing transmission lines over the same horizon.
APS’s distribution facilities consist of approximately 11,276 miles of overhead lines and approximately 23,082 miles of underground primary cable (20,021 when excluding abandoned conductor), all of which are located in Arizona. APS also owns and maintains 469 substations, including both transmission and distribution yards.
APS’s distribution facilities consist of approximately 11,289 miles of overhead lines and approximately 23,604 miles of underground primary cable (20,508 when excluding abandoned conductor), all of which are located in Arizona. APS also owns and maintains 485 substations, including both transmission and distribution yards.
Transmission and Distribution Facilities Current Facilities . As of January 3, 2023, APS’s transmission facilities consist of approximately 5,828 pole miles of overhead lines and approximately 85 miles of underground lines, 5,768 miles of which are located in Arizona.
As of February 1, 2024, APS’s transmission facilities consist of approximately 5,832 pole miles of overhead lines and approximately 85 miles of underground lines, 5,772 miles of which are located in Arizona.
See “Business of Arizona Public Service Company — Environmental Matters” in Item 1 with respect to matters having a possible impact on the operation of certain of APS’s generating facilities. See “Business of Arizona Public Service Company” in Item 1 for a map detailing the location of APS’s major power plants and principal transmission lines.
See “Business of Arizona Public Service Company” in Item 1 for a map detailing the location of APS’s major power plants and principal transmission lines. Transmission and Distribution Facilities Current Facilities .
(d) Redhawk generation capacity increased by 104 MW following the Advanced Gas Path upgrade installed on both units. (e) Ocotillo Steam Units 1 and 2 were retired on January 10, 2019. Units 3 through 7 all went into service on or prior to May 30, 2019, which increased generation capacity by 510 MW.
The plant is operated by APS. (d) Ocotillo Steam Units 1 and 2 were retired on January 10, 2019. Units 3 through 7 all went into service on or prior to May 30, 2019, which increased generation capacity by 510 MW. (e) APS is under contract and currently plans to add battery storage at these AZ Sun sites.
In addition, this new source will provide customers in the area greater access to a diverse mix of resources from around the region. The 2023 Ten-Year Plan includes numerous projects with the purpose to interconnect new renewable energy resources to the transmission system.
This rebuild will replace aging towers to ensure continued reliability and safety, increase important capability to the Metro Phoenix area, and improve access to a diverse mix of resources from the Four Corners region throughout the Southwest. The 2024 Ten-Year Plan includes numerous projects with the purpose to interconnect new renewable energy resources to the transmission system.
Added
This new source will provide customers in the area greater access to a diverse mix of resources from around the region. Additionally, the 2024 Ten-Year Plan includes the rebuild of both Four Corners to Pinnacle Peak 345kV lines which span 289 miles each.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

9 edited+0 added−0 removed0 unchanged
Biggest changeHeflin 59 Executive Vice President and Chief Nuclear Officer, PVGS, of APS 2022-Present Chief Executive Officer of Wolf Creek Nuclear Operating Corporation 2014-2019 Paul J. Mountain 45 Vice President and Treasurer of Pinnacle West and APS 2022-Present Vice President, Finance and Planning of Pinnacle West and APS 2020-2022 General Manager, Finance of Pinnacle West 2017-2020 Robert E.
Biggest changeGeisler 45 President of APS 2022-Present Senior Vice President and Chief Financial Officer of Pinnacle West and APS 2020-2022 Vice President and Chief Information Officer of APS 2018-2020 Adam C. Heflin 60 Executive Vice President and Chief Nuclear Officer, PVGS, of APS 2022-Present Chief Executive Officer of Wolf Creek Nuclear Operating Corporation 2014-2019 Paul J.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 52 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Pinnacle West’s executive officers are elected no less often than annually and may be removed by the Board of Directors, or in certain cases also by the Human Resources Committee, at any time.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 53 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Pinnacle West’s executive officers are elected no less often than annually and may be removed by the Board of Directors, or in certain cases also by the Human Resources Committee, at any time.
The executive officers, their ages at February 27, 2023, current positions and principal occupations for the past five years are as follows: Name Age Position Period Jeffrey B.
The executive officers, their ages at February 27, 2024, current positions and principal occupations for the past five years are as follows: Name Age Position Period Jeffrey B.
Esparza 48 Senior Vice President, Public Policy of APS 2022-Present Vice President, Regulatory of APS 2022 Officer and Senior Vice President, Customer Engagement and Information Technology of Southwest Gas 2019-2021 Vice President, Customer Engagement of Southwest Gas 2012-2019 Theodore N.
Esparza 49 Senior Vice President, Public Policy of APS 2022-Present Vice President, Regulatory of APS 2022 Officer and Senior Vice President, Customer Engagement and Information Technology of Southwest Gas 2019-2021 Vice President, Customer Engagement of Southwest Gas 2012-2019 Theodore N.
Blankenship 51 Vice President, Controller and Chief Accounting Officer of Pinnacle West and APS 2019-Present General Manager, Accounting Operations of APS 2019-2019 Director, Accounting Operations of APS 2014-2019 Andrew D.
Blankenship 52 Vice President, Controller and Chief Accounting Officer of Pinnacle West and APS 2019-Present General Manager, Accounting Operations of APS 2019-2019 Director, Accounting Operations of APS 2014-2019 Andrew D.
Smith 53 Executive Vice President, General Counsel and Chief Development Officer of Pinnacle West and APS 2021-Present Senior Vice President and General Counsel of Pinnacle West and APS 2018-2021 Jacob Tetlow 50 Executive Vice President, Operations of APS 2021-Present Senior Vice President, Non-Nuclear Operations of APS 2020-2021 Vice President, Transmission and Distributions Operations of APS 2017-2020 53 Table of Contents PART II
Smith 54 Executive Vice President, General Counsel and Chief Development Officer of Pinnacle West and APS 2021-Present Senior Vice President and General Counsel of Pinnacle West and APS 2018-2021 Jacob Tetlow 51 Executive Vice President, Operations of APS 2021-Present Senior Vice President, Non-Nuclear Operations of APS 2020-2021 Vice President, Transmission and Distributions Operations of APS 2017-2020 54 Table of Contents PART II
Guldner 57 Chairman of the Board, Chief Executive Officer and President of Pinnacle West 2019-Present Chairman of the Board and Chief Executive Officer of APS 2022-Present Chairman of the Board, Chief Executive Officer and President of APS 2021-2022 Chairman of the Board and Chief Executive Officer of APS 2020-2021 President of APS 2018-2020 Executive Vice President, Public Policy of Pinnacle West 2017-2019 Executive Vice President, Public Policy of APS 2017-2018 General Counsel of Pinnacle West and APS 2017-2018 Elizabeth A.
Guldner 58 Chairman of the Board, Chief Executive Officer and President of Pinnacle West 2019-Present Chairman of the Board and Chief Executive Officer of APS 2022-Present Chairman of the Board, Chief Executive Officer and President of APS 2021-2022 Chairman of the Board and Chief Executive Officer of APS 2020-2021 President of APS 2018-2020 Executive Vice President, Public Policy of Pinnacle West 2017-2019 Elizabeth A.
Cooper 44 Senior Vice President and Chief Financial Officer of Pinnacle West and APS 2022-Present Vice President and Treasurer of Pinnacle West and APS 2020-2022 Director, Corporate Finance of Consolidated Edison Company of New York, Inc. 2017-2020 Donna M. Easterly 58 Senior Vice President, Human Resources of APS 2020-Present Vice President, Human Resources and Ethics of APS 2017-2020 Jose L.
Cooper 45 Senior Vice President and Chief Financial Officer of Pinnacle West and APS 2022-Present Vice President and Treasurer of Pinnacle West and APS 2020-2022 Director, Corporate Finance of Consolidated Edison Company of New York, Inc. 2017-2020 Jose L.
Geisler 44 President of APS 2022-Present Senior Vice President and Chief Financial Officer of Pinnacle West and APS 2020-2022 Vice President and Chief Information Officer of APS 2018-2020 General Manager, Transmission and Distribution Operations and Maintenance of APS 2017-2018 Adam C.
Mountain 46 Vice President and Treasurer of Pinnacle West and APS 2022-Present Vice President, Finance and Planning of Pinnacle West and APS 2020-2022 General Manager, Finance of Pinnacle West 2017-2020 Robert E.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed1 unchanged
Biggest changeYears Ended December 31, Company/Index 2017 2018 2019 2020 2021 2022 Pinnacle West Common Stock $100 $104 $113 $104 $96 $109 Edison Electric Institute Index $100 $104 $130 $129 $151 $153 S&P 500 Index $100 $96 $126 $149 $192 $156 ITEM 6. [RESERVED] 55 Table of Contents
Biggest changeYear Ended December 31, Company/Index 2018 2019 2020 2021 2022 2023 Pinnacle West Common Stock $100 $109 $101 $93 $105 $104 Edison Electric Institute Index $100 $126 $124 $146 $147 $134 S&P 500 Index $100 $131 $156 $200 $164 $207 ITEM 6. [RESERVED] 56 Table of Contents
The comparison assumes that $100 was invested on December 31, 2017, in Pinnacle West’s common stock and in each of the indices shown and that all of the dividends were reinvested.
The comparison assumes that $100 was invested on December 31, 2018, in Pinnacle West’s common stock and in each of the indices shown and that all of the dividends were reinvested.
At December 31, 2022, APS did not have any outstanding preferred stock. 54 Table of Contents Stock Performance Chart This graph compares the cumulative total shareholder return on Pinnacle West’s common stock during the five years ended December 31, 2022, to the cumulative total returns on the S&P 500 Index and the Edison Electric Index.
At December 31, 2023, APS did not have any outstanding preferred stock. 55 Table of Contents Stock Performance Chart This graph compares the cumulative total shareholder return on Pinnacle West’s common stock during the five years ended December 31, 2023, to the cumulative total returns on the S&P 500 Index and the Edison Electric Index.
ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Pinnacle West’s common stock is publicly held and is traded on the New York Stock Exchange under stock symbol PNW. At the close of business on February 21, 2023, Pinnacle West’s common stock was held of record by approximately 15,182 shareholders.
ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Pinnacle West’s common stock is publicly held and is traded on the New York Stock Exchange under stock symbol PNW. At the close of business on February 21, 2024, Pinnacle West’s common stock was held of record by approximately 14,476 shareholders.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. [Reserved] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 88 Item 8. Financial Statements and Supplementary Data 89 Pinnacle West Financial Statements 95 APS Financial Statements 106 Combined Notes to Consolidated Financial Statements 112 Pinnacle West Schedule I 197
Biggest changeItem 6. [Reserved] 56 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 57 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 87 Item 8. Financial Statements and Supplementary Data 88 Pinnacle West Financial Statements 94 APS Financial Statements 105

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

138 edited+90 added−125 removed45 unchanged
Biggest changeThe following table presents net income attributable to common shareholders by business segment compared with the prior year: Year Ended December 31, 2022 2021 Net change (dollars in millions) Regulated Electricity Segment: Operating revenues less fuel and purchased power expenses $ 2,690 $ 2,645 $ 45 Operations and maintenance (983) (951) (32) Depreciation and amortization (753) (651) (102) Taxes other than income taxes (220) (235) 15 Pension and other postretirement non-service credits — net 98 113 (15) All other income and expenses, net 23 61 (38) Interest charges, net of allowance for borrowed funds used during construction (255) (233) (22) Income taxes (Note 4) (75) (110) 35 Less income related to noncontrolling interests (Note 17) (17) (17) — Regulated electricity segment income 508 622 (114) All other (24) (3) (21) Net Income Attributable to Common Shareholders $ 484 $ 619 $ (135) 74 Table of Contents Operating revenues less fuel and purchased power expenses .
Biggest changeThe following table presents net income attributable to common shareholders compared with the prior year for Pinnacle West consolidated and for APS consolidated: APS Consolidated Pinnacle West Consolidated Year Ended December 31, Year Ended December 31, 2023 2022 Net Change 2023 2022 Net Change (dollars in millions) Operating revenues $ 4,696 $ 4,324 $ 372 $ 4,696 $ 4,324 $ 372 Fuel and purchased power expense (1,793) (1,629) (164) (1,793) (1,629) (164) Operating revenues less fuel and purchased power expenses 2,903 2,695 208 2,903 2,695 208 Operations and maintenance (1,044) (974) (70) (1,059) (987) (72) Depreciation and amortization (794) (753) (41) (794) (753) (41) Taxes other than income taxes (224) (220) (4) (224) (220) (4) Pension and other postretirement non-service credits, net 42 99 (57) 41 98 (57) Other income and expenses, net 60 22 38 60 (1) 61 Interest charges, net of allowance for borrowed funds used during construction (285) (236) (49) (331) (256) (75) Income taxes (94) (91) (3) (77) (75) (2) Less income related to noncontrolling interests (17) (17) — (17) (17) — Net Income Attributable to Common Shareholders $ 547 $ 525 $ 22 $ 502 $ 484 $ 18 73 Table of Contents Operating revenues less fuel and purchased power expenses .
Depreciation and amortization expenses are impacted by net additions to utility plant and other property (such as new generation, transmission, and distribution facilities), and changes in depreciation and amortization rates. See “Liquidity and Capital Resources” below for information regarding the planned additions to our facilities. Pension and Other Postretirement Non-Service Credits, Net .
Depreciation and Amortization Expenses. Depreciation and amortization expenses are impacted by net additions to utility plant and other property (such as new generation, transmission, and distribution facilities), and changes in depreciation and amortization rates. See “Liquidity and Capital Resources” below for information regarding the planned additions to our facilities. Pension and Other Postretirement Non-Service Credits, Net .
(b) In general, changes in the discount rate will not typically have symmetrical effects for increases and decreases of the rate. Further, a 1% change in a low discount rate environment will have a larger impact than a 1% change in a high discount rate environment. Therefore, the discount rate sensitivities above cannot necessarily be extrapolated.
(b) In general, changes in the discount rate will not typically have symmetrical effects for increases and decreases of the rate. Further, a 1% change in a low discount rate environment will have a larger impact than a 1% change in a high discount rate environment. Therefore, the discount rate sensitivities above cannot necessarily be extrapolated.
As part of WMEG, APS is exploring the potential for a staged approach to new market services, including day-ahead energy sales, transmission system expansion, and other power supply and grid solutions consistent with existing state regulations. WMEG hopes to identify market solutions that can help achieve carbon reduction goals while supporting reliable, affordable service for customers.
As a member of WMEG, APS is exploring the potential for a staged approach to new market services, including day-ahead energy sales, transmission system expansion, and other power supply and grid solutions consistent with existing state regulations. WMEG hopes to identify market solutions that can help achieve carbon reduction goals while supporting reliable, affordable service for customers.
APS has a diverse portfolio of existing and planned renewable resources, including solar, wind, geothermal, biomass, and biogas that supports our commitment to clean energy, which is already strengthened by Palo Verde, the nation’s largest carbon-free, clean energy resource, that provides the foundation for reliable and affordable service for APS customers.
APS has a diverse portfolio of existing and planned renewable resources, including solar, wind, geothermal, biomass and biogas, that supports our commitment to clean energy. This commitment is already strengthened by Palo Verde, one of the nation’s largest carbon-free, clean energy resource, which provides the foundation for reliable and affordable service for APS customers.
Currently, almost all existing fossil fuel generators do not control carbon emissions the way they control emissions of other air pollutants such as sulfur dioxide or oxides of nitrogen. Carbon capture technologies are still in the demonstration phase and while they show promise, they are still being tested in real-world conditions.
Currently, almost all existing fossil fuel generators do not control carbon emissions the way they control emissions of other air pollutants such as sulfur dioxide or oxides of nitrogen. CCUS technologies are still in the demonstration phase and while they show promise, they are still being tested in real-world conditions.
Material contractual obligations and other commitments are as follows: • Pinnacle West and APS have material long-term debt obligations that mature at various dates through 2050 and bear interest principally at fixed rates. Interest on variable-rate long-term debt is determined by using average rates at December 31, 2022.
Material contractual obligations and other commitments are as follows: • Pinnacle West and APS have material long-term debt obligations that mature at various dates through 2050 and bear interest principally at fixed rates. Interest on variable-rate long-term debt is determined by using average rates at December 31, 2023.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion should be read in conjunction with Pinnacle West’s Consolidated Financial Statements and APS’s Consolidated Financial Statements and the related Notes that appear in Item 8 of this report. This discussion provides a comparison of the 2022 results with 2021 results.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion should be read in conjunction with Pinnacle West’s Consolidated Financial Statements and APS’s Consolidated Financial Statements and the related Notes that appear in Item 8 of this report. This discussion provides a comparison of the 2023 results with 2022 results.
The joint venture, named TransCanyon, is pursuing independent electric transmission opportunities within the 11 U.S. states that comprise the Western Interconnection, excluding opportunities related to transmission service that would otherwise be provided under the tariffs of the retail service territories of the venture partners’ utility affiliates.
TransCanyon is pursuing independent electric transmission opportunities within the 11 U.S. states that comprise the Western Interconnection, excluding opportunities related to transmission service that would otherwise be provided under the tariffs of the retail service territories of the venture partners’ utility affiliates.
The most critical category, Integral Shared Value, includes four issues deemed most important and most able to be impacted by our actions: clean energy, customer experience, energy access and reliability and safety and health. These Integral PSIs provide the foundation for informing our strategic direction, creating a framework for incorporating best practices and driving enterprise-wide alignment and accountability.
The most critical category includes four issues deemed most important and most able to be impacted by our actions: clean energy, customer experience, energy access and reliability, and safety and health. These PSIs provide the foundation for informing our strategic direction, creating a framework for incorporating best practices and driving enterprise-wide alignment and accountability.
Weather. In forecasting the retail sales growth numbers provided above, we assume normal weather patterns based on historical data. Our experience indicates that typical variations from normal weather can result in increases and decreases in annual net income of up to $15 million; however, extreme weather variations have resulted in larger annual variations in net income.
Weather. In forecasting the retail sales growth numbers provided above, we assume normal weather patterns based on historical data. Our experience indicates that typical variations from normal 71 Table of Contents weather can result in increases and decreases in annual net income of up to $15 million; however, extreme weather variations have resulted in larger annual variations in net income.
The principal provisions of APS’s application are: • a test year comprised of 12 months ended June 30, 2022, adjusted as described below; • an original cost rate base of $10.5 billion, which approximates the ACC-jurisdictional portion of the book value of utility assets, net of accumulated depreciation and other credits; • the following proposed capital structure and costs of capital: Capital Structure Cost of Capital Long-term debt 48.07 % 3.85 % Common stock equity 51.93 % 10.25 % Weighted-average cost of capital 7.17 % 67 Table of Contents • a 1% return on the increment of fair value rate base above APS’s original cost rate base, as provided for by Arizona law; • a rate of $0.038321 per kWh for the portion of APS’s retail base rates attributable to fuel and purchased power costs; • modification of its adjustment mechanisms including: ▪ eliminate the Environmental Improvement Surcharge and collect costs through base rates, ▪ eliminate the Lost Fixed Cost Recovery mechanism and collect costs through base rates and the Demand Side Management Adjustment Charge (“DSMAC”), ▪ maintain as inactive the Tax Expense Adjustor Mechanism, ▪ maintain the Transmission Cost Adjustment mechanism, ▪ modify the performance incentive in the DSMAC, and ▪ modify the Renewable Energy Adjustment Charge to include recovery of capital carrying costs of APS owned renewable and storage resources; • changes to its limited-income program, including a second tier to provide an additional discount for customers with greater need; and • twelve months of post-test year plant to reflect used and useful projects that will be placed into service prior to July 1, 2023.
The principal provisions of APS’s application were: • a test year comprised of twelve months ended June 30, 2022, adjusted as described below; • an original cost rate base of $ 10.5 billion, which approximates the ACC-jurisdictional portion of the book value of utility assets, net of accumulated depreciation and other credits; • the following proposed capital structure and costs of capital: Capital Structure Cost of Capital Long-term debt 48.07 % 3.85 % Common stock equity 51.93 % 10.25 % Weighted-average cost of capital 7.17 % • a 1% return on the increment of fair value rate base above APS’s original cost rate base, as provided for by Arizona law; • a rate of $0.038321 per kWh for the portion of APS’s retail base rates attributable to fuel and purchased power costs; • modification of its adjustment mechanisms including: ▪ eliminate the Environmental Improvement Surcharge (“EIS”) and collect costs through base rates, ▪ eliminate the Lost Fixed Cost Recovery (“LFCR”) mechanism and collect costs through base rates and the Demand Side Management Adjustment Charge (“DSMAC”), ▪ maintain as inactive the Tax Expense Adjustor Mechanism (“TEAM”), ▪ maintain the Transmission Cost Adjustment (“TCA”) mechanism, ▪ modify the performance incentive in the DSMAC, and ▪ modify the Renewable Energy Adjustment Charge (“REAC”) to include recovery of capital carrying costs of APS owned renewable and storage resources; • changes to its limited-income program, including a second tier to provide an additional discount for customers with greater need; and 66 Table of Contents • twelve months of post-Test Year plant investments to reflect used and useful projects that will be placed into service prior to July 1, 2023.
For information on factors that may cause our actual future results to differ from those we currently seek or anticipate, see “Forward-Looking Statements” at the front of this report and “Risk Factors” in Item 1A. OVERVIEW Business Overview Pinnacle West is an investor-owned electric utility holding company based in Phoenix, Arizona with consolidated assets of about $23 billion.
For information on factors that may cause our actual future results to differ from those we currently seek or anticipate, see “Forward-Looking Statements” at the front of this report and “Risk Factors” in Item 1A. OVERVIEW Business Overview Pinnacle West is an investor-owned electric utility holding company based in Phoenix, Arizona with consolidated assets of approximately $25 billion.
See Note 6. • Pinnacle West and APS maintain committed revolving credit facilities. See Note 5 for short-term debt details. • Fuel and purchased power commitments include purchases of coal, electricity, natural gas, renewable energy, nuclear fuel, and natural gas transportation. See Notes 3 and 10. Purchase obligations include capital expenditures and other obligations. See Note 10.
See Note 6. • Pinnacle West and APS maintain committed revolving credit facilities. See Note 5 for short-term debt details. 80 Table of Contents • Fuel and purchased power commitments include purchases of coal, electricity, natural gas, renewable energy, nuclear fuel, and natural gas transportation. See Notes 3 and 10. Purchase obligations include capital expenditures and other obligations.
The most relevant actuarial assumptions are the discount rate, the expected long-term rate of return on plan assets (“EROA”), and the assumed healthcare cost trend rates. Differences between these actuarial assumptions and actual plan results may create volatility in pension and other postretirement benefit expense.
The most relevant actuarial 81 Table of Contents assumptions are the discount rate, the expected long-term rate of return on plan assets (“EROA”), and the assumed healthcare cost trend rates. Differences between these actuarial assumptions and actual plan results may create volatility in pension and other postretirement benefit expense.
See Note 17. CRITICAL ACCOUNTING POLICIES In preparing the financial statements in accordance with GAAP, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES In preparing the financial statements in accordance with GAAP, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period.
Under seasonal operation, one generating unit would be shut down during seasons where electricity demand is reduced, such as the winter and spring. The other unit would remain online year-round, subject to market conditions as well as planned maintenance outages and unplanned outages.
Under seasonal operation, one generating unit would be shut down during seasons where electricity demand is reduced, such as the winter and spring. The other unit would remain online year-round, subject to market 61 Table of Contents conditions as well as planned maintenance outages and unplanned outages.
Examples of the types of projects included in the forecast include power lines, substations, and line extensions to new residential and commercial developments. Capital expenditures will be funded with internally generated cash and external financings, which may include issuances of long-term debt and Pinnacle West common stock. Financing Cash Flows and Liquidity 2022 Compared with 2021.
Examples of the types of projects included in the forecast include power lines, substations, and line extensions to new residential and commercial developments. Capital expenditures will be funded with internally generated cash and external financings, which may include issuances of long-term debt and Pinnacle West common stock. 78 Table of Contents Financing Cash Flows and Liquidity 2023 Compared with 2022.
For the three years through 2022, APS’s customer growth averaged 2.2% per year. We currently project annual customer growth to be 1.5% to 2.5% for 2023 and the average annual growth to be in the range of 1.5% to 2.5% through 2025 based on anticipated steady population growth in Arizona during that period.
For the three years through 2023, APS’s customer growth averaged 2.1% per year. We currently project annual customer growth to be 1.5% to 2.5% for 2024 and the average annual growth to be in the range of 1.5% to 2.5% through 2026 based on anticipated steady population growth in Arizona during that period.
AzCaNE’s first action was to pursue the creation of an Arizona-led approach to securing regional clean hydrogen hub funding. Leading professionals from the seven founding participants, along with representatives of Arizona, the Navajo Nation and companies working to develop a hydrogen ecosystem within Arizona make up the Governance Committee for AzCaNE’s current efforts.
AzCaNE’s first action was to pursue an Arizona-led approach to securing regional clean hydrogen hub 64 Table of Contents funding. Leading professionals from the seven founding participants, along with representatives of Arizona, the Navajo Nation and companies working to develop a hydrogen ecosystem within Arizona, make up the Governance Committee for AzCaNE’s efforts.
Operations and maintenance expenses are impacted by customer and sales growth, power plant operations, maintenance of utility plant (including generation, transmission, and distribution facilities), inflation, unplanned outages, planned outages (typically scheduled in the spring and fall), renewable energy and DSM related expenses (which are offset by the same amount of operating revenues) and other factors. 72 Table of Contents Depreciation and Amortization Expenses.
Operations and Maintenance Expenses . Operations and maintenance expenses are impacted by customer and sales growth, power plant operations, maintenance of utility plant (including generation, transmission, and distribution facilities), inflation, unplanned outages, planned outages (typically scheduled in the spring and fall), renewable energy and DSM related expenses (which are offset by the same amount of operating revenues) and other factors.
Key provisions that are relevant to the Company’s clean energy commitment include (i) an extension of tax credits for solar and wind generation, including a new option for solar investments to claim a Production Tax Credit (“PTC”) in lieu of the Investment Tax Credit (“ITC”) beginning in 2022; (ii) expansion of the ITC to cover stand-alone energy storage technology beginning in 2023; and (iii) introduction of a new PTC for nuclear energy produced by existing nuclear energy plants, available from 2024 through 2032.
Key provisions that are relevant to APS’s clean energy commitment include (i) an extension of tax credits for solar and wind generation, including a new option for solar investments to claim a Production Tax Credit ( “ PTC ” ) in lieu of the Investment Tax Credit ( “ ITC ” ) beginning in 2022; (ii) expansion of the ITC to cover stand-alone energy storage technology beginning in 2023; and (iii) introduction of a new PTC for nuclear energy produced by existing nuclear energy plants (“Nuclear PTC”), available from 2024 through 2032.
The Company was reimbursed $26 million in 2022, $24 million in 2021, and $26 million in 2020 for prior years retiree medical claims from the other postretirement benefit plan trust assets.
The Company was reimbursed $23 million in 2023, $26 million in 2022, and $24 million in 2021 for prior years retiree medical claims from the other postretirement benefit plan trust assets.
These revenue transactions are affected by the availability of excess generation or other energy resources and wholesale market conditions, including competition, demand, and prices. 71 Table of Contents Actual and Projected Customer and Sales Growth. Retail customers in APS’s service territory increased 2.1% for the year ended December 31, 2022, compared with the prior-year period.
These revenue transactions are affected by the availability of excess generation or other energy resources and wholesale market conditions, including competition, demand, and prices. 70 Table of Contents Actual and Projected Customer and Sales Growth. Retail customers in APS’s service territory increased 2.0% for the year ended December 31, 2023, compared with the prior-year period.
APS selects projects based on cost and commercial viability, taking into consideration timing and likelihood of successful contracting and development. Under current market conditions, APS must aggressively contract for resources that can withstand supply chain and other geopolitical pressures.
APS selects projects based on cost, ability to meet system requirements and commercial viability, taking into consideration timing and likelihood of successful contracting and development. Under current market conditions, APS must aggressively contract for resources that can withstand supply chain and other geopolitical pressures.
For the year ended December 31, 2022, Pinnacle West’s total dividends paid per share of common stock were $3.42 per share, which resulted in dividend payments of $379 million. Available Credit Facilities . Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for their commercial paper.
For the year ended December 31, 2023, Pinnacle West’s total dividends paid per share of common stock were $3.48 per share, which resulted in dividend payments of $386 million. Available Credit Facilities . Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for their commercial paper.
The following table shows the net pretax changes in mark-to-market of our energy derivative positions (dollars in millions): December 31, 2022 December 31, 2021 Mark-to-market of net positions at beginning of year $ 107 $ (13) Increase (decrease) in regulatory liability (11) 120 Mark-to-market of net positions at end of year $ 96 $ 107 The table below shows the fair value of maturities of our energy derivative contracts (dollars in millions) at December 31, 2022, by maturities and by the type of valuation that is performed to calculate the fair values, classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The following table shows the net pretax changes in mark-to-market of our energy derivative positions (dollars in millions): December 31, 2023 December 31, 2022 Mark-to-market of net positions at beginning of year $ 96 $ 107 Decrease (increase) in regulatory asset (216) (11) Mark-to-market of net positions at end of year $ (120) $ 96 86 Table of Contents The table below shows the fair value of maturities of our energy derivative contracts (dollars in millions) at December 31, 2023, by maturities and by the type of valuation that is performed to calculate the fair values, classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
APS continues to evaluate options to meet growing energy demand and ensure grid reliability, including through upgrades to and/or modernization of additional existing gas facilities. In October of 2021, APS announced plans to evaluate regional market solutions as part of the informal Western Markets Exploratory Group (“WMEG”).
Complementary to and in support of the transition to renewable resources, APS continues to evaluate options to meet growing energy demand and ensure grid reliability, including through upgrades to and/or modernization of additional existing natural gas facilities. In October 2021, APS announced plans to evaluate regional market solutions as part of the informal Western Markets Exploratory Group (“WMEG”).
Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic conditions, customer growth, usage patterns and energy conservation, slower ramp-up of and/or fewer data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs, and growth in DG, and responses to retail price changes.
Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic conditions, customer growth, usage patterns and energy conservation, slower ramp-up of and/or fewer data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs and growth in DG, responses to retail price changes, changes in regulatory standards, and impacts of new and existing laws and regulations, including environmental laws and regulations.
For instance, our pension plan’s funded status, as measured for accounting principles generally accepted in the United States of America (“GAAP”) purposes, was 106% funded as of December 31, 2022, and our postretirement benefit plans were 159% funded, as measured for GAAP purposes at December 31, 2022. See Note 7 for additional details.
For instance, our pension plan’s funded status, as measured for accounting principles generally accepted in the United States of America (“GAAP”) purposes, was 102% funded as of December 31, 2023, and our postretirement benefit plans were 162% funded, as measured for GAAP purposes at December 31, 2023. See Note 7 for additional details.
Interest Rate and Equity Risk We have exposure to changing interest rates. Changing interest rates will affect interest paid on variable-rate debt and the market value of fixed income securities held by our nuclear decommissioning trust, other special use funds (see Notes 12 and 18), and benefit plan assets.
Changing interest rates will affect interest paid on variable-rate debt and the market value of fixed income securities held by our nuclear decommissioning trust, other special use funds (see Notes 12 and 18), and benefit plan assets.
We stop accruing AFUDC on a project when it is placed in commercial operation. 73 Table of Contents RESULTS OF OPERATIONS Pinnacle West’s only reportable business segment is our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily sales supplied under traditional cost-based rate regulation) and related activities and includes electricity generation, transmission, and distribution.
We stop accruing AFUDC on a project when it is placed into service. 72 Table of Contents 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 sales supplied under traditional cost-based rate regulation) and related activities and includes electricity generation, transmission, and distribution.
APS is Arizona’s largest and longest-serving electric company that generates safe, affordable, and reliable electricity for approximately 1.3 million retail customers in 11 of Arizona’s 15 counties. APS is also the operator and co-owner of Palo Verde — a primary source of electricity for the southwest United States and the largest nuclear power plant in the United States.
APS is Arizona’s largest and longest-serving electric company that generates safe, affordable and reliable electricity for approximately 1.4 million retail customers in 11 of Arizona’s 15 counties. APS is also the operator and co-owner of Palo Verde — a primary source of electricity for the southwestern United States.
Management judgments also include assessing the impact of potential ACC or FERC Commission-ordered refunds to customers on regulatory liabilities. We had $1,822 million of regulatory assets and $2,333 million of regulatory liabilities on the Consolidated Balance Sheets at December 31, 2022. See Notes 1 and 3 for more information.
Management judgments also include assessing the impact of potential ACC- or FERC-ordered refunds to customers on regulatory liabilities. We had $2,016 million of regulatory assets and $2,176 million of regulatory liabilities on the Consolidated Balance Sheets at December 31, 2023. See Notes 1 and 3 for more information.
APS’s ability to successfully execute its clean energy commitment is dependent upon a number of important external factors, some of which include a supportive regulatory environment, sales and customer growth, development of clean energy technologies and continued access to capital markets. 2050 Goal: 100% Clean, Carbon-Free Electricity. Achieving a fully clean, carbon-free energy mix by 2050 is our aspiration.
APS’s ability to successfully execute its clean energy commitment depends upon a number of important external factors, including a supportive regulatory environment, sales and customer growth, development of clean energy technologies, and continued access to capital markets among others. 2050 Goal: 100% Clean, Carbon-Free Electricity. Achieving a fully clean, carbon-free energy mix by 2050 is our aspiration.
Due to the expected rapid growth of several large data centers and new large manufacturing facilities, we currently project that annual retail electricity sales in kWh will increase in the range of 3.5% to 5.5% for 2023 and that average annual growth will be in the range of 4.5% to 6.5% through 2025, including the effects of customer conservation, energy efficiency, and distributed renewable generation initiatives, but excluding the effects of weather variations.
Due to the expected growth of several large data centers and new large manufacturing facilities, we currently project that annual retail electricity sales in kWh will increase in the range of 2.0% to 4.0% for 2024 and that average annual growth will be in the range of 4.0% to 6.0% through 2026, including the effects of customer conservation, energy efficiency, and distributed renewable generation initiatives, but excluding the effects of weather variations.
We closely monitor these factors to plan for the Company’s current needs, and to adjust our expectations, financial budgets, and forecasts appropriately. Electric Operating Revenues. For the years 2020 through 2022, retail electric revenues comprised approximately 92% of our total operating revenues.
We closely monitor these factors to plan for the Company’s current needs, and to adjust our expectations, financial budgets and forecasts appropriately. Electric Operating Revenues. For the years 2021 through 2023, retail electric revenues comprised approximately 91% of our total operating revenues.
“Renewable” energy includes generation sources such as solar, wind, and biomass, and is measured in accordance with the ACC’s Renewable Energy 58 Table of Contents Standard as a percentage of retail sales.
“Renewable” energy includes generation resources such as solar, wind, and biomass, and is measured in accordance with the ACC’s Renewable Energy Standard as a percentage of retail sales.
For the three years through 2022, annual retail electricity sales growth averaged 2.5%, adjusted to exclude the effects of weather variations.
For the three years through 2023, annual retail electricity sales growth averaged 2.7%, adjusted to exclude the effects of weather variations.
Interest charges, net of allowance for borrowed funds used during construction were $22 million higher for the year ended December 31, 2022, compared to the prior-year period primarily due to higher debt balances and higher interest rates in the current period, partially offset by higher allowance for borrowed funds due to increased capital expenditures. Income taxes.
Interest charges, net of allowance for borrowed funds used during construction were $75 million higher for the year ended December 31, 2023, compared to the prior-year period primarily due to higher debt balances, higher commercial paper balances and higher interest rates in the current period, partially offset by higher allowance for borrowed funds due to increased capital expenditures.
In 2020, in support of our clean energy commitment and the growing focus on ESG within our organization, we increased our efforts by dedicating a new Sustainability Department at Pinnacle West to integrating ESG best practices into the everyday work of the Company.
Sustainability Practices In 2020, in support of our clean energy commitment and the growing focus on sustainability within our organization, we increased our focus on sustainability by dedicating a new Sustainability Department at Pinnacle West responsible for integrating responsible business practices into the everyday work of the Company.
APS’s clean energy goals consist of three parts: • a 2050 goal to provide 100% clean, carbon-free electricity; • a 2030 target of achieving a resource mix that is 65% clean energy, with 45% of the generation portfolio coming from renewable energy; and • a commitment to end APS’s use of coal-fired generation by 2031.
APS’s clean energy commitment consists of three parts: • A 2050 goal to provide 100% clean, carbon-free electricity; • A 2030 target to achieve a resource mix that is 65% clean energy, with 45% of the generation portfolio coming from renewable energy; and • A commitment to exit from coal-fired generation by 2031.
Source of Fair Value 2023 2024 2025 2026 2027 Total Fair Value Observable prices provided by other external sources $ 70 $ 31 $ — $ — $ — $ 101 Prices based on unobservable inputs (14) 9 — — — (5) Total by maturity $ 56 $ 40 $ — $ — $ — $ 96 87 Table of Contents The table below shows the impact that hypothetical price movements of 10% would have on the market value of our risk management assets and liabilities included on Pinnacle West’s Consolidated Balance Sheets (dollars in millions): December 31, 2022 Gain (Loss) December 31, 2021 Gain (Loss) Price Up 10% Price Down 10% Price Up 10% Price Down 10% Mark-to-market changes reported in: Regulatory asset (liability) (a) Electricity $ 12 $ (12) $ — $ — Natural gas 55 (55) 50 (50) Total $ 67 $ (67) $ 50 $ (50) (a) These contracts are economic hedges of our forecasted purchases of natural gas and electricity.
Source of Fair Value 2024 2025 2026 2027 2028 Total Fair Value Observable prices provided by other external sources $ (82) $ (41) $ (2) $ — $ — $ (125) Prices based on unobservable inputs 5 — — — — 5 Total by maturity $ (77) $ (41) $ (2) $ — $ — $ (120) The table below shows the impact that hypothetical price movements of 10% would have on the market value of our risk management assets and liabilities included on Pinnacle West’s Consolidated Balance Sheets (dollars in millions): December 31, 2023 Gain (Loss) December 31, 2022 Gain (Loss) Price Up 10% Price Down 10% Price Up 10% Price Down 10% Mark-to-market changes reported in: Regulatory asset (liability) (a) Electricity $ 9 $ (9) $ 12 $ (12) Natural gas 55 (55) 55 (55) Total $ 64 $ (64) $ 67 $ (67) (a) These contracts are economic hedges of our forecasted purchases of natural gas and electricity.
Income taxes are affected by the amount of pretax book income, income tax rates, certain deductions, and non-taxable items, such as AFUDC. In addition, income taxes may also be affected by the settlement of issues with taxing authorities.
Income taxes are affected by the amount of pretax book income, income tax rates, certain deductions, and non-taxable items, such as AFUDC. In addition, income taxes may also be affected by the settlement of issues with taxing authorities. Interest Expense. Interest expense is affected by the amount of debt outstanding and the interest rates on that debt.
As a first step, the Company engaged the Electric Power Research Institute (“EPRI”) and leveraged input from employees, large customers, limited-income advocates, economic development groups, environmental non-governmental organizations, leading sustainability academics and other stakeholders to 66 Table of Contents identify and assess the sustainability issues that matter most. In total, 23 Priority Sustainability Issues (“PSIs”) were identified and prioritized.
The Sustainability Department engaged the Electric Power Research Institute (“EPRI”) and leveraged input from employees, large customers, limited-income advocates, economic development groups, environmental non-governmental organizations, leading sustainability academics and other stakeholders to identify and assess the sustainability issues that matter most. In total, 23 Priority Sustainability Issues (“PSIs”) were identified and prioritized.
(b) Includes generation environmental projects. (c) Primarily information systems and facilities projects. The table above does not include capital expenditures related to BCE projects. 78 Table of Contents Generation capital expenditures are comprised of various additions and improvements to APS’s clean resources, including nuclear plants, renewables and ESS. Generation capital expenditures also include improvements to existing fossil plants.
(b) Includes generation environmental projects. (c) Primarily information systems and facilities projects. The table above does not include capital expenditures related to PNW Power projects. Generation capital expenditures are comprised of various additions and improvements to APS’s clean resources, including nuclear plants, renewables and ESS.
Significant Financing Activities. On December 14, 2022, the Pinnacle West Board of Directors declared a dividend of $0.865 per share of common stock, payable on March 1, 2023, to shareholders of record on February 1, 2023. During 2022, Pinnacle West increased its indicated annual dividend from $3.40 per share to $3.46 per share.
Significant Financing Activities. On December 13, 2023, the Pinnacle West Board of Directors declared a dividend of $0.880 per share of common stock, payable on March 1, 2024, to shareholders of record on February 1, 2024. During 2023, Pinnacle West increased its indicated annual dividend from $3.46 per share to $3.52 per share.
At December 31, 2022, APS’s common equity ratio, as defined, was 50%. Its total shareholder equity was approximately $6.9 billion, and total capitalization was approximately $13.9 billion. Under this order, APS would be prohibited from paying dividends if such payment would reduce its total shareholder equity below approximately $5.6 billion, assuming APS’s total capitalization remains the same.
At December 31, 2023, APS’s common equity ratio, as defined, was 49%. Its total shareholder equity was approximately $7.2 billion, and total capitalization was approximately $14.7 billion. Under this order, APS would be prohibited from paying dividends if such payment would reduce its total shareholder equity below approximately $5.9 billion, assuming APS’s total capitalization remains the same.
See Note 5 for more information on available credit facilities. Other Financing Matters. See Note 15 for information related to the change in our margin and collateral accounts. 79 Table of Contents Debt Provisions Pinnacle West’s and APS’s debt covenants related to their respective bank financing arrangements include maximum debt to capitalization ratios.
See Note 5 for more information on available credit facilities. Other Financing Matters. See Note 15 for information related to the change in our margin and collateral accounts. Debt Provisions Pinnacle West’s and APS’s debt covenants related to their respective bank financing arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with these covenants.
Credit Ratings The ratings of securities of Pinnacle West and APS as of February 15, 2023, are shown below. We are disclosing these credit ratings to enhance understanding of our cost of short-term and long-term capital and our ability to access the markets for liquidity and long-term debt.
See Note 6 for further discussions of liquidity matters. Credit Ratings The ratings of securities of Pinnacle West and APS as of February 15, 2024, are shown below. We are disclosing these credit ratings to enhance understanding of our cost of short-term and long-term capital and our ability to access the markets for liquidity and long-term debt.
While steady customer growth was offset by energy savings driven by customer conservation, energy efficiency, and distributed renewable generation initiatives, the main drivers of positive sales for this period were a strong improvement in sales to commercial and industrial customers and the ramp-up of new data center customers.
While steady customer growth was somewhat offset by weaker usage among residential customers, energy savings driven by customer conservation, energy efficiency, and distributed renewable generation initiatives, the main drivers of positive sales for this period were continued strong sales to commercial and industrial customers and the ramp-up of new data center customers.
Its near-term actions are focused on clean energy and positive customer outcomes and includes: (a) competitive solicitations to procure clean energy resources such as solar, wind, energy storage, and DSM resources, all of which lead to a cleaner grid; and (b) strategic, short-term wholesale market purchases from a combination of existing merchant natural gas units, neighboring utility systems, and wholesale market participants that ensure operational reliability.
Its near-term actions are focused on clean, reliable energy and positive customer outcomes and include: (a) competitive all source requests for proposal (“RFPs”) that provide an on-ramp to procure additional clean energy resources such as solar, wind, energy storage, and DSM resources, all of which lead to a cleaner grid and (b) strategic, short-term wholesale market purchases from a combination of existing merchant natural gas units, neighboring utility systems and wholesale market participants that ensure operational reliability.
The nuclear decommissioning trust, other special use funds and benefit plan assets also have risks associated with the changing market value of their equity and other non-fixed income investments. Nuclear decommissioning and benefit plan costs are recovered in regulated electricity prices.
The nuclear decommissioning trust, other special use funds and benefit plan assets also have risks associated with the changing market value of their equity and other non-fixed income investments.
Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 2.4% for the year ended December 31, 2022, compared with the prior-year period.
Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 1.5% for the year ended December 31, 2023, compared with the prior-year period.
The interest rates presented in the tables below represent the weighted-average interest rates as of December 31, 2022, and 2021 (dollars in millions): APS — Consolidated Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2022 Rates Amount Rates Amount Rates Amount 2023 4.56 % $ 325 — $ — — $ — 2024 — — — — 3.35 % 250 2025 — — — — 3.15 % 300 2026 — — — — 2.55 % 250 2027 — — — — 2.95 % 300 Years thereafter — — 3.96 % 163 4.10 % 5,580 Total $ 325 $ 163 $ 6,680 Fair value $ 325 $ 163 $ 5,466 86 Table of Contents Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2021 Rates Amount Rates Amount Rates Amount 2022 0.18 % $ 279 — $ — — $ — 2023 — — — — — — 2024 — — — — 3.35 % 250 2025 — — — — 3.15 % 300 2026 — — — — 2.55 % 250 Years thereafter — — 0.22 % 36 3.87 % 5,480 Total $ 279 $ 36 $ 6,280 Fair value $ 279 $ 36 $ 6,898 Commodity Price Risk We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural gas.
The interest rates presented in the tables below represent the weighted-average interest rates as of December 31, 2023, and 2022 (dollars in millions): 85 Table of Contents APS — Consolidated Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2023 Rates Amount Rates Amount Rates Amount 2024 5.46 % $ 533 — $ — 3.35 % $ 250 2025 — — — — 3.15 % 300 2026 — — — — 2.55 % 250 2027 — — — — 2.95 % 300 2028 — — — — — — Years thereafter — — 4.11 % 164 4.22 % 6,080 Total $ 533 $ 164 $ 7,180 Fair value $ 533 $ 164 $ 6,296 Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2022 Rates Amount Rates Amount Rates Amount 2023 4.56 % $ 325 — $ — — $ — 2024 — — — — 3.35 % 250 2025 — — — — 3.15 % 300 2026 — — — — 2.55 % 250 2027 — — — — 2.95 % 300 Years thereafter — — 3.96 % 163 4.10 % 5,580 Total $ 325 $ 163 $ 6,680 Fair value $ 325 $ 163 $ 5,466 Commodity Price Risk We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural gas.
APS is unable to predict the outcome of these discussions. APS’s key elements to delivering reliable power include resource planning, sufficient reserve margins, customer partnerships to manage peak demand, fire mitigation, and operational preparedness. Seasonal readiness procedures at APS also include walkdowns to ensure good material conditions and critical control system surveys.
APS’s key elements to delivering reliable power include resource planning, sufficient reserve margins, customer partnerships to manage peak demand, fire mitigation, and operational preparedness. Seasonal readiness procedures at APS also include inspections to ensure good material conditions and critical control system surveys.
Regarding contributions to our other postretirement benefit 77 Table of Contents plan, we did not make any contributions in 2022 or 2021 and do not expect to make any contributions in 2023, 2024 or 2025.
Regarding contributions to our other postretirement benefit plan, we did not make any contributions in 2023 or 2022 and do not expect to make any contributions in 2024, 2025 or 2026.
This target will serve as a checkpoint for our resource planning, investment strategy, and customer affordability efforts as APS moves toward 100% clean, carbon-free energy mix by 2050. 2031 Goal: End APS’s Use of Coal-Fired Generation. The commitment to end APS’s use of coal-fired generation by 2031 will require APS to cease use of coal-generation at Four Corners.
This target will serve as a checkpoint for our resource planning, investment strategy, and customer affordability efforts as APS moves toward a 100% clean, carbon-free energy mix by 2050. 2031 Goal: Exit Coal-Fired Generation. The plan to exit coal-fired generation by 2031 will require APS to stop relying on coal-generation at Four Corners.
Pension and other postretirement non-service credits, net. Pension and other postretirement non-service credits, net were $15 million lower for the year ended December 31, 2022, compared to the prior-year period primarily due to actual market returns being lower than estimated returns in 2021. All other income and expenses, net.
Pension and other postretirement non-service credits, net were $57 million lower for the year ended December 31, 2023, compared to the prior-year period primarily due to the effect of higher discount rates and actual market returns being lower than estimated returns in 2022. Other income and expenses, net.
Pinnacle West and APS comply with these covenants. For both Pinnacle West and APS, these covenants require that the ratio of consolidated debt to total consolidated capitalization not exceed 65%. At December 31, 2022, the ratio was approximately 58% for Pinnacle West and 51% for APS.
For both Pinnacle West and APS, these covenants require that the ratio of consolidated debt to total consolidated capitalization not exceed 65%. At December 31, 2023, the ratio was approximately 60% for Pinnacle West and 52% for APS.
The minimum required contributions for the pension plan are zero for the next three years and we do not expect to make any voluntary contributions in 2023, 2024 or 2025.
In 2021, we made contributions to our pension plan totaling $100 million. The minimum required contributions for the pension plan are zero for the next three years and we do not expect to make any voluntary contributions in 2024, 2025 or 2026.
Our assessment of the inputs and the significance of a particular input to fair value measurement may affect the valuation of the instruments and their placement within a fair value hierarchy. Actual results could differ from our estimates of fair value. See Note 1 for a discussion of accounting policies and Note 12 for fair value measurement disclosures.
Our assessment of the inputs and the significance of a particular input to fair value measurement may affect the valuation of the instruments and their placement within a fair value hierarchy. Actual results could differ from our estimates of fair value.
APS has permanently retired more than 1,000 MW of coal-fired electric generating capacity. These closures and other measures taken by APS have resulted in a total reduction of carbon emissions of 33% since 2005. In addition, APS has committed to end the use of coal at its remaining Cholla units by 2025.
APS has permanently retired more than 1,000 MW of coal-fired electric generating capacity. These closures and other measures taken by APS have resulted in annual carbon emissions that were 24% lower in 2022 compared to 2005. In addition, APS has committed to end the use of coal at its remaining Cholla units during 2025.
On May 12, 2022, APS, along with three other Arizona energy providers and the State’s three public universities announced the formation of a new, interdisciplinary coalition, called the Arizona Center for a Carbon Neutral Economy (“AzCaNE”), with the goal of attaining a carbon neutral economy in Arizona.
Hydrogen Production On May 12, 2022, Arizona’s three public universities, along with four Arizona energy providers, including APS, announced the formation of a new, interdisciplinary coalition, called the Arizona Center for a Carbon Neutral Economy (“AzCaNE”), with the goal of achieving a carbon neutral economy in Arizona.
Additionally, El Dorado committed to a $25 million investment in AZ-VC (formerly the invisionAZ Fund), which is a fund focused on analyzing, investing, managing, and otherwise dealing with investments in privately held early stage and emerging growth technology companies and businesses primarily based in the State of Arizona, or based in other jurisdictions and having existing or potential strategic or economic ties to companies or other interests in the State of Arizona.
AZ-VC is a fund focused on analyzing, investing, managing, and otherwise dealing with investments in privately-held early stage and emerging growth technology companies and businesses primarily based in Arizona, or based in other jurisdictions and having existing or potential strategic or economic ties to companies or other interests in Arizona.
The interest rates presented in the tables below represent the weighted-average interest rates as of December 31, 2022, and 2021 (dollars in millions): Pinnacle West – Consolidated Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2022 Rates Amount Rates Amount Rates Amount 2023 4.56 % $ 341 5.42 % $ 51 — $ — 2024 — — 5.10 % 450 3.35 % 250 2025 — — — — 1.99 % 800 2026 — — — — 2.55 % 250 2027 — — — — 2.95 % 300 Years thereafter — — 3.96 % 163 4.10 % 5,580 Total $ 341 $ 664 $ 7,180 Fair value $ 341 $ 664 $ 5,922 85 Table of Contents Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2021 Rates Amount Rates Amount Rates Amount 2022 0.18 % $ 292 0.78 % $ 150 — $ — 2023 — — — — — — 2024 — — 0.85 % 150 3.35 % 250 2025 — — — — 1.99 % 800 2026 — — — — 2.55 % 250 Years thereafter — — 0.22 % 36 3.87 % 5,480 Total $ 292 $ 336 $ 6,780 Fair value $ 292 $ 336 $ 7,390 The tables below present contractual balances of APS’s long-term and short-term debt at the expected maturity dates, as well as the fair value of those instruments on December 31, 2022, and 2021.
The interest rates presented in the tables below represent the weighted-average interest rates as of December 31, 2023, and 2022 (dollars in millions): Pinnacle West – Consolidated Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2023 Rates Amount Rates Amount Rates Amount 2024 5.46 % $ 610 6.20 % $ 625 3.35 % $ 250 2025 — — — — 1.99 % 800 2026 — — — — 2.55 % 250 2027 — — — — 2.95 % 300 2028 — — — — — — Years thereafter — — 4.11 % 164 4.22 % 6,080 Total $ 610 $ 789 $ 7,680 Fair value $ 610 $ 789 $ 6,767 Short-Term Debt Variable-Rate Long-Term Debt Fixed-Rate Long-Term Debt Interest Interest Interest 2022 Rates Amount Rates Amount Rates Amount 2023 4.56 % $ 341 5.42 % $ 51 — $ — 2024 — — 5.10 % 450 3.35 % 250 2025 — — — — 1.99 % 800 2026 — — — — 2.55 % 250 2027 — — — — 2.95 % 300 Years thereafter — — 3.96 % 163 4.10 % 5,580 Total $ 341 $ 664 $ 7,180 Fair value $ 341 $ 664 $ 5,922 The tables below present contractual balances of APS’s long-term and short-term debt at the expected maturity dates, as well as the fair value of those instruments on December 31, 2023, and 2022.
Summary of Cash Flows The following tables present net cash provided by (used for) operating, investing, and financing activities for the years ended December 31, 2022, and 2021 (dollars in millions): Pinnacle West Consolidated 2022 2021 Net cash flow provided by operating activities $ 1,242 $ 860 Net cash flow used for investing activities (1,618) (1,387) Net cash flow provided by financing activities 371 477 Net decrease in cash and cash equivalents $ (5) $ (50) Arizona Public Service Company 2022 2021 Net cash flow provided by operating activities $ 1,230 $ 865 Net cash flow used for investing activities (1,549) (1,391) Net cash flow provided by financing activities 314 478 Net decrease in cash and cash equivalents $ (5) $ (48) Operating Cash Flows 2022 Compared with 2021.
Summary of Cash Flows The following tables present net cash provided by (used for) operating, investing, and financing activities for the years ended December 31, 2023, and 2022 (dollars in millions): Pinnacle West Consolidated 2023 2022 Net cash flow provided by operating activities $ 1,207 $ 1,242 Net cash flow used for investing activities (1,694) (1,618) Net cash flow provided by financing activities 487 371 Net decrease in cash and cash equivalents $ — $ (5) Arizona Public Service Company 2023 2022 Net cash flow provided by operating activities $ 1,275 $ 1,230 Net cash flow used for investing activities (1,687) (1,549) Net cash flow provided by financing activities 412 314 Net decrease in cash and cash equivalents $ — $ (5) Operating Cash Flows 2023 Compared with 2022.
Regulated electricity segment operating revenues less fuel and purchased power expenses were $45 million higher for the year ended December 31, 2022, compared with the prior year.
Operating revenues less fuel and purchased power expenses were $208 million higher for the year ended December 31, 2023, compared with the prior year.
Reliable While our energy mix evolves, the obligation to deliver reliable service to our customers remains. APS is managing through significant growth in the Phoenix metropolitan area while experiencing supply chain issues similar to other industries. 62 Table of Contents Planned investments will support operating and maintaining the grid, updating technology, accommodating customer growth, and enabling more renewable energy resources.
APS is managing through significant growth in the Phoenix metropolitan area while experiencing supply chain issues similar to other industries. Planned investments will support operating and maintaining the grid, updating technology, accommodating customer growth, and enabling more renewable energy resources.
This projected sales growth range includes the impacts of several large data centers and new large manufacturing facilities, which are expected to contribute to average annual growth in the range of 3.5% to 5.5% through 2025.
These projected sales growth ranges include the impacts of several large data centers and new large manufacturing facilities, which are expected to contribute to 2024 growth in the range of 2.5% to 3.5% and to average annual growth in the range of 3.0% to 5.0% through 2026.
Under ERISA, the qualified pension plan was estimated to be 112% funded as of January 1, 2023, and was 139% as of January 1, 2022. Future year contribution amounts are dependent on plan asset performance and plan actuarial assumptions. We made contributions to our pension plan totaling $0 million in 2022, $100 million in 2021, and $100 million in 2020.
Under ERISA, the qualified pension plan was estimated to be 110% funded as of January 1, 2024, and was 112% as of January 1, 2023. Future year contribution amounts are dependent on plan asset performance and plan actuarial assumptions. In 2022 and 2023, we did not make any contributions to our pension plan.
Regulatory liabilities generally represent amounts collected in rates to recover costs expected to be incurred in the future or amounts collected in excess of costs incurred and are refundable to customers.
Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in customer rates. Regulatory liabilities generally represent amounts collected in rates to recover costs expected to be incurred in the future or amounts collected in excess of costs incurred and are refundable to customers.
The following chart reflects the sensitivities that a change in certain actuarial assumptions would have had on the December 31, 2022, other postretirement benefit obligation on the Pinnacle West’s Consolidated Balance Sheets and our 2022 reported other postretirement benefit expense, after consideration of amounts capitalized or billed to electric plant participants, on Pinnacle West’s Consolidated Statements of Income (dollars in millions): Increase (Decrease) Actuarial Assumption (a) Impact on Other Postretirement Benefit Plans Impact on Other Postretirement Benefit Expense Discount rate (b): Increase 1% $ (39) $ (3) Decrease 1% 46 4 Healthcare cost trend rate (c): Increase 1% 43 8 Decrease 1% (36) (6) EROA – pretax: Increase 1% — (7) Decrease 1% — 7 83 Table of Contents (a) Each fluctuation assumes that the other assumptions of the calculation are held constant while the rates are changed by one percentage point.
Additionally, the Pension Plan utilizes a liability-driven strategy for its pension asset portfolio, and the obligation and expense sensitivities shown above do not reflect the offsetting impact that a change in interest rates may have on pension asset values. 82 Table of Contents The following chart reflects the sensitivities that a change in certain actuarial assumptions would have had on the December 31, 2023, other postretirement benefit obligation on the Pinnacle West’s Consolidated Balance Sheets and our 2023 reported other postretirement benefit expense, after consideration of amounts capitalized or billed to electric plant participants, on Pinnacle West’s Consolidated Statements of Income (dollars in millions): Increase (Decrease) Actuarial Assumption (a) Impact on Other Postretirement Benefit Plans Impact on Other Postretirement Benefit Expense Discount rate (b): Increase 1% $ (42) $ (2) Decrease 1% 51 2 Healthcare cost trend rate (c): Increase 1% 42 5 Decrease 1% (36) (4) EROA – pretax: Increase 1% — (4) Decrease 1% — 4 (a) Each fluctuation assumes that the other assumptions of the calculation are held constant while the rates are changed by one percentage point.
All of APS’s bank agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these bank agreements if APS were to default under certain other material agreements. Pinnacle West and APS do not have a material adverse change restriction for credit facility borrowings.
All of APS’s bank agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these bank agreements if APS were to default under certain other material agreements.
At this time, we believe we have sufficient available liquidity resources to respond to a potential downward revision to our credit ratings. 80 Table of Contents Moody’s Standard & Poor’s Fitch Pinnacle West Corporate credit rating Baa1 BBB+ BBB+ Senior unsecured Baa1 BBB BBB+ Commercial paper P-2 A-2 F2 Outlook Negative Negative Negative APS Corporate credit rating A3 BBB+ BBB+ Senior unsecured A3 BBB+ A- Commercial paper P-2 A-2 F2 Outlook Negative Negative Negative Contractual Obligations Pinnacle West has contractual obligations and other commitments that will need to be funded in the future, in addition to its capital expenditure programs.
Moody’s Standard & Poor’s Fitch Pinnacle West Corporate credit rating Baa1 BBB+ BBB+ Senior unsecured Baa1 BBB BBB+ Commercial paper P-2 A-2 F2 Outlook Negative Negative Negative APS Corporate credit rating A3 BBB+ BBB+ Senior unsecured A3 BBB+ A- Commercial paper P-2 A-2 F2 Outlook Negative Negative Negative Contractual Obligations Pinnacle West has contractual obligations and other commitments that will need to be funded in the future, in addition to its capital expenditure programs.
Pinnacle West also sponsors other postretirement benefit plans for the employees of Pinnacle West and its subsidiaries. The requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) require us to contribute a minimum amount to the qualified plan. We contribute at least the minimum amount required under ERISA regulations, but no more than the maximum tax-deductible amount.
The requirements of the Employee Retirement Income 76 Table of Contents Security Act of 1974 (“ERISA”) require us to contribute a minimum amount to the qualified plan. We contribute at least the minimum amount required under ERISA regulations, but no more than the maximum tax-deductible amount.
Commitments related to purchased power lease contracts are also considered fuel and purchased power commitments. See Note 8. • APS holds certain contracts to purchase renewable energy credits in compliance with the RES. See Notes 3 and 10. • APS is required to make payments to the noncontrolling interests related to the Palo Verde sale leaseback through 2033.
See Note 10. Commitments related to purchased power lease contracts are also considered fuel and purchased power commitments. See Note 8. • APS holds certain contracts to purchase renewable energy credits in compliance with the RES.
As of December 31, 2022, El Dorado has contributed approximately $2.6 million to AZ-VC. The remainder of the investment will be contributed by El Dorado as investments are selected by AZ-VC. Key Financial Drivers In addition to the continuing impact of the matters described above, many factors influence our financial results and our future financial outlook, including those listed below.
The remainder of these investment commitments will be contributed by El Dorado as each investment fund selects and makes investments. Key Financial Drivers In addition to the continuing impact of the matters described above, many factors influence our financial results and our future financial outlook, including those listed below.
APS’s consolidated net cash provided by financing activities was $314 million in 2022 compared to $478 million in 2021, a decrease of $164 million in net cash provided primarily due to a net decrease in short-term borrowings of $232 million and higher dividend payments of $9 million, partially offset by $78 million in higher issuances of long-term debt.
APS’s consolidated net cash provided by financing activities was $412 million in 2023 compared to $314 million in 2022, an increase of $98 million in net cash provided primarily due to a net increase in short-term borrowings of $135 million, partially offset by $29 million in lower issuances of long-term debt and higher dividend payments of $8 million.
On August 2, 2021, the Administrative Law Judge issued a Recommended Opinion and Order in the 2019 Rate Case (the “2019 Rate Case ROO”) and issued corrections on September 10 and September 20, 2021. See Note 3 for information regarding the 2019 Rate Case ROO.
On August 2, 2021, an Administrative Law Judge issued a Recommended Opinion and Order in the 2019 Rate Case (the “2019 Rate Case ROO”) and issued corrections on September 10 and September 20, 2021. Subsequently, the ACC approved an amended 2019 Rate Case ROO on November 2, 2021 (the “2019 Rate Case Decision”).

… 273 more changes not shown on this page.

Other PNW 10-K year-over-year comparisons