PINNACLE WEST CAPITAL CORP

Previous wording

Pinnacle West is an investor-owned electric utility holding company based in Phoenix, Arizona with consolidated assets of approximately $25 billion. Since 1884, Pinnacle West and our affiliates have provided energy and energy-related products to people and businesses throughout Arizona.

Current wording

Pinnacle West is an investor-owned electric utility holding company based in Phoenix, Arizona with consolidated assets of approximately $26 billion. Since 1886, Pinnacle West and our affiliates have provided energy and energy-related products to people and businesses throughout Arizona.

Previous wording

The Inflation Reduction Act of 2022 (“IRA”) significantly expands the availability of tax credits for investments in clean energy generation technologies and energy storage. 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, available from 2024 through 2032. The Internal Revenue Service and U.S. Treasury Department have issued preliminary guidance related to various provisions of the IRA that have enabled APS to claim credits related to its 2023 solar and battery investments. The Company continues to await regulations and other guidance, including with respect to the nuclear PTC, which will provide additional details and clarifications regarding how the Company may be able to claim IRA tax credits in future years. See Note 15 for more information.

Current wording

The Inflation Reduction Act of 2022 (“IRA”) significantly expands the availability of tax credits for investments in clean energy generation technologies and energy storage. 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; (iii) introduction of technology neutral clean energy ITCs and PTCs beginning in 2025; and (iv) introduction of a new PTC for nuclear energy produced by existing nuclear energy plants, available from 2024 through 2032. The Internal Revenue Service and U.S. Treasury Department have issued preliminary guidance related to various provisions of the IRA that have enabled APS to claim credits related to its 2023 solar and battery investments. The Company continues to await regulations and other guidance, including with respect to the nuclear PTC, which will provide additional details and clarifications regarding how the Company may be able to claim IRA tax credits. See Note 17 for more information.

Previous wording

Recognizing that creating customer value is inextricably linked to increasing shareholder value, APS’s focus remains on its customers and the communities it serves. Accordingly, it is APS’s goal to achieve an industry-leading, best-in-class customer experience. This multi-year objective includes incrementally improving APS’s J.D. Power (“JDP”) overall customer satisfaction ratings to achieve a first quartile ranking in its peer set comprised of large investor-owned utilities. APS has made noteworthy progress on that front.

Current wording

Recognizing that creating customer value is inextricably linked to increasing shareholder value, APS’s focus remains on its customers and the communities it serves. Accordingly, it is APS’s goal to achieve an industry-leading, best-in-class customer experience. This multi-year objective includes incrementally improving APS’s J.D. Power (“JDP”) overall customer satisfaction ratings to achieve a first quartile ranking in its peer set comprised of large investor-owned utilities. APS’s progress on this front has continued in 2024.

Previous wording

Through APS’s efforts to further drive a customer-centric culture in 2023 and beyond, employees delivered an enhanced customer experience through a number of ongoing initiatives, including improving the ease-of-use of APS’s automated phone system and advancing phone advisor soft skill development through updated training curriculum, and adding 1,100-plus in-person payment locations, as well as introducing new customer payment channels. APS also implemented numerous enhancements to its website, including improving page-loading speeds, adding user-friendly dashboards, and making content more simple, relevant, and useful. APS enhanced other customer touchpoints, such as communications throughout outages and the online outage center in addition to continuing to communicate with customers in their preferred channels about topics that matter most to them, such as reliability, energy-efficiency, financial assistance, the environment, and programs that enable them to design their own personalized energy experience. To further improve customer communications, APS expanded the use of email and text alerts, notifications, and communications to customers related to outages and their account and service status. Finally, APS continues to focus on employee learning, training, tools, and resources to ensure all employees understand their role in APS customers’ experiences.

Current wording

In furtherance of a customer-centric culture, APS employees have delivered an enhanced customer experience in recent years through a number of past and ongoing initiatives, including improving the ease-of-use of APS’s automated phone system and advancing phone advisor soft skill development through updated training curriculum, and adding 1,100-plus in-person payment locations, as well as introducing new customer payment channels. APS also implemented numerous enhancements to its website, including improving page-loading speeds, adding user-friendly dashboards, and making content more simple, relevant, and useful. APS enhanced other customer touchpoints, such as communications throughout outages and the online outage center in addition to continuing to communicate with customers in their preferred channels about topics that matter most to them, such as reliability, energy-efficiency, financial assistance, the environment, and programs that enable them to design their own personalized energy experience. To further improve customer communications, APS expanded the use of email and text alerts, notifications, and communications to customers related to outages and their account and service status. Finally, APS continues to focus on employee learning, training, tools, and resources to ensure all employees understand their role in APS customers’ experiences.

Previous wording

Additionally, APS has implemented a variety of financial assistance programs to assist customers struggling to pay their energy bills. Among these assistance programs are discounts for qualified limited-income customers, and other non-income-based assistance programs, including flexible payment arrangements and emergency utility bill assistance. To ensure our most vulnerable customers are connected to these programs, we train and partner with more than one hundred community action agencies across our service territory.

Current wording

Additionally, APS has implemented a variety of financial assistance programs to assist customers struggling to pay their energy bills. Among these assistance programs are discounts for qualified limited-income customers, including a new tier with larger discounts added for APS’s lowest income customers added in the second quarter of 2024, and other non-income-based assistance programs, such as flexible payment arrangements and emergency utility bill assistance. To ensure our most vulnerable customers are connected to these programs, we train and partner with more than one hundred community action agencies across our service territory.

Previous wording

Planned investments will support operating and maintaining the grid, updating technology, accommodating customer growth, and enabling more renewable energy resources. To prioritize reliability and meet substantial growth in residential and commercial energy needs, APS has developed a future-focused, strategic transmission plan. This Ten-Year Plan includes five critical transmission projects that comprise the APS strategic transmission portfolio, which represents a significant upgrade to APS’s transmission system. These five projects, along with other projects included in the Ten-Year Plan, are intended to support growing energy needs, strengthen reliability, and allow for the connection of new resources.

Current wording

Planned investments will support operating and maintaining the grid, updating technology, accommodating customer growth, and enabling more renewable energy resources. To prioritize reliability and meet substantial growth in customer energy needs, APS has developed a future-focused, strategic transmission plan (the “Ten-Year Transmission Plan”). This Ten-Year Transmission Plan includes five critical transmission projects that comprise the APS strategic transmission portfolio, which represents a significant upgrade to APS’s transmission system. These five projects, along with other projects included in the Ten-Year Transmission Plan, are intended to support growing energy needs, strengthen reliability, and allow for the connection of new resources.

Previous wording

Wildfire safety remains a critical focus for APS and other utilities. We have increased investment in fire mitigation efforts to clear defensible space around our infrastructure, continue ongoing system upgrades, build partnerships with government entities and first responders and educate customers and communities. We also increased spend on mitigating the risk associated with trees that could cause hazards, resulting in more of these trees being removed before they could cause outages or wildfires. These programs contribute to customer reliability, responsible forest management and safe communities. With recent wildfire events in Hawaii and across North America, we have been devoting and will continue to devote substantial efforts to analyzing and developing enhancements to our systems and processes to mitigate fire risk within our service territory and communities, including by hardening our infrastructure, deploying new technologies where appropriate, increasing our awareness, implementing operational changes, and enhancing our wildfire response capabilities. APS completed implementation of best-in-class fire modelling software that we are utilizing to more surgically identify and calculate risk and target future system improvement investments such as fire-resistant pole wrapping, wood to steel pole conversions, and additional remote-controllable field devices like reclosers and switches. APS also has implemented a public safety power shutoff (“PSPS”) program for this upcoming fire season, leveraging the additional real-time analysis provided by the new modelling software, and has begun education outreach to customers and communities that may potentially be impacted by the PSPS program. We continue to evaluate policy and regulatory options, as well as insurance programs, to mitigate the impact of wildfire events.

Current wording

Wildfire safety remains a critical focus for APS and other utilities. We have increased investment in fire mitigation efforts to clear defensible space around our infrastructure, continue ongoing system upgrades, build partnerships with government entities and first responders and educate customers and communities. We also increased spend on mitigating the risk associated with trees that could cause hazards, resulting in more of these trees being removed before they could cause outages or wildfires. These programs contribute to customer reliability, responsible forest management and safe communities. With recent wildfire events in Hawaii and across North America, we have been devoting and will continue to devote substantial efforts to analyzing and developing enhancements to our systems and processes to mitigate fire risk within our service territory and communities, including by hardening our infrastructure, deploying new technologies where appropriate, increasing our awareness, implementing operational changes, and enhancing our wildfire response capabilities. APS completed implementation of best-in-class fire modelling software that we are utilizing to more surgically identify and calculate risk and target future system improvement investments such as fire-resistant pole wrapping, wood to steel pole conversions, and additional remote-controllable field devices like reclosers and switches. APS also has implemented a public safety power shutoff (“PSPS”) program for this upcoming fire season, leveraging the additional real-time analysis provided by the new modelling software, and is continuing education outreach to customers and communities that may potentially be impacted by the PSPS program. We continue to evaluate policy and regulatory options, as well as insurance programs, to mitigate the impact of wildfire events.

Previous wording

APS went live with a new Energy Management System (“EMS”) in April 2024. APS expects the new EMS to provide a better foundation which will improve future integration of the renewable and energy storage assets into APS’s generation resource portfolio, allowing APS to maximize the flexibility of its resources and fully engage in the Energy Imbalance Market. APS also believes it will also better position APS to participate in market opportunities that develop over the next decade.

Current wording

APS went live with a new Energy Management System (“EMS”) in April 2024. APS expects the new EMS to provide a better foundation which will improve future integration of the renewable and energy storage assets into APS’s generation resource portfolio, allowing APS to maximize the flexibility of its resources and fully engage in the Energy Imbalance Market. APS also believes it will better position APS to participate in market opportunities that develop over the next decade.

Previous wording

APS continues to focus on mitigating the cost pressures related to the current inflationary environment. Overall inflation grew by 2.2% in Phoenix and 3.2% nationally over the twelve months ended February 2024. While inflationary impacts to APS have begun to slow in the first quarter of 2024, select categories such as chemicals have seen increases up to 55% due to regional raw material constraints. Additionally, APS has seen inflationary impacts in select equipment, particularly those that contain semiconductor components or that are labor intensive. Inflation continues to impact service rates and spend categories through pass-through costs, such as suppliers’ increased material costs, cost of insurance, and wage rates.

Current wording

APS continues to focus on mitigating the cost pressures related to the current inflationary environment. Overall inflation grew by 2.7% in Phoenix and 3.0% nationally over the twelve months ended June 2024. While inflationary impacts to APS have begun to slow in 2024, select categories have seen increases up to 24% in the quarter ended June 30, 2024, due to increased labor costs and costs of certain materials. Additionally, APS has seen inflationary impacts in select equipment, particularly those that contain semiconductor components or that are labor intensive. Inflation continues to impact service rates and spend categories through pass-through costs, such as suppliers’ increased material costs, cost of insurance, and wage rates.

Previous wording

2030 Goal: 65% Clean Energy. APS has an energy mix that is already 50% clean and plans to continue to add more renewables and energy storage. By building on those plans, APS intends to attain an energy mix that is 65% clean by 2030, with 45% of APS’s generation portfolio coming from renewable energy. “Clean” is measured as percent of energy mix, which includes all carbon-free resources like nuclear, renewables, and demand-side management. “Renewable” energy includes generation resources such as solar, wind, and biomass, and is measured in accordance with the Arizona Corporation Commission’s (the “ACC”) Renewable Energy Standard as a percentage of retail sales. 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.

Current wording

2030 Goal: 65% Clean Energy. APS has an energy mix that is already more than 50% clean and plans to continue to add more renewables and energy storage. By building on those plans, APS intends to attain an energy mix that is 65% clean by 2030, with 45% of APS’s generation portfolio coming from renewable energy. “Clean” is measured as percent of energy mix, which includes all carbon-free resources like nuclear, renewables, and demand-side management. “Renewable” energy includes generation resources such as solar, wind, and biomass, and is measured in accordance with the Arizona Corporation Commission’s (the “ACC”) Renewable Energy Standard as a percentage of retail sales. 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.

Previous wording

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. APS’s longer-term clean energy strategy includes pursuing the right mix of purchased power contracts for new facilities, procurement of new facilities to be owned by APS, and the ongoing development of distributed energy resources. This balance will ensure an appropriately diverse portfolio designed to achieve the same operational reliability and customer affordability as APS’s near-term strategies. In addition, APS is actively seeking to include future facility purchase options in its power purchase agreements (“PPAs”) that will enable investments with greater financial flexibility.

Current wording

APS has a diverse portfolio of existing and planned resources, including solar, wind, energy storage, nuclear, 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. APS’s longer-term clean energy strategy includes pursuing the right mix of purchased power contracts for new resources, procurement of new resources to be owned by APS, and the ongoing development of distributed energy resources. Maintaining a balanced and diverse portfolio of resources will ensure continued reliable service to our customers in the most affordable manner possible.

Previous wording

APS uses competitive RFPs to pursue market resources that meet its system needs and offer the best value for customers. 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. Available projects are guided by IRP timelines and quantities and APS maintains a flexible approach that allows it to optimize system reliability and customer affordability through the RFP process. Agreements for the development and completion of future resources are subject to various conditions, including successful siting, permitting and interconnection of the projects to the electric grid.

Current wording

APS uses competitive RFPs to pursue market-priced resources that meet its system needs and offer the best value for customers. 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. Guided by IRP-established timelines and quantities, APS maintains a flexible approach that allows it to optimize system reliability and customer affordability through the RFP process. Agreements for the development and completion of future resources are subject to various conditions, including successful siting, permitting and interconnection to the electric grid.

Previous wording

On June 30, 2023, APS issued an RFP (the “2023 RFP”) seeking approximately 1,000 MW of reliable capacity, including at least 700 MW of renewable resources with a focus on in-service dates between 2026 and 2028. Bids from the 2023 RFP were received on September 6, 2023, and APS has started negotiations on multiple projects, including a 400 MW wind facility PPA that was signed in December 2023, which was later amended to 500 MW in January 2024.

Current wording

On June 30, 2023, APS issued an RFP (the “2023 RFP”) seeking approximately 1,000 MW of reliable capacity, including at least 700 MW of renewable resources with a focus on in-service dates between 2026 and 2028. Bids from the 2023 RFP were received on September 6, 2023, and APS is negotiating on multiple projects and executed agreements on multiple others, including a 500 MW wind facility power purchase agreement (“PPA”) and a 168 MW solar facility that APS will own and operate.

Previous wording

As noted above, on June 30, 2023, APS issued the 2023 RFP seeking approximately 1,000 MW of reliable capacity, including at least 700 MW of renewable resources, including energy storage, with a focus on in-service dates between 2026 and 2028.

Current wording

As noted above, on June 30, 2023, APS issued the 2023 RFP seeking approximately 1,000 MW of reliable capacity, including at least 700 MW of renewable resources, including energy storage, with a focus on in-service dates between 2026 and 2028. From those bids, APS has since executed agreements for a 150 MW energy storage facility that APS will own and operate and a 150 MW energy storage PPA.

Previous wording

As a part of the statewide transportation electrification plan (“TE Plan”) adopted in 2021, the ACC approved a target of 450,000 light-duty electric vehicles (“EVs”) in its service territory by 2030. APS’s Take Charge AZ (“TCAZ”) program has helped to deploy Level 2 EV charging stations on customer properties for fleet, public, and workplace EV charging. As of March 31, 2024, APS energized 784 Level 2 charging ports at 188 customer locations. Additionally, APS has energized direct current fast charging (“DCFC”) stations that are owned and operated by APS at five locations in Arizona: Sedona, Prescott, Globe, Show Low, and Payson. Effective December 12, 2023, the TCAZ program was discontinued by the ACC. As part of that decision, APS was permitted to complete certain projects that were in process as of December 12, 2023.

Current wording

As a part of the statewide transportation electrification plan (“TE Plan”) adopted in 2021, the ACC approved a target of 450,000 light-duty electric vehicles (“EVs”) in its service territory by 2030. APS’s Take Charge AZ (“TCAZ”) program has helped to deploy Level 2 EV charging stations on customer properties for fleet, public, and workplace EV charging. As of June 30, 2024, APS energized 809 Level 2 charging ports at 193 customer locations. Additionally, APS has energized direct current fast charging (“DCFC”) stations that are owned and operated by APS at five locations in Arizona: Sedona, Prescott, Globe, Show Low, and Payson. Effective December 12, 2023, the TCAZ program was discontinued by the ACC. As part of that decision, APS was permitted to complete certain projects that were in process as of December 12, 2023.

Previous wording

APS filed its 2024 DSM Implementation Plan on November 30, 2023. The 2024 DSM Implementation Plan includes APS’s 2024 TE Plan and, among other things, proposes two new programs: an expanded residential EV Managed Charging program and a Commercial EV Make-Ready Program. On April 26, 2024, APS filed an amended 2024 DSM Implementation Plan. The amended 2024 DSM Implementation Plan includes an updated budget to reflect removal of all incentive funds for the EV Charging Demand Management Pilot, an update on the performance incentive calculation, and the withdrawal of tranches two and three of the residential battery pilot. The amended 2024 DSM Plan is still pending ACC review and approval. APS cannot predict the outcome of this proceeding. See Note 4.

Current wording

APS filed its 2024 DSM Implementation Plan on November 30, 2023. The 2024 DSM Implementation Plan includes APS’s 2024 TE Plan and, among other things, proposes two new programs: an expanded residential EV Managed Charging program and a Commercial EV Make-Ready Program. On April 26, 2024, APS filed an amended 2024 DSM Implementation Plan. The amended 2024 DSM Implementation Plan includes an updated budget to reflect removal of incentive funds for the Level 2 Smart Charger rebate within the EV Charging Demand Management Pilot, an update on the performance incentive calculation, and the withdrawal of tranches two and three of the residential battery pilot. The amended 2024 DSM Plan is still pending ACC review and approval. APS cannot predict the outcome of this proceeding. See Note 4.

Previous wording

Carbon Capture Utilization and Storage (“CCUS”) technologies can isolate CO 2 and either sequester it permanently in geologic formations or convert it for use in products. 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. These technologies could offer the potential to keep in operation existing generators that otherwise would need to be retired. APS will continue to monitor this emerging technology, particularly in regard to the U.S. Environmental Protection Agency’s (“EPA”) proposed Greenhouse Gas (“GHG”) rule. On May 23, 2023, the EPA proposed regulations for GHG emissions that would, among other things, require CCUS technologies for certain classifications of coal-, oil-, and natural gas-fired electricity generating units dependent upon a variety of factors including retirement date and operating capacity. See Note 8 for more information.

Current wording

Carbon Capture Utilization and Storage (“CCUS”) technologies can isolate CO 2 and either sequester it permanently in geologic formations or convert it for use in products. 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. These technologies could offer the potential to keep in operation existing generators that otherwise would need to be retired. APS will continue to monitor this emerging technology, particularly in regard to the U.S. Environmental Protection Agency’s (“EPA”) proposed Greenhouse Gas (“GHG”) rule. On April 25, 2024, the EPA issued a final rule that, among other things, requires the installation of carbon capture technology for certain classifications of coal, oil, and natural gas fired electricity generating units dependent upon certain factors, including retirement date and operating capacity. See Note 8 for more information.

Previous wording

To address the emergence of artificial intelligence technology risk and opportunities, APS has developed a cross functional governance structure with leadership and experts from our information technology, cybersecurity, human resources, ethics, supply chain, legal, and nuclear generation teams. This cross functional structure will assess both the opportunities and risks during the technology intake process to ensure compliance with data security and reliability requirements, while observing market trends in this rapidly evolving area.

Current wording

To address the rapid advancement of artificial intelligence technology risk and opportunities, APS has developed a cross functional governance structure with leadership and experts from our information technology, cybersecurity, human resources, ethics, supply chain, legal, and nuclear generation teams. This cross functional structure assesses both the opportunities and risks during the technology intake process to ensure compliance with data security and reliability requirements, while observing market trends in this rapidly evolving area.

Previous wording

•maintaining the LFCR and DSMAC as separate adjustors;

Current wording

•maintaining the LFCR mechanism and DSMAC as separate adjustors;

Previous wording

Six intervenors and the Attorney General of Arizona requested rehearing on various issues included in the ACC’s decision, such as the grid access charge (“GAC”) for solar customers, the SRB, and CCT funding. On April 15, 2024, the ACC granted, in part, the rehearing applications of the Attorney General, Arizona Solar Energy Industries Association, Solar Energy Industries Association, and Vote Solar for the limited purpose of reviewing arguments concerning the GAC. Specifically, rehearing is ordered as to whether the GAC rate is just and reasonable, including whether it should be higher or lower, whether the GAC rate constitutes a discriminatory fee to solar customers, and whether omission of a GAC charge is discriminatory to non-solar customers. All other applications for rehearing were denied. The parties seeking rehearing have 30 days after the denial or granting of a request for rehearing to file a notice of appeal to the Arizona Court of Appeals. A procedural conference was held on April 26, 2024 for the purpose of discussing the procedural schedule for the matter. APS cannot predict the outcome of any subsequent proceedings.

Current wording

Six intervenors and the Attorney General of Arizona requested rehearing on various issues included in the ACC’s decision, such as the grid access charge (“GAC”) for solar customers, the SRB, and CCT funding. On April 15, 2024, the ACC granted, in part, the rehearing applications of the Attorney General, Arizona Solar Energy Industries Association, Solar Energy Industries Association, and Vote Solar for the limited purpose of reviewing arguments concerning the GAC. Specifically, rehearing was ordered as to whether the GAC rate is just and reasonable, including whether it should be higher or lower, whether the GAC rate constitutes a discriminatory fee to solar customers, and whether omission of a GAC charge is discriminatory to non-solar customers. All other applications for rehearing were denied. The parties seeking rehearing had 30 days after the denial or granting of a request for rehearing to file a notice of appeal to the Arizona Court of Appeals. No party filed a notice of appeal within the 30-day period. A limited rehearing is scheduled to begin on November 5, 2024 for the purpose of reviewing the GAC. APS cannot predict the outcome of these proceedings.

Previous wording

After the 2019 Rate Case decision, APS filed an application for rehearing of the 2019 Rate Case and later filed a Notice of Direct Appeal by APS at the Arizona Court of Appeals, requesting review of certain matters from the 2019 Rate Case decision. The Arizona Court of Appeals affirmed in part and reversed in part the ACC’s decision in the 2019 Rate Case, remanding the issue to the ACC for further proceedings. On June 14, 2023, APS and the ACC Legal Division filed a joint resolution with the ACC to allow recovery of $215.5 million in costs related to the installation of the Four Corners selective catalytic reduction (“SCR”) project, a reversal of the 20-basis point reduction to APS’s return on equity from 8.9% to 8.7% as a result of the 2019 Rate Case decision, and recovery of $59.6 million in revenue lost by APS between December of 2021 and June 20, 2023. The joint resolution provides for a new Court Resolution Surcharge (“CRS”) mechanism, which is designed to recover the $59.6 million in revenue lost by APS between December 2021 and June 20,

Current wording

After the 2019 Rate Case decision, APS filed an application for rehearing of the 2019 Rate Case and later filed a Notice of Direct Appeal by APS at the Arizona Court of Appeals, requesting review of certain matters from the 2019 Rate Case decision. The Arizona Court of Appeals affirmed in part and reversed in part the ACC’s decision in the 2019 Rate Case, remanding the issue to the ACC for further proceedings. On June 14, 2023, APS and the ACC Legal Division filed a joint resolution with the ACC to allow recovery of $215.5 million in costs related to the installation of the Four Corners selective catalytic reduction (“SCR”) project, a reversal of the 20-basis point reduction to APS’s return on equity from 8.9% to 8.7% as a result of the 2019 Rate Case decision, and recovery of $59.6 million in revenue lost by APS between December 2021 and June 20, 2023. The joint resolution provides for a new Court Resolution Surcharge (“CRS”) mechanism, which is designed to recover the $59.6 million in revenue lost by APS between December 2021 and June 20, 2023, and the prospective recovery of ongoing costs related to the SCR investments and expense and the allowable return on equity difference in current base rates. On June 21, 2023, the ACC approved the joint resolution and proposals therein for recovery through the CRS mechanism, which became effective on July 1, 2023. As of June 30, 2024,$16.8 million of the $59.6 million of lost revenue has been recovered. Finally, the CRS tariff has been updated to account for changes to return on equity and depreciation and deferral adjustments approved in Decision No. 79293 in the 2022 Rate Case. See Note 4 for more information regarding the 2019 Rate Case and Four Corners SCR cost recovery.

Previous wording

On January 5, 2023, the ACC opened a new docket to explore the possibility of modifications to the ACC’s historical test year rules. The ACC requested comments from utilities and interested parties on ways to reduce regulatory lag, including alternative ratemaking structures such as future test years and hybrid test years. APS filed comments on June 1, 2023. On March 19, 2024, the ACC held a workshop to discuss modifying the state’s rate case test year rules. Utilities, including APS, spoke about alternatives to the current rules that could reduce regulatory lag. The ACC plans to hold another workshop on this topic and has invited further comments from stakeholders. On April 19, 2024, a letter was filed to the docket by an ACC commissioner discussing the potential benefits of modifying test year rules, including the potentiality of offering utilities to choose the type of test year that best suits them. The letter also recommended that this issue be discussed at the next possible open meeting. APS cannot predict the outcome of this matter.

Current wording

On January 5, 2023, the ACC opened a new docket to explore the possibility of modifications to the ACC’s historical test year rules. The ACC requested comments from utilities and interested parties on ways to reduce regulatory lag, including alternative ratemaking structures such as future test years and hybrid test years. APS filed comments on June 1, 2023. On March 19, 2024, the ACC held a workshop to discuss modifying the state’s rate case test year rules. Utilities, including APS, spoke about alternatives to the current rules that could reduce regulatory lag. The ACC plans to hold another workshop on this topic and has invited further comments from stakeholders. On April 19, 2024, a letter was filed to the docket by an ACC commissioner discussing the potential benefits of modifying test year rules, including the potentiality of offering utilities to choose the type of test year that best suits them. The letter also recommended that this issue be discussed at the next possible open meeting. On July 9, 2024, at an open meeting, ACC Commissioners discussed objectives of future regulatory lag workshops and voted to schedule at least one more workshop on this topic later this year. The ACC scheduled a workshop for October 3, 2024. APS cannot predict the outcome of this matter.

Previous wording

Pinnacle West Power, LLC (“PNW Power”). On August 4, 2023, Pinnacle West entered into a purchase and sale agreement pursuant to which we agreed to sell all of our equity interest in our wholly-owned subsidiary BCE to Ameresco (the “BCE Sale”). The transaction was accounted for as the sale of a business and closed in multiple stages. Certain investments and assets that BCE previously held, including the TransCanyon joint venture and holdings in the two Tenaska wind farm investments, were not included in the BCE Sale and were instead transferred to PNW Power, a wholly-owned subsidiary of Pinnacle West.

Current wording

Pinnacle West Power, LLC (“PNW Power”). On August 4, 2023, Pinnacle West entered into a purchase and sale agreement pursuant to which we agreed to sell all of our equity interest in our wholly-owned subsidiary BCE to Ameresco (the “BCE Sale”). The transaction was accounted for as the sale of a business and closed in multiple stages. The final closing of the BCE Sale was completed on January 12, 2024. See Note 16 for additional details. Certain investments and assets that BCE previously held, including the TransCanyon joint venture and holdings in the two Tenaska wind farm investments, were not included in the BCE Sale and were instead transferred to PNW Power, a wholly-owned subsidiary of Pinnacle West.

Previous wording

PNW Power’s investments include TransCanyon, a 50/50 joint venture that was formed in 2014 with BHE U.S. Transmission LLC, a subsidiary of Berkshire Hathaway Energy Company. 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.

Current wording

PNW Power’s investments include TransCanyon, a 50/50 joint venture that was formed in 2014 with BHE U.S. Transmission LLC, a subsidiary of Berkshire Hathaway Energy Company. 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 U.S. Department of Energy’s Grid Deployment Office selected TransCanyon to enter into capacity contract negotiations for up to 25% of the Cross-Tie 500-kilovolt transmission line (“Cross-Tie”) as part of the Transmission Facilitation Program. The agreement was executed on June 12, 2024. The proposed Cross-Tie project includes a 214-mile transmission line connecting Utah and Nevada that is intended to help improve grid reliability and relieve congestion on other transmission lines.

Previous wording

Nobles 2 wind farms. Clear Creek achieved commercial operation in May 2020; however, in the fourth quarter of 2022, PNW Power’s equity method investment was fully impaired. Nobles 2 achieved commercial operation in December 2020. Both wind farms deliver power under long-term PPAs. PNW Power indirectly owns 9.9% of Clear Creek and 5.1% of Nobles 2.

Current wording

PNW Power’s investments also include minority ownership positions in two wind farms operated by Tenaska Energy, Inc. and Tenaska Energy Holdings, LLC, the 242 MW Clear Creek and the 250 MW Nobles 2 wind farms. Clear Creek achieved commercial operation in May 2020; however, in the fourth quarter of 2022, PNW Power’s equity method investment was fully impaired. Nobles 2 achieved commercial operation in December 2020. Both wind farms deliver power under long-term PPAs. PNW Power indirectly owns 9.9% of Clear Creek and 5.1% of Nobles 2.

Previous wording

•$25 million investment in the Energy Impact Partners fund, of which $17.2 million has been funded as of March 31, 2024. Energy Impact Partners is an organization that focuses on fostering innovation and supporting the transformation of the utility industry.

Current wording

•$25 million investment in the Energy Impact Partners fund, of which $18.1 million has been funded as of June 30, 2024. Energy Impact Partners is an organization that focuses on fostering innovation and supporting the transformation of the utility industry.

Previous wording

•$25 million investment in AZ-VC (formerly invisionAZ Fund), of which $8.7 million has been funded as of March 31, 2024. 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.

Current wording

•$25 million investment in AZ-VC (formerly invisionAZ Fund), of which $10.5 million has been funded as of June 30, 2024. 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.

Previous wording

Actual and Projected Customer and Sales Growth. Retail customers in APS’s service territory increased 1.8% for thethree-month period ended March 31, 2024, compared with the prior-year 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.

Current wording

Actual and Projected Customer and Sales Growth. Retail customers in APS’s service territory increased 2.0% for the six-month period ended June 30, 2024, compared with the prior-year period. For the three-year period ended 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.

Previous wording

Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 5.9% for thethree-month period ended March 31, 2024, compared with the prior-year period. 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.

Current wording

Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 5.6% for thesix-month period ended June 30, 2024, compared with the prior-year period. 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.

Previous wording

For the three years through 2023, annual retail electricity sales growth averaged 2.6%, adjusted to exclude 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. 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.

Current wording

For the three-year period ended 2023, annual retail electricity sales growth averaged 2.6%, adjusted to exclude 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. 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.

Previous wording

Our consolidated net income attributable to common shareholders for the three months ended

Current wording

Our consolidated net income attributable to common shareholders for the three months ended June 30, 2024, was $204 million, compared with consolidated net income attributable to common shareholders of $107 million for the prior-year period. The results reflect an increase of approximately $97 million, primarily as a result of the impacts of new customer rates, the effects of weather, increased customer usage and growth, and higher CRS revenue. These positive factors were partially offset by higher depreciation and amortization expense mostly due to increased plant and intangible assets, higher interest charges, net of AFUDC, and higher income taxes, partially offset by the favorable timing of recognition for permanent items and credits.

Previous wording

Operating revenues less fuel and purchased power expenses. Operating revenues less fuel and purchased power expenses were $44 million higher for the three months ended March 31, 2024, compared with the prior-year period. The following table summarizes the major components of this change:

Current wording

Operating revenues less fuel and purchased power expenses. Operating revenues less fuel and purchased power expenses were $158 million higher for the three months ended June 30, 2024, compared with the prior-year period. The following table summarizes the major components of this change:

Previous wording

Operations and maintenance. Operations and maintenance expenses increased $8 million for the three months ended March 31, 2024, compared with the prior-year period primarily due to:

Current wording

Operations and maintenance. Operations and maintenance expenses decreased $5 million for the three months ended June 30, 2024, compared with the prior-year period, primarily due to:

Previous wording

•An increase of $2 million related to information technology costs;

Current wording

•An increase of $4 million related to information technology costs;

Previous wording

Depreciation and amortization. Depreciation and amortization expenses were $18 million higher for the three months ended March 31, 2024, compared to the prior-year period primarily due to increased plant in service and increased intangible assets.

Current wording

Depreciation and amortization. Depreciation and amortization expenses were $30 million higher for the three months ended June 30, 2024, compared to the prior-year period, primarily due to increased plant in service and increased intangible assets.

Previous wording

Interest charges, net of allowance for borrowed funds and equity funds used during construction. Interest charges, net of allowance for funds used during construction, were $17 million higher for the three months ended March 31, 2024, compared to the prior-year period, primarily due to higher debt balances and higher interest rates in the current period and lower allowance for equity funds.

Current wording

Interest charges, net of allowance for borrowed funds and equity funds used during construction. Interest charges, net of allowance for funds used during construction, were $20 million higher for the three months ended June 30, 2024, compared to the prior-year period, primarily due to higher debt balances and higher interest rates in the current period and lower allowance for equity funds.

Previous wording

Income taxes. Income taxes were $3 million higher for the three months ended March 31, 2024, compared with the prior-year period primarily due to higher pre-tax income.

Current wording

Income taxes. Income taxes were $16 million higher for the three months ended June 30, 2024, compared with the prior-year period, primarily due to higher pre-tax income, partially offset by the favorable timing of recognition for permanent items and credits.

Previous wording

March 31, 2024, was $17 million, compared with consolidated net loss attributable to common shareholders of $3 million for the prior-year period. The results reflect an increase of approximately $20 million, primarily as a result of the impacts of new retail base rates, increased customer growth and usage, higher CRS and LFCR revenue, and higher other income mainly due to the gain on the sale of BCE. See Note 14. These positive factors were partially offset by higher depreciation and amortization expense mostly due to increased plant assets, higher interest charges, net of AFUDC, the effects of weather, and higher operations and maintenance expense.

Current wording

Our consolidated net income attributable to common shareholders for the six months ended June 30, 2024, was $221 million, compared with consolidated net income attributable to common shareholders of $103 million for the prior-year period. The results reflect an increase of approximately $118 million, primarily as a result of the impacts of new customer rates, increased customer usage and growth, the effects of weather, higher CRS revenue, and higher other income mainly due to the gain on the sale of BCE. See Note 16. These positive factors were partially offset by higher depreciation and amortization expense mostly due to increased plant and intangible assets, higher interest charges, net of AFUDC, higher income taxes, partially offset by the favorable timing of recognition for permanent items and credits, and lower transmission revenues.

Previous wording

•An increase of $2 million related to transmission, distribution, and customer service costs; and

Current wording

•An increase of $2 million related to transmission, distribution, and customer service costs;

Previous wording

•An increase of $2 million related to nuclear generation costs;

Current wording

•A decrease of $2 million related to nuclear generation costs;