PINNACLE WEST CAPITAL CORP
For the period ended Dec 31, 2024. Filed Feb 25, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 25, 2025
PNW$104.22+0.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-27.
0000764622-24-000016
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-25.
0000764622-25-000023
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 252 previous paragraphs and 231 current paragraphs.
122 unchanged; 70 reworded; 37 added; 57 removed; 3 previous and 2 current paragraphs rearranged.
Tables are not compared: 18 previous and 17 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (37)
Current report
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, such as improving the ease-of-use of APS’s automated phone system, improving the speed of answering customer calls, 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. Recently, APS redesigned its customer bills with the aim of increasing personalization and helping customers better understand their energy use and find ways to save. 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. Finally, APS continues to focus on employee learning, training, tools, and resources to ensure all employees understand their role in APS customers’ experiences.
Current report
Additionally, APS has implemented a variety of financial assistance programs to support 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 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.
Current report
For example, on August 14, 2024, APS filed a request with the ACC for a deferral order that would authorize APS to defer, for future recovery in rates, operations and maintenance expenses associated with wildfire management, including increased insurance costs. APS cannot predict the outcome of this matter. See Note 3 for more information.
Current report
Additionally, APS was selected by the DOE’s Grid Deployment Office (“GDO”) to receive up to $70 million in federal money for fire mitigation and grid infrastructure projects. This funding is part of the GDO’s Grid Resilience and Innovation Partnership Program and is contingent on APS negotiating and executing final grant agreements with GDO.
Current report
Maintaining reliability and affordability for customers during the clean energy transition is fundamental to APS’s strategy. Dispatchable natural gas generators provide energy during times when intermittent resources, such as solar and wind, are insufficient to meet customer demand. In addition to the previously added natural gas units at the modernized Ocotillo Power Plant in 2019 and efficiency improvements to gas units at the Redhawk, Sundance, and West Phoenix Power Plants in 2024, APS has contracted for two simple cycle combustion turbines (approximately 90 MW in total) at Sundance, which are expected to be in service in 2026, and eight simple cycle combustion turbines (approximately 397 MW in total) at Redhawk, which are expected to be in service in 2028. APS continues to evaluate and pursue options for reliably serving growing customer energy needs and demand.
Current report
APS continues to focus on mitigating the cost pressures related to inflation and other factors, such as tariffs. Overall inflation grew by 1.6% in Phoenix and 2.9% nationally over the twelve months ended December 2024. Although inflationary impacts to APS began to slow in 2024, APS is still managing the impacts high inflation. Additionally, the implementation of recent and future tariffs could further escalate costs and introduce supply chain constraints.
Current report
In terms of generation affordability, every three years, APS performs a comprehensive study, called an Integrated Resource Plan (“IRP”), to identify what resources will be necessary to safely and reliably meet the demand and energy needs of its customers over the next 15 years. In November 2023, APS released its latest IRP, which identified forecasted customer demand and energy needs growing at an unprecedented rate. In developing the IRP, APS considered how factors such as forecasted economic growth, impacts from weather, and new resource technology availability impact the amount and type of resources required to reliably meet customer needs. These factors, among others, were used to develop a plan that identified a balanced mix of diverse energy generating resources to reliably serve customers’ future energy needs in the most affordable and sustainable manner possible. To help ensure competitive costs for resources procured by APS, APS regularly issues competitive bid solicitations through the ASRFP process, with the most recent ASRFPs being issued in 2022, 2023, and 2024. These ASRFPs are open to bids for all resource types, including customer-scale (behind the meter) and utility-scale (in front of the meter) resources. Through the ASRFP process, APS has found that clean resources like wind, solar, and energy storage technology, are important elements of a least cost portfolio. During the clean energy transition, dispatchable resources will play a vital role in maintaining grid reliability by serving as a back-up to intermittent energy resources when output is insufficient to meet customer needs. Over the long term, each resource in a balanced and diverse portfolio is expected to provide complementary value and contribute to sustained delivery of reliable electric service.
Current report
Renewables. APS’s IRP identifies a diverse mix of resources adequate to maintain grid reliability while serving increasing future customer energy needs. Our IRP shows that renewable and clean resources are an important part of a reliable, cost effective portfolio. APS seeks market-based pricing of procured resources through regular solicitation of project bids using its competitive ASRFP process.
Current report
On June 30, 2023, APS issued an ASRFP (the “2023 ASRFP”) pursuant to which APS procured nearly 7,300 MW of new resources to be in service from 2026 to 2028.
Current report
On November 20, 2024, APS issued an ASRFP (the “2024 ASRFP”) seeking 2,000 MW of resources. APS is seeking projects that can reach commercial operation beginning June 1, 2028 through June 1, 2030 but will consider projects that may achieve commercial operation as early as 2026. Additionally, APS is interested in projects that require longer planning, permitting, and construction and can be commercially operational after June 1, 2030. Bids for the 2024 ASRFP were due on February 5, 2025.
Current report
New Nuclear Generation
Current report
APS, along with other Arizona electric utilities, is exploring new nuclear generation to provide around-the-clock carbon-free energy to meet rising energy demands in Arizona. APS has been monitoring emerging nuclear technologies, such as small modular nuclear reactors (“SMRs”). SMRs are typically designed to generate 300 MW or less of energy per unit compared to, for example, the 1,400 MW per unit generated at Palo Verde. The utilities have applied for a grant from the DOE to begin preliminary exploration of a potential site for additional nuclear energy for Arizona. The grant could support a three-year site selection process and possible preparation of an early site permit application to NRC.
Current report
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 that were initially proposed in the 2023 DSM Implementation Plan: 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 of $90.9 million 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 will not file a 2025 DSM Implementation Plan, pending ACC review of the amended 2024 DSM Implementation Plan. APS cannot predict the outcome of this proceeding.
Current report
In 2024, the Sustainability Department engaged an external consultant and leveraged input from employees, large customers, limited-income advocates, economic development groups, tribes, nonprofits, environmental non-governmental organizations, residential customers, and other stakeholders to identify and assess the sustainability issues that matter most. In total, 15 Priority Sustainability Issues (“PSIs”) were identified and prioritized. The top five issues that were prioritized by stakeholders are as follows: energy affordability, electric reliability, clean energy and decarbonization, workforce development, and climate resilience and adaptation. Understanding the sustainability priorities of internal and external stakeholders can help companies improve performance, identify risks and opportunities, and refine sustainability strategy.
Current report
APS expects to file an application with the ACC for its next general rate case mid-year 2025 and is continuing to evaluate the timing of such filing.
Current report
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 specifically to review 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. A limited rehearing was held October 28 through November 1. Following the limited rehearing, an Administrative Law Judge issued a ROO (the “Limited Rehearing ROO”) on December 3, 2024. The Limited Rehearing ROO recommended affirming the GAC as just and reasonable and that the GAC is not discriminatory to solar customers and the absence of a GAC is not discriminatory to non-solar customers. On December 17, 2024, the ACC approved the Limited Rehearing ROO with an amendment that requires
Current report
APS in its next rate case to propose a revenue allocation based on a site-load cost of service study in order to bring further parity in revenue collection between solar and non-solar customers. SEIA, AriSEIA, Vote Solar, the Arizona Attorney General, and two individual customers have filed requests for rehearing of the Commission’s December 17, 2024 decision on the rehearing. The Commission has taken no action on these requests. In addition, each of these parties have subsequently filed notices of appeal to the Arizona Court of Appeals seeking review of the Commission’s decisions regarding the GAC and on rehearing. APS cannot predict the outcome of these proceedings.
Current report
Cholla
Current report
On August 14, 2024, APS filed a request with the ACC for a deferral order associated with unrecovered book value and closure costs of the remaining Cholla units. This order would authorize APS to defer, for future recovery in rates, both the expenses necessary to close and decommission coal-fired power plant infrastructure at Cholla, including legally required site environmental remediation, CCR corrective actions, the closure of CCR management facilities, and any unrecovered plant investment and operating costs incurred through and after April 2025. APS cannot predict the outcome of this matter.
Current report
Fire Mitigation
Current report
On August 14, 2024, APS filed a request with the ACC for a deferral order that would authorize APS to defer, for future recovery in rates, operations and maintenance expenses associated with wildfire management, including increased insurance costs. APS cannot predict the outcome of this matter.
Current report
Captive Insurance Cell
Current report
Pinnacle West is the primary beneficiary of a protected cell captive insurance company. The Captive provides insurance coverage to Pinnacle West and our subsidiaries that supplements third-party insurance policies. The Captive insures Pinnacle West and its subsidiaries for terrorism coverage, excess liability including certain wildfire coverage, excess property insurance, and excess employment practice liability. The Captive policies exclude nuclear liability at Palo Verde. See Note 10. The Captive may hold investment assets in cash, cash equivalents, and equity and fixed income instruments.
Current report
The prospects for federal tax reform, including potential modification or repeal of the IRA tax provisions, have increased due to the results of the 2024 election. Any such reform may impact the availability of future potential tax benefits from the IRA and could impact the Company’s effective tax rate, cash taxes paid and other financial results such as earnings per share, gross revenues, and cash flows. We cannot predict the timing or extent of such tax-related developments which, absent appropriate regulatory treatment, may have a negative impact on our financial results.
Current report
•$7.5 million investment in Westly Seed Fund, of which approximately $1.2 million has been funded as of December 31, 2024. Westly Seed Fund is focused on supporting entrepreneurs involved in the energy, mobility, building, and industrial sectors.
Current report
•Equity investment in SAI Advanced Power Solutions (“SAI”), a private corporation that manufactures electrical switchgear equipment used by data centers. El Dorado accounts for this investment under the equity method, with a December 31, 2024 investment carrying value of zero. SAI has seen an increased demand for their customized switchgear products. El Dorado has no funding commitments to SAI.
Current report
•an increase of $16 million related to employee benefit costs;
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•an increase of $7 million related to corporate resource costs; and
Current report
•a decrease of $3 million for other miscellaneous factors.
Current report
On June 12, 2024, Pinnacle West contributed $450 million into APS in the form of an equity infusion. APS used this contribution to repay short-term indebtedness. On December 23, 2024, Pinnacle West contributed $345 million into APS in the form of an equity infusion. APS used this contribution to repay a portion of commercial paper borrowings and for other general corporate purposes.
Current report
Pinnacle West has an ATM program under which Pinnacle West may offer and sell Pinnacle West common stock and enter into forward sale agreements from time to time, subject to market conditions and other factors. As of December 31, 2024, approximately $850 million of common stock is available to be issued under the ATM program, which takes into account the forward sale agreement in effect as of December 31, 2024.
Current report
In addition to the ATM program, Pinnacle West has forward sale agreements from an equity offering in February 2024 in effect as of December 31, 2024. In December 2024, Pinnacle West partially settled the February 2024 Forward Sale Agreements with the issuance of 5,377,115 shares of common stock and received net proceeds of $345 million. The proceeds were recorded in equity. At December 31, 2024, Pinnacle West could have settled the remaining February 2024 Forward Sale Agreements with the issuance of 5,863,486 shares of common stock in exchange for cash of $377 million. For additional information regarding common stock issuances, the ATM program, and outstanding forward sale agreements, see Note 13.
Current report
(a)Includes gas generation and environmental projects.
Current report
2024 Compared with 2023. Pinnacle West’s consolidated net cash provided by financing activities was $323 million in 2024 compared to $487 million in 2023, a decrease of $164 million in net cash provided primarily due to $842 million higher long-term debt repayments and a net decrease in short-term debt borrowings of $283 million, partially offset by $624 million in higher issuances of long-term debt and an equity issuance of $345 million.
Current report
Equity Offerings. Pinnacle West has an ATM program under which Pinnacle West may offer and sell Pinnacle West common stock and enter into equity forward sale agreements from time to time, subject to market conditions and other factors. On December 31, 2024, Pinnacle West could have settled the outstanding November 2024 ATM Forward Sale Agreement with the physical delivery of 552,833 shares of Pinnacle West common stock in exchange for cash of approximately$50 million. As of December 31, 2024, Pinnacle West has not received any proceeds relating to the November 2024 Forward Sale Agreement. In addition to the ATM program, Pinnacle West entered into certain equity forward sale agreements in February 2024, which were partially settled in December 2024 with the issuance of 5,377,115 shares of common stock. In connection with the partial settlement, Pinnacle West received net proceeds of $345 million. At December 31, 2024, Pinnacle West could have settled the remaining February 2024 Forward Sale Agreements with the issuance of 5,863,486 shares of common stock in exchange for cash of $377 million. See Note 13.
Current report
•Pinnacle West’s equity forward sale agreements, which may be settled by Pinnacle West with common stock or cash. Pinnacle West has classified these agreements as equity transactions in accordance with GAAP. See Note 13.
Current report
We adopted new accounting standard, ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, on December 31, 2024. We will adopt new accounting standard, ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures, on December 31, 2025. We are currently evaluating the disclosure impacts of the pending adoption of the new accounting standard, ASU 2024-03, Income Statement Reporting: Expense Disaggregation Disclosures, effective for us on December 31, 2027. See Note 21 for additional information relating to new accounting standards.
Removed paragraphs (57)
Previous report
In addition, the IRA contains several provisions which could create additional tax liabilities for corporations, including a 15% corporate alternative minimum tax for corporations with net profits in excess of $1 billion and a 1% excise tax on stock buybacks. We currently do not believe the Company will be subject to any material tax liabilities as a result of these legislative provisions.
Previous report
As previously disclosed, APS’s JDP Residential rankings for overall customer satisfaction improved in each of 2020, 2021, and 2022, and have improved again in 2023. At the end of 2023, APS’s residential customer satisfaction ranked in the second quartile among large investor-owned utilities, and its business customer satisfaction ranked in the second quartile of utilities nationally.
Previous report
Maintaining reliability and affordability for our customers during the clean energy transition is fundamental to our strategy. As a critical partner to the large quantity of renewables and energy storage we are adding to our system, natural gas generation will play an important role in maintaining reliability for our customers. One example is the 2019 addition of new natural gas units at the modernized Ocotillo Power Plant to provide cleaner-running and more efficient units. Additionally, efficiency improvements to gas units at the Redhawk and Sundance Power Plants are planned for completion prior to the summer of 2024.
Previous report
As part of a balanced energy portfolio, these flexible resource additions support reliability by responding quickly to the variability of solar generation and delivering energy in the late afternoon and early evening when solar production declines as the sun sets and customer demand peaks. 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.
Previous report
APS continues to focus on mitigating the cost pressures related to the current inflationary environment. Overall inflation grew by 2.7% in Phoenix and 3.4% nationally during 2023. In 2022, overall inflation grew by 9.5% in Phoenix and 6.5% nationally. The impacts from inflation have varied across separate categories of APS’s spending, including increases of up to 15% in 2023. APS has seen inflationary impacts in supply constrained categories related to electrical equipment, such as transformers, wire, and cable impacted by high utility demand outpacing manufacturing capacity. Inflation continues to impact service rates and spend categories through pass-through costs such as supplier’s increased material costs, cost of insurance, and wage rates.
Previous report
In terms of generation affordability, every three years, APS performs a comprehensive study, called an Integrated Resource Plan, to identify how much energy our customers will need over the next 15 years and what resources will be used to meet those needs. In developing the IRP, APS considers factors that include how much economic growth is expected, what new technologies might be available and how weather can impact the demand for energy. These inputs are then used to develop a plan that prioritizes reliability, affordability, and a clean, balanced energy mix.
Previous report
In November 2023, APS released its latest IRP, which shows that energy demand is growing at an unprecedented rate. This is due to continued residential and commercial customer growth throughout Arizona. To keep pace with the fast-growing demand for electricity and maintain reliability, APS needs to add new electricity generating resources. To ensure that the most affordable and reliable solutions are selected, APS issued All-Source Request for Proposals (“RFPs”) in 2022 and 2023. These RFPs are open to all technologies, including customer-scale (behind the meter) and utility-scale (front of the meter) resources. Through this process, APS has consistently found that clean resources like wind and solar, when coupled with energy storage technology, are among the most affordable options available today. Over the long term, these resources are expected to provide the greatest value as part of a diverse energy mix.
Previous report
Renewables. APS’s IRP (see Note 3 for additional information) establishes the path to meeting our clean energy commitment and maintaining reliable electric service for our customers. APS intends to strengthen its already diverse energy mix by increasing its investments in carbon-free resources. Our IRP rapidly adds clean energy and storage resources while maintaining reliable and affordable service. 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.
Previous report
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.
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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.
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APS currently plans to install more than 2,700 MW of utility scale energy storage by 2026, including through energy storage projects under PPAs and AZ Sun retrofits as well as through resources solicited through current and future RFPs.
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(b) Includes 19 MW of capacity that entered commercial operation in January 2024.
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Hydrogen Production
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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. AzCaNE’s first action was to pursue 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 efforts. AzCaNE submitted an initial hydrogen hub concept paper to the DOE, which in turn encouraged the submission of a full application for funding. In response, AzCaNE formed the Southwest Clean Hydrogen Innovation Network (“SHINe”) and submitted an application for funding its behalf. SHINe was not, however, selected as one of the seven regional hubs to be awarded funding by DOE. APS is currently maintaining a participatory role in AzCaNE as the organization continues to explore ways to educate stakeholders and promote low-carbon technologies.
Previous report
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. 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. The Company also benchmarked best practices within the top four PSIs and has utilized this information to identify opportunities for improvement.
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The principal provisions of APS’s application were:
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•a test year comprised of twelve months ended June 30, 2022, adjusted as described below;
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•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;
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•the following proposed capital structure and costs of capital:
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•a 1% return on the increment of fair value rate base above APS’s original cost rate base, as provided for by Arizona law;
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•a rate of $0.038321 per kWh for the portion of APS’s retail base rates attributable to fuel and purchased power costs;
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•modification of its adjustment mechanisms including:
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▪eliminate the Environmental Improvement Surcharge (“EIS”) and collect costs through base rates,
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▪eliminate the Lost Fixed Cost Recovery (“LFCR”) mechanism and collect costs through base rates and the Demand Side Management Adjustment Charge (“DSMAC”),
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▪maintain as inactive the Tax Expense Adjustor Mechanism (“TEAM”),
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▪maintain the Transmission Cost Adjustment (“TCA”) mechanism,
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▪modify the performance incentive in the DSMAC, and
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▪modify the Renewable Energy Adjustment Charge (“REAC”) to include recovery of capital carrying costs of APS owned renewable and storage resources;
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•changes to its limited-income program, including a second tier to provide an additional discount for customers with greater need; and
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•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.
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On June 5, 2023 and June 15, 2023, the ACC Staff, the Residential Utility Consumer Office (“RUCO”) and other intervenors filed their initial written testimony with the ACC. The ACC Staff recommends among other things, (i) a $251 million revenue increase or, as an alternative, a $312 million revenue increase, (ii) a 9.6% return on equity, (iii) a 0.0% fair value increment or, as an alternative, a 0.75% fair value increment, and (iv) a continuation of a 12-month post-test year plant. RUCO recommends, among other things, (i) an $84.9 million revenue increase, (ii) an 8.2% return on equity or, as an alternative, an 8.7% return on equity if the ACC imputes a hypothetical capital structure with a 46% equity layer, (iii) a fair value increment of 0.0%, and (iv) a reduction of post-test year plant to six months.
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On July 12, 2023, APS filed rebuttal testimony addressing the ACC Staff and intervenors’ direct testimonies. The principal provisions of APS’s rebuttal testimony were:
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•reducing the revenue requirement increase to $383.1 million, which reduced the average annual customer bill impact to an increase of 11.3%;
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•maintaining a return on equity request of 10.25%;
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•reducing the increment of fair value rate base return to 0.5% from 1.0%;
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•maintaining a post-test year plant request of 12 months, plus the Four Corners Effluent Limitation Guidelines (“ELG”) project;
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•withdrawing the Payment Fee Removal Proposal (net reduction) which was originally requested in APS’s initial application;
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•maintaining the LFCR and DSMAC as separate adjustors;
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•increasing the PSA annual rate change limit from $0.004/kWh to $0.006/kWh;
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•proposing a new System Reliability Benefit (“SRB”) recovery mechanism;
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Reworded paragraphs (70)
Previous wording
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. For the discussion of 2022 compared to 2021, see Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Pinnacle West Capital Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, which specific discussion is incorporated herein by reference. 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.
Current wording
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 2024 results with 2023 results. For the discussion of 2023 compared to 2022, see Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Pinnacle West Capital Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023, which specific discussion is incorporated herein by reference. 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.
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Pinnacle West is an investor-owned electric utility holding company based in Phoenix, Arizona with consolidated assets of approximately $25 billion. For over 130 years, 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.
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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, while demonstrating compassion and advocacy for its customers. 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
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”) residential and business customer satisfaction ratings from the fourth to the top of second quartile for its customers. For 2024, APS ranked at the top of the second quartile for large investor-owned utilities for both business and residential customers, with the residential results being APS’s highest rank and placement since 2016.
Previous wording
While our energy mix evolves, APS’s 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.
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While our energy mix evolves, APS’s commitment 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 those experienced in other industries.
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”). The Ten-Year Transmission Plan includes five critical transmission projects that comprise the APS strategic transmission portfolio, which represent a significant upgrade to our transmission system. These five projects, along with other projects included in the Ten-Year Transmission Plan, will 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 currently intends to implement a public safety power shutoff (“PSPS”) program for this upcoming fire season, leveraging the additional real-time analysis provided by the new modelling software. 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, California, 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 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. In 2024, APS began installing a system of artificial intelligence-based fire sensing cameras with the ability to detect and alert on fire ignitions. These alerts are sent both to APS and fire response dispatch centers to speed fire response in APS’s service territory regardless of the cause of the fire. APS also implemented a PSPS program on certain feeders that began in the 2024 fire season, leveraging the additional real-time analysis provided by the new modelling software, and has educated and is continuing education outreach to customers and communities that may potentially be impacted by the PSPS program. APS continues to evaluate policy and regulatory options, as well as insurance programs, to mitigate the impact of wildfire events.
Previous wording
In October 2021, APS announced plans to evaluate regional market solutions as part of the informal Western Markets Exploratory Group (“WMEG”). 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 is unable to predict the outcome of these discussions.
Current wording
In October 2021, APS announced plans to evaluate regional market solutions as part of the Western Markets Exploratory Group (“WMEG”). As a member of WMEG, APS explored 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 regulations and known and expected market design. APS utilizes the work done by WMEG to help identify market solutions that can help achieve carbon reduction goals while supporting reliable, affordable service for customers.
Previous wording
APS will go live with a new Energy Management System (“EMS”) in March of 2024. The new EMS will better allow for integration of the renewable and energy storage assets into the APS’s generation resources. This integration will allow APS to maximize the flexibility of our resources and fully engage in the Energy Imbalance Market. It also better positions APS to participate in market opportunities that may develop through 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 Western Energy Imbalance Market (“WEIM”). APS also believes it will better position APS to participate in market opportunities that develop over the next decade.
Previous wording
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. APS also plans for the unexpected by conducting emergency operations drills and coordinating on fire and emergency management with federal, state, and local agencies.
Current wording
APS’s key elements to delivering reliable power include resource and transmission planning, sufficient reserve margins, partnering with customers to manage peak demand, fire mitigation, and operational preparedness, among others. Seasonal readiness procedures at APS include inspections to ensure good material conditions and critical control system surveys. APS also plans for the unexpected by conducting emergency operations drills and coordinating with federal, state, and local agencies on fire and emergency management.
Previous wording
There are also external opportunities under APS’s customer affordability initiative, such as APS’s participation in the Western Energy Imbalance Market (“WEIM”). WEIM continues to be a tool for creating savings for APS’s customers from the real-time, voluntary market. APS continues to expect that its participation in WEIM will lower its fuel and purchased-power costs, improve situational awareness for system operations in the Western Interconnection power grid, and improve integration of APS’s renewable resources. APS is participating in market design and tariff development of Markets+, a day-ahead and real-time market offering from Southwest Power Pool. APS also participated in the design and drafting of the tariff for the CAISO’s Extended Day-Ahead Market, which was approved by FERC in December 2023. In addition, APS is participating in the Western Resource Adequacy Program administered by Western Power Pool. These efforts are driven by three objectives of reducing customer cost, improving reliability, and incorporating more clean energy on APS’s system.
Current wording
There are also external opportunities under APS’s customer affordability initiative, such as APS’s participation in the WEIM. WEIM continues to be a tool for creating savings for APS’s customers from the real-time, voluntary market. APS continues to expect that its participation in WEIM will lower its fuel and purchased-power costs, improve situational awareness for system operations in the Western Interconnection power grid, and improve integration of APS’s renewable resources. APS participated in market design and tariff development of Markets+, a day-ahead and real-time market offering from Southwest Power Pool (“SPP”). The Markets+ tariff was filed with FERC on March 29, 2024 and was approved on January 16, 2025. APS announced a market decision to pursue participation in SPP Markets+. In addition, APS is participating in the Western Resource Adequacy Program administered by Western Power Pool and is transitioning to full binding participation as early as summer 2027. These regional efforts are driven by the objectives of reducing customer cost and improving reliability.
Previous wording
•A commitment to exit from coal-fired generation by 2031.
Current wording
•A plan to exit from coal-fired generation by 2031.
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 ACC’s 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 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
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. 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.
Current wording
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. 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 36% lower in 2023 compared to 2005. In addition, APS has committed to end the use of coal at its remaining Cholla units during 2025.
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 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 resources, 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 “all source” 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 ASRFPs 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 ASRFP 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
The following table summarizes the resources in APS’s renewable energy portfolio that are in operation or under development as of December 31, 2023. 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
The following table summarizes the resources in APS’s renewable energy portfolio that are in operation, planned or under development as of the date of this report. 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.
Previous wording
(a) Includes rooftop solar facilities owned by third parties. Distributed generation is produced in Direct Current and is converted to Alternating Current for reporting purposes.
Current wording
(a) Includes rooftop solar facilities owned by third parties. DG is produced in direct current and is converted to alternating current for reporting purposes.
Previous wording
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.
Current wording
The following table summarizes the resources in APS’s energy storage portfolio that are in operation, planned or under development as of the date of this report. Agreements for the development and completion of future resources are subject to various conditions.
Previous wording
(a) Includes 0.3 MW of APS-owned customer-sited batteries.
Current wording
(a) Includes 0.3 MW of APS-owned customer-sited energy storage.
Previous wording
As a part of the statewide transportation electrification plan (“TE Plan”) approved by the ACC in 2021, APS has a goal of supporting 450,000 light-duty electric vehicles (“EV”) in its service territory by 2030. In furtherance of this goal, through its Take Charge AZ Pilot Program, and as of December 31, 2023, APS installed 758 Level 2 charging ports at 183 customer locations and DC fast charging stations that are owned and operated by APS at five locations in Arizona. In December 2023, the ACC voted to discontinue the Take Charge AZ Pilot Program (“TCAZ”) while allowing APS to complete projects that were already underway.
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 APS’s 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 December 31, 2024, APS has installed 829 energized Level 2 charging ports at 197 customer locations. Additionally, APS has energized direct current fast charging 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
Additionally, as part of APS’s DSM Plan, APS launched an Electric Vehicle Charging Demand Management Pilot Program to proactively address the growing electric demand from charging as EVs become more widely adopted. The EV related programs in the DSM Plan also include the APS SmartCharge data gathering program, Fleet Advisory Services, and a $100 rebate to home builders for new homes to be built EV-ready with 240V charging station garage outlets. APS filed its 2024 DSM Plan on November 30, 2023. The 2024 DSM Plan includes APS’s 2024 TE Plan and, among other things, proposes two new programs: an expanded residential EV Charging Demand Management Program, and a Commercial EV Make-Ready Program. The ACC has yet to decide on the 2024 DSM Plan.
Current wording
Additionally, as part of APS’s DSM Implementation Plan, APS launched the EV Charging Demand Management Pilot to proactively address the growing electric demand from charging as EVs become more widely adopted. The EV programs in the DSM Implementation Plan include APS SmartCharge (an EV data gathering program), Fleet Advisory Services, and a $100 rebate to home builders for new homes to be built EV-ready with 240V receptacle. APS previously offered a $250 residential rebate to customers that purchased a qualifying home Level 2 charger. Effective December 12, 2023, APS discontinued this rebate per the ACC decision. See the discussion above.
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 EPA’s 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 10 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.
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 risks 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 the opportunities and risks in alignment with enterprise strategy to ensure compliance with data security and reliability requirements as well as our Code of Ethical Conduct, while observing market trends in this rapidly evolving area.
Previous wording
APS filed an application with the ACC on October 28, 2022 (the “2022 Rate Case”) seeking an increase in annual retail base rates on the date rates become effective (“Day 1”) of a net $460 million. This Day 1 net impact represents a total base revenue deficiency of $772 million offset by proposed adjustor transfers of cost recovery to annual retail rates and adjustor mechanism modifications. The average annual customer bill impact of APS’s request on Day 1 is an increase of 13.6%.
Current wording
APS filed an application with the ACC on October 28, 2022 (the “2022 Rate Case”) seeking an increase in annual retail base rates.
Previous wording
On January 25, 2024, an Administrative Law Judge issued a Recommended Opinion and Order in the 2022 Rate Case, as corrected on February 6, 2024 (the “2022 Rate Case ROO”). The 2022 Rate Case ROO recommended, among other things, (i) a $523.1 million increase in the annual base rate revenue requirement, (ii) a 9.55% return on equity, (iii) a 0.25% return on the increment of fair value rate base greater than original cost, (iv) an effective fair value rate of return of 4.36%, (v) 12 months of post-test year plant and the inclusion of the Four Corners ELG project, (vi) the approval of APS’s SRB proposal with certain procedural and other modifications, (vii) no additional CCT funding, (viii) a 5.0% return on the prepaid pension asset and a return of 5.35% on the OPEB liability, and (ix) no disallowances on APS’s coal contracts.
Current wording
On January 25, 2024, an Administrative Law Judge issued a ROO in the 2022 Rate Case, as corrected on February 6, 2024 (the “2022 Rate Case ROO”). The 2022 Rate Case ROO recommended, among other things, (i) a $523.1 million increase in the annual base rate revenue requirement, (ii) a 9.55% return on equity, (iii) a 0.25% return on the increment of fair value rate base greater than original cost, (iv) an effective fair value rate of return of 4.36%, (v) 12 months of post-test year plant and the inclusion of the Four Corners Effluent Limitations Guideline (“ELG”) project, (vi) the approval of APS’s System Reliability Benefit (“SRB”) proposal with certain procedural and other modifications, (vii) no additional Coal Community Transition (“CCT”) funding, (viii) a 5.0% return on the prepaid pension asset and a return of 5.35% on the OPEB liability, and (ix) no disallowances on APS’s coal contracts.
Previous wording
The 2022 Rate Case ROO also recommended a number of changes to existing adjustors, including (i) the approval of modified DSM performance incentives and the requested DSM transfer to base rates, (ii) the retention of $1.9 million of REAC in the adjustor rather than base rates, (iii) a partial transfer of $27.1 million of LFCR funds to base rates, and (iv) the adoption of an increase in the annual PSA cap to $0.006/kWh.
Current wording
The 2022 Rate Case ROO also recommended a number of changes to existing adjustors, including (i) the approval of modified DSM performance incentives and the requested DSM transfer to base rates, (ii) the retention of $1.9 million of Renewable Energy Adjustment Charge (“REAC”) in the adjustor rather than base rates, (iii) a partial transfer of $27.1 million of LFCR funds to base rates, and (iv) the adoption of an increase in the annual PSA cap to $0.006/kWh.
Previous wording
On February 22, 2024, the ACC approved a number of amendments to the 2022 Rate Case ROO that resulted in, among other things, (i) an approximately $491.7 million increase in the annual base revenue requirement, (ii) a 9.55% return on equity, (iii) a 0.25% return on the increment of fair value rate base greater than original cost, (iv) an effective fair value rate of return of 4.39%, (v) a return set at the Company’s weighted average cost of capital on the net prepaid pension asset and net other post-employment benefit liability in rate base, (vi) an adjustment to generation maintenance and outage expense to reflect a more reasonable level of test year costs, (vii) approval of the SRB mechanism with modifications to customer notifications, procedural timelines and the inclusion of any qualifying technology and fuel source bid received through an all-source RFP, and (viii) recovery of all DSM costs through the DSMAC rather than through base rates.
Current wording
On February 22, 2024, the ACC approved a number of amendments to the 2022 Rate Case ROO that resulted in, among other things, (i) an approximately $491.7 million increase in the annual base revenue requirement, (ii) a 9.55% return on equity, (iii) a 0.25% return on the increment of fair value rate base greater than original cost, (iv) an effective fair value rate of return of 4.39%, (v) a return set at the Company’s weighted average cost of capital on the net prepaid pension asset and net other post-employment benefit liability in rate base, (vi) an adjustment to generation maintenance and outage expense to reflect a more reasonable level of test year costs, (vii) approval of the SRB mechanism with modifications to customer notifications, procedural timelines and the inclusion of any qualifying technology and fuel source bid received through an ASRFP, and (viii) recovery of all DSM costs through the DSM Adjustment Charge (“DSMAC”) rather than through base rates.
Previous wording
The ACC’s decision results in an expected total net annual revenue increase for APS of approximately $253.4 million and a roughly 8% increase to the typical residential customer’s bill. The ACC is expected to issue the final order for the 2022 Rate Case in March 2024 with the new rates to become effective for all service rendered on and after March 8, 2024.
Current wording
The ACC’s decision results in an expected total net annual revenue increase for APS of approximately $253.4 million and a roughly 8% increase to the typical residential customer’s bill. The ACC issued the final order for the 2022 Rate Case on March 5, 2024, with the new rates becoming effective for all service rendered on or after March 8, 2024.
Previous wording
On October 31, 2019, APS filed an application with the ACC (the “2019 Rate Case”) for an annual increase in retail base rates. 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”). See Note 3 for information regarding the 2019 Rate Case ROO.
Current wording
On October 31, 2019, APS filed an application with the ACC (the “2019 Rate Case”) for an annual increase in retail base rates. On August 2, 2021, an Administrative Law Judge issued a ROO 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.
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 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, 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. The current CRS will be recalculated at the end of the 2022 Rate Case to remove the effects of the prospective recovery related to the allowable return on equity difference. On February 22, 2024, the ACC approved the 2022 Rate Case. The CRS tariff is currently being recalculated to reflect the final decision in that case. See Note 3 for more information regarding the 2019 Rate Case and Four Corners SCR cost recovery.
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 points 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 December 31, 2024, $26.2 millionof 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.
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. 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 and held two workshops exploring ways to reduce regulatory lag, including alternative ratemaking structures such as future test years, hybrid test years, and formula rates. On December 3, 2024, the ACC approved a policy statement regarding formula rate plans. The policy statement allows regulated utilities to propose formula rate plans in future rate cases. Proposed plans must be based on a historical test year, include an annual update with a true-up and an earnings test to ensure a utility earns within a 20 basis points band of its authorized return on equity. Proposed plans should also include an annual meeting and challenge periods for stakeholder feedback. Utilities that implement formula rates also must file a full rate case at least every five years unless an alternate schedule is set by the ACC. APS cannot predict the outcome of this matter.
Previous wording
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”). The 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 (“Nuclear PTC”), available from 2024 through 2032. The Internal Revenue Service and U.S. Treasury 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.
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 solar and energy storage 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 4 for more information.
Previous wording
PNW Power and BCE. 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 Pinnacle West Power, LLC (“PNW Power”), a newly-formed, wholly-owned subsidiary of Pinnacle West.
Current wording
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 20 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
•$25 million investment in the Energy Impact Partners fund, of which $16.7 million has been funded as of December 31, 2023. 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 approximately $18.8 million has been funded as of December 31, 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 $6.3 million has been funded as of December 31, 2023. 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 approximately $11.8 million has been funded as of December 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.
Previous wording
Electric Operating Revenues. For the years 2021 through 2023, retail electric revenues comprised approximately 91% of our total operating revenues. Our electric operating revenues are affected by customer growth or decline, variations in weather from period to period, customer mix, average usage per customer and the impacts of energy efficiency programs, distributed energy additions, electricity rates and tariffs, the recovery of PSA deferrals and the operation of other recovery mechanisms. These revenue transactions are affected by the availability of excess generation or other energy resources and wholesale market conditions, including competition, demand, and prices.
Current wording
Electric Operating Revenues. For the years 2022 through 2024, retail electric revenues comprised approximately 92% of our total operating revenues. Our electric operating revenues are affected by customer growth or decline, variations in weather from period to period, customer mix, average usage per customer and the impacts of energy efficiency programs, distributed energy additions, electricity rates and tariffs, the recovery of PSA deferrals and the operation of other recovery mechanisms. These revenue transactions are affected by the availability of excess generation or other energy resources and wholesale market conditions, including competition, demand, and prices.
Previous wording
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. 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 2.1% for the year ended December 31, 2024, compared with the prior-year period. For the three years through 2024, APS’s customer growth averaged 2.1% per year. We currently project annual customer growth to be 1.5% to 2.5% for 2025 and the average annual growth to be in the range of 1.5% to 2.5% through 2027 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 1.5% for the year ended December 31, 2023, 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 5.7% for the year ended December 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 and large manufacturing customers.
Previous wording
For the three years through 2023, annual retail electricity sales growth averaged 2.7%, 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 years through 2024, annual retail electricity sales growth averaged 3.2%, 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 4.0% to 6.0% for 2025 and that average annual growth will be in the range of 4.0% to 6.0% through 2027, 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 2025 growth in the range of 3.0% to 5.0% and to average annual growth in the range of 3.0% to 5.0% through 2027.
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Current report — wording carried from elsewhere
Our consolidated net income attributable to common shareholders for the year ended
Current report — wording carried from elsewhere
Regulatory accounting allows for the actions of regulators, such as the ACC and FERC, to be reflected in our financial statements. Their actions may cause us to capitalize costs that would otherwise be included as an expense in the current period by unregulated companies. 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.
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Previous report — wording carried elsewhere
The following discussion should be read in conjunction with Pinnacle West’s Consolidated
Previous report — wording carried elsewhere
The BCE Sale transaction was accounted for as the sale of a business and closed in multiple stages. As of December 31, 2023, all of BCE assets were classified as held for sale. The final closing of the BCE Sale was on January 12, 2024. See Note 20 for additional details.
Previous report — wording carried elsewhere
Retirement plans and other postretirement benefits. Pinnacle West sponsors a qualified defined benefit pension plan and a non-qualified supplemental excess benefit retirement plan for the employees of Pinnacle West and our subsidiaries. Pinnacle West also sponsors other postretirement benefit plans for the employees of Pinnacle West and its subsidiaries. The requirements of the Employee Retirement Income