What changed in this filing

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Item 1A. Risk Factors

2024-02-27 compared with 2023-02-27 · 77 added, 71 removed, 280 unchanged (35% of the section changed)

18 unchanged sentences

APS believes the necessary permits, approvals and certificates have been obtained for its existing operations and that APS’s business is conducted in accordance with applicable laws in all material respects.

Changes in laws or regulations that govern APS, new interpretations of law and regulations, or the imposition of new or revised laws or regulations could have an adverse impact on the manner in which we operate our business and our results of operations.

In particular, new or revised laws or interpretations of existing laws or regulations may impact or call into question the ACC’s permissive regulatory authority, which may result in uncertainty as to jurisdictional authority within our state, and uncertainty as to whether ACC decisions will be binding or challenged by other agencies or bodies asserting jurisdiction.

Changes in laws or regulations that govern APS, new interpretations of laws and regulations, or the imposition of new or revised laws or regulations could have an adverse impact on the manner in which we operate our business and our results of operations.

ACC decisions will be binding or challenged by other agencies or bodies asserting jurisdiction.

In November 2021, the Arizona Court of Appeals issued an opinion that called into question the ACC-approved limitation of liability provision found in the APS Service Schedules.

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APS is, or may become, subject to numerous environmental laws and regulations affecting many aspects of its present and future operations, including air emissions of conventional pollutants and GHGs, water quality, discharges of wastewater and waste streams originating from fly ash and bottom ash handling facilities, solid waste, hazardous waste, and coal combustion products, which consist of bottom ash, fly ash, and air pollution control wastes.

These laws and regulations can result in increased capital,

operating, and other costs, particularly with regard to enforcement efforts focused on power plant emissions obligations.

These laws and regulations can result in increased capital, operating, and other costs, particularly with regard to enforcement efforts focused on power plant emissions obligations.

These laws and regulations generally require APS to obtain and comply with a wide variety of environmental licenses, permits, and other approvals.

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Environmental Clean Up.

APS has been named as a PRP for a Superfund site in Phoenix, Arizona, and it could be named a PRP in the future for other environmental clean-up at sites identified by a regulatory body.

APS has been named as a PRP for Superfund sites in Phoenix, Arizona, and it could be named a PRP in the future for other environmental clean-up at sites identified by a regulatory body.

APS cannot predict with certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean-up costs.

There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all PRPs.

In December 2014, EPA issued final regulations governing the handling and disposal of CCR, which are generated as a result of burning coal and consist of, among other things, fly ash and bottom ash.

In December 2014, the EPA issued final regulations governing the handling and disposal of CCR, which are generated as a result of burning coal and consist of, among other things, fly ash and bottom ash.

The rule regulates CCR as a non-hazardous waste.

APS currently disposes of CCR in ash ponds and dry storage areas at Cholla and Four Corners.

To the extent the rule requires the closure or modification of these CCR units, modification or changes to the manner of closure of such units, or the construction of new CCR units beyond what we currently anticipate, APS would incur significant additional costs for CCR disposal.

To the extent the rule requires the closure or modification of these CCR units, modification or changes to the manner of closure of such units, or the

construction of new CCR units beyond what we currently anticipate, APS would incur significant additional costs for CCR disposal.

In addition, the rule may also require corrective action to address releases from CCR disposal units or the presence of CCR constituents within groundwater near CCR disposal units above certain regulatory thresholds.

Ozone National Ambient Air Quality Standards.

In 2015, EPA finalized revisions to the NAAQS for ozone, which set new, more stringent standards on emissions of nitrogen oxide, a precursor to ozone, in an effort to protect human health and human welfare.

In 2015, the EPA finalized revisions to the NAAQS for ozone, which set new, more stringent standards on emissions of nitrogen oxide, a precursor to ozone, in an effort to protect human health and human welfare.

Depending on the final attainment designations for the new standards and the state implementation requirements, APS may be required to invest in new pollution control technologies and to generate emission offsets for new projects or facility expansions located in ozone nonattainment areas.

In addition, the EPA may in the future further increase the stringency of various NAAQS, including for ozone or other pollutants, such as particulate matter.

With regard to even more stringent NAAQS requirements, additional control measures and compliance costs may become necessary for APS as well as its current and potential future customers.

APS cannot assure that existing environmental regulations will not be revised or that new regulations seeking to protect the environment will not be adopted or become applicable to it.

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APS would seek recovery in rates for the book value of any remaining investments in the plants as well as other costs related to early retirement but cannot predict whether it would obtain such recovery.

Such regulations may also act as a deterrent to future customer growth or create additional costs for existing customers, potentially slowing APS’s customer growth.

APS faces potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG emissions, as well as physical and operational risks related to climate effects.

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Potential Financial Risks — Greenhouse Gas Regulation, the Clean Power Plan and Potential Litigation.

In 2015, EPA finalized a rule to limit CO 2 emissions from existing power plants, the Clean Power Plan, or CPP.

The implementation of this rule within the jurisdictions where APS operates would have resulted in a shift in generation from coal to more natural gas and renewable generation.

Because of a view that the federal Clean Air Act did not permit such an expansive use of administrative authority over utility generation resources, in 2019 regulations were issued that repealed the CPP and replaced it with a far narrower set of regulations focused solely on coal-fired power plant efficiency improvements.

On January 19, 2021, the U.S.

Court of Appeals for the D.C.

Circuit vacated the ACE regulations and remanded them back to EPA to develop new regulations governing carbon emissions from existing power plants consistent with the court’s ruling.

That decision, which endorsed an expansive view of the federal Clean Air Act consistent with the CPP, was subsequently reversed by the U.S.

Supreme Court on June 30, 2022.

While the current administration has expressed its intent to develop new carbon emission regulations governing existing power plants in 2023, such action will be constrained by the U.S.

Supreme Court’s decision that the CPP violated the Clean Air Act.

Depending on the outcome of future carbon emission rulemakings under the Clean Air Act targeting new and existing power plants, the utility industry may become subject to more stringent and expansive regulations.

Following a U.S.

Supreme Court decision on June 30, 2022, which substantially narrowed EPA’s authority to regulate power plant GHG emissions under the Clean Air Act, on May 23, 2023, EPA proposed new GHG emission standards for power plants.

In contrast to measures finalized in 2015, EPA’s May 2023 proposal is focused on limiting power plant GHG emissions through control mechanisms that can be implemented at individual power plant facilities.

These mechanisms would include carbon capture and sequestration, hydrogen co-firing, natural gas co-firing, and limits on facility output, among other measures.

EPA expects to take final action on this proposal in the spring or summer of 2024.

Depending on the outcome of future carbon emission rulemaking under the Clean Air Act targeting new and existing power plants, the utility industry may become subject to more stringent and expansive regulations.

Depending on the means of compliance with federal emission performance standards, the electric utility industry may be forced to incur substantial costs necessary to achieve compliance.

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Depending on the outcome of such judicial review, the utility industry may face alternative efforts from private parties seeking to establish alternative GHG emission limitations from power plants.

Alternative GHG emission limitations may arise from litigation under either federal or state common laws or citizen suit provisions of federal environmental statutes that attempt to force federal agency rulemaking or imposing direct facility emission limitations.

Alternative GHG emission limitations may arise from litigation under either federal or state

common laws or citizen suit provisions of federal environmental statutes that attempt to force federal agency rulemaking or impose direct facility emission limitations.

Such lawsuits may also seek damages from harm alleged to have resulted from power plant GHG emissions.

Physical and Operational Risks.

Weather extremes such as drought and high temperature variations are common occurrences in the southwest United States’ desert area, and these are risks that APS considers in the normal course of business in the engineering and construction of its electric system.

Weather extremes such as drought and high temperature variations are common occurrences in the southwestern United States’ desert area, and these are risks that APS considers in the normal course of business in the engineering and construction of its electric system.

Large increases in ambient temperatures could require evaluation of certain materials used within its system and may represent a greater challenge.

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APS owns certain of its power plants and transmission facilities jointly with other owners, with varying ownership interests in such facilities.

Changes in the nature of our industry and the economic viability of certain plants and facilities, including impacts resulting from types and availability of other resources, fuel costs, legislation, and regulation, together with timing considerations related to expiration of leases or other agreements for such facilities, could result in unaligned positions among co-owners.

Differences in the co-owners’ willingness or ability to continue their participation could lead to eventual shut down of units or facilities and uncertainty related to the resulting cost recovery of such assets.

Changes in the nature of our industry and the economic viability of certain plants and facilities, including impacts resulting from types and availability of other resources, fuel costs, legislation, and regulation, together with timing considerations related to the expiration of leases or other agreements for such facilities, could result in unaligned positions among co-owners.

Differences in the co-owners’ willingness or ability to continue their participation could lead to the eventual shut down of units or facilities and uncertainty related to the resulting cost recovery of such assets.

See Note 3 for a discussion of the Navajo Plant and Cholla retirement and the related risks associated with APS’s continued recovery of its remaining investment in the plant.

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On February 10, 2020, two ACC Commissioners filed two sets of draft proposed retail electric competition rules.

On February 12, 2020, ACC Staff issued its second report regarding possible modifications to the ACC’s retail electric competition rules.

On February 12, 2020, ACC Staff issued its second report regarding possible modifications to the ACC’s retail electric

competition rules.

During a July 15, 2020, ACC Staff meeting, the ACC Commissioners discussed the possible development of a retail competition pilot program, but no action was taken.

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As a result, unusually mild weather could diminish APS’s financial condition, results of operations, or cash flows.

Apart from the impact upon electricity demand, weather conditions related to prolonged high temperatures or extreme heat events present operational challenges.

Apart from the impact on electricity demand, weather conditions related to prolonged high temperatures or extreme heat events present operational challenges.

In the southwestern United States, where APS conducts its business, the effects of climate change are projected to increase the overall average temperature, lead to more extreme temperature events, and exacerbate prolonged drought conditions leading to the declining availability of water resources.

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Customer participation in distributed renewable energy programs would result in lower demand since customers would be meeting some of their own energy needs.

In addition to these rules and requirements, energy efficiency technologies and distributed energy resources continue to evolve, which may have similar impacts on demand for electricity.

In addition to these rules and requirements, energy efficiency technologies and distributed energy resources continue to evolve, which may have similar impacts on the demand for electricity.

Reduced demand due to these energy efficiency requirements, distributed energy requirements and other emerging technologies, unless substantially offset through ratemaking mechanisms, could have a material adverse impact on APS’s financial condition, results of operations and cash flows.

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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 offset by energy savings driven by customer conservation, energy efficiency, and distributed renewable generation initiatives, the main drivers of positive sales for this period were a strong improvement in sales to commercial and industrial customers and the ramp-up of new data center customers.

While steady customer growth was somewhat offset by weaker usage among residential customers, energy savings driven by customer conservation, energy efficiency, and distributed renewable generation initiatives, the main drivers of positive sales for this period were continued strong sales to commercial and industrial customers and the ramp-up of new data center customers.

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 rapid growth of several large data centers and new large manufacturing facilities, we currently project that annual retail electricity sales in kWh will increase in the range of 3.5% to 5.5% for 2023 and that average annual growth will be in the range of 4.5% to 6.5% through 2025, including the effects of customer conservation, energy efficiency, and distributed renewable generation initiatives, but excluding the effects of weather variations.

This projected sales growth range includes the impacts of several large data centers and new large manufacturing facilities, which are expected to contribute to average annual growth in the range of 3.5% to 5.5% through 2025.

Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic conditions, customer growth, usage patterns and energy conservation, slower ramp-up of and/or fewer data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs, and growth in DG,

and responses to retail price changes.

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.

Longer term, APS has been preparing for and can serve significant load growth from residential and business customers.

On top of these existing growth trends, APS is also now receiving unprecedented incremental requests for service from extra-large commercial energy users (over 25 MW) with very high energy demands that persist virtually around-the-clock.

These incremental requests for service by extra-large energy users far exceed available generation and transmission resource capacity in the Southwest region for the foreseeable future.

In April 2023, APS notified prospective extra-large customers without existing commitments from APS that it is not able to commit at this time to their future extra-large projects (over 25 MW).

Because of the high growth in demand for such projects, APS has developed a prioritization queue that identifies and prioritizes projects while maintaining system reliability and affordability for existing APS customers.

APS is exploring available options for securing sufficient electric generation and transmission to meet these projections of future customer needs.

Based on past experience, a 1% variation in our annual residential and small commercial and industrial kWh sales projections under normal business conditions can result in increases or decreases in annual net income of approximately $20 million, and a 1% variation in our annual large commercial and industrial kWh sales projections under normal business conditions can result in increases or decreases in annual net income of approximately $5 million.

The operation of power generation facilities and transmission systems involves risks that could result in reduced output or unscheduled outages, which could materially affect APS’s results of operations .

The operation of power generation, transmission and distribution facilities involves certain risks, including the risk of breakdown or failure of equipment, fuel interruption, and performance below expected levels of output or efficiency.

The operation of power generation facilities and transmission systems involves risks that could result in reduced output or unscheduled outages or could otherwise significantly impact APS’s results of operations .

levels of output or efficiency.

Unscheduled outages, including extensions of scheduled outages due to mechanical failures or other complications, occur from time to time and are an inherent risk of APS’s business.

Because our transmission facilities are interconnected with those of third parties, the operation of our facilities could be adversely affected by unexpected or uncontrollable events occurring on the larger transmission power grid, and the operation or failure of our facilities could adversely affect the operations of others.

Concerns over physical security of these assets could include damage to certain of our facilities due to vandalism or other deliberate acts that could lead to outages or other adverse effects.

Concerns over the physical security of these assets could include damage to certain of our facilities due to vandalism or other deliberate acts that could lead to outages or other adverse effects.

If APS’s facilities operate below expectations, especially during its peak seasons, it may lose revenue or incur additional expenses, including increased purchased power expenses.

Additionally, as APS’s transmission infrastructure ages and its transmission system needs grow to support growth in our territory and in the Southwest, it will need to replace and expand certain portions of its transmission infrastructure, which requires significant investment of capital.

Risks related to the timely completion of and costs associated with these projects may be exacerbated by a constrained supply chain limiting the availability of necessary parts and materials as well as APS’s use, in some cases, of older, obsolete, or unsupported equipment.

Certain replacements and expansions of the transmission infrastructure will also require the acquisition or renewal of land leases, easements, or other rights-of-way that may require approvals from landowners, including individuals, governmental agencies, and, at times, tribal nations.

APS is unable to predict the outcomes of any pending or future required approvals, including any related costs, which could be significant.

If APS is unable to successfully manage the replacement and expansion of its transmission infrastructure, it could face increased equipment failures, power quality challenges, reputational impact, and financial loss.

The impact of wildfires could negatively affect APS’s results of operations.

Wildfires have the potential to affect the communities that APS serves and APS’s vast network of electric transmission and distribution lines and facilities.

The potential likelihood of wildfires has increased due to many of the same weather and climate change impacts existing in Arizona as those that led to the catastrophic wildfires in California.

While we proactively take steps to mitigate wildfire risk in the areas of our electrical assets, wildfire risk is always present due to APS’s expansive service territory.

APS could be held liable for damages incurred as a result of wildfires if it was determined that they were caused by or enhanced due to APS’s negligence.

Any damage caused to our assets, loss of service to our customers, or liability imposed as a result of wildfires could negatively impact APS’s financial condition, results of operations, or cash flows.

Wildfires have the potential to affect communities within APS’s service territory and the surrounding areas, as well as APS’s vast network of electric transmission and distribution lines and facilities.

The potential likelihood of wildfires has increased due to many of the same weather and climate change impacts existing in Arizona as those that led to catastrophic wildfires in California.

The continued expansion of the wildland urban interface has also increased wildfire risk to surrounding communities.

APS currently intends to implement a public safety power shutoff (“PSPS”) program in addition to its current fire mitigation efforts.

While such technology is intended to mitigate fire risk, it also introduces additional risks to APS and its customers, such as claims for damages, and the timing and effectiveness of such fire mitigation efforts may be insufficient to prevent wildfires in APS’s expansive service territory and surrounding areas.

APS could be held liable for damages incurred as a result of wildfires regardless of fault and may not be able to recover all or a substantial portion of any such damages or costs from insurance or through rates.

In addition, we could also experience credit rating downgrades, reputational harm, volatility in the market for our common stock, and significant financial distress upon the occurrence of a wildfire event.

Furthermore, any damage caused to our assets, loss of service to our customers, or liability imposed as a result of wildfires could negatively impact APS’s financial condition, results of operations, or cash flows.

The inability to successfully develop, acquire or operate generation resources to meet future resource needs and load forecasts in accordance with reliability requirements and other new or evolving standards and regulations could adversely impact our business.

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The current regulatory standards, laws, and regulations create strategic challenges as to the appropriate generation portfolio and fuel diversification mix.

In addition, APS is required by the ACC to meet certain energy resource portfolio requirements, including those related to renewables development and energy efficiency measures, in addition to specific competitive resource procurement requirements.

In addition, APS is required by the ACC to meet certain energy resource portfolio

requirements, including those related to renewables development and energy efficiency measures, in addition to specific competitive resource procurement requirements.

The development and operation of any generation facility is also subject to many risks, including those related to financing, siting, permitting, new and evolving technology, extreme weather events, workforce issues, cybersecurity attacks, supply chain constraints for critical spare parts, and the construction of sufficient transmission capacity to support these facilities among others.

APS needs to develop or acquire new generation facilities, potentially modernize existing facilities, and/or contract for additional capacity in order to meet future resource needs and load forecasts.

APS’s inability to do so could have a material adverse impact on our business and results of operations.

In expressing concerns about the environmental and climate-related impacts from continued extraction, transportation, delivery and combustion of fossil fuels, environmental advocacy groups and other third parties have in recent years undertaken greater efforts to oppose the permitting, construction,

and operation of fossil fuel infrastructure projects.

These efforts may increase in scope and frequency depending on a number of variables, including the future course of Federal environmental regulation and the increasing financial resources devoted to these opposition activities.

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Assured supplies of water are important for APS’s generating plants.

Water in the southwestern United States is limited, and various parties have made conflicting claims regarding the right to access and use such limited supply of water.

Water in the southwestern United States is limited, and various parties have made conflicting claims regarding the right to access and use such limited supplies of water.

Both groundwater and surface water in areas important to the operation of APS’s generating plants have been and are the subject of inquiries, claims and legal proceedings.

In addition, the region in which APS’s power plants are located suffer from prolonged drought conditions, which could potentially affect the plants’ water supplies.

In addition, the region in which APS’s power plants are located suffers from prolonged drought conditions, which could potentially affect the plants’ water supplies.

Climate change is also projected to exacerbate such drought conditions.

In addition, Colorado River water supplies for Arizona are subject to a Tier 2a shortage declaration, which substantially limits the quantity of water available for the state.

In addition, Colorado River water supplies for Arizona are subject to a Tier 1 shortage declaration, which substantially limits the quantity of water available for the state.

APS’s inability to access sufficient supplies of water, along with that of its customers, could have a material adverse impact on our business and results of operations.

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There appears to be an increasing level of activity, sophistication, and maturity of threat actors, including from both nation-state and non-nation state actors, that seek to exploit potential vulnerabilities in the electric utility industry and wish to disrupt the U.S.

bulk power system, our information technology systems, generation (including our Palo Verde nuclear facility), transmission and distribution facilities, and other infrastructure facilities and systems and physical assets.

bulk power system, our information technology systems, generation (including our Palo Verde nuclear facility), transmission and distribution facilities, and other infrastructure facilities and

systems and physical assets.

We have been and could be the target of attacks, and the aforementioned systems are critical areas of cyber protection for us.

We rely extensively on IT systems, networks, and services, including internet sites, data hosting and processing facilities, and other hardware, software and technical applications and platforms.

Some of these systems are managed, hosted, provided, or used for third parties to assist in conducting our business.

Some of these systems are managed, hosted, provided, or used by third parties to assist in conducting our business.

Malicious actors may attack vendors to disrupt the services these vendors provide to us or to use those vendors as a cyber conduit to attack us.

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If a significant cybersecurity event or breach were to occur, we may not be able to fulfill critical business functions and we could (i) experience property damage, disruptions to our business, theft of or unauthorized access to customer, employee, financial or system operation information or other information;

(ii) experience loss of revenue or incur significant costs for repair, remediation and breach

notification, and increased capital and operating costs to implement increased security measures;

(ii) experience loss of revenue or incur significant costs for repair, remediation and breach notification, and increased capital and operating costs to implement increased security measures;

and (iii) be subject to increased regulation, litigation and reputational damage.

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Coverage for cybersecurity events continues to evolve as the industry matures.

In the future, adequate insurance may not be available at rates that we believe are reasonable, and the costs of responding to and recovering from a cyber incident may not be covered by insurance or recoverable in rates.

The ownership and operation of power generation and transmission facilities on Indian lands could result in uncertainty related to continued leases, easements, and rights-of-way, which could have a significant impact on our business.

Four Corners and portions of certain APS transmission lines are located on Indian lands pursuant to leases, easements or other rights-of-way that are effective for specified periods.

APS is unable to predict the final outcomes of pending and future approvals by the applicable sovereign governing bodies with respect to renewals of these leases, easements, and rights-of-way.

In the future, adequate insurance may not

be available at rates that we believe are reasonable, and the costs of responding to and recovering from a cyber incident may not be covered by insurance or recoverable in rates.

There are inherent risks in the ownership and operation of nuclear facilities, such as environmental, health, fuel supply, spent fuel disposal, regulatory and financial risks and the risk of terrorist attack that could adversely affect our business and financial condition.

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Deployment of renewable energy technologies is expected to continue across the western states and result in a larger portion of the overall energy production coming from these sources.

These trends, which

have benefited from historical and continuing government support for certain technologies, have the potential to put downward pressure on wholesale power prices throughout the western states which could make APS’s existing generating facilities less economical and impact their operational patterns and long-term viability.

These trends, which have benefited from historical and continuing government support for certain technologies, have the potential to put downward pressure on wholesale power prices throughout the western states which could make APS’s existing generating facilities less economical and impact their operational patterns and long-term viability.

We are subject to employee workforce factors that could adversely affect our business and financial condition.

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These or other employee workforce factors could negatively impact our business, financial condition, or results of operations.

COVID-19 could negatively affect our business.

COVID-19 is a continually developing situation around the globe that has led to economic disruption and volatility in the financial markets.

The spread of COVID-19 and efforts to contain the virus and mitigate its public health effects, could decrease demand for energy, lower economic growth, impact our employees and contractors, cause disruptions in our supply chain, increase certain costs, further increase volatility in the capital markets (and result in increases in the cost of capital or an inability to access the capital markets or draw on available credit facilities), delay the completion of capital or other construction projects and other operations and maintenance activities, delay payments or increase uncollectable accounts, impact our ability to hire or retain qualified employees, or cause other unpredictable events, each of which could adversely affect our business, results of operations, cash flows or financial condition.

FINANCIAL RISKS

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We hold and invest substantial assets in these trusts that are designed to provide funds to pay for certain of these obligations as they arise.

Declines in market values of the fixed income and equity securities held in these trusts may increase our funding requirements into the related trusts.

Declines in market values of the fixed income and equity securities held in these trusts may increase our funding requirements for the related trusts.

Additionally, the valuation of liabilities related to our pension plan and other postretirement benefit plans are impacted by a discount rate, which is the interest rate used to discount future pension and other postretirement benefit obligations.

Declining interest rates decrease the discount rate, increase the valuation of the plan liabilities, and may result in increases in pension and other postretirement benefit costs, cash contributions, regulatory assets, and charges to OCI.

Changes in demographics, including increased number of retirements or changes in life expectancy and changes in other actuarial assumptions, may also result in similar impacts.

Changes in interest rates impact the discount rate and valuation of the plan liabilities, and may result in increases in pension and other postretirement benefit costs, cash contributions, regulatory assets, and charges to OCI.

Changes in demographics, including increased number of retirements or

changes in life expectancy and changes in other actuarial assumptions, may also result in similar impacts.

The minimum contributions required under these plans are impacted by federal legislation and related regulations.

Increasing liabilities or otherwise increasing funding requirements under these plans, resulting from adverse changes in legislation or otherwise, could result in significant cash funding obligations that could have a material impact on our financial position, results of operations, or cash flows.

We recover most of the pension and other postretirement benefit expense and all of the currently estimated nuclear decommissioning costs in our regulated rates.

Any inability to fully recover these costs in a timely manner could have a material negative impact on our financial condition, results of operations, or cash flows.

Pending or future federal or state legislative or regulatory activity or court proceedings could increase costs of providing medical insurance for our employees and retirees.

Pending or future federal or state legislative or regulatory activity or court proceedings could increase the costs of providing medical insurance for our employees and retirees.

Any potential changes and resulting cost impacts cannot be determined with certainty at this time.

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APS’s operations include managing market risks related to commodity prices.

APS is exposed to the impact of market fluctuations in the price and transportation costs of electricity, natural gas, and coal to

the extent that unhedged positions exist.

APS is exposed to the impact of market fluctuations in the price and transportation costs of electricity, natural gas, and coal to the extent that unhedged positions exist.

We have established procedures to manage risks associated with these market fluctuations by utilizing various commodity derivatives, including exchange traded futures and over-the-counter (“OTC”) forwards, options, and swaps.

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and political or financial instability.

In particular, during 2021 and 2022, the United States’ economy has experienced a substantial rise in the inflation rate.

In particular, from 2021 to 2023, the United States’ economy has experienced a substantial rise in the inflation rate.

There is increased uncertainty as to whether the rise in inflation will continue and for how long.

Increases in inflation raise the Company’s costs for commodities, labor, materials and services.

Additionally, COVID-19 severely impacted global supply chains, resulting in equipment delays and

increased costs.

Additionally, global supply chains have been impacted, resulting in equipment delays and increased costs.

A failure to recover the increased costs caused by increased inflation and supply chain constraints through our rates could have a material adverse impact on our financial condition, results of operations, or cash flows.

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While these provisions may have the effect of encouraging persons seeking to acquire control of us to negotiate with our Board of Directors, they could enable the Board of Directors to hinder or frustrate a transaction that some, or a majority, of our shareholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors.

UNRESOLVED STAFF COMMENTS

Neither Pinnacle West nor APS has received written comments regarding its periodic or current reports from the SEC staff that were issued 180 days or more preceding the end of its 2022 fiscal year and that remain unresolved.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors