What changed in this filing

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Item 1A. Risk Factors

2025-02-25 compared with 2024-02-27 · 69 added, 74 removed, 283 unchanged (34% of the section changed)

13 unchanged sentences

APS must comply in good faith with all applicable statutes, regulations, rules, tariffs, and orders of agencies that regulate APS’s business, including FERC, NRC, EPA, the ACC, and state and local governmental agencies.

These agencies regulate many aspects of APS’s utility operations, including safety and performance, emissions, siting and construction of facilities, customer service and the rates that APS can charge retail and wholesale customers.

These agencies regulate many aspects of APS’s utility operations, including safety and performance, emissions, siting and construction of facilities, labor and employment, customer service and the rates that APS can charge retail and wholesale customers.

Failure to comply can subject APS to, among other things, fines and penalties.

3 unchanged sentences

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.

In particular, new or revised laws or interpretations of existing laws or regulations may impact or call into question the ACC’s permissive regulatory authority, which may result in uncertainty as to jurisdictional authority within our state, and uncertainty as to whether

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

In 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.

APS sought review of the decision at the Arizona Supreme Court, which was denied;

however, the Supreme Court depublished portions of the Court of Appeals’ decision.

APS is seeking revised tariff language to mitigate potential adverse impacts on APS’s future, potential litigation exposure which may result from this court decision.

We are unable to predict the impact on our business and operating results from any pending or future regulatory or legislative rulemaking.

7 unchanged sentences

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.

If there is a delay or failure to obtain any required environmental regulatory approval, or if APS fails to obtain, maintain, or comply with any such approval, operations at affected facilities could be suspended or subject to additional expenses.

They could also impact the overall business environment in Arizona and affect APS’s customer and sales growth rates.

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

If there is a delay or failure to obtain any required environmental regulatory approval, or if APS fails to obtain,

maintain, or comply with any such approval, operations at affected facilities could be suspended or subject to additional expenses.

In addition, failure to comply with applicable environmental laws and regulations could result in civil liability as a result of government enforcement actions or private claims or criminal penalties.

7 unchanged sentences

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.

APS disposes of CCR in ash ponds and dry storage areas.

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.

12 unchanged sentences

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

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.

On April 25, 2024, the EPA issued new GHG emission standards for power plants.

These new standards are focused on limiting power plant GHG emissions through control mechanisms that can be implemented at individual power plant facilities.

The new regulations are currently being challenged in federal court.

Additionally, the Trump administration has stated that it intends to reverse or substantially revise these standards.

See Item 1 - Environmental Matters - Climate Change for more information.

Depending on the outcome of 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.

1 unchanged sentence

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 impose 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.

10 unchanged sentences

Deregulation or restructuring of the electric industry may result in increased competition, which could have a significant adverse impact on APS’s business and its results of operations.

In 1999, the ACC approved rules for the introduction of retail electric competition in Arizona.

Retail competition could have a significant adverse financial impact on APS due to an impairment of assets, a loss of retail customers, lower profit margins or increased costs of capital.

Although some very limited retail competition existed in APS’s service area in 1999 and 2000, there are currently no active retail competitors offering unbundled energy or other utility services to APS’s customers.

This is in large part due to a 2004 Arizona Court of Appeals decision that found critical components of the ACC’s rules to be violative of the Arizona Constitution.

The ruling also voided the operating authority of all the competitive providers previously authorized by the ACC.

On May 9, 2013, the ACC voted to re-examine the facilitation of a deregulated retail electric market in Arizona.

The ACC subsequently opened a docket for this matter and received comments from a number of interested parties on the considerations involved in establishing retail electric deregulation in the state.

One of these considerations is whether various aspects of a deregulated market, including setting utility rates on a “market” basis, would be consistent with the requirements of the Arizona Constitution.

On September 11, 2013, after receiving legal advice from the ACC staff, the ACC voted 4-1 to close the current docket and await full Arizona Constitutional authority before any further examination of this matter.

In November 2018, the ACC voted to re-examine the facilitation of a deregulated retail electric market in Arizona.

1 unchanged sentence

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.

1 unchanged sentence

In April 2022, the Arizona Legislature passed, and the Governor signed, a bill that repealed the electric deregulation law that had been in place in Arizona since 1998.

On August 27, 2024, the ACC administratively closed this docket due to inactivity and obsolescence.

Modification of the ACC’s retail electric competition rules or other efforts of deregulation could result in increased competition, which could have a significant adverse impact on APS’s business and results of operations.

OPERATIONAL RISKS

11 unchanged sentences

These operational risks related to rising temperatures and extreme heat events could affect APS’s financial condition, results of operations, or cash flows.

Higher temperatures may decrease the snowpack, which might result in lowered soil moisture and an increased threat of forest fires.

Forest fires could threaten APS’s communities and electric transmission lines and facilities.

Any damage caused as a result of forest fires could negatively impact APS’s financial condition, results of operations, or cash flows.

Higher temperatures may decrease the snowpack, which might result in lowered soil moisture and an increased threat of wildfires.

Wildfires could threaten APS’s communities and electric transmission lines and facilities.

Any damage caused as a result of wildfires could negatively impact APS’s financial condition, results of operations, or cash flows.

In addition, the decrease in snowpack can also lead to reduced water supplies in the areas where APS relies upon non-renewable water resources to supply cooling and process water for electricity generation.

5 unchanged sentences

A portion of APS’s total renewable energy requirement must be met with an increasing percentage of distributed renewable energy resources (generally, small-scale renewable technologies located on customers’ properties).

The distributed renewable energy requirement is 30% of the applicable RES requirement for 2012 and subsequent years (this requirement has been waived by the ACC for 2023).

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

The distributed renewable energy requirement is 30% of the applicable RES requirement for 2012 and subsequent years (APS requested a waiver of this requirement in the 2024 and 2025 RES Implementation Plans, which have not yet been approved by the ACC).

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 the demand for electricity.

1 unchanged sentence

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.

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.

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.

APS’s actual sales growth, excluding weather-related variations, may differ from its projections as a result of numerous factors, such as economic conditions, customer growth, the legal, regulatory, and business environment in Arizona, usage patterns and energy conservation, slower than expected ramp-up of and/or fewer than expected data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs and growth in DG, responses to retail price changes, changes in regulatory standards, and impacts of new and existing laws and regulations, including environmental laws and regulations.

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 $24 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 $6 million.

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

1 unchanged sentence

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;

Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic conditions, customer growth, usage patterns and energy conservation, slower ramp-up of and/or fewer data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs and growth in DG, responses to retail price changes, changes in regulatory standards, and impacts of new and existing laws and regulations, including environmental laws and regulations.

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.

however, there are difficulties in properly forecasting the demands of these extra-large customers due to factors such as the nascent nature of the industries (e.g., artificial intelligence) that these customers are supporting and the multiple variables that impact their usage ramp-up and ultimate level of demand.

As data center and other extra-large customer opportunities evolve and develop, we may also enter into arrangements with customers and potential customers that require us to invest capital and assume credit risk related to such developments and the related generation and transmission investments before we receive any potential return.

APS is implementing strategies to attempt to reduce this risk;

however, the difficulty in forecasting these demands and the additional risk of these arrangements could lead to stranded costs and other effects that could have material adverse impacts on APS’s financial condition, results of operations, and cash flows.

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 .

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

levels of output or efficiency.

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

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 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.

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.

6 unchanged sentences

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 potential likelihood and severity 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 other states.

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.

Extreme weather events such as severe storms and strong wind gusts may also increase the likelihood of a wildfire in our service territory.

APS has a Comprehensive Wildfire Mitigation Plan (“CWMP”) that employs various strategies designed to prevent, mitigate, and respond to wildfire risks.

APS’s CWMP includes vegetation management and clearing protocols, operational measures and a public safety power shut off program (“PSPS”) on certain feeders, among other practices.

However, APS’s fire mitigation efforts may be insufficient to prevent wildfires in APS’s expansive service territory and surrounding areas and could result in claims alleging damages due to the use, non-use, timing, or effectiveness of such measures.

In addition, APS could be sued regardless of fault for damages incurred as a result of wildfires 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.

3 unchanged sentences

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.

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

In addition, 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.

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.

17 unchanged sentences

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.

21 unchanged sentences

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.

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.

APS has an ownership interest in and operates on behalf of a group of participants, Palo Verde, which is the largest nuclear electric generating facility in the United States.

APS has an ownership interest in and operates on behalf of a group of participants, Palo Verde, which is the largest nuclear electric generating facility in the western United States.

Palo Verde constitutes approximately 18% of APS’s owned and leased generation capacity.

20 unchanged sentences

The implementation of new and additional technologies adds complexity to our information technology and operational technology systems, which could require additional infrastructure and resources.

Widespread installation and acceptance of new technologies could also enable the entry of new market participants, such as technology companies, into the interface between APS and its customers and could have other unpredictable effects on APS’s traditional business model.

APS’s strategy, including the timing of such strategy, in adopting new technologies, such as artificial intelligence, could also adversely impact APS’s business.

For example, if APS fails to strategically implement artificial intelligence, it could miss the opportunity for cost savings, face increasing costs on legacy systems, insufficiently integrate internal and external data sets, or invest in low data quality, risk misusing artificial intelligence, impact employee satisfaction with its implementation of or failure to implement artificial intelligence and other technologies.

Widespread installation and

acceptance of new technologies could also enable the entry of new market participants, such as technology companies, into the interface between APS and its customers and could have other unpredictable effects on APS’s traditional business model.

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.

21 unchanged sentences

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.

benefit obligations.

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.

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.

11 unchanged sentences

The common equity ratio, as defined in the ACC order, is total shareholder equity divided by the sum of total shareholder equity and long-term debt, including current maturities of long-term debt.

We may not have adequate insurance coverage for liabilities.

The operation of power generation, transmission and distribution facilities involves hazardous activities.

We may become exposed to significant liabilities for which we may not have adequate insurance coverage or risk mitigation.

Additionally, through our captive insurance cell, we take certain insurance risk on our business, such as certain wildfire coverage, excess property insurance, and excess employment practice liability.

We maintain an amount of insurance protection that we believe is customary, but there can be no assurance it will be sufficient or effective in light of all circumstances, hazards or liabilities to which we may be subject.

Our insurance does not cover every potential risk associated with our operations.

Adequate coverage at reasonable rates is not always obtainable.

We cannot provide assurance that insurance coverage will continue to be available in the amounts or on terms similar to our current policies.

These issues could have a material adverse effect on our business, results or operations, and financial condition.

Pinnacle West’s ability to meet its debt service obligations could be adversely affected because its debt securities are structurally subordinated to the debt securities and other obligations of its subsidiaries.

1 unchanged sentence

The assets and cash flows of our subsidiaries will be available, in the first instance, to service their own debt and other obligations.

Our ability to have the benefit of their cash flows, particularly in the case of any insolvency or financial distress affecting our subsidiaries, would arise only through our equity ownership interests in our subsidiaries and only after their creditors have been satisfied.

Our ability to have the benefit of their cash flows, particularly in the case of any

insolvency or financial distress affecting our subsidiaries, would arise only through our equity ownership interests in our subsidiaries and only after their creditors have been satisfied.

The use of derivative contracts in the normal course of our business could result in financial losses that negatively impact our results of operations.

26 unchanged sentences

and political or financial instability.

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, 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.

In particular, in recent years the United States’ economy experienced a substantial rise in the inflation rate and more recently in 2025, the Trump administration has implemented tariffs and discussed additional tariffs, which would further increase costs.

Additionally, supply chains have been impacted and could be further impacted by inflation, tariffs, and other sociopolitical factors, resulting in equipment delays and increased costs.

A failure to recover these potential increased costs through our rates could have a material adverse impact on our financial condition, results of operations, or cash flows.

The market price of our common stock may be volatile.

32 unchanged sentences

• restrictions regarding the rights of our shareholders to nominate directors or to submit proposals to be considered at shareholder meetings.

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.

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.

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