What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-27 · 304 added, 280 removed, 511 unchanged (53% of the section changed)

1 unchanged sentence

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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.

4 unchanged sentences

Pinnacle West is an investor-owned electric utility holding company based in Phoenix, Arizona with consolidated assets of approximately $26 billion.

For over 130 years, Pinnacle West and our affiliates have provided energy and energy-related products to people and businesses throughout Arizona.

Since 1886, Pinnacle West and our affiliates have provided energy and energy-related products to people and businesses throughout Arizona.

Pinnacle West derives essentially all of our revenues and earnings from our principal subsidiary, APS.

1 unchanged sentence

APS is also the operator and co-owner of Palo Verde — a primary source of electricity for the southwestern United States.

Inflation Reduction Act of 2022

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.

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.

Strategic Overview

1 unchanged sentence

Customer-Focused

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.

APS’s focus remains on its customers and the communities it serves.

Accordingly, it is APS’s goal to achieve an industry-leading, best-in-class customer experience.

This multi-year objective includes incrementally improving APS’s J.D.

Power (“JDP”) overall customer satisfaction ratings to achieve a first quartile ranking in its peer set comprised of large investor-owned utilities.

APS has made noteworthy progress on that front.

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.

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.

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.

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.

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.

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.

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.

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.

Our advanced distribution management system allows operators to locate outages and control line devices remotely and helps them coordinate more closely with field crews to safely maintain an increasingly dynamic grid.

4 unchanged sentences

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

APS’s customer affordability initiative includes internal opportunities, such as training and mentoring employees on identifying efficiency opportunities;

2 unchanged sentences

and implementing automation technologies to enhance efficiencies and increase data-oriented decision making.

There are also external opportunities under APS’s customer affordability initiative, such as APS’s participation in the Western Energy Imbalance Market (“WEIM”).

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 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.

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.

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.

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.

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.

In addition to managing the cost of electricity generation, APS has continued building upon existing cost management efforts, including a customer affordability initiative launched in 2019.

The initiative was implemented company-wide to thoughtfully and deliberately assess our business processes and organizational approaches to completing high-value work and achieving internal efficiencies.

The initiative was implemented company-wide to thoughtfully and deliberately assess our business processes

and organizational approaches to completing high-value work and achieving internal efficiencies.

APS continues to drive this initiative by identifying opportunities to streamline its business processes, mitigate cost increases, increase employee retention, and improve customer satisfaction.

8 unchanged sentences

• A 2030 target to achieve a resource mix that is 65% clean energy, with 45% of the generation portfolio coming from renewable energy;

• A commitment to exit from coal-fired generation by 2031.

• A plan to exit from coal-fired generation by 2031.

APS’s ability to successfully execute its clean energy commitment depends upon a number of important external factors, including a supportive regulatory environment, sales and customer growth, development of clean energy technologies, and continued access to capital markets, among others.

3 unchanged sentences

65% Clean Energy.

APS has an energy mix that is already 50% clean and plans to continue to add more renewables and energy storage.

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’s Renewable Energy Standard as a percentage of retail sales.

“Renewable” energy includes generation resources such as solar, wind, and biomass, and is measured in accordance with the ACC 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.

4 unchanged sentences

In addition, APS has committed to end the use of coal at its remaining Cholla units during 2025.

In June 2021, APS and the owners of Four Corners entered into an agreement that would allow Four Corners to operate seasonally at the election of the owners as early as fall 2023, subject to the necessary governmental approvals and conditions associated with changes in plant ownership.

In June 2021, APS and the owners of Four Corners entered into an agreement that would allow Four Corners to operate seasonally at the election of the owners as early as fall 2023, subject to the

necessary governmental approvals and conditions associated with changes in plant ownership.

Under seasonal operation, one generating unit would be shut down during seasons where electricity demand is reduced, such as the winter and spring.

The other unit would remain online year-round, subject to market

conditions as well as planned maintenance outages and unplanned outages.

The other unit would remain online year-round, subject to market conditions as well as planned maintenance outages and unplanned outages.

As of the date of this report, APS has elected not to begin seasonal operation due to market conditions.

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.

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.

APS uses competitive “all source” RFPs to pursue market resources that meet its system needs and offer the best value for customers.

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.

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.

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.

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.

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.

The following table summarizes the resources in APS’s renewable energy portfolio that are in operation or under development as of December 31, 2023.

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.

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.

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.

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.

3 unchanged sentences

Total APS Owned:

Solar 416 168

PPAs Renewables:

6 unchanged sentences

(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.

DG is produced in direct current and is converted to alternating current for reporting purposes.

(b) Applications received by APS that are not yet installed and online.

4 unchanged sentences

APS is utilizing grid-scale energy storage projects to meet customer reliability requirements, increase renewable utilization, and to further our understanding of how storage works with other advanced technologies and the grid.

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.

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.

The following table summarizes the resources in APS’s energy storage portfolio that are in operation and under development as of December 31, 2023.

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.

Net Capacity in Operation (MW) Net Capacity Planned / Under Development (MW)

APS Owned Energy Storage 182 (a) 19 (b)

APS Owned Energy Storage 201 (a) 150

PPAs Energy Storage 405 5,087

1 unchanged sentence

Total Energy Storage Portfolio 668 5,288

(a) Includes 0.3 MW of APS-owned customer-sited batteries.

(b) Includes 19 MW of capacity that entered commercial operation in January 2024.

(a) Includes 0.3 MW of APS-owned customer-sited energy storage.

Palo Verde, one of the nation’s largest carbon-free, clean energy resources, will continue to be a foundational part of APS’s resource portfolio.

1 unchanged sentence

it also is a significant provider of clean energy to the southwestern United States.

The plant is a critical asset to the Southwest, generating more than 32 million MWh annually – enough power for roughly 3.4 million households, or approximately 8.5 million people.

The plant is a critical asset to the Southwest, generating more than 32 million MWh annually –

enough power for roughly 3.4 million households, or approximately 8.5 million people.

Its continued operation is important to a carbon-free and clean energy future for Arizona and the region, a s a reliable, continuous, affordable resource and as a large contributor to the local economy.

Developing Clean Energy Technologies

New Nuclear Generation

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.

Electric Vehicles

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.

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.

Hydrogen Production

On May 12, 2022, Arizona’s three public universities, along with four Arizona energy providers, including APS, announced the formation of a new, interdisciplinary coalition, called the Arizona Center for a Carbon Neutral Economy (“AzCaNE”), with the goal of achieving a carbon neutral economy in Arizona.

AzCaNE’s first action was to pursue an Arizona-led approach to securing regional clean hydrogen hub

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.

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.

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.

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.

Carbon Capture

3 unchanged sentences

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.

APS will continue to monitor this emerging technology.

Sustainability Practices

In 2020, in support of our clean energy commitment and the growing focus on sustainability within our organization, we increased our focus on sustainability by dedicating a new Sustainability Department at Pinnacle West responsible for integrating responsible business practices into the everyday work of the Company.

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 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 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.

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.

Finally, the Company maintains an annual Corporate Responsibility Report on the Pinnacle West website ( www.pinnaclewest.com/corporate-responsibility ).

2 unchanged sentences

Artificial Intelligence

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.

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.

Regulatory Overview

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.

2022 Retail Rate Case

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% .

The principal provisions of APS’s application were:

• a test year comprised of twelve months ended June 30, 2022, adjusted as described below;

• an original cost rate base of $ 10.5 billion, which approximates the ACC-jurisdictional portion of the book value of utility assets, net of accumulated depreciation and other credits;

• the following proposed capital structure and costs of capital:

Capital Structure Cost of Capital

Long-term debt 48.07 % 3.85 %

Common stock equity 51.93 % 10.25 %

Weighted-average cost of capital 7.17 %

• a 1% return on the increment of fair value rate base above APS’s original cost rate base, as provided for by Arizona law;

• a rate of $0.038321 per kWh for the portion of APS’s retail base rates attributable to fuel and purchased power costs;

• modification of its adjustment mechanisms including:

▪ eliminate the Environmental Improvement Surcharge (“EIS”) and collect costs through base rates,

▪ eliminate the Lost Fixed Cost Recovery (“LFCR”) mechanism and collect costs through base rates and the Demand Side Management Adjustment Charge (“DSMAC”),

▪ maintain as inactive the Tax Expense Adjustor Mechanism (“TEAM”),

▪ maintain the Transmission Cost Adjustment (“TCA”) mechanism,

▪ modify the performance incentive in the DSMAC, and

▪ modify the Renewable Energy Adjustment Charge (“REAC”) to include recovery of capital carrying costs of APS owned renewable and storage resources;

• changes to its limited-income program, including a second tier to provide an additional discount for customers with greater need;

• 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.

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.

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:

• reducing the revenue requirement increase to $383.1 million, which reduced the average annual customer bill impact to an increase of 11.3%;

• maintaining a return on equity request of 10.25%;

• reducing the increment of fair value rate base return to 0.5% from 1.0%;

• maintaining a post-test year plant request of 12 months, plus the Four Corners Effluent Limitation Guidelines (“ELG”) project;

• withdrawing the Payment Fee Removal Proposal (net reduction) which was originally requested in APS’s initial application;

• maintaining the LFCR and DSMAC as separate adjustors;

• increasing the PSA annual rate change limit from $0.004/kWh to $0.006/kWh;

• proposing a new System Reliability Benefit (“SRB”) recovery mechanism;

• maintaining the REAC in its current state;

• maintaining adjustor base transfers and elimination of EIS;

• maintaining the request to recover CCT funding.

On July 26, 2023, the ACC Staff, RUCO and other intervenors filed their surrebuttal testimony with the ACC.

The ACC Staff adjusted their initial recommendations to, among other things, (i) a $281.9 million revenue increase, (ii) a 9.68% return on equity, (iii) a 0.5% fair value increment, (iv) a continuation of a 12-month post-test year plant that includes the Four Corners ELG project, and (v) support of an increase to the annual PSA increase limit to $0.006/kWh.

RUCO maintained their direct position and also recommended further review of the PSA in a second phase of the 2022 Rate Case.

On August 4, 2023, APS filed rejoinder testimony addressing the ACC Staff and intervenors’ surrebuttal testimonies.

APS’s rejoinder testimony included final post-Test Year Plant values, reducing the revenue requirement increase to $377.7 million from $383.1 million, which reduced the average annual customer bill impact to an increase of 11.2%.

All other major provisions from APS’s rebuttal testimony were maintained in its rejoinder testimony.

On November 6, 2023, and November 21, 2023, APS and stakeholders filed briefs in the 2022 Rate Case.

APS’s briefs included the reduction of the total revenue requirement increase to $376.2 million and a resulting average annual customer bill impact increase of 11.1%.

All other major provisions from APS’s rejoinder testimony were maintained in its briefs.

ACC Staff’s briefs included a proposed total revenue

requirement increase from $281.9 million to $282.7 million and also included their support of APS’s SRB mechanism, contingent on increased stakeholder outreach.

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.

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.

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.

APS filed an application with the ACC on October 28, 2022 (the “2022 Rate Case”) seeking an increase in annual retail base rates.

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.

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.

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.

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.

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.

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

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.

2019 Retail Rate Case

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.

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.

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.

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.

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.

The portion of the CRS representing the recovery of the $59.6 million of lost revenue between December of 2021 and June 20, 2023, $9.4 million of which has been collected as of December 31, 2023, will cease upon full collection of the lost revenue.

Finally, recovery of ongoing costs related to the SCR investments will continue until the Company’s next rate case in which they can be incorporated therein.

As of December 31, 2024, $26.2 million of the $59.6 million of lost revenue has been recovered.

Finally, the CRS tariff has been updated to account for changes to return on equity and depreciation and deferral adjustments approved in Decision No.

79293 in the 2022 Rate Case.

Regulatory Lag Docket

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.

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.

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.

Fire Mitigation

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 information regarding additional regulatory matters.

Captive Insurance Cell

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.

The Captive may hold investment assets in cash, cash equivalents, and equity and fixed income instruments.

Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 (“IRA”) significantly expands the availability of tax credits for investments in clean energy generation technologies and energy storage.

(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.

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.

Financial Strength and Flexibility

2 unchanged sentences

Other Subsidiaries

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.

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.

T he 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.

PNW Power’s investments include TransCanyon, a 50/50 joint venture that was formed in 2014 with BHE U.S.

2 unchanged sentences

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.

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.

PNW Power’s investments also include minority ownership positions in two wind farms operated by Tenaska Energy, Inc.

8 unchanged sentences

In particular, El Dorado has committed to the following:

• $25 million investment in the Energy Impact Partners fund, of which $16.7 million has been funded as of December 31, 2023.

• $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.

• $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.

• $25 million investment in AZ-VC (formerly invisionAZ Fund), of which approximately $11.8 million has been funded as of December 31, 2024.

other jurisdictions and having existing or potential strategic or economic ties to companies or other interests in Arizona.

• $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.

• 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.

The remainder of these investment commitments will be contributed by El Dorado as each investment fund selects and makes investments.

11 unchanged sentences

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 customers.

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 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.

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.

8 unchanged sentences

In forecasting the retail sales growth numbers provided above, we assume normal weather patterns based on historical data.

Our experience indicates that typical variations from normal

weather can result in increases and decreases in annual net income of up to $15 million;

however, extreme weather variations have resulted in larger annual variations in net income.

Our experience indicates that typical variations from normal weather can result in increases and decreases in annual net income of up to $20 million.

However, since 2020, extreme weather events, such as record-setting summer heat and decreased annual precipitation in our service territory, have resulted in increases in annual net income that are more than historically typical, on average.

Fuel and Purchased Power Costs.

1 unchanged sentence

Operations and Maintenance Expenses .

Operations and maintenance expenses are impacted by customer and sales growth, power plant operations, maintenance of utility plant (including generation, transmission, and distribution facilities), inflation, unplanned outages, planned outages (typically scheduled in the spring and fall), renewable energy and DSM related expenses (which are offset by the same amount of operating revenues) and other factors.

Operations and maintenance expenses are impacted by customer and sales growth, power plant operations, maintenance of utility plant (including generation, transmission, and distribution facilities), inflation, unplanned outages, planned outages (typically scheduled in the spring and fall), renewable energy and DSM related expenses (which are mostly offset by the same amount of operating revenues) and other factors.

Depreciation and Amortization Expenses.

Depreciation and amortization expenses are impacted by net additions to utility plant and other property (such as new generation, transmission, and distribution facilities), and changes in depreciation and amortization rates.

See “Liquidity and Capital Resources” below for information regarding the planned additions to our facilities.

4 unchanged sentences

Property Taxes.

Taxes other than income taxes consist primarily of property taxes, which are affected by the value of property in-service and under construction, assessment ratios, and tax rates.

Taxes other than income taxes consist primarily of property taxes, which are affected by changes in plant balances related to new investments and improvements to existing facilities, the value of property in service and under construction, assessment ratios, and tax rates.

The average property tax rate in Arizona for APS, which owns essentially all of our property, was 9.7% of the assessed value for 2024, 10.0% for 2023, and 10.2% for 2022.

10 unchanged sentences

RESULTS OF OPERATIONS

Pinnacle West’s reportable business segment is our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily sales supplied under traditional cost-based rate regulation) and related activities and includes electricity generation, transmission, and distribution.

All other segment activities are insignificant.

Our regulated electricity segment activities are conducted primarily through our wholly-owned subsidiary, APS.

Pinnacle West’s reportable business segment is our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily electric service to Native Load customers) and related activities and includes electricity generation, transmission, and distribution.

Our reportable segment activities are conducted through our wholly-owned subsidiary, APS.

All other operating segment activities are insignificant to Pinnacle West.

Operating Results – 2024 compared with 2023

Our consolidated net income attributable to common shareholders for the year ended December 31, 2023, was $502 million, compared with $484 million for the prior year.

The results reflect an increase of approximately $18 million, primarily as a result of the effects of weather, higher CRS and LFCR revenue, higher transmission revenue, increased sales and usage, and higher other income.

These positive factors were partially offset by higher interest charges, net of AFUDC, higher operations and maintenance expense, lower pension and other postretirement non-service credits, and higher depreciation and amortization expense mostly due to increased plant assets.

Our consolidated net income attributable to common shareholders for the year ended

December 31, 2024, was $609 million, compared with consolidated net income attributable to common shareholders of $502 million for the prior-year period.

The results reflect an increase of approximately $107 million, primarily as a result of the impacts of new customer rates, increased customer usage and growth, the effects of weather, and higher CRS revenue and LFCR revenue.

These positive factors were partially offset by higher operations and maintenance expense, higher depreciation and amortization expense mostly due to increased plant and intangible assets, higher interest charges, net of AFUDC, higher income taxes and lower transmission revenues.

The following table presents net income attributable to common shareholders compared with the prior year for Pinnacle West consolidated and for APS consolidated:

APS Consolidated Pinnacle West Consolidated

Year Ended December 31,

Pinnacle West Consolidated APS Consolidated

Year Ended December 31, Year Ended December 31,

2024 2023 Net

7 unchanged sentences

Taxes other than income taxes (227) (224) (3) (227) (224) (3)

Allowance for equity funds used during construction 39 53 (14) 39 53 (14)

Pension and other postretirement non-service credits, net 49 41 8 49 42 7

4 unchanged sentences

Net Income Attributable to Common Shareholders

$ 609 $ 502 $ 107 $ 642 $ 547 $ 95

Operating revenues less fuel and purchased power expenses.

Operating revenues less fuel and purchased power expenses were $208 million higher for the year ended December 31, 2023, compared with the prior year.

Operating revenues less fuel and purchased power expenses were $399 million higher for the year ended December 31, 2024, compared with the prior-year period.

The following table summarizes the major components of this change:

3 unchanged sentences

(dollars in millions)

LFCR revenue (Note 3)

Impact of new rates from the 2022 Rate Case, effective March 8, 2024 (Note 3)

$ 260 $ — $ 260

Higher retail revenue due to changes in usage patterns and customer growth partially offset by the impacts of energy efficiency and related pricing 112 55 57

Effects of weather 76 23 53

CRS revenue (Note 3)

Higher transmission revenues (Note 3)

Higher retail revenue due to customer growth and changes in customer usage patterns and related pricing, partially offset by the impacts of energy efficiency and distributed generation 39 14 25

Higher renewable energy regulatory surcharges, partially offset by operations and maintenance costs 21 4 17

LFCR revenue (Note 3)

Changes in net fuel and purchased power costs, including off-system sales margins and related deferrals (61) (52) (9)

Miscellaneous items, net (1) 1 (2)

Lower transmission revenues (Note 3)

Total $ 429 $ 30 $ 399

1 unchanged sentence

Operations and maintenance expenses increased $106 million for the year ended December 31, 2024, compared with the prior-year period primarily due to:

• An increase of $31 million primarily related to costs for renewable energy and similar regulatory programs, which are partially offset in operating revenues and purchased power;

• An increase of $22 million related to non-nuclear generation costs primarily due to higher operating costs and higher planned outages;

• An increase of $14 million related to transmission, distribution, and customer service;

• An increase of $13 million related to nuclear generation costs;

• an increase of $27 million related to information technology costs;

• A decrease of $26 million related to employee benefits, largely due to decreased pension and other post-retirement service costs of $12 million and other miscellaneous factors.

See “pension and other postretirement non-service credits, net” below for additional discussion;

• An increase of $8 million for corporate resources and other miscellaneous factors.

• an increase of $25 million related to transmission, distribution, and customer service costs;

• an increase of $20 million related to non-nuclear generation costs, primarily due to increased planned outages;

• an increase of $16 million related to employee benefit costs;

• an increase of $14 million related to costs for renewable energy programs and similar regulatory programs, which are partially offset in operating revenues and purchased power;

• an increase of $7 million related to corporate resource costs;

• a decrease of $3 million for other miscellaneous factors.

Depreciation and amortization.

Depreciation and amortization expenses were $41 million higher for the year ended December 31, 2023, compared to the prior-year period primarily due to increased plant in service.

Pension and other postretirement non-service credits, net.

Pension and other postretirement non-service credits, net were $57 million lower for the year ended December 31, 2023, compared to the prior-year period primarily due to the effect of higher discount rates and actual market returns being lower than estimated returns in 2022.

Depreciation and amortization expenses were $101 million higher for the year ended December 31, 2024, compared to the prior-year period, primarily due to increased plant in service and intangible assets.

Interest charges, net of allowance for borrowed funds and equity funds used during construction.

Interest charges, net of AFUDC, were $60 million higher for the year ended December 31, 2024, compared to the prior-year period, primarily due to higher debt balances and higher interest rates in the current period, higher allowance for borrowed funds and lower allowance for equity funds.

Other income and expenses, net.

All other income and expenses, net were $61 million higher for the year ended December 31, 2023, compared to the prior-year period primarily due to higher interest income, higher allowance for equity funds used during construction due to increased capital expenditures, Clear Creak wind farm impairment (see Note 10) recorded in the prior year period, and the gain on the BCE Sale.

The difference between APS’s and Pinnacle West’s other income and expenses, net primarily relates to BCE matters.

Interest charges, net of allowance for borrowed funds used during construction.

Interest charges, net of allowance for borrowed funds used during construction were $75 million higher for the year ended December 31, 2023, compared to the prior-year period primarily due to higher debt balances, higher commercial paper balances and higher interest rates in the current period, partially offset by higher allowance for borrowed funds due to increased capital expenditures.

The difference between APS’s and Pinnacle West’s interest charges, net of allowance for borrowed funds used during construction is primarily relates to Pinnacle West’s higher term loan interest and BCE debt activity.

Other income and expenses, net were $4 million higher for the year ended December 31, 2024, compared to the prior-year period, primarily due to the gain on the sale of BCE, partially offset by higher corporate giving expense.

The difference between APS’s and Pinnacle West’s other income and expense, net is primarily related to Pinnacle West’s gain on the sale of BCE.

Income taxes.

Income taxes were $2 million higher for the year ended December 31, 2023, compared with the prior-year period primarily due to higher pre-tax income, partially offset by Investment Tax Credit amortization from our Arizona Sun battery facilities, and Production Tax Credits from our Agave Solar facility, both of which went into service in 2023.

Income taxes were $34 million higher for the year ended December 31, 2024, compared with the prior-year period, primarily due to higher pre-tax income, and lower tax benefits from AFUDC equity, partially offset by higher tax credits.

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

Our primary sources of cash are dividends from APS and external debt and equity issuances.

An ACC order requires APS to maintain a common equity ratio of at least 40%.

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

An ACC order does not allow APS to pay common dividends if the payment would reduce its common equity below 40%.

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

At December 31, 2024, APS’s common equity ratio, as defined, was 52%.

3 unchanged sentences

Dividends to Pinnacle West from APS are also dependent on a number of factors including, among others, APS’s financial condition and free cash flow, the sources of which vary from quarter-to-quarter due in part to the seasonal nature of electricity demand.

APS’s sources of cash include cash from operations and external sources of liquidity, including long- and short-term external debt financing such as

commercial paper and its revolving credit facility.

APS’s sources of cash include cash from operations and external sources of liquidity, including long- and short-term external debt financing such as commercial paper, term loan and its revolving credit facility.

Cash from operations is dependent upon, among other things, the rates APS may charge and the timeliness of recovering costs incurred through its rates and adjustor recovery mechanisms.

APS’s capital requirements consist primarily of capital expenditures and maturities of long-term debt.

APS funds its capital requirements with cash from operations and, to the extent necessary, external debt financings and equity infusions from Pinnacle West.

APS is currently authorized to receive up to $150 million annually in equity infusions from Pinnacle West without seeking ACC approval.

On October 27, 2023, APS sought approval from the ACC to receive from Pinnacle West in 2024 up to an additional $500 million in equity infusions above the authorized limit of $150 million, and on January 9, 2024, the ACC approved the increased equity infusion limit for 2024.

On December 17, 2024, the ACC issued a financing order approving a limit on yearly equity infusions equal to 2.5% of APS’s total ass ets each calendar year on a three-year rolling average basis, subject to APS’s equity ratio remaining below the most recently approved rate case capital structure plus 50 basis points.

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.

Pinnacle West and APS maintain committed revolving credit facilities that enhance liquidity and provide credit support for accessing commercial paper markets.

These credit facilities mature in 2029.

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.

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.

Summary of Cash Flows

1 unchanged sentence

Pinnacle West Consolidated

2024 2023 Net Change

Net cash flow provided by operating activities

$ 1,610 $ 1,207 $ 403

Net cash flow used for investing activities

(1,934) (1,694) (240)

Net cash flow provided by financing activities

323 487 (164)

Net decrease in cash and cash equivalents

$ (1) $ — $ (1)

Arizona Public Service Company

2024 2023 Net Change

Net cash flow provided by operating activities

$ 1,610 $ 1,275 $ 335

Net cash flow used for investing activities

(1,986) (1,687) (299)

Net cash flow provided by financing activities

Net decrease in cash and cash equivalents

$ (1) $ — $ (1)

Operating Cash Flows

2024 Compared with 2023.

Pinnacle West’s consolidated net cash provided by operating activities was $1,207 million in 2023 compared to $1,242 million in 2022, a decrease of $35 million in net cash provided primarily due to $204 million higher fuel and purchased power costs, $82 million higher payments for operations and maintenance costs, $66 million higher interest payments, $57 million lower customer advances for construction and $13 million change in net collateral, partially offset by $349 million higher cash receipts from electric revenues and $37 million lower income taxes.

The difference between APS’s and Pinnacle West’s net cash provided by operating activities primarily relates to APS’s lower income tax cash payments to Pinnacle West and other changes in working capital.

Pinnacle West’s consolidated net cash provided by operating activities was $1,610 million in 2024 compared to $1,207 million in 2023, an increase of $403 million in net cash provided, primarily due to $447 million higher cash receipts from electric revenues, $236 million lower fuel and purchased power costs, $15 million change in net collateral, partially offset by $125 million higher income taxes paid, $104 million higher payments for operations and maintenance costs, $49 million higher interest payments and $17 million of other changes in working capital.

The difference between APS’s and Pinnacle West’s net cash provided by operating activities primarily relates to APS’s higher income tax cash payments to Pinnacle West and other changes in working capital.

Retirement plans and other postretirement benefits.

1 unchanged sentence

Pinnacle West also sponsors other postretirement benefit plans for the employees of Pinnacle West and its subsidiaries.

The requirements of the Employee Retirement Income

Security Act of 1974 (“ERISA”) require us to contribute a minimum amount to the qualified plan.

The requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) require us to contribute a minimum amount to the qualified plan.

We contribute at least the minimum amount required under ERISA regulations, but no more than the maximum tax-deductible amount.

1 unchanged sentence

Future year contribution amounts are dependent on plan asset performance and plan actuarial assumptions.

In 2022 and 2023, we did not make any contributions to our pension plan.

In 2021, we made contributions to our pension plan totaling $100 million.

The minimum required contributions for the pension plan are zero for the next three years and we do not expect to make any voluntary contributions in 2024, 2025 or 2026.

We did not make any contributions to our pension plan in 2024 and 2023.

The expected minimum required cash contributions for the pension plan are zero for the next three years and we do not expect to make any voluntary cash contributions in 2025, 2026 or 2027.

Regarding contributions to our other postretirement benefit plan, we did not make any contributions in 2024 or 2023 and do not expect to make any contributions in 2025, 2026 or 2027.

3 unchanged sentences

See Note 7 for additional details.

The CARES Act allows employers to defer payments of the employer share of Social Security payroll taxes that would have otherwise been owed from March 27, 2020, through December 31, 2020.

We deferred the cash payment of the employer’s portion of Social Security payroll taxes for the period July 1, 2020, through December 31, 2020, that was approximately $18 million.

As of December 31, 2022, we have paid this cash deferral in full.

Investing Cash Flows

2024 Compared with 2023.

Pinnacle West’s consolidated net cash used for investing activities was $1,694 million in 2023 compared to $1,618 million in 2022, an increase of $76 million primarily related to increased capital expenditures and higher allowance for borrowed funds, partially offset by proceeds from the BCE Sale.

The difference between APS’s and Pinnacle West’s net cash used for investing activities primarily relates to the BCE Sale.

Pinnacle West’s consolidated net cash used for investing activities was $1,934 million in 2024 compared to $1,694 million in 2023, an increase of $240 million primarily related to $272 million of increased capital expenditures and $21 million of additional investing activity, partially offset by proceeds of $61 million from the BCE Sale.

The difference between APS’s and Pinnacle West’s net cash used for investing activities primarily relates to the BCE Sale and investments into the Captive Insurance Cell VIE.

Capital Expenditures.

5 unchanged sentences

Nuclear Generation $ 150 $ 165 $ 185

Renewables and Energy Storage Systems (“ESS”) (a) 175 305 280

Other Generation (b) 455 320 235

Renewables and Energy Storage Systems (“ESS”) 335 165 430

Other Generation (a) 420 540 335

Distribution 665 670 675

Transmission 450 675 750

Other (c) 285 280 385

Other 380 335 275

Total APS $ 2,400 $ 2,550 $ 2,650

(a) APS Solar Communities program, energy storage, renewable projects, and other clean energy projects.

(b) Includes generation environmental projects.

(a) Includes gas generation and environmental projects.

The table above does not include capital expenditures related to PNW Power projects.

Generation capital expenditures are comprised of various additions and improvements to APS’s clean resources, including nuclear plants, renewables and ESS.

Generation capital expenditures also include additions and improvements to existing fossil plants, such as our current modernization project at our Sundance gas plant.

Examples of the types of projects included in the forecast of generation capital expenditures are additions of renewables and energy storage, and upgrades and capital replacements of various nuclear and fossil power plant equipment, such as turbines, boilers, and environmental equipment.

Generation capital expenditures are comprised of various additions and improvements to APS’s clean resources, including nuclear plants, renewables and ESS, as well as additions and improvements to existing fossil plants.

We are monitoring the status of environmental matters, which, depending on their final outcome, could require modification to our planned environmental expenditures.

4 unchanged sentences

2024 Compared with 2023.

Pinnacle West’s consolidated net cash provided by financing activities was $487 million in 2023 compared to $371 million in 2022, an increase of $116 million in net cash provided primarily due to a net increase in short-term borrowings of $193 million and $117 million lower long-term debt repayments, partially offset by $186 million in lower issuances of long-term debt and higher dividend payments of $8 million.

APS’s consolidated net cash provided by financing activities was $412 million in 2023 compared to $314 million in 2022, an increase of $98 million in net cash provided primarily due to a net increase in short-term borrowings of $135 million, partially offset by $29 million in lower issuances of long-term debt and higher dividend payments of $8 million.

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.

APS’s consolidated net cash provided by financing activities was $375 million in 2024 compared to $412 million in 2023, a decrease of $37 million in net cash provided primarily due to a net decrease in

short-term borrowings of $374 million, $250 million higher long-term debt repayments and $50 million in lower issuances of long-term debt, partially offset by $645 million in higher equity infusions.

Significant Financing Activities.

5 unchanged sentences

See Note 5 for more information on available credit facilities.

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.

Other Financing Matters.

10 unchanged sentences

All of Pinnacle West’s loan agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or APS were to default under certain other material agreements.

All of APS’s bank agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these bank agreements if APS were to default under certain other material agreements.

All of APS’s bank agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these bank

agreements if APS were to default under certain other material agreements.

Pinnacle West and APS do not have a material adverse change restriction for credit facility borrowings.

On December 15, 2022, the ACC issued a financing order reaffirming the previous short-term debt authorization equal to the sum of (i) 7% of APS’s capitalization, and (ii) $500 million (which is required to be used for costs relating to purchases of natural gas and power) and approving APS’s application filed April 6, 2022 requesting to increase the long-term debt limit from $7.5 billion to $8.0 billion and to exclude financing lease PPAs from the definition of long-term debt for purposes of the ACC financing orders.

See Note 6 for further discussions of liquidity matters.

On December 17, 2024, the ACC issued a financing order reaffirming the short-term debt authorization equal to the sum of (i) 7% of APS’s capitalization and (ii) $500 million (which is required to be used for costs relating to purchases of natural gas and power) and approving an increase of the long-term debt limit to $9.5 billion and a limit of permitted annual equity infusions into APS equal to 2.5% of APS’s total assets each calendar year on a three-year rolling average basis, subject to APS’s equity ratio remaining below the most recently approved rate case capital structure plus 50 basis points.

See Note 6 for additional long-term debt provisions and further discussions of liquidity matters.

Credit Ratings

6 unchanged sentences

Such revisions may also result in substantial additional cash or other collateral requirements related to certain derivative instruments, insurance policies, natural gas transportation, fuel supply, and other energy-related contracts.

On March 7, 2024, S&P affirmed the ratings and revised Pinnacle West’s and APS’s outlooks from negative to stable.

On March 20, 2024, Moody’s downgraded both Pinnacle West’s and APS’s credit ratings by a notch and revised their outlooks from negative to stable.

On March 26, 2024, Fitch affirmed APS’s ratings and downgraded Pinnacle West’s ratings by a notch.

Fitch revised the outlook for both Pinnacle West and APS from negative to stable.

At this time, we believe we have sufficient available liquidity resources to respond to a potential downward revision to our credit ratings.

4 unchanged sentences

Commercial paper P-2 A-2 F3

Outlook Negative Negative Negative

Corporate credit rating A3 BBB+ BBB+

Senior unsecured A3 BBB+ A-

Outlook Stable Stable Stable

Corporate credit rating Baa1 BBB+ BBB+

Senior unsecured Baa1 BBB+ A-

Commercial paper P-2 A-2 F2

Outlook Negative Negative Negative

Outlook Stable Stable Stable

Contractual Obligations

13 unchanged sentences

• APS must reimburse certain coal providers for final and contemporaneous coal mine reclamation.

• 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

16 unchanged sentences

We review these assumptions on an annual basis and adjust them as necessary.

The most relevant actuarial

assumptions are the discount rate, the expected long-term rate of return on plan assets (“EROA”), and the assumed healthcare cost trend rates.

The most relevant actuarial assumptions are the discount rate, the expected long-term rate of return on plan assets (“EROA”), and the assumed healthcare cost trend rates.

Differences between these actuarial assumptions and actual plan results may create volatility in pension and other postretirement benefit expense.

70 unchanged sentences

OTHER ACCOUNTING MATTERS

See Note 21 for two new accounting standards that were issued in November and December 2023, respectively, that are pending adoption:

ASU 2023-07, Improvements to Reportable Segment Disclosures, effective for us for annual periods on December 31, 2024, and interim periods thereafter, and ASU 2023-09, Improvements to Income Tax Disclosures, effective for us for annual periods on December 31, 2025.

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.

MARKET AND CREDIT RISKS

99 unchanged sentences

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 7. Management’s Discussion and Analysis