In addition, APS has committed to end the use of coal at its remaining Cholla units by 2025.APS understands that the transition away from coal-fired power plants toward a clean energy future will pose unique economic challenges for the communities around these plants.

Due to the disputed system upgrades and the related curtailment, the Clear Creek wind farm has experienced a significant reduction in power generation that has had a material adverse impact on the project’s ability to generate cash flow for investors.

In addition, the results reflect lower revenue driven by the LFCR alternative revenue treatment and higher operations and maintenance expense.

APS is experiencing some delays in finished materials and tight labor markets.

Raw material shortages, rising inflation, COVID-19 related work force disruptions and natural disasters continue to place increased pressure on the global supply chain.

All other earnings were $21 million lower for year ended December 31, 2022, compared with the prior-year period primarily due to the Clear Creek wind farm impairment write-off.

If future recovery of costs ceases to be probable, the assets would be written off as a charge in current period earnings, except for pension benefits, which would be charged to OCI and result in lower future earnings.  

While the total expected impact of COVID-19 on future sales is currently unknown, APS experienced higher electric residential sales and lower electric commercial and industrial sales from the outset of the pandemic through April 2021.

Any downward revision or withdrawal may adversely affect the market price of Pinnacle West’s or APS’s securities and/or result in an increase in the cost of, or limit access to, capital.

Additionally, qualified customers experiencing an unplanned major expense or an unexpected reduction in income can receive up to $800 a year to cover current or past due APS bills through the Crisis Bill Assistance program.

The nuclear decommissioning trust, other special use funds and benefit plan assets also have risks associated with the changing market value of their equity and other non-fixed income investments.  

As such, during the fourth quarter of 2022, due to these on-going disputes, cost allocation uncertainties, and no probable favorable resolution, BCE determined its equity method investment was fully impaired.

The 2019 Rate Case ROO, as amended, results in a total annual revenue decrease for APS of $4.8 million, excluding temporary CCT payments and expenditures.

Tenaska Clear Creek Wind, LLC filed a second complaint with FERC on May 25, 2022, alleging that the wind farm was being curtailed in a discriminatory manner.

COVID-19COVID-19 continues to be an evolving situation.

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

If APS continues to experience delays in materials, it could experience an increase in purchased power costs for summer generation needs.

APS continues to drive this initiative by identifying opportunities to streamline its business processes to assist in mitigating cost increases, increasing employee retention, and improving customer satisfaction.

Accordingly, it is APS’s goal to achieve an industry-leading, best-in-class customer experience, while demonstrating compassion and advocacy for its customers.

This multi-year objective includes incrementally improving APS’s J.D. Power (“JDP”) overall customer satisfaction ratings from the fourth quartile to the first quartile of its peer set comprised of large investor-owned utilities.

Compared to 2021, APS made quartile gains in every single driver of residential customer satisfaction, firmly lifting APS into the second quartile nationally.

As a 63Table of Contents result, APS is among the most improved utilities in the nation for both residential and business customer satisfaction.

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

Its near-term actions are focused on clean energy and positive customer outcomes and includes: (a) competitive solicitations to procure 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 uses competitive “All-Source” RFPs to pursue market resources that meet its system needs and offer the best value for customers.

APS continues to expect that its participation in EIM 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.

That improvement trend continued with the JDP Residential 2022 year-end results.

APS made progress on that front in 2022.As previously disclosed, APS’s JDP Residential rankings for overall customer satisfaction rating improved in 2020 and 2021.

This balance will ensure an appropriately diverse portfolio designed to achieve the same operational reliability and customer affordability as APS’s near-term strategies.

See Note 3 for additional information regarding the Four Corners SCR cost recovery.69Table of Contents Financial Strength and FlexibilityPinnacle West and APS currently have ample borrowing capacity under their respective credit facilities and may readily access these facilities ensuring adequate liquidity for each company.  

APS intends to strengthen its already diverse energy mix by increasing its investments in carbon-free resources.

Our vision is to create a sustainable energy future for Arizona through providing clean, affordable, and reliable energy.

APS’s strongest performing drivers for the year were Customer Care (phone and digital), Power Quality and Reliability, Corporate Citizenship, and Billing & Payment.

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.

Our clean energy goal is based on sound science and supports continued growth and economic development while maintaining reliability and affordable prices for APS’s customers.

These programs contribute to customer reliability, responsible forest management and safe communities.

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

Strategic Overview Our strategy is to deliver shareholder value by creating a sustainable energy future for Arizona by serving our customers with clean, reliable, and affordable energy.

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, which is already strengthened by Palo Verde, the nation’s largest carbon-free, clean energy resource, that provides the foundation for reliable and affordable service for APS customers.

APS continues to evaluate opportunities that benefit our customers and is exploring opportunities to move to a day-ahead market with the expectation of reliably achieving incrementally greater cost savings and using the region’s increasing renewable resources more efficiently.

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

The framework is based upon three foundational pillars: ESG Policy Advocacy (we advocate for policy that supports our clean energy goals); Driving Performance (improving our ESG performance in the most important areas, including our PSIs); and effectively communicating and amplifying our ESG story to our various stakeholders, including investors, customers, employees and beyond.

Participation in the EIM continues to be a tool for creating savings for APS’s customers from the real-time, voluntary market.

In mid-2021, APS initiated an organization-wide customer experience strategy council designed to further drive a customer-oriented culture and improve customer satisfaction.

We utilized the benchmarking information to identify opportunities for further improvement in our ESG performance.

Consequently, overall residential satisfaction is now above industry benchmarks when compared to APS’s large investor-owned peers.

They 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.

The Commercial Make-Ready Program is intended to help reduce some of the high upfront cost for our customers installing DCFC stations, and enables APS to deploy effective load management strategies at these commercial sites.

Developing Clean Energy Technologies Electric Vehicles APS is making electric vehicle charging more accessible for its customers and helping Arizona businesses, schools and governments electrify their fleets.

Beginning in May 2021, electric sales from commercial and industrial customers increased to levels in line with pre-COVID-19 sales but residential sales continued to be higher than pre-COVID-19 sales.

Through this and other on-going customer-centric initiatives, APS has embraced increased empathy training for care center associates and adopted more flexible payment arrangements for customers.

The new units at our modernized Ocotillo Power Plant provide cleaner-running and more efficient units.

Hydrogen Production APS, in partnership with Idaho National Laboratory (“INL”), Energy Harbor Corporation (“Energy Harbor”), and Xcel Energy Incorporated (“Xcel”), was chosen by the DOE’s Office of Nuclear Energy to participate in a series of hydrogen production projects with the goal to improve the long-term economic competitiveness of the nuclear power industry.

Even prior to these increases, APS has focused on its customer affordability initiative, which has enabled APS to mitigate inflationary pressure.

We currently project annual customer growth to be 1.5% to 2.5% for 2023 and the average annual growth to be in the range of 1.5% to 2.5% through 2025 based on anticipated steady population growth in Arizona during that period.

Our IRP rapidly adds clean energy and storage resources while maintaining reliable and affordable service.

We are disclosing these credit ratings to enhance understanding of our cost of short-term and long-term capital and our ability to access the markets for liquidity and long-term debt.

Regulated electricity segment operating revenues less fuel and purchased power expenses were $45 million higher for the year ended December 31, 2022, compared with the prior year.  

The system also integrates a new meter data management system that increases grid visibility and gives customers access to more of their energy usage data.

Energy storage also aids in integrating renewable generation by storing excess energy when system demand is low and renewable production is high and then releasing the stored energy during peak demand hours later in the day and after sunset.

Achieving a fully clean, carbon-free energy mix by 2050 is our aspiration.

Numerous customer web-based enhancements also were implemented, including streamlined navigation and Spanish language transaction capabilities on aps.com; an enhanced online power outage center; and enrollment of more than 1 million customers for outage email and text notifications.

WMEG hopes to identify market solutions that can help achieve carbon reduction goals while supporting reliable, affordable service for customers.

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

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.

In addition, APS is actively seeking to include future facility purchase options in its PPAs that will enable investments with greater financial flexibility.

Retail customers in APS’s service territory increased 2.1% for the year ended December 31, 2022, compared with the prior-year period.

Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 2.4% for the year ended December 31, 2022, compared with the prior-year period.

The statewide TE Plan is intended to provide a roadmap for transportation electrification in Arizona, focused on realizing the associated air quality and economic development benefits for all residents in the state along with understanding the impact of electric vehicle charging on the grid.

We increased investment in fire mitigation efforts to clear defensible space around our infrastructure, continue ongoing system upgrades, build partnerships with government entities and first responders and educate customers and communities.

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.

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

APS has a goal to reach 450,000 light-duty electric vehicles in its service territory by 2030.Additionally, as part of APS’s DSM Plan, APS has launched an Electric Vehicle Charging Demand Management Pilot Program to proactively address the growing electric demand from electric vehicle charging as electric vehicles become more widely adopted.

Pinnacle West Capital is a utility holding company that owns Arizona Public Service and Bright Canyon Energy. It is publicly traded on the New York Stock exchange and a component of the S&P 500 stock market index. In February 1985, Arizona Public Service Company reorganized as a holding company, AZP Group Inc., with APS as the leading subsidiary. It traded under the ticker symbol AZP. 1985 earnings reached a new record high at almost US$290 million, and by the end of the year the stock price had doubled from its 1984 low.

Pinnacle West Capital Corporation, through its subsidiary, Arizona Public Service Company, provides retail and wholesale electric services primarily in the state of Arizona. The company generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar generating facilities. Its transmission facilities consist of approximately 6,192 pole miles of overhead lines and approximately 49 miles of underground lines; and distribution facilities comprise approximately 11,191 miles of overhead lines and approximately 22,092 miles of underground primary cable. The company serves approximately 1.3 million customers. It owns or leases approximately 6,316 megawatts of regulated generation capacity. The company was incorporated in 1985 and is headquartered in Phoenix, Arizona.

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(USD)	Dec 2023	Q/Q
Revenue	991.6MM	-39%
Gross Profit	615.7MM	-
Cost Of Revenue	375.9MM	-39%
Operating Income	74.4MM	-86%
Operating Expenses	541.3MM	-
Net Income	4.3MM	-99%
Interest Expense	86.6MM	-1%