UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549  

FORM 8-K  

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

	
				
 	Date of report (Date of earliest event reported):	August 8, 2019	 	

	
								
Commission File
Number	 	Exact Name of Each Registrant as specified in its
charter; State of Incorporation; Address; and
Telephone Number	 	IRS Employer
Identification No.	
1-8962	 	PINNACLE WEST CAPITAL CORPORATION	 	86-0512431	
 	 	(an Arizona corporation)	 	 	
 	 	400 North Fifth Street, P.O. Box 53999	 	 	
 	 	Phoenix	Arizona	85072-3999	 	 	 	
 	 	(602)	250-1000	 	 	 	 	
1-4473	 	ARIZONA PUBLIC SERVICE COMPANY	 	86-0011170	
 	 	(an Arizona corporation)	 	 	
 	 	400 North Fifth Street, P.O. Box 53999	 	 	
 	 	Phoenix	Arizona	85072-3999	 	 	 	
 	 	(602)	250-1000	 	 	 	 	

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

	
		
☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 	 	
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 	 	
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 	 	
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

Securities registered pursuant to Section 12(b) of the Act:

			
Title of each class	Trading Symbol(s)	Name of each exchange on which registered	
Common Stock	PNW	The New York Stock Exchange	

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

		
Emerging growth company	☐	

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

This combined Form 8-K is separately filed or furnished by Pinnacle West Capital Corporation and Arizona Public Service Company. Each registrant is filing or furnishing on its own behalf all of the information contained in this Form 8-K that relates to such registrant and, where required, its subsidiaries. Except as stated in the preceding sentence, neither registrant is filing or furnishing any information that does not relate to such registrant, and therefore makes no representation as to any such information.

Item 2.02. Results of Operations and Financial Condition.

The following information is furnished pursuant to Item 2.02.

On August 8, 2019, Pinnacle West issued a press release regarding its financial results for the fiscal quarter ended June 30, 2019 and its earnings outlook for 2019. A copy of the press release is attached hereto as Exhibit 99.1.

Item 7.01. Regulation FD Disclosure.

The following information is furnished pursuant to Item 7.01.

The Company is providing a copy of the slide presentation made in connection with the quarterly earnings conference call on August 8, 2019. This information contains Company operating results for the fiscal quarter ended June 30, 2019, earnings outlook for 2019 and a quarterly consolidated statistical summary. The slide presentation is attached hereto as Exhibit 99.2 and is concurrently being posted to the Company’s website at www.pinnaclewest.com.
  
Item 9.01.      Financial Statements and Exhibits.
(d)      Exhibits

	
			
Exhibit No.	Registrant(s)	Description	
 	 	 	
99.1	Pinnacle West
APS	Earnings News Release issued on August 8, 2019 .	
 	 	 	
99.2	Pinnacle West
APS	Pinnacle West Capital Corporation Second Quarter 2019 Results slide presentation accompanying August 8, 2019 conference call.	

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	
			
 	 	PINNACLE WEST CAPITAL CORPORATION	
 	 	(Registrant)	
 	 	 	
Dated: August 8, 2019	 	By: /s/ James R. Hatfield            	
 	 	James R. Hatfield	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	
 	 	 	
 	 	ARIZONA PUBLIC SERVICE COMPANY	
 	 	(Registrant)	
 	 	 	
Dated: August 8, 2019	 	By: /s/ James R. Hatfield            	
 	 	James R. Hatfield	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	

	
			
FOR IMMEDIATE RELEASE	August 8, 2019	
Media Contact:	Alan Bunnell, (602) 250-3376	 	
Analyst Contacts:	Stefanie Layton (602) 250-4541	 	
Website:	pinnaclewest.com	

PINNACLE WEST REPORTS LOWER 2019 SECOND-QUARTER RESULTS

•	Cooler-than-normal weather drives quarter-over-quarter earnings decrease	
		
•	Operations and maintenance expenses lower versus a year ago	
		
•	Customer growth of 1.8 percent continues to underscore an expanding Arizona economy	

PHOENIX - Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders of $144.1 million, or $1.28 per diluted share of common stock, for the quarter ended June 30, 2019. This result compares with earnings of $166.7 million, or $1.48 per share, in the same 2018 period.

“Our second quarter was marked by unusually mild temperatures. And, since weather variations have a direct impact on how much energy customers use to cool their homes and businesses, our retail sales and financial results were lower than a year ago,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt, noting that the opposite was true in this year’s first quarter, when colder winter weather drove an increase in energy revenues as customers used more electricity for heating.

Led by the mildest month of May since 1980, the effects of weather in the second quarter negatively impacted results by $0.31 per share compared to the year-ago period. For perspective, the moderate weather decreased the number of residential cooling degree-days (a measure of the effects of weather) 18 percent versus the same 2018 period, and 11 percent below average.

In addition to the effects of weather, customer refunds resulting from federal corporate tax cuts; lower market returns for pension and other post-retirement non-service benefits; and other miscellaneous items negatively affected the quarterly results.

Decreased operations and maintenance expenses (due in part to lower planned fossil plant outages) and lower parent company costs partially offset these negative factors. A lower effective income tax rate and higher transmission revenues also positively impacted quarterly results. In addition, the company continued to experience solid customer growth of 1.8 percent, as well as a steady improvement in economic conditions.

Through the first two quarters of this year, the company’s consolidated net income attributable to common shareholders was $162.1 million, or $1.44 per diluted share of common stock. The result compares with $170.0 million, or $1.51 per share, in earnings for the first six months of 2018.

Pursuing Responsible Energy Policies
Looking to the future, Brandt said the company “will remain actively engaged in pursuing responsible energy policies that make sense - and provide value - for our customers and Arizona.”

APS, for example, continues to advance Arizona’s solar and clean-energy leadership. With last week’s Request for Proposal (RFP) announcement seeking additional solar and wind resources, the company continues to build upon one of the nation’s most extensive renewable energy portfolios. These new RFPs will provide needed resources in the early 2020s, and the solar generation will be designed with the flexibility to add energy storage as a future option. By 2021, the company expects to have about 2,500 MW of renewable energy - enough to power more than half a million Arizona homes.

The company also is aligned with state regulators in exploring the opportunities electric vehicles present in advancing the company’s clean energy objectives. To support the expected rapid growth of electric vehicles in Arizona, APS has implemented a program - Take Charge AZ - to increase charging infrastructure for fleets, workplaces and multifamily housing communities. The program provides charging equipment, as well as installation and maintenance. In turn, participants pay for any electricity costs and are encouraged to use the equipment when solar energy is abundant and energy prices are lower.

Financial Outlook
The company expects its 2019 consolidated earnings will be at the lower end of the previously disclosed range of $4.75 to $4.95 per diluted share, and expects to achieve a consolidated earned return on average common equity of more than 9.5 percent .

Key factors and assumptions underlying the 2019 outlook can be found in the second-quarter 2019 earnings presentation slides on the Company’s website at pinnaclewest.com/investors.

Conference Call and Webcast
Pinnacle West invites interested parties to listen to the live webcast of management’s conference call to discuss the Company’s 2019 second-quarter results, as well as recent developments, at noon ET (9 a.m. Arizona time) today, Aug. 8. The webcast can be accessed at pinnaclewest.com/presentations and will be available for replay on the website for 30 days. To access the live conference call by telephone, dial (877) 407-8035 or (201) 689-8035 for international callers. A replay of the call also will be available until 11:59 p.m. ET, Thursday, Aug. 15, 2019, by calling (877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally and entering passcode 49598.

General Information
Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of about $18 billion, about 6,000 megawatts of generating capacity and 6,300 employees in Arizona and New Mexico. Through its principal subsidiary, Arizona Public Service, the company provides retail electricity service to nearly 1.2 million Arizona homes and businesses. For more information about Pinnacle West, visit the company’s website at pinnaclewest.com.

Dollar amounts in this news release are after income taxes. Earnings per share amounts are based on average diluted common shares outstanding. For more information on Pinnacle West’s operating statistics and earnings, please visit pinnaclewest.com/investors.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements based on our current expectations, including statements regarding our earnings guidance and financial outlook and goals. These

forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume,” “project” and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. These factors include, but are not limited to:

•	our ability to manage capital expenditures and operations and maintenance costs while maintaining high reliability and customer service levels;	
		
•	variations in demand for electricity, including those due to weather, seasonality, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures and distributed generation;	
		
•	power plant and transmission system performance and outages;	
		
•	competition in retail and wholesale power markets;	
		
•	regulatory and judicial decisions, developments and proceedings;	
		
•	new legislation, ballot initiatives and regulation, including those relating to environmental requirements, regulatory policy, nuclear plant operations and potential deregulation of retail electric markets;	
		
•	fuel and water supply availability;	
		
•	our ability to achieve timely and adequate rate recovery of our costs, including returns on and of debt and equity capital investment;	
		
•	our ability to meet renewable energy and energy efficiency mandates and recover related costs;	
		
•	risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty;	
		
•	current and future economic conditions in Arizona, including in real estate markets;	
		
•	the direct or indirect effect on our facilities or business from cybersecurity threats or intrusions, data security breaches, terrorist attack, physical attack, severe storms, droughts, or other catastrophic events, such as fires, explosions, pandemic health events or similar occurrences;	
		
•	the development of new technologies which may affect electric sales or delivery;	
		
•	the cost of debt and equity capital and the ability to access capital markets when required;	
		
•	environmental, economic and other concerns surrounding coal-fired generation, including regulation of greenhouse gas emissions;	
		
•	volatile fuel and purchased power costs;	
		
•	the investment performance of the assets of our nuclear decommissioning trust, pension, and other post-retirement benefit plans and the resulting impact on future funding requirements;	
		
•	the liquidity of wholesale power markets and the use of derivative contracts in our business;	
		
•	potential shortfalls in insurance coverage;	
		
•	new accounting requirements or new interpretations of existing requirements;	
		
•	generation, transmission and distribution facility and system conditions and operating costs;	
		
•	the ability to meet the anticipated future need for additional generation and associated transmission facilities in our region;	
		
•	the willingness or ability of our counterparties, power plant participants and power plant land owners to meet contractual or other obligations or extend the rights for continued power plant operations; and	
		
•	restrictions on dividends or other provisions in our credit agreements and Arizona Corporation Commission orders.	

These and other factors are discussed in Risk Factors described in Part 1, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which readers should review carefully before placing any reliance on our financial statements or

disclosures. Neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by law.

# # #

PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)

									
 	 	 THREE MONTHS ENDED	 	 SIX MONTHS ENDED	
 	 	 JUNE 30,	 	 JUNE 30,	
 	 	 2019	 	 2018	 	 2019	 	 2018	
 	 	 	 	 	 	 	 	 	
Operating Revenues	 $ 869,501	 	 $ 974,123	 	 $ 1,610,031	 	 $ 1,666,837	
 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	
 	Fuel and purchased power	       242,222	 	       257,087	 	       472,810	 	       454,197	
 	Operations and maintenance	       227,543	 	       268,397	 	       473,177	 	       534,079	
 	Depreciation and amortization	       147,374	 	       145,436	 	       296,081	 	       290,261	
 	Taxes other than income taxes	         55,090	 	         53,607	 	       110,180	 	       107,207	
 	Other expenses	              683	 	           7,434	 	           1,110	 	           7,597	
 	    Total	       672,912	 	       731,961	 	    1,353,358	 	    1,393,341	
 	 	 	 	 	 	 	 	 	
Operating Income	       196,589	 	       242,162	 	       256,673	 	       273,496	
 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	
 	Allowance for equity funds used during construction	           7,572	 	         13,073	 	         18,760	 	         27,152	
 	Pension and other postretirement non-service credits - net	           6,374	 	         12,006	 	         11,488	 	         24,865	
 	Other income	         12,885	 	           6,598	 	         20,054	 	         10,583	
 	Other expense	          (4,350)	 	          (3,771)	 	          (8,708)	 	          (7,000)	
 	   Total	         22,481	 	         27,906	 	         41,594	 	         55,600	
 	 	 	 	 	 	 	 	 	
Interest Expense	 	 	 	 	 	 	 	
 	Interest charges	         57,465	 	         60,708	 	       118,118	 	       119,662	
 	Allowance for borrowed funds used during construction	          (4,494)	 	          (6,291)	 	        (11,159)	 	        (13,046)	
 	   Total	         52,971	 	         54,417	 	       106,959	 	       106,616	
 	 	 	 	 	 	 	 	 	
Income Before Income Taxes	       166,099	 	       215,651	 	       191,308	 	       222,480	
 	 	 	 	 	 	 	 	 	
Income Taxes	         17,080	 	         44,039	 	         19,498	 	         42,774	
 	 	 	 	 	 	 	 	 	
Net Income	       149,019	 	       171,612	 	       171,810	 	       179,706	
 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interests	           4,874	 	           4,874	 	           9,747	 	           9,747	
 	 	 	 	 	 	 	 	 	
Net Income Attributable To Common Shareholders	 $ 144,145	 	 $ 166,738	 	 $ 162,063	 	 $ 169,959	

Weighted-Average Common Shares Outstanding - Basic	       112,337	 	       112,115	 	       112,381	 	       112,067	
 	 	 	 	 	 	 	 	 	
Weighted-Average Common Shares Outstanding - Diluted	       112,651	 	       112,471	 	       112,734	 	       112,482	
 	 	 	 	 	 	 	 	 	
Earnings Per Weighted-Average Common Share Outstanding	 	 	 	 	 	 	 	
 	Net income attributable to common shareholders - basic	 $ 1.28	 	 $ 1.49	 	 $ 1.44	 	 $ 1.52	
 	Net income attributable to common shareholders - diluted	 $ 1.28	 	 $ 1.48	 	 $ 1.44	 	 $ 1.51	

POWERING GROWTH DELIVERING VALUE Second Quarter 2019 Results August 8, 2019 Second Quarter 2019 | 0

 

FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES This presentation contains forward-looking statements based on current expectations, including statements regarding our earnings guidance and financial outlook and goals. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume,” “project” and similar words. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. These factors include, but are not limited to: our ability to manage capital expenditures and operations and maintenance costs while maintaining high reliability and customer service levels; variations in demand for electricity, including those due to weather seasonality, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures and distributed generation; power plant and transmission system performance and outages; competition in retail and wholesale power markets; regulatory and judicial decisions, developments and proceedings; new legislation, ballot initiatives and regulation, including those relating to environmental requirements, regulatory policy, nuclear plant operations and potential deregulation of retail electric markets; fuel and water supply availability; our ability to achieve timely and adequate rate recovery of our costs, including returns on and of debt and equity capital investments; our ability to meet renewable energy and energy efficiency mandates and recover related costs; risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty; current and future economic conditions in Arizona, including in real estate markets; the direct or indirect effect on our facilities or business from cybersecurity threats or intrusions, data security breaches, terrorist attack, physical attack, severe storms, droughts, or other catastrophic events, such as fires, explosions, pandemic health events or similar occurrences; the development of new technologies which may affect electric sales or delivery; the cost of debt and equity capital and the ability to access capital markets when required; environmental, economic and other concerns surrounding coal-fired generation, including regulation of greenhouse gas emissions; volatile fuel and purchased power costs; the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement benefit plans and the resulting impact on future funding requirements; the liquidity of wholesale power markets and the use of derivative contracts in our business; potential shortfalls in insurance coverage; new accounting requirements or new interpretations of existing requirements; generation, transmission and distribution facility and system conditions and operating costs; the ability to meet the anticipated future need for additional generation and associated transmission facilities in our region; the willingness or ability of our counterparties, power plant participants and power plant land owners to meet contractual or other obligations or extend the rights for continued power plant operations; and restrictions on dividends or other provisions in our credit agreements and ACC orders. These and other factors are discussed in Risk Factors described in Part I, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which you should review carefully before placing any reliance on our financial statements, disclosures or earnings outlook. Neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by law. In this presentation, references to net income and earnings per share (EPS) refer to amounts attributable to common shareholders. We present “gross margin” per diluted share of common stock. Gross margin refers to operating revenues less fuel and purchased power expenses. Gross margin is a “non-GAAP financial measure,” as defined in accordance with SEC rules. The appendix contains a reconciliation of this non-GAAP financial measure to the referenced revenue and expense line items on our Consolidated Statements of Income, which are the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles in the United States of America (GAAP). We view gross margin as an important performance measure of the core profitability of our operations, and is used by our management in analyzing the operations of our business. We believe that investors benefit from having access to the same financial measures that management uses. We present “adjusted gross margin” and “adjusted operations and maintenance” that have been adjusted to exclude costs and offsetting operating revenues associated with renewable energy and demand side management programs. We also present “adjusted other, net” that has been adjusted for the deferral impacts of the Four Corner’s Selective Catalytic Reduction (SCR) equipment and the Ocotillo Modernization Project. We also present “adjusted income taxes" that shows the impact of tax reform. Adjusted gross margin, adjusted operations and maintenance, adjusted other, net, and adjusted income taxes are “non-GAAP financial measures,” as defined in accordance with SEC rules. The appendix contains a reconciliation to show the exclusion of costs and offsetting operating revenues associated with renewable energy and demand side management programs, the deferral impacts of the Four Corners SCR equipment and the Ocotillo Modernization Project, and the impact of tax reform. We believe the information provided in the reconciliation provides investors with useful indicators of our results that are comparable among periods because they exclude the effects of unusual items that may occur on an irregular basis, such as the installation of the SCR equipment, the Ocotillo Modernization Project and tax reform impacts, and exclude the effects of programs that overstate our gross margin. Second Quarter 2019 | 1

 

EPS VARIANCES 2nd Quarter 2019 vs. 2nd Quarter 2018 Adjusted Gross Margin1 Adjusted $1.48 $(0.53) Pension & OPEB Income Taxes Adjusted Non-service Adjusted $1.28 O&M1 Credits, net Other, net2 $0.13 $0.20 $(0.04) $0.04 Gross Margin Transmission $ 0.03 Sales / Usage $ 0.02 LFCR $ 0.01 Weather $ (0.31) Federal Tax Reform $ (0.19) 3 2Q 2018 Other $ (0.09) 2Q 2019 1 Excludes costs and offsetting operating revenues associated with renewable energy and demand side management programs. 2 Driver adjusted for the deferral impacts of the Four Corners Selective Catalytic Reduction (SCR) equipment and Ocotillo Modernization Project. 3 Other gross margin impacts are partially offset by other expenses. See non-GAAP reconciliation in Appendix. Second Quarter 2019 | 2

 

ECONOMIC DEVELOPMENT Arizona’s focus on economic development continues to support growth in the state 2019 – New companies moving into APS’s service territory include: • Microsoft – constructing three world-class data centers • Nike – multimillion-dollar manufacturing facility employing at least 500 people • Red Bull – 700,000-square-foot facility • Fairlife – 300,000 square foot facility; scheduled to begin operation in 2020 • Stream Data Centers – 2 million square feet of data center facilities • Vantage Data Centers – 50 acre data center campus • Compass Datacenters – eight buildings on 225 acre campus What Others are Saying: • New study ranks Arizona economy among best in US; Phoenix Business Journal, June 9, 2019 • Phoenix leads US in population growth, new Census data shows; Phoenix Business Journal, May 23, 2019 • Arizona climbs on ranking of best states for business; Phoenix Business Journal, May 11, 2019 • Arizona's 2018 GDP growth among best in nation; Phoenix Business Journal, May 6, 2019 • Maricopa County is fastest-growing county in the U.S. for third year; Arizona Republic, April 18, 2019 • Phoenix region a top market for 2019 industrial development, report says; Phoenix Business Journal, April 7, 2019 Powering Growth, Delivering Value | 3

 

ECONOMIC INDICATORS Year over Year Employment Growth U.S. Phoenix Maricopa County ranked #1 in U.S. for 5% population growth for third straight year 1 4% 3% 2% Arizona is ranked No. 1 in construction 1% growth and No. 2 in manufacturing.2 0% Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Phoenix ranked 2nd most active market in data center leasing in 2018.3 Single Family & Multifamily Housing Permits Maricopa County Arizona is the 4th fastest-growing state in the Single Family Multifamily Projected 4 40,000 U.S. according to Census data. 30,000 20,000 10,000 1 U.S. Census Bureau April 2019 2 Bureau of Labor Statistics, Employment 3 CBRE’s U.S. Data Center Trends Report 0 4U.S. Census Bureau, Population Division, Release date December 2018 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Second Quarter 2019 | 4

 

BALANCE SHEET STRENGTH Near-Term Long-Term Debt Maturities 2019 Major Financing Activities $ in millions • $200 million 18-month APS $1,000 unsecured term loan entered into in February 2019 $800 $450 • $300 million 30-year 4.25% APS $600 senior unsecured notes issued February 2019 $400 • Expect up to $600 million of long- $500 $200 $450 term debt issuance at APS during the remainder of 2019 exclusive of any funding for the refinancing of $- the APS $250 million 2.20% senior 1 2019 2020 notes which mature in January APS PNW 2020 1Represents the APS $500 million 8.75% senior notes which matured on March 1, 2019 Second Quarter 2019 | 5

 

2019 EPS GUIDANCE Key Factors & Assumptions as of August 8, 2019 2019 Adjusted gross margin1 (operating revenues, net of fuel and $2.50 – $2.56 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 1-2% higher compared to prior year • Assumes normal weather Adjusted operating and maintenance (O&M)1 $865 – $885 million Other operating expenses (depreciation and amortization, deferrals, and taxes other than $850 – $870 million income taxes) Other income (pension and other post-retirement non-service credits, other income and $35 – $45 million other expense) Interest expense, net of allowance for borrowed and equity funds used during $195 – $205 million construction (Total AFUDC $40 million) Net income attributable to noncontrolling interests $20 million Effective tax rate 10% Average diluted common shares outstanding 113.1 million EPS Guidance $4.75 - $4.95 1 Excludes O&M of $80 million, and offsetting revenues, associated with renewable energy and demand side management programs. Second Quarter 2019 | 6

 

FINANCIAL OUTLOOK Key Factors & Assumptions as of August 8, 2019 Gross Margin – Customer and Sales Growth (2019-2021) Assumption Impact Retail customer growth • Expected to average about 1.5-2.5% annually • Strength in Arizona and U.S. economic conditions Weather-normalized retail electricity sales volume growth • About 1.5–2.5% Gross Margin – Related to 2017 Rate Review Order Assumption Impact Lost Fixed Cost Recovery (LFCR) • Offsets 30-40% of revenues lost due to ACC-mandated energy efficiency and distributed renewable generation initiatives Environmental Improvement Surcharge (EIS) • Ability to recover up to $14 million annually of carrying costs for government- mandated environmental capital expenditures (cumulative per kWh cap rate of $0.00050) Power Supply Adjustor (PSA) • 100% recovery • Includes certain environmental chemical costs and third-party battery storage Transmission Cost Adjustor (TCA) • TCA is filed each May and automatically goes into rates effective June 1 • Transmission revenue is accrued each month as it is earned APS Solar Communities • Additions to flow through RES until next base rate case Property Tax Rate Deferral: APS is allowed to defer for future recovery (or credit to customers) the Arizona property tax expense above (or below) the 2015 test year caused by changes to the applicable composite property tax rate. Outlook Through 2021: Goal of earning more than 9.5% Return on Equity (earned Return on Equity based on average Total Shareholder’s Equity for PNW consolidated, weather-normalized) Second Quarter 2019 | 7

 

RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End Generation & Distribution Transmission ACC FERC Long-term Rate Base Guidance: 17% 6-7% Average Annual Growth $2.0 83% $1.5 ACC FERC Rate Effective Date 8/19/2017 6/1/2018 $9.6 Test Year Ended 12/31/20151 12/31/2017 $7.1 Rate Base $6.8B $1.5B Equity Layer 55.8% 53.4% 2017 2018 2019 2020 2021 Allowed ROE 10.0% 10.75% Projected 1 Adjusted to include post test-year plant in service through 12/31/2016 Rate base $ in billions, rounded Second Quarter 2019 | 8

 

OPERATIONS & MAINTENANCE Goal is to keep O&M per kwh flat, adjusted for planned outages $ in millions $933 $865 - $885 $848 $858 74 50 - 60 72 63 859 815 - 825 776 795 2016 2017 2018 2019E 1 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Excludes RES/DSM of $83 million in 2016, $91 million in 2017, $104 million in 2018, and $80 million in 2019E Second Quarter 2019 | 9

 

2019 PLANNED OUTAGE SCHEDULE Coal, Nuclear, and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in Days Days in Days Four 4 21 Palo Verde 1 33 Palo Verde 3 44 Corners Four West 5 21 Cholla* 1 50 4 30 Corners Phoenix Cholla* 1 37 Redhawk* 2 35 Redhawk* 2 29 *Outage duration spans Q1-Q2. Number of days noted per quarter. Second Quarter 2019 | 10

 

APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and utilization of advanced technology $ in millions $1,600 PROJECTED $1,472 $1,400 $114 $1,266 $53 $1,202 $1,237 $1,200 $142 $172 $187 $16 $57 Traditional Generation $26 $505 $1,000 New Gas Generation 1 $112 $164 $246 $65 Environmental $800 $147 $189 Clean Generation $198 $206 $600 $116 Transmission Distribution $400 $535 $455 $443 Other $481 $200 $168 $94 $135 $151 $- 2018 2019 2020 2021 • The chart does not include capital expenditures related to 4CA’s 7% interest in the Four Corners Power Plant Units 4 and 5 of $10 million in 2018. • 2019 – 2021 as disclosed in the Second Quarter 2019 Form 10-Q. 1 Ocotillo Modernization Project: Units in service second quarter 2019. Second Quarter 2019 | 11

 

DISTRIBUTION GRID INVESTMENTS Grid Operations and Investment Projected to be approximately $1.5 billion from 2019-2021 Customer Growth Grid Modernization Run and Maintain Approximately 50% of distribution capex Approximately 9% of distribution capex Approximately 41% of distribution capex Line Extensions for new residential and Cap Bank Controllers, Substation Regulators, Overhead Lines & Wood Pole Replacements commercial customers Voltage Management Algorithms Average annual spend ~ $8M Average annual spend ~ $68M Average annual spend ~ $11M ~ $11M • Replace equipment or components due • Controls regulators and capacitor banks • Extend, relocate, and upgrade APS to damage, degradation or failure to manage power quality such as power facilities in response to customer • Ensure the integrity of the structure and factor and voltage request enhance system reliability R T New Distribution Substations & Reclosers – Supervisory Controlled Underground Cable Replacements Upgrades Switches, Trip Savers Average annual spend ~ $22.5M Average annual spend ~ $38M Average annual spend ~ $14M • Replace all remaining direct buried Construction over the next 3 years: • Leveraging AMI for distribution primary distribution cable • automation 21 New Substations • Direct buried cable has become a major • 3 Upgrades • Strategically deploying Fiber for cause of power outages communications backhaul Second Quarter 2019 | 12

 

DELIVERING ON OUR COMMITMENT TO CUSTOMER AFFORDABILITY 2018 - July 2019 Adjustments to Residential Bills 6.48% $144.42 4/1/19 - TEAMI Since 2018, changes to adjustors Creditfrom federal have lowered the average tax reform $148.89 $141.33 $154.02 4/1/18 -EIS customer’s bill $9.71 4/1/19 -EIS 2/1/18 –PSA Recovers Recovers Recovers fuel environmental environmental costs improvements improvements $148.77 $146.88 $140.04 $148.15 $143.80 $143.66 $141.18 $141.27 3/1/18 - TEAMI 7/1/18 – REAC 7/11/19 – LFCR 6/1/18 - TCA 2/1/19 –PSA 3/1/19 –LFCR 4/1/19 - TEAMII 6/1/19 – TCA Creditfrom federal Access to more Provides renewable Supports grid Recovers fuel Supports grid Creditfrom federal Access to more tax reform renewable energy and energy incentivesand reliability costs reliability tax reform renewable energy and improves reliability power costs improves reliability * Impacts represent the change to the average residential bill after the rate case ($149.75/1,064 kWh). Second Quarter 2019 | 13

 

WHAT’S NEXT Take Charge AZ Pilot Program • EV charging equipment, installation and maintenance for business customers, government agencies and multifamily housing communities • Participants pay for energy costs to charge • We encourage charging during daytime off- peak hours when solar energy is abundant and overnight • Level 3 fast-charging infrastructure • Approximately $10 million capital investment each year in 2019 and 2020 Second Quarter 2019 | 14

 

APPENDIX Second Quarter 2019 | 15

 

TAX REFORM Customer Rate Reductions ACC – TAX EXPENSE ADJUSTOR MECHANISM: • PHASE I: The ACC approved $119 million annual rate reduction reflecting the lower federal tax rate. Effective for the March 2018 billing cycle. • PHASE II: The ACC approved an additional $86.5 million rate reduction to return the unprotected “excess” deferred taxes to ACC customers over a 12-month period. Effective for the April 2019 billing cycle. • PHASE III: Filed in April 2019 – will address the refund of protected “excess” deferred taxes which are required to be returned over the regulatory life of plant property. The Company has proposed that Phase III begin July 1, 2019 and annually refund $34.5 million to customers over the first 36 months. The ACC has not yet approved this request. Cash Taxes Net Regulatory Liability for Excess At June 30, • Due to loss of bonus depreciation, cash tax payments normalize in 2019 as the Company Deferred Taxes ($ in millions) 2019 utilizes its remaining tax credit carryforwards Total Net Regulatory Liability for Regulated • Future investment tax credits from renewable efforts will likely reduce cash tax payments in $1,495 the year the assets are placed in service Excess Deferred Taxes Net Regulatory Liability for Depreciation Effective Tax Rate Related Excess Deferred Taxes (to be $1,398 • Amortization of TEAM Phase II excess deferred taxes will benefit the Company’s 2019 and returned over the life of property) 2020 ETR Net Regulatory Liability for Non- • Amortization of TEAM Phase III excess deferred taxes are anticipated to benefit the ETR over Depreciation Related Excess Deferred $97 a 28.5 year period Taxes Second Quarter 2019 | 16

 

OCOTILLO MODERNIZATION PROJECT & FOUR CORNERS SCRs • Included in the 2017 Rate Review Order1, APS has been granted Accounting Deferral Orders for two large generation-related capital investments – Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and replacing with 5 new, fast-ramping, combustion turbine units – Four Corners Power Plant: Installed Selective Catalytic Reduction (SCR) equipment to comply with Federal environmental standards Ocotillo Modernization Project Four Corners SCRs Unit 5 – Late 2017 In-Service Dates Units 3 – 7 – Spring 2019 Unit 4 – Spring 2018 Total Cost (APS) $500 million $400 million Estimated Cost Deferral $36 million (through 2019) $45 million (through 2019) • Cost deferral from date of commercial • Cost deferral from time of installation to operation to the effective date of rates in next incorporation of the SCR costs in rates using a Accounting Deferral rate case step increase • Includes depreciation, O&M, property taxes, • Includes depreciation, O&M, property taxes, and capital carrying charge2 and capital carrying charge2 1 The ACC’s decision is subject to appeals 2 APS will calculate the capital carrying charge using the 5.13% embedded cost of debt established in the 2017 Rate Review Order Second Quarter 2019 | 17

 

FOUR CORNERS SCR STEP INCREASE The Administrative Law Judge issued a Recommended Opinion and Order on November 27, 20181 Key Components of APS’s Filed Request Financial Cost of Capital Bill Impact 2019 Full-Year EPS Impact3 • Consistent with prior • 7.85% Return on Rate Base2 • Rate rider applied as $ in millions disclosed estimates – Weighted Average Cost of a percentage of base Revenue1 $(58.5) rates for all applicable Capital (WACC) Deferrals: customers Depreciation 19.5 O&M 0.4 2 • $390 million direct costs • 5.13% Return on Deferral • $67.5 million revenue Property tax 3.6 1 2 vs. $400 million – Embedded Cost of Debt requirement Debt return 20.0 contemplated in APS’s Avoided expense4 4.6 recent rate case Earnings impact5 $(8.2) • $40 million in indirect • 5% Depreciation Rate • ~2% bill impact EPS5 $(0.07) costs (overhead, – 20-year useful life 3 Assumes no step increase in 2019 AFUDC) (2038-depreciation study) 4 Amortization of deferral 5 Calculated using 21% marginal tax rate • 5-year Deferral Amortization and 113.1 million shares 1 Arizona Corporation Commission Staff recommended a $58.5 million revenue increase and the Administrative Law Judge issued a Recommended Opinion and Order consistent with Commission Staff’s recommendation 2 Based on 2017 Rate Review Order Second Quarter 2019 | 18

 

RESIDENTIAL PV APPLICATIONS1 Residential DG (MWdc) Annual Additions 151 133 133 4,000 3718 74 3432 57 57 3,500 3,000 2014 2015 2016 2017 2018 2019 YTD 2464 2,500 2143 1944 2033 2,000 1818 1561 1602 1426 1543 1905 1442 1434 1,500 1471 1364 1283 1267 1180 1413 1153 1291 1100 905 1001 1248 1,000 1095 1147 811 837 922 999 738 769 896 911 744 759 500 629 614 538 321 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 Applications 2017 Applications 2018 Applications 2019 Applications 1 Monthly data equals applications received minus cancelled applications. As of June 30, 2019, approximately 97,000 residential grid-tied solar photovoltaic (PV) systems have been installed in APS’s service territory, totaling approximately 767 MWdc of installed capacity. Excludes APS Solar Partner Program residential PV systems. Note: www.arizonagoessolar.org logs total residential application volume, including cancellations. Solar water heaters can also be found on the site, but are not included in the chart above. Second Quarter 2019 | 19

 

GROSS MARGIN EFFECTS OF WEATHER $ in millions pretax Variances vs. Normal $25 $20 $15 $10 14 $5 8 9 $0 $(5) $(10) (12) $(15) (33) $(20) (23) $(25) $(30) $(35) Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 $(13) Million $(24) Million All periods recalculated to current 10-year rolling average (2007 – 2016) Second Quarter 2019 | 20

 

RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 Renewable Energy Demand Side Management $40 $ in millions pretax $30 $10 $12 $20 $14 $11 $9 $11 $10 $21 $17 $12 $13 $9 $7 $0 Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 $104 Million $42 Million 1 Renewable energy and demand side management expenses are offset by adjustment mechanisms Second Quarter 2019 | 21

 

2019 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-16-0036 Implemented: Feb 1 2018 LFCR approved 2019 Lost Fixed Cost Recovery: E-01345A-16-0036 2019 LFCR approved LFCR Filed: Feb 15 Filed: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Implementation: Jun 1 To be filed by: 2020 DSM/EE Implementation Plan: E-01345A-19-0148 Dec 31 2020 RES Implementation Plan: E-01345A-19-0088 Filed: Jul 1 Four Corners SCR Step Increase: E-01345A-16-0036 No scheduled events Resource Planning and Procurement: E-00000V-19-0034 Filed preliminary IRP: Aug 1 TEAM II approved: Tax Expense Adjustor (TEAM): E-01345A-18-0003 TEAM III filed: Apr 10 Mar 13 Year 3 Implementation Resource Comparison Proxy (RCP): E-01345A-19-0081 Year 3 Filed: May 1 Expected: Sept 1 QF/PURPA Contracts (EPR-2): E-01345A-16-0272 Workshop Mar 29 Hearing begins Aug 27 Workshops Feb 25, Possible Modification to Commission’s Energy Rules: RU-00000A-18-0284 Workshops Apr 17, 29, 30 Workshops Jul 31, Aug 7 Mar 14, Mar 26 Modification to Retail Competition Rules: RE-00000A-18-0405 Workshop Jul 30, 31 Commission vote not to Customer Complaint: E-01345A-18-0002 Complaint resolved: Jul 10 dismiss: May 22 Commission vote for new APS Rate Review: E-01345A-19-0003 Rate Review Began rate case: June 11 Second Quarter 2019 | 22

 

NON-GAAP MEASURE RECONCILIATION Three Months Ended June 30, Four Corners Income tax Income tax and expense at Four expense at RES/ Ocotillo statutory 2019 RES/ Corners statutory 2018 EPS 1 2 1 2 $ in millions pretax, except per share amounts 2019 DSM Deferrals rate Adjusted 2018 DSM Deferral rate Adjusted Impact Operating revenues $ 870 $ (32) $ - $ - $ 838 $ 974 $ (42) $ - $ - $ 932 Fuel and purchased power expenses (242) 13 - - (229) (257) 13 - - (244) Gross margin 628 (19) - - 609 717 (29) - - 688 $(0.53) Operations and maintenance 228 (19) - - 209 268 (29) - - 239 $ 0.20 Depreciation and amortization 147 - (2) - 145 145 - - - 145 $ - Other taxes 55 - (2) - 53 54 - - - 54 $ 0.01 Allowance for equity funds used during construction (8) - - - (8) (13) - - - (13) Interest charges 57 - (10) - 47 61 - (4) - 57 Allowance for borrowed funds used during construction (4) - - - (4) (6) - - - (6) Interest expense, net of AFUDC 45 - (10) - 35 42 - (4) - 38 $ 0.02 Other expenses (operating) 1 - - - 1 7 - - - 7 Other income (13) - 10 - (3) (7) - 4 - (3) Other expense 4 - - - 4 4 - - - 4 Other (8) - 10 - 2 4 - 4 - 8 $ 0.04 Income taxes 17 - - (41) (24) 44 - - (53) (9) $ 0.13 1 Line items from Consolidated Statements of Income. 2 See Note 4, Regulatory Matters, in Form 10-Q for the period ended June 30, 2019, for total Four Corners and Ocotillo deferral impacts. Second Quarter 2019 | 23 Numbers may not foot due to rounding.

 

NON-GAAP MEASURE RECONCILIATION 2019 Guidance $ in millions pretax Operating revenues1 $ 3,625 - $ 3,695 Fuel and purchased power expenses1 (1,045) - (1,055) Gross margin 2,580 - 2,640 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted gross margin $ 2,500 - $ 2,560 Operations and maintenance1 $ 945 - $ 965 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted operations and maintenance $ 865 - $ 885 1 Line items from Consolidated Statements of Income. Second Quarter 2019 | 24

 

CONSOLIDATED STATISTICS 3 Months Ended June 30, 6 Months Ended June 30, 2019 2018 Incr (Decr) 2019 2018 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 433 $ 500 (68) $ 784 $ 817 $ (33) Business 396 436 (40) 729 779 (50) Total Retail 828 936 (107) 1,513 1,596 (83) Sales for Resale (Wholesale) 22 15 6 58 28 31 Transmission for Others 15 15 (0) 30 30 0 Other Miscellaneous Services 3 5 (2) 7 9 (2) Total Electric Operating Revenues $ 868 $ 971 (103) $ 1,608 $ 1,662 $ (54) ELECTRIC SALES (GWH) Retail Residential 2,994 3,337 (344) 5,571 5,685 (113) Business 3,593 3,771 (179) 6,790 6,920 (130) Total Retail 6,587 7,109 (522) 12,362 12,604 (243) Sales for Resale (Wholesale) 1,015 448 567 1,861 739 1,122 Total Electric Sales 7,602 7,557 45 14,223 13,343 880 RETAIL SALES (GWH) - WEATHER NORMALIZED Residential 3,243 3,245 (2) 5,737 5,698 39 Business 3,704 3,728 (24) 6,899 6,913 (14) Total Retail Sales 6,947 6,973 (26) 12,637 12,611 26 Retail sales (GWH) (% over prior year) (0.4)% (1.4)% 0.2% (1.2)% AVERAGE ELECTRIC CUSTOMERS Retail Customers Residential 1,117,422 1,095,913 21,509 1,118,865 1,096,953 21,912 Business 135,318 134,317 1,001 135,131 134,282 848 Total Retail 1,252,740 1,230,230 22,509 1,253,995 1,231,235 22,760 Wholesale Customers 46 37 9 50 33 16 Total Customers 1,252,786 1,230,267 22,519 1,254,045 1,231,268 22,776 Total Customer Growth (% over prior year) 1.8% 1.6% 1.8% 1.6% RETAIL USAGE - WEATHER NORMALIZED (KWh/Average Customer) Residential 2,902 2,961 (58) 5,128 5,194 (67) Business 27,375 27,757 (382) 51,056 51,479 (423) Second Quarter 2019 | 25 Numbers may not foot due to rounding.

 

CONSOLIDATED STATISTICS 3 Months Ended June 30, 6 Months Ended June 30, 2019 2018 Incr (Decr) 2019 2018 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,200 2,137 63 4,712 4,615 96 Coal 1,965 1,733 232 3,738 2,831 907 Gas, Oil and Other 1,626 1,564 61 3,474 3,210 264 Renewables 185 180 6 304 311 (7) Total Generation Production 5,976 5,613 362 12,228 10,968 1,260 Purchased Power - - - Conventional 1,267 1,861 (594) 1,491 2,111 (620) Resales 98 298 (200) 122 320 (198) Renewables 620 599 21 1,080 1,037 43 Total Purchased Power 1,985 2,758 (773) 2,692 3,468 (776) Total Energy Sources 7,960 8,371 (411) 14,920 14,435 485 POWER PLANT PERFORMANCE Capacity Factors - Owned Nuclear 88% 85% 3% 95% 93% 2% Coal 54% 47% 6% 51% 39% 12% Gas, Oil and Other 25% 22% 3% 26% 23% 3% Renewable 37% 37% 0% 31% 32% (1)% System Average 45% 41% 4% 46% 41% 5% 3 Months Ended June 30, 6 Months Ended June 30, 2019 2018 Incr (Decr) 2019 2018 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 357 513 (156) 357 513 (156) Heating Degree-Days - - - 605 323 282 Average Humidity 21% 16% 5% 21% 16% 5% 10-Year Averages (2007 - 2016) Cooling Degree-Days 489 489 - 489 489 - Heating Degree-Days 9 9 - 450 450 - Average Humidity 17% 17% - 17% 17% - Second Quarter 2019 | 26 Numbers may not foot due to rounding.