UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 3, 2017

	
			
Commission File Number	Exact Name of Registrant as Specified in Charter; State of Incorporation;
Address and Telephone Number	IRS Employer
Identification Number	
 	 	 	
1-8962	Pinnacle West Capital Corporation
(an Arizona corporation)
400 North Fifth Street, P.O. Box 53999
Phoenix, AZ 85072-3999
(602) 250-1000	86-0512431	
 	 	 	
1-4473	Arizona Public Service Company
(an Arizona corporation)
400 North Fifth Street, P.O. Box 53999
Phoenix, AZ 85072-3999
(602) 250-1000	86-0011170	

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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 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 1.01. Entry into a Material Definitive Agreement.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On July 31, 2017, Pinnacle West Capital Corporation (“Pinnacle West”), The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Agent (the "Agent"), as an Issuing Bank and as a Lender, and JPMorgan Chase Bank, N.A., as a Lender ("JPMorgan") entered into an amendment to the 364-day credit agreement, dated as of August 31, 2016, with the Agent and JPMorgan, allowing Pinnacle West to borrow, repay and reborrow, from time to time, up to $125 million through July 30, 2018. Pinnacle West will use the amended facility to directly or indirectly fund or otherwise support obligations related to 4C Acquisition, LLC, a subsidiary of Pinnacle West. The amended facility can also be used for letters of credit. Borrowings under the amended facility will bear interest at LIBOR plus 0.80% per annum.

Borrowings under the amended facility are conditioned on Pinnacle West’s ability to make certain representations at the time each borrowing is made, except for representations concerning no material adverse effect and certain litigation matters, which were made only at the time the amended facility was entered into. The amended facility includes customary covenants, including requirements that Pinnacle West maintain ownership of a specified percentage of the outstanding capital stock of Arizona Public Service Company, maintain a consolidated debt-to-capitalization ratio no greater than a prescribed level and comply with certain lien restrictions. The amended facility also includes customary events of default, including a cross default provision and a change of control provision. If an event of default occurs, lenders holding a specified percentage of the commitments, or the agent with such lenders’ consent, may terminate the obligations of the lenders to make loans under the amended facility and the obligations of the issuing banks to issue letters of credit and may declare the obligations outstanding under the amended facility to be due and payable.

Pinnacle West and its affiliates maintain normal banking and other relationships with the Lenders in the amended facility and/or their affiliates.

Item 2.02. Results of Operations and Financial Condition.

The following information is furnished pursuant to Item 2.02.

On August 3, 2017, Pinnacle West issued a press release regarding its financial results for the fiscal quarter ended June 30, 2017. 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 3, 2017. This information contains Company operating results for the fiscal quarter ended June 30, 2017 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 3, 2017.	
 	 	 	
99.2	Pinnacle West
APS	Pinnacle West Capital Corporation Second Quarter 2017 Results slide presentation accompanying August 3, 2017 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 3, 2017	 	By: /s/ James R. Hatfield            	
 	 	James R. Hatfield	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	
 	 	 	
 	 	ARIZONA PUBLIC SERVICE COMPANY	
 	 	(Registrant)	
 	 	 	
Dated: August 3, 2017	 	By: /s/ James R. Hatfield            	
 	 	James R. Hatfield	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	

Exhibit Index

	
			
Exhibit No.	Registrant(s)	Description	
 	 	 	
99.1	Pinnacle West
APS	Earnings News Release issued on August 3, 2017.	
 	 	 	
99.2	Pinnacle West
APS	Pinnacle West Capital Corporation Second Quarter 2017 Results slide presentation accompanying August 3, 2017 conference call.	

	
			
FOR IMMEDIATE RELEASE	August 3, 2017	
Media Contact:	Alan Bunnell, (602) 250-3376	 	
Analyst Contacts:	Stefanie Layton (602) 250-4541
Chalese Haraldsen (602) 250-5643	 	
Website:	pinnaclewest.com	

PINNACLE WEST REPORTS 2017 SECOND-QUARTER RESULTS

•	Higher electricity usage and hotter-than-normal weather positively impact quarterly results	

•	Operations and maintenance expenses lower versus a year ago due to fewer planned fossil plant outages	

PHOENIX - Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders of $167.4 million, or $1.49 per diluted share of common stock, for the quarter ended June 30, 2017. This result compares with earnings of $121.3 million, or $1.08 per share, in the same 2016 period.

“Higher electricity usage as a result of hotter weather and continuing solid operational performance helped improve our quarterly earnings compared to the same period a year ago,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt, adding that the Phoenix metropolitan area experienced 26 days of 100 degrees or higher temperatures -
and 11 days above 110 degrees - during the month of June alone.

Arizona Public Service Co.’s customers also set an all-time record peak demand of 7,367 megawatts on June 20, eclipsing the previous record of 7,236 MW set in 2006.

Earlier this year, the U.S. Census Bureau announced that Phoenix had surpassed Philadelphia as America’s fifth-largest city and that Maricopa County was the nation’s fastest-growing county. Arizona’s housing construction is also on pace for its best year in a decade. Nonetheless, the company still projects 2017 full-year sales growth to be between 0 and 1 percent.

“Building permits are up, vacancy rates are down, and companies and workers are relocating to Arizona,” Brandt said. “We are supporting that growth with continued investments in a reliable, cleaner and smarter energy infrastructure.”

The 2017 second-quarter results comparison was positively influenced by the following major factors:

•	Lower operations and maintenance expenses increased results by $0.14 per share compared with the prior-year period. The lower expenses were largely the result of less planned fossil maintenance in the 2017 second quarter compared to a year ago. As previously indicated, the company anticipates further planned outages at the Four Corners Power Plant later this year to install added emission controls.	

		
•	Higher retail electricity usage - excluding the effects of weather variations, but including the effects of customer conservation, energy efficiency programs and distributed renewable generation - improved results $0.10 per share. Weather normalized sales were 2.9 percent higher in the second quarter compared to 2016’s second quarter, while year-to-date sales were 0.1 percent higher than the first six months in 2016.	

•	The absence of a 2016 FERC disallowance recorded in last year’s second quarter and higher transmission revenues in the 2017 second quarter helped increase earnings by $0.12 per share compared to the year-ago period.	

•	The effects of weather variations improved results by $0.02 per share compared to the year-ago period. The average high temperature in the second quarter was 97.0 degrees - 2.6 percent higher than last year’s quarter and 1.7 percent higher than normal based on a rolling 10-year average. The resulting impact was that residential cooling degree-days (a measure of the effects of weather) were 14 percent greater than in last year’s second quarter and 13 percent more than normal 10-year averages.	

•	The net effect of miscellaneous items increased earnings $0.03 per share.	

Financial Outlook
The company plans to issue 2017 guidance after a final decision by the Arizona Corporation Commission in Arizona Public Service Co.’s pending rate review, which is expected later this summer.

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 2017 second-quarter results, as well as recent developments, at noon ET (9 a.m. AZ time) today, Aug. 3. 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. 10, 2017, by calling (877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally and entering conference ID number 15960.

General Information
Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of nearly $17 billion, about 6,200 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 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, 2016, and in Part II, Item 1A in of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, 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,	
 	 	 2017	 	 2016	 	 2017	 	 2016	
 	 	 	 	 	 	 	 	 	
Operating Revenues	 $ 944,587	 	 $ 915,394	 	 $ 1,622,315	 	 $ 1,592,561	
 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	
 	Fuel and purchased power	         254,611	 	         274,848	 	         467,006	 	         496,133	
 	Operations and maintenance	         214,013	 	         242,279	 	         433,989	 	         485,474	
 	Depreciation and amortization	         125,739	 	         123,073	 	         253,366	 	         242,549	
 	Taxes other than income taxes	           44,289	 	           42,117	 	           88,125	 	           84,618	
 	Other expenses	             1,706	 	             1,329	 	             2,094	 	             1,877	
 	    Total	         640,358	 	         683,646	 	      1,244,580	 	      1,310,651	
 	 	 	 	 	 	 	 	 	
Operating Income	         304,229	 	         231,748	 	         377,735	 	         281,910	
 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	
 	Allowance for equity funds used during construction	           10,456	 	           10,369	 	           19,938	 	           20,885	
 	Other income	                484	 	                197	 	                964	 	                314	
 	Other expense	           (3,822)	 	           (2,842)	 	           (7,502)	 	           (6,880)	
 	   Total	             7,118	 	             7,724	 	           13,400	 	           14,319	
 	 	 	 	 	 	 	 	 	
Interest Expense	 	 	 	 	 	 	 	
 	Interest charges	           54,969	 	           52,849	 	         106,833	 	         103,593	
 	Allowance for borrowed funds used during construction	           (4,906)	 	           (5,301)	 	           (9,378)	 	         (10,528)	
 	   Total	           50,063	 	           47,548	 	           97,455	 	           93,065	
 	 	 	 	 	 	 	 	 	
Income Before Income Taxes	         261,284	 	         191,924	 	         293,680	 	         203,164	
 	 	 	 	 	 	 	 	 	
Income Taxes	           88,967	 	           65,742	 	           93,178	 	           67,656	
 	 	 	 	 	 	 	 	 	
Net Income	         172,317	 	         126,182	 	         200,502	 	         135,508	
 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interests	             4,874	 	             4,874	 	             9,747	 	             9,747	
 	 	 	 	 	 	 	 	 	
Net Income Attributable To Common Shareholders	 $ 167,443	 	 $ 121,308	 	 $ 190,755	 	 $ 125,761	
 	 	 	 	 	 	 	 	 	
Weighted-Average Common Shares Outstanding - Basic	         111,797	 	         111,368	 	         111,763	 	         111,336	
 	 	 	 	 	 	 	 	 	
Weighted-Average Common Shares Outstanding - Diluted	         112,345	 	         112,004	 	         112,270	 	         111,930	
 	 	 	 	 	 	 	 	 	
Earnings Per Weighted-Average Common Share Outstanding	 	 	 	 	 	 	 	
 	Net income attributable to common shareholders - basic	 $ 1.50	 	 $ 1.09	 	 $ 1.71	 	 $ 1.13	
 	Net income attributable to common shareholders - diluted	 $ 1.49	 	 $ 1.08	 	 $ 1.70	 	 $ 1.12	

Second Quarter 2017 SECOND QUARTER 2017 RESULTS August 3, 2017 

 

Second Quarter 20172 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, ballet 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 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, 2016 and in Part II, Item 1A of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, 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. We refer to “on-going earnings” in this presentation, which is also a non-GAAP financial measure. We also provide a reconciliation to show the impacts associated with certain regulatory adjustments. We believe on-going earnings and these adjustments included in the reconciliation provide investors with a useful indicator of our results that is comparable among periods because it excludes the effects of unusual items that may occur on an irregular basis. Investors should note that these non-GAAP financial measures may involve judgments by management, including whether an item is classified as an unusual item. These measures are key components of our internal financial reporting and are 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. 

 

Second Quarter 20173 CONSOLIDATED EPS COMPARISON 2017 VS. 2016 $1.49 $1.08 2017 2016 2nd Quarter GAAP Net Income $1.49 $1.08 2nd Quarter On-Going Earnings $1.70 $1.12 2017 2016 Year-to-Date GAAP Net Income $1.70 $1.12 Year-to-Date On-Going Earnings 

 

Second Quarter 20174 Gross Margin(1) $0.27 ON-GOING EPS VARIANCES 2ND QUARTER 2017 VS. 2ND QUARTER 2016 Other, net $0.03 Interest, net of AFUDC $(0.01) O&M(1) $0.14 2Q 2016 2Q 2017 $1.08 $1.49 D&A $(0.01) (1) Excludes costs and offsetting operating revenues, associated with renewable energy (excluding AZ Sun) and demand side management programs. See non-GAAP reconciliation. Other Taxes $(0.01) Gross Margin Sales $ 0.10 Weather $ 0.02 Transmission $ 0.12 LFCR $ 0.04 Other $ (0.01) 

 

Second Quarter 20175 0 10,000 20,000 30,000 40,000 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Single Family Multifamily ECONOMIC INDICATORS Arizona and Metro Phoenix remain attractive places to live and do business Single Family & Multifamily Housing Permits Maricopa County Above-average job growth in financial services Maricopa County ranked #1 in U.S. for population growth in 2016 - U.S. Census Bureau March 2017 E Scottsdale ranked best place in the U.S. to find a new job in 2017; 4 other valley cities ranked in Top 20 - WalletHub January 2017 Housing construction on pace to have its best year since 2007 Vacancy rates in office and retail space have fallen to pre-recessionary levels Year Over Year Employment Growth 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 U.S. Phoenix 

 

Second Quarter 2017 APPENDIX 

 

Second Quarter 20177 RESIDENTIAL SOLAR VS. APS CUSTOMER LOAD Performance at system peak On June 20th, APS customers hit “peak demand” for 2017 using more than 7,300 MW of electricity 304 100 5 6,136 7,367 6,918 0 2,000 4,000 6,000 8,000 0 100 200 300 400 500 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 M W Hour Ending Residential Rooftop APS Customer Load • 1-2 PM: Customer demand still increasing; rooftop solar peaks and begins to decline • 5-6 PM: Between 5-6 pm, when customer demand reaches peak, rooftop solar producing at approximately 30% of total capacity • 8 PM: Rooftop output near zero, but customer demand still above 6,900 MW of power 

 

Second Quarter 20178 2017 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery E-01345A-11-0224 Jan 15 Transmission Cost Adjustor E-01345A-11-0224 May 15 2018 DSM/EE Implementation Plan Sep 1 2018 RES Implementation Plan for Reset of Renewable Energy Adjustor Jul 1 APS Rate Case E-01345A-16-0036 Jul 26: ALJ ROO ACC Decision: TBD Resource Planning and Procurement E-00000V-15-0094 April 10: Final 2017 IRP Oct 1: Staff Report Due Reducing System Peak Demand Costs E-00000J-16-0257 --------------- TBD --------------- Review, Modernization and Expansion of Arizona Renewable Energy Standards E-00000Q-16-0289 --------------- TBD --------------- Investigation Concerning the Future of the Navajo Generating Station E-00000C-17-0039 --------------- TBD --------------- ACC Open Meetings ACC Open Meetings Held Monthly Other Key Dates Q1 Q2 Q3 Q4 Arizona State Legislature In session Jan 9 – May 10 (Adjourned) 

 

Second Quarter 20179 APS RATE CASE: RECOMMENDED OPINION AND ORDER (ROO) • Administrative Law Judge issued the ROO on July 26th • Parties to the case may file exceptions to the ROO by August 4th • The final step in the rate case process is for the Arizona Corporation Commission to vote at an Open Meeting • The ROO: − Supports the settlement agreement without material modification − Bifurcates the proposed AMI Opt-Out program to be addressed in a separate decision − Recommends adoption of APS’s proposed $2 million annual battery storage incentive program for large commercial and industrial customers administered through the existing Demand Side Management adjustor − Recommends a rate effective date of September 1, 2017 for new rates 

 

Second Quarter 201710 2017 RATE CASE SETTLEMENT (SUPPORTED BY THE ROO) Key Financial Proposals – Base Rate Changes Annualized Base Rate Revenue Changes ($ millions) Non-fuel, Non-depreciation Base Rate Increase $ 87.2 Decrease fuel and Purchased Power over Base Rates (53.6) Increase due to Changes in Depreciation Schedules 61.0 Total Base Rate Increase $ 94.6 Key Financial Assumptions Allowed Return on Equity 10.0% Capital Structure Long-term debt 44.2% Common equity 55.8% Base Fuel Rate (¢/kWh) 3.0168 Post-test year plant period 12 months 

 

Second Quarter 201711 2017 RATE CASE SETTLEMENT (SUPPORTED BY THE ROO) Key Proposals – Revenue Requirement Four Corners • Cost deferral order from in-service dates to incorporation of SCRs in rates using a step-increase no later than January 1, 2019 Ocotillo Modernization Project • Cost deferral order from in-service dates to effective date in next rate case Power Supply Adjustor (PSA) • Modified to include certain environmental chemical costs and third-party battery storage Property Tax Deferral • Defer for future recovery the Arizona property tax expense above or below the test year rate Key Proposals – Rate Design Lost Fixed Cost Recovery (LFCR) • Modified to be applied as a capacity (demand) charge per kW for customer with a demand rate and as a kWh charge for customers with a two-part rate without demand Environmental Improvement Surcharge (EIS) • Increase cumulative per kWh cap rate from $0.00016 to a new rate of $0.00050 and include a balancing account Time-of-Use Rates (TOU) • Modified on-peak period for residential, and extra small through large general service of 3:00 pm – 8:00 pm weekdays • After May 1, 2018, a new TOU rate will be the standard rate for all new customers (except small use) Distributed Generation • New DG customers eligible for TOU rate with Grid Access Charge or Demand rates • Resource Comparison Proxy (RCP) for exported energy of $0.129/kWh in year one AZ Sun II • Proposed new program for utility-owned solar distributed generation, recoverable through the Renewable Energy Adjustment Clause (RES), to be no less than $10 million per year, and not more than $15 million per year Other Considerations Rate Case Moratorium • No new general rate case application before June 1, 2019 (3-year stay-out) Self-Build Moratorium • APS will not pursue any new self-build generation (with exceptions) having an in-service date prior to January 1, 2022 (extended to December 31, 2027 for combined-cycle generating units) unless expressly authorized by the ACC 

 

Second Quarter 201712 2017 ON-GOING EARNINGS KEY DRIVERS • EPS guidance issuance pending timing of APS rate case decision • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume growth about 0.0-1.0% after customer conservation and energy efficiency and distributed renewable generation • Annual transmission rate increase • Operations and maintenance - Planned outages (e.g. Four Corners SCRs) • Depreciation and amortization - Higher plant balances • Interest expense increasing • Higher AFUDC, driven by higher CWIP balances 

 

Second Quarter 201713 $221 $217 $246 $233 $79 $237 $119 $8 $220 $198 $106 $48 $102 $3 $17 $16 $127 $203 $170 $190 $388 $402 $409 $412 $87 $77 $72 $102 2016 2017 2018 2019 APS CAPITAL EXPENDITURES Capital expenditures are funded primarily through internally generated cash flow ($ Millions) $1,224 $1,337 Other Distribution Transmission Renewable Generation Environmental(1) Traditional Generation Projected $1,139 New Gas Generation(2) • The table does not include capital expenditures related to 4CA’s 7% interest in the Four Corners Power Plant Units 4 and 5 of $30 million in 2016, $27 million in 2017, $15 million in 2018 and $6 million in 2019. • 2017 – 2019 as disclosed in Second Quarter 2017 Form 10-Q. (1) Includes Selective Catalytic Reduction controls at Four Corners with in-service dates of Q4 2017 (Unit 5) and Q1 2018 (Unit 4) (2) Ocotillo Modernization Project: 2 units scheduled for completion in Q4 2018, 3 units scheduled for completion in Q1 2019 $1,009 

 

Second Quarter 201714 OPERATIONS & MAINTENANCE Goal is to keep O&M per kWh flat, adjusted for planned outages $754 $761 $788 $805 $772 $828 $150 $124 $137 $103 $96 $83 2011 2012 2013 2014 2015 2016 PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by adjustment mechanisms. ($ Millions) 

 

Second Quarter 201715 Credit Ratings • A- or equivalent ratings or better at S&P, Moody’s and Fitch 2017 Major Financing Activities • $250 million re-opening in March of APS’s outstanding 4.35% senior unsecured notes due November 2045 • Currently expect up to $650 million of long-term debt issuance from two transactions, one at PNW (including refinancing of its $125 million term loan) and one at APS We are disclosing credit ratings to enhance understanding of our sources of liquidity and the effects of our ratings on our costs of funds. BALANCE SHEET STRENGTH $50 $600 $250 $125 $- $100 $200 $300 $400 $500 $600 2017 2018 2019 2020 APS PNW ($Millions) Debt Maturity Schedule 

 

Second Quarter 201716 249 357 339 442 610 710 641 783 871 939 523 836 484 680 832 715 1,157 1,158 1,349 1,141 1,002 1,189 1,077 1,168 1,154 760 1,267 1,003 1,291 1,414 1,369 2,045 1,634 1,478 1,331 1,4731,471 1,599 1,879 2,018 2,786 4,528 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 Applications 2015 Applications 2016 Applications 2017 Applications * Monthly data equals applications received minus cancelled applications. As of June 30, 2017, more than 62,000 residential grid-tied solar photovoltaic (PV) systems have been installed in APS’s service territory, totaling more than 483 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. RESIDENTIAL PV APPLICATIONS* 10 18 22 44 51 57 74 133 70 2009 2011 2013 2015 2017 Residential DG (MWdc) Annual Additions YTD -Jun 

 

Second Quarter 201717 (4) 10 (17) 4 2 12 $(20) $(15) $(10) $(5) $0 $5 $10 $15 Q1 Q2 Q3 Q4 Q1 Q2 GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions All periods recalculated to current 10-year rolling average (2005-2014) 2016 $(7) Million 2017 $14 Million 

 

Second Quarter 201718 8 4 7 6 5 2 12 15 18 13 12 15 $0 $10 $20 $30 $40 Q1 Q2 Q3 Q4 Q1 Q2 Renewable Energy Demand Side Management RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* * O&M expenses related to renewable energy and demand side management programs are partially offset by comparable revenue amounts Pretax Millions 2016 $83 Million 2017 $34 Million 

 

Second Quarter 201719 NON-GAAP MEASURE RECONCILIATION $ millions pretax, except per share amounts 2017 2016 Operating revenues* 945$ 915$ Fuel and purchased power expenses* (255) (275) Gross margin 690 640 0.27$ Adjustments: Renewable energy (excluding AZ Sun) and demand side management programs (14) (13) - Adjusted gross margin 676$ 627$ 0.27$ Operations and maintenance* 214$ 242$ 0.15$ Adjustments: Renewable energy and demand side management programs (17) (19) (0.01) Adjusted operations and maintenance 197$ 223$ 0.14$ * Line items from Consolidated Statements of Income Three Months Ended June 30, EPS Impact 

 

Second Quarter 201720 CONSOLIDATED STATISTICS 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential 476$ 453$ 23 778$ 751$ 27$ Business 433 422 11 770 763 7 Total Retail 909 875 34 1,548 1,514 34 Sales for Resale (Wholesale) 17 20 (3) 40 40 - Transmission for Others 11 5 6 21 14 7 Other Miscellaneous Services 6 10 (4) 10 18 (8) Total Electric Operating Revenues 943$ 910$ 33 1,619$ 1,586$ 33$ ELECTRIC SALES (GWH) Retail Residential 3,445 3,313 132 5,902 5,821 81 Business 3,850 3,756 94 7,111 7,069 42 Total Retail 7,295 7,069 226 13,013 12,890 123 Sales for Resale (Wholesale) 571 943 (372) 1,645 1,938 (293) Total Electric Sales 7,866 8,012 (146) 14,658 14,828 (170) RETAIL SALES (GWH) - WEATHER NORMALIZED Residential 3,359 3,246 113 5,813 5,848 (35) Business 3,797 3,708 89 7,042 7,000 42 Total Retail Sales 7,156 6,954 202 12,855 12,848 7 Retail sales (GWH) (% over prior year) 2.9% 0.1% AVERAGE ELECTRIC CUSTOMERS Retail Customers Residential 1,077,292 1,057,620 19,672 1,078,336 1,060,686 17,650 Business 133,651 131,573 2,078 133,086 131,368 1,718 Total Retail 1,210,943 1,189,193 21,750 1,211,422 1,192,054 19,368 Wholesale Customers 42 46 (4) 43 45 (2) Total Customers 1,210,985 1,189,239 21,746 1,211,465 1,192,099 19,366 Total Customer Growth (% over prior year) 1.8% 1.6% RETAIL USAGE - WEATHER NORMALIZED (KWh/Average Customer) Residential 3,118 3,069 49 5,391 5,513 (122) Business 28,404 28,181 223 52,910 53,283 (373) 3 Months Ended June 30, 6 Months Ended June 30, 

 

Second Quarter 201721 CONSOLIDATED STATISTICS 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 571 503 68 571 503 68 Heating Degree-Days 3 1 2 439 397 42 Average Humidity 17% 20% (3)% 17% 20% (3)% 10-Year Averages (2005 - 2014) Cooling Degree-Days 504 504 - 504 504 - Heating Degree-Days 10 10 - 492 492 - Average Humidity 16% 16% - 16% 16% - ENERGY SOURCES (GWH) Generation Production Nuclear 2,120 2,147 (27) 4,632 4,692 (60) Coal 1,407 1,329 78 3,541 2,631 910 Gas, Oil and Other 1,898 2,272 (374) 3,016 4,030 (1,014) Renewables 173 159 14 272 270 2 Total Generation Production 5,599 5,908 (309) 11,462 11,623 (162) Purchased Power - - Conventional 1,828 1,693 135 2,421 2,340 81 Resales 191 265 (74) 373 343 30 Renewables 591 528 63 1,073 966 108 Total Purchased Power 2,610 2,486 125 3,867 3,648 219 Total Energy Sources 8,209 8,393 (184) 15,329 15,272 57 POWER PLANT PERFORMANCE Capacity Factors - Owned Nuclear 85% 86% (1)% 93% 94% (1)% Coal 39% 36% 3% 49% 36% 13% Gas, Oil and Other 27% 33% (5)% 23% 29% (6)% Solar 35% 38% (4)% 39% 33% 6% System Average 41% 43% (2)% 42% 43% (1)% 3 Months Ended June 30, 6 Months Ended June 30,