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):    November 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 2.02. Results of Operations and Financial Condition.

The following information is furnished pursuant to Item 2.02.

On November 3, 2017, Pinnacle West issued a press release regarding its financial results for the fiscal quarter ended September 30, 2017 and its earnings outlook for 2017 and 2018. 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 November 3, 2017. This information contains Company operating results for the fiscal quarter ended September 30, 2017, earnings outlook for 2017 and 2018 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 November 3, 2017.	
 	 	 	
99.2	Pinnacle West
APS	Pinnacle West Capital Corporation Third Quarter 2017 Results slide presentation accompanying November 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: November 3, 2017	 	By: /s/ James R. Hatfield            	
 	 	James R. Hatfield	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	
 	 	 	
 	 	ARIZONA PUBLIC SERVICE COMPANY	
 	 	(Registrant)	
 	 	 	
Dated: November 3, 2017	 	By: /s/ James R. Hatfield            	
 	 	James R. Hatfield	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	

	
			
FOR IMMEDIATE RELEASE	November 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 THIRD-QUARTER EARNINGS

•	Regulatory settlement positions APS well for future, offers customers greater choice and flexibility	
		
•	Customer growth, superior operational performance deliver bottom-line results	
		
•	Full-year 2017 earnings guidance maintained; 2018 guidance initiated	

PHOENIX - Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders for the 2017 third quarter of $276.1 million, or $2.46 per diluted share. This result compares with net income of $263.0 million, or $2.35 per share, for the same period a year ago.

“It was a strong quarter on many fronts,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt. “Our service territory experienced solid customer growth of 1.9 percent as new customers moved to Arizona for job opportunities and an improved quality of life, our employees continued to demonstrate superior customer service and operational performance, and we successfully settled our rate review.”

Approved in August, the regulatory settlement enables the company to invest in a smarter, cleaner energy infrastructure, and provides Arizona Public Service Co.’s 1.2 million customers more choice through new rate options, all while maintaining safe, reliable service.

Brandt added that the company is placing significant emphasis on communicating the benefits of the settlement and its updated rate plans to customers. “Our new rate options offer customers greater flexibility and control over their energy use and bills,” he said.

Operationally, the company’s employees remained focused on delivering safe and dependable energy to its customers throughout the hot Arizona summer season. During the quarter, Palo Verde Generating Station’s three units continued to perform well, operating at a combined capacity factor of 99.4 percent. APS also achieved its best summer reliability performance in the past five years, providing customers with dependable service despite large-scale wildfires and seasonal storms.

In addition to solid operational performance, the 2017 third-quarter financial results were positively impacted by the following factors compared to the same period a year ago:

		
•	The company’s 2017 regulatory settlement, which included a retail base rate increase, improved earnings $0.13 per share. Effective Aug. 19, the comprehensive and broadly supported agreement was APS’s first base rate increase in five years.	
		
•	Adjustment mechanisms improved earnings by $0.03 per share compared to the 2016 third quarter.	
		
•	Retail electricity sales - excluding the effects of weather variations - increased results $0.02 per share due to customer growth partly offset by energy efficiency and distributed generation. Weather-normalized sales were 0.2 percent higher in the third quarter compared to 2016’s third quarter, while year-to-date sales were 0.1 percent higher than the first nine months in 2016.	
		
•	The effects of weather variations improved results by $0.02 per share compared to the year-ago period despite slightly milder-than-normal overall temperatures. Third-quarter 2017 residential cooling degree-days (a measure of the effects of weather) were 0.6 percent greater than in the 2016 third quarter, albeit 5 percent below 10-year historical averages.	

These positive factors were offset in part by the following items:

•	Higher operations and maintenance expenses reduced results by $0.02 per share compared with the prior-year period. The increased costs were largely the result of higher employee benefit costs. As previously indicated, the company expects additional planned outage costs at the Four Corners Power Plant later this year to install added emission controls.	
		
•	Higher depreciation and amortization expenses reduced earnings $0.07 per share.	

Financial Outlook
For 2017, the Company continues to expect its on-going consolidated earnings will be within a range of $4.15 to $4.30 per diluted share on a weather-normalized basis.

Looking ahead to 2018, the Company estimates its on-going consolidated earnings will be within a range of $4.25 to $4.45 per diluted share, and expects to achieve a consolidated earned return on average common equity of more than 9.5 percent.

2017 and 2018 ongoing consolidated earnings per diluted share are currently projected to be the same as 2017 and 2018 consolidated net income per diluted share, respectively. Key factors and assumptions underlying both the 2017 and 2018 outlook can be found in the third-quarter 2017 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 2017 third-quarter results, as well as recent developments, at 12 noon ET (9 a.m. Arizona time) today, November 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), Friday, Nov. 10, 2017, by calling (877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally and entering conference ID number 20278.

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.

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	 	 NINE MONTHS ENDED	
 	 	 SEPTEMBER 30,	 	 SEPTEMBER 30,	
 	 	 2017	 	 2016	 	 2017	 	 2016	
 	 	 	 	 	 	 	 	 	
Operating Revenues	 $ 1,183,322	 	 $ 1,166,922	 	 $ 2,805,637	 	 $ 2,759,483	
 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	
 	Fuel and purchased power	         310,469	 	         336,120	 	         777,475	 	         832,253	
 	Operations and maintenance	         224,305	 	         217,568	 	         658,294	 	         703,042	
 	Depreciation and amortization	         133,912	 	         120,428	 	         387,278	 	         362,977	
 	Taxes other than income taxes	           45,169	 	           41,284	 	         133,294	 	         125,902	
 	Other expenses	             3,385	 	                264	 	             5,479	 	             2,141	
 	    Total	         717,240	 	         715,664	 	      1,961,820	 	      2,026,315	
 	 	 	 	 	 	 	 	 	
Operating Income	         466,082	 	         451,258	 	         843,817	 	         733,168	
 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	
 	Allowance for equity funds used during construction	           12,728	 	           10,194	 	           32,666	 	           31,079	
 	Other income	             1,091	 	                  71	 	             2,055	 	                385	
 	Other expense	           (4,993)	 	           (5,205)	 	         (12,495)	 	         (12,085)	
 	   Total	             8,826	 	             5,060	 	           22,226	 	           19,379	
 	 	 	 	 	 	 	 	 	
Interest Expense	 	 	 	 	 	 	 	
 	Interest charges	           55,644	 	           51,293	 	         162,477	 	         154,886	
 	Allowance for borrowed funds used during construction	           (6,000)	 	           (4,321)	 	         (15,378)	 	         (14,849)	
 	   Total	           49,644	 	           46,972	 	         147,099	 	         140,037	
 	 	 	 	 	 	 	 	 	
Income Before Income Taxes	         425,264	 	         409,346	 	         718,944	 	         612,510	
 	 	 	 	 	 	 	 	 	
Income Taxes	         144,319	 	         141,446	 	         237,497	 	         209,102	
 	 	 	 	 	 	 	 	 	
Net Income	         280,945	 	         267,900	 	         481,447	 	         403,408	
 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interests	             4,873	 	             4,873	 	           14,620	 	           14,620	
 	 	 	 	 	 	 	 	 	
Net Income Attributable To Common Shareholders	 $ 276,072	 	 $ 263,027	 	 $ 466,827	 	 $ 388,788	
 	 	 	 	 	 	 	 	 	
Weighted-Average Common Shares Outstanding - Basic	         111,835	 	         111,416	 	         111,787	 	         111,363	
 	 	 	 	 	 	 	 	 	
Weighted-Average Common Shares Outstanding - Diluted	         112,401	 	         112,100	 	         112,314	 	         111,987	
 	 	 	 	 	 	 	 	 	
Earnings Per Weighted-Average Common Share Outstanding	 	 	 	 	 	 	 	
 	Net income attributable to common shareholders - basic	 $ 2.47	 	 $ 2.36	 	 $ 4.18	 	 $ 3.49	
 	Net income attributable to common shareholders - diluted	 $ 2.46	 	 $ 2.35	 	 $ 4.16	 	 $ 3.47	

Third Quarter 2017 THIRD QUARTER 2017 RESULTS November 3, 2017 

 

Third 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 “electricity 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 EPS” in this presentation, which is also a non-GAAP financial measure. 2017 and 2018 on-going EPS are currently projected to be the same as 2017 and 2018 GAAP EPS, respectively. We believe on-going earnings provides 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. 

 

Third Quarter 20173 CONSOLIDATED EPS COMPARISON 2017 VS. 2016 $2.46 $2.35 2017 2016 3rd Quarter GAAP Net Income $2.46 $2.35 3rd Quarter On-Going Earnings $4.16 $3.47 2017 2016 Year-to-Date GAAP Net Income $4.16 $3.47 Year-to-Date On-Going Earnings 

 

Third Quarter 20174 Gross Margin(1) $0.22 ON-GOING EPS VARIANCES 3RD QUARTER 2017 VS. 3RD QUARTER 2016 Other, net $(0.01) Interest, net of AFUDC $0.01 O&M(1) $(0.02) 3Q 2016 3Q 2017 $2.35 $2.46 D&A $(0.07) (1) Excludes costs and offsetting operating revenues associated with renewable energy and demand side management programs. See non-GAAP reconciliation in Appendix. Other Taxes $(0.02) Gross Margin Rate Increase $ 0.13 Sales $ 0.02 Weather $ 0.02 Transmission $ 0.04 LFCR $ (0.01) Other $ 0.02 

 

Third Quarter 20175 ECONOMIC INDICATORS Arizona and Metro Phoenix remain attractive places to live and do business E 0% 5% 10% 15% 20% 25% '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Nonresidential Building Vacancy – Metro Phoenix Vacancy Rate Office Retail Industrial Q3 Above-average job growth in tourism, health care, manufacturing, financial services, and construction Maricopa County ranked #1 in U.S. for population growth in 2016 - U.S. Census Bureau March 2017 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 0 10,000 20,000 30,000 40,000 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Single Family Multifamily Single Family & Multifamily Housing Permits Maricopa County 

 

Third Quarter 20176 ON-GOING EPS GUIDANCE AS OF NOVEMBER 3, 2017 2017 Guidance 2018 Guidance $4.15 – $4.30 + Rate increase* + Adjustment mechanisms, primarily Transmission Cost Adjustor (TCA) and Lost Fixed Cost Recovery (LFCR) + Selective Catalytic Reduction (SCR) and Ocotillo deferrals* + Modest sales growth – Higher D&A due to plant additions and rates* – Higher O&M, primarily planned fossil outages – Higher Taxes Other Than Income Taxes, primarily higher property taxes* – Higher Interest – Lower AFUDC Key Drivers 2017 - 2018 $4.25 – $4.45 See key factors and assumptions in appendix. * 2017 Rate Review Order specific items. 

 

Third Quarter 2017 APPENDIX 

 

Third Quarter 20178 2017 ON-GOING EPS GUIDANCE Key Factors & Assumptions as of November 3, 2017 2017 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.45 – $2.50 billion • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% higher compared to prior year taking into account effects of customer conservation, energy efficiency and distributed renewable generation initiatives • Actual weather through September; normal weather patterns remainder of year Operating and maintenance (O&M)* $830 – $850 million Other operating expenses (depreciation and amortization, taxes other than income taxes, and other miscellaneous expenses) $725 – $745 million Interest expense, net of allowance for borrowed and equity funds used during construction (Total AFUDC $65 million) $150 – $160 million Net income attributable to noncontrolling interests $20 million Effective tax rate 33% Average diluted common shares outstanding 112.6 million On-going EPS Guidance $4.15 – $4.30 * Excludes O&M of $80 million, and offsetting revenues, associated with renewable energy and demand side management programs. 

 

Third Quarter 20179 2018 ON-GOING EPS GUIDANCE Key Factors & Assumptions as of November 3, 2017 2018 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.61 – $2.66 billion • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0.5-1.5% higher compared to prior year taking into account effects of customer conservation, energy efficiency and distributed renewable generation initiatives • Assumes normal weather Operating and maintenance (O&M)* $860 – $880 million Other operating expenses (depreciation and amortization, Four Corners SCRs and Ocotillo deferrals, taxes other than income taxes, and other miscellaneous expenses) $790 – $810 million Interest expense, net of allowance for borrowed and equity funds used during construction (Total AFUDC $55 million) $190 – $200 million Net income attributable to noncontrolling interests $20 million Effective tax rate 34% Average diluted common shares outstanding 113.2 million On-going EPS Guidance $4.25 – $4.45 * Excludes O&M of $90 million, and offsetting revenues, associated with renewable energy and demand side management programs. 

 

Third Quarter 201710 FINANCIAL OUTLOOK Key Factors & Assumptions as of November 3, 2017 Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricity sales volume growth • About 0.5-1.5% after customer conservation and energy efficiency and distributed renewable generation initiatives 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) • Assumed 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 Four Corners Units 4 and 5 SCRs • 2019 step increase 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. Gross Margin – Customer Growth and Weather (2017-2019) Gross Margin – Related to 2017 Rate Review Order Outlook Through 2019: 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) 

 

Third Quarter 201711 DIVIDEND GROWTH Pinnacle West’s indicated annual dividend is $2.78 per share; targeting ~6% annual dividend growth $2.10 $2.18 $2.27 $2.38 $2.50 $2.62 $2.78 2011 2012 2013 2014 2015 2016 2017 2018 2019 Dividend Growth Goal Indicated Annual Dividend Rate at Year-End Targeted Future dividends subject to declaration at Board of Directors’ discretion. 

 

Third Quarter 201712 RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business $6.5 $6.8 $8.2 $1.4 $1.4 $1.8 2015 2016 2017 2018 2019 APS Rate Base Growth Year-End ACC FERC Total Approved Rate Base Projected ACC FERC Rate Effective Date 8/19/2017 6/1/2017 Test Year Ended 12/31/20151 12/31/2016 Rate Base $6.8B $1.4B Equity Layer 55.8% 55% Allowed ROE 10.0% 10.75% 1 Adjusted to include post test-year plant in service through 12/31/2016 83% 17% Generation & Distribution Transmission Rate base $ in billions, rounded 

 

Third Quarter 201713 $221 $211 $273 $227 $79 $245 $121 $8 $220 $199 $90 $22 $102 $3 $16 $16 $127 $182 $178 $175 $388 $420 $421 $437 $87 $77 $82 $124 2016 2017 2018 2019 APS CAPITAL EXPENDITURES Capital expenditures are funded primarily through internally generated cash flow ($ Millions) $1,224 $1,337 Other Distribution Transmission Renewable Generation Environmental(1) Traditional Generation Projected $1,181 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 Third 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 

 

Third Quarter 201714 OPERATIONS & MAINTENANCE Goal is to keep O&M per kWh flat, adjusted for planned outages 751 753 734 756 775 - 785 785 - 795 37 52 38 72 55 - 65 75 - 85$788 $805 $772 $828 $830 - $850 $860 - $880 2013 2014 2015 2016 2017E 2018E* PNW Consolidated ex RES/DSM** Planned Fleet Outages * 2018 excludes impacts related to the adoption of the new accounting standard regarding the presentation of pension and postretirement benefit costs. See Notes 4 and 12 in the Third Quarter 2017 Form 10-Q for additional information. ** Excludes RES/DSM of $137 million in 2013, $103 million in 2014, $96 million in 2015, $83 million in 2016, $80 million in 2017E and $90 million in 2018E. ($ Millions) 

 

Third Quarter 201715 Palo Verde Generating Station − Palo Verde will continue to have two refueling outages each year (18 months cycles for each of the three units) − APS’s share of the annual planned outage expense at Palo Verde has been between $18 - $22 million per year since 2013 − Equipment testing, inspections, and plant modifications are performed during the outages that cannot be done while the unit is online − Outage duration and cost are driven by scope of planned work as well as emergent work identified during the outage Gas/Oil Plants − No planned cycles; major maintenance outages are based on run hours and/or the number of starts and overall plant condition − Increasing levels of solar generation, participation in Energy Imbalance Market, and low gas prices have resulted in increased starts Coal Plants − Major maintenance outage cycles are typically between 6 to 8 years PLANNED OUTAGE CYCLES The length of time between outages varies from plant to plant 

 

Third Quarter 201716 Credit Ratings • A- or equivalent ratings or better at S&P, Moody’s and Fitch 2017 Major Financing Activities • $300 million 10-year 2.95% APS senior unsecured notes issued September 2017 • $250 million re-opening in March of APS’s outstanding 4.35% senior unsecured notes due November 2045 • Expect up to $350 million of long-term debt issuance at PNW (including refinancing of its $125 million term loan) 2018 Major Financing Activities • Currently expect up to $400 million of long-term debt issuance 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 

 

Third Quarter 201717 2017 RATE REVIEW ORDER* EFFECTIVE AUGUST 19, 2017 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 *The ACC’s decision is subject to appeals. 

 

Third Quarter 201718 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) • Increased 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 to 3:00 pm – 8:00 pm weekdays • After September 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 APS Solar Communities • 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 2017 RATE REVIEW ORDER* EFFECTIVE AUGUST 19, 2017 *The ACC’s decision is subject to appeals. 

 

Third Quarter 201719 OCOTILLO MODERNIZATION PROJECT AND FOUR CORNERS SCRs Ocotillo Modernization Project Four Corners SCRs In-Service Dates Units 6, 7 – Fall 2018 Units 3, 4 and 5 – Spring 2019 Unit 5 – Late 2017 Unit 4 – Spring 2018 Total Cost (APS) $500 million $400 million Estimated Cost Deferral $45 million (through 2019) $30 million (through 2018) Accounting Deferral − Cost deferral from date of commercial operation to the effective date of rates in next rate case − Includes depreciation, O&M, property taxes, and capital carrying charge1 − Cost deferral from time of installation to incorporation of the SCR costs in rates using a step increase beginning in 2019 − Includes depreciation, O&M, property taxes, and capital carrying charge1 • Included in the 2017 Rate Review Order*, 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: Installing Selective Catalytic Reduction (SCR) equipment to comply with Federal environmental standards 1 APS will calculate the capital carrying charge using the 5.13% embedded cost of debt established in the 2017 Rate Review Order. *The ACC’s decision is subject to appeals. 

 

Third Quarter 201720 (4) 10 (13) 4 2 12 (10) $(15) $(10) $(5) $0 $5 $10 $15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions All periods recalculated to current 10-year rolling average (2005-2014) 2016 $(3) Million 2017 $4 Million 

 

Third Quarter 201721 8 4 7 6 5 2 12 12 15 18 13 12 15 16 $0 $10 $20 $30 $40 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Renewable Energy Demand Side Management RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* * Renewable energy and demand side management expenses are offset by adjustment mechanisms. Pretax Millions 2016 $83 Million 2017 $62 Million 

 

Third Quarter 201722 NON-GAAP MEASURE RECONCILIATION $ millions pretax, except per share amounts 2017 2016 Operating revenues* 1,183$ 1,167$ Fuel and purchased power expenses* (310) (336) Gross margin 873 831 0.23$ Adjustments: Renewable energy and demand side management programs (32) (30) (0.01) Adjusted gross margin 841$ 801$ 0.22$ Operations and maintenance* (224)$ (217)$ (0.04)$ Adjustments: Renewable energy and demand side management programs (28) (25) 0.02 Adjusted operations and maintenance (196)$ (192)$ (0.02)$ * Line items from Consolidated Statements of Income Three Months Ended September 30, EPS Impact 

 

Third Quarter 201723 NON-GAAP MEASURE RECONCILIATION $ millions pretax Operating revenues* 3,540$ - 3,600$ Fuel and purchased power expenses* (1,010) - (1,020) Gross margin 2,530 - 2,580 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted gross margin 2,450$ - 2,500$ Operations and maintenance* 910$ - 930$ Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted operations and maintenance 830$ - 850$ * Line items from Consolidated Statements of Income 2017 Guidance 

 

Third Quarter 201724 NON-GAAP MEASURE RECONCILIATION $ millions pretax Operating revenues* 3,790$ - 3,850$ Fuel and purchased power expenses* (1,090) - (1,100) Gross margin 2,700 - 2,750 Adjustments: Renewable energy and demand side management programs (90) - (90) Adjusted gross margin 2,610$ - 2,660$ Operations and maintenance* 950$ - 970$ Adjustments: Renewable energy and demand side management programs (90) - (90) Adjusted operations and maintenance 860$ - 880$ * Line items from Consolidated Statements of Income 2018 Guidance 

 

Third Quarter 201725 CONSOLIDATED STATISTICS 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential 662$ 647$ 15 1,439$ 1,398$ 41$ Business 474 480 (6) 1,245 1,244 1 Total Retail 1,136 1,127 9 2,684 2,642 42 Sales for Resale (Wholesale) 22 24 (2) 63 64 (1) Transmission for Others 14 8 6 35 21 14 Other Miscellaneous Services 6 7 (1) 16 26 (10) Total Electric Operating Revenues 1,178$ 1,166$ 12 2,798$ 2,753$ 45$ ELECTRIC SALES (GWH) Retail Residential 4,753 4,703 50 10,655 10,524 131 Business 4,310 4,298 12 11,421 11,367 54 Total Retail 9,063 9,001 62 22,076 21,891 185 Sales for Resale (Wholesale) 655 784 (129) 2,278 2,722 (444) Total Electric Sales 9,718 9,785 (67) 24,354 24,613 (259) RETAIL SALES (GWH) - WEATHER NORMALIZED Residential 4,834 4,820 14 10,647 10,668 (21) Business 4,332 4,332 - 11,374 11,332 42 Total Retail Sales 9,166 9,152 14 22,021 22,000 21 Retail sales (GWH) (% over prior year) 0.2% 0.1% AVERAGE ELECTRIC CUSTOMERS Retail Customers Residential 1,079,344 1,059,173 20,171 1,078,672 1,060,181 18,491 Business 134,830 131,877 2,953 133,667 131,537 2,130 Total Retail 1,214,174 1,191,050 23,124 1,212,339 1,191,718 20,621 Wholesale Customers 40 49 (9) 42 46 (4) Total Customers 1,214,214 1,191,099 23,115 1,212,381 1,191,764 20,617 Total Customer Growth (% over prior year) 1.9% 1.7% RETAIL USAGE - WEATHER NORMALIZED (KWh/Average Customer) Residential 4,479 4,551 (72) 9,871 10,062 (191) Business 32,130 32,851 (721) 85,089 86,150 (1,061) 3 Months Ended September 30, 9 Months Ended September 30, 

 

Third Quarter 201726 CONSOLIDATED STATISTICS 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 1,153 1,160 (7) 1,724 1,663 61 Heating Degree-Days - - - 439 397 42 Average Humidity 32% 31% 1% 26% 27% (1)% 10-Year Averages (2005 - 2014) Cooling Degree-Days 1,218 1,218 - 1,722 1,722 - Heating Degree-Days - - - 492 492 - Average Humidity 31% 31% - 25% 25% - ENERGY SOURCES (GWH) Generation Production Nuclear 2,514 2,417 97 7,147 7,108 39 Coal 2,093 1,680 413 5,635 4,311 1,324 Gas, Oil and Other 2,666 2,732 (66) 5,682 6,762 (1,080) Renewables 174 138 36 445 409 36 Total Generation Production 7,447 6,967 480 18,909 18,590 319 Purchased Power - - Conventional 2,223 2,644 (421) 4,644 4,984 (340) Resales 238 254 (16) 633 839 (207) Renewables 389 429 (40) 1,462 1,395 67 Total Purchased Power 2,850 3,327 (477) 6,738 7,218 (480) Total Energy Sources 10,297 10,294 3 25,647 25,808 (161) POWER PLANT PERFORMANCE Capacity Factors - Owned Nuclear 99% 96% 3% 95% 94% 1% Coal 57% 45% 12% 51% 39% 12% Gas, Oil and Other 40% 39% 1% 29% 32% (3)% Solar 35% 33% 2% 34% 33% 1% System Average 54% 51% 3% 46% 46% - 3 Months Ended September 30, 9 Months Ended September 30,