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, 2016

	
			
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))

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, 2016, Pinnacle West Capital Corporation (the “Company” or “Pinnacle West”) issued a press release regarding its financial results for the fiscal quarter ended September 30, 2016 and its earnings outlook for 2016. 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, 2016. This information contains Company operating results for the fiscal quarter ended September 30, 2016 and a quarterly consolidated statistical summary.  The slide presentation is attached hereto as Exhibits 99.2 and is concurrently being posted to the Company’s website at www.pinnaclewest.com, which also contains a glossary of relevant terms.
  
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, 2016.	
 	 	 	
99.2	Pinnacle West
APS	Pinnacle West Capital Corporation Third Quarter 2016 Results slide presentation accompanying November 3, 2016 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, 2016	 	By: /s/ James R. Hatfield            	
 	 	James R. Hatfield	
 	 	Executive Vice President and	
 	 	Chief Financial Officer	
 	 	 	
 	 	ARIZONA PUBLIC SERVICE COMPANY	
 	 	(Registrant)	
 	 	 	
Dated: November 3, 2016	 	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 November 3, 2016.	
 	 	 	
99.2	Pinnacle West
APS	Pinnacle West Capital Corporation Third Quarter 2016 Results slide presentation accompanying November 3, 2016 conference call.	

	
			
FOR IMMEDIATE RELEASE	November 3, 2016	
Media Contact:
Analyst Contact:	Alan Bunnell, (602) 250-3376
Ted Geisler, (602) 250-3200
Chalese Haraldsen, (602) 250-5643	 	
Website:	pinnaclewest.com	

PINNACLE WEST REPORTS THIRD-QUARTER EARNINGS

•	Milder-than-normal weather impacts quarterly results	
		
•	Customer growth continues to be a positive driver	
		
•	Company affirms full-year 2016 earnings guidance	

PHOENIX - Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders for the 2016 third quarter of $263.0 million, or $2.35 per diluted share. This result compares with net income of $257.1 million, or $2.30 per share, for the same period a year ago.

“Our quarterly financial performance was solid despite the impact of abnormally mild temperatures in August and September compared to historical weather trends,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt. “Customer count and electricity sales are growing year to date, operational excellence remains a hallmark of our company, and our employees continue to control costs without sacrificing top-tier reliability for our nearly 1.2 million customers. As a result, we remain optimistic that we will meet our full-year earnings guidance range.”
 
The 2016 third-quarter results comparison was positively impacted by the following factors:

•	Higher lost fixed cost recovery revenue and an increase in transmission revenues improved earnings by $0.09 per share compared to the 2015 third quarter.	
		
•	Lower operating expenses contributed to earnings by $0.02 per share.	
		
•	Retail electricity sales improved earnings $0.02 per share due to customer growth and changes in customer usage patterns and related pricing. Compared to the same quarter a year ago, weather-normalized retail sales were flat, while total customer growth increased 1.4 percent quarter over quarter.	

These positive factors were partially offset by t he effects of weather variations , which impacted results by $0.09 per share compared to the year-ago period.

Despite the second-hottest July on record, the other two months in the quarter were marked by unusually cooler-than-normal temperatures. August was the third-mildest in the last twenty years, and September was the second-mildest over the same period. As a result, the average high temperature for this year’s third quarter was 103.0 degrees - 1.3 percent lower than last year’s quarter and 1.2 percent below 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 8 percent worse than last year’s third quarter and 6 percent lower than normal 10-year averages.

Financial Outlook
For 2016, the Company continues to expect its on-going consolidated earnings will be within a range of $3.90 to $4.10 per diluted share, on a weather-normalized basis, and to achieve a consolidated earned return on average common equity of more than 9.5 percent.

Key factors and assumptions underlying the 2016 outlook can be found in the third-quarter 2016 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 2016 third-quarter results, as well as recent developments, at 12 noon ET (9 a.m. AZ 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), Thursday, November 10, 2016, by calling (877) 660-6853 in the U.S. and Canada or (201) 612-7415 internationally and entering conference ID number 10086.

Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of more than $15 billion, about 6,200 megawatts of generating capacity and 6,400 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” 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 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 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, 2015, 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,	
 	 	 2016	 	 2015	 	 2016	 	 2015	
 	 	 	 	 	 	 	 	 	
Operating Revenues	 $ 1,166,922	 	 $ 1,199,146	 	 $ 2,759,483	 	 $ 2,761,013	
 	 	 	 	 	 	 	 	 	
Operating Expenses	 	 	 	 	 	 	 	
 	Fuel and purchased power	         336,120	 	         363,847	 	         832,253	 	         868,561	
 	Operations and maintenance	         217,568	 	         220,449	 	         703,042	 	         646,358	
 	Depreciation and amortization	         120,428	 	         125,625	 	         362,977	 	         369,313	
 	Taxes other than income taxes	           41,284	 	           43,241	 	         125,902	 	         129,489	
 	Other expenses	                264	 	                873	 	             2,141	 	             2,524	
 	    Total	         715,664	 	         754,035	 	      2,026,315	 	      2,016,245	
 	 	 	 	 	 	 	 	 	
Operating Income	         451,258	 	         445,111	 	         733,168	 	         744,768	
 	 	 	 	 	 	 	 	 	
Other Income (Deductions)	 	 	 	 	 	 	 	
 	Allowance for equity funds used during construction	           10,194	 	             7,645	 	           31,079	 	           26,214	
 	Other income	                  71	 	                139	 	                385	 	                549	
 	Other expense	           (5,205)	 	           (5,538)	 	         (12,085)	 	         (12,433)	
 	   Total	             5,060	 	             2,246	 	           19,379	 	           14,330	
 	 	 	 	 	 	 	 	 	
Interest Expense	 	 	 	 	 	 	 	
 	Interest charges	           51,293	 	           49,342	 	         154,886	 	         146,069	
 	Allowance for borrowed funds used during construction	           (4,321)	 	           (3,518)	 	         (14,849)	 	         (12,056)	
 	   Total	           46,972	 	           45,824	 	         140,037	 	         134,013	
 	 	 	 	 	 	 	 	 	
Income Before Income Taxes	         409,346	 	         401,533	 	         612,510	 	         625,085	
 	 	 	 	 	 	 	 	 	
Income Taxes	         141,446	 	         139,555	 	         209,102	 	         214,873	
 	 	 	 	 	 	 	 	 	
Net Income	         267,900	 	         261,978	 	         403,408	 	         410,212	
 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interests	             4,873	 	             4,862	 	           14,620	 	           14,072	
 	 	 	 	 	 	 	 	 	
Net Income Attributable To Common Shareholders	 $ 263,027	 	 $ 257,116	 	 $ 388,788	 	 $ 396,140	
 	 	 	 	 	 	 	 	 	
Weighted-Average Common Shares Outstanding - Basic	         111,416	 	         111,036	 	         111,363	 	         110,984	
 	 	 	 	 	 	 	 	 	
Weighted-Average Common Shares Outstanding - Diluted	         112,100	 	         111,616	 	         111,987	 	         111,490	
 	 	 	 	 	 	 	 	 	
Earnings Per Weighted-Average Common Share Outstanding	 	 	 	 	 	 	 	
 	Net income attributable to common shareholders - basic	 $ 2.36	 	 $ 2.32	 	 $ 3.49	 	 $ 3.57	
 	Net income attributable to common shareholders - diluted	 $ 2.35	 	 $ 2.30	 	 $ 3.47	 	 $ 3.55	

Third Quarter 2016 THIRD QUARTER 2016 RESULTS November 3, 2016 

 

Third Quarter 20162 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” 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 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, 2015, 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. 

 

Third Quarter 20163 CONSOLIDATED EPS COMPARISON 2016 VS. 2015 $2.35 $2.30 2016 2015 3rd Quarter GAAP Net Income $2.35 $2.30 3rd Quarter On-Going Earnings $3.47 $3.55 2016 2015 Year-to-Date GAAP Net Income $3.47 $3.55 Year-to-Date On-Going Earnings 

 

Third Quarter 20164 Gross Margin(1),(2) $0.02 ON-GOING EPS VARIANCES 3RD QUARTER 2016 VS. 3RD QUARTER 2015 Interest, net of AFUDC $0.02 (1) Excludes costs and offsetting operating revenues, associated with renewable energy (excluding AZ Sun) and demand side management programs. (2) Excludes Palo Verde system benefits charge. See non-GAAP reconciliation. 3Q 2015 3Q 2016 Gross Margin Weather $(0.09) Sales $0.02 LFCR $0.05 Transmission $0.04 $2.30 $2.35D&A(2) $0.01 Other, net $(0.01) Other Taxes $0.01 

 

Third Quarter 20165 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 construction, financial services and wholesale trade sectors Arizona ranked 1st for projected job growth - Forbes September 2015 E Metro Phoenix growth rate 3rd fastest among top 15 metro areas - U.S. Census Bureau March 2016 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% 5% 10% 15% 20% 25% '07 '08 '09 '10 '11 '12 '13 '14 '15 16 Nonresidential Building Vacancy – Metro Phoenix Vacancy Rate Office Retail Industrial 3Q 0 10,000 20,000 30,000 40,000 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Single Family Multifamily 

 

Third Quarter 20166 2016 ON-GOING EPS GUIDANCE Key Factors & Assumptions as of November 3, 2016 2016 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.34 – $2.39 billion • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% to prior year taking into account effects of customer conservation, energy efficiency and distributed renewable generation initiatives • Assumes normal weather Operations and maintenance* $825 - $845 million Other operating expenses (depreciation and amortization including impacts related to Palo Verde sale leaseback, and taxes other than income taxes) $645 - $665 million Interest expense, net of allowance for borrowed and equity funds used during construction (Total AFUDC $50 million) $155 - $165 million Net income attributable to noncontrolling interests ~$20 million Effective tax rate 34-35% Average diluted common shares outstanding ~112.0 million On-Going EPS Guidance $3.90 - $4.10 * Excludes O&M of $83 million, and offsetting revenues, associated with renewable energy and demand side management programs. 

 

Third Quarter 2016 APPENDIX 

 

Third Quarter 20168 DIVIDEND GROWTH Pinnacle West’s indicated annual dividend is $2.62 per share; targeting ~5% annual dividend growth $2.10 $2.18 $2.27 $2.38 $2.50 $2.62 2011 2012 2013 2014 2015 2016 2017 2018 Dividend Growth Goal Indicated Annual Dividend Rate at Year-End Projected Future dividends subject to declaration at Board of Directors’ discretion. 

 

Third Quarter 20169 RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business $6.5 $8.3 $1.4 $1.8 2015 2016 2017 2018 2019 APS Rate Base Growth Year-End ACC FERC Total Rate Base Projected Most Recent Rate Decisions ACC - Proposed FERC Rate Effective Date 7/1/2017 6/1/2016 Test Year Ended 12/31/2015* 12/31/2015 Rate Base $6.8B $1.4B Equity Layer 56% 56% Allowed ROE 10.5% 10.75% *Adjusted to include post test-year plant in service through 6/30/2017 83% 17% Generation & Distribution Transmission Rate base $ in billions, rounded 

 

Third Quarter 201610 $263 $223 $220 $279 $66 $77 $234 $117 $44 $224 $197 $103 $58 $104 $1 $1 $201 $136 $211 $136 $340 $380 $399 $411 $85 $89 $75 $77 2015 2016 2017 2018 CAPITAL EXPENDITURES Capital expenditures are funded primarily through internally generated cash flow ($ Millions) $1,233 $1,337 Other Distribution Transmission Renewable Generation Environmental(1) Traditional Generation Projected $1,124 New Gas Generation(2) $1,057 • The table does not include capital expenditures related to 4CA’s 7% interest in Four Corners Units 4 and 5 of $3 million in 2015, $30 million in 2016 and $27 million in 2017. • 2016 – 2018 as disclosed in Third Quarter 2016 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 schedule for completion in Q1 2019 

 

Third Quarter 201611 OPERATIONS & MAINTENANCE OUTLOOK Goal is to keep O&M per kWh flat, adjusted for planned outages $754 $761 $788 $805 $772 $150 $124 $137 $103 $96 $83 2011 2012 2013 2014 2015 2016E PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by adjustment mechanisms. ($ Millions) $825 - $845 

 

Third Quarter 201612 Credit Ratings • A- rating or better at S&P, Moody’s and Fitch 2016 Major Financing Activities • $250 million 10-year 2.55% APS senior unsecured notes issued September 2016 • $350 million 30-year 3.75% APS senior unsecured notes issued May 2016 • $100 million term loan closed April 2016 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 201613 FINANCIAL OUTLOOK Key Factors & Assumptions as of November 3, 2016 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 AZ Sun Program • Additions to flow through RES until next base rate case • First 50 MW of AZ Sun is recovered through base rates 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 $5 million annually of carrying costs for government- mandated environmental capital expenditures Power Supply Adjustor (PSA) • 100% recovery as of July 1, 2012 Transmission Cost Adjustor (TCA) • TCA is filed each May and automatically goes into rates effective June 1 • Beginning July 1, 2012 following conclusion of the regulatory settlement, transmission revenue is accrued each month as it is earned. Four Corners Acquisition • Four Corners rate increase effective January 1, 2015 Potential Property Tax Deferrals (2012 retail rate settlement): Assume 60% of property tax increases relate to tax rates, therefore, will be eligible for deferrals (Deferral rates: 50% in 2013; 75% in 2014 and thereafter) Gross Margin – Customer Growth and Weather (2016-2018) Gross Margin – Related to 2012 Retail Rate Settlement Outlook Through 2016: 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 201614 2016 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 Renewable Energy Adjustor E-01345A-16-0238 Jul 1 2017 DSM Implementation Plan E-01345A-16-0176 Nov 18: Workshop Dec 1: File energy storage plan APS Rate Case E-01345A-16-0036 Jan 29: NOI Filing Jun 1: Initial filing Dec 21: Direct Testimony Resource Planning and Procurement E-00000V-15-0094 Feb 9: Stakeholder Mtg. Mar 1: Prelim IRP filed Jul 18: Prelim IRP Workshop Sep 30: Update to Prelim IRP* Reducing System Peak Demand Costs E-00000J-16-0257 Aug 4: Initial workshop TBD: Second workshop Value and Cost of Distributed Generation E-00000J-14-0023 Feb 25: DG Methodologies & Supporting Testimony Apr 7: Rebuttal Testimony and Alternate Proposal Apr 15: Pre-hearing Apr 18: Hearing Jun 8-9 Hearing Jun 13: Responses Jul: Initial Briefs Aug 5: Reply Briefs Oct 7: ALJ ROO Dec 13: Scheduled for Consideration at ACC Open Meeting Review, Modernization and Expansion of Arizona Renewable Energy Standards E-00000Q-16-0289 TBD TBD ACC Open Meetings ACC Open Meetings Held Monthly * April 2017: Final IRP due Other K y Dates Q1 Q2 Q3 Q4 Arizona State Legislature In session Jan 11- May 7 (Adjourned) Elections Aug 30: Primary Nov 8: General All Source Request for Proposal (RFP) Mar 11: RFP Issued Jun 9: Responses Due TBD 

 

Third Quarter 201615 ARIZONA ELECTRIC UTILITIES GENERAL RATE CASES UNS Electric (93,000 customers) Docket # E-04204A-15-0142 Application Filed May 5, 2015 Hearing (Mar 1 – 24, 2016) Decision in Phase One (Decision No. 75697, Aug 18, 2016) UNSE Customer Education Plan on Rates – Due Sep 30, 2016 Phase Two (Net Metering Issues) Testimony – Expected Dec 2016 Phase Two Hearing – Expected Jan 2017 (if necessary) Phase Two Decision – Expected Mar 2017 Tucson Electric Power Company (415,000 customers) Docket # E-01933A-15-0322 Application Filed Nov 5, 2015 Intervenor and Staff Direct Testimony (Jun 2016) Rebuttal Testimony (Jul 25, 2016) Non-unanimous Revenue Requirement Settlement Filed (Aug 15, 2016) Settlement Direct Testimony (Aug 25, 2016) Settlement Reply Testimony (Sep 1, 2016) Hearing Begins (Sep 8, 2016) Phase One Decision – Expected Dec 2016 Phase Two (Net Metering Issues) Testimony – Expected Dec 2016 Phase Two Hearing – To Be Scheduled Sulphur Springs Valley Electric Cooperative (58,000 customers) Docket # E-01575A-15-0312 Application Filed Aug 31, 2015 Direct Testimony - Ex Rate Design, Cost of Service (Mar 18, 2016) Direct Testimony - Rate Design, Cost of Service (Apr 1, 2016) Rebuttal Testimony (Apr 15, 2016) Surrebuttal Testimony (May 4, 2016) Rejoinder (May 11, 2016) Prehearing (May 13, 2016) Hearing (May 17, 2016) – Concluded May 27 ALJ Recommended Order (Oct 12, 2016) Decision Expected at October ACC Open Meeting (Oct 27, 2016) Trico Electric Cooperative (38,000 customers) Docket # E-01461A-15-0363 Application Filed Oct 23, 2015 Direct Testimony - Ex Rate Design, Cost of Service (May 4, 2016) Direct Testimony - Rate Design, Cost of Service (May 25, 2016) Rebuttal Testimony (Jun 22, 2016) Surrebuttal Testimony (Jul 8, 2016) Non-unanimous Revenue Requirement Settlement (Jul 8, 2016) Direct Settlement Testimony (Jul 29, 2016) Reply Settlement Testimony (Aug 12, 2016) Hearing (Aug 17, 2016) Decision Expected December 2016 

 

Third Quarter 201616 2016 APS RATE CASE APPLICATION • Filed June 1, 2016 • Propose new rates go into effect on July 1, 2017 • Docket Number: E-01345A-16-0036 • Additional details, including filing, can be found at http://www.azenergyfuture.com/rate-review/ Procedural Schedule Staff and Intervenor Direct Testimony (ex rate design) Staff and Intervenor Direct Testimony (rate design) APS Rebuttal Testimony Staff and Intervenor Surrebuttal Testimony Prehearing Conference APS Rejoinder Testimony Proposed Hearing Commencement Date December 21, 2016 January 27, 2017 February 17, 2017 March 10, 2017 March 13, 2017 March 17, 2017 March 22, 2017 

 

Third Quarter 201617 2016 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective July 1, 2017 Test year ended December 31, 2015 Total Rate Base - Adjusted $8.01 Billion ACC Rate Base - Adjusted $6.77 Billion Allowed Return on Equity 10.5% Capital Structure Long-term debt 44.2% Common equity 55.8% Base Fuel Rate (¢/kWh) 2.9882 Post-test year plant period 18 months Overview of Rate Increase ($ in Millions) Total stated base rate increase (inclusive of existing adjustor transfers) $ 433.4 15.00% Less: Transfer to base rates of various adjustors already in effect (267.5) (9.26) Net Customer Bill Impact $ 165.9 5.74% 

 

Third Quarter 201618 2016 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective July 1, 2017 Overview of Rate Increase ($ in Millions) – Key Components Post-Test Year Plant Additions $ 98.1 Fair Value Increment 51.9 ROE Increase from 10.0% to 10.5% 29.3 Increase due to Changes in Depreciation Schedules 81.4 Decrease Fuel and Purchased Power over Base Rates (61.7) Decrease in Other Costs (33.1) Total Base Rate Increase $ 165.9 

 

Third Quarter 201619 249 357 339 442 610 710 641 783 871 939 523 836 487 681 833 717 1159 1162 1353 1146 1005 1196 1087 1178 1170 777 1290 1031 1357 1547 1520 2315 1888 0 250 500 750 1000 1250 1500 1750 2000 2250 2500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 Applications 2015 Applications 2016 Applications * Monthly data equals applications received minus cancelled applications. As of September 30, 2016, over 49,000 residential grid-tied solar photovoltaic (PV) systems have been installed in APS’s service territory, totaling 380 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 99 2009 2011 2013 2015 2016 Residential DG (MWdc) Annual Additions YTD 

 

Third Quarter 201620 (8) (4) (1) 5 (5) 13 (17) $(20) $(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) 2015 $(8) Million 2016 $(9) Million 

 

Third Quarter 201621 12 7 11 11 8 4 7 11 14 18 12 12 15 18 $0 $10 $20 $30 $40 Q1 Q2 Q3 Q4 Q1 Q2 Q3 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 2015 $96 Million 2016 $64 Million 

 

Third Quarter 201622 NON-GAAP MEASURE RECONCILIATION $ millions pretax, except per share amounts 2016 2015 Operating revenues* 1,167$ 1,199$ Fuel and purchased power expenses* (336) (364) Gross margin 831 835 (0.02)$ Adjustments: Renewable energy (excluding AZ Sun) and demand side management programs (20) (24) 0.02 Palo Verde system benefits charge 4 - 0.02 Adjusted gross margin 815$ 811$ 0.02$ Depreciation and amortization* (120)$ (126)$ 0.03$ Adjustments: Palo Verde system benefits charge - (4) (0.02) Adjusted depreciation and amortization (120)$ (122)$ 0.01$ * Line items from Consolidated Statements of Income Three Months Ended September 30, EPS Impact 

 

Third Quarter 201623 QUARTERLY CONSOLIDATED STATISTICS 2016 2015 Incr (Decr) 2016 2015 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential 647$ 657$ (10)$ 1,398$ 1,375$ 23$ Business 480 486 (6) 1,244 1,235 9 Total Retail 1,127 1,143 (16) 2,642 2,610 32 Sales for Resale (Wholesale) 24 46 (22) 64 109 (45) Transmission for Others 8 12 (4) 21 27 (6) Other Miscellaneous Services 7 (3) 10 26 13 13 Total Electric Operating Revenues 1,166$ 1,198$ (32)$ 2,753$ 2,759$ (6)$ ELECTRIC SALES (GWH) Retail Residential 4,703 4,834 (131) 10,524 10,393 131 Business 4,298 4,365 (67) 11,367 11,346 21 Total Retail 9,001 9,199 (198) 21,891 21,739 152 Sales for Resale (Wholesale) 784 1,500 (716) 2,722 3,983 (1,261) Total Electric Sales 9,785 10,699 (914) 24,613 25,722 (1,109) RETAIL SALES (GWH) - WEATHER NORMALIZED Residential 4,849 4,880 (31) 10,650 10,639 11 Business 4,337 4,315 22 11,335 11,278 57 Total Retail Sales 9,186 9,195 (9) 21,985 21,917 68 Retail sales (GWH) (% over prior year) (0.1)% 2.1% (2.2)% 0.3% 0.9% (0.6)% AVERAGE ELECTRIC CUSTOMERS Retail Customers Residential 1,059,173 1,043,551 15,622 1,060,181 1,044,927 15,254 Business 131,877 130,628 1,249 131,537 130,391 1,146 Total Retail 1,191,050 1,174,179 16,871 1,191,718 1,175,318 16,400 Wholesale Customers 49 46 3 46 47 (1) Total Customers 1,191,099 1,174,225 16,874 1,191,764 1,175,365 16,399 Total Customer Growth (% over prior year) 1.4% 1.3% 0.1% 1.4% 1.2% 0.2% RETAIL USAGE - WEATHER NORMALIZED (KWh/Average Customer) Residential 4,578 4,676 (98) 10,045 10,182 (137) Business 32,889 33,035 (146) 86,170 86,491 (321) 3 Months Ended September 30, 9 Months Ended September 30, 

 

Third Quarter 201624 QUARTERLY CONSOLIDATED STATISTICS 2016 2015 Incr (Decr) 2016 2015 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 1,160 1,265 (105) 1,663 1,749 (86) Heating Degree-Days - - - 397 254 143 Average Humidity 31% 33% (2)% 27% 29% (2)% 10-Year Averages (2005 - 2014) Cooling Degree-Days 1,236 1,236 - 1,727 1,727 - Heating Degree-Days - - - 489 489 - Average Humidity 30% 30% - 24% 24% - ENERGY SOURCES (GWH) Generation Production Nuclear 2,417 2,535 (118) 7,108 7,262 (154) Coal 1,680 3,163 (1,483) 4,311 8,300 (3,989) Gas, Oil and Other 2,732 2,408 324 6,762 4,585 2,177 Renewables 138 142 (4) 409 423 (14) Total Generation Production 6,967 8,248 (1,281) 18,590 20,570 (1,980) Purchased Power - - Conventional 2,644 2,590 54 4,984 4,273 711 Resales 254 303 (49) 839 882 (43) Renewables 429 459 (30) 1,395 1,340 55 Total Purchased Power 3,327 3,352 (25) 7,218 6,495 723 Total Energy Sources 10,294 11,600 (1,306) 25,808 27,065 (1,257) POWER PLANT PERFORMANCE Capacity Factors - Owned Nuclear 96% 100% (4)% 94% 97% (3)% Coal 45% 74% (29)% 39% 66% (27)% Gas, Oil and Other 39% 34% 5% 32% 22% 10% Solar 33% 38% (5)% 33% 31% 2% System Average 51% 58% (7)% 46% 49% (3)% 3 Months Ended September 30, 9 Months Ended September 30,