statistical report for financial analysiss22.q4cdn.com/464697698/files/doc_financials/... · 2018...

Pinnacle West Capital Corporation

2018STATISTICAL REPORT

FOR FINANCIAL ANALYSIS

PINNACLE WEST CAPITAL CORPORATION2018 STATISTICAL REPORT FOR FINANCIAL ANALYSIS

PINNACLE WEST - STOCK PRICE HISTORY 3

BOOK VALUE PER SHARE 3

EARNINGS PER SHARE - DILUTED 3

CONSOLIDATED STATISTICS BY QUARTER 4-5

FINANCIAL STATEMENTSPinnacle West Capital CorporationConsolidating Statement of Income 6Consolidating Balance Sheet - Assets 7Consolidating Balance Sheet - Liabilities and Equity 8Consolidating Statement of Cash Flows 9Consolidated Statements of Income - 5 Yr. 10Consolidated Balance Sheets - Assets - 5 Yr. 11Consolidated Balance Sheets - Liabilities and Equity - 5 Yr. 12Consolidated Statements of Cash Flows - 5 Yr. 13Arizona Public Service CompanyConsolidated Statements of Income 14Consolidated Balance Sheets - Assets 15Consolidated Balance Sheets - Liabilities and Equity 16Consolidated Statements of Cash Flows 17

SELECTED FINANCIAL DATALong-Term Debt Schedules 18

ARIZONA PUBLIC SERVICE COMPANYCustomer Data 19Loads and Resources at Peak 19Financial Statistics 20Capitalization Ratios 20Electric Operating Revenue Analysis 21Electric Sales Analysis 21Source and Disposition of Electric Energy 22Energy Fuel Mix 22Power Supply Adjustor 22

GENERATIONGeneration Resources 23Power Plant Operating Performance 23

RATE REGULATION 24

SHAREHOLDER INFORMATION 25

TABLE OF CONTENTS

Last Updated: March 18, 2019

PINNACLE WEST - STOCK PRICE HISTORY

2018 2017 2016 2015 2014

High 92.64$ 92.48$ 82.78$ 73.31$ 71.11$ Low 73.41$ 75.79$ 62.51$ 56.01$ 51.15$ Close 85.20$ 85.18$ 78.03$ 64.48$ 68.31$

(DOLLARS PER SHARE)2018 2017 2016 2015 2014

APS 50.50$ 47.04$ 44.04$ 42.02$ 40.50$ Other - - - - - Parent Company (3.91) (2.24) (0.90) (0.72) (1.00)

Total 46.59$ 44.80$ 43.14$ 41.30$ 39.50$

112,101,761 111,751,707 111,336,736 110,980,372 110,571,362

(DOLLARS PER SHARE)2018 2017 2016 2015 2014

APS 5.24$ 4.66$ 4.30$ 4.21$ 4.02$ Other (0.01) 0.03 - (0.04) (0.09) Parent Company (0.52) (0.17) (0.18) (0.08) (0.12)

Net Income 4.71 4.52 4.12 4.09 3.81

Less: Net income (loss) attributable to noncontrolling interests 0.17 0.17 0.17 0.17 0.23

Net income attributable to common shareholders 4.54$ 4.35$ 3.95$ 3.92$ 3.58$

112,549,722 112,366,675 112,046,043 111,552,130 111,178,141 WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED

BOOK VALUE PER SHARE

YEAR ENDED DECEMBER 31,

COMMON SHARES OUTSTANDING AT YEAR-END - BASIC

EARNINGS PER SHARE - DILUTED



PINNACLE WEST CAPITAL CORPORATION

Quarters may not sum due to rounding

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2018

Increase(Decrease)

vs. 2017

ELECTRIC OPERATING REVENUES(DOLLARS IN MILLIONS)

RetailResidential 317$ 500$ 695$ 355$ 1,867$ 75$ Business 343 436 497 353 1,629 14

Total retail 660 936 1,192 708 3,496 89 Sales for resale (wholesale) 12 15 54 28 109 29 Transmission for others 15 15 16 14 60 14 Other miscellaneous services 5 5 5 5 20 (1)

Total electric operating revenues 692$ 971$ 1,267$ 756$ 3,686$ 132$

ELECTRIC SALES (GWH)Retail Residential 2,347 3,337 5,002 2,504 13,191 (16) Business 3,148 3,771 4,470 3,363 14,752 (59)

Total retail 5,496 7,109 9,472 5,867 27,943 (75) Sales for resale (wholesale) 291 448 1,042 722 2,503 (372)

Total electric sales 5,786 7,557 10,514 6,589 30,446 (447)

RETAIL SALES (GWH) - WEATHER NORMALIZEDResidential 2,482 3,267 4,930 2,683 13,362 9 Business 3,193 3,730 4,450 3,408 14,781 26 Total retail sales 5,675 6,997 9,380 6,091 28,143 34 Retail sales (GWH) (% over prior year) (0.4)% (1.1)% 1.2% 0.3% 0.1% 0.4%

AVERAGE ELECTRIC CUSTOMERS Retail customersResidential 1,097,992 1,095,913 1,098,916 1,110,442 1,100,816 20,151 Business 134,247 134,317 134,606 135,368 134,635 674

Total retail 1,232,239 1,230,230 1,233,522 1,245,810 1,235,450 20,824 Wholesale customers 29 37 40 44 38 (3)

Total customers 1,232,269 1,230,267 1,233,562 1,245,854 1,235,488 20,822 Total customer growth (% over prior year) 1.7% 1.6% 1.6% 2.0% 1.7% (0.1)%

RETAIL USAGE - WEATHER NORMALIZED (KWh/Average Customer)Residential 2,261 2,982 4,486 2,416 12,145 (212) Business 23,782 27,772 33,062 25,179 109,795 (139)

CONSOLIDATED STATISTICS BY QUARTER



Quarters may not sum due to rounding

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2018

Increase(Decrease)

vs. 2017

CONSOLIDATED STATISTICS BY QUARTER

ELECTRICITY DEMAND (MW)Native load peak demand 7,320 (43)

WEATHER INDICATORS - RESIDENTIALActual

Cooling degree-days - 513 1,304 3 1,820 44 Heating degree-days 323 - - 366 689 47 Average humidity - 16% 32% 45% 31% 7%

10-Year Averages (2006 - 2015)Cooling degree-days - 490 1,236 53 1,779 - Heating degree-days 464 10 - 361 835 - Average humidity - 16% 31% 35% 27% 0%

ENERGY SOURCES (GWH)Generation production

Nuclear 2,479 2,137 2,462 1,974 9,052 (358) Coal 1,099 1,733 2,612 2,373 7,817 677 Gas, oil and other 1,646 1,565 2,833 1,812 7,856 (61) Renewables 131 183 182 99 595 28

Total generation production 5,355 5,617 8,090 6,259 25,321 287 Purchased power

Conventional 250 1,857 2,396 708 5,211 153 Resales 23 129 17 22 191 (579) Renewables 438 636 468 380 1,923 26

Total purchased power 711 2,622 2,882 1,111 7,325 (400) Total energy sources 6,066 8,239 10,971 7,370 32,646 (113)

POWER PLANT PERFORMANCECapacity Factors-Owned

Nuclear 100% 85% 97% 78% 90% (4)%Coal 30% 47% 71% 64% 53% 4%Gas, oil and other 24% 22% 40% 26% 28% 0%Solar 27% 37% 36% 20% 30% 2%System average 40% 41% 59% 45% 46% 0%



CONSOLIDATING STATEMENT OF INCOME (DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31, 2018 APSOther

Subsidiaries Parent Company Eliminations and

AdjustmentsConsolidated

Total

OPERATING REVENUES 3,688,342$ 2,905$ -$ -$ 3,691,247$

OPERATING EXPENSESFuel and purchased power 1,094,020 (8,783) (9,121) 1,076,116 Operations and maintenance 969,227 11,651 55,866 - 1,036,744 Depreciation and amortization 580,694 1,582 78 - 582,354 Taxes other than income taxes 212,136 692 21 - 212,849 Other expenses 2,497 - 7,000 - 9,497

Total 2,858,574 5,142 53,844 - 2,917,560

OPERATING INCOME 829,768 (2,237) (53,844) - 773,687

OTHER INCOME (DEDUCTIONS)Allowance for equity funds used during construction 52,319 - - - 52,319 Pension and other postretirement non-service credits - net 51,242 - (1,451) - 49,791 Other income 22,746 2,145 569,333 (569,328) 24,896 Other expense (15,292) (839) (1,835) (17,966)

Total 111,015 1,306 566,047 (569,328) 109,040

INTEREST EXPENSEInterest charges 231,391 79 12,074 (79) 243,465 Allowance for borrowed funds used during construction (25,180) - - - (25,180)

Total 206,211 79 12,074 (79) 218,285

INCOME BEFORE INCOME TAXES 734,572 (1,010) 500,129 (569,249) 664,442

INCOME TAXES 144,814 6 (10,918) - 133,902

NET INCOME (LOSS) 589,758 (1,016) 511,047 (569,249) 530,540

Less: Net income attributable to noncontrolling interests 19,493 - - - 19,493

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS 570,265$ (1,016)$ 511,047$ (569,249)$ 511,047$

EXPLANATIONS OF ELIMINATIONS AND ADJUSTMENTS

(a) Elimination of intercompany sales of electricity.(b) Elimination of intercompany interest expense and income.(c) Miscellaneous reclassifications.



CONSOLIDATING BALANCE SHEET(DOLLARS IN THOUSANDS)




Total

ASSETS

CURRENT ASSETSCash and cash equivalents 5,707$ 18$ 41$ -$ 5,766$ Customer and other receivables 257,654 10,415 99,989 (100,171) 267,887 Accrued unbilled revenues 137,170 - - - 137,170 Allowance for doubtful accounts (4,069) - - - (4,069) Materials and supplies (at average cost) 269,065 - - - 269,065 Fossil fuel (at average cost) 25,029 - - - 25,029 Income tax receivable - - 32,737 (32,737) - Assets from risk management activities 1,113 - - - 1,113 Deferred fuel and purchased power regulatory asset 37,164 - - - 37,164 Other regulatory assets 129,738 - - - 129,738 Other current assets 35,111 19,515 1,502 - 56,128

Total current assets 893,682 29,948 134,269 (132,908) 924,991

INVESTMENTS AND OTHER ASSETSNuclear decommissioning trust 851,134 - - - 851,134 Other special use funds 236,101 - - - 236,101 Other assets 40,817 51,857 5,870,407 (5,859,834) 103,247

Total investments and other assets 1,128,052 51,857 5,870,407 (5,859,834) 1,190,482

PROPERTY, PLANT AND EQUIPMENTPlant in service and held for future use 18,733,142 235 3,251 - 18,736,628 Accumulated depreciation and amortization (6,362,771) (92) (3,151) - (6,366,014)

Net 12,370,371 143 100 - 12,370,614 Construction work in progress 1,170,062 - - - 1,170,062 Palo Verde sale leaseback, net of accumulated depreciation 105,775 - - - 105,775 Intangible assets, net of accumulated amortization 262,746 - 156 - 262,902 Nuclear fuel, net of accumulated amortization 120,217 - - - 120,217

Total property, plant and equipment 14,029,171 143 256 - 14,029,570

DEFERRED DEBITSRegulatory assets 1,342,941 - - - 1,342,941 Deferred Income Taxes - - 5,243 (5,243) - Assets for other postretirement benefits 43,212 - 3,694 - 46,906 Other 128,265 4 20,387 (19,344) 129,312

Total deferred debits 1,514,418 4 29,324 (24,587) 1,519,159

TOTAL ASSETS 17,565,323$ 81,952$ 6,034,256$ (6,017,329)$ 17,664,202$


(a) (b) Miscellaneous reclassifications.(c) Elimination of Parent Company investments in subsidiaries.

Elimination of intercompany receivables and payables.



CONSOLIDATING BALANCE SHEET (DOLLARS IN THOUSANDS)




Total

LIABILITIES AND EQUITY

CURRENT LIABILITIESAccounts payable 266,277$ 1,494$ 9,565$ - 277,336$ Accrued taxes 176,357 2,193 9,006 (32,737) 154,819 Accrued interest 60,228 - 879 - 61,107 Common dividends payable 82,700 - 82,675 (82,700) 82,675 Short-term borrowings - 5,261 76,400 (5,261) 76,400 Current maturities of long-term debt 500,000 - - - 500,000 Customer deposits 91,174 - - - 91,174 Liabilities from risk management activities 35,506 - - - 35,506 Liabilities for asset retirements 19,842 - - - 19,842 Regulatory liabilities 165,876 - - - 165,876 Other current liabilities 178,137 (33) 18,335 (12,210) 184,229

Total current liabilities 1,576,097 8,915 196,860 (132,908) 1,648,964

LONG-TERM DEBT LESS CURRENT MATURITIES 4,189,436 - 448,796 - 4,638,232

DEFERRED CREDITS AND OTHERDeferred income taxes 1,812,664 - - (5,243) 1,807,421 Regulatory liabilities 2,325,976 - - - 2,325,976 Liabilities for asset retirements 706,703 - - - 706,703 Liabilities for pension benefits 425,404 - 17,766 - 443,170 Liabilities from risk management activities 24,531 - - - 24,531 Customer advances 137,153 - - - 137,153 Coal mine reclamation 212,785 - - - 212,785 Deferred investment tax credit 200,405 - - - 200,405 Unrecognized tax benefits 41,861 - - (19,344) 22,517 Other 125,511 - 22,129 - 147,640

Total deferred credits and other 6,012,993 - 39,895 (24,587) 6,028,301

EQUITYCommon stock, no par value 2,899,858 117,090 2,634,266 (3,016,949) 2,634,265 Treasury stock at cost - - (4,825) - (4,825)

Total common stock 2,899,858 117,090 2,629,441 (3,016,949) 2,629,440 Retained earnings 2,788,256 (44,053) 2,641,183 (2,744,203) 2,641,183 Accumulated other comprehensive loss (27,107) - (47,709) 27,108 (47,708) Total shareholders' equity 5,661,007 73,037 5,222,915 (5,734,044) 5,222,915 Noncontrolling interests 125,790 - 125,790 (125,790) 125,790

Total equity 5,786,797 73,037 5,348,705 (5,859,834) 5,348,705

TOTAL LIABILITIES AND EQUITY 17,565,323$ 81,952$ 6,034,256$ (6,017,329)$ 17,664,202$


(a)

(b) Miscellaneous reclassifications.(c) Elimination of Parent Company equity interest in subsidiaries.




CONSOLIDATING STATEMENT OF CASH FLOWS(DOLLARS IN THOUSANDS)




Total

CASH FLOWS FROM OPERATING ACTIVITIESNet income 589,758$ (1,151)$ (58,202)$ 135$ 530,540$

Depreciation and amortization including nuclear fuel 649,295 1,582 76 2 650,955 Deferred fuel and purchased power (78,277) - - - (78,277) Deferred fuel and purchased power amortization 116,750 - - - 116,750 Allowance for equity funds used during construction (52,319) - - - (52,319) Deferred income taxes 59,927 (2,672) 49,535 10,565 117,355 Deferred investment tax credit (5,170) - - - (5,170) Change in derivative instruments fair value - - - - - Stock Compensation - - - 19,547 19,547 Changes in current assets and liabilities:

Customer and other receivables 35,406 1,107 (7,881) 8,898 37,530 Accrued unbilled revenues (24,736) - - - (24,736) Materials, supplies and fossil fuel (6,206) 103 - - (6,103) Income tax receivable - - - - - Other current assets 31,707 (227) (767) 3,131 33,844 Accounts payable (15,608) (643) 1,967 (318) (14,602) Accrued taxes 19,008 1,064 (13,535) 60 6,597 Other current liabilities 25,070 (866) 1,850 2,120 28,174

Dividends from (investments in) subsidiaries - net - - 316,000 (316,000) - Change in margin and collateral accounts - assets 143 - - - 143 Change in margin and collateral accounts - liabilities (2,211) - - - (2,211) Change in unrecognized tax benefits (1,235) - - - (1,235) Change in long-term regulatory liabilities (109,284) - - - (109,284) Change in other long-term assets 77,952 (6,018) 7,136 (466) 78,604 Change in other long-term liabilities (55,169) 1,681 23,090 (18,560) (48,958)

Net cash flow provided by (used for) operating activities 1,254,801 (6,040) 319,269 (290,886) 1,277,144

CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures (1,169,061) (9,108) - - (1,178,169) Contributions in aid of construction 27,716 - - - 27,716 Allowance for borrowed funds used during construction (25,180) - - - (25,180) Investments in subsidiaries - (3,223) (136,319) 136,319 (3,223) Proceeds from nuclear decommissioning trust sales 653,033 - - - 653,033 Investment in nuclear decommissioning trust (672,165) - - - (672,165) Other (1,789) 6,953 - - 5,164

Net cash flow provided by (used for) investing activities (1,187,446) (5,378) (136,319) 136,319 (1,192,824)

CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt 295,245 - 150,000 - 445,245 Repayment of long-term debt (182,000) - - - (182,000) Short-term borrowings and (repayments) - net - (5,494) (7,000) 5,494 (7,000) Short-term debt borrowings under revolving credit facilities 25,000 - 20,000 - 45,000 Short-term debt repayments under revolving credit facilities (25,000) - (32,000) - (57,000) Equity Infusion - net 150,000 - - (150,000) - Dividends paid on common stock (316,000) - (308,895) 316,003 (308,892) Common stock equity issuance and purchases - net - 16,930 (5,055) (16,930) (5,055) Distributions to noncontrolling interests (22,744) - - - (22,744) Other - - - - -

Net cash flow provided by (used for) financing activities (75,499) 11,436 (182,950) 154,567 (92,446)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,144) 18 - - (8,126)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,851 - 41 - 13,892

CASH AND CASH EQUIVALENTS AT END OF YEAR 5,707$ 18$ 41$ -$ 5,766$


(a)

(b) Miscellaneous reclassifications.(c) Elimination of Parent Company equity interest in subsidiaries.

Adjustments to reconcile net income to net cash provided by operating activities:




CONSOLIDATED STATEMENTS OF INCOME (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

OPERATING REVENUES 3,691,247$ 3,565,296$ 3,498,682$ 3,495,443$ 3,491,632$

OPERATING EXPENSESFuel and purchased power 1,076,116 981,301 1,075,510 1,101,298 1,179,829 Operations and maintenance 1,036,744 949,107 931,692 898,882 937,299 Depreciation and amortization 582,354 534,118 485,829 494,422 417,358 Taxes other than income taxes 212,849 184,347 166,499 171,812 172,295 Other expenses 9,497 6,660 3,541 4,932 2,883

Total 2,917,560 2,655,533 2,663,071 2,671,346 2,709,664

OPERATING INCOME 773,687 909,763 835,611 824,097 781,968

OTHER INCOME (DEDUCTIONS)Allowance for equity funds used during construction 52,319 47,011 42,140 35,215 30,790 Pension and other postretirement non-service credits - net 49,791 24,664 20,373 30,505 29,274 Other income 24,896 4,006 901 621 9,608 Other expense (17,966) (21,539) (15,337) (17,823) (21,746)

Total 109,040 54,142 48,077 48,518 47,926

INTEREST EXPENSEInterest charges 243,465 219,796 205,720 194,964 200,950 Allowance for borrowed funds used during construction (25,180) (22,112) (19,970) (16,259) (15,457)

Total 218,285 197,684 185,750 178,705 185,493

INCOME BEFORE INCOME TAXES 664,442 766,221 697,938 693,910 644,401

INCOME TAXES 133,902 258,272 236,411 237,720 220,705

NET INCOME 530,540 507,949 461,527 456,190 423,696

Less: Net income attributable to noncontrolling interests 19,493 19,493 19,493 18,933 26,101

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS 511,047$ 488,456$ 442,034$ 437,257$ 397,595$

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC 112,129 111,839 111,409 111,026 110,626

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED 112,550 112,367 112,046 111,552 111,178

Net Income 4.71$ 4.52$ 4.12$ 4.09$ 3.81$

Less: Net income attributable to noncontrolling interests 0.17 0.17 0.17 0.17 0.23

Net income attributable to common shareholders 4.54$ 4.35$ 3.95$ 3.92$ 3.58$

DIVIDENDS DECLARED PER SHARE (a) 2.87$ 2.70$ 2.56$ 2.44$ 2.33$

(a) Annualized dividends declared per share

EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE OUTSTANDING - DILUTED



CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)

2018 2017 2016 2015 2014

ASSETS

CURRENT ASSETSCash and cash equivalents 5,766$ 13,892$ 8,881$ 39,488$ 7,604$ Customer and other receivables 267,887 305,147 250,491 274,691 297,740 Accrued unbilled revenues 137,170 112,434 107,949 96,240 100,533 Allowance for doubtful accounts (4,069) (2,513) (3,037) (3,125) (3,094) Materials and supplies (at average cost) 269,065 264,012 253,979 234,234 218,889 Fossil fuel (at average cost) 25,029 25,258 28,608 45,697 37,097 Deferred income taxes - - - - 122,232 Income tax receivable - - 3,751 589 3,098 Assets from risk management activities 1,113 1,931 19,694 15,905 13,785 Deferred fuel and purchased power regulatory asset 37,164 75,637 12,465 - 6,926 Other regulatory assets 129,738 172,451 94,410 149,555 129,808 Other current assets 56,128 48,039 45,028 37,242 38,817

Total current assets 924,991 1,016,288 822,219 890,516 973,435

INVESTMENTS AND OTHER ASSETSNuclear decommissioning trust 851,134 871,000 779,586 735,196 713,866 Other special use funds 236,101 32,542 14,521 - - Other assets 103,247 52,040 54,543 64,624 71,667

Total investments and other assets 1,190,482 955,582 848,650 799,820 785,533

PROPERTY, PLANT AND EQUIPMENTPlant in service and held for future use 18,736,628 17,798,061 17,341,888 16,222,232 15,543,063 Accumulated depreciation and amortization (6,366,014) (6,128,535) (5,970,100) (5,594,094) (5,397,751)

Net 12,370,614 11,669,526 11,371,788 10,628,138 10,145,312 Construction work in progress 1,170,062 1,291,498 1,019,947 816,307 682,807 Palo Verde sale leaseback, net of accumulated depreciation 105,775 109,645 113,515 117,385 121,255 Intangible assets, net of accumulated amortization 262,902 257,189 90,022 123,975 119,755 Nuclear fuel, net of accumulated amortization 120,217 117,408 119,004 123,139 125,201

Total property, plant and equipment 14,029,570 13,445,266 12,714,276 11,808,944 11,194,330

DEFERRED DEBITSRegulatory assets 1,342,941 1,202,302 1,313,428 1,214,146 1,054,087 Assets for other postretirement benefits 46,906 268,978 166,206 185,997 152,290 Other 129,312 130,666 139,474 128,835 129,215

Total deferred debits 1,519,159 1,601,946 1,619,108 1,528,978 1,335,592

TOTAL ASSETS 17,664,202$ 17,019,082$ 16,004,253$ 15,028,258$ 14,288,890$

2013-2014 restated per FASB Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs




CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)

2018 2017 2016 2015 2014


CURRENT LIABILITIESAccounts payable 277,336$ 256,442$ 264,631$ 297,480$ 295,211$ Accrued taxes 154,819 148,946 138,964 138,600 140,613 Accrued interest 61,107 56,397 52,835 56,305 52,603 Common dividends payable 82,675 77,667 72,926 69,363 65,790 Short-term borrowings 76,400 95,400 177,200 - 147,400 Current maturities of long-term debt 500,000 82,000 125,000 357,580 383,570 Customer deposits 91,174 70,388 82,520 73,073 72,307 Liabilities from risk management activities 35,506 59,252 25,836 77,716 59,676 Liability for asset retirements 19,842 4,745 9,135 28,573 32,462 Deferred fuel and purchased power regulatory liability - - - 9,688 - Regulatory liabilities 165,876 100,086 99,899 136,078 130,549 Other current liabilities 184,229 246,529 244,000 197,861 178,962

Total current liabilities 1,648,964 1,197,852 1,292,946 1,442,317 1,559,143

LONG-TERM DEBT LESS CURRENT MATURITIES 4,638,232 4,789,713 4,021,785 3,462,391 3,006,573

DEFERRED CREDITS AND OTHERDeferred income taxes 1,807,421 1,690,805 2,945,232 2,723,425 2,582,636 Regulatory liabilities 2,325,976 2,452,536 948,916 994,152 1,051,196 Liabilities for asset retirements 706,703 674,784 615,340 415,003 358,288 Liabilities for pension benefits 443,170 327,300 509,310 480,998 453,736 Liabilities from risk management activities 24,531 37,170 47,238 89,973 50,602 Customer advances 137,153 113,996 88,672 115,609 123,052 Coal mine reclamation 212,785 231,597 221,910 201,984 198,292 Deferred investment tax credit 200,405 205,575 210,162 187,080 178,607 Unrecognized tax benefits 22,517 13,115 10,046 9,524 19,377 Other 147,640 148,909 156,784 186,345 188,286

Total deferred credits and other 6,028,301 5,895,787 5,753,610 5,404,093 5,204,072

EQUITYCommon stock, no par value 2,634,265 2,614,805 2,596,030 2,541,668 2,512,970 Treasury stock at cost (4,825) (5,624) (4,133) (5,806) (3,401)

Total common stock 2,629,440 2,609,181 2,591,897 2,535,862 2,509,569 Retained earnings 2,641,183 2,442,511 2,255,547 2,092,803 1,926,065 Accumulated other comprehensive loss (47,708) (45,002) (43,822) (44,748) (68,141) Total shareholders' equity 5,222,915 5,006,690 4,803,622 4,583,917 4,367,493 Noncontrolling interests 125,790 129,040 132,290 135,540 151,609

Total equity 5,348,705 5,135,730 4,935,912 4,719,457 4,519,102

TOTAL LIABILITIES AND EQUITY 17,664,202$ 17,019,082$ 16,004,253$ 15,028,258$ 14,288,890$





CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

CASH FLOWS FROM OPERATING ACTIVITIESNet income 530,540$ 507,949$ 461,527$ 456,190$ 423,696$

Gain on sale of energy-related products and services business - - Depreciation and amortization including nuclear fuel 650,955 610,629 565,011 571,664 496,487 Deferred fuel and purchased power (78,277) (48,405) (60,303) 14,997 (26,927) Deferred fuel and purchased power amortization 116,750 (14,767) 38,152 1,617 40,757 Allowance for equity funds used during construction (52,319) (47,011) (42,140) (35,215) (30,790) Deferred income taxes 117,355 248,164 206,870 236,819 159,023 Deferred investment tax credit (5,170) (4,587) 23,082 8,473 26,246 Change in derivative instruments fair value - (373) (403) (381) 339 Stock compensation 19,547 20,502 18,883 18,756 33,059 Changes in current assets and liabilities:

Customer and other receivables 37,530 (93,797) (2,489) (22,219) (52,672) Accrued unbilled revenues (24,736) (4,485) (11,709) 4,293 (3,737) Materials, supplies and fossil fuel (6,103) (6,683) (1,491) (23,945) 3,724 Income tax receivable - 3,751 (3,162) 2,509 132,419 Other current assets 33,844 (10,580) (23,324) 3,145 4,384 Accounts payable (14,602) (23,769) (66,917) (34,266) (353) Accrued taxes 6,597 9,982 447 (2,013) 9,615 Other current liabilities 28,174 19,154 29,594 603 17,892

Change in margin and collateral accounts - assets 143 (300) 673 (324) (343) Change in margin and collateral accounts - liabilities (2,211) (533) 17,735 22,776 (24,975) Change in long-term income tax receivable - - - - - Change in unrecognized tax benefits (1,235) 5,891 1,628 (10,328) 2,778 Change in long-term regulatory liabilities (109,284) 45,764 14,682 (20,535) 59,618 Change in other long-term assets 78,604 (68,480) (60,163) 2,426 (56,562) Change in other long-term liabilities (48,958) (29,980) (82,793) (100,715) (114,051)

Net cash flow provided by operating activities 1,277,144 1,118,036 1,023,390 1,094,327 1,099,627

CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures (1,178,169) (1,408,774) (1,275,472) (1,076,087) (910,634) Contributions in aid of construction 27,716 23,708 64,296 46,546 20,325 Allowance for borrowed funds used during construction (25,180) (22,112) (19,970) (16,259) (15,457) Proceeds from nuclear decommissioning trust sales 653,033 542,246 633,410 478,813 356,195 Investment in nuclear decommissioning trust (672,165) (544,527) (635,691) (496,062) (373,444) Other 1,941 (19,078) (18,651) (3,184) 347

Net cash flow used for investing activities (1,192,824) (1,428,537) (1,252,078) (1,066,233) (922,668)

CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt 445,245 848,239 693,151 842,415 731,126 Repayment of long-term debt (182,000) (125,000) (370,430) (415,570) (652,578) Short-term borrowings and (repayments)-net (7,000) (107,800) 137,200 (147,400) (5,725) Short-term debt borrowings under revolving credit facility 45,000 58,000 40,000 - - Short-term debt repayments under revolving credit facility (57,000) (32,000) - - - Dividends paid on common stock (308,892) (289,793) (274,229) (260,027) (246,671) Common stock equity issuance and purchases - net (5,055) (13,390) (4,867) 19,373 15,288 Distributions to noncontrolling interests (22,744) (22,744) (22,744) (35,002) (20,482) Other - - - 1 161

Net cash flow used for financing activities (92,446) 315,512 198,081 3,790 (178,881)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,126) 5,011 (30,607) 31,884 (1,922)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,892 8,881 39,488 7,604 9,526

CASH AND CASH EQUIVALENTS AT END OF YEAR 5,766$ 13,892$ 8,881$ 39,488$ 7,604$




ARIZONA PUBLIC SERVICE COMPANY

CONSOLIDATED STATEMENTS OF INCOME(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

OPERATING REVENUE 3,688,342$ 3,557,652$ 3,498,090$ 3,494,900$ 3,490,998$

OPERATING EXPENSESFuel and purchased power 1,094,020 992,744 1,082,625 1,101,298 1,179,829 Operations and maintenance 969,227 917,983 902,467 886,708 914,556 Depreciation and amortization 580,694 532,423 484,909 494,298 417,264 Taxes other than income taxes 212,136 183,254 166,064 171,808 172,292 Other expenses 2,497 6,709 3,540 3,856 1,532

Total 2,858,574 2,633,113 2,639,605 2,657,968 2,685,473

OPERATING INCOME 829,768 924,539 858,485 836,932 805,525

OTHER INCOME (DEDUCTIONS)Allowance for equity funds used during construction 52,319 47,011 42,140 35,215 30,790 Pension and OPEB non-service credits - net 51,242 24,371 20,224 30,425 29,230 Other income 22,746 3,013 271 291 9,243 Other expense (15,292) (13,913) (10,554) (11,706) (8,278)

Total 111,015 60,482 52,081 54,225 60,985

INTEREST EXPENSEInterest charges 231,391 214,163 202,571 192,292 197,287 Allowance for borrowed funds used during construction (25,180) (22,112) (19,481) (16,183) (15,457)

Total 206,211 192,051 183,090 176,109 181,830

INCOME BEFORE INCOME TAXES 734,572 792,970 727,476 715,048 684,680

INCOME TAXES 144,814 269,168 245,842 245,841 237,360

NET INCOME 589,758 523,802 481,634 469,207 447,320

Less: Net income attributable to noncontrolling interests 19,493 19,493 19,493 18,933 26,101

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDER 570,265$ 504,309$ 462,141$ 450,274$ 421,219$



CONSOLIDATED BALANCE SHEETS(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

ASSETS UTILITY PLANT

Plant in service and held for future use 18,733,142$ 17,654,078$ 17,228,787$ 16,218,724$ 15,539,811$ Accumulated depreciation and amortization (6,362,771) (6,041,965) (5,881,941) (5,590,937) (5,394,650)

Net 12,370,371 11,612,113 11,346,846 10,627,787 10,145,161 Construction work in progress 1,170,062 1,266,636 989,497 812,845 682,807 Palo Verde sale leaseback, net of accumulated depreciation 105,775 109,645 113,515 117,385 121,255 Intangible assets, net of accumulated amortization 262,746 257,028 89,868 123,820 119,600 Nuclear fuel, net of accumulated amortization 120,217 117,408 119,004 123,139 125,201

Total property, plant and equipment 14,029,171 13,362,830 12,658,730 11,804,976 11,194,024

INVESTMENTS AND OTHER ASSETSNuclear decommissioning trust 851,134 871,000 779,586 735,196 713,866 Other special use funds 236,101 30,358 13,545 - - Other assets 40,817 36,796 34,776 46,561 50,982

Total investments and other assets 1,128,052 938,154 827,907 781,757 764,848

CURRENT ASSETSCash and cash equivalents 5,707 13,851 8,840 22,056 4,515 Customer and other receivables 257,654 292,791 262,611 274,428 297,712 Accrued unbilled revenues 137,170 112,434 107,949 96,240 100,533 Allowance for doubtful accounts (4,069) (2,513) (3,037) (3,125) (3,094) Materials and supplies (at average cost) 269,065 262,630 252,777 234,234 218,889 Fossil fuel (at average cost) 25,029 25,258 28,608 45,697 37,097 Income tax receivable - - 11,174 - - Assets from risk management activities 1,113 1,931 19,694 15,905 13,785 Deferred fuel and purchased power regulatory asset 37,164 75,637 12,465 - 6,926 Other regulatory assets 129,738 172,451 94,410 149,555 129,808 Deferred income taxes - - - - 55,253 Other current assets 35,111 41,055 41,849 35,765 38,693

Total current assets 893,682 995,525 837,340 870,755 900,117

DEFERRED DEBITSRegulatory assets 1,342,941 1,202,302 1,313,428 1,214,146 1,054,087 Assets for other postretirement benefits 43,212 265,139 162,911 182,625 149,260 Other 128,265 129,801 130,859 127,923 128,026

Total deferred debits 1,514,418 1,597,242 1,607,198 1,524,694 1,331,373

TOTAL ASSETS 17,565,323$ 16,893,751$ 15,931,175$ 14,982,182$ 14,190,362$




CONSOLIDATED BALANCE SHEETS(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014


CAPITALIZATIONCommon stock 178,162$ 178,162$ 178,162$ 178,162$ 178,162$ Additional paid-in capital 2,721,696 2,571,696 2,421,696 2,379,696 2,379,696 Retained earnings 2,788,256 2,533,954 2,331,245 2,148,493 1,968,718 Accumulated other comprehensive loss (27,107) (26,983) (25,423) (27,097) (48,333) Total shareholder equity 5,661,007 5,256,829 4,905,680 4,679,254 4,478,243 Noncontrolling interests 125,790 129,040 132,290 135,540 151,609 Total equity 5,786,797 5,385,869 5,037,970 4,814,794 4,629,852 Long-term debt less current maturities 4,189,436 4,491,292 4,021,785 3,337,391 2,881,573

Total capitalization 9,976,233 9,877,161 9,059,755 8,152,185 7,511,425

CURRENT LIABILITIESShort-term borrowings - - 135,500 - 147,400 Current maturities of long-term debt 500,000 82,000 - 357,580 383,570 Accounts payable 266,277 247,852 259,161 291,574 289,930 Accrued taxes 176,357 157,349 130,576 144,488 131,110 Accrued interest 60,228 55,533 52,525 56,003 52,358 Common dividends payable 82,700 77,700 72,900 69,400 65,800 Customer deposits 91,174 70,388 82,520 73,073 72,307 Deferred income taxes - - - - - Liabilities from risk management activities 35,506 59,252 25,836 77,716 59,676 Liabilities for asset retirements 19,842 4,192 8,703 28,573 32,462 Deferred fuel and purchased power regulatory liability - - - 9,688 - Regulatory liabilities 165,876 100,086 99,899 136,078 130,549 Other current liabilities 178,137 243,922 226,417 180,535 167,302

Total current liabilities 1,576,097 1,098,274 1,094,037 1,424,708 1,532,464

DEFERRED CREDITS AND OTHERDeferred income taxes 1,812,664 1,742,485 2,999,295 2,764,489 2,571,365 Regulatory liabilities 2,325,976 2,452,536 948,916 994,152 1,051,196 Liabilities for asset retirements 706,703 666,527 607,234 415,003 358,288 Liabilities for pension benefits 425,404 306,542 488,253 459,065 424,508 Customer advances 137,153 113,996 88,672 115,609 123,052 Liabilities from risk management activities 24,531 37,170 47,238 89,973 50,602 Coal mine reclamation 212,785 215,830 206,645 201,984 198,292 Deferred investment tax credit 200,405 205,575 210,162 187,080 178,607 Unrecognized tax benefits 41,861 43,876 37,408 35,251 45,740 Other 125,511 133,779 143,560 142,683 144,823

Total deferred credits and other 6,012,993 5,918,316 5,777,383 5,405,289 5,146,473

TOTAL LIABILITIES AND EQUITY 17,565,323$ 16,893,751$ 15,931,175$ 14,982,182$ 14,190,362$




CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

CASH FLOWS FROM OPERATING ACTIVITIESNet income 589,758$ 523,802$ 481,634$ 469,207$ 447,320$

Depreciation and amortization including nuclear fuel 649,295 608,935 564,091 571,540 496,393 Deferred fuel and purchased power (78,277) (48,405) (60,303) 14,997 (26,927) Deferred fuel and purchased power amortization 116,750 (14,767) 38,152 1,617 40,757 Allowance for equity funds used during construction (52,319) (47,011) (42,140) (35,215) (30,790) Deferred income taxes 59,927 249,465 221,167 223,069 155,401 Deferred investment tax credit (5,170) (4,587) 23,082 8,473 26,246 Change in derivative instruments fair value - (373) (403) (381) 339

Changes in current assets and liabilities:Customer and other receivables 35,406 (68,040) (1,601) (21,040) (52,466) Accrued unbilled revenues (24,736) (4,485) (11,709) 4,293 (3,737) Materials, supplies and fossil fuel (6,206) (6,503) (1,454) (23,945) 3,724 Income tax receivable - 11,174 (14,567) - 135,179 Other current assets 31,707 (6,775) (21,640) 4,498 3,766 Accounts payable (15,608) (26,561) (67,543) (34,891) (2,355) Accrued taxes 19,008 26,773 (13,912) 13,378 8,650 Other current liabilities 25,070 27,912 5,097 (3,718) 33,970

Change in margin and collateral accounts - assets 143 (300) 673 (324) (343) Change in margin and collateral accounts - liabilities (2,211) (533) 17,735 22,776 (24,975) Change in unrecognized tax benefits (1,235) 5,891 1,628 (10,328) 2,778 Change in long-term regulatory liabilities (109,284) 45,764 14,682 (20,535) 59,618 Change in long-term income tax receivable - - - - - Change in other long-term assets 77,952 (78,540) (45,866) (813) (62,739) Change in other long-term liabilities (55,169) (31,106) (76,855) (82,628) (85,642)

Net cash flow provided by operating activities 1,254,801 1,161,730 1,009,948 1,100,030 1,124,167

CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures (1,169,061) (1,381,930) (1,248,010) (1,072,053) (910,084) Contributions in aid of construction 27,716 23,708 64,296 46,546 20,325 Allowance for borrowed funds used during construction (25,180) (22,112) (19,481) (16,183) (15,457) Proceeds from nuclear decommissioning trust sales 653,033 542,246 633,410 478,813 356,195 Investment in nuclear decommissioning trust (672,165) (544,527) (635,691) (496,062) (373,444) Other (1,789) (18,538) (13,865) (1,093) 347

Net cash flow used for investing activities (1,187,446) (1,401,153) (1,219,341) (1,060,032) (922,118)

CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt 295,245 549,478 693,151 842,415 606,126 Repayment of long-term debt (182,000) - (370,430) (415,570) (527,578) Short-term borrowings and (repayments) - net - (135,500) 135,500 (147,400) (5,725) Short-term debt borrowings under revolving credit facility 25,000 - - - - Short-term debt repayments under revolving credit facility (25,000) - - - - Dividends paid on common stock (316,000) (296,800) (281,300) (266,900) (253,600) Equity infusion from Pinnacle West 150,000 150,000 42,000 - - Noncontrolling interests (22,744) (22,744) (22,744) (35,002) (20,482)

Net cash flow provided by (used for) financing activities (75,499) 244,434 196,177 (22,457) (201,259)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,144) 5,011 (13,216) 17,541 790

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,851 8,840 22,056 4,515 3,725

CASH AND CASH EQUIVALENTS AT END OF YEAR 5,707$ 13,851$ 8,840$ 22,056$ 4,515$





LONG-TERM DEBT SCHEDULES(DOLLARS IN THOUSANDS)

2018 2017 2016 2015 2014

TERM LOANSLoan due December 31, 2017 -$ -$ 125,000$ 125,000$ 125,000$ Loan due December 21, 2020 150,000 - - - -

NOTES PAYABLE - - - - -

OTHER LONG-TERM DEBT2.25% unsecured notes due November 30, 2020 300,000 300,000 - - -

Unamortized debt costs, discount and premium (1,203) (1,579) - - - Total long-term debt 298,797 298,421 - - - LESS CURRENT MATURITIES (125,000) - -

TOTAL PINNACLE WEST LONG-TERM DEBT LESS CURRENT MATURITIES 448,797$ 298,421$ -$ 125,000$ 125,000$


LONG-TERM DEBT SCHEDULES(DOLLARS IN THOUSANDS)

2018 2017 2016 2015 2014

POLLUTION CONTROL BONDSDue May 1, 2024 49,400$ 49,400$ 49,400$ 49,400$ 49,400$ Due September 1, 2024 65,750 65,750 65,750 65,750 65,750 Due May 1, 2029 35,975 67,975 67,975 67,975 99,975 Due November 1, 2033 - - - 16,870 16,870 Due June 1, 2034 - - - 76,850 147,000 Due April 1, 2038 - - - 26,710 26,710 Total pollution control bonds 151,125 183,125 183,125 303,555 405,705

OTHER LONG-TERM DEBT4.65% unsecured notes due May 15, 2015 - - - - 300,000 6.25% unsecured notes due August 1, 2016 - - - 250,000 250,000 8.75% unsecured notes due March 1, 2019 500,000 500,000 500,000 500,000 500,000 2.20% unsecured notes due January 15, 2020 250,000 250,000 250,000 250,000 - 3.35% unsecured notes due June 15, 2024 250,000 250,000 250,000 250,000 250,000 3.15% unsecured notes due May 15, 2025 300,000 300,000 300,000 300,000 - 2.55% unsecured notes due September 15, 2026 250,000 250,000 250,000 - - 2.95% unsecured notes due September 15, 2027 300,000 300,000 - - - 5.625% unsecured notes due May 15, 2033 200,000 200,000 200,000 200,000 200,000 5.50% unsecured notes due September 1, 2035 250,000 250,000 250,000 250,000 250,000 6.875% unsecured notes due August 1, 2036 150,000 150,000 150,000 150,000 150,000 5.05% unsecured notes due September 1, 2041 300,000 300,000 300,000 300,000 300,000 4.50% unsecured notes due April 1, 2042 425,000 425,000 425,000 425,000 425,000 4.70% unsecured notes due January 15, 2044 250,000 250,000 250,000 250,000 250,000 4.35% unsecured notes due November 15, 2045 500,000 500,000 250,000 250,000 - 3.75% unsecured notes due May 15, 2046 350,000 350,000 350,000 - - 4.20% unsecured notes due August 15, 2048 300,000 - - - - APS Term Loan - 150,000 150,000 50,000 - Palo Verde sale leaseback lessor notes - - - - 13,420 Total other long-term debt 4,575,000 4,425,000 3,875,000 3,425,000 2,888,420

Unamortized debt costs, discount and premium (36,689) (34,833) (36,340) (33,584) (28,982) Total long-term debt 4,689,436 4,573,292 4,021,785 3,694,971 3,265,143

LESS CURRENT MATURITIESSenior notes (500,000) - - (250,000) (300,000) Term Loans (50,000) - - - Pollution control bonds (32,000) - (107,580) (70,150) Palo Verde sale leaseback lessor notes - - - (13,420)

Total current maturities (500,000) (82,000) - (357,580) (383,570)

TOTAL APS LONG-TERM DEBT LESS CURRENT MATURITIES 4,189,436$ 4,491,292$ 4,021,785$ 3,337,391$ 2,881,573$

WEIGHTED-AVERAGE INTEREST RATE ON LONG-TERM DEBT AT YEAR-END 4.59% 4.52% 4.61% 4.96% 5.29%





CUSTOMER DATA

YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

CUSTOMERS - AVERAGEResidential 1,100,816 1,080,665 1,061,814 1,046,989 1,033,728 Commercial 129,593 128,696 126,662 125,579 124,460 Industrial 3,345 3,665 3,523 3,444 3,429 Irrigation 382 393 322 300 299 Other 1,314 1,208 1,190 1,182 1,163

Total retail 1,235,450 1,214,626 1,193,511 1,177,494 1,163,079 Sales for resale 38 40 46 47 55

Total average customers 1,235,488 1,214,666 1,193,557 1,177,541 1,163,134

INCREASE OVER PRIOR YEAR 1.7% 1.8% 1.4% 1.2% 1.4%

CUSTOMERS - END OF YEARResidential 1,115,915 1,093,437 1,073,096 1,059,292 1,044,791 Commercial 131,724 129,132 127,121 125,957 124,984 Industrial 3,240 3,522 3,650 3,462 3,462 Irrigation 382 384 389 300 298 Other 1,273 1,257 1,174 1,187 1,172

Total retail 1,252,534 1,227,732 1,205,430 1,190,198 1,174,707 Sales for resale 49 33 48 44 53

Total end of year customers 1,252,583 1,227,765 1,205,478 1,190,242 1,174,760

INCREASE OVER PRIOR YEAR 2.0% 1.8% 1.3% 1.3% 1.2%

LOADS AND RESOURCES AT PEAK


PEAK LOAD (kW)Actual 7,320,000 7,363,000 7,051,000 7,031,000 7,006,500 Weather-normalized 7,208,000 6,999,000 7,165,600 6,977,800 7,008,200

Increase (decrease) vs. prior yearActual (0.6)% 4.4% 0.3% 0.3% 1.2%Weather-normalized 3.0% (2.3)% 2.7% (0.4)% (0.2)%

FIRM POWER SALES (kW) 1,000 5,000 44,000 337,000 388,616

RESOURCES AVAILABLE AT PEAK (kW)Generating capacity 5,918,000 5,079,000 5,920,000 5,695,000 6,152,200 Purchase power contracts (a) 2,725,000 3,359,000 3,272,000 3,555,000 3,107,000

Total resources 8,643,000 8,438,000 9,192,000 9,250,000 9,259,200

RESERVE MARGIN 18.1% 14.5% 29.7% 26.8% 25.8%

ANNUAL LOAD FACTOR - NET 47.0% 46.3% 48.0% 48.3% 48.6%

(a) Including firm seasonal purchases and unit-contingent purchases.



FINANCIAL STATISTICS

2018 2017 2016 2015 2014

Non-cash income as percent of earnings (a) 2.7% 25.4% 1.5% 13.8% 16.7%Net cash flow as percent of capital expenditures (b) 75.4% 74.4% 78.1% 95.3% 117.8%

(a) Non-cash income includes capitalized interest, AFUDC equity, deferred fuel costs and other significant items resulting from regulatory orders.(b) Includes recovery of fuel costs through various PSA adjustors and surcharges, as well as base rates.

CAPITALIZATION RATIOS

2018 2017 2016 2015 2014

Long-term debt excluding current maturities 40.0% 45.1% 43.7% 39.2% 35.8%Current maturities of long-term debt 4.8% 0.8% 0.0% 4.2% 4.8%Short-term debt 0.0% 0.0% 1.5% 0.0% 1.8% Total debt 44.8% 45.9% 45.2% 43.4% 42.4%Common equity 55.2% 54.1% 54.8% 56.6% 57.6% Total capitalization 100.0% 100.0% 100.0% 100.0% 100.0%

Adjusted debt as percent of total capital (a) 47.6% 48.3% 49.2% 47.9% 48.1%

(a) Debt adjusted to include purchase power agreements and other imputed debt.





ELECTRIC OPERATING REVENUE ANALYSIS(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

REGULATED ELECTRICITY SEGMENTRetail sales

Residential 1,867,369$ 50.7% 1,792,453$ 50.4% 1,729,901$ 49.6% 1,701,968$ 48.7% 1,639,833$ 47.0%Commercial 1,419,694 38.5% 1,400,818 39.4% 1,392,293 39.9% 1,375,004 39.4% 1,349,586 38.7%Industrial 185,869 5.0% 189,523 5.3% 188,893 5.4% 185,070 5.3% 186,632 5.3%Irrigation 1,391 0.0% 1,430 0.0% 1,382 0.1% 1,340 0.1% 1,333 0.1%Other 21,939 0.6% 22,793 0.6% 22,760 0.7% 22,632 0.6% 21,196 0.6%

Total retail 3,496,262 94.9% 3,407,017 95.9% 3,335,229 95.6% 3,286,014 94.1% 3,198,580 91.7%Wholesale revenue on delivered electricity

Traditional contracts 10,203 0.3% 11,210 0.3% 9,878 0.3% 11,982 0.3% 51,810 1.5%Off-system sales 96,833 2.6% 69,237 1.9% 84,408 2.4% 136,847 3.9% 173,829 5.0%Native load hedge liquidation 2,108 0.1% 184 0.0% - 0.0% - 0.0% (4) 0.0%

Transmission for others 60,230 1.6% 45,807 1.3% 28,315 0.8% 34,045 1.0% 30,047 0.8%Other miscellaneous services 18,839 0.5% 20,685 0.6% 32,146 0.9% 23,469 0.7% 34,684 1.0%

Total electric operating revenues 3,684,475$ 100.0% 3,554,140$ 100.0% 3,489,976$ 100.0% 3,492,357$ 100.0% 3,488,946$ 100.0%

INCREASE (DECREASE) VS. PRIOR YEARRetail revenues 2.6% 2.2% 1.5% 2.7% (1.1)%Total electric operating revenues 3.7% 1.8% (0.1)% 0.1% 1.1%

AVERAGE RETAIL REVENUE PER KWHResidential 14.16 ¢ 13.57 ¢ 13.11 ¢ 12.93 ¢ 12.77 ¢Commercial 11.46 ¢ 11.31 ¢ 11.22 ¢ 11.12 ¢ 10.94 ¢Industrial 8.40 ¢ 8.34 ¢ 8.37 ¢ 8.17 ¢ 8.26 ¢Irrigation 13.39 ¢ 12.58 ¢ 12.26 ¢ 12.27 ¢ 12.07 ¢Total retail 12.51 ¢ 12.16 ¢ 11.90 ¢ 11.76 ¢ 11.60 ¢

REVENUE PER AVERAGE CUSTOMER (dollars)Residential 1,696$ 1,659$ 1,629$ 1,626$ 1,586$ Commercial and industrial 12,078$ 12,015$ 12,146$ 12,091$ 12,012$

ELECTRIC SALES ANALYSIS


ELECTRIC SALES (MWH)

REGULATED ELECTRICITY SEGMENTRetail sales

Residential 13,190,481 43.3% 13,207,135 42.8% 13,195,346 41.5% 13,159,754 38.4% 12,837,752 39.2%Commercial 12,388,412 40.7% 12,380,386 40.1% 12,411,366 39.0% 12,364,153 36.1% 12,337,218 37.6%Industrial 2,213,873 7.3% 2,272,833 7.4% 2,256,413 7.1% 2,264,610 6.6% 2,258,224 6.9%Irrigation 10,395 0.0% 11,368 0.0% 11,275 0.0% 10,923 0.0% 11,039 0.0%Other 140,225 0.5% 146,289 0.5% 147,602 0.5% 151,051 0.4% 140,300 0.4%

Total retail 27,943,387 91.8% 28,018,011 90.7% 28,022,002 88.2% 27,950,491 81.5% 27,584,533 84.1%Wholesale electricity delivered

Traditional contracts 107,502 0.4% 168,829 0.5% 97,417 0.3% 179,228 0.5% 714,190 2.2%Off-system sales 2,395,436 7.9% 2,658,885 8.6% 3,669,157 11.5% 6,160,903 18.0% 4,481,820 13.7%Retail load hedge management - 0.0% 47,562 0.2% - 0.0% - 0.0% - 0.0%

Total wholesale 2,502,938 8.2% 2,875,276 9.3% 3,766,574 11.8% 6,340,131 18.5% 5,196,010 15.9%

Total electric sales 30,446,325 100.0% 30,893,287 100.0% 31,788,576 100.0% 34,290,622 100.0% 32,780,543 100.0%

INCREASE (DECREASE) VS. PRIOR YEAR Retail sales (0.3)% (0.0)% 0.3% 1.3% (1.8)%Total electric sales (1.4)% (2.7)% (7.3)% 4.6% 2.3%

ANNUAL USE PER AVERAGE CUSTOMER (KWH)Residential 11,982 12,221 12,427 12,569 12,419 Commercial and industrial 109,843 110,706 112,669 113,381 114,126



SOURCE AND DISPOSITION OF ELECTRIC ENERGY AND ENERGY FUEL MIX


SOURCE OF ENERGY (MWH)Steam generation

Nuclear 9,051,949 9,410,980 9,383,642 9,463,927 9,406,151 Coal 7,816,625 7,140,247 6,687,030 10,920,521 11,550,452 Gas 246,720 200,269 133,016 105,522 74,245

Combustion turbinesGas 694,009 610,823 411,097 130,153 224,756 Oil 1,734 957 397 442 667

Combined cycleGas 6,913,064 7,103,583 7,725,209 6,302,572 5,218,659

RenewablesSolar 595,422 565,907 501,181 529,095 457,046 Other - - - - -

Total generation 25,319,523 25,032,766 24,841,572 27,452,232 26,931,976 Purchased power (a)

Firm load 6,528,329 6,957,921 7,565,529 7,441,606 7,063,165 Marketing and trading 796,888 769,754 1,027,272 380,237 453,307

Total purchased power 7,325,217 7,727,675 8,592,801 7,821,843 7,516,472 Total source of energy 32,644,740 32,760,441 33,434,373 35,274,075 34,448,448

DISPOSITION OF ENERGY (MWH)Sales to ultimate customers 27,943,387 28,018,011 28,022,002 27,950,491 27,584,533 Sales for resale (a) 2,502,938 2,875,276 3,766,574 6,340,131 5,196,010 Losses and company use 2,198,415 1,867,154 1,645,797 983,453 1,667,905 Total disposition of energy 32,644,740 32,760,441 33,434,373 35,274,075 34,448,448

ENERGY FUEL MIX Nuclear 27.7% 28.7% 28.1% 26.8% 27.2%Coal 23.9% 21.8% 20.0% 31.0% 33.5%Gas and oil 24.1% 24.2% 24.7% 18.5% 16.2%Renewables 1.8% 1.7% 1.5% 1.5% 1.3%Purchased power and interchange - net 22.4% 23.6% 25.7% 22.2% 21.8%Total 100.0% 100.0% 100.0% 100.0% 100.0%

(a) Purchased power and sales for resale include interchange purchases and sales, respectively.

POWER SUPPLY ADJUSTOR ("PSA")(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2018 2017 2016 2015 2014

75,637$ 12,465$ (9,689)$ 6,925$ 20,755$ 75,828 48,154 61,457 (14,774) 26,559

- - - - - 2,451 251 (1,151) (223) -

(116,751) 14,767 (38,152) (1,617) (40,389) 37,164$ 75,637$ 12,465$ (9,689)$ 6,925$ Deferred fuel and purchased power regulatory asset (liability) - end of year

Deferred fuel and purchased power regulatory asset (liability) - beginning of yearDeferred fuel and purchased power costs - current periodRegulatory disallowanceInterest on deferred fuelAmounts recovered through revenues


GENERATION RESOURCES (NET ACCREDITED CAPACITY)

IN SERVICE AS OF DECEMBER 31, 2018 LocationOwnership or

Interest (a)Number of Units

APS Share (MW)

NUCLEAR-FUELED STEAM PLANT Arizona Public Service Company* 29.1%Palo Verde Generating Station Units 1, 2 and 3 (a) Wintersburg, Arizona 29.1% 3 1,146 Salt River Project 17.5%

El Paso Electric Company 15.8%COAL-FUELED STEAM PLANTS Southern California Edison 15.8%

Four Corners Power Plant Units 4 and 5 (b) Farmington, New Mexico 63% 2 970 PNM Resources 10.2%Cholla Power Plant Units 1 and 3 (c) Joseph City, Arizona 100% 2 387 Southern California Public Power Authority 5.9%Navajo Generating Station Units 1, 2 and 3 Page, Arizona 14% 3 315 L.A. Department of Water and Power 5.7%

1,672 GAS- OR OIL-FUELED STEAM PLANTS

Ocotillo (d) Tempe, Arizona - - -

GAS- OR OIL-FUELED COMBUSTION TURBINES Arizona Public Service Company* 63%Sundance Casa Grande, Arizona 100% 10 420 Public Service Company of New Mexico 13%Yucca Yuma, Arizona 100% 6 243 Salt River Project 10%West Phoenix Phoenix, Arizona 100% 2 110 Tucson Electric Power 7%Ocotillo (d) Tempe, Arizona 100% 2 110 Navajo Transitional Energy Company, LLC 7%Saguaro Red Rock, Arizona 100% 3 189 Fairview Douglas, Arizona 100% 1 16

1,088 GAS- OR OIL-FUELED COMBINED CYCLE PLANT

Redhawk Arlington, Arizona 100% 2 984 Salt River Project* 42.9%West Phoenix Phoenix, Arizona 100% 5 887 U.S. Bureau of Reclamation 24.3%

1,871 Arizona Public Service Company 14.0%SOLAR GENERATION NV Energy 11.3%

Hyder, Hyder II (e) Hyder, Arizona 100% 2 30 Tucson Electric Power 7.5%Foothills (e) Yuma, Arizona 100% 1 35 Paloma (e) Gila Bend, Arizona 100% 1 17 * Plant OperatorCotton Center (e) Gila Bend, Arizona 100% 1 17 Gila Bend (e) Gila Bend, Arizona 100% 1 32 Chino Valley Chino Valley, Arizona 100% 1 19 Luke Air Force Base Glendale, AZ 100% 1 10 Desert Star (e) Buckeye, AZ 100% 1 10 Red Rock Red Rock, AZ 100% 1 40 Various Multiple Arizona Facilities 100% 28

238 TOTAL 6,015 (a) APS owns about 17% of Palo Verde Unit 2 and leases about 12.1% of Unit 2, resulting in a 29.1% combined ownership and leasehold interest in Unit 2.(b) Four Corners Unit 1,2,3 retired as of December 30, 2013.(c) Cholla Unit 2 retired October 1, 2015.(d) Ocotillo Steam Units 1 and 2 were retired on January 10, 2019. Units 3 through 7 are expected to go into service by the middle of 2019 and will increase generation capacity by 510 MW.(e) APS is under contract to add battery storage at these AZ Sun sites and anticipates such storage facilities could be in service by mid-2020.

POWER PLANT OPERATING PERFORMANCE


NUCLEAR (NET CAPACITY FACTORS)Palo Verde Unit 1 97.7% 91.2% 87.5% 101.0% 90.1%Palo Verde Unit 2 82.2% 92.0% 101.3% 90.5% 90.3%Palo Verde Unit 3 90.7% 98.1% 90.9% 91.4% 100.7%Palo Verde site average 90.2% 93.8% 93.2% 94.3% 93.7%

COAL (NET CAPACITY FACTORS)Four Corners 55.3% 51.0% 54.4% 76.6% 65.6%Cholla 50.1% 48.9% 18.1% 53.9% 71.9%Navajo 51.4% 41.8% 48.9% 50.2% 71.8%Total coal average 53.4% 48.7% 45.5% 64.8% 68.2%

GAS/OIL (NET CAPACITY FACTORS)Redhawk 45.9% 51.0% 59.7% 52.7% 42.7%West Phoenix 34.2% 31.2% 29.3% 23.3% 12.7%Other (a) 8.7% 6.9% 4.8% 2.3% 2.4%Total gas/oil average 28.2% 29.8% 26.7% 23.7% 13.0%

GAS/OIL (EQUIVALENT AVAILABILITY FACTORS)Redhawk 79.2% 93.4% 96.1% 96.1% 83.5%West Phoenix 68.4% 81.2% 84.4% 74.6% 78.9%Other (a) 82.0% 86.2% 86.4% 88.9% 83.5%Total gas/oil average 76.9% 86.8% 88.8% 88.4% 83.4%

(a) Includes Ocotillo, Saguaro, Sundance, Yucca, and Douglas.

Palo Verde Generating StationUnits 1, 2 and 3 Ownership

Four Corners Power PlantUnits 4 and 5 Ownership

Navajo Generating StationUnits 1, 2 and 3 Ownership


RATE REGULATION

Effective Dates Base Fuel RateAugust 2017 - Present 0.0302$ July 2012 - August 2017 0.0321$ January 2010 - June 2012 0.0376$

Commissioner Current Term January 2007 - December 2009 0.0325$ Commissioner Since Expires April 2005 - June 2007 0.0207$ Bob Burns (Rep.) (Chairman) January 2013 January 2021 (a)Andy Tobin (Rep.) February 2016 January 2021Boyd Dunn (Rep.) January 2017 January 2021Sandra Kennedy (Dem.) January 2019 January 2023Justin Olson (Rep.) October 2017 January 2023

(a) Term-limited

The table below includes APS's net retail rate changes since 2012 ($ in millions):Annual

Type Effective Date(s) RevenueBase Rate Increase August 19, 2017 95$ Base Rate Increase July 1, 2012 -$

Demand Side Management Adjustment Clause (DSMAC)

The table below summarizes APS's transmission rate changes:

Effective Date Retail Portion Wholesale Portion TotalJune 1, 2018 (23)$ -$ (23)$

Transmission Cost Adjustor (TCA) June 1, 2017 37 (2) 35 June 1, 2016 25 - 25 June 1, 2015 (7) (11) (18) June 1, 2014 5 1 6 June 1, 2013 21 5 26 August 1, 2012 18 - 18

Retail Base Rate Changes (and Interim Adjustments) In July 2008, FERC approved an Open Access Transmission Tariff for APS to move from fixed rates to a formula rate-setting methodology in order to more accurately reflect and recover the costs that APS incurs in providing transmission services. A large portion of the rate represents charges for transmission services to serve APS’s retail customers (Retail Transmission Charges). In order to recover the Retail Transmission Charges, APS was previously required to file an application with, and obtain approval from, the ACC to reflect changes in Retail Transmission Charges through the TCA. Under the terms of the 2012 Settlement Agreement, however, an adjustment to rates to recover the Retail Transmission Charges will be made annually each June 1 and will go into effect automatically. Also, with the approval of the 2017 Settlement Agreement, a balancing account was added to the TCA. The formula rate is updated each year effective June 1 on the basis of APS’s actual cost of service, as disclosed in APS’s FERC Form 1 report for the previous fiscal year.

In 2006, the ACC adopted the Arizona Renewable Energy Standard. Under the RES, electric utilities that are regulated by the ACC must supply an increasing percentage of their retail electric energy sales from eligible renewable resources, including solar, wind, biomass, biogas and geothermal technologies. In order to achieve these requirements, the ACC allows APS to include a RES surcharge as part of customer bills to recover the approved amounts for use on renewable energy projects. Each year APS is required to file a five-year implementation plan with the ACC and seek approval for the upcoming year’s RES budget.

Each year, APS submits an annual energy efficiency implementation plan, including estimated amounts for program costs, for review by and approval of the ACC. In order to recover these estimated amounts for use on certain demand-side management programs, a surcharge is added to customer bills similar to that described above under the RES. The DSMAC surcharge allows for the recovery of energy efficiency program expenses and any earned incentives.

The PSA was initially approved by the ACC in 2005 and most recently modified in 2017. The mechanism provides for the adjustment of retail rates to reflect variations in retail fuel and purchased power costs, subject to specified parameters and procedures. See page 22 for a summary of historical PSA balances and activity.

ACC Organization

Test PeriodA historical test period is required by ACC rule; however, the ACC has discretion to consider matters subsequent to the end of the historical year.

The Environmental Improvement Surcharge allows for the recovery of carrying costs for capital expenditures associated with government-mandated environmental controls, subject to an existing cents per kWh cap on cost recovery. The cap was increased to recover up to approximately $14 million annually with the approval of the 2017 Settlement Agreement.

Recovery – The PSA rate is adjusted annually each February 1 (unless otherwise approved by the ACC). The PSA rate includes (a) a “Forward Component,” under which APS recovers or refunds differences between expected fuel and purchased power costs for the upcoming calendar year and those embedded in the Base Fuel Rate; (b) a “Historical Component,” under which differences between actual fuel and purchased power costs and those recovered through the combination of the Base Fuel Rate and the Forward Component are recovered during the next PSA Year; and (c) a “Transition Component,” under which APS may seek mid-year PSA rate changes due tolarge variances between actual fuel and purchased power costs and the combination of the Base Fuel Rate and the Forward Component.

The ACC consists of five elected commissioners with staggered terms. The terms are four years each, with a limit of two consecutive terms in office. Mid-term vacancies (due to resignation, etc.) are filled by appointment of the Governor to serve until the next general election.

Formula Transmission Tariff and Retail Transmission Cost Adjustor

The FERC continues to address issues related to standard market design for wholesale markets, regional transmission organizations to support non-discriminatory markets, and other issues related to restructuring wholesale power markets. APS is an active participant in these proceedings.

APS is subject to regulation by the U.S. Federal Energy Regulatory Commission (FERC) in certain matters which include wholesale power sales and transmission services. The FERC is composed of five commissioners who are appointed by the President, approved by Congress and serve five-year terms.

STATE REGULATIONThe Arizona Corporation Commission (ACC) regulates APS's retail electric rates and its issuance of securities. The ACC also must approve any transfer of APS's property used to provide retail electric service and must approve or receive prior notification of certain transactions between APS, Pinnacle West and their respective affiliates.

DETAILED INFORMATION ON REGULATORY MATTERS Adjustment Mechanisms Lost Fixed Cost Recovery (LFCR)Regulatory developments are discussed in detail in a number of sections of the 2018 Annual Report on Form 10-K for Pinnacle West and APS. See "Competitive Environment and Regulatory Oversight" in Item 1; "Key Financial Drivers" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7; and Note 3 of Notes to Consolidated Financial Statements, "Regulatory Matters," in Item 8.

APS has received supportive regulatory decisions that allow for more timely recovery of certain costs through the following recovery mechanisms.

Power Supply Adjustor (PSA)

Environmental Improvement Surcharge (EIS)

The LFCR mechanism permits APS to recover on an after-the-fact basis a portion of its fixed costs that would otherwise have been collected by APS in the kWh sales lost due to APS energy efficiency (EE) programs and to distributed generation (DG) such as rooftop solar arrays. The fixed costs recoverable by the LFCR mechanism established in the 2012 Settlement Agreement was approximately 3.1 cents per residential kWh lost and 2.3 cents per non-residential kWh lost. This was updated in the 2017 Settlement Agreement. The new fixed cost rates are approximately 2.5 cents per kWh for both residential and non-residential lost kWh and applies to APS EE programs and DG installed after 2015. The LFCR adjustment has a year-over-year cap of 1% of retail revenues. Any amounts left unrecovered in a particular year because of this cap can be carried over for recovery in a future year. The kWh lost from energy efficiency are based on a third-party evaluation of APS’s EE programs. DG sales losses are determined from the metered output from the DG units or if metering is unavailable, through accepted estimating techniques.

Deferrals – Beginning July 1, 2012, APS defers for recovery or refund 100% of the difference between actual retail fuel and purchased power costs (as defined) and the Base Fuel Rate. From April 2005 through June 2012, APS deferred 90% of the difference between actual retail fuel and purchased power costs (as defined) and the Base Fuel Rate. The table below summarizes the Base Fuel Rates (per kWh):

Renewable Energy Standard (RES)

Annual Increase ($ Millions)

FEDERAL REGULATION

APS recovers changes in charges for transmission services to serve retail customers through the TCA. See “Federal Regulation” for additional details on FERC formula-based rates and the TCA.


SHAREHOLDER INFORMATION

STOCK LISTING ANNUAL MEETING OF SHAREHOLDERS FORM 10-KTicker symbol: Wednesday, May 15, 2019 at 10:30 a.m. (MST) Pinnacle West's 2018 Annual Report on Form 10-K PNW on New York Stock Exchange Shareholders may participate in the Annual Meeting by filed with the Securities and Exchange Commission

logging into the following website: is available on our website or by writing to the www.virtualshareholdermeeting.com/PNW Office of the Secretary.

CORPORATE HEADQUARTERS400 North 5th StreetPhoenix, Arizona 85004 INVESTORS ADVANTAGE PLAN AND CORPORATE RESPONSIBILITY REPORTMailing address: SHAREHOLDER ACCOUNT INFORMATION The Pinnacle West Corporate ResponsibilityP.O. Box 53999 Pinnacle West offers a direct stock Report is available on our website.Phoenix, Arizona 85072-3999 purchase plan. Any interested investorMain telephone number: may purchase Pinnacle West common(602) 250-1000 stock through the Investors Advantage INVESTOR RELATIONS CONTACTS

Plan. Features of the Plan include a variety Stefanie A. Layton, Directorof options for reinvesting dividends, direct (602) 250-4541

CORPORATE WEBSITE deposit of cash dividends, automatic monthly pinnaclewest.com investment, certificate safekeeping and Michelle Clemente

more. An Investor Advantage Plan (602) 250-3752prospectus and enrollment materials

TRANSFER AGENT AND REGISTRAR may be obtained by calling Computershare at ASSOCIATION FOR INVESTORSComputershare (800) 457-2983; at Computershare's website - The Arizona Investment Council representsP.O. Box 43078 computershare.com/investor; or by writing to: the interests of investors in Arizona utilities.Providence, Rhode Island 02940-3078 Computershare If interested, send your name and address to:(800) 457-2983 P.O. Box 43078 Arizona Investment Councilcomputershare.com/investor Providence, Rhode Island 02940-3078 2100 North Central Avenue #210

Phoenix, Arizona 85004(602) 257-9200

SHAREHOLDER ADMINISTRATIVE arizonaic.orgINFORMATIONCompany contact:Jacqueline Patterson(602) [email protected]


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