APS 2012 Annual Report Download - page 51

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You can request a copy of these documents, excluding exhibits, by contacting Pinnacle West at
the following address: Pinnacle West Capital Corporation, Office of the Secretary, Station 8602, P.O.
Box 53999, Phoenix, Arizona 85072-3999 (telephone [phone]).
ITEM 1A. RISK FACTORS
In addition to the factors affecting specific business operations identified in the description of
these operations contained elsewhere in this report, set forth below are risks and uncertainties that
could affect our financial results. Unless otherwise indicated or the context otherwise requires, the
following risks and uncertainties apply to Pinnacle West and its subsidiaries, including APS.
REGULATORY RISKS
Our financial condition depends upon APS’s ability to recover costs in a timely manner from
customers through regulated rates and otherwise execute its business strategy.
APS is subject to comprehensive regulation by several federal, state and local regulatory
agencies that significantly influence its business, liquidity, results of operations and its ability to fully
recover costs from utility customers in a timely manner. The ACC regulates APS’s retail electric rates
and the FERC regulates rates for wholesale power sales and transmission services. The profitability of
APS is affected by the rates it may charge and the timeliness of recovering costs incurred through its
rates. Consequently, our financial condition and results of operations are dependent upon the
satisfactory resolution of any APS rate proceedings and ancillary matters which may come before the
ACC and the FERC. Arizona, like certain other states, has a statute that allows the ACC to reopen
prior decisions and modify final orders under certain circumstances. The ACC must also approve
APS’s issuance of securities and any transfer of APS property used to provide retail electric service,
and must approve or receive prior notification of certain transactions between us, APS and our
respective affiliates. Decisions made by the ACC or the FERC could have a material adverse impact
on our financial condition, results of operations or cash flows.
APS’s ability to conduct its business operations and avoid fines and penalties depends upon
compliance with federal, state or local statutes, regulations and ACC requirements, and obtaining
and maintaining certain regulatory permits, approvals and certificates.
APS must comply in good faith with all applicable statutes, regulations, rules, tariffs, and
orders of agencies that regulate APS’s business, including the FERC, the NRC, EPA, the ACC and
state and local governmental agencies. These agencies regulate many aspects of APS’s utility
operations, including safety and performance, emissions, siting and construction of facilities, customer
service and the rates that APS can charge retail and wholesale customers. Failure to comply can
subject APS to, among other things, fines and penalties. For example, under the Energy Policy Act of
2005, the FERC can impose penalties (up to one million dollars per day per violation) for failure to
comply with mandatory electric reliability standards. In addition to penalties, APS may be unable to
recover certain costs if, for example, it fails to implement any of its annual ACC-approved renewable
implementation plans. APS is also required to have numerous permits, approvals and certificates from
these agencies. APS believes the necessary permits, approvals and certificates have been obtained for
its existing operations and that APS’s business is conducted in accordance with applicable laws in all
material respects. However, changes in regulations or the imposition of new or revised laws or
regulations could have an adverse impact on our results of operations. We are also unable to predict