APS 2012 Annual Report Download - page 59

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APS is pursuing and implementing smart grid technologies, including advanced transmission
and distribution system technologies, as well as digital meters enabling two-way communications
between the utility and its customers. Many of the products and processes resulting from these and
other alternative technologies have not yet been widely used or tested, and their use on large-scale
systems is not as advanced and established as APS’s existing technologies and equipment.
Uncertainties and unknowns related to these and other advancements in technology and equipment
could adversely affect APS’s business if national standards develop that do not embrace the current
technologies or if the technologies and equipment fail to perform as expected. In addition, widespread
installation and acceptance of these devices could enable the entry of new market participants, such as
technology companies, into the interface between APS and its customers.
We are subject to employee workforce factors that could adversely affect our business and financial
condition.
Like most companies in the electric utility industry, our workforce is aging and a number of
our employees will become eligible to retire within the next few years. Although we have undertaken
efforts to recruit and train new employees, we may not be successful. We are subject to other
employee workforce factors, such as the availability of qualified personnel, the need to negotiate
collective bargaining agreements with union employees and potential work stoppages. Exposure to
these or other employee workforce factors could negatively impact our business, financial condition or
results of operations.
We are subject to information security risks and risks of unauthorized access to our systems.
In the regular course of our business we handle a range of sensitive security, customer and
business systems information. We are subject to laws and rules issued by different agencies concerning
safeguarding and maintaining the confidentiality of this information. A security breach of our
information systems such as theft or the inappropriate release of certain types of information, including
confidential customer, employee, financial or system operating information, could have a material
adverse impact on our financial condition, results of operations or cash flows.
We operate in a highly regulated industry that requires the continued operation of sophisticated
information technology systems and network infrastructure. Despite implementation of security
measures, our technology systems are vulnerable to disability, failures or unauthorized access. Our
generation, transmission and distribution facilities, information technology systems and other
infrastructure facilities and systems and physical assets could be targets of such unauthorized access.
Failures or breaches of our systems could impact the reliability of our generation, transmission and
distribution systems and also subject us to financial harm. If our technology systems were to fail or be
breached and if we are unable to recover in a timely way, we may not be able to fulfill critical business
functions and sensitive confidential data could be compromised, which could have a material adverse
impact on our financial condition, results of operations or cash flows.
The implementation of security measures and cost of insurance addressing such activities could
increase costs and have a material adverse impact on our financial results. These types of events could
also require significant management attention and resources, and could adversely affect Pinnacle
West’s and APS’s reputation with customers and the public.