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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission
File Number
Registrants; State of Incorporation;
Addresses; and Telephone Number
IRS Employer
Identification No.
1-8962 PINNACLE WEST CAPITAL CORPORATION
(An Arizona corporation)
400 North Fifth Street, P.O. Box 53999
Phoenix, Arizona 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, Arizona 85072-3999
(602) 250-1000
86-0011170
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class Name Of Each Exchange On Which Registered
PINNACLE WEST CAPITAL CORPORATION Common Stock,
No Par Value
New York Stock Exchange
ARIZONA PUBLIC SERVICE COMPANY None None
Securities registered pursuant to Section 12(g) of the Act:
ARIZONA PUBLIC SERVICE COMPANY Common Stock, Par Value $2.50 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
PINNACLE WEST CAPITAL CORPORATION Yes x No o
ARIZONA PUBLIC SERVICE COMPANY Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
PINNACLE WEST CAPITAL CORPORATION Yes o No x
ARIZONA PUBLIC SERVICE COMPANY Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
PINNACLE WEST CAPITAL CORPORATION Yes x No o
ARIZONA PUBLIC SERVICE COMPANY Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
PINNACLE WEST CAPITAL CORPORATION Yes x No o
ARIZONA PUBLIC SERVICE COMPANY Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
PINNACLE WEST CAPITAL CORPORATION
Large accelerated filer xAccelerated filer o
Non-accelerated filer oSmaller reporting company o
(Do not check if a smaller reporting company)
ARIZONA PUBLIC SERVICE COMPANY
Large accelerated filer oAccelerated filer o
Non-accelerated filer xSmaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of each registrant’s most recently completed second fiscal quarter:
PINNACLE WEST CAPITAL CORPORATION $6,078,967,225 as of June 30, 2013
ARIZONA PUBLIC SERVICE COMPANY $0 as of June 30, 2013
The number of shares outstanding of each registrant’s common stock as of February 14, 2014
PINNACLE WEST CAPITAL CORPORATION 110,194,366 shares
ARIZONA PUBLIC SERVICE COMPANY Common Stock, $2.50 par value, 71,264,947 shares. Pinnacle West Capital Corporation is the sole holder of
Arizona Public Service Company’s Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Pinnacle West Capital Corporation’s definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on May 21, 2014 are incorporated by reference into Part III hereof.
Arizona Public Service Company meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format allowed under that General

Table of contents

  • Page 1
    ... bid and asked price of such common equity, as of the last business day of each registrant's most recently completed second fiscal quarter: PINNACLE WEST CAPITAL CORPORATION $6,078,967,225 as of June 30, 2013 ARIZONA PUBLIC SERVICE COMPANY $0 as of June 30, 2013 The number of shares outstanding of...

  • Page 2
    Arizona Public Service Company meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.

  • Page 3
    ... Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 45 45 47 49 75 76 175 175 176 176 176 176 176 178 178 179 179 222 Directors, Executive Officers and Corporate...

  • Page 4
    ... West Phoenix Alternating Current Arizona Corporation Commission Arizona Department of Environmental Quality Allowance for Funds Used During Construction Arizona Nuclear Power Project, also known as Palo Verde Arizona Public Service Company, a subsidiary of the Company APS Energy Services Company...

  • Page 5
    ... electric markets; fuel and water supply availability; our ability to achieve timely and adequate rate recovery of our costs, including returns on debt and equity capital; our ability to meet renewable energy and energy efficiency mandates and recover related costs; risks inherent in the operation...

  • Page 6
    ... generation, transmission and distribution. BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY APS currently provides electric service to approximately 1.2 million customers. We own or lease 6,394 MW of regulated generation capacity and we hold a mix of both long-term and short-term purchased power...

  • Page 7
    Table of Contents The following map shows APS's retail service territory, including the locations of its generating facilities and principal transmission lines. 4

  • Page 8
    ... generation stations and through purchased power agreements. Resource planning is an important function necessary to meet Arizona's future energy needs. APS's sources of energy by type during 2013 were as follows: Generation Facilities APS has ownership interests in or leases the coal, nuclear, gas...

  • Page 9
    ..., a company formed by the Navajo Nation to own the mine and develop other energy projects. BHP Billiton will be retained by NTEC under contract as the mine manager and operator until July 2016. Also occurring concurrently with the closing, the Four Corners' co-owners executed a long-term agreement...

  • Page 10
    ...Nuclear Palo Verde Nuclear Generating Station - Palo Verde is a 3-unit nuclear power plant located approximately 50 miles west of Phoenix, Arizona. APS operates the plant and owns 29.1% of Palo Verde Units 1 and 3 and approximately 17% of Unit 2. In addition, APS leases approximately 12.1% of Unit...

  • Page 11
    ... to DOE's failure to meet its statutory and contractual obligations regarding acceptance of spent nuclear fuel and high level waste. APS Lawsuit for Breach of Standard Contract - In December 2003, APS, acting on behalf of itself and the participant owners of Palo Verde, filed a lawsuit against DOE...

  • Page 12
    ...of Palo Verde Units 1, 2 and 3 are currently included in APS's ACC jurisdictional rates. Decommissioning costs are recoverable through a non-bypassable system benefits charge (paid by all retail customers taking service from the APS system). See Note 20 for additional information about APS's nuclear...

  • Page 13
    ... years (APS's share is 29.1%). Natural Gas and Oil Fueled Generating Facilities APS has six natural gas power plants located throughout Arizona, consisting of Redhawk, located near Palo Verde; Ocotillo, located in Tempe (discussed below); Sundance, located in Coolidge; West Phoenix, located in...

  • Page 14
    ... electricity under various arrangements, including long-term contracts and purchases through short-term markets to supplement its owned or leased generation and hedge its energy requirements. A portion of APS's purchased power expense is netted against wholesale sales on the Consolidated Statements...

  • Page 15
    ... technologies. The renewable energy requirement is 4.5% of retail electric sales in 2014 and increases annually until it reaches 15% in 2025. In APS's 2009 retail rate case settlement agreement (the "2009 Settlement Agreement"), APS committed to have 1,700 GWh of new renewable resources in service...

  • Page 16
    ... includes executing purchased power contracts for new facilities, ongoing development of distributed energy resources and procurement of new facilities to be owned by APS. APS is developing owned solar resources through the AZ Sun Program. Under this program to date, APS estimates its investment...

  • Page 17
    ... Commercial Operation Location Date Term (Years) Net Capacity In Operation (MW AC) Net Capacity Planned/Under Development (MW AC) APS Owned Solar: AZ Sun Program: Paloma Cotton Center Hyder Phase 1 Hyder Phase 2 Chino Valley Hyder II Foothills Gila Bend Subtotal AZ Sun Program (a) Multiple...

  • Page 18
    ... made a number of programs available for utilities to develop renewable resources, improve reliability and create jobs. APS continues its work on a $3 million non-ARRA award for a high penetration photovoltaic generation study related to the Community Power Project in Flagstaff, Arizona. This award...

  • Page 19
    ...for information regarding APS's transmission rates.) During 2013, approximately 5.4% of APS's electric operating revenues resulted from such sales and services. APS's wholesale activity primarily consists of managing fuel and purchased power supplies to serve retail customer energy requirements. APS...

  • Page 20
    ... making emission control expenditures at the plant and, as a result, SCE sold its entire 48% interest in each of Units 4 and 5 of Four Corners to APS on December 30, 2013. (See "Energy Sources and Resource Planning - Generation Facilities - Coal-Fueled Generating Facilities - Four Corners" above for...

  • Page 21
    ... operations. This inventory is reported to EPA under the EPA GHG Reporting Program and is voluntarily communicated to the public in Pinnacle West's annual Corporate Responsibility Report, which is available on our website (www.pinnaclewest.com). The report provides information related to the Company...

  • Page 22
    ... new rate, APS will be required to install SCR control technology on all three of the Cholla units. APS's total costs for these postcombustion NO x controls would be approximately $200 million. This amount is not included in our current estimates for environmental capital expenditures in "Management...

  • Page 23
    ... APS retired Four Corners Units 1-3 on December 30, 2013. APS's 63% share of the costs for these controls is estimated to be approximately $350 million. Approximately half of these costs are included in the capital expenditure estimates in "Management's Discussion and Analysis of Financial Condition...

  • Page 24
    ... million for Cholla Units 2 and 3. These costs are not included in the capital expenditure estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Expenditures" in Item 7. No additional equipment is needed for Four Corners Units 4 and...

  • Page 25
    ... seeking detailed information regarding projects at and operations of Four Corners. This request is part of an enforcement initiative that EPA has undertaken under the Clean Air Act. EPA has taken the position that many utilities have made certain physical or operational changes at their plants that...

  • Page 26
    ...it or its corporate predecessors were at one time sites of, or sites associated with, manufactured gas plants. APS is taking action to voluntarily remediate these sites. APS does not expect these matters to have a material adverse effect on its financial position, results of operations or cash flows...

  • Page 27
    ... the amount of power available, or the price thereof, from Four Corners. Conflicting claims to limited amounts of water in the southwestern United States have resulted in numerous court actions, which, in addition to future supply conditions, have the potential to impact APS's operations. San Juan...

  • Page 28
    ... set in this matter. Little Colorado River Adjudication. APS has filed claims to water in the Little Colorado River Watershed in Arizona in an action pending in the Apache County, Arizona, Superior Court, which was originally filed on September 5, 1985. APS's groundwater resource utilized at Cholla...

  • Page 29
    ... fossil generation, energy delivery and customer service business areas that expires in April 2014. The Company is currently engaged in discussions with union representatives to enter into an extension of the current agreement. In January 2013, the Palo Verde security officers voted to change their...

  • Page 30
    ... 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 FERC regulates rates for wholesale power sales and transmission services. The profitability of APS is affected...

  • Page 31
    ... generation facilities, including Palo Verde. As a result of the March 2011 earthquake and tsunamis that caused significant damage to the Fukushima Daiichi Nuclear Power Plant in Japan, various industry organizations are working to analyze information from the Japan incident and develop action plans...

  • Page 32
    ...under, existing or new laws or regulations may increase APS's cost of operations or impact its business plans. APS is, or may become, subject to numerous environmental laws and regulations affecting many aspects of its present and future operations, including air emissions, water quality, discharges...

  • Page 33
    ... scrubber-related operations. APS currently disposes of fly ash waste and bottom ash in ash ponds at Four Corners. Changes required by the rule could significantly increase ash disposal costs at Four Corners. New Source Review. EPA has taken the position that many projects electric utilities have...

  • Page 34
    ... that solar vendors that install and operate solar facilities for non-profit schools and governments pursuant to a specific type of contract that calculates payments based on the energy produced are not "public service corporations" under the Arizona Constitution, and are therefore not regulated...

  • Page 35
    ...APS customers in energy efficiency and conservation programs and other demand-side management efforts, which in turn will impact the demand for electricity. The rules also include a requirement for the ACC to review and address financial disincentives, recovery of fixed costs and the recovery of net...

  • Page 36
    ... priced natural gas, together with environmental and other concerns surrounding coal-fired generation resources, create strategic questions related to the appropriate generation portfolio and fuel diversification mix. In addition, APS is required by the ACC to meet certain energy resource portfolio...

  • Page 37
    ... impact on our business. Certain APS power plants, including Four Corners, and portions of the transmission lines that carry power from these plants are located on Indian lands pursuant to leases, easements or other rights-of-way that are effective for specified periods. APS is currently unable to...

  • Page 38
    ...demand for power supply, which could adversely affect APS's business. 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...

  • Page 39
    ... existing variable rate debt and new debt we expect to issue in the future, and thus reduce funds available to us for our current plans. Additionally, an increase in our leverage could adversely affect us by: · · · · causing a downgrade of our credit ratings; increasing the cost of future debt...

  • Page 40
    ... costs in our utility rates would negatively impact our financial condition. We have significant pension plan and other postretirement benefits plan obligations to our employees and retirees and legal obligations to fund nuclear decommissioning trusts for Palo Verde. We hold and invest substantial...

  • Page 41
    ... contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments; announcements by third parties of significant claims or proceedings against us; favorable or adverse regulatory or legislative developments; our dividend policy; future sales by the Company of equity...

  • Page 42
    ... provisions of Arizona law and our bylaws that prohibit us from purchasing shares of our voting stock from beneficial owners of more than 5% of our outstanding shares unless specified conditions are satisfied; the ability of the Board of Directors to increase the size of the Board of Directors and...

  • Page 43
    ...Available As Available As Available 17 16 17 19 14 35 15 4 Total Solar Total Capacity 137 6,394 (a) (b) 100% unless otherwise noted. See "Business of Arizona Public Service Company - Energy Sources and Resource Planning - Generation Facilities - Nuclear" in Item 1 for details regarding leased...

  • Page 44
    ... River Project (10%), Public Service Company of New Mexico (13%), Tucson Electric Power Company (7%) and El Paso (7%). The plant is operated by APS. As discussed under "Business of Arizona Public Service Company - Energy Sources and Resource Planning - Generation Facilities - Coal-Fueled Generating...

  • Page 45
    ... such projects, which are included in APS's 2014 transmission plan, are the Delaney to Palo Verde line and the North Gila to Hassayampa line, both of which are intended to support the transmission of renewable energy to Phoenix and California. Plant and Transmission Line Leases and Rights-of-Way on...

  • Page 46
    ... Marketing and Resource Planning of APS General Manager, Strategic Planning and Resource Acquisition of APS Director of Resource Acquisitions and Renewables of APS Executive Vice President and Chief Nuclear Officer, PVNGS, of APS Senior Vice President and Chief Nuclear Officer of APS 43 2011-2012...

  • Page 47
    ... Communications of SCE Vice President, Resource Management of APS Vice President and Chief Customer Officer of APS Tammy D. McLeod 52 Lee R. Nickloy 47 Vice President and Treasurer of Pinnacle West and APS Assistant Treasurer and Director Corporate Finance of Ameren Corporation Executive Vice...

  • Page 48
    ... PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Pinnacle West's common stock is publicly held and is traded on the New York Stock Exchange. At the close of business on February 14, 2014, Pinnacle West's common stock...

  • Page 49
    ... our purchases of our common stock during the fourth quarter of 2013. Total Number of Shares Purchased Period Average Price Paid (1) per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or...

  • Page 50
    ... FINANCIAL DATA PINNACLE WEST CAPITAL CORPORATION - CONSOLIDATED 2013 2012 2011 2010 (dollars in thousands, except per share amounts) 2009 OPERATING RESULTS Operating revenues Income from continuing operations Income (loss) from discontinued operations - net of income taxes (a) Net income Less: Net...

  • Page 51
    ...FINANCIAL DATA ARIZONA PUBLIC SERVICE COMPANY - CONSOLIDATED 2013 2012 2011 (dollars in thousands) 2010 2009 OPERATING RESULTS Electric operating revenues Fuel and purchased power costs Other operating expenses Operating income Other income Interest expense - net of allowance for borrowed funds Net...

  • Page 52
    ... change and other emission-related issues could have a significant impact on our capital expenditures and operating costs in the form of taxes, emissions allowances or required equipment upgrades for these plants. APS is closely monitoring its long-range capital management plans, understanding...

  • Page 53
    .... Transmission and Delivery. APS is working closely with regulators to identify and plan for transmission needs that continue to support system reliability, access to markets and renewable energy development. The capital expenditures table presented in the "Liquidity and Capital Resources" section...

  • Page 54
    ...customer to help pay for their use of the electricity grid. The new policy will be in effect until the next APS rate case. In making its decision, the ACC determined that the current net metering program creates a cost shift, causing non-solar utility customers to pay higher rates to cover the costs...

  • Page 55
    ...cost effective energy efficiency programs, cost recovery mechanisms, incentives, and potential changes to the Electric Energy Efficiency and Resource Planning Rules. Rate Matters. APS needs timely recovery through rates of its capital and operating expenditures to maintain its financial health. APS...

  • Page 56
    .... The ACC opened a new docket on November 4, 2013 to explore technological advances and innovative changes within the electric utility industry. Workshops in this docket are expected to be held in 2014. Financial Strength and Flexibility. Pinnacle West and APS currently have ample borrowing...

  • Page 57
    ... for purchased power and generation fuel, our power plant performance, transmission availability or constraints, prevailing market prices, new generating plants being placed in service in our market areas, changes in our generation resource allocation, our hedging program for managing such costs and...

  • Page 58
    ...in the current-year period. These positive factors were partially offset by higher operations and maintenance expenses; higher fuel and purchased power costs, net of related deferrals; lower retail sales as a result of changes in customer usage related to energy efficiency, customer conservation and...

  • Page 59
    ... shareholders by business segment compared with the prior year: Year Ended December 31, 2013 2012 (dollars in millions) Net Change Regulated Electricity Segment: Operating revenues less fuel and purchased power expenses Operations and maintenance Depreciation and amortization Taxes other than...

  • Page 60
    ... July 1, 2012 Higher demand-side management, renewable energy and similar regulatory surcharges Higher retail transmission revenues Lower retail sales due to changes in customer usage patterns and related pricing, partially offset by customer growth Higher fuel and purchased power costs, net of...

  • Page 61
    ... construction . Interest charges, net of allowance for borrowed funds used during construction, decreased $13 million for the year ended December 31, 2013 compared with the prior year, primarily because of lower debt balances and lower interest rates in the current year. Income taxes. Income taxes...

  • Page 62
    ... transmission right-of-way costs, which did not affect net income, but increased both electric operating revenues and operations and maintenance expenses by $28 million. Costs related to the settlement were offset by related revenues from SCE, which leases the related transmission line from APS...

  • Page 63
    ...effective July 1, 2012 Higher retail transmission revenues Lower fuel and purchased power costs, net of related deferrals and offsystem sales Lower demand-side management, renewable energy and similar regulatory surcharges Settlement in 2011 of certain prior-period transmission right-of-way revenues...

  • Page 64
    ...to our shareholders and principal and interest payments on our indebtedness. The level of our common stock dividends and future dividend growth will be dependent on declaration by our Board of Directors and based on a number of factors, including our financial condition, payout ratio, free cash flow...

  • Page 65
    ... by a $26 million increase in property tax payments, a $65 million pension contribution in 2012 (approximately $12 million of which is reflected in capital expenditures) and other changes in working capital. Other. Pinnacle West sponsors a qualified defined benefit pension plan and a non-qualified...

  • Page 66
    ... Balance Sheets as of December 31, 2012 represented the anticipated refund related to an APS tax accounting method change approved by the Internal Revenue Service ("IRS") in the third quarter of 2009. On July 9, 2013, IRS guidance was released which provided clarification regarding the timing...

  • Page 67
    ...types of projects included in the forecast include power lines, substations, and line extensions to new residential and commercial developments. Capital expenditures will be funded with internally generated cash and external financings, which may include issuances of long-term debt and Pinnacle West...

  • Page 68
    .... The net proceeds from the sale were used to repay short-term commercial paper borrowings and replenish cash used to redeem certain tax-exempt indebtedness in November 2012. On May 1, 2013, APS purchased all $32 million of the Maricopa County, Arizona Pollution Control Corporation Pollution Control...

  • Page 69
    ..., 2013, Pinnacle West's $200 million credit facility, which matures in November 2016, was available to refinance indebtedness of the Company and for other general corporate purposes, including credit support for its $200 million commercial paper program. Pinnacle West has the option to increase the...

  • Page 70
    ...insurance policies, natural gas transportation, fuel supply, and other energy-related contracts. At this time, we believe we have sufficient available liquidity resources to respond to a downward revision to our credit ratings. Moody's Standard & Poor's Fitch Pinnacle West Corporate credit rating...

  • Page 71
    ...using average rates at December 31, 2013 (see Note 6). (b) The short-term debt represents commercial paper borrowings at APS (see Note 5). (c) Our fuel and purchased power commitments include purchases of coal, electricity, natural gas, renewable energy, nuclear fuel, and natural gas transportation...

  • Page 72
    ... and expense can have a significant impact on our earnings and financial position. The most relevant actuarial assumptions are the discount rate used to measure our liability and net periodic cost, the expected long-term rate of return on plan assets used to estimate earnings on invested funds 69

  • Page 73
    ... obligation on the Consolidated Balance Sheets and our 2013 reported other postretirement benefit expense, after consideration of amounts capitalized or billed to electric plant participants, on Pinnacle West's Consolidated Statements of Income (dollars in millions): Increase (Decrease) Impact on...

  • Page 74
    ... unrecognized tax benefits. See Note 2. MARKET AND CREDIT RISKS Market Risks Our operations include managing market risks related to changes in interest rates, commodity prices and investments held by our nuclear decommissioning trust fund and benefit plan assets. Interest Rate and Equity Risk We...

  • Page 75
    ...weighted-average interest rates as of December 31, 2013 and 2012 (dollars in thousands): Pinnacle West - Consolidated Short-Term Debt Interest Variable-Rate Long-Term Debt Interest Fixed-Rate Long-Term Debt Interest 2013 Rates Amount Rates Amount Rates Amount 2014 0.23% $ 2015 2016 2017...

  • Page 76
    ... as derivatives, including futures, forwards, options and swaps. As part of our risk management program, we use such instruments to hedge purchases and sales of electricity and fuels. The changes in market value of such contracts have a high correlation to price changes in the hedged commodities...

  • Page 77
    ...in OCI are due primarily to changes in forward natural gas prices. The table below shows the fair value of maturities of our derivative contracts (dollars in millions) at December 31, 2013 by maturities and by the type of valuation that is performed to calculate the fair values, classified in their...

  • Page 78
    ... on Pinnacle West's Consolidated Balance Sheets at December 31, 2013 and 2012 (dollars in millions): December 31, 2013 Gain (Loss) December 31, 2012 Gain (Loss) Price Up 10% Price Down 10% Price Up 10% Price Down 10% Mark-to-market changes reported in: Earnings (a) Natural gas Regulatory asset...

  • Page 79
    ... Pinnacle West Consolidated Statements of Changes in Equity for 2013, 2012 and 2011 Notes to Pinnacle West's Consolidated Financial Statements Management's Report on Internal Control Over Financial Reporting (Arizona Public Service Company) Report of Independent Registered Public Accounting Firm APS...

  • Page 80
    Table of Contents MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING (PINNACLE WEST CAPITAL CORPORATION) Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f), for ...

  • Page 81
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Pinnacle West Capital Corporation Phoenix, Arizona We have audited the accompanying consolidated balance sheets of Pinnacle West Capital Corporation and subsidiaries (the "Company") as of December 31, 2013 and 2012 and...

  • Page 82
    ... because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pinnacle West Capital Corporation and...

  • Page 83
    ... WEST CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (dollars and shares in thousands, except per share amounts) Year Ended December 31, 2012 2013 2011 OPERATING REVENUES $ 3,454,628 $ 3,301,804 $ 3,241,379 OPERATING EXPENSES Fuel and purchased power Operations and maintenance...

  • Page 84
    Table of Contents PINNACLE WEST CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Year Ended December 31, 2012 2013 2011 NET INCOME OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Derivative instruments: Net unrealized loss, net of tax benefit of $140, $14,...

  • Page 85
    ...PINNACLE WEST CAPITAL CORPORATION CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 2013 2012 ASSETS CURRENT ASSETS Cash and cash equivalents Customer and other receivables Accrued unbilled revenues Allowance for doubtful accounts Materials and supplies (at average cost) Fossil fuel...

  • Page 86
    ... Contents PINNACLE WEST CAPITAL CORPORATION CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 2013 2012 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable Accrued taxes (Note 4) Accrued interest Common dividends payable Short-term borrowings (Note 5) Current maturities of...

  • Page 87
    ... fuel and purchased power amortization Allowance for equity funds used during construction Deferred income taxes Deferred investment tax credit Change in derivative instruments fair value Changes in current assets and liabilities: Customer and other receivables Accrued unbilled revenues Materials...

  • Page 88

  • Page 89
    Table of Contents PINNACLE WEST CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (dollars in thousands, except per share amounts) Year Ended December 31, 2012 2013 2011 COMMON STOCK (Note 7) Balance at beginning of year Issuance of common stock Balance at end of year $ 2,466,...

  • Page 90
    ... operations. APSES provided energy-related projects to commercial and industrial retail customers in competitive markets in the western United States. APSES was sold in 2011 and is reported as discontinued operations. El Dorado is an investment firm. Pinnacle West's Consolidated Financial Statements...

  • Page 91
    ... WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amount reported after reclassification to conform to current year presentation Balance Sheets - December 31, 2012 As previously reported Reclassifications to conform to current year presentation Long-Term Debt less Current...

  • Page 92
    ... income taxes. Revenues from our Native Load customers and non-derivative instruments are reported on a gross basis on Pinnacle West's Consolidated Statements of Income. In the electricity business, some contracts to purchase energy are netted against other contracts to sell energy. This is called...

  • Page 93
    ... the business property and equipment that supports electric service, consisting primarily of generation, transmission and distribution facilities. We report utility plant at its original cost, which includes: material and labor; contractor costs; capitalized leases; construction overhead costs...

  • Page 94
    ... weighted-average rate was 3.00% for 2013, 2.71% for 2012, and 2.98% for 2011. Allowance for Funds Used During Construction AFUDC represents the approximate net composite interest cost of borrowed funds and an allowed return on the equity funds used for construction of regulated utility plant. Both...

  • Page 95
    ... transportation costs of electricity, natural gas, coal, emission allowances and in interest rates. We manage risks associated with market volatility by utilizing various physical and financial instruments including futures, forwards, options and swaps. As part of our overall risk management program...

  • Page 96
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nuclear Fuel APS amortizes nuclear fuel by using the unit-of-production method. The unit-of-production method is based on actual physical usage. APS divides the cost of the fuel by the estimated number of thermal units it...

  • Page 97
    ... did not impact our financial statement results. In July 2013, new guidance was issued which will generally require entities to present unrecognized tax benefits as a reduction to any available deferred tax asset for a net operating loss, a similar tax loss, or a tax credit carryforward. The intent...

  • Page 98
    ... Rate Case Filing with the Arizona Corporation Commission On June 1, 2011, APS filed an application with the ACC for a net retail base rate increase of $95.5 million. APS requested that the increase become effective July 1, 2012. The request would have increased the average retail customer bill...

  • Page 99
    ...of Units 1-3 of Four Corners (APS made its filing under this provision on December 30, 2013, which would result in an average bill impact to residential customers of approximately 2% if approved as requested); Implementation of a "Lost Fixed Cost Recovery" rate mechanism to support energy efficiency...

  • Page 100
    ...customer to help pay for their use of the electricity grid. The new policy will be in effect until the next APS rate case. In making its decision, the ACC determined that the current net metering program creates a cost shift, causing non-solar utility customers to pay higher rates to cover the costs...

  • Page 101
    ... energy efficiency programs, cost recovery mechanisms, incentives, and potential changes to the Electric Energy Efficiency and Resource Planning Rules. PSA Mechanism and Balance. The PSA provides for the adjustment of retail rates to reflect variations in retail fuel and purchased power costs...

  • Page 102
    ... shows the changes in the deferred fuel and purchased power regulatory asset for 2013 and 2012 (dollars in millions): Twelve Months Ended December 31, 2013 2012 Beginning balance Deferred fuel and purchased power costs - current period Amounts (charged) credited to customers Ending balance $ 73...

  • Page 103
    ...to offer more rate choices to customers and innovative changes within the existing cost-ofservice regulatory model that could include elements of competition. The ACC opened a new docket on November 4, 2013 to explore technological advances and innovative changes within the electric utility industry...

  • Page 104
    Table of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Four Corners On December 30, 2013, APS purchased SCE's 48% ownership interest in each of Units 4 and 5 of Four Corners. As a result of this purchase, APS now owns 63% of Units 4 and 5. APS has a total ...

  • Page 105
    ... Period December 31, 2013 Current Non-Current December 31, 2012 Current Non-Current Pension and other postretirement benefits Income taxes - AFUDC equity Deferred fuel and purchased power - mark-to-market (Note 17) Transmission vegetation management Coal reclamation Palo Verde VIEs (Note 19...

  • Page 106
    ... 31, 2013 Current Non-Current December 31, 2012 Current Non-Current Removal costs Asset retirement obligations Renewable energy standard (b) Income taxes - change in rates Spent nuclear fuel Deferred gains on utility property Income taxes - deferred investment tax credit Demand side management...

  • Page 107
    Table of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the year ended December 31, 2013, the IRS finalized the examination of tax returns for the years ended December 31, 2008 and 2009, and the $137 million anticipated refund was reduced by ...

  • Page 108
    Table of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Statements of Income related to unrecognized tax benefits was a pre-tax benefit of $4 million for 2013, a pre-tax expense of $4 million for 2012, and a pre-tax expense of $3 million for 2011. The total ...

  • Page 109
    ... rate Increases (reductions) in tax expense resulting from: State income tax net of federal income tax benefit Credits and favorable adjustments related to prior years resolved in current year Medicare Subsidy Part-D Allowance for equity funds used during construction (see Note 1) Palo Verde...

  • Page 110
    ... Risk management activities Regulatory assets: Allowance for equity funds used during construction Deferred fuel and purchased power Deferred fuel and purchased power - mark-to-market Pension and other postretirement benefits Other Other Total deferred tax liabilities Deferred income taxes - net...

  • Page 111
    ... 31, 2013, the Pinnacle West credit facility, which terminates in November 2016, was available to refinance indebtedness of the Company and for other general corporate purposes, including credit support for its $200 million commercial paper program. Pinnacle West has the option to increase the...

  • Page 112
    ... 31, 2012, the Pinnacle West credit facility, which matures in November 2016, was available to refinance indebtedness of the Company and for other general corporate purposes, including credit support for its $200 million commercial paper program. Pinnacle West has the option to increase the amount...

  • Page 113
    ... 7% of APS's capitalization, and (ii) $500 million (which is required to be used for costs relating to purchases of natural gas and power), (b) approved an increase in APS's long-term debt authorization from $4.2 billion to $5.1 billion in light of the projected growth of APS and its customer base...

  • Page 114
    .... The net proceeds from the sale were used to repay short-term commercial paper borrowings and replenish cash used to redeem certain tax-exempt indebtedness in November 2012. On May 1, 2013, APS purchased all $32 million of the Maricopa County, Arizona Pollution Control Corporation Pollution Control...

  • Page 115
    ... of Units 4 and 5 of Four Corners and to replenish cash used to re-acquire two series of tax-exempt indebtedness. See "Lines of Credit and Short-Term Borrowings" in Note 5 and "Financial Assurances" in Note 11 for discussion of APS's other letters of credit. Debt Provisions Pinnacle West's and APS...

  • Page 116
    ...is to receive using information about the participant. The pension plan covers nearly all employees. The supplemental excess benefit retirement plan covers officers of the Company and highly compensated employees designated for participation by the Board of Directors. Our employees do not contribute...

  • Page 117
    ... during 2013 and $4 million during 2012. The following table provides details of the plans' net periodic benefit costs and the portion of these costs charged to expense (including administrative costs and excluding amounts capitalized as overhead construction, billed to electric plant participants...

  • Page 118
    ... WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pension 2013 2012 2011 2013 Other Benefits 2012 2011 Service cost-benefits earned during the period Interest cost on benefit obligation Expected return on plan assets Amortization of: Transition obligation Prior service cost...

  • Page 119
    ...Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the projected benefit obligation and the accumulated benefit obligation for pension plans with an accumulated obligation in excess of plan assets as of December 31, 2013 and 2012 (dollars...

  • Page 120
    ... December 31, 2013 2012 Benefit Costs For the Years Ended December 31, 2013 2012 2011 Discount rate - pension Discount rate - other benefits Rate of compensation increase Expected long-term return on plan assets Initial healthcare cost trend rate Ultimate healthcare cost trend rate Number of years...

  • Page 121
    ...West securities. The overall strategy of the pension plan's IPS is to achieve an adequate level of trust assets relative to the benefit obligations. To achieve this objective, the plan's investment policy provides for mixes of investments including long-term fixed income assets and return-generating...

  • Page 122
    ... pricing source, verifying that pricing can be supported by actual recent market transactions, assessing hierarchy classifications, comparing investment returns with benchmarks, and obtaining and reviewing independent audit reports on the trustee's internal operating controls and valuation processes...

  • Page 123
    ... WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of Pinnacle West's pension plan and other postretirement benefit plan assets at December 31, 2013, by asset category, are as follows (dollars in thousands): Quoted Prices in Active Markets for Identical Assets (Level...

  • Page 124
    ... WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of Pinnacle West's pension plan and other postretirement benefit plan assets at December 31, 2012, by asset category, are as follows (dollars in thousands): Quoted Prices in Active Markets for Identical Assets (Level...

  • Page 125
    ..., $64 million in 2012, and zero in 2011. APS's share of the contributions to the other postretirement benefit plan was $14 million in 2013, $22 million in 2012, and $19 million in 2011. Estimated Future Benefit Payments Benefit payments, which reflect estimated future employee service, for the next...

  • Page 126
    ... WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Employee Savings Plan Benefits Pinnacle West sponsors a defined contribution savings plan for eligible employees of Pinnacle West and its subsidiaries. In 2013, costs related to APS's employees represented 99% of the total cost...

  • Page 127
    ... of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Construction Work in Progress Percent Owned Plant in Service Accumulated Depreciation Generating facilities: Palo Verde Units 1 and 3 Palo Verde Unit 2 (a) Palo Verde Common Palo Verde Sale Leaseback 29...

  • Page 128
    ... of, property at Palo Verde in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination. APS has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting...

  • Page 129
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Of the various fuel and purchased power contracts mentioned above, some of those contracts for coal supply include take-or-pay provisions. The current coal contracts with take-or-pay provisions have terms that expire...

  • Page 130
    ... 69,700 APS customers losing service. Within the same time period that APS's Yuma customers lost service, a series of transmission and generation disruptions occurred across the systems of several utilities that resulted in outages affecting portions of southern Arizona, southern California...

  • Page 131
    ... and future operations, including air emissions, water quality, wastewater discharges, solid waste, hazardous waste, and CCRs. These laws and regulations can change from time to time, imposing new obligations on APS resulting in increased capital, operating, and other costs. Associated capital...

  • Page 132
    Table of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS plants. Based on EPA's final standards, APS's 63% share of the cost of these controls for Four Corners Units 4 and 5 would be approximately $350 million. APS's share of costs for upgrades at Navajo, based...

  • Page 133
    ...quarter of 2013, a new decommissioning study with updated cash flow estimates was completed for Palo Verde. The non-nuclear generation asset retirement obligations primarily relate to requirements for removing portions of those plants at the end of the plant life or lease term. The Four Corners coal...

  • Page 134
    ...of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS reasonably estimate the fair value of the asset retirement obligation related to such distribution and transmission assets. Additionally, APS has aquifer protection permits for some of its generation sites that...

  • Page 135
    ... of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2013 Quarter Ended June 30, Sept. 30, 2013 Dec. 31, Total March 31, Operating revenues Operations and maintenance Operating income Income taxes Income from continuing operations Net income attributable to...

  • Page 136
    ... fair value discussion of plan assets held in our retirement and other benefit plans. Cash Equivalents Cash equivalents represent short-term investments with original maturities of three months or less in exchange traded money market funds that are valued using quoted prices in active markets. 132

  • Page 137
    ... of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Risk Management Activities - Derivative Instruments Exchange traded commodity contracts are valued using unadjusted quoted prices. For non-exchange traded commodity contracts, we calculate fair value based...

  • Page 138
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS shares are offered to a limited group of investors, they are not considered to be traded in an active market. Cash equivalents reported within Level 2 represent investments held in a short-term investment commingled fund...

  • Page 139
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (a) (Level 3) Other Balance at December 31, 2013 Assets Risk management...

  • Page 140
    ... (a) (Level 3) Other Balance at December 31, 2012 Assets Cash equivalents Risk management activities - derivative instruments: Commodity Contracts Nuclear decommissioning trust: U.S. commingled equity funds Fixed income securities: U.S. Treasury Cash and cash equivalent funds Corporate debt...

  • Page 141
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS fair value of the related contracts. Conversely, if the price of the underlying commodity decreases, the net fair value of the related contracts would likely decrease. Our option contracts classified as Level 3 primarily...

  • Page 142
    ... Natural gas forward price (per MMbtu) $3.25 - $4.44 $ 3.93 (a) Includes swaps and physical and financial contracts. The following table shows the changes in fair value for our risk management activities' assets and liabilities that are measured at fair value on a recurring basis using Level...

  • Page 143
    ..., stock units, dividend equivalents, performance share units, performance cash, incentive and non-qualified stock options, and stock appreciation rights. The 2012 Plan, effective May 16, 2012, provides 4,595,500 common shares to be available for grant to eligible employees and members of the Board...

  • Page 144
    ... through 2013 awards are paid in the same form as the restricted stock unit payment election. Restricted stock unit awards are accounted for as a liability award, with compensation cost initially calculated on the date of grant using the Company's closing stock price, and remeasured at each balance...

  • Page 145
    ... stock units and stock grants, as of December 31, 2013 and changes during the year. This table represents only the stock portion of restricted stock units, per the election on payment discussed in the paragraph above: Weighted-Average Grant Date Fair Value Nonvested shares Shares Nonvested...

  • Page 146
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS equal to the number of vested performance shares from the date of grant to the date of payment plus interest compounded quarterly. Performance share awards are accounted for as liability awards, with compensation cost...

  • Page 147
    ... costs of electricity, natural gas, coal, emissions allowances and in interest rates. We manage risks associated with market volatility by utilizing various physical and financial derivative instruments, including futures, forwards, options and swaps. As part of our overall risk management program...

  • Page 148
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS delivery periods) and for which power does not flow are netted, which reduces both revenues and fuel and purchased power costs in our Consolidated Statements of Income, but does not impact our financial condition, net...

  • Page 149
    ... PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013, we had the following outstanding gross notional volume of derivatives, which represent both purchases and sales (does not reflect net position): Commodity Quantity Power 5,765 108 Gas GWh...

  • Page 150
    ...in thousands): Year Ended December 31, 2012 Commodity Contracts Financial Statement Location 2013 2011 Net Gain (Loss) Recognized in Income Net Loss Recognized in Income Total Operating revenues (a) $ 289 $ 103 $ (27) Fuel and purchased power (a) $ (10,449) (10,160) $ (2,747) (2,644...

  • Page 151
    ... WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables provide information about the fair value of our risk management activities reported on a gross basis, and the impacts of offsetting as of December 31, 2013 and 2012. These amounts relate to commodity contracts...

  • Page 152
    Table of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Credit Risk and Credit Related Contingent Features We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We have risk management contracts with many counterparties, ...

  • Page 153
    ... the assets, the purchase price will be based on the fair market value of the assets at the end of 2015. If APS elects to extend the leases, we will be required to make payments beginning in 2016 of approximately $23 million annually. The length of the lease extensions is unknown at this time, as it...

  • Page 154
    ...PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our Consolidated Balance Sheets at December 31, 2013 and December 31, 2012 include the following amounts relating to the VIEs (in millions): December 31, 2013 December 31, 2012 Palo Verde sale leaseback property plant and...

  • Page 155
    Table of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Total Unrealized Gains Total Unrealized Losses Fair Value December 31, 2013 Equity securities Fixed income securities Net payables (a) Total $ 272 373 (3) $ 129 11 - 140 Total Unrealized Gains $ $...

  • Page 156
    Table of Contents PINNACLE WEST CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Changes in Accumulated Other Comprehensive Loss The following table shows the changes in accumulated other comprehensive loss, including reclassification adjustments, net of tax, by component for ...

  • Page 157
    ... Contents MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING (ARIZONA PUBLIC SERVICE COMPANY) Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f), for APS. Management...

  • Page 158
    ... internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide...

  • Page 159
    ...the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Arizona Public Service Company and subsidiary as of December 31, 2013 and 2012, and the results of their operations...

  • Page 160
    ... of Contents ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) Year Ended December 31, 2012 2013 2011 ELECTRIC OPERATING REVENUES $ 3,451,251 $ 3,293,489 $ 3,237,241 OPERATING EXPENSES Fuel and purchased power Operations and maintenance Depreciation...

  • Page 161
    Table of Contents ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Year Ended December 31, 2012 2013 2011 NET INCOME OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Derivative instruments: Net unrealized loss, net of tax benefit of $140, $14,888...

  • Page 162
    ... ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 2013 2012 ASSETS PROPERTY, PLANT AND EQUIPMENT (Notes 1, 6 and 10) Plant in service and held for future use Accumulated depreciation and amortization Net Construction work in progress Palo Verde sale...

  • Page 163
    ... ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 2013 2012 LIABILITIES AND EQUITY CAPITALIZATION Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive (loss): Pension and other postretirement benefits (Note...

  • Page 164
    ... income tax receivable Change in unrecognized tax benefits Change in other long-term assets Change in other long-term liabilities Net cash flow provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Contributions in aid of construction Allowance for borrowed funds...

  • Page 165

  • Page 166
    ... of Contents ARIZONA PUBLIC SERVICE COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (dollars in thousands) Year Ended December 31, 2012 2013 2011 COMMON STOCK ADDITIONAL PAID-IN CAPITAL $ 178,162 2,379,696 $ 178,162 2,379,696 $ 178,162 2,379,696 RETAINED EARNINGS Balance at beginning...

  • Page 167
    ... Summary of Significant Accounting Policies New Accounting Standards Regulatory Matters Income Taxes Lines of Credit and Short-Term Borrowings Long-Term Debt and Liquidity Matters Common Stock and Treasury Stock Retirement Plans and Other Benefits Leases Jointly-Owned Facilities Commitments...

  • Page 168
    ... of Contents ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS S-1. Income Taxes APS is included in Pinnacle West's consolidated tax return. However, when Pinnacle West allocates income taxes to APS, it is done based upon APS's taxable income computed on a stand-alone...

  • Page 169
    ... of Contents ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net income associated with the Palo Verde sale leaseback VIEs is not subject to tax (see Note 19). As a result, there is no income tax expense associated with the VIEs recorded on APS's Consolidated Statements of...

  • Page 170
    ... rate Increases (reductions) in tax expense resulting from: State income tax net of federal income tax benefit Credits and favorable adjustments related to prior years resolved in current year Medicare Subsidy Part-D Allowance for equity funds used during construction (see Note 1) Palo Verde...

  • Page 171
    ... ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table shows the net deferred income tax liability recognized on the APS Balance Sheets (dollars in thousands): December 31, 2013 2012 Current asset (liability) Long-term liability Deferred income taxes - net...

  • Page 172
    ... Risk management activities Regulatory assets: Allowance for equity funds used during construction Deferred fuel and purchased power Deferred fuel and purchased power - mark-to-market Pension and other postretirement benefits Other Other Total deferred tax liabilities Deferred income taxes - net...

  • Page 173
    Table of Contents ARIZONA PUBLIC SERVICE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS S-2. Selected Quarterly Financial Data (Unaudited) Quarterly financial information for 2013 and 2012 is as follows (dollars in thousands): 2013 Quarter Ended, June 30, September 30, 2013 December 31, ...

  • Page 174
    ...5,387 3,803(b) (89,095) 5,173 30,550 35,723 (53,372) Net current period OCI Ending balance 9,190 $ (30,313) $ $ (a) These amounts represent realized gains and losses and are included in the computation of fuel and purchased power costs and are subject to the PSA. See Note 17. (b) These amounts...

  • Page 175
    Table of Contents PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December 31, 2012 2013 2011 Operating revenues Operating expenses $ 799 24,930 (24,131) $ 6,...

  • Page 176
    ... PINNACLE WEST CAPITAL CORPORATION HOLDING COMPANY SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (in thousands) December 31, 2013 2012 ASSETS Current assets Cash and cash equivalents Accounts receivable Current deferred income taxes Income tax receivable...

  • Page 177
    ... WEST CAPITAL CORPORATION HOLDING COMPANY SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2012 2013 2011 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided...

  • Page 178
    Table of Contents PINNACLE WEST CAPITAL CORPORATION SCHEDULE II - RESERVE FOR UNCOLLECTIBLES (dollars in thousands) Column A Column B Column C Additions Column D Column E Balance at Description beginning of period Charged to cost and expenses Charged to other accounts Balance at end of ...

  • Page 179
    Table of Contents ARIZONA PUBLIC SERVICE COMPANY SCHEDULE II - RESERVE FOR UNCOLLECTIBLES (dollars in thousands) Column A Column B Column C Additions Column D Column E Balance at Description beginning of period Charged to cost and expenses Charged to other accounts Balance at end of ...

  • Page 180
    ... Control Over Financial Reporting (Pinnacle West Capital Corporation)" on page 77 of this report and "Management's Report on Internal Control Over Financial Reporting (Arizona Public Service Company)" on page 153 of this report. (c) Attestation Reports of the Registered Public Accounting Firm...

  • Page 181
    ... that applies to financial executives including Pinnacle West's Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller, Treasurer, and General Counsel, the President and Chief Operating Officer of APS and other persons designated as financial executives by the Chair...

  • Page 182
    ...restricted stock unit awards into account, as those awards have no exercise price. Awards under the 2012 Plan can take the form of options, stock appreciation rights, restricted stock, performance shares, performance share units, performance cash, stock grants, stock units, dividend equivalents, and...

  • Page 183
    ... or review of the financial statements that are not included in Audit Fees reported above, which primarily consist of fees for employee benefit plan audits performed in 2013 and 2012. The aggregate fees billed primarily related to tax compliance and tax planning. Pinnacle West's Audit Committee...

  • Page 184
    ...-93 May 25, 1988 3.3.1 APS Amendment to the Articles of Incorporation of Arizona Public Service Company, amended May 16, 2012 5-22-12 3.4 APS Arizona Public Service Company Bylaws, amended as of December 16, 2008 3.4 to Pinnacle West/APS December 31, 2008 Form 10-K, File No. 1-4473 2-20-09...

  • Page 185
    ... of Pinnacle West Capital Corporation Common Stock, no par value Indenture dated as of January 1, 1995 among APS and The Bank of New York Mellon, as Trustee 4.1 to Pinnacle West June 28, 2011 Form 8-K Report, File No. 1-8962 6-28-11 4.2 Pinnacle West APS 4.6 to APS's Registration Statement Nos...

  • Page 186
    ...Bank), as Trustee Seventh Supplemental Indenture dated as of May 1, 2003 15379 and 333-27551 by means of January 13, 1998 Form 8-K Report, File No. 1-4473 4.6c Pinnacle West APS 4.1 to APS's Registration Statement No. 33390824 by means of May 7, 2003 Form 8-K Report, File No. 1-4473 5-9-03 181

  • Page 187
    ...Date Registrant(s) Description Previously Filed as Exhibit: a Filed 4.6d Pinnacle West APS Eighth Supplemental Indenture dated as of June 15, 2004 4.1 to APS's Registration Statement No. 333106772 by means of June 24, 2004 Form 8-K Report, File No. 1-4473 4.1 to APS's Registration Statements...

  • Page 188
    ... Company's total assets Agreement, dated March 21, 1994, relating to the filing of instruments defining the rights of holders of APS long-term debt not in excess of 10% of APS's total assets 4.1 to Pinnacle West's 1987 Form 10-K Report, File No. 1-8962 3-30-88 4.8a Pinnacle West APS 4.1 to APS...

  • Page 189
    ...4473 3-30-95 10.1.1c Pinnacle West APS 10.4 to APS's 1996 Form 10-K Report , File No. 1-4473 3-28-97 1991 10.1.1d Pinnacle West APS Amendment No. 2 to APS Decommissioning Trust Agreement (PVNGS Unit 3) dated as of July 1, 10.6 to APS's 1996 Form 10-K Report, File No. 1-4473 3-28-97 1991 10...

  • Page 190
    ... and Restated Decommissioning Trust Agreement (PVNGS Unit 2) dated as of 10.1 to Pinnacle West/APS March 31, 2007 Form 10-Q Report, File Nos. 1-8962 and 1-4473 5-9-07 10.1.1j Pinnacle West APS 10.2 to Pinnacle West/APS March 31, 2007 Form 10-Q Report, File Nos. 1-8962 and 104473 5-9-07 10...

  • Page 191
    ... 1994 Amendment No. 3 to Amended and Restated Decommissioning Trust Agreement (PVNGS Unit 2), dated as 10.3 to APS's 1994 Form 10-K Report, File No. 1-4473 3-30-95 10.1.2c Pinnacle West APS 10.1 to APS's June 30, 1996 Form 10-Q Report, File No. 1-4473 8-9-96 of June 20, 1996 10.1.2d Pinnacle...

  • Page 192
    ... and Restated Decommissioning Trust Agreement (PVNGS Unit 2), dated as of April 1, 2007 10.1.2h to Pinnacle West's 2007 Form 10-K Report, File No. 1-8962 2-27-08 10.2.1b Pinnacle West APS Arizona Public Service Company Deferred Compensation Plan, as restated, effective January 1, 1984, and...

  • Page 193
    ... Exhibit No. Date Registrant(s) Description Previously Filed as Exhibit: a Filed 10.2.1db Pinnacle West APS Sixth Amendment to the Arizona Public Service Company Deferred Compensation Plan effective January 1, 2001 Arizona Public Service Company Directors' Deferred Compensation Plan, as...

  • Page 194
    ... Filed 10.2.3b Pinnacle West APS Trust for the Pinnacle West Capital Corporation, Arizona Public Service Company and SunCor Development Company Deferred Compensation Plans dated August 1, 1996 10.14A to Pinnacle West's 1999 Form 10-K Report, File No. 1-8962 3-30-00 10.2.3ab Pinnacle West APS...

  • Page 195
    ... Capital Corporation, Arizona Public Service Company, SunCor Development Company and El Dorado Investment Company Deferred Compensation Plan 10.7A to Pinnacle West's 1999 Form 10-K Report, File No. 1-8962 3-30-00 10.2.4bb Pinnacle West APS 10.10A to Pinnacle West's 1999 Form 10-K Report, File...

  • Page 196
    ..., Arizona Public Service Company, SunCor Development Company and El Dorado Investment Company Deferred Compensation Plan, effective January 1, 2003 Deferred Compensation Plan of 2005 for Employees of Pinnacle West Capital Corporation and Affiliates 10.64 to Pinnacle West/APS 2005 Form 10-K Report...

  • Page 197
    ..., 2003 Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan of 2005 Letter Agreement dated December 20, 10.7A to Pinnacle West's 2003 Form 10-K Report, File No. 1-8962 3-15-04 10.3.1ab Pinnacle West APS 10.48b to Pinnacle West/APS 2005 Form 10-K Report, File Nos. 1-8962...

  • Page 198
    ... Exhibit No. Date Registrant(s) Description Previously Filed as Exhibit: a Filed 10.4.5b APS Description of 2010 Palo Verde Specific Compensation Opportunity for Randall K. Edington Letter Agreement dated May 21, 2009, 10.4.13 to Pinnacle West/APS 2009 Form 10-K Report, File Nos. 1-8962...

  • Page 199
    ... West and its subsidiaries Form of Key Executive Employment and Severance Agreement between Pinnacle West and certain officers of Pinnacle West and its subsidiaries Pinnacle West Capital Corporation 2002 Long-Term Incentive Plan Performance Share Agreement under the Pinnacle West Capital Corporation...

  • Page 200
    ... West Form of Performance Share Agreement under the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan Form of Restricted Stock Unit Agreement under the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan 10.1 to Pinnacle West/APS June 30, 2010 Form 10-Q Report, File...

  • Page 201
    .... Date Registrant(s) Description Previously Filed as Exhibit: a Filed 10.6.2ebd Pinnacle West Form of Performance Share Agreement under the Pinnacle West Capital Corporation 2007 Long-Term Incentive Plan Form of Restricted Stock Unit Agreement under the Pinnacle West Capital Corporation 2007...

  • Page 202
    ... West APS Appendix A to the Proxy Statement for Pinnacle West's 2012 Annual Meeting of Shareholders, File No. 1-8962 3-29-12 10.6.8abd Pinnacle West Form of Performance Share Award Agreement under the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan Form of Restricted Stock Unit...

  • Page 203
    ... Corners Plant Amendment and Supplement No. 1 to Supplemental and Additional Indenture of Lease Four Corners, dated April 25, 5.02 to APS's Form S-7 Registration Statement, File No. 2-59644 9-1-77 10.7.1b Pinnacle West APS 10.36 to Pinnacle West's Registration Statement on Form 8-B Report, File...

  • Page 204
    ... Pinnacle West's 2000 Form 10-K Report, File No. 1-8962 5(g) to APS's Form S-7 Registration Statement, File No. 2-36505 3-14-01 10.8.1 3-23-70 10.8.2 Application of Grant of rights-of-way and easements, Navajo Plant Water Service Contract Assignment with the United States Department of Interior...

  • Page 205
    Table of Contents Exhibit No. Date Registrant(s) Description Previously Filed as Exhibit: a Filed 10.8.4 Pinnacle West APS Navajo Project Co-Tenancy Agreement dated as of March 23, 1976, and Supplement No. 1 thereto dated as of October 18, 1976, Amendment No. 1 dated as of July 5, 1988, and ...

  • Page 206
    ..., dated August 23, 1973, among APS, SRP, SCE, Public Service Company of New Mexico, El Paso, Southern California Public Power Authority, and Department of Water and Power of the City of Los Angeles 10.1 to APS's March 31, 1991 Form 10-Q Report, File No. 1-4473 5-15-91 10.9.1b Pinnacle West APS...

  • Page 207
    ... Form 10-K Report, File Nos. 1-8962 and 1-4473 2-18-11 August 23, 1973, among APS, SRP, SCE, Public Service Company of New Mexico, El Paso, Southern California Public Power Authority, and Department of Water and Power of the City of Los Angeles 10.10.1 Pinnacle West APS Asset Purchase and Power...

  • Page 208
    ... and APS dated 10.4 to APS's 1995 Form 10-K Report, File No. 1-4473 3-29-96 April 5, 1995 10.10.4 Pinnacle West APS Contract among PacifiCorp, APS and DOE Western Area Power Administration, Salt Lake Area Integrated Projects for Firm Transmission Service dated May 5, 10.5 to APS's 1995 Form 10...

  • Page 209
    .... Date Registrant(s) Description Previously Filed as Exhibit: a Filed 10.11.3 Pinnacle West Five-Year Credit Agreement dated as of November 4, 2011 among Pinnacle West, as Borrower, Barclays Bank PLC, as Agent, and the lenders and other parties thereto 10.11.3 to Pinnacle West/APS 2011 Form...

  • Page 210
    Table of Contents Exhibit No. Date Registrant(s) Description Previously Filed as Exhibit: a Filed 10.11.5a Pinnacle West APS Amendment No. 1 to the Reimbursement Agreement among APS, the Banks party thereto, and 10.11.5a to Pinnacle West/APS 2011 Form 10-K Report, File Nos. 1-8962 and 1-4473...

  • Page 211
    ... Company, as successor to The First National Bank of Boston, in its capacity as Owner Trustee, as Lessor, and APS, as Lessee 4.3 to APS's Form 18 Registration Statement, File No. 33-9480 10-24-86 10.12.1ac Pinnacle West APS Amendment No. 1, dated as of November 1, 1986, to Facility Lease, dated...

  • Page 212
    ... Lease, dated as of December 15, 1986, between U.S. Bank National Association, successor to State Street 10.1 to APS's November 18, 1986 Form 8-K Report, File No. 1-4473 1-20-87 10.12.2a Pinnacle West APS 4.13 to APS's Form 18 Registration Statement No. 33-9480 by means of August 1, 1987 Form...

  • Page 213
    ...the Sale and Purchase of Wastewater Effluent dated November 13, 2000, by and between 10.103 to Pinnacle West/APS 2004 Form 10-K Report, File Nos. 1-8962 and 1-4473 3-16-05 10.13.3 Pinnacle West APS 10.104 to Pinnacle West/APS 2004 Form 10-K Report, File Nos. 1-8962 and 1-4473 3-16-05 the City...

  • Page 214
    ...10.14.1 Pinnacle West APS Contract, dated July 21, 1984, with DOE providing for the disposal of nuclear fuel and/or high-level radioactive waste, ANPP Territorial Agreement between APS and SRP Power Coordination Agreement between 10.31 to Pinnacle West's Form S-14 Registration Statement, File No...

  • Page 215
    ... No. Date Registrant(s) Description Previously Filed as Exhibit: a Filed 10.16 Pinnacle West APS Purchase and Sale Agreement dated November 8, 2010 by and between SCE and APS Proposed Settlement Agreement dated 10.1 to Pinnacle West/APS November 8, 2010 Form 8-K Report, File Nos. 1-8962...

  • Page 216
    ... of Contents Exhibit No. Date Registrant(s) Description Previously Filed as Exhibit: a Filed 31.2 Pinnacle West Certificate of James R. Hatfield, Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended 31.3 APS Certificate of Donald...

  • Page 217
    ... APS's 1992 Form 10-K Report, File No. 1-4473 3-30-93 99.2c Pinnacle West APS 28.1 to APS's September 30, 1992 Form 10-Q Report, File No. 1-4473 11-9-92 August 1, 1986, among PVNGS Funding Corp., Inc., Bank of America National Trust and Savings Association, State Street Bank and Trust Company...

  • Page 218
    ... of Contents Exhibit No. Date Registrant(s) Description Previously Filed as Exhibit: a Filed 99.2ac Pinnacle West APS Amendment No. 1 dated as of November 1, 1986, to Participation Agreement, dated as of August 1, 10.8 to APS's September 30, 1986 Form 10-Q Report by means of Amendment No...

  • Page 219
    ...Trust Indenture, Mortgage, Security Agreement and Assignment of Facility Lease, dated as of August 1, 1986, between State Street Bank and Trust Company, as successor to The First National Bank of Boston, as Owner 4.5 to APS's Form 18 Registration Statement, File No. 33-9480 10-24-86 Trustee, and...

  • Page 220
    ... Amendment No. 1, dated as of 28.3 to APS's Form 18 Registration Statement, File No. 33-9480 10-24-86 99.4ac Pinnacle West APS November 1, 1986, to Assignment, Assumption and Further Agreement, dated as of August 1, 1986, between APS and State Street Bank and Trust Company, as successor to...

  • Page 221
    ...Boston, as Owner Trustee Participation Agreement, dated as of December 15, 1986, among PVNGS Funding Report Corp., Inc., State 99.5 Pinnacle West APS 28.2 to APS's September 30, 1992 Form 10-Q Report, File No. 1-4473 11-9-92 Street Bank and Trust Company, as successor to The First National Bank...

  • Page 222
    ... 99.5a Pinnacle West APS Amendment No. 1, dated as of August 1, 1987, to Participation Agreement, dated as of December 15, 28.20 to APS's Form 18 Registration Statement No. 33-9480 by means of a November 6, 1986 Form 8-K Report, File No. 1-4473 8-10-87 1986, among PVNGS Funding Corp., Inc. as...

  • Page 223
    ... Lease, dated as of December 15, 1986, between State Street Bank and Trust Company, as successor to The First National Bank of Boston, as Owner Trustee, and Chemical Bank, as Indenture Trustee 4.13 to APS's Form 18 Registration Statement No. 33-9480 by means of August 1, 1987 Form 8-K Report, File...

  • Page 224
    ... State Street Bank and Trust Company, as successor to The First National Bank of Boston, as Owner Trustee Amendment No. 1, dated as of 10.5 to APS's November 18, 1986 Form 8-K Report, File No. 1-4473 1-20-87 99.7a Pinnacle West APS 28.7 to APS's 1992 Form 10-K Report, File No. 1-4473 3-30-93...

  • Page 225
    ... 29, 1999, including the Retail Electric Competition Rules 10.2 to APS's September 30, 1999 Form 10-Q Report, File No. 1-4473 11-15-99 99.11 Pinnacle West Purchase Agreement by and among Pinnacle West Energy Corporation and GenWest, L.L.C. and Nevada Power Company, dated June 21, 2005 99.5 to...

  • Page 226
    ... West APS XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Definition Linkbase Document 101.DEF a Reports filed under File No. 1-4473 and 1-8962 were filed in the office of the Securities and Exchange Commission located in Washington, D.C. contract or compensatory plan...

  • Page 227
    ... caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PINNACLE WEST CAPITAL CORPORATION (Registrant) Date: February 21, 2014 /s/ Donald E. Brandt (Donald E. Brandt, Chairman of the Board of Directors, President and Chief Executive Officer) Power of Attorney...

  • Page 228
    ... /s/ Humberto S. Lopez (Humberto S. Lopez) Director February 21, 2014 /s/ Kathryn L. Munro (Kathryn L. Munro) Director February 21, 2014 /s/ Bruce J. Nordstrom (Bruce J. Nordstrom) Director February 21, 2014 Director February 21, 2014 (Richard P. Fox) Director February 21, 2014 (David...

  • Page 229
    ... caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARIZONA PUBLIC SERVICE COMPANY (Registrant) Date: February 21, 2014 /s/ Donald E. Brandt (Donald E. Brandt, Chairman of the Board of Directors, President and Chief Executive Officer) Power of Attorney...

  • Page 230
    .../s/ Humberto S. Lopez (Humberto S. Lopez) Director February 21, 2014 /s/ Kathryn L. Munro Director February 21, 2014 (Kathryn L. Munro) /s/ Bruce J. Nordstrom (Bruce J. Nordstrom) Director February 21, 2014 Director February 21, 2014 (Richard P. Fox) Director February 21, 2014 (David...

  • Page 231
    ... from Service. The Participant may change his or her election to an allowable alternative payout date or period by submitting a new Election Form to the Company in accordance with Section 3.6. Failure to make an election will result in the benefits being paid in a lump sum within 30 days after...

  • Page 232
    ..., payment of the Termination Benefit shall not be made or commence prior to the date which is six (6) months after the date of a Participant's Separation from Service in the case of a Participant who is determined to be a Specified Employee. IN WITNESS WHEREOF, Pinnacle West Capital Corporation has...

  • Page 233
    ... Chief Financial Officer, and David P. Falck, Executive Vice President and General Counsel, and the APS 2014 Annual Incentive Award Plan for Palo Verde Employees (the "Palo Verde Plan"), which includes an incentive award opportunity for Randall K. Edington, Executive Vice President and Chief Nuclear...

  • Page 234
    ... Officer's performance during the year. In addition, consistent with Mr. Edington's letter agreement regarding his employment, the Board approved a separate compensation opportunity for Mr. Edington of up to $125,000 upon the achievement of specific performance measures tied to Palo Verde operations...

  • Page 235
    ... of the Company (the " Board of Directors ") has adopted, and the Company's shareholders have approved, the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan (the " Plan"), pursuant to which Performance Share Awards and Dividend Equivalent Awards may be granted to employees of the...

  • Page 236
    ... ' employees or customers. (d) (e) Disability . "Disability" has the meaning set forth for such term in the Retirement Plan. Dividend Equivalents . In satisfaction of the Dividend Equivalents Award made pursuant to Section 1, at the time of the Company's delivery of Stock to Employee pursuant...

  • Page 237
    (g) Impact on Pension . The value of the shares of Stock distributed upon payment for the Performance Shares and Dividend Equivalents will be disregarded for purposes of calculating the amount of Employee's benefit under any Company retirement plans. 5. Performance Criteria and Adjustments . ...

  • Page 238
    ... Segment Survey for investor-owned utilities; (ii) the System Average Interruption Frequency Index (Major Events Excluded) (" SAIFI"); (iii) Arizona Public Service Company's customer to employee improvement ratio; (iv) the OSHA rate (All Incident Injury Rate); (v) nuclear capacity factor; and (vi...

  • Page 239
    ..., death, retirement, disability, or otherwise, except as specifically set forth in Section 4 above or in Article 15 of the Plan. Employee will, however, be entitled to receive any Stock and Dividend Equivalents payable under Section 4 of this Award Agreement if Employee's employment terminates after...

  • Page 240
    ... known to the public, including, but not limited to, information concerning the Company's or its Affiliates' assets and valuations, business plans, methods of operation, management, information systems, procedures, processes, practices, policies, plans, programs, personnel and/or reports or other...

  • Page 241
    ...any shares of Company stock received by Employee pursuant to this Award (net of shares sold or surrendered to meet tax withholding or exercise requirements). This restriction shall extend to the purchase or creation of any short sales, zero-cost collars, forward sales contracts, puts, calls, options...

  • Page 242
    ...deliver it to the Company within one (1) day of the release of the Stock) Stock (The Company should withhold shares of my Stock to cover my taxes) o To the extent permitted by law, I hereby elect Federal tax withholding of: ¨ minimum withholding rate in effect at the time of release (currently 25...

  • Page 243
    ...Board of Directors of the Company (the "Board of Directors") has adopted, and the shareholders of the Company have approved, the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan (the "Plan"), pursuant to which Restricted Stock Units and Dividend Equivalents may be granted to employees...

  • Page 244
    ...negatively affects any of the Company's or any of its Subsidiaries ' employees or customers. (e) (f) 4. Disability . "Disability" has the meaning set forth for such term in the Retirement Plan. Payment. (a) Time and Form of Payment . When a Restricted Stock Unit vests in accordance with Section...

  • Page 245
    ...provide for the issuance of a full share of Stock. Impact on Pension Plans . The value of the shares of Stock distributed upon payment for the Restricted Stock Units and Dividend Equivalents will be disregarded for purposes of calculating the amount of Employee's benefit under any Company retirement...

  • Page 246
    ... of cash or shares of Stock as set forth above. 8. Continued Employment . Nothing in the Plan or this Award Agreement shall be interpreted to interfere with or limit in any way the right of the Company or its Subsidiaries to terminate Employee's employment or services at any time. In addition...

  • Page 247
    ... known to the public, including, but not limited to, information concerning the Company's or its Affiliates' assets and valuations, business plans, methods of operation, management, information systems, procedures, processes, practices, policies, plans, programs, personnel and/or reports or other...

  • Page 248
    ... set forth in Section 17.15 of the Plan. IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed, as of the Date of Grant, by an authorized representative of the Company and this Award Agreement has been executed by Employee. PINNACLE WEST CAPITAL CORPORATION By: Its: Date...

  • Page 249
    ... with the terms of the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan and pursuant to Section 4(b) of the Award Agreement, I hereby elect to receive payment for the Restricted Stock Units and Dividend Equivalents that vest on the dates set forth below in the following form (place an...

  • Page 250
    ...WEST CAPITAL CORPORATION RATIO OF EARNINGS TO FIXED CHARGES (dollars in thousands) 2013 2012 2011 2010 2009 Earnings: Income from continuing operations attributable to common shareholders Income taxes Fixed...197 Fixed Charges: Interest expense Estimated interest portion of annual rents Total fixed ...

  • Page 251
    Exhibit 12.2 ARIZONA PUBLIC SERVICE COMPANY RATIO OF EARNINGS TO FIXED CHARGES (dollars in thousands) 2013 2012 2011 2010 2009 Earnings: Income from continuing operations attributable to common shareholders Income taxes Fixed charges Total earnings $ $ 424,969 245,095 202,457 872,521 $ $ 395,...

  • Page 252
    Exhibit 12.3 PINNACLE WEST CAPITAL CORPORATION RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (dollars in thousands) 2013 2012 2011 2010 2009 Earnings: Income from continuing operations attributable to common shareholders Income taxes Fixed charges Total ...

  • Page 253
    ... 21.1 SUBSIDIARIES LIST - 2.14 Arizona Public Service Company *All other subsidiaries of Pinnacle West Capital Corporation and all subsidiaries of Arizona Public Service Company have been omitted as they do not constitute significant subsidiaries within the meaning of Rule 1-02(w) of Regulation...

  • Page 254
    ... report dated February 21, 2014, relating to the consolidated financial statements and financial statement schedules of Pinnacle West Capital Corporation, and the effectiveness of Pinnacle West Capital Corporation's internal control over financial reporting, appearing in this Annual Report on Form...

  • Page 255
    ... in Registration htatement Nos. 333-46161 and 333-158774 on Form h-8 of our report dated February 21, 2014, relating to the consolidated financial statements and financial statement schedule of Arizona Public hervice Company and the effectiveness of Arizona Public hervice Company's internal control...

  • Page 256
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and...

  • Page 257
    ... the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who...

  • Page 258
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and...

  • Page 259
    ... financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 21, 2014 /s/ James R. Hatfield James R. Hatfield Executive Vice President...

  • Page 260
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and...

  • Page 261
    ... the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who...

  • Page 262
    ... financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and...

  • Page 263
    ... financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 21, 2014 /s/ James R. Hatfield James R. Hatfield Executive Vice President...

  • Page 264
    ... contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Pinnacle West Capital Corporation. Date: February 21, 2014 /s/ James R. Hatfield James R. Hatfield Executive Vice President and Chief Financial Officer

  • Page 265
    ... information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Arizona Public Service Company. Date: February 21, 2014 /s/ Donald E. Brandt Donald E. Brandt Chairman, President and Chief Executive Officer...

  • Page 266