APS 2013 Annual Report Download - page 39

Table of Contents
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 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.
We obtained cyber insurance to provide coverage for a portion of the losses and damages that may result from a security breach of our information technology
systems, but such insurance may not cover the total loss or damage caused by a breach.
FINANCIAL RISKS
Financial market disruptions or new financial rules or regulations may increase our financing costs or limit our access to various financial
markets, which may adversely affect our liquidity and our ability to implement our financial strategy.
Pinnacle West and APS rely on access to credit markets as a significant source of liquidity and the capital markets for capital requirements not
satisfied by cash flow from our operations. We believe that we will maintain sufficient access to these financial markets. However, certain market
disruptions or rules or regulations may increase our cost of borrowing generally, and/or otherwise adversely affect our ability to access these financial markets.
In addition, the credit commitments of our lenders under our bank facilities may not be satisfied for a variety of reasons, including periods of financial
distress or liquidity issues affecting our lenders, which could materially adversely affect the adequacy of our liquidity sources.
Changes in economic conditions, monetary policy or other factors could result in higher interest rates, which would increase interest expense on our
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 financing and refinancing;
· increasing our vulnerability to adverse economic and industry conditions; and
· requiring us to dedicate an increased portion of our cash flow from operations to payments on our debt, which would reduce funds
available to us for operations, future business opportunities or other purposes.
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