APS 2013 Annual Report Download - page 40

Table of Contents
A downgrade of our credit ratings could materially and adversely affect our business, financial condition and results of operations.
Our current ratings are set forth in “Liquidity and Capital Resources — Credit Ratings” in Item 7. We cannot be sure that any of our current ratings
will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances
in the future so warrant. Any downgrade or withdrawal could adversely affect the market price of Pinnacle West’s and APS’s securities, limit our access to
capital and increase our borrowing costs, which would diminish our financial results. We would be required to pay a higher interest rate for future
financings, and our potential pool of investors and funding sources could decrease. In addition, borrowing costs under our existing credit facilities depend on
our credit ratings. A downgrade would also require us to provide additional support in the form of letters of credit or cash or other collateral to various
counterparties. If our short-term ratings were to be lowered, it could severely limit access to the commercial paper market. We note that the ratings from rating
agencies are not recommendations to buy, sell or hold our securities and that each rating should be evaluated independently of any other rating.
Investment performance, changing interest rates and other economic factors could decrease the value of our benefit plan assets and nuclear
decommissioning trust funds and increase the valuation of our related obligations, resulting in significant additional funding requirements. We
are subject to risks related to the provision of employee healthcare benefits and recent healthcare reform legislation. Any inability to fully recover
these 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 assets in these trusts that are designed to provide funds to pay for certain of these
obligations as they arise. Declines in market values of the fixed income and equity securities held in these trusts may increase our funding requirements into
the related trusts. Additionally, the valuation of liabilities related to our pension plan and other postretirement benefit plans are impacted by a discount rate,
which is the interest rate used to discount future pension and other postretirement benefit obligations. Declining interest rates decrease the discount rate,
increase the valuation of the plan liabilities and may result in increases in pension and other postretirement benefit costs, cash contributions, regulatory assets,
and charges to OCI. Changes in demographics, including increased numbers of retirements or changes in life expectancy and changes in other actuarial
assumptions, may also increase the funding requirements of the obligations related to the pension and other postretirement benefit plans. The minimum
contributions required under these plans are impacted by federal legislation. Increasing liabilities or otherwise increasing funding requirements under these
plans, resulting from adverse changes in legislation or otherwise, could result in significant cash funding obligations that could have a material impact on our
financial position, results of operations or cash flows.
We recover most of the pension costs and other postretirement benefit costs and all of the nuclear decommissioning costs in our regulated rates. Any
inability to fully recover these costs in a timely manner would have a material negative impact on our financial condition, results of operations or cash flows.
Employee healthcare costs in recent years have continued to rise. The Patient Protection and Affordable Care Act is expected to result in additional
healthcare cost increases. Costs and other
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