APS 2015 Annual Report Download - page 36

Table of Contents
APS’s inability to adequately develop or acquire the necessary generation resources could have a material adverse impact on our
business and results of operations.
The lack of access to sufficient supplies of water could have a material adverse impact on APS’s business and results of operations.
Assured supplies of water are important for APS’s generating plants. Water in the southwestern United States is limited, and
various parties have made conflicting claims regarding the right to access and use such limited supply of water. Both groundwater and
surface water in areas important to APS’s generating plants have been and are the subject of inquiries, claims and legal proceedings. In
addition, the region in which APS’s power plants are located is prone to drought conditions, which could potentially affect the plants’
water supplies. APS’s inability to access sufficient supplies of water could have a material adverse impact on our business and results
of operations.
We are subject to cybersecurity risks and risks of unauthorized access to our systems.
In the regular course of our business, we handle a range of sensitive security, customer and business systems information. A
security breach of our information systems such as theft or the inappropriate release of certain types of information, including
confidential customer, employee, financial or system operating information, could have a material adverse impact on our financial
condition, results of operations or cash flows. We operate in a highly regulated industry that requires the continued operation of
sophisticated information technology systems and network infrastructure. Despite implementation of security measures, our technology
systems are vulnerable to disability, failures or unauthorized access. Our generation, transmission and distribution facilities,
information technology systems and other infrastructure facilities and systems and physical assets could be targets of such unauthorized
access. Failures or breaches of our systems could impact the reliability of our generation, transmission and distribution systems and
also subject us to financial harm. If our technology systems were to fail or be breached and if we are unable to recover in a timely way,
we may not be able to fulfill critical business functions and sensitive confidential data could be compromised, which could have a
material adverse impact on our financial condition, results of operations or cash flows.
We are subject to laws and rules issued by multiple government agencies concerning safeguarding and maintaining the
confidentiality of our security, customer and business information. One of these agencies, NERC, has issued comprehensive regulations
and standards surrounding the security of our operating systems, and is continually in the process of developing updated and additional
requirements with which the utility industry must comply. The increasing promulgation of NERC rules and standards will increase our
compliance costs and our exposure to the potential risk of violations of the standards.
We have experienced, and expect to continue to experience, these types of threats and attempted intrusions. The implementation
of additional security measures could increase costs and have a material adverse impact on our financial results. We have 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. 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.
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