PINNACLE WEST CAPITAL CORP [PNW] Filings

10-Q 1 pnw-20230630.htm 10-Q pnw-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			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	Exact Name of Each Registrant as specified in its charter; State of Incorporation; Address; and Telephone Number			IRS Employer Identification No.
1-8962	PINNACLE WEST CAPITAL CORPORATION			86-0512431
	(an Arizona corporation)
	400 North Fifth Street, P.O. Box 53999
	Phoenix	Arizona	85072-3999
	(602)	250-1000
1-4473	ARIZONA PUBLIC SERVICE COMPANY			86-0011170
	(an Arizona corporation)
	400 North Fifth Street, P.O. Box 53999
	Phoenix	Arizona	85072-3999
	(602)	250-1000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	PNW	The New York Stock Exchange

Indicate by check mark whether each 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

☒

☐

ARIZONA PUBLIC SERVICE COMPANY

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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

☒

☐

ARIZONA PUBLIC SERVICE COMPANY

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

PINNACLE WEST CAPITAL CORPORATION

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

ARIZONA PUBLIC SERVICE COMPANY

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

PINNACLE WEST CAPITAL CORPORATION

Yes

☐

☒

ARIZONA PUBLIC SERVICE COMPANY

Yes

☐

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


PINNACLE WEST CAPITAL CORPORATION	Number of shares of common stock, no par value, outstanding as of July 28, 2023:	113,312,203
ARIZONA PUBLIC SERVICE COMPANY	Number of shares of common stock, $2.50 par value, outstanding as of July 28, 2023:	71,264,947

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

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		Page

Forward-Looking Statements		2
Part I		4
Item 1.	Financial Statements	4
	Pinnacle West Capital Corporation	5
	Arizona Public Service Company	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	73
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	103
Item 4.	Controls and Procedures	103

Part II		105
Item 1.	Legal Proceedings	105
Item 1A.	Risk Factors	105
Item 5.	Other Information	105
Item 6.	Exhibits	106
Signatures		108

This combined quarterly report on Form 10-Q is separately provided by Pinnacle West Capital Corporation (“Pinnacle West”) and Arizona Public Service Company (“APS”). Any use of the words “Company,” “we,” and “our” refer to Pinnacle West. Each registrant is providing on its own behalf all of the information contained in this Form 10-Q that relates to such registrant and, where required, its subsidiaries. Except as stated in the preceding sentence, neither registrant is providing any information that does not relate to such registrant, and therefore makes no representation as to any such information. The information required with respect to each company is set forth within the applicable items. Item 1 of this report includes Condensed Consolidated Financial Statements of Pinnacle West and Condensed Consolidated Financial Statements of APS. Item 1 of this report also includes Combined Notes to Condensed Consolidated Financial Statements.

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FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements based on current expectations. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume,” “project,” “anticipate,” “goal,” “seek,” “strategy,” “likely,” “should,” “will,” “could,” and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. In addition to the Risk Factors described in Part I, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“2022 Form 10-K”), Part II, Item 1A of this report and in Part I, Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, these factors include, but are not limited to:

•the current economic environment and its effects, such as lower economic growth, a tight labor market, inflation, supply chain delays, increased expenses, volatile capital markets, or other unpredictable effects;

•our ability to manage capital expenditures and operations and maintenance costs while maintaining reliability and customer service levels;

•variations in demand for electricity, including those due to weather, seasonality (including large increases in ambient temperatures), the general economy or social conditions, customer and sales growth (or decline), the effects of energy conservation measures and distributed generation, and technological advancements;

•the potential effects of climate change on our electric system, including as a result of weather extremes, such as prolonged drought and high temperature variations in the area where APS conducts its business;

•power plant and transmission system performance and outages;

•competition in retail and wholesale power markets;

•regulatory and judicial decisions, developments, and proceedings;

•new legislation, ballot initiatives, and regulation or interpretations of existing legislation or regulations, including those relating to environmental requirements, regulatory and energy policy, nuclear plant operations, and potential deregulation of retail electric markets;

•fuel and water supply availability;

•our ability to achieve timely and adequate rate recovery of our costs through our rates and adjustor recovery mechanisms, including returns on and of debt and equity capital investment;

•our ability to meet renewable energy and energy efficiency mandates and recover related costs;

•the ability of APS to achieve its clean energy goals (including a goal by 2050 of 100% clean, carbon-free electricity) and, if these goals are achieved, the impact of such achievement on APS, its customers, and its business, financial condition, and results of operations;

•risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty;

•current and future economic conditions in Arizona;

•the direct or indirect effect on our facilities or business from cybersecurity threats or intrusions, data security breaches, terrorist attack, physical attack, severe storms, or other catastrophic events, such as fires, explosions, pandemic health events, or similar occurrences;

•the development of new technologies which may affect electric sales or delivery, including as a result of delays in the development and application of new technologies;

•the cost of debt, including increased cost as a result of rising interest rates, and equity capital and the ability to access capital markets when required;

•environmental, economic, and other concerns surrounding coal-fired generation, including regulation of greenhouse gas emissions (“GHG”);

•volatile fuel and purchased power costs;

•the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement benefit plans and the resulting impact on future funding requirements;

•the liquidity of wholesale power markets and the use of derivative contracts in our business;

•potential shortfalls in insurance coverage;

•new accounting requirements or new interpretations of existing requirements;

•generation, transmission, and distribution facility and system conditions and operating costs;

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•the ability to meet the anticipated future need for additional generation and associated transmission facilities in our region;

•the willingness or ability of our counterparties, power plant participants, and power plant landowners to meet contractual or other obligations or extend the rights for continued power plant operations; and

•restrictions on dividends or other provisions in our credit agreements and Arizona Corporation Commission (“ACC”) orders.

These and other factors are discussed in the Risk Factors described in Part I, Item 1A of our 2022 Form 10-K, Part II, Item 1A of this report, and in Part I, Item 2 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, which readers should review carefully before placing any reliance on our financial statements or disclosures. Neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by law.

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES


			Page

Pinnacle West Condensed Consolidated Statements of Income for Three and Six Months Ended June 30, 2023 and 2022			5
Pinnacle West Condensed Consolidated Statements of Comprehensive Income for Three and Six Months Ended June 30, 2023 and 2022			6
Pinnacle West Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			7
Pinnacle West Condensed Consolidated Statements of Cash Flows for Six Months Ended June 30, 2023 and 2022			9
Pinnacle West Condensed Consolidated Statements of Changes in Equity for Three and Six Months Ended June 30, 2023 and 2022			10

APS Condensed Consolidated Statements of Income for Three and Six Months Ended June 30, 2023 and 2022			12
APS Condensed Consolidated Statements of Comprehensive Income for Three and Six Months Ended June 30, 2023 and 2022			13
APS Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			14
APS Condensed Consolidated Statements of Cash Flows for Six Months Ended June 30, 2023 and 2022			16
APS Condensed Consolidated Statements of Changes in Equity for Three and Six Months Ended June 30, 2023 and 2022			17

Combined Notes to Condensed Consolidated Financial Statements			19
Note 1. Consolidation and Nature of Operations			19
Note 2. Revenue			20
Note 3. Long-Term Debt and Liquidity Matters			22
Note 4. Regulatory Matters			24
Note 5. Retirement Plans and Other Postretirement Benefits			42
Note 6. Palo Verde Sale Leaseback Variable Interest Entities			43
Note 7. Derivative Accounting			44
Note 8. Commitments and Contingencies			48
Note 9. Other Income and Other Expense			56
Note 10. Earnings Per Share			57
Note 11. Fair Value Measurements			57
Note 12. Investment in Nuclear Decommissioning Trusts and Other Special Use Funds			64

Note 13. Changes in Accumulated Other Comprehensive Loss			67

Note 14. Leases			69
Note 1 5 . Asset Retirement Obligations			71

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PINNACLE WEST CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars and shares in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

OPERATING REVENUES (Note 2)	$	1,121,703	$	1,061,669	$	2,066,658	$	1,845,200

OPERATING EXPENSES
Fuel and purchased power	407,754		352,187		802,258		617,456
Operations and maintenance	277,238		245,387		527,318		463,729

Depreciation and amortization	195,101		186,497		387,007		373,102
Taxes other than income taxes	57,642		54,118		114,780		112,116
Other expenses	688		385		1,298		1,210
Total	938,423		838,574		1,832,661		1,567,613
OPERATING INCOME	183,280		223,095		233,997		277,587
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	13,034		12,086		28,095		21,833
Pension and other postretirement non-service credits - net (Note 5)	10,474		25,257		20,339		49,066
Other income (Note 9)	6,406		1,682		12,483		3,386
Other expense (Note 9)	(4,813)		(4,584)		(8,944)		(8,006)
Total	25,101		34,441		51,973		66,279
INTEREST EXPENSE
Interest charges	93,832		68,103		181,951		133,492
Allowance for borrowed funds used during construction	(12,317)		(5,873)		(25,039)		(10,355)
Total	81,515		62,230		156,912		123,137
INCOME BEFORE INCOME TAXES	126,866		195,306		129,058		220,729
INCOME TAXES	15,897		26,688		17,080		30,849
NET INCOME	110,969		168,618		111,978		189,880
Less: Net income attributable to noncontrolling interests (Note 6)	4,306		4,306		8,612		8,612
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	106,663	$	164,312	$	103,366	$	181,268

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC	113,411		113,172		113,385		113,137
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED	113,717		113,369		113,657		113,332

EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE OUTSTANDING
Net income attributable to common shareholders - basic	$	0.94	$	1.45	$	0.91	$	1.60
Net income attributable to common shareholders - diluted	$	0.94	$	1.45	$	0.91	$	1.60

The accompanying notes are an integral part of the financial statements.

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PINNACLE WEST CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

NET INCOME	$	110,969	$	168,618	$	111,978	$	189,880

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

Derivative instruments net unrealized gain (loss), net of tax benefit (expense) of $(147), $(331), $56 and $(413)	446		1,007		(170)		1,259

Pension and other postretirement benefit activity, net of tax benefit (expense) of $165, $693, $(4) and $398	(501)		(2,113)		14		(1,212)
Total other comprehensive income (loss)	(55)		(1,106)		(156)		47

COMPREHENSIVE INCOME	110,914		167,512		111,822		189,927
Less: Comprehensive income attributable to noncontrolling interests	4,306		4,306		8,612		8,612

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	106,608	$	163,206	$	103,210	$	181,315

The accompanying notes are an integral part of the financial statements.

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PINNACLE WEST CAPITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands)


	June 30, 2023		December 31, 2022
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	7,658	$	4,832
Customer and other receivables	474,548		453,209
Accrued unbilled revenues	216,740		164,764
Allowance for doubtful accounts (Note 2)	(19,806)		(23,778)
Materials and supplies (at average cost)	442,735		410,481
Income tax receivable	4,240		14,086
Fossil fuel (at average cost)	50,057		40,155
Assets from risk management activities (Note 7)	12,105		87,835
Deferred fuel and purchased power regulatory asset (Note 4)	433,279		460,561
Other regulatory assets (Note 4)	128,600		78,318
Other current assets	101,581		60,091
Total current assets	1,851,737		1,750,554
INVESTMENTS AND OTHER ASSETS
Nuclear decommissioning trusts (Notes 11 and 12)	1,162,397		1,073,410
Other special use funds (Notes 11 and 12)	351,998		347,231
Assets from risk management activities (Note 7)	13,033		44,394
Other assets	127,318		125,672
Total investments and other assets	1,654,746		1,590,707
PROPERTY, PLANT AND EQUIPMENT
Plant in service and held for future use	23,667,333		22,452,146
Accumulated depreciation and amortization	(8,198,608)		(7,929,878)
Net	15,468,725		14,522,268
Construction work in progress	1,495,494		1,882,791
Palo Verde sale leaseback, net of accumulated depreciation (Note 6)	88,361		90,296
Intangible assets, net of accumulated amortization	255,574		258,880
Nuclear fuel, net of accumulated amortization	100,019		100,119
Total property, plant and equipment	17,408,173		16,854,354
DEFERRED DEBITS
Regulatory assets (Note 4)	1,280,344		1,283,221
Operating lease right-of-use assets (Note 14)	1,337,355		801,688
Assets for pension and other postretirement benefits (Note 5)	396,615		396,599
Other	50,372		46,282
Total deferred debits	3,064,686		2,527,790

TOTAL ASSETS	$	23,979,342	$	22,723,405

The accompanying notes are an integral part of the financial statements.

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PINNACLE WEST CAPITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands)


	June 30, 2023		December 31, 2022
LIABILITIES AND EQUITY

CURRENT LIABILITIES
Accounts payable	$	436,808	$	430,425
Accrued taxes	163,797		164,440
Accrued interest	58,559		61,217
Common dividends payable	98,014		97,895
Short-term borrowings (Note 3)	305,350		340,720
Current maturities of long-term debt (Note 3)	318,907		50,685
Customer deposits	41,585		41,769
Liabilities from risk management activities (Note 7)	73,833		37,697
Liabilities for asset retirements (Note 15)	15,617		12,232

Operating lease liabilities (Note 14)	90,658		105,210
Regulatory liabilities (Note 4)	219,075		271,575
Other current liabilities	110,378		148,276
Total current liabilities	1,932,581		1,762,141
LONG-TERM DEBT LESS CURRENT MATURITIES (Note 3)	8,164,315		7,741,286
DEFERRED CREDITS AND OTHER
Deferred income taxes	2,357,517		2,384,421
Regulatory liabilities (Note 4)	2,032,525		2,061,776
Liabilities for asset retirements (Note 15)	823,502		785,530
Liabilities for pension benefits (Note 5)	112,537		116,286

Customer advances	536,579		422,103
Coal mine reclamation	181,636		179,255
Deferred investment tax credit	223,278		180,677
Unrecognized tax benefits	39,073		38,658
Operating lease liabilities (Note 14)	1,221,538		639,247
Other	278,124		252,149
Total deferred credits and other	7,806,309		7,060,102
COMMITMENTS AND CONTINGENCIES (Note 8)
EQUITY
Common stock, no par value; authorized 150,000,000 shares, 113,386,894 and 113,247,189 issued at respective dates	2,736,112		2,724,740
Treasury stock at cost; 75,767 and 73,613 shares at respective dates	(5,328)		(5,005)
Total common stock	2,730,784		2,719,735
Retained earnings	3,267,731		3,360,347
Accumulated other comprehensive loss (Note 13)	(31,591)		(31,435)
Total shareholders’ equity	5,966,924		6,048,647
Noncontrolling interests (Note 6)	109,213		111,229
Total equity	6,076,137		6,159,876

TOTAL LIABILITIES AND EQUITY	$	23,979,342	$	22,723,405

The accompanying notes are an integral part of the financial statements.

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PINNACLE WEST CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)


	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	111,978	$	189,880
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization including nuclear fuel	416,652		405,127
Deferred fuel and purchased power	(191,304)		(98,707)
Deferred fuel and purchased power amortization	218,586		96,842
Allowance for equity funds used during construction	(28,095)		(21,833)
Deferred income taxes	(35,808)		22,169
Deferred investment tax credit	42,601		(2,538)
Change in derivative instruments fair value	(239)		—
Stock compensation	7,225		7,872
Changes in current assets and liabilities:
Customer and other receivables	(24,748)		(31,146)
Accrued unbilled revenues	(51,976)		(100,543)
Materials, supplies and fossil fuel	(42,156)		(34,315)
Income tax receivable	9,847		7,514
Other current assets	(35,609)		5,195
Accounts payable	(2,051)		104,849
Accrued taxes	(644)		13,282
Other current liabilities	(62,354)		(7,316)
Change in margin and collateral accounts - assets	28		40,430


Change in other long-term assets	(104,581)		174,013
Change in operating lease assets	17,998		29,759
Change in other long-term liabilities	162,181		(184,626)
Change in operating lease liabilities	30,082		(27,622)
Net cash provided by operating activities	437,613		588,286
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(918,195)		(843,219)
Contributions in aid of construction	60,118		68,879
Allowance for borrowed funds used during construction	(25,039)		(10,111)
Proceeds from nuclear decommissioning trusts sales and other special use funds	567,528		692,186
Investment in nuclear decommissioning trusts and other special use funds	(568,668)		(692,811)
Other	485		(9,174)
Net cash used for investing activities	(883,771)		(794,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt	689,247		325,802
Short-term borrowing and (repayments) - net	(35,370)		249,000


Dividends paid on common stock	(192,235)		(188,542)
Repayment of long-term debt	—		(150,000)
Common stock equity issuances and (purchases) - net	(2,031)		(448)
Distributions to noncontrolling interests	(10,627)		(10,628)

Net cash provided by financing activities	448,984		225,184

NET INCREASE IN CASH AND CASH EQUIVALENTS	2,826		19,220

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	4,832		9,969

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,658	$	29,189

The accompanying notes are an integral part of the financial statements.

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PINNACLE WEST CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

(dollars in thousands)


	Three Months Ended June 30, 2023
	Common Stock			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
	Shares	Amount		Shares	Amount
Balance, March 31, 2023	113,359,467	$	2,730,851	(106,141)	$	(7,451)	$	3,357,052	$	(31,536)	$	115,535	$	6,164,451
Net income		—			—		106,663		—		4,306		110,969
Other comprehensive loss		—			—		—		(55)		—		(55)
Dividends on common stock ($1.73 per share)		—			—		(195,981)		—		—		(195,981)
Issuance of common stock	27,427	5,261			—		—		—		—		5,261
Purchase of treasury stock (a)		—		(1,521)	(119)		—		—		—		(119)
Reissuance of treasury stock for stock-based compensation and other		—		31,895	2,242		—		—		—		2,242
Capital activities by noncontrolling activities		—			—		—		—		(10,628)		(10,628)
Other		—			—		(3)		—		—		(3)
Balance, June 30, 2023	113,386,894	$	2,736,112	(75,767)	$	(5,328)	$	3,267,731	$	(31,591)	$	109,213	$	6,076,137


	Three Months Ended June 30, 2022
	Common Stock			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
	Shares	Amount		Shares	Amount
Balance, March 31, 2022	113,047,699	$	2,706,325	(50,921)	$	(3,648)	$	3,281,601	$	(53,708)	$	119,566	$	6,050,136
Net income		—			—		164,312		—		4,306		168,618
Other comprehensive loss		—			—		—		(1,106)		—		(1,106)
Dividends on common stock ($1.70 per share)		—			—		(192,139)		—		—		(192,139)
Issuance of common stock	30,350	5,972			—		—		—		—		5,972

Reissuance of treasury stock for stock-based compensation and other		—		9,390	673		—		—		—		673
Capital activities by noncontrolling interests		—			—		—		—		(10,628)		(10,628)
Other		—			(1)		(2)		—		—		(3)
Balance, June 30, 2022	113,078,049	$	2,712,297	(41,531)	$	(2,976)	$	3,253,772	$	(54,814)	$	113,244	$	6,021,523

(a)Primarily represents shares of common stock withheld from certain stock awards for tax purposes.

The accompanying notes are an integral part of the financial statements.

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PINNACLE WEST CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

(dollars in thousands)


	Six Months Ended June 30, 2023
	Common Stock			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
	Shares	Amount		Shares	Amount
Balance, December 31, 2022	113,247,189	$	2,724,740	(73,613)	$	(5,005)	$	3,360,347	$	(31,435)	$	111,229	$	6,159,876
Net income		—			—		103,366		—		8,612		111,978
Other comprehensive loss		—			—		—		(156)		—		(156)
Dividends on common stock ($1.73 per share)		—			—		(195,981)		—		—		(195,981)
Issuance of common stock	139,705	11,372			—		—		—		—		11,372
Purchase of treasury stock (a)		—		(34,675)	(2,609)		—		—		—		(2,609)
Reissuance of treasury stock for stock-based compensation and other		—		32,521	2,287		—		—		—		2,287
Capital activities by noncontrolling interests		—			—		—		—		(10,628)		(10,628)
Other		—			(1)		(1)		—		—		(2)
Balance, June 30, 2023	113,386,894	$	2,736,112	(75,767)	$	(5,328)	$	3,267,731	$	(31,591)	$	109,213	$	6,076,137


	Six Months Ended June 30, 2022
	Common Stock			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	113,014,528	$	2,702,743	(87,608)	$	(6,401)	$	3,264,719	$	(54,861)	$	115,260	$	6,021,460
Net income		—			—		181,268		—		8,612		189,880
Other comprehensive income		—			—		—		47		—		47
Dividends on common stock ($1.70 per share)		—			—		(192,213)		—		—		(192,213)
Issuance of common stock	63,521	9,554			—		—		—		—		9,554
Purchase of treasury stock (a)		—		(24,885)	(1,715)		—		—		—		(1,715)
Reissuance of treasury stock for stock-based compensation and other		—		70,962	5,140		—		—		—		5,140
Capital activities by noncontrolling interests		—			—		—		—		(10,628)		(10,628)
Other		—			—		(2)		—		—		(2)
Balance, June 30, 2022	113,078,049	$	2,712,297	(41,531)	$	(2,976)	$	3,253,772	$	(54,814)	$	113,244	$	6,021,523

(a)Primarily represents shares of common stock withheld from certain stock awards for tax purposes.

The accompanying notes are an integral part of the financial statements.

Table of Contents

ARIZONA PUBLIC SERVICE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

OPERATING REVENUES (Note 2)	$	1,121,703	$	1,061,669	$	2,066,658	$	1,845,200

OPERATING EXPENSES
Fuel and purchased power	407,754		352,187		802,258		617,456
Operations and maintenance	272,339		242,273		518,517		456,874
Depreciation and amortization	195,080		186,477		386,964		373,060
Taxes other than income taxes	57,629		54,094		114,754		112,053
Other expenses	688		385		1,298		1,210
Total	933,490		835,416		1,823,791		1,560,653
OPERATING INCOME	188,213		226,253		242,867		284,547
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction	13,034		12,086		28,095		21,833
Pension and other postretirement non-service credits - net (Note 5)	10,695		25,382		20,801		49,289
Other income (Note 9)	5,691		1,396		10,767		2,548
Other expense (Note 9)	(4,135)		(2,786)		(6,752)		(4,634)
Total	25,285		36,078		52,911		69,036
INTEREST EXPENSE
Interest charges	79,730		64,223		154,952		126,532
Allowance for borrowed funds used during construction	(9,739)		(5,689)		(20,896)		(10,111)
Total	69,991		58,534		134,056		116,421
INCOME BEFORE INCOME TAXES	143,507		203,797		161,722		237,162
INCOME TAXES	20,264		29,522		23,510		34,381
NET INCOME	123,243		174,275		138,212		202,781
Less: Net income attributable to noncontrolling interests (Note 6)	4,306		4,306		8,612		8,612
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDER	$	118,937	$	169,969	$	129,600	$	194,169

The accompanying notes are an integral part of the financial statements.

Table of Contents

ARIZONA PUBLIC SERVICE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

(dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022

NET INCOME	$	123,243	$	174,275	$	138,212	$	202,781

OTHER COMPREHENSIVE INCOME, NET OF TAX



Pension and other postretirement benefits activity, net of tax benefit (expense) of $134, $709, $(16) and $440	(408)		(2,161)		49		(1,341)
Total other comprehensive income (loss)	(408)		(2,161)		49		(1,341)

COMPREHENSIVE INCOME	122,835		172,114