AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-3: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 6/6 · 31/10/2026
Moat50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 2/4 · APS’s regulated generation, transmission and distribution system serves approximately 1.5 million retail customers, supporting an established infrastructure position. The evidence does not establish exclusive territory rights, uneconomic network duplication or superior costs, so efficient scale remains plausible rather than a demonstrated durable moat.
durability · 2/4 · Palo Verde interests and the completed lease-interest purchases support long-lived operating continuity. One lease expires in 2033, while extending operations beyond the mid-2040s is only an intention. Customer bypass and dependence on regulated recovery limit confidence that asset longevity translates into durable economic advantage.
customer dependency · 2/4 · Serving approximately 1.5 million retail customers through an established electricity system supports continuing customer reliance. This is indirect operating evidence, not proof of individual switching friction or exclusive supply. The disclosed possibility of large customers developing their own generation limits a stronger dependency judgment.
erosion resilience · 2/4 · Regulatory accounting generally shields net income from specified derivative fair-value movements, and APS amended procurement agreements to mitigate cost pressures. These are bounded protections. Continuing infrastructure needs, dependence on timely recovery and potential customer bypass leave resilience mixed; generic risks are not treated as realized losses.
Pricing power44
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 2/4 · The presentation reports average annual APS rate increases of 2.67% during 2018–2025, below its inflation comparisons, and identifies currently approved rate effective dates. This supports observed but constrained pricing. The requested $609 million increase remains pending, and allowed returns do not establish realized investment returns.
retention · 2/4 · Approximate disclosed customer counts move from 1.4 million in the annual filing to 1.5 million retail customers in the subsequent quarterly overview. This supports continuing demand indirectly. Rounded counts do not establish a precise growth or retention rate, distinguish new connections from departures, or prove switching barriers.
margin resilience · 2/4 · Specified derivative valuation changes typically do not affect net income because of regulatory accounting, while contract amendments addressed procurement pressures. Historical rate increases below the disclosed inflation benchmarks and dependence on timely recovery temper those protections. The passages support mixed resilience without establishing comprehensive cost pass-through or realized margin erosion.
contractual freedom · 1/4 · Approved ACC and FERC rate frameworks and the pending application demonstrate limited unilateral pricing discretion. The proposed formula mechanism also requires approval. A functioning regulatory route permits adjustments, but APS cannot freely impose its requested revenue increase or treat its proposed return parameters as current contractual rights.
Predictability75
5 consecutive published annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 3.36
- Positive FCF years (%)
- 0.00
- FCF margin volatility (pp)
- 1.93
- observedAnnualPeriods
- 5.00
Financial strength3
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, an original issuer-reported unadjusted EBIT reconciled to net income, income tax and signed net interest, or reported pretax profit plus reported gross interest expense. Reported EBIT is distinct from GAAP operating income and gross interest. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 0.00
- netDebtEbitGrade
- 0.00
- interestCoverageGrade
- 13.91
- currentRatioGrade
- 0.00
- Net debt / operating income (x)
- 9.89
- Interest coverage (x)
- 2.53
- Current ratio (x)
- 0.54
Capital allocation47
Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income, an original issuer-reported unadjusted EBIT reconciled to net income, income tax and signed net interest, or EBIT calculated from reported pretax profit plus reported gross interest expense; the issuer-reported EBIT is distinct from GAAP operating income and gross interest; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. ROIC remains undefined for nonpositive invested capital; the explicit asset-return alternative does not change the ROIC chart. Missing financial inputs alone never trigger an alternative. Does not establish acquisition quality or buyback timing.
- 3-year pre-tax operating return (%)
- 6.11
- 3-year average dilution (%)
- 1.90
- 3-year average SBC / revenue (%)
- 0.45
- cashConversionGrade
- 0.00
Management50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Completed Palo Verde purchases and reported financing execution demonstrate concrete capital deployment and funding activity. At December 31, 2025, Pinnacle West’s debt-to-capitalization ratio was approximately 60% against a 65% ceiling. Further equity funding needs and absent project-return evidence prevent a strong judgment about capital efficiency.
incentive alignment · 2/4 · Actual 2025 equity awards combine three-year relative TSR, EPS and installed-capacity measures with time-vesting RSUs. Ownership compliance and trading restrictions support alignment. Counting unvested RSUs toward ownership and change-of-control vesting without subsequent termination weaken the linkage; disclosed award design does not establish exceptional shareholder outcomes.
execution · 2/4 · Completed Palo Verde lease-interest purchases, procurement amendments and reported whole-plant generation above 32 million MWh support operational continuity and concrete execution. The output passage lacks an explicit measurement period, and current excerpts do not establish comparative reliability, project returns or delivery against budget. Execution is therefore mixed rather than demonstrably exceptional.
governance · 2/4 · Special-meeting and proxy-access rights, an independent Audit Committee, completed financial-statement review and actual auditor ratification establish useful governance safeguards. Combined chairman/CEO leadership and change-of-control equity acceleration are counterweights. These disclosures support a mixed assessment without proving the effectiveness of every oversight process.
Evidence
We derive essentially all of our revenues and earnings from our principal subsidiary, APS.
Business overview: Pinnacle West dependence on APS · Filed 04/08/2026
Our reportable business segment is our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily electric service to Native Load customers) and related activities, and includes electricity generation, transmission, and distribution.
Business: regulated electricity segment scope · Filed 25/02/2026
APS is Arizona’s largest and longest-serving electric company and generates safe, affordable and reliable electricity for approximately 1.5 million retail customers in 11 of Arizona’s 15 counties.
Business overview: retail customers and geographic coverage · Filed 04/08/2026
APS owns or leases 29.1% of Units 1, 2, and 3 Palo Verde.
Palo Verde: ownership and leasehold interests · Filed 04/08/2026
The transaction closed in September 2025, leaving one remaining lease for approximately 5.2% of Unit 2 that expires in 2033.
Palo Verde: completed purchase and remaining lease expiration · Filed 04/08/2026
In March 2026, APS announced its intention to renew the operating licenses for all three units at Palo Verde, which would extend operations from the mid-2040s through the mid-2060s.
Palo Verde: intended operating-license renewal · Filed 04/08/2026
•deregulation of the electric industry and other factors, such as large customers developing large, utility scale generation to serve their energy needs, may result in increased competition;
Forward-looking risk factors: deregulation and customer self-generation · Filed 04/08/2026
Securing a reliable grid requires ongoing infrastructure investments in addition to investments to support new customer growth.
Reliability strategy: continuing infrastructure investment requirements · Filed 04/08/2026
Cash from operations is dependent upon, among other things, the rates APS may charge and the timeliness of recovering costs incurred through its rates and adjustor recovery mechanisms.
Liquidity: dependence on permitted rates and timely recovery · Filed 04/08/2026
Regulatory lag may delay recovery and affect operating cash flows.
Liquidity: potential regulatory lag · Filed 04/08/2026
Maintaining Affordability • Disciplined cost management: Process improvements and preventative maintenance to reduce operating costs • Customer growth: Long-term goal of declining O&M per MWh as service territory grows • Customer Programs: Innovative customer programs to help customers save energy and money • Balanced long-term capital plan: Infrastructure investments designed to maintain reliability yet minimize annual customer impact • Stakeholder engagement: Working with partners to ensure reliability, affordability, and recovery through appropriate rate design • Serve growth cost-effectively: Continue to support Arizona’s growth across all customer classes through a “growth pays for growth” strategy 14 3.62% 4.24% 2.67% 2018 2019 2020 2021 2022 2023 2024 2025 Average annual % change 2018-2025 CPI CPI (PHX) APS Rates APS rates have remained well below the rate of inflation We are focused on maintaining customer affordability
Future Financial Outlook
1.
Investor presentation: historical APS rate changes, inflation comparison and affordability strategy · Filed 30/09/2026
Current Approved Rate Base and Test Year Detail End-of-Year Rate Base and Growth Guidance1 ACC FERC Rate Effective Date 03/08/2024 06/01/2026 Test Year Ended 6/30/20221 12/31/2025 Equity Layer 51.93% 51.99% Allowed ROE 9.55% 10.75% Rate Base $10.36B2 $2.81B $12.23 $13.33 $15.7 $2.52 $2.82 $4.0 2024 2025 2026 2027 2028 ACC FERC 19 Rate base $ in billions, rounded Projected 1 Guidance excludes CWIP amounts of $1.6B in 2024 and $2.7B-$3.2B in 2028.
Investor presentation: current approved rates, effective dates, test years and allowed returns · Filed 07/08/2026
25 • Service territory is one of the fastest growing in the nation with a diverse customer base • Improved regulatory environment with focus on reducing regulatory lag • Strong customer centric strategy focused on reliability and customer experience • Proven track record of efficient O&M practices and focus on customer affordability • Solid balance sheet and well managed financing plan • Attractive financial growth profile building off original 2024 midpoint We have a stable foundation with solid execution going forward
2025 Rate Case
27 2025 APS Rate Case – Updated Positions Overview of rate request ($ in millions) key components Rate Base Growth $206 12 months Post-test Year Plant $162 Fair Value Increment $89 WACC (7.63%) $129 Other (Base fuel, depreciation study, etc.) $107 Total Revenue Requirement $692 Adjustor Transfers $(83) Net Revenue Increase $609 Customer Net Revenue Impact on Day 1 14.69% Additional details • APS has requested rates become effective in the second half of 2026 • Docket number: E-01345A-25-0105 • Additional details, including filing, can be found at http://www.pinnaclewest.com/investors Numbers may not foot due to rounding.
Investor presentation: updated requested revenue increase in pending rate case · Filed 30/09/2026
29 2025 APS Rate Case – Updated Positions Formula Rate Adjustment Mechanism (FRAM) proposal • Historic test year, with authorized ROE and capital structure approved in most recent rate case • Inclusion of 6 months post-test year plant • Removal of System Reliability Benefit and the Tax Expense Adjustor Mechanism if FRAM is approved • No rate adjustment if actual ROE falls within +/- 40 bps of authorized ROE • Revenue surplus/deficiency allocated based on ACC jurisdictional cost of service results FRAM proposed schedule ACC filing of Annual Update May 1 Last day for data requests for informal information exchange and to submit informal challenge(s).
Investor presentation: proposed Formula Rate Adjustment Mechanism · Filed 30/09/2026
3
Table of Contents
BUSINESS OF ARIZONA PUBLIC SERVICE COMPANY
APS currently provides electric service to approximately 1.4 million customers.
Business: approximately 1.4 million customers in annual filing · Filed 25/02/2026
Changes in our derivative contract fair values, including changes relating to unobservable inputs, typically will not impact net income due to regulatory accounting treatment.
Derivative valuation: regulatory accounting treatment of fair-value changes · Filed 04/08/2026
As a result of increased tariffs and supply chain constraints, APS amended several of its agreements from its ASRFP issued in 2023 to mitigate these cost impacts.
Affordability: contract amendments responding to tariffs and supply constraints · Filed 04/08/2026
DEBT Estimated Amount4 Maturities Completed APS $1.2B $250M $600M PNW $550M $350M $500M EQUITY Estimated Amount Priced Settled PNW $650M $650M $0 Funding Strategy • External equity to support balanced APS capital structure and expanded, accretive capital investment • Of the $1.0B-$1.2B total incremental need, $685M is priced under equity forwards through July 2026 • Utilized all remaining capacity in $900M ATM program • Established new $500M ATM program to continue progress toward future equity needs • Maintain strong balance sheet and current credit ratings
Investor presentation: 2026 financing execution and additional equity funding needs · Filed 30/09/2026
For both Pinnacle West and APS, these covenants require that the ratio of consolidated debt to total consolidated capitalization not exceed 65%.
Debt provisions: maximum debt-to-capitalization covenant · Filed 25/02/2026
As of December 31, 2025, the ratio was approximately 60% for Pinnacle West and 50% for APS.
Debt provisions: December 31, 2025 capitalization ratios · Filed 25/02/2026
APS funds its capital requirements with cash from operations and, to the extent necessary, external debt financings and equity infusions from Pinnacle West.
Liquidity: sources of funding for APS capital requirements · Filed 04/08/2026
For our CEO and Executive Vice Presidents in 2025, our annual long-term equity awards were granted 70% to performance-based measures and 30% to time-based vesting, and for all other NEO officers, 60% to performance-based measures and 40% to time-based vesting.
Executive compensation: actual 2025 equity award mix · Filed 03/04/2026
2025 Long-Term Equity Incentive Component Summary
Vehicle
% of Target
Equity Pay Mix
Measurement Period
Performance Link
Performance Shares
70
(1)
3 years
Relative TSR (40%)
EPS Performance (40%)
MW Installed (20%)(2)
RSUs
30
(1)
Vest ratably over 4 years
Stock Price
(1)For our 2025 annual long-term equity awards, Messrs.
Executive compensation: performance measures, measurement period and RSU vesting · Filed 03/04/2026
The types of ownership arrangements counted toward the stock ownership guidelines are: common stock, whether held individually, jointly, or in trust with or for the benefit of an immediate family member; shares issued upon the vesting of RSUs or the payout of performance shares; and unvested RSUs to the extent they will result in the issuance of common stock to the officer.
Executive compensation: ownership arrangements counted toward guidelines · Filed 03/04/2026
All NEOs are in compliance with the stock ownership guidelines.
Executive compensation: disclosed NEO ownership compliance · Filed 03/04/2026
•Anti-hedging policy for all Directors, officers, and employees, and anti-pledging policy for all Directors and officers.
Compensation governance: anti-hedging and anti-pledging policies · Filed 03/04/2026
The performance shares and RSUs, plus, where applicable, dividend equivalents, for the NEOs vest upon a change of control whether or not there is a subsequent termination of employment (subject, however, to the Board’s ability to override the vesting).
Executive compensation: change-of-control vesting and Board override · Filed 03/04/2026
The plant is a critical asset to the Southwest, generating more than 32 million MWh – enough power for roughly 3.4 million households, or approximately 8.5 million people.
Palo Verde: reported whole-plant electricity generation · Filed 04/08/2026
Shareholder Rights
•A group of 15% of our shareholders can call a special meeting (“Shareholder Special Meeting Rights”)
Shareholder rights: special meeting threshold · Filed 03/04/2026
•Proxy access rights allow up to 20 shareholders owning 3% of our outstanding stock for at least 3 years to nominate up to 25% of the Board
Compensation Governance
•Shareholder feedback informs compensation program design.
Shareholder rights: proxy access ownership, holding-period and nomination limits · Filed 03/04/2026
104 | 2026 Proxy Statement
Table of Contents
Audit Matters
Report of the Audit Committee
The Audit Committee is comprised solely of independent Directors.
Audit Committee report: committee independence · Filed 03/04/2026
1.The Audit Committee has discussed and reviewed the audited financial statements of the Company as of and for the fiscal year ended December 31, 2025, with the Company’s management and the independent accountant, D&T.
Audit Committee report: completed review of 2025 audited financial statements · Filed 03/04/2026
Below are a few highlights of our activities during 2025:
CEO Transition
Effective April 1, 2025, we appointed Ted Geisler as Chairman of the Board, President and Chief Executive Officer of Pinnacle West and APS.
Board leadership: combined chairman, president and CEO appointment · Filed 03/04/2026
The shareholders ratified the appointment of Deloitte & Touche LLP as the Company’s independent accountant for the year ending December 31, 2026.
Annual meeting results: actual auditor ratification · Filed 19/05/2026
