PNW 10-K & 10-Q changes, risk factors and insider trading

The ACC must also approve APS’s issuance of equity and debt securities,securities and any significant transfer or encumbrance of APS property used to provide retail electric service and must approve or receive prior notification of certain transactions between us, APS, and our respective affiliates, including the infusion of equity into APS. Decisions made by the ACC or FERC could have a material adverse impact on our financial condition, results of operations, or cash flows.

APS must comply in good faith with all applicable statutes, regulations, rules, tariffs, executive orders and orders of agencies that regulate APS’s business, including FERC, NRC, EPA, the ACC, and state and local governmental agencies. These laws, regulations, and agencies regulate many aspects of APS’s utility operations, including safety and performance, emissions, siting and construction of facilities, labor and employment, customer service and the rates that APS can charge retail and wholesale customers. Failure to comply can subject APS to, among other things, fines and penalties. For example, under the Energy Policy Act of 2005, FERC can impose penalties (approximately $1.2 million per day per violation) for failure to comply with mandatory electric reliability standards. APS is also required to have numerous permits, approvals and certificates from these agencies. APS believes the necessary permits, approvals and certificates have been obtained for its existing operations and that APS’s business is conducted in accordance with applicable laws in all material respects.

Concern over climate change has led to significant legislative and regulatory efforts to limit CO2,carbon dioxide, which is a major byproduct of the combustion of fossil fuel, and other GHG emissions.

Potential Financial Risks — Greenhouse GasGHG Regulation, the Clean Power Plan and Potential Litigation. On April 25, 2024, the EPA issued new GHG emission standards for power plants. These new standards are focused on limiting power plant GHG emissions through control mechanisms that can be implemented at individual power plant facilities. The new regulations are currently being challenged in federal court.court and, in 2025, EPA proposed a rule to repeal these GHG emission standards. Additionally, the Trump administration has stated that it intends to reverse or substantially revise these standards. See Item“Business 1of -Arizona Public Service Company — Environmental Matters -— Climate Change” in Part I, Item 1 for more information.

APS owns certain of its power plants and transmission facilities jointly with other owners, with varying ownership interests in such facilities. Changes in the nature of our industry and the economic viability of certain plants and facilities, including impacts resulting from types and availability of other resources, fuel costs, legislation, and regulation, together with timing considerations related to the expiration of leases or other agreements for such facilities, could result in unaligned positions among co-owners. Differences in the co-owners’ willingness or ability to continue their participation could lead to the eventual shut down of units or facilities and uncertainty related to the resulting cost recovery of such assets. See Note 38 for a discussion of the Navajo Plant and Cholla retirementretirements and the related risks associated with APS’s continued recovery of its remaining investment in the plant.

Deregulation or restructuring of the electric industry and other factors may result in increased competition, which could have a significant adverse impact on APS’s business and its results of operations.

Effects of Energy Conservation Measures and Distributed Energy Resources. APS customers participate in energy efficiency and conservation programs and other demand-side managementDSM efforts, which in turn impact the demand for electricity. APS must also meet certain distributed renewable energy requirements. A portion of APS’s total renewable energy requirement must be met with an increasing percentage of distributed renewable energy resources (generally, small-scale renewable technologies located on customers’ properties). The distributed renewable energy requirement is 30% of the applicable RES requirement for 2012 and subsequent years (APS requestedwas granted a waiver of this requirement in theits 2024 and 20252026 RES Implementation Plans, which have not yet been approved by the ACCPlan). Customer participation in distributed renewable energy programs would result in lower demand since customers would be meeting some of their own energy needs.

Actual and Projected Customer and Sales Growth. APS’s actualActual sales growth, excluding weather-related variations, may differ from itsour projections as a result of numerous factors, such as economicmacroeconomic conditions, current and future economic, regulatory, business, and other conditions, such as the Arizona housing market, customer growth, the legal, regulatory, and business environment in Arizona, usage patterns and energy conservation, slower than expected ramp-up of and/or fewer than expectedlarge data centers and large manufacturing facilities, slower than expected commercial and industrial expansions, impacts of energy efficiency programs and growth in DG, responses to retail price changes, changes in regulatory standards, and impacts of new and existing laws and regulations, including environmental laws and regulations. Based on past experience, a 1% variation in our annual residential and small commercial and industrial kWh sales projections under normal business conditions can result in increases or decreases in annual net income of approximately $24$25 million, and a 1% variation in our annual large commercial and industrial kWh sales projections under normal business conditions can result in increases or decreases in annual net income of approximately $6$7 million.

The inability to successfully develop, acquire or operate generation resourcesand transmission facilities to meet future resource needs and load forecasts in accordance with reliability requirements and other new or evolving standards and regulations could adversely impact our business.

Potential changes in regulatory standards, impacts of new and existing laws and regulations, including environmental laws and regulations, and the need to obtain various regulatory approvals create uncertainty surrounding our current and future generation portfolio. TheCurrent current regulatory standards, laws,laws and regulations as well as changes to those laws and regulations, including via judicial decisions and executive orders, create strategic challenges asin toacquiring thean appropriate generation portfolio and fuel diversification mix. In addition, APS is required by the ACC to meet certain energy resource portfolio requirements, including those related to renewables development and energy efficiency measures, in addition to specific competitive resource procurement requirements. Operating, maintaining, and developing our generation and other assets requires significant capital expenditures and operations and maintenance costs that may be difficult to maintain at adequate levels while maintaining reliability. The development and operation of anythese generation facilityfacilities is also subject to manyother risks, including those related to financing, siting, permitting, new and evolving technology, extreme weather events, workforce issues, cybersecurity attacks, supply chain constraints for key equipment and critical spare parts, overreliance on or the existence of a small number of suppliers, access to fuel, and the construction of sufficient transmission capacity to support these facilities among others. Macroeconomic and geopolitical factors may also impact our ability to procure the generation and other equipment we need to meet customer demand. APS needs to develop or acquire new generation and other facilities, potentially modernize existing facilities, and/or contract for additional capacity in order to meet future resource needs and load forecasts. APS’s inability to do so could have a material adverse impact on our business and results of operations.

In JanuaryAugust 2020,2025, APS announced an update to its clean energy goal from zero-carbon to provide 100% clean, carbon-free electricitycarbon-neutral by 2050 with an intermediate 2030 target of achieving a resource mix that is 65% clean energy, with 45% of the generation portfolio coming from renewable energy.2050. APS’s ability to successfully execute its clean energy commitmentgoal is dependent upon a number of external factors, some of which include supportive national and state energy policies, a supportive regulatory environment, sales and customer growth, the development, deployment and advancement of clean energy technologies, adequate supply chain for generation resources, and continued access to capital markets.

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 supplies of water. Both groundwater and surface water in areas important to the operation of 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 suffers from prolonged drought conditions, which could potentially affect the plants’ water supplies. Climate change is also projected to exacerbate such drought conditions. In addition, Colorado River water supplies for Arizona are subject to a Tier 1 shortage declaration,declarations whichthat substantially limitslimit the quantity of water available to the state. Due to stressed surface water and groundwater supplies, there is focus on the increased use of treated effluent to supplement statewide water supplies, which could increase competition for the state.treated effluent that some APS generating plants rely on. APS’s inability to access sufficient supplies of water, along with that of its customers, could have a material adverse impact on our business and results of operations.

We are subject to cybersecurityrisk risksrelated to cybersecurity, IT systems, and risks of unauthorized access to our systems that could adversely affect our business and financial condition.

We rely extensively on IT systems, networks, and services, including internet sites, data hosting and processing facilities, and other hardware, software and technical applications and platforms. Some of these systems are managed, hosted, provided, or used by third parties to assist in conducting our business. Malicious actors may attack vendors to disrupt the services these vendors provide to us or to use those vendors as a cyber conduit to attack us. As more third parties are involved in the operation of our business, there is a risk the confidentiality, integrity, privacy, or security of data held by, or accessible to, third parties may be compromised. In addition to the involvement of third parties and the associated security risks, we also face risks when integrating new IT systems, such as those associated with costs, operational efficiency, and security compliance. Our IT systems introduce layers of execution complexity and resource risks across the entire organization.

If a significant cybersecurity event or breach were to occur, we may not be able to fulfill critical business functions and we could (i) experience property damage, disruptions to our business, theft of or unauthorized access to customer, employee, financial or system operation information or other information; (ii) experience loss of revenue or incur significant costs for repair, remediation and breach notification, and increased capital and operating costs to implement increased security measures; and (iii) be subject to increased regulation, litigation and reputational damage. If such disruptions or breaches are not detected quickly, their effects could be compounded or could delay our response or the effectiveness of our response and ability to limit our exposure to potential liability. These types of events wouldas well as the impacts of integrating new IT systems could also require significant management attention and resources and could have a material adverse impact on our financial condition, results of operations, or cash flows.

APS has an ownership interest in and operates on behalf of a group of participants, Palo Verde, which is the largest nuclear electric generating facility in the western United States. Palo Verde constitutes approximately 18% of APS’s owned and leased generation capacity. Palo Verde is subject to environmental, health and financial risks, such as the ability to obtain adequate supplies of nuclear fuel; the ability to dispose of spent nuclear fuel; the ability to maintain adequate reserves for decommissioning; potential liabilities arising out of the operation of these facilities; the costs of securing the facilities against possible terrorist attacks; and unscheduled outages due to equipment and other problems. APS maintains nuclear decommissioning trust funds and external insurance coverage to minimize its financial exposure to some of these risks; however, it is possible that damages could exceed the amount of insurance coverage. APS may be required under federal law to pay up to $144.9 million (but not more than $21.6 million per year) of liabilities arising out of a nuclear incident not only at Palo Verde, but at any other nuclear power plant in the United States. In addition, APS is subject to retrospective premium adjustments under its nuclear property insurance policies with Nuclear Electric Insurance Limited (“NEIL”) for approximately $23.1$24.2 million if NEIL’s losses in any policy year exceed accumulated funds and if the retrospective premium assessment is declared by NEIL’s Board of Directors. Although APS has no reason to anticipate a serious nuclear incident at Palo Verde, if an incident did occur, it could materially and adversely affect our results of operations and financial condition. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit and to promulgate new regulations that could require significant capital expenditures and/or increase operating costs.

Our current ratings are set forth in “Liquidity and Capital Resources — Credit Ratings” in Part II, 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 adversely impact our financial results. We could 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 could 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, new rules or regulations and other economic, social, and political factors could decrease the value of our benefit plan assets, nuclear decommissioning trust funds and other special use funds or increase the valuation of our related obligations, resulting in significant additional funding requirements. We are also subject to risks related to the provision of employee healthcare benefits and healthcare reform legislation. Any inability to fully recover these costs in our utility rates would negatively impact our financial condition.

General economic factors that are beyond the Company’s control impact the Company’s forecasts and actual performance. These factors include interest rates; recession; inflation; stagflation; deflation; supply chain constraints; unemployment trends; sanctions, trade restrictions, military interventions and the threat or possibility of war; terrorism or other global or national unrest; and political or financial instability. In particular, in recent years the United States’ economy experienced a substantial rise in the inflation rate and more recently in 2025,2025 the Trump administration has implemented tariffs and discussed additional tariffs, which would further increase costs. The Company is currently evaluating the impact of the recent U.S. Supreme Court’s decision regarding the validity of certain tariffs previously imposed under the International Emergency Powers Act, including whether any or all of the tariffs will be eligible for a refund as well as the potential for replacement tariffs under separate statutory authorities. Additionally, supply chains have been impacted and could be further impacted by inflation, tariffs, and other sociopolitical factors, resulting in equipment delays and increased costs. AAny failure to recover these potential increased costs through our rates could have a material adverse impact on our financial condition, results of operations, or cash flows.

Pinnacle West derivesis an investor-owned electric utility holding company based in Phoenix, Arizona with consolidated assets of approximately $30 billion. We derive essentially all of our revenues and earnings from our principal subsidiary, APS. Since 1886, APS and its affiliates have provided energy and energy-related products to people and businesses throughout Arizona. APS is Arizona’s largest and longest-serving electric company thatand generates safe, affordable and reliable electricity for approximately 1.4 million retail customers in 11 of Arizona’s 15 counties. APS is also the operator and co-owner of Palo Verde — a primary source of electricity for the southwestern United States. Our other active subsidiaries are El Dorado and PNW Power.

Additionally, APS has implementedoffers a variety of financialcustomer assistance programsprogram, including up to supporta customers60% strugglingbill to pay their energy bills. Among these assistance programs are discountsdiscount for qualified limited-incomevulnerable customers, including a new tier with larger discounts for APS’s lowest income customers added in the second quarter of 2024 and other non-income-based assistance programs, such as flexible payment arrangementsarrangements, and emergency utility bill assistance. To ensure ourcustomers mostin vulnerable customersneed are connected to these programs, we train and partner with more thannearly one hundred community action agencies across our service territory.territory to train representatives who serve our shared customers.

AdditionalCurrently, additional natural gas capacity is necessary to support reliable service and meet increasing energy needs. However, at this time existing natural gas pipelines into Arizona are currentlyfully committed. As a result, in July 2025, APS executed a gas transportation precedent agreement to secure a long-term supply of additional natural gas.gas transportation. The new pipeline is expected to be operational by late 2029 and will be owned and operated by a third-party.third party. In July 2026, APS announced plans to convert two units at Cholla to natural gas, adding approximately 380 MW of gas-fired generation. The plan is subject to change pending the comparison to other generation sources that APS is considering in its evaluation of the 2025 ASRFP. The plan contemplates that construction on the gas conversion would begin in 2028 with a targeted in-service date in 2029. In addition to the planned Cholla gas conversion, APS plans to add up to 2,000 MW of flexible natural gas generation to its portfolio, designed to help meet the growing around-the-clock energy needs in Arizona. APS continues to explore additional development opportunities to meet Arizona’s growing needs.

APS uses fire modeling software to identify and calculate risk and target future system improvement investments such as fire-resistant pole wrapping, wood to steel pole conversions, and additional remote-controllable field devices like reclosers and switches. In 2024, APS began installing a system of artificial intelligence-based fire sensing cameras with the ability to detect and alert on fire ignitions. These alerts are sent both to APS and fire response dispatch centers to speed fire response in APS’s service territory regardless of the cause of the fire. APS also implemented a public safety power shutoff (“PSPS”) program on certain feeders that began in the 2024 fire season, leveraging the additional real-time analysis of weather and environmental factors, such as temperature, humidity, fuel moisture levels, and wind, provided by APS field sensors and the modeling software. APS has educated and will continue education outreach to customers and communities that may potentially be impacted by the PSPS program.

APS was selected by DOE’s Grid Deployment Office (“GDO”) to receive up to $70 million in federal money for fire mitigation and grid infrastructure projects. This funding is part of the GDO’s Grid Resilience and Innovation Partnership Program and is contingent on APS negotiating and executing final grant agreements with GDO. Additionally, on May 12, 2025, the Arizona Governor Hobbsgovernor signed into law a bill that requires Arizona electric utilities to develop and seek approval for wildfire mitigation plans and defines the standard of care with respect to wildfire-related claims by reference to such plans. Pursuant to that legislation, APS has submitted its Comprehensive Wildfire Mitigation Plan to the Arizona Department of Forestry and Fire Management for review and approval. APSThe anticipateswildfire thatmitigation processplan willwas concludeapproved sometimeon inMay the7, second quarter of 2026; however, APS cannot predict the outcome of this matter.2026. APS continues to evaluate policy and regulatory options, as well as insurance programs, to mitigate the impact of wildfire events.

We are committed to keeping bills as low as possible for our customers while maintaining high levels of reliability. Inflation has dramatically impacted the cost of goods and services in recent yearsyears, as shown by the Consumer Price Index for All Urban Consumers (“CPI-U”), which from 2018 through 2024 rose nationally 24.9% and 32.1% in Phoenix. Despite this, APS’s average residential rates remained well-below those inflation figures, rising 16.2% for the same period according to the U.S. Energy Information Administration. Inflation has moderatedrecently fromreached earlierits highs,highest level since 2023, with CPI-U rising 2.4%4.2% nationally in the 12 months ended May 2026 and 1.7%3.0% in Phoenix over the 12 months ended FebruaryApril 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. However, APS remains cautious of potential price increases as a result of the ongoing Iraniangeopolitical conflictevents and current and proposed tariffs, which could lead to higher costs and supply chain constraints, while also continuing to monitor the outcomeimpact of the U.S. Supreme Court’s recent decision regarding the validity of certain tariffs and any other related executive or legislative action.

There are also external opportunities that allow APS to deliver more affordable energy to customers, such as APS’s participation in western energy markets and programs. APS participated in market design and tariff development of Markets+, a day-ahead and real-time market offering from the Southwest Power Pool. The Markets+ tariff was filed with FERC on March 29, 2024 and was approved on January 16, 2025. APS is a funding party to the implementation phase of Markets+ and expects to go live in the market in Octoberlate 2027.2027 or early 2028. In addition, APS is participating in the Western Resource Adequacy Program administered by Western Power Pool and plans to transition to full-binding participation in 2027. These regional efforts are driven by the objectives of reducing customer cost and improving reliability. Until the transition to Markets+, APS will continue to participate in the Western Energy Imbalance Market (“WEIM”) as a tool for creating savings for APS’s customers from the real-time only, voluntary market.market for as long as feasible leading up to the transition to Markets+. APS expects that its participation in the WEIM and future participation in Markets+ will lower its fuel and purchased-power costs, improve situational awareness for systems operations in the Western Interconnection, and improve integration of APS’s resources.

APS remains focused on providing reliable energy at the lowest cost possible while striving to lower emissions over time and continues to look for opportunities to support reliability through traditional dispatchable resources, such as gas and the potential extension of coal beyond 2031. APS’s diverse portfolio of existing and planned resources includes biomass, biogas, coal, energy storage, geothermal, natural gas, nuclear, solar, and wind. Every three years, APS performs an IRP, a comprehensive study to identify what resources will be necessary to safely, reliably, and affordably meet the demand and energy needs of its customers over the next 15 years. In November 2023, APS released its latest IRP, which identified forecasted customer demand and energy needs growing at an unprecedented rate. In developing the IRP, APS considered how factors such as forecasted economic growth, impacts from weather, and new resource technology availability impact the amount and type of resources required to reliably and affordably meet customer needs. These factors, among others, were used to develop a plan that identified a balanced mix of diverse energy-generating resources to reliably serve customers’ future energy needs. APS expects to file its next IRP lateron inOctober 30, 2026, which will provide an updated view on the resource types and volumes necessary to maintain reliability for a rapidly expanding customer base. To help ensure competitive costs for resources procured by APS, APS regularly issues competitive bid solicitations through the ASRFP process, with the most recent ASRFP being issued in 2025. These ASRFPs are open to bids for all resource types, including customer-scale (behind the meter) and utility-scale (in front of the meter) resources.

APS has an aspirational goal to be carbon-neutral by 2050. This means that for any GHG emissions still produced by our generation resources as of 2050, we will aim to offset these emissions elsewhere. This goal reflects APS’s interest in new generation and energy storage innovation and market transformations that address carbon emissions, while relying on the IRP and ASRFP processes to help determine the path forward.

APS’s 24/7 call center answers more than 75% of customer calls within 30 seconds, and our mobile platforms enable our more than one million customers to quickly and easily find the information they need when they need it. We seek to provide relevant and valuable options for customers to manage their bill, including through rate plan options, programs that help them save energy and money, and alerts and notifications that help keep them aware of outages, payments, and usage. APS recently introducedhas a high-bill analyzer tool enabling phone advisors to provide customers with specific, customized guidance based on their actual usage and habits. For customers experiencing higher-than-expected bills, APS’s high-bill analyzer tool allows phone advisors to provide specific, customized guidance based on a customer's actual energy-use patterns.

Additionally, APS offers a variety of customer assistance program,resources, including income-qualified bill discounts of up to a 60% bill discount for vulnerableeligible customers, flexible payment arrangements,arrangements and emergency utility bill assistance. To ensure customers inare needaware areof and connected to these programs,resources, weAPS partnerpartners with nearly one hundred community action agencies across our service territoryterritory, providing training and support to train representatives who serve our shared customers. Through these partnerships and programs, APS works to ensure assistance is available to customers when they need it most.

New Nuclear Generation. Along with other Arizona electric utilities, APS is exploring additional nuclear generation to provide around-the-clock carbon-free energy to meet rising energy demands in Arizona. APS has been monitoring emerging nuclear technologies, ranging from newer proposed and installed versions of large-scale reactors to small modular nuclear reactors. Small modular nuclear reactors are typically designed to generate 300 MW or less of energy per unit compared to, for example, the 1,400 MW per unit generated at Palo Verde. The Arizona electric utilities have applied for a grant from DOE to beginbegun preliminary exploration of a potential site for additional nuclear energy for Arizona. The grant could support a three-year site selection process and possible preparation of an early site permit application to NRC.

Artificial Intelligence. To address the rapid advancement of AI technology risks and opportunities, APS has developed an AI strategy to responsibly utilize AI to advance our business strategy, enhance customer and employee experiences, and optimize operational reliability. At the core of our AI strategy is a focus on cultural transformation and workplace adoption of AI skills, supported by a robust governance model that developsguides guidance,the policies,development of policies and relevant sub-strategiesstrategies for the execution of AI projects at the Company. To ensure compliance with data security, reliability requirements, and our Code of Ethical Conduct, governance and oversight are provided by leadership and experts from our information technology, cybersecurity, human resources, ethics, supply chain, legal, and nuclear generation teams.

On March 2 and March 18, 2026, the ACC Staff, RUCO, and other intervenors filed their initial written testimony with the ACC. ACC Staff’s testimony includes the following recommendations, among others, depending on the approval of APS’s proposed FRAM, (i) a $525.2 million total base revenue increase, (ii) a 9.55% to 9.80% return on equity, (iii) a 0.20% return on the increment of fair value, and (iv) 12-months12 months of post-test year plant. RUCO’s testimony includes the following recommendations, among others, depending on the approval of APS’s proposed FRAM, (i) a $200.2 to $278.1 million total base revenue increase, (ii) a 9.00% to 9.20% return on equity, (iii) a 0.0% return on the increment of fair value, and (iv) 0 to 12-months12 months of post-test year plant.

APS requested that the increase become effective in the second half of 2026. The hearing forconcluded thison rateJuly 7, 2026. After the conclusion of the hearing, the Administrative Law Judge overseeing the hearing issued a procedural order outlining briefing schedules and other next steps in the proceedings. The order noted that the case is currently scheduledanticipated to beginbe inresolved Maybefore 2026.the end of this year. APS cannot predict the outcome of its request nor when the 2025 Rate Case will be decided by the ACC.

Six intervenors and the Attorney General of Arizona requested rehearing on various issues included in the ACC’s decision, such as the GAC for solar customers, the SRB, and Coal Community Transition funding. On April 15, 2024, the ACC granted, in part, the rehearing applications of the Attorney General, AriSEIA, SEIA, and Vote Solar specifically to review whether the GAC rate is just and reasonable, including whether it should be higher or lower, whether the GAC rate constitutes a discriminatory fee to solar customers, and whether omission of a GAC charge is discriminatory to non-solar customers. All other applications for rehearing were denied. A limited rehearing was held October 28 through November 1, 2024. Following the limited rehearing, an Administrative Law Judge issued the Limited Rehearing ROO on December 3, 2024, which recommended affirming the GAC as just and reasonable and that the GAC is not discriminatory to solar customers and the absence of a GAC is not discriminatory to non-solar customers. On December 17, 2024, the ACC approved the Limited Rehearing ROO with an amendment that requires APS in its next rate case to propose a revenue allocation based on a site-load cost of service study in order to bring further parity in revenue collection between solar and non-solar customers. SEIA, AriSEIA, Vote Solar, the Arizona Attorney General, and two individual customers have filed requests for rehearing of the ACC’s December 17, 2024 decision on the rehearing. The ACC has taken no action on these requests. In addition, each of these parties has subsequently filed an appeal to the Arizona Court of Appeals seeking review of the ACC’s decisions regarding the GAC and on rehearing. On February 25, 2026, parties provided oral arguments before the Court of Appeals. On June 16, 2026, the Arizona Court of Appeals found that the GAC and related increases for residential solar customers were imposed by the ACC without adequate notice or opportunity to be heard. APS has since moved for reconsideration of this decision and, if reconsideration is not successful, plans to seek further review of this decision before the Arizona Supreme Court. APS cannot predict the outcome of these proceedings.proceedings, but does not expect the outcome will have a material impact on APS’ financial position, results of operations, or cash flows.

On January 5, 2023, the ACC opened a new docket to explore the possibility of modifications to the ACC’s historical test year rules. The ACC requested comments and held two workshops exploring ways to reduce regulatory lag, including alternative ratemaking structures such as future test years, hybrid test years, and formula rates. On December 3, 2024, the ACC approved a policy statement regarding formula rate plans. The policy statement provides regulated utilities with the opportunity to propose formula rate plans in future rate cases. On March 28, 2025, RUCO, the ALCG, and an individual customer filed a lawsuit challenging the ACC’s authority to issue the formula rate policy statement outside of Arizona’s formula rulemaking process. On June 13, 2025, the lawsuit challenging the ACC’s formula rate policy was dismissed by the Superior Court of Maricopa County. Following the dismissal, the plaintiffs filed an appeal with the Arizona Court of Appeals as well as a Petition for Special Action with the Arizona Supreme Court. The Supreme Court declined to exercise jurisdiction on the Petition for Special Action. The plaintiffs also filed a Petition for Special Action with the Arizona Court of Appeals, which has accepted jurisdiction to determine whether the case should be remanded back to the Superior Court for expedited consideration of the merits. On November 21, 2025, the Arizona Court of Appeals ruled that the issue should be remanded back to the Superior Court to determine whether the ACC’s formula rate policy must go through a formal rulemaking process. In response, APS, the ACC, and several other Arizona utility companies filed petitions for review of the Court of Appeals decision with the Arizona Supreme Court,Court. That petition was denied on May 8, 2026, which iswill pendingreturn atthe thislitigation time.to the Superior Court of Maricopa County for further proceedings on the merits of whether the ACC’s issuance of the formula rate policy statement complied with the Arizona Administrative Procedure Act. APS cannot predict the outcome of this matter.matter or the impact (if any) it may have on other proceedings.

•$25 million investment in the Energy Impact Partners fund, of which approximately $21 million has been funded as of MarchJune 31,30, 2026. Energy Impact Partners is an organization that focuses on fostering innovation and supporting the transformation of the utility industry.

•$25 million investment in Copper Sky, previously AZ-VC, of which approximately $17$19 million has been funded as of MarchJune 31,30, 2026. Copper Sky is a fund focused on analyzing, investing, managing, and otherwise dealing with investments in privately-held early stage and emerging growth technology companies and businesses primarily based in Arizona, or based in other jurisdictions and having existing or potential strategic or economic ties to companies or other interests in Arizona.

•$7.5 million investment in Westly Seed Fund, of which approximately $2 million has been funded as of MarchJune 31,30, 2026. Westly Seed Fund is focused on supporting entrepreneurs involved in the energy, mobility, building, and industrial sectors.

•Equity investment in SAI, a private corporation that manufactures electrical switchgear equipment used by data centers. El Dorado accounts for this investment under the equity method and has an investment carrying value of approximately $26$34 million as of MarchJune 31,30, 2026.

Actual and Projected Customer and Sales Growth. Retail customers in APS’s service territory increased 2.2%2.1% for the period ended MarchJune 31,30, 2026 compared with the prior-year period. For the three years through 2025, APS’s customer growth averaged 2.2% per year. We currently project annual customer growth to be 1.5% to 2.5% for 2026 and the average annual growth to be in the range of 1.5% to 2.5% through 2030 based on anticipated steady population growth in Arizona during that period.

Retail electricity sales in kWh, adjusted to exclude the effects of weather variations, increased 9.4%3.9% for residential customers, 13.6% for commercial and industrial customers, 3.9% for residential customers, and 9.5% for all retail customers for the period ended MarchJune 31,30, 2026 compared with the prior-year period. While strong sales to commercial and industrial customers continue to be driven by the ramp-up of new data center and large manufacturing customers, the main drivers of increased revenues for this period were a surge in residential usage during April and May, including on days with normal weather conditions, following strong weather-driven demand caused by a record-setting March heat wave in Arizona in the first quarter of 2026 and steady customer growthgrowth, which was somewhatonly partially offset by lower usage among residential customers, energy savings driven by customer conservation, energy efficiency, and distributed renewable generationgeneration. initiatives, the main drivers of increased revenues for this period were continued strong salesDue to commercial and industrial customers and the continued ramp-up of new data center and large manufacturing customers. On account of the growth of large load customers as a proportion of our business, in the first quarter of 2025, we updated our procedures with respect to estimates of unbilled revenues. This resulted in a downward adjustment to unbilled revenues in that quarter, which contributes approximately 2.0%0.9% to 2026 year-to-date sales growth as compared to the same period last year.

For the three years through 2025, annual retail electricity sales growth averaged 3.9%, adjusted to exclude the effects of weather variations. Due to the expected growth of several data centers and large manufacturing facilities, we currently project that annual retail electricity sales in kWh will increase in the range of 4.0% to 6.0% for 2026 and that average annual growth will be in the range of 5.0% to 7.0% through 2030, including the effects of customer conservation, energy efficiency, and distributed renewable generation initiatives,generation, but excluding the effects of weather variations. These projected sales growth ranges include the impacts of several data centers and large manufacturing facilities, which are expected to contribute to 2026 growth in the range of 3.0% to 5.0% and to average annual growth in the range of 4.0% to 6.0% through 2030.

Operating Results – Three-month period ended MarchJune 31,30, 2026, compared with three-month period ended MarchJune 31,30, 2025.

Our consolidated net income attributable to common shareholders for the three months ended MarchJune 31,30, 2026 was $33$179 million, compared with consolidated net lossincome attributable to common shareholders of $5$193 million for the prior-year period. The results reflect ana increasedecrease of approximately $38$14 million, primarily as a result of higher transmission revenues, lower operations and maintenance expenses, the effects of weather, due primarily to extreme heat during February and March, the hottest on record in APS’s service territory, and customer usage, growth and related pricing. These positive factors were partially offset by higher interest charges, lower other income due to El Dorado investment gains recognized in the prior year, higher income taxes due to higher pre-tax income, partially offset by higher tax credits, and higher depreciation and amortization expenses mostly due to increased plant additions and intangible assets,additions, partially offset by operations ceasing at ChollaCholla, and lower transmission service revenues. These negative factors were partially offset by the favorable impacts of the effects of weather, increased customer usage, customer growth, lower operations and maintenance expenses, and lower income taxes. Customer growth in 2025.turn was partially offset by the related pricing and the impacts of energy efficiency.

Operating revenues less fuel and purchased power. Operating revenues less fuel and purchased power expenses were $61$16 million higher for the three months ended MarchJune 31,30, 2026 compared with the prior-year period. The following table summarizes the major components of this change (dollars in millions):

Operations and maintenance. Operations and maintenance expenses decreased $23$4 million for the three months ended MarchJune 31,30, 2026 compared with the prior-year period,period primarily due to:

Depreciation and amortization. Depreciation and amortization expenses were $5$14 million higher for the three months ended MarchJune 31,30, 2026 compared to the prior-year period, primarily due to increased plant additionsin and intangible assets,service, partially offset by operations ceasing at the Cholla in 2025.plant.

Other income and expense, net. Other income and expense, net was $15$5 million lower for the three months ended MarchJune 31,30, 2026 compared to the prior-year period, primarily due to lower PSA interest income and higher other expenses, partially offset by investment gains in El Dorado recognized in the prior year and lower PSA interest income.Captive. The difference between APS’s and Pinnacle West’s other income and expense, net is primarily related to Pinnacle West’s gaininvestment gains in investmentthe in El Dorado.Captive.

Interest charges, net of allowance for borrowed funds and equity funds used during construction. Interest charges, net of allowance for funds used during construction, were $19$18 million higher for the three months ended MarchJune 31,30, 2026 compared to the prior-year period, primarily due to higher debt balances.balances, partially offset by higher allowance for equity funds used during construction.

IncomeTaxes other than income taxes. IncomeTaxes other than income taxes were $7$4 million higher for the three months ended MarchJune 31,30, 20262026, compared withto the prior-year period, primarily due to higher pre-taxplant income, partially offset by higher tax credits.balances.

Our primary sources of cash are dividends from APS and external debt and equity issuances. An ACC order does not allow APS to pay common dividends if the payment would reduce its common equity ratio below 40%. Per the related ACC order, the common equity ratio is defined as total shareholder equity divided by the sum of total shareholder equity and long-term debt, including current maturities of long-term debt. As of MarchJune 31,30, 2026, APS’s common equity ratio, as defined, was 50%.51%. APS’s total shareholder equity was approximately $8.9$9.0 billion, and total capitalization, as calculated pursuant to the ACC order, was approximately $17.7$17.8 billion. Under this order, APS would be prohibited from paying dividends if such payment would reduce its total shareholder equity below approximately $7.1 billion, assuming APS’s total capitalization remains the same. This restriction does not materially affect Pinnacle West’s ability to meet its ongoing cash needs or ability to pay dividends to shareholders.

Dividends to Pinnacle West from APS are also dependent on a number of factors including, among others, APS’s financial condition and free cash flow, the sources of which vary from quarter-to-quarter due in part to the seasonal nature of electricity demand in Arizona. APS’s sources of cash include cash from operations and external sources of liquidity, including long- and short-term external debt financing such as commercial paper, term loans and its revolving credit facility. 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. Regulatory lag may delay recovery and affect operating cash flows. APS’s capital requirements consist primarily of capital expenditures and maturities of long-term debt. APS funds its capital requirements with cash from operations and, to the extent necessary, external debt financings and equity infusions from Pinnacle West. On December 17, 2024, the ACC issued a financing order approving a limit on yearly equity infusions equal to 2.5% of APS’s total assets each calendar year on a three-year rolling average basis, subject to APS’s equity ratio remaining below the most recently approved rate case capital structure plus 50 basis points. On July 31, 2026, APS submitted an application to the ACC requesting to increase the long-term debt limit from $9.5 billion to $12 billion. APS cannot predict the outcome of this matter.

Pinnacle West has an ATM Program under which Pinnacle West may offer and sell Pinnacle West common stock and enter into forward sale agreements from time to time, subject to market conditions and other factors. Approximately $434 million of common stock is available to be issued under the ATM Program, which takes into account the forward sale agreements in effect as of March 31, 2026. Pinnacle West also has forward sale agreements from an equity offering in February 2024 in effect as of MarchJune 31,30, 2026. See “Financing Cash Flows and Liquidity—Equity Offerings” below and Note 13 for more information.

Three-monthSix-month period ended MarchJune 31,30, 2026 compared with three-monthsix-month period ended MarchJune 31,30, 2025. Pinnacle West’s consolidated net cash provided by operating activities was $235$629 million in 2026 compared to $402$663 million in 2025, a decrease of $167$34 million in net cash provided, primarily due to $74 million higher payments for operations and maintenance costs, $53 million higher working capital, $50$68 million in higher payments for fuel and purchased power costs, $27$35 million in higher interest paid on debtdebt, net of amounts capitalized, and $25$14 million higher payments for other taxes paid; partially offset by $65$61 million higher cash receipts from electric revenues.revenues and $22 million in higher working capital, net. The difference between APS’s and Pinnacle West’s net cash provided by operating activities primarily relates to APS’s lower interest paid on debt, net of amounts capitalized, and other changes in working capital.

Retirement plans and other postretirement benefits. Pinnacle West sponsors a qualified defined benefit pension plan and a non-qualified supplemental excess benefit retirement plan for the employees of Pinnacle West and our subsidiaries. Pinnacle West also sponsors other postretirement benefit plans for the employees of Pinnacle West and its subsidiaries. The requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) require us to contribute a minimum amount to the qualified plan. We contribute at least the minimum amount required under ERISA regulations, but no more than the maximum tax-deductible amount. Future year contribution amounts are dependent on plan asset performance and plan actuarial assumptions. The expected minimum required cash contributions for the pension plan are zero for the next three yearsyears. andHowever, while we do not expect to make any voluntary cash contributions in 2026, we are evaluating whether to make voluntary contributions in 2027 orand 2028;2028. however,The amounts of voluntary contributions, if any, will be determined as we continue to evaluate and assess our ongoing contribution strategy. Regarding contributions to our other postretirement benefit plan, we have not made a contribution year-to-date in 2026 and do not expect to make any contributions in 2026, 2027 or 2028. We continually monitor financial market volatility and its impact on our retirement plans and other postretirement benefits, but we believe our liability driven investment strategy helps to minimize the impact of market volatility on our plan’s funded status.

Three-monthSix-month period ended MarchJune 31,30, 2026 compared with three-monthsix-month period ended MarchJune 31,30, 2025. Pinnacle West’s consolidated net cash used for investing activities was $551$1,200 million in 2026 compared to $586$1,253 million in 2025, a decrease of $35$53 million of cash used primarily related to a $39$70 million increase in contributions in aid of construction; partially offset by ana $8$25 million increase in capital expenditures. See “Capital Expenditures” below for additional details.

Three-monthSix-month period ended MarchJune 31,30, 2026 compared with three-monthsix-month period ended MarchJune 31,30, 2025. Pinnacle West’s consolidated net cash provided by financing activities was $316$574 million in 2026 compared to $190$605 million in 2025, ana increasedecrease of $126$31 million in net cash provided primarily due to ana increasenet decrease of $595$775 million higherin issuancesshort-term of long-term debtborrowings; partially offset by a $465$450 million decrease in short-termlong-term debt repayments and a $297 million increase in long-term borrowings.

Significant Financing Activities. On AprilJune 22,24, 2026, the Pinnacle West Board of Directors declared a dividend of $0.91 per share of common stock, payable on JuneSeptember 1, 2026, to shareholders of record on MayAugust 4,3, 2026.

Equity Offerings. Pinnacle West entered into certain equity forward sale agreements in February 2024 and has an ATM Program under which Pinnacle West may offer and sell Pinnacle West common stock and enter into equity forward sale agreements from time to time, subject to market conditions and other factors. These agreements may be settled at Pinnacle West’s discretion by issuing shares of Pinnacle West common stock and receiving cash, if any, at the then-applicable forward sales price. See Note 13. The following table summarizes the activity relating to these forward sale agreements and the ATM Program as of MarchJune 31,30, 2026 (dollars in thousands, except price per share):

Pinnacle West’s and APS’s debt covenants related to their respective bank financing arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with these covenants. For both Pinnacle West and APS, these covenants require that the ratio of consolidated debt to total consolidated capitalization not exceed 65%. As of MarchJune 31,30, 2026, the ratio was approximately 61%62% for Pinnacle West and 51% for APS. Failure to comply with such covenant levels would result in an event of default which, generally speaking, would require the immediate repayment of the debt subject to the covenants and could “cross-default” other debt.