APS is receiving unprecedented incremental requests for service from extra-large commercial energy users (over 25 MW) with very high energy demands that persist virtually around-the-clock. APS is exploring options for securing sufficient electric generation and transmission to meet these projections of future customer needs.

APS is exploring the potential for a staged approach to new market services, including day-ahead energy sales, transmission system expansion, and other power supply and grid solutions consistent with existing regulations and known and expected market design.

APS has a diverse portfolio of existing and planned renewable resources totaling 7,660 MW. APS's strategy to achieve its RES requirements includes executing purchased power contracts for new facilities, ongoing development of distributed energy resources and procurement of new facilities to be owned by APS.

APS ranked at the top of the second quartile for large investor-owned utilities for both business and residential customers, with the residential results being APS's highest rank and placement since 2016, indicating successful execution on customer satisfaction goals.

APS's CWMP employs various strategies designed to prevent, mitigate, and respond to wildfire risks, including vegetation management, operational measures, and a public safety power shut off program. APS completed implementation of fire modelling software that we are utilizing to more surgically identify and calculate risk and target future improvement investments.

APS is strategically deploying a variety of technologies that are intended to allow customers to better manage their energy usage, minimize system outage durations and frequency, enable customer choice for new customer sited technologies, and facilitate greater cost savings to APS through improved reliability and the automation of certain delivery functions.

APS's ability to recover costs in a timely manner from customers through regulated rates is critical to its financial health. Regulatory decisions by the ACC and FERC can significantly impact APS's business, liquidity, and results of operations.

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.

We are subject to cybersecurity risks and risks of unauthorized access to our systems that could adversely affect our business and financial condition. There appears to be an increasing level of activity, sophistication, and maturity of threat actors, including from both nation-state and non-nation state actors, that seek to exploit potential vulnerabilities in the electric utility industry and wish to disrupt the U.S. bulk power system.

APS is subject to varying degrees of competition from other investor-owned electric and gas utilities in Arizona, as well as cooperatives, municipalities, electrical districts, and similar types of governmental or non-profit organizations. In addition, some customers, particularly industrial and large commercial customers, may own and operate generation facilities to meet some or all of their own energy requirements.

In 2016, APS began to participate in the Western Energy Imbalance Market (“WEIM”), a voluntary, real-time optimization market operated by the CAISO. The WEIM allows for rebalancing supply and demand in 15-minute blocks and dispatching generation every five minutes, instead of the traditional one-hour blocks.

APS is participating in the Western Resource Adequacy Program administered by Western Power Pool and is transitioning to full binding participation as early as summer 2027. These regional efforts are driven by the objectives of reducing customer cost and improving reliability.

APS also intends to harden its infrastructure in order to improve climate resiliency, which involves system and operational improvements aimed at reducing the impact of extreme weather events and other climate-related disruptions upon APS's operations.

APS is also working to establish and expand advanced grid technologies throughout its service territory to provide long-term benefits both to APS and its customers. APS is strategically deploying a variety of technologies that are intended to allow customers to better manage their energy usage, minimize system outage durations and frequency, enable customer choice for new customer sited technologies, and facilitate greater cost savings to APS through improved reliability and the automation of certain delivery functions.

APS is currently evaluating its compliance options for Four Corners based on the ELG regulations finalized in April 2024 and is assessing what impacts the new standards will have on our financial condition, results of operations, or cash flows.

APS deploys a number of advanced technologies on its system, including energy storage. Energy storage provides capacity, improves power quality, can be utilized for system regulation and, in certain circumstances, be used to defer certain traditional infrastructure investments.

APS, along with other Arizona electric utilities, is exploring new nuclear generation to provide around-the-clock carbon-free energy to meet rising energy demands in Arizona. APS has been monitoring emerging nuclear technologies, such as small modular nuclear reactors (“SMRs”).

As a part of the statewide transportation electrification plan (“TE Plan”) adopted in 2021, the ACC approved a target of 450,000 light-duty electric vehicles (“EVs”) in APS's service territory by 2030. APS's Take Charge AZ (“TCAZ”) program has helped to deploy Level 2 EV charging stations on customer properties for fleet, public, and workplace EV charging.

On June 12, 2024, Pinnacle West contributed $450 million into APS in the form of an equity infusion. APS used this contribution to repay short-term indebtedness. On December 23, 2024, Pinnacle West contributed $345 million into APS in the form of an equity infusion. APS used this contribution to repay a portion of commercial paper borrowings and for other general corporate purposes.

On June 10, 2024 Pinnacle West repaid the full $175 million term loan, that matured on December 16, 2024.

In June 2024, Pinnacle West issued $525 million of 4.75% convertible senior notes that will mature on June 15, 2027. The Convertible Notes bear interest at a fixed rate of 4.75% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2024.

APS's Clean Energy Commitment consists of three parts: A 2050 goal to provide 100% clean, carbon-free electricity; A 2030 target to achieve a resource mix that is 65% clean energy, with 45% of the generation portfolio coming from renewable energy; and A plan to exit from coal-fired generation by 2031.

Over this same period of time, APS also intends to harden its infrastructure in order to improve climate resiliency, which involves system and operational improvements aimed at reducing the impact of extreme weather events and other climate-related disruptions upon APS's operations.

The Company's success depends on a strong human capital strategy including attracting, developing, and retaining a high-performing workforce. We are committed to fostering a safe, inclusive, and engaging work environment that empowers all employees to reach their full potential.

Based on a declaration from the U.S. Bureau of Reclamation, as of January 1, 2025, Arizona's supply of Colorado River water will remain subject to a Tier 1 shortage. This is the third year since 2022 that a Tier 1 shortage has been declared.

Weather extremes such as drought and high temperature variations are common occurrences in the southwestern United States' desert area, and these are risks that APS considers in the normal course of business in the engineering and construction of its electric system.

APS is participating in the Western Resource Adequacy Program administered by Western Power Pool and is transitioning to full binding participation as early as summer 2027. These regional efforts are driven by the objectives of reducing customer cost and improving reliability.