STATISTICAL REPORT FOR FINANCIAL...

Pinnacle West Capital Corporation

2013STATISTICAL REPORT

FOR FINANCIAL ANALYSIS

PINNACLE WEST CAPITAL CORPORATION2013 STATISTICAL REPORT FOR FINANCIAL ANALYSIS

PINNACLE WEST - STOCK PRICE HISTORY 3

BOOK VALUE PER SHARE 3

EARNINGS PER SHARE - DILUTED 3

ON-GOING EARNINGS PER SHARE - DILUTED 3

CONSOLIDATED STATISTICS BY QUARTER 4-6

FINANCIAL STATEMENTSPinnacle West Capital CorporationConsolidating Statement of Income 7Consolidating Balance Sheet - Assets 8Consolidating Balance Sheet - Liabilities and Equity 9Consolidating Statement of Cash Flows 10Consolidated Statements of Income - 5 Yr. 11Consolidated Balance Sheets - Assets - 5 Yr. 12Consolidated Balance Sheets - Liabilities and Equity - 5 Yr. 13Consolidated Statements of Cash Flows - 5 Yr. 14Arizona Public Service CompanyConsolidated Statements of Income 15Consolidated Balance Sheets - Assets 16Consolidated Balance Sheets - Liabilities and Equity 17Consolidated Statements of Cash Flows 18

SELECTED FINANCIAL DATALong-Term Debt Schedules 19El Dorado Investment Company - Financial Highlights 20

ARIZONA PUBLIC SERVICE COMPANYCustomer Data 21Loads and Resources at Peak 21Financial Statistics 22Capitalization Ratios 22Electric Operating Revenue Analysis 23Electric Sales Analysis 23Source and Disposition of Electric Energy 24Energy Fuel Mix 24Power Supply Adjustor 24

GENERATIONGeneration Resources 25Power Plant Operating Performance 25

RATE REGULATION 26

SHAREHOLDER INFORMATION 27

TABLE OF CONTENTS

PINNACLE WEST - STOCK PRICE HISTORY

2013 2012 2011 2010 2009

High 61.89$ 54.66$ 48.87$ 42.68$ 37.96$ Low 51.50$ 45.95$ 37.28$ 32.31$ 22.32$ Close 52.92$ 50.98$ 48.18$ 41.45$ 36.58$

(DOLLARS PER SHARE)2013 2012 2011 2010 2009

APS 39.11$ 37.29$ 36.09$ 35.17$ 33.97$ SunCor - - (0.26) (0.25) (0.18) El Dorado - 0.01 0.03 0.02 (0.18) APS Energy Services - - - 0.08 0.50 Parent Company (1.04) (1.10) (0.88) (1.16) (1.42)

Total 38.07$ 36.20$ 34.98$ 33.86$ 32.69$

110,181,759 109,742,765 109,245,813 108,769,657 101,434,698


APS 4.14$ 3.86$ 3.31$ 3.32$ 2.67$ El Dorado (0.04) (0.02) - 0.01 (0.07) Parent Company (0.13) (0.05) (0.07) (0.11) (0.07)

Income from continuing operations 3.97 3.79 3.24 3.22 2.53

Income (loss) from discontinued operations - net (a)SunCor - (0.01) (0.02) (0.08) (2.91) Other - (0.04) 0.12 0.32 1.09

Total - (0.05) 0.10 0.24 (1.82) Net Income 3.97 3.74 3.34 3.46 0.71

Less: Net income (loss) attributable to noncontrolling interests 0.31 0.29 0.25 0.19 0.04

Net income attributable to common shareholders 3.66$ 3.45$ 3.09$ 3.27$ 0.67$

110,805,943 110,527,311 109,864,243 107,137,785 101,263,795

(a) Net of income tax expense (benefit) for respective period.


Parent CompanyNet income attributable to common shareholders 3.66$ 3.45$ 3.09$ 3.27$ 0.67$

Adjustments:Loss (income) from discontinued operations - 0.05 (0.10) (0.24) 1.67

On-going earnings 3.66$ 3.50$ 2.99$ 3.03$ 2.34$

NON-GAAP FINANCIAL INFORMATIONIn this report, we refer to "on-going earnings”, a non-GAAP financial measure as defined in accordance with Securities and Exchange Commission rules. We believe on-going earnings provide investors with a useful indicator of our results that is comparable among periods because it excludes the effects of unusual items that may occur on an irregular basis. Investors should note that non-GAAP financial measures involve judgements by management, including whether an item is classified as an unusual item. We use on-going earnings, or similar concepts, to measure our performance internally in reports for management. Reconciliations of on-going earnings to our net income attributable to common shareholders are included above.

BOOK VALUE PER SHARE

YEAR ENDED DECEMBER 31,

COMMON SHARES OUTSTANDING AT YEAR-END


EARNINGS PER SHARE - DILUTED


WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED

ON-GOING EARNINGS PER SHARE - DILUTED

2013 PNW Statistical Report

Quarters may not sum due to rounding

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2013

Increase(Decrease)

vs. 2012

EARNINGS CONTRIBUTION BY SUBSIDIARY(DOLLARS IN MILLIONS)

Arizona Public Service 33$ 142$ 244$ 39$ 459$ 32$ El Dorado - - (4) - (4) (2) Parent Company (1) (3) (5) (6) (15) (9)

Income From Continuing Operations 32 139 235 33 440 21

Income (Loss) From Discontinued Operations - Net of TaxSunCor - - - - - 2 Other - - - - - 4

Total - - - - - 6

Net Income 32 139 235 33 440 27

Less: Net Income Attributable to Noncontrolling Interests 8 8 9 9 34 3

Net Income Attributable to Common Shareholders 24$ 131$ 226$ 24$ 406$ 24$

EARNINGS PER SHARE BY SUBSIDIARY - DILUTED

Arizona Public Service 0.31$ 1.28$ 2.19$ 0.35$ 4.14$ 0.28$ El Dorado - - (0.03) - (0.04) (0.02) Parent Company (0.01) (0.02) (0.04) (0.05) (0.13) (0.08)

Income From Continuing Operations 0.30 1.26 2.12 0.30 3.97 0.18

Income (Loss) From Discontinued Operations - Net of TaxSunCor - - - - - 0.01 Other - - - - - 0.04

Total - - - - - 0.05

Net Income 0.30 1.26 2.12 0.30 3.97 0.23

Less: Net Income Attributable to Noncontrolling Interests 0.08 0.08 0.08 0.08 0.31 0.02

Net Income Attributable to Common Shareholders 0.22$ 1.18$ 2.04$ 0.22$ 3.66$ 0.21$

BOOK VALUE PER SHARE 36.51$ 36.66$ 38.86$ 38.07$ 38.07$ 1.87$

COMMON SHARES OUTSTANDING(THOUSANDS)Average - Diluted 110,835 110,932 111,053 110,936 110,806 279 End of Period 109,946 109,993 110,037 110,182 110,182 439

PINNACLE WEST CAPITAL CORPORATION

CONSOLIDATED STATISTICS BY QUARTER




Increase(Decrease)

vs. 2012



ELECTRIC OPERATING REVENUES(DOLLARS IN MILLIONS)

RetailResidential 307$ 444$ 626$ 298$ 1,675$ 88$ Business 329 420 457 352 1,558 85

Total retail 636 864 1,083 650 3,233 173 Wholesale revenue on delivered electricityTraditional contracts 11 15 18 9 53 (9) Off-system sales 23 17 28 23 89 1 Native load hedge liquidation 1 3 4 2 11 7

Total wholesale 35 35 50 34 153 (1) Transmission for others 7 8 10 7 32 3 Other miscellaneous services 8 8 9 8 33 (17)

Total electric operating revenues 686$ 915$ 1,152$ 699$ 3,451$ 158$

ELECTRIC SALES (GWH)Retail salesResidential 2,730 3,344 4,752 2,464 13,290 34Business 3,271 3,877 4,239 3,410 14,798 (100)

Total retail 6,001 7,221 8,991 5,874 28,088 (66)Wholesale electricity deliveredTraditional contracts 130 213 242 99 683 (78)Off-system sales 816 537 927 717 2,998 (266)Retail load hedge management 31 84 85 68 267 (2)

Total wholesale 977 834 1,254 884 3,948 (346)Total electric sales 6,978 8,055 10,245 6,758 32,036 (412)

AVERAGE ELECTRIC CUSTOMERS Retail customers Residential 1,021,817 1,015,649 1,015,082 1,024,619 1,019,292 14,218 Business 127,895 127,993 128,245 128,547 128,170 948

Total retail 1,149,712 1,143,642 1,143,327 1,153,166 1,147,462 15,166 Wholesale customers 53 51 53 52 52 3

Total customers 1,149,765 1,143,693 1,143,380 1,153,218 1,147,514 15,169

Total customer growth (% over prior year) 1.4% 1.3% 1.3% 1.3% 1.3% 0.2%

RETAIL SALES (GWH) - WEATHER NORMALIZEDResidential 2,580 3,207 4,815 2,561 13,163 (24) Business 3,225 3,820 4,265 3,464 14,774 (111) Total 5,805 7,027 9,080 6,025 27,937 (135)

Retail sales (GWH) (% over prior year) 0.6% 1.0% (1.3)% (1.9)% (0.5)%

RETAIL USAGE (KWh/Average Customer) Residential 2,672 3,292 4,682 2,405 13,039 (151) Business 25,577 30,287 33,057 26,530 115,453 (1,647)

RETAIL USAGE - WEATHER NORMALIZED (KWh/Average Customer)Residential 2,525 3,158 4,744 2,499 12,914 (207) Business 25,214 29,844 33,255 26,950 115,266 (1,733)




Increase(Decrease)

vs. 2012



ELECTRICITY DEMAND (MW)Native load peak demand 4,825 6,931 6,927 4,500 6,927 (280)

WEATHER INDICATORS - RESIDENTIALActualCooling degree-days - 580 1,212 8 1,800 9 Heating degree-days 613 1 - 323 937 232 Average humidity - 14% 31% 23% 24% (2)%

10-Year Averages (2002 - 2011)Cooling degree-days - 480 1,245 51 1,776 - Heating degree-days 496 10 - 366 872 - Average humidity - 15% 28% 30% 24% -

ENERGY SOURCES (GWH)Generation productionNuclear 2,456 2,246 2,522 1,923 9,146 (147)Coal 2,753 2,903 2,759 2,483 10,899 22Gas, oil and other 1,250 1,261 2,310 1,301 6,127 (1,338)

Total generation production 6,459 6,410 7,591 5,707 26,172 (1,463)Purchased powerFirm load 692 1,903 2,969 1,262 6,826 538Marketing and trading 113 115 180 105 513 207

Total purchased power 805 2,018 3,149 1,366 7,339 745Total energy sources 7,264 8,428 10,740 7,073 33,511 (718)

POWER PLANT PERFORMANCECapacity FactorsNuclear 99% 90% 100% 76% 91% (1)%Coal 73% 77% 71% 64% 71% 0%Gas, oil and other 16% 17% 32% 17% 20% (4)%System average 47% 46% 56% 40% 47% (2)%

ECONOMIC INDICATORS

Building Permits (a)Metro Phoenix 3,276 4,710 3,460 3,707 15,153 1,569

Arizona Job Growth (b)Payroll job growth (% over prior year) 1.8% 1.9% 2.2% 1.9% 1.9% (0.2)%Unemployment rate (%, seasonally adjusted) 7.9% 7.9% 8.2% 7.9% 8.0% (0.3)%

U.S. Census BureauArizona Department of Economic Security



CONSOLIDATING STATEMENT OF INCOME (DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31, 2013 APS El Dorado Parent Company Eliminations and

AdjustmentsConsolidated

Total

OPERATING REVENUESRegulated electricity segment 3,451,251$ -$ -$ (8)$ (a) 3,451,243$ Other revenues - - 799 2,586 (c) 3,385

Total 3,451,251 - 799 2,578 3,454,628

OPERATING EXPENSESRegulated electricity segment fuel and purchased power 1,095,709 - 1,095,709 Operations and maintenance 897,824 - 23,366 3,537 (a) 924,727 Depreciation and amortization 415,612 - 96 - 415,708 Taxes other than income taxes 163,377 - 6 784 (c) 164,167 Other expenses - - 1,462 6,532 (c) 7,994

Total 2,572,522 - 24,930 10,853 2,608,305

OPERATING INCOME 878,729 - (24,131) (8,275) 846,323

OTHER INCOME (DEDUCTIONS)Allowance for equity funds used during construction 14,861 - - - 14,861 Other income 3,896 357 420,991 (423,540) (c) 1,704 Other expense (20,449) (4,372) (2,064) 10,861 (c) (16,024)

Total (1,692) (4,015) 418,927 (412,679) 541

INTEREST EXPENSEInterest charges 198,662 29 3,226 (29) (b) 201,888 Allowance for borrowed funds used during construction (25,581) - - - (25,581)

Total 173,081 29 3,226 (29) 176,307

INCOME BEFORE INCOME TAXES 703,956 (4,044) 391,570 (420,925) 670,557

INCOME TAXES 245,095 - (14,504) - 230,591

NET INCOME (LOSS) 458,861 (4,044) 406,074 (420,925) 439,966

Less: Net income attributable to noncontrolling interests 33,892 - - - 33,892

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS 424,969$ (4,044)$ 406,074$ (420,925)$ 406,074$

EXPLANATIONS OF ELIMINATIONS AND ADJUSTMENTS

(a) Elimination of intercompany sales of electricity.(b) Elimination of intercompany interest expense and income.(c) Miscellaneous reclassifications.



CONSOLIDATING BALANCE SHEET(DOLLARS IN THOUSANDS)



Total

ASSETS

CURRENT ASSETSCash and cash equivalents 3,725$ 3$ 5,798$ -$ 9,526$ Customer and other receivables 299,055 9 80,108 (79,268) (a) 299,904 Accrued unbilled revenues 96,796 - - - 96,796 Allowance for doubtful accounts (3,203) - - - (3,203) Materials and supplies (at average cost) 221,682 - - - 221,682 Fossil fuel (at average cost) 38,028 - - - 38,028 Deferred income taxes - - 93,185 (2,033) (b) 91,152 Income tax receivable 135,179 - 1,853 (1,515) (b) 135,517 Assets from risk management activities 17,169 - - - 17,169 Deferred fuel and purchased power regulatory asset 20,755 - - - 20,755 Other regulatory assets 76,388 - - - 76,388 Other current assets 39,153 500 242 - 39,895

Total current assets 944,727 512 181,186 (82,816) 1,043,609

INVESTMENTS AND OTHER ASSETSAssets from risk management activities 23,815 - - - 23,815 Nuclear decommissioning trust 642,007 - - - 642,007 Other assets 33,709 14,636 4,467,579 (4,455,049) (c) 60,875

Total investments and other assets 699,531 14,636 4,467,579 (4,455,049) 726,697

PROPERTY, PLANT AND EQUIPMENTPlant in service and held for future use 15,196,598 - 3,866 - 15,200,464 Accumulated depreciation and amortization (5,296,501) - (3,718) - (5,300,219)

Net 9,900,097 - 148 - 9,900,245 Construction work in progress 581,369 - - - 581,369 Palo Verde sale leaseback, net of accumulated depreciation 125,125 - - - 125,125 Intangible assets, net of accumulated amortization 157,534 - 155 - 157,689 Nuclear fuel, net of accumulated amortization 124,557 - - - 124,557

Total property, plant and equipment 10,888,682 - 303 - 10,888,985

DEFERRED DEBITSRegulatory assets 711,712 - - - 711,712 Other 136,725 - 956 2 (b) 137,683

Total deferred debits 848,437 - 956 2 849,395

TOTAL ASSETS 13,381,377$ 15,148$ 4,650,024$ (4,537,863)$ 13,508,686$


(a)

(b) Miscellaneous reclassifications.(c) Elimination of Parent Company investments in subsidiaries.

Elimination of intercompany receivables and payables.



CONSOLIDATING BALANCE SHEET (DOLLARS IN THOUSANDS)



Total

LIABILITIES AND EQUITY

CURRENT LIABILITIESAccounts payable 281,237$ -$ 3,279$ -$ 284,516$ Accrued taxes 122,460 1,515 8,538 (1,515) (b) 130,998 Accrued interest 48,132 - 219 - 48,351 Common dividends payable 62,500 - 62,528 (62,500) (a) 62,528 Short-term borrowings 153,125 13,271 - (13,271) (b) 153,125 Current maturities of long-term debt 540,424 - - - 540,424 Customer deposits 76,101 - - - 76,101 Deferred income taxes 2,033 - - (2,033) (b) - Liabilities from risk management activities 31,892 - - - 31,892 Liabilities for asset retirements 32,896 - - - 32,896 Regulatory liabilities 99,273 - - - 99,273 Other current liabilities 130,774 188 31,076 (3,498) (a) 158,540

Total current liabilities 1,580,847 14,974 105,640 (82,817) 1,618,644

LONG-TERM DEBT LESS CURRENT MATURITIES 2,671,465 - 125,000 - 2,796,465

DEFERRED CREDITS AND OTHERDeferred income taxes 2,347,724 - 4,158 - 2,351,882 Regulatory liabilities 801,297 - - - 801,297 Liability for asset retirements 313,833 - - - 313,833 Liabilities for pension and other postretirement benefits 476,017 - 37,611 - 513,628 Liabilities from risk management activities 70,315 - - - 70,315 Customer advances 114,480 - - - 114,480 Coal mine reclamation 207,453 - - - 207,453 Deferred investment tax credit 152,361 - - - 152,361 Unrecognized tax benefits 42,209 - (2) 2 (b) 42,209 Other 148,502 - 37,157 - 185,659

Total deferred credits and other 4,674,191 - 78,924 2 4,753,117

EQUITYCommon stock, no par value 2,557,858 32,875 2,491,558 (2,590,733) (c) 2,491,558 Treasury stock at cost - - (4,308) - (4,308)

Total common stock 2,557,858 32,875 2,487,250 (2,590,733) 2,487,250 Retained earnings 1,804,398 (32,701) 1,785,273 (1,771,697) (c) 1,785,273 Accumulated other comprehensive loss:

Pension and other postretirement benefits (30,313) - (54,995) 30,313 (c) (54,995) Derivative instruments (23,059) - (23,058) 23,059 (c) (23,058)

Total accumulated other comprehensive loss (53,372) - (78,053) 53,372 (78,053) Total shareholders' equity 4,308,884 174 4,194,470 (4,309,058) 4,194,470 Noncontrolling interests 145,990 - 145,990 (145,990) (c) 145,990

Total equity 4,454,874 174 4,340,460 (4,455,048) 4,340,460

TOTAL LIABILITIES AND EQUITY 13,381,377$ 15,148$ 4,650,024$ (4,537,863)$ 13,508,686$


(a)

(b) Miscellaneous reclassifications.(c) Elimination of Parent Company equity interest in subsidiaries.




CONSOLIDATING STATEMENT OF CASH FLOWS(DOLLARS IN THOUSANDS)



Total

CASH FLOWS FROM OPERATING ACTIVITIESNet income 458,861$ (4,043)$ (14,852)$ -$ (b) 439,966$

net cash provided by operating activities:Depreciation and amortization including nuclear fuel 492,226 - 95 1 (b) 492,322 Deferred fuel and purchased power 21,678 - - - 21,678 Deferred fuel and purchased power amortization 31,190 - - - 31,190 Allowance for equity funds used during construction (25,581) - - - (25,581) Deferred income taxes 278,101 - (28,806) 1 (b) 249,296 Deferred investment tax credit 52,542 - - - 52,542 Change in derivative instruments fair value 534 - - - 534 Changes in current assets and liabilities:

Customer and other receivables (46,552) (6) 21,671 (20,104) (a) (44,991) Accrued unbilled revenues (1,951) - - - (1,951) Materials, supplies and fossil fuel (11,878) - - - (11,878) Income tax receivable (134,590) - 1,496 - (133,094) Other current assets (17,112) - (6,440) 5,639 (b) (17,913) Accounts payable 47,870 124 (2,449) (131) (b) 45,414 Accrued taxes 5,760 - (94) 393 (b) 6,059 Other current liabilities (9,005) - (9,713) 11,205 (a) (7,513)

Dividends from (investments in) subsidiaries - net - - 242,100 (242,100) (c) - Change in margin and collateral accounts - assets 993 - - - 993 Change in margin and collateral accounts - liabilities 12,355 - - - 12,355 Change in unrecognized tax benefits (91,244) - - (181) (b) (91,425) Change in long term income tax receivable 137,665 - - (395) (b) 137,270 Change in other regulatory liabilities 64,473 - - - 64,473 Change in other long-term assets (46,043) 3,377 351 558 (b) (41,757) Change in other long-term liabilities (25,601) (1) 787 133 (b) (24,682)

Net cash flow provided by (used for) operating activities 1,194,691 (549) 204,146 (244,981) 1,153,307

CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures (1,016,322) - - - (1,016,322) Contributions in aid of construction 41,090 - - - 41,090 Allowance for borrowed funds used during construction (14,861) - - - (14,861) Investments in subsidiaries - - (3,400) 3,400 (c) - Proceeds from nuclear decommissioning trust sales 446,025 - - - 446,025 Investment in nuclear decommissioning trust (463,274) - - - (463,274) Other (2,067) - - 8 (b) (2,059)

Net cash flow provided by (used for) investing activities (1,009,409) - (3,400) 3,408 (1,009,401)

CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt 136,307 - - - 136,307 Repayment of long-term debt (122,828) - - - (122,828) Short-term borrowings - net 60,950 (2,872) - 2,872 (b) 60,950 Dividends paid on common stock (242,100) - (235,244) 242,100 (c) (235,244) Common stock equity issuance - - 17,319 - 17,319 Distributions to noncontrolling interests (17,385) - - - (17,385) Other - 3,400 298 (3,399) (b) 299

Net cash flow provided by (used for) financing activities (185,056) 528 (217,627) 241,573 (160,582)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 226 (21) (16,881) - (16,676)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,499 24 22,679 - 26,202

CASH AND CASH EQUIVALENTS AT END OF YEAR 3,725$ 3$ 5,798$ -$ 9,526$


(a)

(b) Miscellaneous reclassifications.(c) Elimination of Parent Company equity interest in subsidiaries.

Adjustments to reconcile net income to




CONSOLIDATED STATEMENTS OF INCOME (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

OPERATING REVENUESRegulated electricity segment 3,451,243$ 3,293,481$ 3,237,194$ 3,180,678$ 3,149,187$ Other revenues 3,385 8,323 4,185 8,521 4,469

Total 3,454,628 3,301,804 3,241,379 3,189,199 3,153,656

OPERATING EXPENSESRegulated electricity segment fuel and purchased power 1,095,709 994,790 1,009,464 1,046,815 1,178,620 Operations and maintenance 924,727 884,769 904,286 870,185 822,300 Depreciation and amortization 415,708 404,336 427,054 414,479 407,354 Taxes other than income taxes 164,167 159,323 147,408 135,328 123,270 Other expenses 7,994 6,831 6,659 7,509 5,984

Total 2,608,305 2,450,049 2,494,871 2,474,316 2,537,528

OPERATING INCOME 846,323 851,755 746,508 714,883 616,128

OTHERAllowance for equity funds used during construction 25,581 22,436 23,707 22,066 14,999 Other income 1,704 1,606 3,111 6,387 5,159 Other expense (16,024) (19,842) (10,451) (9,921) (14,300)

Total 11,261 4,200 16,367 18,532 5,858

INTEREST EXPENSEInterest charges 201,888 214,616 241,995 244,174 237,766 Allowance for borrowed funds used during construction (14,861) (14,971) (18,358) (16,479) (10,379)

Total 187,027 199,645 223,637 227,695 227,387

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 670,557 656,310 539,238 505,720 394,599

INCOME TAXES 230,591 237,317 183,604 160,869 138,551

INCOME FROM CONTINUING OPERATIONS 439,966 418,993 355,634 344,851 256,048

- (5,829) 11,306 25,358 (183,284)

NET INCOME 439,966 413,164 366,940 370,209 72,764

Less: Net income attributable to noncontrolling interests 33,892 31,622 27,467 20,156 4,434

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS 406,074$ 381,542$ 339,473$ 350,053$ 68,330$

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - BASIC 109,984 109,510 109,053 106,573 101,161

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING - DILUTED 110,806 110,527 109,864 107,138 101,264

Income from continuing operations 3.97$ 3.79$ 3.25$ 3.22$ 2.53$ Income (loss) from discontinued operations - net of income taxes

SunCor - (0.01) (0.02) (0.08) (2.91) Other - (0.04) 0.12 0.32 1.09

Total - (0.05) 0.10 0.24 (1.82) Net income 3.74 3.35 3.46 0.71

Less: Net income attributable to noncontrolling interests 0.31 0.29 0.26 0.19 0.04

Net income attributable to common shareholders 3.66$ 3.45$ 3.09$ 3.27$ 0.67$

DIVIDENDS DECLARED PER SHARE (b) 2.23$ 2.67$ 2.10$ 2.10$ 2.10$

(a) Income tax expense (benefit): 2012, $(3,813); 2011, $7,418; 2010, $16,260; and 2009, $(109,641).(b) Annualized dividends declared per share; 5 dividends declared in 2012.

Income (loss) from discontinued operations - net of income tax expense (benefit) (a)

EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE OUTSTANDING - DILUTED



CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)

2013 2012 2011 2010 2009

ASSETS

CURRENT ASSETSCash and cash equivalents 9,526$ 26,202$ 33,583$ 110,188$ 145,378$ Customer and other receivables 299,904 277,225 284,183 324,207 301,915 Accrued unbilled revenues 96,796 94,845 125,239 103,292 110,971 Allowance for doubtful accounts (3,203) (3,340) (3,748) (7,981) (6,153) Materials and supplies (at average cost) 221,682 218,096 204,387 181,414 176,020 Fossil fuel (at average cost) 38,028 31,334 22,000 21,575 39,245 Deferred income taxes 91,152 152,191 130,571 124,897 102,919 Income tax receivable 135,517 2,423 6,466 2,483 26,005 Assets from risk management activities 17,169 25,699 30,264 73,788 50,619 Deferred fuel and purchased power regulatory asset 20,755 72,692 27,549 - - Other regulatory assets 76,388 71,257 69,072 62,286 46,410 Other current assets 39,895 37,102 26,904 28,362 30,747

Total current assets 1,043,609 1,005,726 956,470 1,024,511 1,024,076

INVESTMENTS AND OTHER ASSETSReal estate investments - net - - - - 119,989 Assets from risk management activities 23,815 35,891 49,322 39,032 28,855 Nuclear decommissioning trust 642,007 570,625 513,733 469,886 414,576 Other assets 60,875 62,694 64,588 116,216 110,091

Total investments and other assets 726,697 669,210 627,643 625,134 673,511

PROPERTY, PLANT AND EQUIPMENTPlant in service and held for future use 15,200,464 14,346,367 13,753,971 13,201,960 12,848,138 Accumulated depreciation and amortization (5,300,219) (4,929,613) (4,709,991) (4,514,204) (4,340,645)

Net 9,900,245 9,416,754 9,043,980 8,687,756 8,507,493 Construction work in progress 581,369 565,716 496,745 459,361 467,700 Palo Verde sale leaseback, net of accumulated depreciation 125,125 128,995 132,864 137,956 146,722 Intangible assets, net of accumulated amortization 157,689 162,150 170,571 184,952 164,380 Nuclear fuel, net of accumulated amortization 124,557 122,778 118,098 108,794 118,243

Total property, plant and equipment 10,888,985 10,396,393 9,962,258 9,578,819 9,404,538

DEFERRED DEBITSOther regulatory assets 711,712 1,099,900 1,352,079 986,370 766,751 Income tax receivable - 70,389 68,633 65,103 65,103 Other 137,683 137,997 143,935 113,061 101,274

Total deferred debits 849,395 1,308,286 1,564,647 1,164,534 933,128

TOTAL ASSETS 13,508,686$ 13,379,615$ 13,111,018$ 12,392,998$ 12,035,253$




CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)

2013 2012 2011 2010 2009


CURRENT LIABILITIESAccounts payable 284,516$ 221,312$ 326,987$ 236,354$ 240,637$ Accrued taxes 130,998 124,939 120,289 104,711 104,011 Accrued interest 48,351 49,380 54,872 54,831 54,596 Common dividends payable 62,528 59,789 - - - Short-term borrowings 153,125 92,175 - 16,600 153,715 Current maturities of long-term debt 540,424 122,828 477,435 631,879 303,476 Customer deposits 76,101 79,689 72,176 68,322 71,026 Deferred income taxes - - - - - Liabilities from risk management activities 31,892 73,741 53,968 58,976 55,908 Liability for asset retirements 32,896 - - - - Deferred fuel and purchased power regulatory liability - - - 58,442 87,291 Other regulatory liabilities 99,273 88,116 88,362 80,526 83,054 Other current liabilities 158,540 171,573 148,616 139,063 125,574

Total current liabilities 1,618,644 1,083,542 1,342,705 1,449,704 1,279,288

LONG-TERM DEBT LESS CURRENT MATURITIES 2,796,465 3,199,088 3,019,054 3,045,794 3,496,524

DEFERRED CREDITS AND OTHERDeferred income taxes 2,351,882 2,151,371 1,925,388 1,863,861 1,545,024 Regulatory liabilities 801,297 759,201 737,332 614,063 596,018 Liability for asset retirements 313,833 357,097 279,643 328,571 301,783 Liabilities for pension and other postretirement benefits 513,628 1,058,755 1,268,910 813,121 811,338 Liabilities from risk management activities 70,315 85,264 82,495 65,390 62,443 Customer advances 114,480 109,359 116,805 121,645 136,595 Coal mine reclamation 207,453 118,860 117,896 117,243 92,060 Deferred investment tax credit 152,361 99,819 - - - Unrecognized tax benefits 42,209 71,135 72,270 66,349 142,099 Other 185,659 183,835 217,934 132,031 144,077

Total deferred credits and other 4,753,117 4,994,696 4,818,673 4,122,274 3,831,437

COMMON STOCK EQUITYCommon stock, no par value 2,491,558 2,466,923 2,444,247 2,421,372 2,153,295 Treasury stock at cost (4,308) (4,211) (4,717) (2,239) (3,812)

Total common stock 2,487,250 2,462,712 2,439,530 2,419,133 2,149,483 Retained earnings 1,785,273 1,624,102 1,534,483 1,423,961 1,298,213 Accumulated other comprehensive (loss) income:

Pension and other postretirement benefits (54,995) (64,416) (65,447) (59,420) (50,892) Derivative instruments (23,058) (49,592) (86,716) (100,347) (80,695) Total accumulated other comprehensive (loss) income (78,053) (114,008) (152,163) (159,767) (131,587)

Total shareholders' equity 4,194,470 3,972,806 3,821,850 3,683,327 3,316,109 Noncontrolling interests 145,990 129,483 108,736 91,899 111,895

Total equity 4,340,460 4,102,289 3,930,586 3,775,226 3,428,004

TOTAL LIABILITIES AND EQUITY 13,508,686$ 13,379,615$ 13,111,018$ 12,392,998$ 12,035,253$




CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

CASH FLOWS FROM OPERATING ACTIVITIESNet income 439,966$ 413,164$ 366,940$ 370,209$ 72,764$

Gain on sale of energy-related products and services business - - (10,404) - - Gain on sale of district cooling business - - - (41,973) - Depreciation and amortization including nuclear fuel 492,322 481,262 493,784 472,807 450,864 Deferred fuel and purchased power 21,678 71,573 69,166 93,631 (51,742) Deferred fuel and purchased power amortization 31,190 (116,716) (155,157) (122,481) 147,018 Allowance for equity funds used during construction (25,581) (22,436) (23,707) (22,066) (14,999) Real estate impairment charge - - - 16,731 280,188 Gain on real estate debt restructuring - - - (16,755) - Deferred income taxes 249,296 187,023 117,952 260,411 105,492 Deferred investment tax credit 52,542 41,579 58,240 Change in derivative instruments fair value 534 (749) 4,064 2,688 (6,939)

Changes in current assets and liabilities:Customer and other receivables (44,991) 14,587 40,626 (67,943) 12,292 Accrued unbilled revenues (1,951) 30,394 (21,947) 7,679 (10,882) Materials, supplies and fossil fuel (11,878) (23,043) (23,398) 12,276 (12,261) Income tax receivable (133,094) (4,043) 3,983 23,522 (26,005) Other current assets (17,913) (27,352) (3,079) 9,375 38,406 Accounts payable 45,414 (96,600) 58,346 9,125 (27,328) Accrued taxes 6,059 12,736 8,085 700 (5,787) Other current liabilities (7,513) 23,869 20,358 2,921 57,280

Change in margin and collateral accounts - assets 993 2,216 33,349 (9,937) (12,806) Change in margin and collateral accounts - liabilities 12,355 137,785 29,731 (88,315) 35,654 Change in long-term income tax receivable 137,270 (1,756) (3,530) - (131,984) Change in unrecognized tax benefits (91,425) (2,583) 8,410 (73,621) 137,898 Change in other regulatory liabilities 64,473 13,539 37,009 56,801 82,650 Change in other long-term assets (41,757) 6,872 (41,722) (47,940) (64,629) Change in other long-term liabilities (24,682) 29,801 58,484 (97,388) 12,161

Net cash flow provided by operating activities 1,153,307 1,171,122 1,125,583 750,457 1,067,305

CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures (1,016,322) (889,551) (884,350) (748,374) (764,609) Contributions in aid of construction 41,090 49,876 38,096 32,754 53,525 Allowance for borrowed funds used during construction (14,861) (14,971) (18,358) (16,778) (10,745) Proceeds from sale of district cooling business - - - 100,300 - Proceeds from sale of energy-related products and services business - - 45,111 - - Proceeds from nuclear decommissioning trust sales 446,025 417,603 497,780 560,469 441,242 Investment in nuclear decommissioning trust (463,274) (434,852) (513,799) (584,885) (463,033) Proceeds from sale of commercial real estate investments - - 1,375 72,038 43,370 Proceeds from sale of life insurance policies - - 55,444 - - Other (2,059) (1,099) (3,306) 8,576 (4,667)

Net cash flow used for investing activities (1,009,401) (872,994) (782,007) (575,900) (704,917)

CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt 136,307 476,081 470,353 - 867,469 Repayment and reacquisition of long-term debt (122,828) (654,286) (655,169) (106,572) (456,882) Short-term borrowings - net 60,950 92,175 (16,600) (137,115) (516,754) Dividends paid on common stock (235,244) (225,075) (221,728) (216,979) (205,076) Common stock equity issuance 17,319 15,955 15,841 255,971 3,302 Distributions to noncontrolling interests (17,385) (10,529) (10,210) (11,403) (14,485) Other 299 170 (2,668) 6,351 171

Net cash flow used for financing activities (160,582) (305,509) (420,181) (209,747) (322,255)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,676) (7,381) (76,605) (35,190) 40,133

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,202 33,583 110,188 145,378 105,245

CASH AND CASH EQUIVALENTS AT END OF YEAR 9,526$ 26,202$ 33,583$ 110,188$ 145,378$

Adjustments to reconcile net income to net cash provided by operating activities:


ARIZONA PUBLIC SERVICE COMPANY

CONSOLIDATED STATEMENTS OF INCOME(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

OPERATING REVENUES LESS FUEL AND PURCHASED POWERElectric operating revenues 3,451,251$ 3,293,489$ 3,237,241$ 3,180,807$ 3,149,500$ Fuel and purchased power 1,095,709 994,790 1,009,464 1,046,815 1,178,620

Total operating revenues less fuel and purchased power 2,355,542 2,298,699 2,227,777 2,133,992 1,970,880

OTHER OPERATING EXPENSESOperations and maintenance 897,824 873,916 895,917 860,712 812,903 Depreciation and amortization 415,612 404,242 426,958 414,336 407,159 Income taxes 256,864 256,600 204,066 175,440 158,661 Other taxes 163,377 158,412 146,453 134,467 122,358

Total 1,733,677 1,693,170 1,673,394 1,584,955 1,501,081

OPERATING INCOME 621,865 605,529 554,383 549,037 469,799

OTHER INCOME (DEDUCTIONS)Income taxes 11,769 12,204 11,524 4,975 6,087 Allowance for equity funds used during construction 25,581 22,436 23,707 22,066 14,999 Other income 3,896 2,868 5,071 8,956 10,808 Other expense (20,449) (21,150) (15,328) (15,859) (18,001)

Total 20,797 16,358 24,974 20,138 13,893

INCOME BEFORE INTEREST DEDUCTIONS 642,662 621,887 579,357 569,175 483,692

INTEREST DEDUCTIONSInterest on long-term debt 188,011 198,398 218,981 217,002 212,654 Interest on short-term borrowings 6,605 7,135 10,345 8,267 6,315 Debt discount, premium and expense 4,046 4,215 4,616 4,559 4,675 Allowance for borrowed funds used during construction (14,861) (14,971) (18,358) (16,479) (10,386)

Total 183,801 194,777 215,584 213,349 213,258

NET INCOME 458,861 427,110 363,773 355,826 270,434

Less: Net income attributable to noncontrolling interests 33,892 31,613 27,524 20,163 19,209

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDER 424,969$ 395,497$ 336,249$ 335,663$ 251,225$



CONSOLIDATED BALANCE SHEETS(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

ASSETS UTILITY PLANT

Plant in service and held for future use 15,196,598$ 14,342,501$ 13,750,105$ 13,197,254$ 12,781,256$ Accumulated depreciation and amortization (5,296,501) (4,925,990) (4,706,462) (4,510,591) (4,326,908)

Net 9,900,097 9,416,511 9,043,643 8,686,663 8,454,348 Construction work in progress 581,369 565,716 496,745 459,316 460,748 Palo Verde sale leaseback, net of accumulated depreciation 125,125 128,995 132,864 137,956 146,722 Intangible assets, net of accumulated amortization 157,534 161,995 170,416 184,768 164,183 Nuclear fuel, net of accumulated amortization 124,557 122,778 118,098 108,794 118,243

Total property, plant and equipment 10,888,682 10,395,995 9,961,766 9,577,497 9,344,244

INVESTMENTS AND OTHER ASSETSNuclear decommissioning trust 642,007 570,625 513,733 469,886 414,576 Assets from risk management activities 23,815 35,891 49,322 39,032 28,855 Other assets 33,709 31,650 30,551 71,428 68,839

Total investments and other assets 699,531 638,166 593,606 580,346 512,270

CURRENT ASSETSCash and cash equivalents 3,725 3,499 19,873 99,937 120,798 Investment in debt securities - - - - - Customer and other receivables 299,055 274,815 280,100 288,323 280,226 Accrued unbilled revenues 96,796 94,845 125,239 103,292 110,971 Allowance for doubtful accounts (3,203) (3,340) (3,748) (7,646) (6,063) Materials and supplies (at average cost) 221,682 218,096 204,387 181,414 176,020 Fossil fuel (at average cost) 38,028 31,334 22,000 21,575 39,245 Income tax receivable 135,179 589 - - - Assets from risk management activities 17,169 25,699 30,264 73,788 50,619 Deferred fuel and purchased power regulatory asset 20,755 72,692 27,549 - - Regulatory assets 76,388 71,257 69,072 62,286 46,410 Deferred income taxes - 74,420 111,503 105,042 102,919 Other current assets 39,153 37,077 29,355 25,135 25,724

Total current assets 944,727 900,983 915,594 953,146 946,869

DEFERRED DEBITSDeferred fuel and purchased power regulatory asset - - - - - Regulatory assets 711,712 1,099,900 1,352,079 986,370 766,751 Unamortized debt issue costs 21,860 22,492 21,181 20,530 20,959 Income tax receivable - 70,784 69,028 65,498 65,498 Other 114,865 114,222 118,983 88,490 73,909

Total deferred debits 848,437 1,307,398 1,561,271 1,160,888 927,117

TOTAL ASSETS 13,381,377$ 13,242,542$ 13,032,237$ 12,271,877$ 11,730,500$



CONSOLIDATED BALANCE SHEETS(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009


CAPITALIZATIONCommon stock 178,162$ 178,162$ 178,162$ 178,162$ 178,162$ Additional paid-in capital 2,379,696 2,379,696 2,379,696 2,379,696 2,126,863 Retained earnings 1,804,398 1,624,237 1,510,740 1,403,390 1,250,126 Accumulated other comprehensive income (loss):

Pension and other postretirement benefits (30,313) (39,503) (38,886) (35,961) (29,114) Derivative instruments (23,059) (49,592) (86,705) (100,334) (80,682)

Total shareholder equity 4,308,884 4,093,000 3,943,007 3,824,953 3,445,355 Noncontrolling interests 145,990 129,483 108,399 91,084 82,324 Total equity 4,454,874 4,222,483 4,051,406 3,916,037 3,527,679 Long-term debt less current maturities 2,671,465 3,074,088 2,894,054 3,045,794 3,306,406

Total capitalization 7,126,339 7,296,571 6,945,460 6,961,831 6,834,085

CURRENT LIABILITIESShort-term borrowings 153,125 92,175 - - - Current maturities of long-term debt 540,424 122,828 477,435 456,879 222,959 Accounts payable 281,237 215,577 322,047 218,491 213,833 Accrued taxes 122,460 116,700 113,930 106,431 158,051 Accrued interest 48,132 49,135 54,611 54,638 54,099 Common dividends payable 62,500 59,800 - - - Customer deposits 76,101 79,689 72,176 68,312 70,780 Deferred income taxes 2,033 - - - - Liabilities from risk management activities 31,892 73,741 53,968 58,976 55,908 Liabilities from asset retirements 32,896 - - - - Deferred fuel and purchased power regulatory liability - - - 58,442 87,291 Regulatory liabilities 99,273 88,116 88,362 80,526 83,054 Other current liabilities 130,774 145,326 140,185 132,170 124,995

Total current liabilities 1,580,847 1,043,087 1,322,714 1,234,865 1,070,970

DEFERRED CREDITS AND OTHERDeferred income taxes 2,347,724 2,133,976 1,952,608 1,895,654 1,631,874 Deferred fuel and purchased power regulatory liability - - - - - Regulatory liabilities 801,297 759,201 737,332 614,063 596,018 Liability for asset retirements 313,833 357,097 279,643 328,571 301,783 Liabilities for pension and other postretirement benefits 476,017 1,017,556 1,222,542 770,611 766,378 Customer advances 114,480 109,359 116,805 121,645 136,595 Liabilities from risk management activities 70,315 85,264 82,495 65,390 62,443 Coal mine reclamation 207,453 118,860 117,896 117,243 92,060 Deferred investment tax credit 152,361 99,819 - - - Unrecognized tax benefits 42,209 70,932 72,073 65,363 140,638 Other 148,502 150,820 182,669 96,641 97,656

Total deferred credits and other 4,674,191 4,902,884 4,764,063 4,075,181 3,825,445

TOTAL LIABILITIES AND EQUITY 13,381,377$ 13,242,542$ 13,032,237$ 12,271,877$ 11,730,500$



CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

CASH FLOWS FROM OPERATING ACTIVITIESNet income 458,861$ 427,110$ 363,773$ 355,826$ 270,434$

Depreciation and amortization including nuclear fuel 492,226 481,168 493,653 471,226 445,988 Deferred fuel and purchased power 21,678 71,573 69,166 93,631 (51,742) Deferred fuel and purchased power amortization 31,190 (116,716) (155,157) (122,481) 147,018 Allowance for equity funds used during construction (25,581) (22,436) (23,707) (22,066) (14,999) Deferred income taxes 278,101 202,159 110,565 224,095 192,914 Deferred investment tax credit 52,542 41,579 58,240 - - Change in derivative instruments fair value 534 (749) 4,064 2,688 (6,939)

Changes in current assets and liabilities:Customer and other receivables (46,552) 12,914 34,913 (49,956) 2,603 Accrued unbilled revenues (1,951) 30,394 (21,947) 7,679 (10,882) Materials, supplies and fossil fuel (11,878) (23,043) (23,398) 12,276 (12,261) Income tax receivable (134,590) (2,280) 2,869 - - Other current assets (17,112) (27,745) (5,473) 4,718 4,332 Accounts payable 47,870 (97,395) 73,369 18,066 (22,129) Accrued taxes 5,760 7,330 2,234 (51,620) (61,078) Other current liabilities (9,005) 6,070 18,762 (2,853) 54,913

Changes in collateral and margin accounts - assets 993 2,216 33,349 (9,937) (13,206) Changes in collateral and margin accounts - liabilities 12,355 137,785 29,731 (88,315) 35,654 Change in regulatory liabilities 64,473 13,539 37,009 56,801 82,650 Change in long-term income tax receivable 137,665 (1,756) (3,530) - (132,379) Changes in unrecognized tax benefits (91,244) (2,583) 9,125 (73,189) 137,478 Change in other long-term assets (46,043) 1,391 (41,788) (46,118) (67,507) Change in other long-term liabilities (25,601) 34,854 61,990 (85,136) 14,097

Net cash flow provided by operating activities 1,194,691 1,175,379 1,127,812 695,335 994,959

CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures (1,016,322) (889,551) (878,546) (747,967) (754,301) Contributions in aid of construction 41,090 49,876 38,096 32,754 53,525 Allowance for borrowed funds used during construction (14,861) (14,971) (18,358) (16,479) (10,386) Proceeds from nuclear decommissioning trust sales 446,025 417,603 497,780 560,469 441,242 Investment in nuclear decommissioning trust (463,274) (434,852) (513,799) (584,885) (463,033) Proceeds from sale of life insurance policies - - 44,183 - - Other (2,067) (1,099) (3,306) 8,576 (4,667)

Net cash flow used for investing activities (1,009,409) (872,994) (833,950) (747,532) (737,620)

CASH FLOWS FROM FINANCING ACTIVITIESIssuance of long-term debt 136,307 351,081 295,353 - 863,780 Short-term borrowings - net 60,950 92,175 - - (521,684) Equity infusion - - - 252,833 - Dividends paid on common stock (242,100) (222,200) (228,900) (182,400) (170,000) Repayment of long-term debt (122,828) (529,286) (430,169) (27,694) (365,696) Noncontrolling interests (17,385) (10,529) (10,210) (11,403) (14,485)

Net cash flow provided by (used for) financing activities (185,056) (318,759) (373,926) 31,336 (208,085)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 226 (16,374) (80,064) (20,861) 49,254

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,499 19,873 99,937 120,798 71,544

CASH AND CASH EQUIVALENTS AT END OF YEAR 3,725$ 3,499$ 19,873$ 99,937$ 120,798$

Adjustments to reconcile net income to net cash provided by operating activities:


PINNACLE WEST

LONG-TERM DEBT SCHEDULES(DOLLARS IN THOUSANDS)

2013 2012 2011 2010 2009

TERM LOANSLoan due November 27, 2015 125,000$ 125,000$ -$ -$ -$ Loan due February 20, 2015 - - 125,000 - -

NOTES PAYABLE5.91% senior notes due 2011 - - - 175,000 175,000

OTHER LONG-TERM DEBTCapitalized lease obligations - - - - -

Total long-term debt 125,000 125,000 125,000 175,000 175,000

LESS CURRENT MATURITIESNotes payable - - - (175,000) - Capitalized lease obligations - - - - -

Total current maturities - - - (175,000) -

TOTAL PINNACLE WEST LONG-TERM DEBT LESS CURRENT MATURITIES 125,000$ 125,000$ 125,000$ -$ 175,000$


LONG-TERM DEBT SCHEDULES(DOLLARS IN THOUSANDS)

2013 2012 2011 2010 2009

POLLUTION CONTROL BONDSDue May 1, 2029 with senior notes -$ -$ 90,000$ 90,000$ 90,000$ Due May 1, 2024 49,400 49,400 49,400 49,400 49,400 Due Sept. 1, 2024 65,750 65,750 65,750 65,750 65,750 Due Sept. 1, 2024 - 31,500 31,500 31,500 31,500 Due May 1, 2029 163,975 163,975 163,975 163,975 163,975 Due Oct. 1, 2029 - 32,650 32,650 32,650 32,650 Due Dec. 1, 2031 - - - - - Due Nov. 1, 2033 16,870 16,870 16,870 16,870 16,870 Due April 1, 2034 - - - - - Due June 1, 2034 179,000 179,000 179,000 179,000 179,000 Due April 1, 2038 26,710 26,710 26,710 26,710 26,710 Total pollution control bonds 501,705 565,855 655,855 655,855 655,855

OTHER LONG-TERM DEBT6.375% unsecured notes due Oct. 15, 2011 - - - 400,000 400,000 6.50% unsecured notes due Mar. 1, 2012 - - 375,000 375,000 375,000 5.80% unsecured notes due June 30, 2014 300,000 300,000 300,000 300,000 300,000 6.00% secured notes due Dec. 31, 2014 - - - - 1,075 4.65% unsecured notes due May 15, 2015 300,000 300,000 300,000 300,000 300,000 5.625% unsecured notes due May 15, 2033 200,000 200,000 200,000 200,000 200,000 5.50% unsecured notes due Sept. 1, 2035 250,000 250,000 250,000 250,000 250,000 6.25% unsecured notes due Aug. 1, 2016 250,000 250,000 250,000 250,000 250,000 6.875% unsecured notes due Aug. 1, 2036 150,000 150,000 150,000 150,000 150,000 8.75% unsecured notes due Mar. 1, 2019 500,000 500,000 500,000 500,000 500,000 5.05% unsecured notes due Sept, 1, 2041 300,000 300,000 300,000 - - 4.50% unsecured notes due April, 1, 2042 425,000 325,000 - - - Palo Verde sale leaseback lessor notes 38,869 65,547 96,803 126,000 151,783 Capitalized lease obligation - - 1,029 2,001 2,837 Total other long-term debt 2,713,869 2,640,547 2,722,832 2,853,001 2,880,695

Unamortized discount and premium (3,685) (9,486) (7,198) (6,183) (7,185) Total long-term debt 3,211,889 3,196,916 3,371,489 3,502,673 3,529,365

LESS CURRENT MATURITIESSenior notes (300,000) - (375,000) (400,000) - Secured notes - - - - (194) Pollution control bonds (214,975) (96,150) (70,150) (26,710) (196,170) Palo Verde sale leaseback lessor notes (25,449) (26,678) (31,256) (29,197) (25,783) Capitalized lease obligation - (1,029) (972) (812)

Total current maturities (540,424) (122,828) (477,435) (456,879) (222,959)

TOTAL APS LONG-TERM DEBT LESS CURRENT MATURITIES 2,671,465$ 3,074,088$ 2,894,054$ 3,045,794$ 3,306,406$

WEIGHTED-AVERAGE INTEREST RATE ON LONG-TERM DEBT AT YEAR-END 5.72% 5.77% 6.06% 6.20% 6.02%




EL DORADO INVESTMENT COMPANY - FINANCIAL HIGHLIGHTS(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

NET INCOME (LOSS) (4,044)$ (2,336)$ 273$ 1,554$ (6,926)$

ASSETSInvestments 14,636$ 18,514$ 19,884$ 18,960$ 18,640$ Cash and other assets 512 27 46 76 73

TOTAL ASSETS 15,148$ 18,541$ 19,930$ 19,036$ 18,713$

LIABILITIES AND EQUITYTotal liabilities 14,974$ 17,724$ 16,776$ 16,155$ 37,386$ Shareholders' equity 174 817 3,154 2,881 (18,673)

TOTAL LIABILITIES AND EQUITY 15,148$ 18,541$ 19,930$ 19,036$ 18,713$



CUSTOMER DATA

YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

CUSTOMERS - AVERAGEResidential 1,019,292 1,005,074 994,244 989,989 983,539 Commercial 123,319 122,360 121,116 120,372 120,305 Industrial 3,402 3,417 3,439 3,474 3,538 Irrigation 299 304 305 310 319 Other 1,150 1,141 1,132 1,164 1,080

Total retail 1,147,462 1,132,296 1,120,236 1,115,309 1,108,781 Sales for resale 52 49 46 51 48

Total average customers 1,147,514 1,132,345 1,120,282 1,115,360 1,108,829

INCREASE OVER PRIOR YEAR 1.3% 1.1% 0.4% 0.6% 0.6%

CUSTOMERS - END OF YEARResidential 1,032,239 1,017,371 1,003,689 996,422 992,077 Commercial 123,873 122,947 121,818 120,619 120,430 Industrial 3,406 3,422 3,454 3,471 3,491 Irrigation 298 297 301 306 315 Other 1,155 1,142 1,138 1,121 886

Total retail 1,160,971 1,145,179 1,130,400 1,121,939 1,117,199 Sales for resale 55 53 43 51 48

Total end of year customers 1,161,026 1,145,232 1,130,443 1,121,990 1,117,247

INCREASE OVER PRIOR YEAR 1.4% 1.3% 0.8% 0.4% 0.5%

LOADS AND RESOURCES AT PEAK


PEAK LOAD (kW)Actual 6,926,600 7,206,600 7,087,000 6,935,900 7,217,700 Weather-normalized 6,977,800 6,934,400 7,147,600 6,969,900 7,249,500

Increase (decrease) vs. prior yearActual -3.9% 1.7% 2.2% -3.9% 2.7%Weather-normalized 0.6% -3.0% 2.5% -3.9% -0.4%

FIRM POWER SALES (kW) 373,000 461,000 237,000 723,000 612,000

RESOURCES AVAILABLE AT PEAK (kW)Generating capacity 5,172,000 5,552,000 5,617,000 5,708,000 5,978,000 Purchase power contracts (a) 3,226,000 3,312,000 2,960,000 2,974,000 2,657,000

Total resources 8,398,000 8,864,000 8,577,000 8,682,000 8,635,000

RESERVE MARGIN 27.0% 27.5% 28.7% 21.8% 15.6%

ANNUAL LOAD FACTOR - NET 50.0% 48.8% 50.0% 50.0% 49.3%

(a) Including firm seasonal purchases and unit-contingent purchases.



FINANCIAL STATISTICS

2013 2012 2011 2010 2009

Non-cash income as percent of earnings (a) - 9.1% 26.1% 21.2% - Net cash flow as percent of capital expenditures (b) 110.4% 112.8% 86.2% 110.6% 112.1%

(a) Non-cash income includes capitalized interest, AFUDC equity, deferred fuel costs and other significant items resulting from regulatory orders.(b) Includes recovery of fuel costs through various PSA adjustors and surcharges, as well as base rates.

CAPITALIZATION RATIOS

2013 2012 2011 2010 2009

Long-term debt excluding current maturities 34.1% 40.9% 39.0% 41.0% 46.8%Current maturities of long-term debt 6.9% 1.7% 6.4% 6.2% 3.2%Short-term debt 2.0% 1.2% - - - Total debt 43.0% 43.8% 45.4% 47.2% 50.0%Common equity 57.0% 56.2% 54.6% 52.8% 50.0% Total capitalization 100.0% 100.0% 100.0% 100.0% 100.0%

Adjusted debt as percent of total capital (b) 49.8% 52.5% 54.3% 54.4% 56.1%

(a) 2009 has been reclassified in accordance with amended accounting guidance related to variable interest entities.(b) Debt adjusted to include purchase power agreements and other imputed debt.


YEAR ENDED DECEMBER 31, (a)



ELECTRIC OPERATING REVENUE ANALYSIS(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

REGULATED ELECTRICITY SEGMENTRetail sales

Residential 1,674,827$ 48.5% 1,587,313$ 48.2% 1,539,250$ 47.5% 1,504,288$ 47.3% 1,495,629$ 47.5%Commercial 1,354,896 39.3% 1,276,208 38.7% 1,262,376 39.0% 1,249,158 39.3% 1,267,979 40.3%Industrial 180,001 5.2% 173,708 5.3% 169,287 5.2% 168,215 5.3% 177,567 5.6%Irrigation 1,447 0.1% 1,510 0.0% 1,393 0.0% 2,106 0.1% 2,371 0.1%Other 21,974 0.6% 20,799 0.6% 20,871 0.6% 21,403 0.7% 19,193 0.6%

Total retail 3,233,145 93.7% 3,059,538 92.9% 2,993,177 92.5% 2,945,170 92.6% 2,962,739 94.1%Wholesale revenue on delivered electricity

Traditional contracts 52,547 1.5% 61,719 1.9% 67,639 2.1% 64,816 2.0% 59,405 1.9%Off-system sales 89,342 2.6% 88,888 2.7% 58,674 1.8% 85,935 2.7% 57,878 1.8%Native load hedge liquidation 10,616 0.3% 3,890 0.1% - - - - - -

Transmission for others 32,183 0.9% 29,558 0.9% 30,310 0.9% 34,498 1.1% 34,153 1.1%Other miscellaneous services 33,418 1.0% 49,896 1.5% 87,441 2.7% 50,388 1.6% 35,325 1.1%

Total electric operating revenues 3,451,251$ 100.0% 3,293,489$ 100.0% 3,237,241$ 100.0% 3,180,807$ 100.0% 3,149,500$ 100.0%

INCREASE (DECREASE) VS. PRIOR YEARRetail revenues 5.7% 2.2% 1.6% -0.6% 2.2%Total electric operating revenues 4.8% 1.7% 1.8% 1.0% 0.5%

AVERAGE RETAIL REVENUE PER KWHResidential 12.60 ¢ 11.97 ¢ 11.58 ¢ 11.54 ¢ 11.32 ¢Commercial 10.88 ¢ 10.18 ¢ 10.03 ¢ 10.11 ¢ 10.05 ¢Industrial 8.21 ¢ 7.86 ¢ 7.78 ¢ 7.83 ¢ 8.11 ¢Irrigation 12.67 ¢ 11.42 ¢ 10.33 ¢ 10.05 ¢ 9.97 ¢Total retail 11.51 ¢ 10.87 ¢ 10.61 ¢ 10.63 ¢ 10.52 ¢

REVENUE PER AVERAGE CUSTOMER (dollars)Residential 1,643$ 1,579$ 1,548$ 1,519$ 1,521$ Commercial and industrial 12,112$ 11,528$ 11,494$ 11,445$ 11,672$

ELECTRIC SALES ANALYSIS


ELECTRIC SALES (MWH)

REGULATED ELECTRICITY SEGMENTRetail sales

Residential 13,290,096 41.5% 13,256,456 40.9% 13,290,230 42.0% 13,035,500 40.9% 13,214,097 40.9%Commercial 12,449,137 38.9% 12,531,865 38.6% 12,588,782 39.8% 12,361,364 38.8% 12,615,825 39.1%Industrial 2,191,604 6.8% 2,209,407 6.8% 2,175,114 6.9% 2,149,128 6.7% 2,189,648 6.8%Irrigation 11,419 0.0% 13,216 0.0% 13,486 0.0% 20,955 0.1% 23,785 0.1%Other 145,349 0.5% 143,192 0.4% 142,714 0.5% 142,516 0.4% 129,941 0.4%

Total retail 28,087,605 87.7% 28,154,136 86.8% 28,210,326 89.1% 27,709,463 87.0% 28,173,296 87.3%Wholesale electricity delivered

Traditional contracts 683,209 2.1% 761,016 2.3% 959,013 3.0% 750,268 2.4% 828,379 2.6%Off-system sales 2,997,869 9.4% 3,264,059 10.1% 2,332,825 7.4% 2,741,586 8.6% 2,229,364 6.9%Retail load hedge management 267,464 0.8% 268,961 0.8% 152,622 0.5% 659,187 2.1% 1,054,337 3.3%

Total wholesale 3,948,542 12.3% 4,294,036 13.2% 3,444,460 10.9% 4,151,041 13.0% 4,112,080 12.7%

Total electric sales 32,036,147 100.0% 32,448,172 100.0% 31,654,786 100.0% 31,860,504 100.0% 32,285,376 100.0%

INCREASE (DECREASE) VS. PRIOR YEAR Retail sales -0.2% -0.2% 1.8% -1.6% -2.2%Total electric sales -1.3% 2.5% -0.6% -1.3% -2.0%

ANNUAL USE PER AVERAGE CUSTOMER (KWH)Residential 13,039 13,190 13,367 13,167 13,435 Commercial and industrial 115,535 117,202 118,533 117,166 119,550



SOURCE AND DISPOSITION OF ELECTRIC ENERGY AND ENERGY FUEL MIX


SOURCE OF ENERGY (MWH)Steam generation

Nuclear 9,146,445 9,292,770 9,101,864 9,079,181 8,922,598 Coal 10,899,122 10,877,296 12,248,113 12,383,400 12,510,173 Gas 114,744 70,270 91,222 51,640 144,810

Combustion turbinesGas 262,907 305,534 302,640 211,662 258,764 Oil 335 743 286 782 1,456

Combined cycleGas 5,482,774 6,943,732 5,277,714 5,092,304 5,526,783

RenewablesSolar 266,722 144,939 - - - Other - - 32,918 8,737 9,787

Total generation 26,173,049 27,635,284 27,054,757 26,827,706 27,374,371 Purchased power (a)

Firm load 6,826,030 6,288,402 5,419,029 5,429,394 5,099,719 Marketing and trading 512,915 305,746 933,161 1,523,514 1,989,771

Total purchased power 7,338,945 6,594,148 6,352,190 6,952,908 7,089,490 Total source of energy 33,511,993 34,229,432 33,406,947 33,780,614 34,463,861

DISPOSITION OF ENERGY (MWH)Sales to ultimate customers 28,087,605 28,154,136 28,210,326 27,709,463 28,173,296 Sales for resale (a) 3,948,542 4,294,036 3,444,460 4,151,041 4,112,080 Losses and company use 1,475,846 1,781,260 1,752,161 1,920,110 2,178,485 Total disposition of energy 33,511,993 34,229,432 33,406,947 33,780,614 34,463,861

ENERGY FUEL MIX Nuclear 27.3% 27.1% 27.2% 26.9% 25.9%Coal 32.5% 31.8% 36.7% 36.7% 36.3%Gas and oil 17.5% 21.4% 17.0% 15.9% 17.2%Renewables 0.8% 0.4% 0.1% - - Purchased power and interchange - net 21.9% 19.3% 19.0% 20.6% 20.6%Total 100.0% 100.0% 100.0% 100.0% 100.0%

(a) Purchased power and sales for resale include interchange purchases and sales, respectively.

POWER SUPPLY ADJUSTOR ("PSA")(DOLLARS IN THOUSANDS)YEAR ENDED DECEMBER 31, 2013 2012 2011 2010 2009

72,692$ 27,549$ (57,977)$ (87,291)$ 7,984$ (82,974) (74,557) (69,518) (93,132) 51,742

- - - - - - - (113) - -

31,037 119,700 155,157 122,446 (147,017) 20,755$ 72,692$ 27,549$ (57,977)$ (87,291)$ Deferred fuel and purchased power regulatory asset (liability) - end of year

Deferred fuel and purchased power regulatory asset (liability) - beginning of yearDeferred fuel and purchased power costs - current periodRegulatory disallowanceInterest on deferred fuelAmounts recovered through revenues


GENERATION RESOURCES (NET ACCREDITED CAPACITY)

IN SERVICE AS OF DECEMBER 31, 2013 LocationOwnership or

Interest (a)Number of Units

APS Share (MW)

NUCLEAR-FUELED STEAM PLANT Arizona Public Service Company* 29.1%Palo Verde Nuclear Generating Station Units 1, 2 and 3 (a) Wintersburg, Arizona 29.1% 3 1,146 Salt River Project 17.5%

El Paso Electric Company 15.8%COAL-FUELED STEAM PLANTS Southern California Edison 15.8%

Four Corners Units 4 and 5 (b) Farmington, New Mexico 63% 2 970 PNM Resources 10.2%Cholla Units 1, 2 and 3 Joseph City, Arizona 100% 3 647 Southern California Public Power Authority 5.9%Navajo Generating Station Units 1, 2 and 3 Page, Arizona 14% 3 315 L.A. Department of Water and Power 5.7%

1,932 GAS- OR OIL-FUELED STEAM PLANTS

Ocotillo Tempe, Arizona 100% 2 220

GAS- OR OIL-FUELED COMBUSTION TURBINES Arizona Public Service Company* 63%Sundance Casa Grande, Arizona 100% 10 420 Public Service Company of New Mexico 13%Yucca Yuma, Arizona 100% 6 243 Salt River Project 10%West Phoenix Phoenix, Arizona 100% 2 110 Tucson Electric Power 7%Ocotillo Tempe, Arizona 100% 2 110 El Paso Electric Company 7%Saguaro Red Rock, Arizona 100% 3 189 Douglas Douglas, Arizona 100% 1 16

1,088 GAS- OR OIL-FUELED COMBINED CYCLE PLANT

Redhawk Arlington, Arizona 100% 2 984 U.S. Bureau of Reclamation 24.3%West Phoenix Phoenix, Arizona 100% 5 887 Salt River Project* 21.7%

1,871 L.A. Department of Water and Power 21.2%SOLAR GENERATION Arizona Public Service Company 14.0%

Hyder Hyder, Arizona 100% 1 30 NV Energy 11.3%Foothills Yuma, Arizona 100% 1 35 Tucson Electric Power 7.5%Paloma Gila Bend, Arizona 100% 1 17 Cotton Center Gila Bend, Arizona 100% 1 17 * Plant OperatorChino Valley Chino Valley, Arizona 100% 1 19 Various Multiple Arizona Facilities 100% 19

137 TOTAL 6,394

(a) APS owns about 17% of Palo Verde Unit 2 and leases about 12.1% of Unit 2, resulting in a 29.1% combined ownership and leasehold interest in Unit 2.(b) Four Corners Unit 1,2,3 retired as of December 31, 2013.

POWER PLANT OPERATING PERFORMANCE


NUCLEAR (NET CAPACITY FACTORS)Palo Verde Unit 1 91.3% 99.7% 82.9% 81.1% 100.9%Palo Verde Unit 2 97.6% 89.7% 90.5% 101.2% 82.6%Palo Verde Unit 3 84.5% 87.6% 98.6% 89.1% 83.2%Palo Verde site average 91.1% 92.3% 90.7% 90.5% 88.9%

COAL (NET CAPACITY FACTORS)Four Corners 68.2% 71.4% 77.9% 82.1% 87.9%Cholla 74.0% 75.3% 81.5% 79.4% 77.4%Navajo 71.4% 59.2% 80.8% 79.9% 76.1%Total coal average 71.0% 70.6% 79.8% 80.7% 81.9%

GAS/OIL (NET CAPACITY FACTORS)Redhawk 43.8% 54.1% 41.5% 39.2% 46.5%West Phoenix 22.0% 29.1% 19.5% 19.7% 17.5%Other (a) 4.8% 2.8% 3.2% 2.1% 3.3%Total gas/oil average 22.2% 24.5% 19.1% 18.0% 20.0%

GAS/OIL (EQUIVALENT AVAILABILITY FACTORS)Redhawk 82.6% 93.0% 77.7% 83.5% 84.3%West Phoenix 83.1% 79.2% 85.6% 90.0% 83.2%Other (a) 82.4% 88.8% 90.7% 95.6% 90.4%Total gas/oil average 82.8% 87.2% 85.4% 90.4% 86.5%

(a) Includes Ocotillo, Saguaro, Sundance, Yucca, and Douglas.

Palo Verde Nuclear Generating StationUnits 1, 2 and 3 Ownership

Four CornersUnits 4 and 5 Ownership

Navajo Generating StationUnits 1, 2 and 3 Ownership


RATE REGULATION

Effective Dates Base Fuel RateJuly 2012 - Present 0.0321$ January 2010 - June 2012 0.0376$ January 2007 - December 0.0325$

Commissioner Current Term April 2005 - June 2007 0.0207$ Commissioner Since ExpiresBob Stump (Rep.) (Chairman) January 2009 January 2017 (a)

Gary Pierce (Rep.) January 2007 January 2015 (a)

Brenda Burns (Rep.) January 2011 January 2015Susan Bitter Smith (Rep.) January 2013 January 2017Bob Burns (Rep.) January 2013 January 2017

(a) Term-limited

The table below includes APS's retail rate changes since 2009 (dollars in millions):Annual

Type Effective Date RevenueTCA Adjustor June 1, 2013 21$ Base Rate Increase July 1, 2012 - TCA Adjustor August 1, 2012 18 PSA Annual Adjustor February 1, 2012 (115) The table below summarizes APS's transmission rate changes:TCA Adjustor July 1, 2011 38 PSA Annual Adjustor February 1, 2011 (156) (a)

TCA Adjustor August 1, 2010 (10) Effective Date Retail Portion Wholesale Portion TotalBase Rate Increase January 1, 2010 207 June 1, 2013 21$ 5$ 26$ PSA Annual Adjustor January 1, 2010 (140) (a) August 1, 2012 18 - 18 TCA Adjustor August 1, 2009 21 June 1, 2012 - (2) (2) PSA Annual Adjustor February 1, 2009 157 (a) July 1, 2011 38 - 38 Interim Base Rate Surcharge January 1, 2009 65 (a) June 1, 2011 - 6 6

August 1, 2010 (10) 0 (10)(a) Adjustor or surcharge has expired. June 1, 2010 - (2) (2)

August 1, 2009 21 - 21 June 1, 2009 - 2 2

APS recovers changes in charges for transmission services to serve retail customers through the TCA. See “Federal Regulation” for additional details on FERC formula-based rates and the TCA.

Annual Increase ($ Millions)

Test Period

Retail Rate Changes (Excluding Adjustors)

A historical test period has been used in rate cases; however, the ACC has discretion to consider matters subsequent to the end of the historical year.

In 2006, the ACC adopted the Arizona Renewable Energy Standard. Under the RES, electric utilities that are regulated by the ACC must supply an increasing percentage of their retail electric energy sales from eligible renewable resources, including solar, wind, biomass, biogas and geothermal technologies. In order to achieve these requirements, the ACC allows APS to include a RES surcharge as part of customer bills to recover the approved amounts for use on renewable energy projects. Each year APS is required to file a five-year implementation plan with the ACC and seek approval for the upcoming year’s RES budget and related customer surcharge rate.

Each year, APS submits an annual energy efficiency implementation plan, including estimated amounts for program costs, for review by and approval of the ACC. In order to recover these estimated amounts for use on certain demand-side management programs, a surcharge is added to customer bills similar to that described above under the RES. The DSMAC surcharge allows for the recovery of energy efficiency program expenses and any earned incentives.

Demand Side Management Adjustment Clause (DSMAC)

Transmission Cost Adjustor (TCA)

Recovery – The PSA rate is adjusted annually each February 1 (unless otherwise approved by the ACC). The PSA rate includes (a) a “Forward Component,” under which APS recovers or refunds differences between expected fuel and purchased power costs for the upcoming calendar year and those embedded in the Base Fuel Rate; (b) a “Historical Component,” under which differences between actual fuel and purchased power costs and those recovered through the combination of the Base Fuel Rate and the Forward Component are recovered during the next PSA Year; and (c) a “Transition Component,” under which APS may seek mid-year PSA rate changes due tolarge variances between actual fuel and purchased power costs and the combination of the Base Fuel Rate and the Forward Component.

Modified in 2012, the ACC approved APS's Environmental Improvement Surcharge to allow for the recovery of carrying costs for capital expenditures associated with government-mandated environmental controls, subject to an existing cents per kWh cap on cost recovery that could produce up to approximately $5 million in revenues annually.

ACC Organization

The FERC continues to address issues related to standard market design for wholesale markets, regional transmission organizations to support non-discriminatory markets, and other issues related to restructuring wholesale power markets. APS is an active participant in these proceedings.

Formula Transmission Tariff and Retail Transmission Cost Adjustor

Renewable Energy Standard (RES)

The Arizona Corporation Commission (ACC) regulates APS's retail electric rates and its issuance of securities. The ACC also must approve any transfer of APS's property used to provide retail electric service and must approve or receive prior notification of certain transactions between APS, Pinnacle West and their respective affiliates.

In July 2008, the FERC approved an Open Access Transmission Tariff for APS to move from fixed rates to a formula rate-setting methodology in order to more accurately reflect and recover the costs that APS incurs in providing transmission services. A large portion of the rate represents charges for transmission services to serve APS’s retail customers (Retail Transmission Charges). In order to recover the Retail Transmission Charges, APS was previously required to file an application with, and obtain approval from, the ACC to reflect changes in Retail Transmission Charges through the TCA. Under the terms of the 2012 Settlement Agreement, however, an adjustment to rates to recover the Retail Transmission Charges will be made annually each June 1 and will go into effect automatically. The formula rate is updated each year effective June 1 on the basis of APS’s actual cost of service, as disclosed in APS’s FERC Form 1 report for the previous fiscal year.

The ACC consists of five elected commissioners with staggered terms. The terms are four years each, with a limit of two consecutive terms in office. Mid-term vacancies (due to resignation, etc.) are filled by appointment of the Governor to serve until the next general election.

FEDERAL REGULATIONAPS is subject to regulation by the U.S. Federal Energy Regulatory Commission (FERC) in certain matters which include wholesale power sales and transmission services. The FERC is composed of five commissioners who are appointed by the President, approved by Congress and serve five-year terms.

Environmental Improvement Surcharge (EIS)Deferrals – Beginning July 1, 2012, APS defers for recovery or refund 100% of the difference between actual retail fuel and purchased power costs (as defined) and the Base Fuel Rate. From April 2005 through June 2012, APS deferred 90% of the difference between actual retail fuel and purchased power costs (as defined) and the Base Fuel Rate. The table below summarizes the Base Fuel Rates (per kWh):

DETAILED INFORMATION ON REGULATORY MATTERS Adjustment Mechanisms Lost Fixed Cost Recovery (LFCR)Regulatory developments are discussed in detail in a number of sections of the 2013 Annual Report on Form 10-K for Pinnacle West and APS. See "Competitive Environment and Regulatory Oversight" in Item 1; "Key Financial Drivers" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7; and Note 3 of Notes to Consolidated Financial Statements, "Regulatory Matters," in Item 8.

APS has received supportive regulatory decisions that allow for more timely recovery of certain costs through the following recovery mechanisms.

In 2012, the ACC approved implementation of the Lost Fixed Cost Recovery Mechanism which permits APS to recover on an after-the-fact basis a portion of its fixed costs that would otherwise have been collected by APS in the kWh sales lost due to APS energy efficiency programs and to distributed renewable generation such as rooftop solar arrays. The fixed costs recoverable by the LFCR mechanism were established in the 2012 Settlement Agreement and amount to approximately 3.1 cents per residential kWh lost and 2.3 cents per non-residential kWh lost.

Power Supply Adjustor (PSA)The PSA was initially approved by the ACC in 2005 and most recently modified in 2012. The mechanism provides for the adjustment of retail rates to reflect variations in retail fuel and purchased power costs, subject to specified parameters and procedures. See page 21 for a summary of historical PSA balances and activity.STATE REGULATION


SHAREHOLDER INFORMATION

STOCK LISTING ANNUAL MEETING OF SHAREHOLDERS FORM 10-KTicker symbol: PNW on Wednesday, May 21, 2014 at 10:30 a.m. (MST) Pinnacle West's 2013 Annual Report on Form 10-K New York Stock Exchange Heard Museum filed with the Securities and Exchange Commission

2301 North Central Avenue is available on our website or by writing to the Phoenix, Arizona 85004-1323 Office of the Secretary.

CORPORATE HEADQUARTERS400 North 5th StreetPhoenix, Arizona 85004 INVESTORS ADVANTAGE PLAN AND CORPORATE RESPONSIBILITY REPORTMailing address: SHAREHOLDER ACCOUNT INFORMATION The Pinnacle West Corporate ResponsibilityP.O. Box 53999 Pinnacle West offers a direct stock Report is available on our Web site.Phoenix, Arizona 85072-3999 purchase plan. Any interested investorMain telephone number: may purchase Pinnacle West common(602) 250-1000 stock through the Investors Advantage INVESTOR RELATIONS CONTACTS

Plan. Features of the Plan include a variety Paul J. Mountain, Directorof options for reinvesting dividends, direct (602) 250-4952

CORPORATE WEBSITE deposit of cash dividends, automatic monthly Chalese Daltonpinnaclewest.com investment, certificate safekeeping and (602) 250-5643

more. An Investor Advantage Planprospectus and enrollment materials

TRANSFER AGENT AND REGISTRAR may be obtained by calling Computershare at ASSOCIATION FOR INVESTORSComputershare (800) 457-2983; at Computershare's website - The Arizona Investment Council representsP.O. Box 43078 computershare.com/investor; or by writing to: the interests of investors in Arizona utilities.Providence, Rhode Island 02940-3078 Computershare If interested, send your name and address to:(800) 457-2983 P.O. Box 43078 Arizona Investment Councilcomputershare.com/investor Providence, Rhode Island 02940-3078 2100 North Central Avenue #210

Phoenix, Arizona 85004(602) 257-9200

SHAREHOLDER ADMINISTRATIVE arizonaaic.orgINFORMATIONCompany contact:Jacqueline Patterson(602) [email protected]


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