Long-Term Debt and Liquidity Matters

9 Months Ended

Sep. 30, 2022

Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for their commercial paper programs, to refinance indebtedness, and for other general corporate purposes.

Pinnacle West

On December 21, 2021, Pinnacle West entered into a $450 million term loan facility that matures December 20, 2024. On December 21, 2021, $150 million of the proceeds were received and recognized as long-term debt on the Condensed Consolidated Balance Sheets. On January 6, 2022, the remaining $300 million of proceeds were received and recognized on that date as long-term debt on the Condensed Consolidated Balance Sheets. The proceeds were used for general corporate purposes.

On December 23, 2020, Pinnacle West entered into a $150 million term loan facility that would have matured June 30, 2022. The proceeds were received on January 4, 2021 and used for general corporate purposes. We recognized the term loan facility as long-term debt upon settlement on January 4, 2021. On January 6, 2022, Pinnacle West repaid this loan facility early.

At September 30, 2022, Pinnacle West had a $200 million revolving credit facility that matures on May 28, 2026. Pinnacle West has the option to increase the amount of the facility up to a maximum of $300 million upon the satisfaction of certain conditions and with the consent of the lenders. Interest rates are based on Pinnacle West’s senior unsecured debt credit ratings and the agreement includes a sustainability-linked pricing metric which permits an interest rate reduction or increase by meeting or missing targets related to specific environmental and employee health and safety sustainability objectives. The facility is available to support Pinnacle West’s general corporate purposes, including support for Pinnacle West’s $200 million commercial paper program, for bank borrowings or for issuances of letters of credit. At September 30, 2022, Pinnacle West had no outstanding borrowings under its revolving credit facility, no letters of credit outstanding under the credit facility, and $24 million of outstanding commercial paper borrowings.

APS

At September 30, 2022, APS had two $500 million revolving credit facilities that total $1 billion and that mature on May 28, 2026. APS may increase the amount of each facility up to a maximum of $700 million, for a total of $1.4 billion, upon the satisfaction of certain conditions and with the consent of the lenders. Interest rates are based on APS’s senior unsecured debt credit ratings and the agreements include a sustainability-linked pricing metric which permits an interest rate reduction or increase by meeting or missing targets related to specific environmental and employee health and safety sustainability objectives. These facilities are available to support APS’s general corporate purposes, including support for APS’s $750 million commercial paper program, for bank borrowings or for issuances of letters of credit. At September 30, 2022, APS had no outstanding borrowings under its revolving credit facilities, no letters of credit outstanding under the credit facilities and $443 million of outstanding commercial paper borrowings.

On December 17, 2020, the ACC issued a financing order in which, subject to specified parameters and procedures, it approved APS’s short-term debt authorization equal to the sum of (i) 7% of APS’s capitalization, and (ii) $500 million (which is required to be used for costs relating to purchases of natural gas and power) and a long-term debt authorization of $7.5 billion. On April 6, 2022, APS filed an application with the ACC to increase the long-term debt limit under the terms required by APS from $7.5 billion to $8.0 billion (subject to appropriate regulatory treatment of PPA lease agreements) and to continue its authorization of short-term debt granted in the 2020 financing order. On October 31, 2022, the Arizona Corporation Commission staff (“ACC Staff”) filed a report agreeing with APS's proposal to exclude financing lease PPAs from the definition of long-term debt and adopting APS’s primary proposal to increase APS’s long-term debt limit to $8 billion. This application is pending review by the ACC’s Hearing Division and a final decision by the full Commission. APS cannot predict the outcome of this matter.

On January 6, 2022, Pinnacle West contributed $150 million into APS in the form of an equity infusion. APS used this contribution to repay short-term indebtedness.

On September 15, 2022, APS remarketed $128 million of the Maricopa County, Arizona Pollution Control Corporation Revenue Refunding Bonds, 2009 Series B, C, D and E, due May 1, 2029 (the “Bonds”). The Bonds were originally issued on June 26, 2009, and prior to this remarketing were held as treasury bonds. Each series of the Bonds has a principal amount of $32 million. All series of the Bonds have been remarketed and issued in weekly variable interest rate modes and are classified as long-term debt on our Condensed Consolidated Balance Sheets.

See “Financial Assurances” in Note 8 for a discussion of other outstanding letters of credit.

BCE

On February 11, 2022, a special purpose subsidiary of BCE entered into a credit agreement to finance capital expenditures and related costs for a 31 MW solar and battery storage project in Los Alamitos, California (“Los Alamitos”) that is under development by the subsidiary. The credit agreement consists of an approximately $33 million equity bridge loan facility, an approximately $38 million non-recourse construction to term loan facility, and an approximately $5 million letter of credit facility. In connection with the credit agreement, Pinnacle West has issued a guarantee of up to $42 million primarily relating to the equity bridge loan. As of September 30, 2022, $27.6 million has been drawn from the equity bridge loan and there is no outstanding balance for the non-recourse construction to term loan and $2.5 million letters of credit outstanding under the credit facility. On October 19, 2022, BCE executed an interest rate swap to hedge the variable interest rate exposure of this credit facility. See Note 7.

Debt Fair Value

Our long-term debt fair value estimates are classified within Level 2 of the fair value hierarchy. The following table presents the estimated fair value of our long-term debt, including current maturities (dollars in thousands):


	As of September 30, 2022				As of December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Pinnacle West	$	947,752	$	898,160	$	797,042	$	792,735
APS	6,396,740		5,167,359		6,266,693		6,933,619
BCE	27,341		27,628		—		—
Total	$	7,371,833	$	6,093,147	$	7,063,735	$	7,726,354