Long-Term Debt and Liquidity Matters

12 Months Ended

Dec. 31, 2023

All of Pinnacle West’s and APS’s debt is unsecured. The following table presents the components of long-term debt on the Consolidated Balance Sheets outstanding (dollars in thousands):


	Maturity	Interest	December 31,
	Dates (a)	Rates	2023		2022
APS
Pollution control bonds:
Variable	2029	(b)	$	163,975	$	163,975

Total pollution control bonds			163,975		163,975
Senior unsecured notes	2024-2050	2.20%-6.88%	7,180,000		6,680,000

Unamortized discount			(14,197)		(14,548)
Unamortized premium			11,162		12,368
Unamortized debt issuance cost			(49,049)		(48,266)
Total APS long-term debt			7,291,891		6,793,529
Less current maturities			250,000		—
Total APS long-term debt less current maturities			7,041,891		6,793,529
BCE
Los Alamitos equity bridge loan	(d)	(d)	—		27,575
Los Alamitos construction facility	(d)	(d)	—		23,110
Unamortized debt issuance cost			—		(135)
Total BCE long-term debt			—		50,550
Less current maturities			—		50,685
Total BCE long-term debt less current maturities			—		(135)
Pinnacle West
Senior unsecured notes	2025	1.30%	500,000		500,000
Term loans	2024	(c)	625,000		450,000
Unamortized discount			(15)		(25)
Unamortized debt issuance cost			(1,254)		(2,083)

Total Pinnacle West long-term debt			1,123,731		947,892
Less current maturities			625,000		—
Total Pinnacle West long-term debt less current maturities			498,731		947,892
TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES			$	7,540,622	$	7,741,286

(a) This schedule does not reflect the timing of redemptions that may occur prior to maturities.

(b) The weighted-average interest rate for the variable rate pollution control bonds was 4.11% at December 31, 2023, and 3.96% at December 31, 2022.

(c) The weighted-average interest rate was 6.20% at December 31, 2023, and 5.10% at December 31, 2022. See additional details below.

(d) On August 4, 2023, concurrent with the BCE Sale, the construction facility was transferred to Ameresco and the equity bridge loan was paid in full by Pinnacle West. See Note 20 and discussion below.

The following table shows principal payments due on Pinnacle West’s and APS’s total long-term debt (dollars in thousands):


Year	Pinnacle West Consolidated		APS Consolidated
2024	$	875,000	$	250,000
2025	800,000		300,000
2026	250,000		250,000
2027	300,000		300,000
2028	—		—
Thereafter	6,243,975		6,243,975
Total	$	8,468,975	$	7,343,975

Debt Fair Value

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


	As of December 31, 2023				As of December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Pinnacle West	$	1,123,731	$	1,095,935	$	947,892	$	905,525
APS	7,291,891		6,459,718		6,793,529		5,629,491
BCE	—		—		50,550		50,685
Total	$	8,415,622	$	7,555,653	$	7,791,971	$	6,585,701

Credit Facilities and Debt Issuances

Pinnacle West

On December 16, 2022, Pinnacle West entered into a $175 million term loan facility that matures December 16, 2024. The proceeds were received on January 6, 2023, and used for general corporate purposes. We recognized the term loan facility as long-term debt upon settlement on January 6, 2023.

APS

APS is currently authorized to receive up to $150 million annually in equity infusions from Pinnacle West without seeking ACC approval. On October 27, 2023, APS sought approval from the ACC to receive from Pinnacle West in 2024 up to an additional $500 million in equity infusions above the authorized limit of $150 million, and on January 9, 2024, the ACC approved the increased equity infusion limit for 2024.

On January 6, 2023, Pinnacle West contributed $150 million into APS in the form of an equity infusion. APS used this contribution to repay short-term indebtedness.

On June 30, 2023, APS issued $500 million of 5.55% unsecured senior notes that mature August 1, 2033. The net proceeds from the sale were used to repay short-term indebtedness consisting of commercial paper and for general corporate purposes.

See “Lines of Credit and Short-Term Borrowings” in Note 5 and “Financial Assurances” in Note 10 for discussion of APS’s separate 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 the development of a 31 megawatt (“MW”) solar and 20 megawatt hour (“MWh”) battery storage project in Los Alamitos, California (“Los Alamitos”). The credit agreement consisted of an equity bridge loan facility, a non-recourse construction facility, a letter of credit facility, and a related interest rate swap. On August 4, 2023, Pinnacle West entered into a purchase and sale agreement with Ameresco, Inc. (“Ameresco”), pursuant to which we agreed to sell all our equity interest in BCE to Ameresco (the “BCE Sale”). See Note 20. As a part of the BCE Sale closing, the $36 million construction facility, the letter of credit facility, and the interest rate swap were transferred to Ameresco. On August 4, 2023, concurrent with the BCE Sale, Pinnacle West paid in full the outstanding $31 million equity bridge loan balance. As of December 31, 2023, there is no outstanding balance on our Consolidated Balance Sheets relating to this credit agreement.

On April 18, 2023, and on December 29, 2023, Pinnacle West issued performance guarantees in connection with BCE’s Kūpono Solar investment project financing. BCE held an equity method investment relating to the Kūpono Solar project that was included in the BCE Sale relating to the stage of the BCE Sale that closed on January 12, 2024. The performance guarantees did not transfer in the BCE Sale, and Pinnacle West continues to retain these performance guarantees. See Note 10.

Debt Provisions

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 this covenant. For both Pinnacle West and APS, this covenant requires that the ratio of consolidated debt to total consolidated capitalization not exceed 65%. At December 31, 2023, the ratio was approximately 60% for Pinnacle West and 52% 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. See further discussion of “cross-default” provisions below.

Neither Pinnacle West’s nor APS’s financing agreements contain “rating triggers” that would result in an acceleration of the required interest and principal payments in the event of a rating downgrade. However, our bank credit agreements contain a pricing grid in which the interest rates we pay for borrowings thereunder are determined by our current credit ratings.

All of Pinnacle West’s loan agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or APS were to default under certain other material agreements. All of APS’s bank agreements contain “cross-default” provisions that would result in defaults and the potential acceleration of payment under these bank agreements if APS were to default under certain other material agreements. Pinnacle West and APS do not have a material adverse change restriction for credit facility borrowings.

Although provisions in APS’s articles of incorporation and ACC financing orders establish maximum amounts of preferred stock and debt that APS may issue, APS does not expect any of these provisions to limit its ability to meet its capital requirements. On December 15, 2022, the ACC issued a financing order approving APS’s application filed on April 6, 2022, requesting to increase the long-term debt limit from $7.5 billion to $8.0 billion and to exclude financing lease PPAs from the definition of long-term indebtedness for purposes of the ACC financing orders. See Note 5 for additional short-term debt provisions.