Regulatory Matters

6 Months Ended

Jun. 30, 2025

Regulated Operations [Abstract]

Regulatory Matters

Regulatory Matters

ACC General Retail Rate Cases

2025 Rate Case

On June 13, 2025, APS filed an application with the ACC (the “2025 Rate Case”) seeking a net base rate increase of $579.5 million, which represents a 13.99% net increase. The requested net increase addresses a total base revenue deficiency of $662.4 million, offset by proposed adjustor transfers of cost recovery to base rates.

The 2025 Rate Case application includes the following proposals:

•a test year comprised of the 12-month period ended on December 31, 2024, including certain pro forma adjustments;

•12 months of post-test year plant placed into service from January 1, 2025 through December 31, 2025;

•an original cost rate base of $12.5 billion, which approximates the ACC-jurisdictional portion of the book value of utility assets, net of accumulated depreciation and other credits;

•the following proposed capital structure and costs of capital:

	Capital Structure		Cost of Capital
Long-term debt	47.65	%	4.26	%
Common stock equity	52.35	%	10.70	%
Weighted-average cost of capital			7.63	%

•a 1% return on the increment of fair value rate base above APS’s original cost rate base, as provided for by Arizona law;

•a rate of $0.043881 per kWh for the portion of APS’s base rates attributable to fuel and purchased power costs;

•adjustments to rate designs to reduce cross-subsidization by certain customer classes;

•modification of cost allocation methodologies based on customer growth to ensure customers causing new production costs are covering those costs through rates, along with corresponding changes to adjustor mechanisms, such as for fuel and purchased power;

•implementation of a “Formula Rate Adjustment Mechanism” (“FRAM”) to assist with reducing regulatory lag and allow for rate gradualism;

•elimination of the Lost Fixed Cost Recovery Adjustment Mechanism (“LFCR”) following the first annual adjustment pursuant to the FRAM; and

•modification to the System Reliability Benefit Mechanism (“SRB”) due to the Formula Rate Adjustment Mechanism proposal.

APS requested that the increase become effective in the second half of 2026. The hearing for this rate case is currently scheduled to begin in May 2026. APS cannot predict the outcome of its request nor when the 2025 Rate Case will be decided by the ACC.

2022 Rate Case

On October 28, 2022, APS filed an application with the ACC (the “2022 Rate Case”) for an increase in retail base rates, and on January 25, 2024, an Administrative Law Judge issued a Recommended Opinion and Order (“ROO”), as corrected on February 6, 2024 (the “2022 Rate Case ROO”).

On February 22, 2024, the ACC approved the 2022 Rate Case ROO with certain amendments that resulted in, among other things, (i) an approximately $491.7 million increase in the annual base revenue requirement, (ii) a 9.55% return on equity, (iii) a 0.25% return on the increment of fair value rate base greater than original cost, (iv) an effective fair value rate of return of 4.39%, (v) a return set at the Company’s weighted average cost of capital on the net prepaid pension asset and net other post-employment benefit liability in rate base, (vi) an adjustment to generation maintenance and outage expense to reflect a more reasonable level of test year costs, (vii) approval of the SRB mechanism with modifications to customer notifications, procedural timelines and the inclusion of any qualifying technology and fuel source bid received through an all-source request for proposal (“ASRFP”), and (viii) recovery of all Demand Side Management (“DSM”) costs through the DSM Adjustment Charge (“DSMAC”) rather than through base rates.

The ACC issued the final order for the 2022 Rate Case on March 5, 2024, with the new rates becoming effective for all service rendered on or after March 8, 2024.

Six intervenors and the Attorney General of Arizona requested rehearing on various issues included in the ACC’s decision, such as the grid access charge (“GAC”) for solar customers, the SRB, and CCT funding. On April 15, 2024, the ACC granted, in part, the rehearing applications of the Attorney General, Arizona Solar Energy Industries Association (“AriSEIA”), Solar Energy Industries Association (“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 a ROO (the “Limited Rehearing ROO”) on December 3, 2024. The Limited Rehearing ROO 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 Commission’s December 17, 2024 decision on the rehearing. The Commission has taken no action on these requests. In addition, each of these parties have subsequently filed an appeal to the Arizona Court of Appeals seeking review of the ACC’s decisions regarding the GAC and on rehearing. APS cannot predict the outcome of these proceedings.

Coal Community Transition

On October 31, 2019, APS filed an application with the ACC (the “2019 Rate Case”) for an annual increase in retail base rates. As a part of the 2019 Rate Case decision, the ACC approved the Coal Community Transition (“CCT”) Plan consisting of payments to certain impacted communities. APS has completed the following payments that are being recovered through rates related to CCT Plan: (i) $10 million to the Navajo Nation; (ii) $0.5 million to the Navajo County communities; and (iii) $1 million to the Hopi Tribe. Consistent with APS’s commitment to the impacted communities, APS has also completed the following payments: (i) $2 million to the Navajo Nation for CCT; (ii) $1.1 million to the Navajo County communities for CCT and economic development; and (iii) $1.25 million to the Hopi Tribe for CCT and economic development. The ACC also authorized $1.25 million to be spent for electrification of homes and businesses on each of the Navajo Nation and Hopi reservations. Expenditure of the recoverable funds for electrification of homes and businesses on the Navajo Nation and the Hopi reservations is contingent upon completion of a census of the unelectrified homes and businesses in each that are also within APS service territory. The census work was completed in November 2022 and disbursement of the funds for electrification of homes and businesses is planned to be finalized after discussions with the Navajo Nation and the Hopi Tribe are completed. On February 22, 2024, the ACC voted to not approve any further CCT funding.

Regulatory Lag Docket

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, the Residential Utility Consumer Office (“RUCO”), the Arizona Large Customer Group (“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 Arizona. 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 have also filed a Petition for Special Action with the Arizona Court of Appeals, requesting the case be sent back to the Superior Court for expedited consideration of the merits. APS cannot predict the outcome of this matter.

Cost Recovery Mechanisms

APS has received regulatory decisions that allow for more timely recovery of certain costs outside of a general retail rate case through the following recovery mechanisms. See “2022 Rate Case” above for modifications of adjustment mechanisms in the 2022 Rate Case and “2025 Rate Case” above for proposed modifications to adjustment mechanisms in the 2025 Rate Case.

Renewable Energy Standard (“RES”)

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, for example, 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 funding the upcoming year’s RES budget.

On July 1, 2022, APS filed its 2023 RES Implementation Plan and proposed a budget of approximately $86.2 million, excluding any funding offsets. This budget contained funding for programs to comply with ACC-approved initiatives, including the 2019 Rate Case decision. APS’s budget proposal supported existing approved projects and commitments and requested a waiver of the RES residential and non-residential distributed energy requirements for 2023. On November 10, 2022, the ACC approved the 2023 RES Implementation Plan, including APS’s requested waiver of the distributed energy requirement for 2023.

On June 30, 2023, APS filed its 2024 RES Implementation Plan and proposed a budget of approximately $95.1 million. APS’s budget proposal supports existing approved projects and commitments and requests a waiver of the RES renewable energy credit requirements to demonstrate compliance with the Annual Renewable Energy Requirement for 2023. The ACC has not yet ruled on the 2024 RES Implementation Plan. APS cannot predict the outcome of this proceeding.

On July 1, 2024, APS filed its 2025 RES Implementation Plan and proposed a budget of approximately $92.7 million. APS’s budget proposal supports existing approved projects and commitments and requests a waiver of the RES renewable energy credit requirements to demonstrate compliance with the Annual Renewable Energy Requirement for 2024. The ACC has not yet ruled on the 2025 RES Implementation Plan. APS cannot predict the outcome of this proceeding.

On July 1, 2025, APS filed its 2026 RES Implementation Plan and proposed a total base RES budget of $110.1 million for 2026. APS’s budget proposal supports existing approved projects and commitments and requests a waiver of the RES renewable energy credit requirements to demonstrate

compliance with the Annual Renewable Energy Requirement for 2025. The proposed plan also notifies the ACC that continued evaluation and approval of the pending 2024 and 2025 RES Implementation Plans is no longer necessary. The ACC has not yet ruled on the 2026 RES Implementation Plan. APS cannot predict the outcome of this proceeding.

On June 14, 2021, APS filed an application for approval of its Green Power Partners Program (“GPP”). The GPP allows customers to pay a specified price to receive a contracted amount of green power in addition to their normal rate in order to support those customers in meeting their individual sustainability goals. On September 1, 2021, the ACC approved the application. On June 28, 2024, APS filed an application for approval of modifications to the GPP and requested a renewable generation renewable energy credits waiver. The ACC has not yet ruled on the GPP application. APS cannot predict the outcome of this proceeding.

Demand Side Management Adjustor Charge

The ACC Electric Energy Efficiency Standards require APS to submit a DSM Implementation Plan at least every odd year for review and approval by the ACC. Verified energy savings from APS’s resource savings projects can be counted toward compliance with the Electric Energy Efficiency Standards; however, APS is not allowed to count savings from systems savings projects toward determination of the achievement of performance incentives, nor may APS include savings from these system savings projects in the calculation of its LFCR mechanism. See below for discussion of the LFCR.

On June 1, 2022, APS filed its 2023 Transportation Electrification (“TE”) Plan. The 2023 TE Plan detailed APS’s efforts to support transportation electrification in Arizona, including the Take Charge AZ Pilot Program and customer education and outreach related to transportation electrification. Subsequently, APS filed an amended 2023 TE Plan on November 30, 2022, that included a request for a $5 million budget. On December 12, 2023, the ACC approved the 2023 TE Plan without including the Take Charge AZ Program and its budget going forward, but allowed APS to complete projects already underway. Additionally, the ACC discontinued the residential EV Smart Charger rebate and approved modifications to the EV rate plan. APS incorporated its 2024 TE Plan in its annual DSM Implementation Plan filings.

On November 30, 2022 and May 31 2023, APS filed its 2023 DSM Implementation Plan, which requested a budget of $88 million, and an amended 2023 DSM Implementation Plan, respectively. Subsequent to filing the amended 2023 DSM Implementation Plan and prior to the ACC approving it, on November 30, 2023, APS filed its 2024 DSM Implementation Plan. The 2024 DSM Implementation Plan requested a total budget of $91.5 million and incorporated all elements of the amended 2023 DSM Implementation Plan as well as the 2024 TE Implementation Plan. On April 26, 2024 and June 20, 2025, APS filed amendments to the 2024 DSM Implementation Plan. The Second Amended 2024 DSM Implementation Plan, in contrast to the initially filed plan, supports an updated budget of $90.9 million, which reflects (i) removal of incentive funds for the Level 2 Smart Charger rebate within the EV Charging Demand Management Pilot, (ii) exclusion of the proposed tranches two and three of the Residential Battery Pilot, and inclusion of the newly approved Bring-Your-Own-Device Battery (“BYOD”) Pilot described below, and (iii) an update on the performance incentive calculation. On May 16, 2025, APS filed a request with the ACC to extend the deadline to file its 2026 DSM Implementation Plan until 120 days after the ACC acts on its Second Amended 2024 DSM Implementation Plan. On July 9, 2025, the ACC approved APS’s extension request. The ACC has not yet ruled on the Second Amended 2024 DSM Implementation Plan. APS cannot predict the outcome of this proceeding.

On August 30, 2024, APS filed an application for a new BYOD Battery Pilot Plan of Administration with the ACC as required by Decision No. 79293. This plan would allow APS to work with residential customers to enable APS to dispatch participating batteries and use them to provide demand response capacity to the grid. On March 20, 2025, the ACC approved the BYOD Plan of Administration.

On April 22, 2025, the ACC approved APS’s request to refund uncommitted DSMAC and REAC surcharge funds of approximately $9 million and $43 million, respectively, during July and August of 2025. The actual refund amounts are dependent upon monthly usage billed.

Power Supply Adjustor Mechanism and Balance

The PSA provides for the adjustment of retail rates to reflect variations primarily in retail fuel and purchased power costs. The PSA is subject to specified parameters and procedures, including the following:

•APS records deferrals for recovery or refund to the extent actual retail fuel and purchased power costs vary from the portion of APS’s retail base rates attributable to fuel and purchased power costs (“Base Fuel Rate”);

•an adjustment to the PSA rate is made annually each February 1 (unless otherwise approved by the ACC) and goes into effect automatically unless suspended by the ACC;

•the PSA uses a forward-looking estimate of fuel and purchased power costs to set the annual PSA rate, which is reconciled to actual costs experienced for each PSA Year (February 1 through January 31) (see the following bullet point);

•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 or refunded 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 changes due to large variances between actual fuel and purchased power costs and the combination of the Base Fuel Rate and the forward component; and

•the PSA rate may not be increased or decreased more than $0.006 per kWh in a year without permission of the ACC.

The following table shows the changes in the deferred fuel and purchased power regulatory asset (dollars in thousands):

	Six Months Ended June 30,
	2025		2024
Balance at beginning of period	$	287,597	$	463,195
Deferred fuel and purchased power costs	95,850		64,220
Amounts charged to customers	(201,035)		(204,748)
Balance at end of period	$	182,412	$	322,667

On November 30, 2021, APS filed its PSA rate for the PSA year beginning February 1, 2022. That rate was $0.007544 per kWh, which consisted of a forward component of $(0.004842) per kWh and a historical component of $0.012386 per kWh. The 2022 PSA rate was a $0.004 per kWh increase compared to the 2021 PSA year, which is the maximum permitted under the Plan of Administration for the PSA. These rates went into effect as filed on February 1, 2022.

On November 30, 2022, APS filed its PSA rate for the PSA year beginning February 1, 2023. In this filing, APS also requested that one of three different options be adopted to address the growing undercollected PSA balance. On February 23, 2023, the ACC approved an overall PSA rate of $0.019074 per kWh, which consisted of a forward component of $(0.005527) per kWh, a historical component of $0.013071 per kWh. On November 30, 2023, APS notified the ACC that it will be maintaining a PSA rate of $0.019074 per kWh and an updated PSA adjustment schedule would not be filed at that time. In Decision No. 79293 in the 2022 Rate Case, the ACC approved a permanent increase in the annual PSA adjustor rate cap from $0.004 per kWh to $0.006 per kWh and a requirement that APS report to the ACC for possible action when the overall PSA balance reaches $100 million. As part of the 2022 Rate Case decision, the ACC also approved an overall PSA rate of $0.011977 per kWh, which consisted of a forward component of $(0.012624) per kWh, a historical component of $0.013071 per kWh, and a transition component of $0.011530 per kWh. The overall PSA rate was reduced to offset an increase in base fuel prices. The rate became effective on March 8, 2024.

On November 27, 2024, APS filed its PSA rate for the PSA year beginning February 1, 2025. The overall PSA rate of $0.013977 per kWh consists of a forward component of $(0.000281) per kWh, a historical component of $0.008728 per kWh, and a transition component of $0.005530 per kWh. This overall PSA rate is an increase of $0.002 per kWh over the prior overall rate approved in the 2022 Rate Case decision, and it is below the annual PSA rate increase cap of $0.006 per kWh. On February 5, 2025, the ACC voted to approve this request, with a rate effective date of the first billing cycle in March 2025.

Environmental Improvement Surcharge (“EIS”)

On March 5, 2024, because the ACC approved the elimination of the EIS, the surcharge is no longer in effect and any remaining amounts are being collected through base rates. The EIS permitted APS to recover the capital carrying costs (rate of return, depreciation and taxes) plus incremental operations and maintenance expenses associated with environmental improvements made outside of a test year to comply with environmental standards set by federal, state, tribal, or local laws and regulations.

Transmission Rates, Transmission Cost Adjustor (“TCA”) and Other Transmission Matters

APS’s retail transmission charges’ 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. Items to be updated include actual capital expenditures made as compared with previous projections, transmission revenue credits and other items. APS reviews the proposed formula rate filing amounts with the ACC Staff. Any items or adjustments which are not agreed to by APS and the ACC Staff can remain in dispute until settled or litigated with FERC. Settlement or litigated resolution of disputed issues could require an extended period of time and could have a significant effect on the Retail Transmission Charges because any adjustment, though applied prospectively, may be calculated to account for previously over- or under-collected amounts. The resolution of proposed adjustments can result in significant volatility in the revenues to be collected.

Effective June 1, 2023, APS’s annual wholesale transmission revenue requirement for all users of its transmission system increased by approximately $34.7 million for the 12-month period beginning June 1, 2023, in accordance with the FERC-approved formula. Of this net amount, wholesale customer rates increased by approximately $20.7 million and retail customer rates would have increased by approximately $14 million. However, since changes in Retail Transmission Charges are reflected through the TCA after consideration of transmission recovery in retail base rates and the ACC-approved balancing account, the retail revenue requirement decreased by $10 million, resulting in reductions to the residential and commercial rates. An adjustment to APS’s retail rates to recover FERC-approved transmission charges went into effect automatically on June 1, 2023.

Effective June 1, 2024, APS’s annual wholesale transmission revenue requirement for all users of its transmission system increased by approximately $27.4 million for the 12-month period beginning June 1, 2024 in accordance with the FERC-approved formula. Of this net amount, wholesale customer rates increased by approximately $16.6 million and retail customer rates would have increased by approximately $10.8 million. However, since changes in Retail Transmission Charges are reflected through the TCA after consideration of transmission recovery in retail base rates and the ACC-approved balancing account, the retail revenue requirement increased by $8.8 million, resulting in an increase to residential rates and commercial rates over 3 MW and a decrease to commercial rates less than or equal to 3 MW. An adjustment to APS’s retail rates to recover FERC-approved transmission charges went into effect automatically on June 1, 2024.

Effective June 1, 2025, APS’s annual wholesale transmission revenue requirement for all users of its transmission system increased by approximately $119.0 million for the 12-month period beginning June 1, 2025, in accordance with the FERC-approved formula. Of this net amount, wholesale customer rates increased by approximately $4.6 million and retail customer rates would have increased by approximately $114.4 million. However, since changes in Retail Transmission Charges are reflected through the TCA after consideration of transmission recovery in retail base rates and the ACC-approved balancing account, the retail revenue requirement increased by $88.3 million, resulting in increases to both residential and commercial rates. An adjustment to APS’s retail rates to recover FERC-approved transmission charges went into effect automatically on June 1, 2025.

Lost Fixed Cost Recovery Mechanism

The LFCR mechanism 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 generation (“DG”) such as rooftop solar arrays. The adjustment to the LFCR has a year-over-year cap of 1% of retail revenues. Any amounts left unrecovered in a particular year because of this cap can be carried over for recovery in a future year. The kWhs lost from energy efficiency are based on a third-party evaluation of APS’s energy efficiency programs. DG sales losses are determined from the metered output from the DG units.

On July 31, 2023, APS filed its 2023 annual LFCR adjustment, requesting that the annual LFCR recovery amount be increased to $68.7 million (a $9.6 million increase from previous levels). As a result of Decision No. 79293 in the 2022 Rate Case, APS transferred $27.1 million from the LFCR to base rates.

On March 8, 2024, APS filed conforming LFCR schedules to incorporate changes required as a result of Decision No. 79293 in the 2022 Rate Case. On April 9, 2024, the ACC approved the 2023 annual LFCR adjustment, with new rates effective in the first billing cycle of May 2024.

On June 5, 2024, APS filed a revised LFCR Plan of Administration in accordance with Decision No. 79293. The ACC approved the revised Plan of Administration on October 8, 2024.

On July 31, 2024, APS filed its 2024 annual LFCR adjustment, requesting that effective November 1, 2024, the annual LFCR recovery amount be increased to $49.6 million (an $8 million increase from previous levels). On December 3, 2024, the ACC approved the 2024 annual LFCR adjustment, with new rates effective in the first billing cycle of January 2025.

On July 31, 2025, APS filed its 2025 annual LFCR adjustment, requesting that effective

November 1, 2025, the annual LFCR recovery amount be increased to $$60.1 million (a $10.5 million increase from previous levels). APS cannot predict the outcome of this matter.

Tax Expense Adjustor Mechanism (“TEAM”)

The TEAM helps address potential federal income tax reform and enable the pass-through of certain income tax effects to customers. The TEAM expressly applies to APS’s retail rates with the exception of a small subset of customers taking service under specially-approved tariffs. Currently, the TEAM is set to a zero rate as per Decision No. 79293.

Court Resolution Surcharge

Following an appeal of the 2019 Rate Case decision, the ACC approved a Court Resolution Surcharge (“CRS”) mechanism that permits APS to recover certain costs associated with investments and expenses for APS’s purchase and installation of selective catalytic reduction (“SCR”) technology for Four Corners Units 4 and 5 and a change in APS’s allowable return on equity as required by the Arizona Court of Appeals and approved by the ACC in Decision No. 78979. The CRS went into effect on July 1, 2023, at a rate of $0.00175 per kWh. The rate is designed to recover $59.6 million in revenue lost by APS between December 2021 and June 20, 2023, and the prospective recovery of ongoing costs related to the SCR investments and expense and the allowable return on equity difference in current base rates. The portion of the CRS representing the recovery of the $59.6 million of lost revenue between December 2021 and June 20, 2023, $33.7 million of which has been collected as of June 30, 2025, will cease upon full collection of the lost revenue. Additionally, the CRS tariff was updated to remove the return on equity component and account for SCR-related depreciation and deferral adjustments approved in Decision No. 79293 in the 2022 Rate Case.

Net Metering

Payments by APS for energy exported to the grid from residential DG solar facilities are determined using a Resource Comparison Proxy (“RCP”) methodology as determined in the ACC’s generic Value and Cost of Distributed Generation docket. The RCP is a method that is based on the most recent five-year rolling average price that APS incurs for utility-scale solar photovoltaic projects. The price established by this RCP method is updated annually (between general retail rate cases) but cannot be decreased by more than 10% per year.

On April 29, 2022, APS filed an application to decrease the RCP price from 9.4 cents per kWh, which had been in effect since October 1, 2021, to 8.46 cents per kWh, reflecting a 10% annual reduction, to become effective September 1, 2022. On July 12, 2022, the ACC approved the RCP as filed.

On May 1, 2023, APS filed an application for revisions to the RCP. This application would decrease the RCP price to 7.619 cents per kWh, reflecting a 10% annual reduction, to become effective September 1, 2023. On August 25, 2023, the ACC approved the RCP as filed.

On May 1, 2024, APS filed an application for revisions to the RCP. This application would decrease the RCP price to 6.857 cents per kWh, reflecting a 10% annual reduction, to become effective September 1, 2024. On August 13, 2024, the ACC approved the RCP as filed.

On May 1, 2025, APS filed an application for revisions to the RCP. This application would decrease the RCP price to 6.171 cents per kWh, reflecting a 10% annual reduction, to become effective September 1, 2025. The ACC has not yet ruled on the RCP application. APS cannot predict the outcome of this matter.

On October 11, 2023, the ACC voted to open a new general docket to hold a hearing to explore potential future changes to the 10% annual reduction cap in the solar export rate paid by utilities to distributed solar customers for exports to the grid and the 10-year rate lock period for those customers that were approved in the ACC’s Value and Cost of Distributed Generation Docket. Following various conferences, the ACC Staff filed a report finding that the RCP is working as intended and recommending no changes at this time along with closure of the docket. The ACC Hearing Division filed a ROO agreeing with Staff’s recommendation, but the ACC has not yet acted on this ROO. APS cannot predict the outcome of this matter.

Energy Modernization Plan

On May 26, 2023, the ACC opened a new docket to review articles within the Arizona Administrative Code related to Resource Planning, the RES, and energy efficiency standards (“EES”). On January 9, 2024, the ACC approved the opening of new dockets to begin rulemaking process for EES and RES. It was also ordered that an existing rulemaking docket would be utilized to review proposed updates to the ASRFP and Resource Planning Rules. During the ACC Open Meeting on February 6, 2024, the ACC approved motions to direct ACC Staff to include recommendations to repeal the current EES and RES rules during the rulemaking process. On August 21, 2024, the ACC Staff filed separate reports for each set of rules, including its recommendations to repeal the EES and RES rules along with required preliminary economic, small business, and consumer impact statements. APS and other interested parties have filed comments about the ACC Staff reports. APS cannot predict the outcome of this matter.

Integrated Resource Planning (“IRP”)

ACC rules require utilities to develop triennial 15-year IRPs which describe how the utility plans to serve customer load in the plan time frame. The ACC reviews each utility’s IRP to determine if it meets the necessary requirements and whether it should be acknowledged. In February 2022, the ACC acknowledged APS’s 2020 IRP filed on June 26, 2020. The ACC also approved certain amendments to the IRP process, including setting an EES of 1.3% of retail sales annually (averaged over a three-year period) and a demand-side resource capacity of 35% of 2020 peak demand by January 1, 2030.

On May 1, 2023, APS, Tucson Electric Power Company, and UNS Electric, Inc. filed a joint request for an extension to file the IRPs from August 1, 2023, to November 1, 2023. On June 21, 2023, the ACC granted the extension. As a result, APS filed its 2023 IRP on November 1, 2023. On January 31,

2024, stakeholders filed comments regarding the IRP, and APS filed its response to stakeholder comments on May 31, 2024. On July 31, 2024, the ACC held an IRP workshop where utilities and stakeholders presented on the 2023 IRPs. On October 8, 2024, the ACC acknowledged APS’s 2023 IRP and approved certain amendments to the IRP process, including requirements for APS to demonstrate resource adequacy prior to exiting Four Corners as well as analysis of impacts from western market participation and planned resource requirements in the next IRP.

Residential Electric Utility Customer Service Disconnections

In accordance with the ACC’s service disconnection rules, APS uses a calendar-based method to suspend the disconnection of customers for nonpayment from June 1 through October 15 each year (“Annual Disconnection Moratorium”). Since the Annual Disconnection Moratorium began, APS has experienced an increase in bad debt expense and the related write-offs of delinquent customer accounts. Pursuant to an ACC order, customers with past due balances of $75 or greater as of approximately one month prior to the end of the Annual Disconnection Moratorium are automatically placed on six-month payment arrangements.

Cholla Power Plant

On September 11, 2014, APS announced that it would close Unit 2 of the Cholla Power Plant (“Cholla”) and cease burning coal at the other APS-owned units (Units 1 and 3) at the plant by the mid-2020s if the U.S. Environmental Protection Agency (“EPA”) approved a compromise proposal offered by APS to meet required environmental and emissions standards and rules. On April 14, 2015, the ACC approved APS’s plan to retire Unit 2, without expressing any view on the future recoverability of APS’s remaining investment in the unit. APS closed Unit 2 on October 1, 2015. In early 2017, EPA approved a final rule incorporating APS’s compromise proposal, which took effect on April 26, 2017. In December 2019, PacifiCorp notified APS that it planned to retire Cholla Unit 4 by the end of 2020 and the unit ceased operation in December 2020. APS was required to cease burning coal at its remaining Cholla units by April 2025.

Previously, APS estimated Cholla Unit 2’s end of life to be 2033. APS is allowed continued recovery of the net book value of the unit and the unit’s decommissioning and other retirement-related costs, $25.8 million as of June 30, 2025, in addition to a return on its investment. In accordance with GAAP, in the third quarter of 2014, Unit 2’s remaining net book value was reclassified from property, plant and equipment to regulatory assets. In accordance with the 2019 Rate Case decision, the regulatory asset is being amortized through 2033.

On August 14, 2024, APS filed a request with the ACC for a deferral order associated with unrecovered book value and closure costs of Cholla Units 1 and 3 related to the anticipated closure of Cholla in April 2025. This order would authorize APS to defer, for future recovery in rates, both the expenses necessary to close and decommission coal-fired power plant infrastructure at Cholla, including legally required site environmental remediation, coal combustion residuals (“CCR”) corrective actions, the closure of CCR management facilities, and any unrecovered plant investment and operating costs incurred through and after April 2025. On July 8, 2025, APS withdrew its deferral application, requesting that the costs that would have been covered in the deferral order request instead be addressed in the 2025 Rate Case. APS cannot predict the outcome of this matter.

As previously planned, APS ceased operations at Cholla in March 2025 and formally retired Cholla Units 1 and 3 on April 30, 2025. At closure, APS had approximately $81 million of remaining net-book value associated with Units 1 and 3 plant assets. APS is currently recovering in rates a return on the net-book value of its interest in Cholla and associated depreciation costs. In the 2025 Rate Case, APS has requested recovery in rates of the ongoing environmental remediation and closure costs associated with Cholla and any remaining unrecovered plant costs. The 2025 Rate Case also includes a request for an ongoing deferral order relating to anticipated increased future shut-down and environmental remediation costs relating to Cholla that may be incurred after the 2025 proceeding.

Navajo Plant

The Navajo Plant ceased operations in November 2019. The co-owners and the Navajo Nation executed a lease extension on November 29, 2017, that allows for decommissioning activities to begin after the plant ceased operations. In accordance with GAAP, in the second quarter of 2017, APS’s remaining net book value of its interest in the Navajo Plant was reclassified from property, plant and equipment to regulatory assets.

APS has been recovering a return on and of the net book value of its interest in the Navajo plant in base rates over its previously estimated life through 2026. Pursuant to the 2019 Rate Case decision described above, APS will be allowed continued recovery of the book value of its remaining investment in the Navajo plant, $28.6 million as of June 30, 2025, in addition to a return on the net book value, with the exception of 15% of the annual amortization expense in rates. In addition, APS will be allowed recovery of other costs related to retirement and closure, including the Navajo coal reclamation regulatory asset, $4.7 million as of June 30, 2025. The disallowed recovery of 15% of the annual amortization does not have a material impact on APS financial statements.

Fire Mitigation

On August 14, 2024, APS filed a request with the ACC for a deferral order that would authorize APS to defer, for future recovery in rates, operations and maintenance expenses associated with wildfire management, including increased insurance costs. On June 18, 2025, the ACC denied APS’s request and recommended that wildfire related expenses be recovered in APS’s 2025 Rate Case.

On May 12, 2025, Arizona Governor Hobbs 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.

Regulatory Assets and Liabilities

The detail of regulatory assets is as follows (dollars in thousands):

	Amortization Through	June 30, 2025		December 31, 2024
Pension	(a)	$	733,970	$	750,976
Income taxes — allowance for funds used during construction equity	2054	196,476		192,936
Deferred fuel and purchased power (b) (c)	2026	182,412		287,597
Ocotillo deferral	2034	107,353		114,775
Lease incentives	(g)	92,379		70,541
SCR deferral (e)	2038	80,154		83,123
Retired power plant costs	2033	62,607		68,380
FERC Transmission true up	2027	52,720		35,159
Income taxes — investment tax credit basis adjustment	2056	34,338		34,834
Deferred compensation	2036	33,977		33,108
Palo Verde VIEs (Note 8)	2046	20,531		20,611
Deferred property taxes	2027	19,634		23,918
Deferred fuel and purchased power — mark-to-market (Note 9)	2026	9,598		42,275
Mead-Phoenix transmission line — contributions in aid of construction ("CIAC")	2050	8,218		8,384
Loss on reacquired debt	2038	6,168		6,682
Active union medical trust	(f)	5,032		9,673
Navajo Coal reclamation	2026	4,670		7,905
Tax expense adjustor mechanism (b)	2031	4,206		4,534
Power supply adjustor - interest	2026	3,329		11,525
Other	Various	3,458		3,522
Total regulatory assets (d)		$	1,661,230	$	1,810,458
Less: current regulatory assets		$	303,848	$	420,969
Total non-current regulatory assets		$	1,357,382	$	1,389,489

(a)This asset represents the future recovery of pension benefit obligations and expense through retail rates.  If these costs are disallowed by the ACC, this regulatory asset would be charged to other comprehensive income and result in lower future revenues.  As a result of the 2019 Rate Case decision, the amount authorized for inclusion in rate base was determined using an averaging methodology, which resulted in a reduced return in retail rates. Subsequently, the 2022 Rate Case decision allowed for the full return on the pension asset in rate base. See Note 7 for further discussion.

(b)See “Cost Recovery Mechanisms” discussion above.

(c)Subject to a carrying charge.

(d)There are no regulatory assets for which the ACC has allowed recovery of costs, but not allowed a return by exclusion from rate base. FERC rates are set using a formula rate as described in “Transmission Rates, Transmission Cost Adjustor and Other Transmission Matters.”

(e)See “Court Resolution Surcharge” discussion above.

(f)Collected in retail rates.

(g)Amortization periods vary based on specific terms of lease contract.

The detail of regulatory liabilities is as follows (dollars in thousands):

	Amortization Through	June 30, 2025		December 31, 2024
Excess deferred income taxes - ACC — Tax Cuts and Jobs Act (a)	2046	$	876,142	$	888,896
Excess deferred income taxes - FERC — Tax Cuts and Jobs Act (a)	2058	205,166		207,400
Asset retirement obligations and removal costs	(d)	357,327		358,403
Other postretirement benefits	(c)	228,956		238,113
Four Corners coal reclamation	2038	97,617		77,532
Renewable energy standard (b)	2026	76,796		68,523
Income taxes — deferred investment tax credit	2056	65,449		66,327
Income taxes — change in rates	2053	58,246		59,133
Demand side management (b)	2025	30,983		23,927
Deferred fuel and purchased power — mark-to-market (Note 9)	2028	27,058		—
Sundance maintenance	2031	24,634		23,086
Spent nuclear fuel	2027	23,733		26,818
TCA Balancing Account (b)	2027	14,771		14,834
Tax expense adjustor mechanism (b)	2032	4,041		4,343
Property tax deferral	2027	3,690		4,785
Other	Various	128		113
Total regulatory liabilities		$	2,094,737	$	2,062,233
Less: current regulatory liabilities		$	182,458	$	206,955
Total non-current regulatory liabilities		$	1,912,279	$	1,855,278

(a)For purposes of presentation on the Statements of Cash Flows, amortization of the regulatory liabilities for excess deferred income taxes are reflected as “Deferred income taxes” under Cash Flows From Operating Activities.

(b)See “Cost Recovery Mechanisms” discussion above.

(c)See Note 7.

(d)In accordance with regulatory accounting, APS accrues removal costs for its regulated assets, even if there is no legal obligation for removal.