Pinnacle West Capital PNW · USD

Business Segments Pinnacle West’s reportable business segment is our regulated electricity segment, which consists of retail and wholesale sales supplied under traditional cost-based regulation and related activities and includes electricity generation, transmission, and distribution. Our reportable segment activities are conducted through our wholly-owned subsidiary, APS. All other operating segment activities are insignificant to Pinnacle West.For segment reporting purposes, Pinnacle West’s Chief Executive Officer performs the function of chief operating decision maker (“CODM”). Our CODM uses net income to measure an operating segment’s profitability. When assessing the performance of an operating segment, and making decisions about allocating resources, our CODM evaluates net income actual results compared to budget. Net income is also used when implementing strategic initiatives and selecting projects to meet business objectives. Our reportable segment’s revenue streams are dependent upon regulated rate recovery, which is a primary factor in how we identify operating segments. For information on our reportable business segment’s revenues, significant expenses, net income (loss), assets, and other reportable segment items, see the APS Consolidated Statements of Income, APS Consolidated Balance Sheets, and APS Consolidated Statements of Cash Flows.

Revenue Sources of RevenueThe following table provides detail of Pinnacle West’s consolidated revenues disaggregated by revenue sources (dollars in thousands):Year Ended December 31,202520242023Retail Electric ServiceResidential$2,541,320 $2,562,822 $2,289,196 Non-Residential2,542,936 2,334,925 2,048,416 Wholesale Energy Sales108,661 96,857 208,985 Transmission Services for Others129,667 119,038 138,631 Other Sources17,355 11,273 10,763 Total Operating Revenues$5,339,939 $5,124,915 $4,695,991 Retail Electric RevenuesAll of Pinnacle West’s retail electric revenues are generated by APS. Retail electric revenue is generated by the sale of electricity to our regulated customers within the authorized service territory at tariff rates approved by the ACC and based on customer usage. Revenues related to the sale of electricity are generally recognized when service is rendered, or electricity is delivered to customers. The billing of electricity sales to individual customers is based on the reading of their meters. We obtain customers’ meter data on a systematic basis throughout the month, and generally bill customers within a month from when service was provided. Customers are generally required to pay for services within 21 days of when the services are billed. See “Allowance for Doubtful Accounts” discussion below for additional details regarding payment terms. In addition, see the section titled “2025 Rate Case” in Note 8 for details related to proposed adjustments to rate design and modifications of cost allocation methodologies to reduce cross-subsidization by ensuring customers causing production costs are covering those costs through rates. Wholesale Energy Sales and Transmission Services for OthersAll of Pinnacle West’s wholesale energy sales and transmission services for others revenues is generated by APS. Revenues from wholesale energy sales and transmission services for others represent energy and transmission sales to wholesale customers. These activities consist of managing fuel and purchased power risks and transmission needs in connection with the cost of serving our retail customers’ energy requirements. We may also sell into the wholesale markets generation that is not needed for APS’s retail load. Our wholesale activities and tariff rates are regulated by FERC.Revenue ActivitiesOur revenues primarily consist of activities that are classified as revenues from contracts with customers.

Commitments and Contingencies Palo Verde Generating Station Spent Nuclear Fuel and Waste Disposal On December 19, 2012, APS, acting on behalf of itself and the participant owners of Palo Verde, filed a second breach of contract lawsuit against the DOE in the United States Court of Federal Claims (“Court of Federal Claims”). The lawsuit sought to recover damages incurred due to DOE’s breach of the Contract for Disposal of Spent Nuclear Fuel and/or High Level Radioactive Waste (“Standard Contract”) for failing to accept Palo Verde’s spent nuclear fuel and high level waste from January 1, 2007, through June 30, 2011, pursuant to the terms of the Standard Contract and the Nuclear Waste Policy Act. On August 18, 2014, APS and DOE entered into a settlement agreement, which required DOE to pay the Palo Verde owners for certain specified costs paid by Palo Verde during the period January 1, 2007, through June 30, 2011. In addition, the settlement agreement provided APS with a method for submitting claims and getting recovery for costs incurred through December 31, 2016, which was extended to December 31, 2025. APS is currently evaluating a proposed extension to the settlement to cover costs paid through December 31, 2028.APS has recovered costs for eleven claims pursuant to the terms of the August 15, 2014 settlement agreement, for eleven separate time periods during July 1, 2011, through October 31, 2024. The DOE has approved and paid approximately $174.3 million for these claims (APS’s share is approximately $50.7 million). The amounts recovered were primarily recorded as adjustments to a regulatory liability and had no impact on reported net income. In accordance with the ACC’s decision from the 2017 rate case, this regulatory liability is being refunded to customers. On October 31, 2025, APS submitted its twelfth claim pursuant to the terms of the settlement agreement in the amount of approximately $15.4 million (APS’s share is approximately $4.5 million). In February 2026, the DOE approved approximately $15.4 million of this claim.Nuclear Insurance Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act (“Price-Anderson Act”), which limits the liability of nuclear reactor owners to the amount of insurance available from both commercial sources and an industry-wide retrospective payment plan.

Long-Term Debt and Liquidity MattersAll 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): MaturityInterestDecember 31, Dates (a)Rates20252024APS Pollution control bonds: Variable2029(b)$163,975 $163,975 Total pollution control bonds 163,975 163,975 Senior unsecured notes2026-20552.20%-6.88%8,030,000 7,380,000 Unamortized discount (16,796)(14,252)Unamortized premium 17,144 9,955 Unamortized debt issuance cost(54,383)(48,800)Total APS long-term debt 8,139,940 7,490,878 Less current maturities 250,000 300,000 Total APS long-term debt less current maturities 7,889,940 7,190,878 Pinnacle West Senior unsecured notes2027-20304.75%-5.15%1,325,000 1,025,000 Floating rate note2026(c)350,000 350,000 Unamortized discount(681)(5)Unamortized debt issuance cost(8,583)(7,225)Total Pinnacle West long-term debt1,665,736 1,367,770 Less current maturities350,000 500,000 Total Pinnacle West long-term debt less current maturities1,315,736 867,770 TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES$9,205,676 $8,058,648 (a) This schedule does not reflect the timing of redemptions that may occur prior to scheduled maturity.(b) The weighted-average interest rate for the variable rate pollution control bonds was 3.52% at December 31, 2025, and 4.01% at December 31, 2024.(c) The weighted-average interest rate was 5.10% at December 31, 2025, and was 5.88% at December 31, 2024. See additional details below.The following table shows principal payments due on Pinnacle West’s and APS’s total long-term debt (dollars in thousands):YearPinnacle West ConsolidatedAPS Consolidated2026$600,000 $250,000 2027825,000 300,000 2028400,000 — 2029568,975 568,975 2030400,000 — Thereafter7,075,000 7,075,000 Total$9,868,975 $8,193,975 Debt Fair Value Our long-term debt fair value estimates are classified within Level 2 of the fair value hierarchy.

Income TaxesCertain assets and liabilities are reported differently for income tax purposes than they are for financial statement purposes. The tax effect of these differences is recorded as deferred taxes. We calculate deferred taxes using currently enacted income tax rates. APS has recorded regulatory assets and regulatory liabilities related to income taxes on its Consolidated Balance Sheets in accordance with accounting guidance for regulated operations. The regulatory assets are for certain temporary differences, primarily the allowance for equity funds used during construction, ITC basis adjustment and tax expense of Medicare subsidy. The regulatory liabilities primarily relate to the change in income tax rates and deferred taxes resulting from ITCs. In accordance with regulatory requirements, APS ITCs are deferred and are amortized over the life of the related property with such amortization applied as a credit to reduce current income tax expense in the Statements of Income.On January 30, 2024, Pinnacle West entered into a tax credit transfer agreement to purchase from Ameresco $23 million of investment tax credits from the BCE Los Alamitos project for $21 million. While the $23 million reduced tax payments, the $21 million paid to Ameresco is not included in the income taxes paid table below. See Note 22 for more information about the BCE Sale.The Company claimed a $33.4 million benefit for the Nuclear PTC on its 2024 tax return using a revenue requirement methodology to determine its gross receipts from nuclear sales. In the continued absence of IRS guidance regarding the definition of gross receipts from nuclear sales, management intends to utilize this same methodology to claim a 2025 credit of $39.6 million. These benefits include the five times multiplier for complying with IRS prevailing wage rules. However, due to the continued lack of IRS guidance, management believes that there remains uncertainty as to whether the IRS will ultimately agree with the Company’s gross receipts methodology. As a result, the entire amount of the 2024 and 2025 benefits is recorded as uncertain tax positions and the Company continues to not recognize any income tax benefits related to the Nuclear PTC.Net income associated with the Captive and Palo Verde sale leaseback VIEs is not subject to tax. As a result, there is no income tax expense associated with the VIEs recorded on the Pinnacle West Consolidated and APS Consolidated Statements of Income.

Stock-Based Compensation Pinnacle West has incentive compensation plans under which stock-based compensation is granted to officers, key employees, and non-officer members of the Board of Directors. Awards granted under the 2021 Long-Term Incentive Plan, as amended (“2021 Plan”), may be in the form of stock grants, restricted stock units, stock units, performance shares, restricted stock, dividend equivalents, performance share units, performance cash, incentive and non-qualified stock options, and stock appreciation rights. The 2021 Plan authorizes up to 4.3 million common shares to be available for grant. As of December 31, 2025, 2.5 million common shares were available for issuance under the 2021 Plan. During 2025, 2024 and 2023, the Company granted awards in the form of restricted stock units, stock units, stock grants, and performance shares. Awards granted from 2012 to May 2021 were issued under the 2012 Long-Term Incentive Plan (“2012 Plan”), and awards granted from 2007 to 2011 were issued under the 2007 Long-Term Incentive Plan (“2007 Plan”). No new awards may be granted under the 2012 or 2007 Plans.Stock-Based Compensation Expense and Activity Compensation cost included in net income for stock-based compensation plans was $27 million in 2025, $24 million in 2024, and $17 million in 2023. The compensation cost capitalized is immaterial for all years. Income tax benefits related to stock-based compensation arrangements were $12 million in 2025, $6 million in 2024, and $3 million in 2023. As of December 31, 2025, there were approximately $42 million of unrecognized compensation costs related to nonvested stock-based compensation arrangements. We expect to recognize these costs over a weighted-average period of 2 years. The total fair value of shares vested was $27 million in 2025, $24 million in 2024, and $24 million in 2023. The following table is a summary of awards granted and the weighted-average grant date fair value for each of the last 3 years:Restricted Stock Units, Stock Grants, and Stock Units (a)Performance Shares (b) 202520242023202520242023Units granted204,886 261,808 192,295 164,220 225,516 202,562 Weighted-average grant date fair value$90.25 $71.10 $74.32 $97.72 $72.89 $79.61 (a)The units granted do not include awards that will be cash settled in 2025, 2024 or 2023. See below for additional information on restricted stock unit grants.(b)Reflects the target payout level.

Leases We lease certain land, buildings, vehicles, equipment, and other property through operating rental agreements with varying terms, provisions, and expiration dates. APS also has certain power purchase or PPAs and energy storage agreements that qualify as lease arrangements. Our leases have remaining terms that expire in 2026 through 2073. Substantially all of our leasing activities relate to APS. In 1986, APS entered into agreements with three separate lessor trust entities in order to sell and lease back interests in Palo Verde Unit 2 and related common facilities. The lessor trust entities have been deemed VIEs for which APS is the primary beneficiary. As the primary beneficiary, APS consolidated these lessor trust entities. The impacts from these sale leaseback transactions are excluded from our lease disclosures as lease accounting is eliminated upon consolidation. In September 2025, two of the three leased interests were purchased by APS. As of December 31, 2025, one VIE lease arrangement remains in effect. See Note 12 for discussion of VIEs and the 2025 acquisition of the VIE’s noncontrolling interest. APS is a party to PPAs that allow it the right to the generation capacity from certain natural-gas fueled generators during certain months of each year throughout the term of the arrangements. As APS only has rights to use the assets during certain periods of each year, the leases have non-consecutive periods of use. APS does not operate or maintain the leased assets. APS controls the dispatch of the leased assets during the months of use and is required to pay a fixed monthly capacity payment during these periods of use. For these types of leased assets, APS has elected to combine both the lease and non-lease payment components and accounts for the entire fixed payment as a lease obligation. In addition to the fixed monthly capacity payments, APS must also pay variable charges based on the actual production volume of the assets. The variable consideration is not included in the measurement of our lease obligation. APS has executed various energy storage PPAs that allow APS the right to charge and discharge energy storage facilities. APS pays a fixed monthly capacity price for rights to use the lease assets. The agreements generally have 20-year lease terms and provide APS with the exclusive use of the energy storage assets through the lease term.

In fulfilling its responsibility, the Cybersecurity Group manages formal documented internal processes such as risk management and vulnerability scanning, as well as other processes, such as assessing threat intelligence, that include outside partners. Intelligence sharing comes from industry sources such as the Electricity Information Sharing and Analysis Center, government sources, as well as commercially purchased information sources. The Cybersecurity Group also engages third parties for assessments and audits of its systems periodically and as needed. Such assessments and audits may include, among other things, pre-production evaluation of technologies, overall program assessments, and compliance program assessments including audits by our regulators. Depending on the products and services provided and the potential for data exchange and technology risk, we may require vendors and service providers to pass APS’s vendor risk management program, which sets forth security and data protection requirements, as a condition to doing or continuing to do business with us. For contracts with vendors that will handle or have access to certain sensitive data, APS requires contractual provisions setting forth cybersecurity controls, vulnerability management, secure development practices, and other security and data protection requirements. A subset of vendors that meet a predetermined risk profile due to strategic relationships, technology risk, or other factors is continually monitored by a third-party risk management service, and the Company annually reviews independent assessments of these vendors.The Cybersecurity Group also has documented processes for identifying, responding to, and internally escalating cybersecurity incidents to management and the Board of Directors. Once an incident meets certain criteria, the Company’s Cybersecurity Incident Command or, in the case of a potentially severe threat that could impact the entire Company, the Corporate Emergency Operations Center is activated and formal response procedures are followed to address the incident.