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Variable Interest Entities | 9 Months Ended
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Sep. 30, 2025
Variable Interest Entities [Abstract] |
Variable Interest Entities | Variable Interest Entities Pinnacle West Captive Insurance Cell VIE To support our overall insurance program, Pinnacle West established a captive insurance cell to insure certain risks of Pinnacle West and our subsidiaries. The Captive is a protected separate cell captive insurance company sponsored by Energy Insurance Services, Inc (“EISI”). EISI is owned by Energy Insurance Mutual Limited Company and allows participating member sponsoring organizations, such as Pinnacle West, to insure risks using captive entities. Pinnacle West, through its contractual rights, has a controlling financial interest in the separate protected Captive cell’s assets. Pinnacle West obtains all the benefits from the Captive and makes all the primary controlling decisions that economically impact the Captive. As a separate protected cell, Pinnacle West is the Captive’s only participant. The Captive is a VIE for which Pinnacle West is the primary beneficiary. Accordingly, Pinnacle West consolidates the Captive. Under a mutual business program participation agreement between the Captive and EISI, EISI will issue policies, make claim disbursements, claim expenses and other underwriting fees on behalf of the Captive, as necessary. The Captive insures Pinnacle West and its subsidiaries for terrorism coverage, excess liability including certain wildfire coverage, excess property insurance, and excess employment practice liability. The Captive policies exclude nuclear liability at Palo Verde. See Note 10 for details regarding nuclear liability insurance. Claim payments to the insureds can only be made up to the amount of the Captive’s available assets. In the event that claims exceed the Captive’s available assets, Pinnacle West may be required to provide additional funding to the Captive. In addition to policies obtained through the Captive, Pinnacle West also has commercial and mutual insurance policies purchased through third-party insurers that may provide coverage if a loss event occurs. As a result of consolidation, we eliminate intercompany transactions between Pinnacle West and the Captive and record the Captive’s assets, liabilities and third-party operating activities. In consolidation, the Captive’s insurance premium revenues derived from Pinnacle West policies are eliminated against the insurance premium expense recorded by Pinnacle West and our subsidiaries relating to insurance policy coverage provided by the Captive. Consolidation primarily resulted in Pinnacle West reflecting the Captive’s investment holdings on its Condensed Consolidated Balance Sheets, and the Captive’s investment gains and losses reflected through earnings on Pinnacle West’s Condensed Consolidated Statements of Income. Consolidation of the Captive resulted in an increase in Pinnacle West’s net income for the three and nine months ended September 30, 2025 of $1.2 million and $3.6 million, respectively, and zero for the three and nine months ended September 30, 2024. Amounts are fully attributable to Pinnacle West shareholders. Consolidation impacts the Pinnacle West Condensed Consolidated Statements of Income operations and maintenance expense, other income, and other expense line items. Pinnacle West’s Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 include $39 million and $34 million, respectively, of assets relating to the Captive that is reported within the other special use funds line item. See Notes 13 and 14 for additional details on these investment holdings. APS’s financial statements are not impacted by Pinnacle West’s consolidation of the Captive VIE. APS Palo Verde Sale Leaseback VIEs In 1986, APS entered into agreements with three separate VIE lessor trust entities in order to sell and lease back interests in Palo Verde Unit 2 and related common facilities. As further described below, APS purchased two of the three leased interests in September 2025. The two related lease agreements were terminated and VIE consolidation treatment was discontinued for those leases. As of September 30, 2025, one VIE lease arrangement remains in effect. In June 2025, APS executed purchase agreements relating to two of the three VIE lease arrangements and subsequently submitted filings with FERC requesting authorization of the acquisitions. On September 10, 2025, FERC issued an order authorizing the APS acquisition of these leased interests. On September 22, 2025, all closing conditions were satisfied and APS acquired the two leased Palo Verde interests from the VIE noncontrolling interest lessor owners for a combined total of approximately $199 million. The two related lease agreements were terminated, and APS no longer has payment obligations to these two VIE noncontrolling interest lessors. As a result of the acquisition and lease terminations, effective September 22, 2025, APS no longer holds a variable interest in these lessor trust entities and therefore no longer consolidates these two lessor VIEs. In accordance with US GAAP, the purchase is accounted for as the acquisition of the VIE’s noncontrolling interests. APS’s Condensed Consolidated Balance Sheet as of September 30, 2025, includes $47 million of property, plant and equipment, net of accumulated depreciation, that was reclassified from the Palo Verde sale leaseback asset line item. The remaining $152 million of the $199 million purchase price represents the excess over the VIE’s net book value and the consideration to acquire the noncontrolling interest. The $152 million is recorded as a new regulatory asset on the APS Condensed Consolidated Balance Sheet as of September 30, 2025. In the 2025 Rate Case, APS has requested to recover the acquisition of the leased interests in future customer rates as an investment in plant assets, seeking a full cost of capital return on the $199 million investment. See Note 6. For the three and nine months ended September 30, 2025, the acquisition of the VIE leased interests had no impact on the APS Condensed Consolidated Statements of Income. APS did not recognize a gain or loss as a result of deconsolidating these VIE entities. As of September 30, 2025, APS owns these previously leased interests, providing APS a total ownership interest in Palo Verde Unit 2 of 23.9%. APS’s remaining leased interest in Palo Verde Unit 2 as of September 30, 2025, is approximately 5.2%. The VIE lease agreement that was not subject to the purchase agreements remains in effect and is not impacted by the purchase transactions. Under the current remaining lease in effect, APS will retain the leased asset through 2033 and will be required to make payments relating to the lease in total of approximately $9 million annually for the period 2026 through 2033. At the end of the lease period, APS will have the option to purchase the leased asset at its fair market value, extend the lease for up to two years, or return the asset to the lessor. The lease terms give APS the ability to utilize the asset for a significant portion of the asset’s economic life, and therefore provide APS with the power to direct activities of the VIE that most significantly impact the VIE’s economic performance. Predominantly due to the lease terms, APS has been deemed the primary beneficiary of this VIE and therefore consolidates the VIE. As a result of consolidation, we eliminate lease accounting and instead recognize depreciation expense, resulting in an increase in net income for the three and nine months ended September 30, 2025 of $4 million and $13 million, respectively, and for the three and nine months ended September 30, 2024 of $4 million and $13 million, respectively. The increase in net income is entirely attributable to the noncontrolling interests. Income attributable to Pinnacle West shareholders is not impacted by the consolidation. Our Condensed Consolidated Balance Sheets include the following amounts relating to these VIEs (dollars in thousands):
| September 30, 2025 |  | December 31, 2024 (a)
Palo Verde sale leaseback property, plant and equipment, net of accumulated depreciation | $ | 32,416 |  |  | $ | 82,556 |
Equity — Noncontrolling interests | 43,083 |  |  | 103,167 |
(a) Includes the two VIEs subject to the September 2025 purchase transactions described above. Assets of the VIE are restricted and may only be used for payment to the noncontrolling interest holders. These assets are reported on our Condensed Consolidated Financial Statements. APS is exposed to losses relating to the VIE upon the occurrence of certain events that APS does not consider to be reasonably likely to occur. Under certain circumstances (for example, the Nuclear Regulatory Commission (“NRC”) issuing specified violation orders with respect to Palo Verde or the occurrence of specified nuclear events), APS would be required to make specified payments to the VIE’s noncontrolling equity participants and take title to the leased Unit 2 interest, which, if appropriate, may be required to be written-down in value. If such an event were to occur during the lease period, APS may be required to pay the noncontrolling equity participant approximately $173 million in 2025 and up to $267 million over the lease term. For regulatory ratemaking purposes, the lease agreement continues to be treated as an operating lease, and as a result, we have recorded a regulatory asset relating to the arrangement.

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- Definition Variable Interest Entities [Abstract] + References No definition available. + Details
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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/810/tableOfContent + Details
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