As of March 1, 2019, the board of directors consisted of 11 directors, 10 of whom are independent. The makeup of the board includes two women and one director of Hispanic descent. The Pinnacle West President and CEO is the only board member who is not independent, and he serves as the Chairman of the Board.

The board of directors has five standing committees: Audit, Corporate Governance, Finance, Human Resources, and Nuclear and Operating. The board’s oversight of sustainability is conducted primarily through the committee most closely aligned with a particular area of the company’s sustainability model. In addition, the Nuclear and Operating Committee oversees the company’s sustainability initiatives and strategy.

Due to the complexity of the operating, financial and regulatory environments, the company has numerous risks and obligations, which are addressed by policies and controls, processes and programs at both the enterprise and the business area level. The Executive Risk Committee also provides the board of directors with a report of the company’s top risks on an annual basis. The Audit Committee annually reviews the company’s risk assessment and risk management policies. For APS, climate change risks include drought, frequency and intensity of monsoon storms and forest fires. The enterprise-wide risk identification and assessment process contemplates short, medium and longer term risks.

Risks are identified, defined, assessed and prioritized based on the likelihood and impact of their occurrence. Business areas maintain an inventory of their most significant risks and associated risk mitigation plans. Annually, business areas record this information in a prescribed format for analysis, categorization and prioritization of risks to support development of an enterprise risk profile. APS uses an Energy Policy Committee to identify and evaluate opportunities, including opportunities associated with climate change, at the company and asset level. The Energy Policy Committee, using input from informed stakeholders and subject matter experts, provides strategic direction, business planning and management method recommendations consistent with the company’s business direction.

The APS Core guides and keeps us focused on the right things. The APS Strategic Plan ensures our many business units and individual employees are aligned with that Core, and all are working within a set of values and focus areas to help us deliver our vision of a sustainable energy future for Arizona.

We have a series of strategic planning tools and resources that build from the APS Vision and allow us to conduct scenario planning to test our business model against what the world might look like in the future. They also allow us to track emerging trends in our industry through strategic signposts and metrics so we can continually evolve to meet our customers’ changing needs.

From that planning come our Corporate Strategic Initiatives (CSI), which are designed to allow us to close a gap, build a competency, showcase an issue or capitalize on an opportunity. CSIs for 2019 include:

Clean

• Palo Verde for the Long Term: Prepare Palo Verde Generating Station for changing markets
• Arizona Electrification: Promote opportunities for electrification

Affordable

• Market Evolution: Plan ahead for evolving power markets

Reliable

• Data Maximization: Harness big data for improved performance
• Grid Modernization: Increase visibility into and flexibility of the energy grid

Customer Focused

• People First: Recruit and retain great people
• Customer Innovation: Develop innovative new customer solutions
• Infrastructure Growth: Pursue growth opportunities
• Reputation Management: Enhance and protect our reputation

Additional corporate strategic planning tools and resources include:

• Benchmarking the company against other peer utilities
• Establishing Tier 1 metrics as our highest-level corporate operational targets
• Establishment and implementation of an enterprise risk management process. This process for risk identification, assessment and mitigation actions ties the top company risks to the critical areas of focus and Tier 1 metrics so they can be tracked and reported to the company’s executive management and ultimately to the board of directors

Taken in combination, we have multiple ways in which we can evaluate the company’s health and performance and set high-level targets that are consistent with our overall vision.

With our strategic planning goals established, we move next to business unit-level planning efforts. This includes the establishment of business unit priorities as part of the business unit planning process and the identification of additional tiered metrics which complete our operational target development.

Our corporate and business unit metrics and the initiatives supporting them align with the critical areas of focus. Our business plans support our long-term company strategies and provide a focused, well-defined direction. These plans help us prioritize our work, collaborate across the organization, align our resources and measure our progress with rigor and discipline. Our executive officers’ compensation is connected to business unit performance, individual performance and value-driving business metrics. The business unit performance is tied to operational excellence, shareholder value, environment and measures related to our customer value, communities, employees and security.

Sustainability Performance Summary

Advancing technologies, growing renewable energy resources and increasing customer sentiment for cleaner energy are accelerating change in the electric utility industry. The APS Integrated Resource Plan (IRP) details our blueprint to provide customers with clean, reliable and affordable energy, fulfill regulatory targets and manage environmental impacts. These trends are shaping the current planning objectives:

• Developing cleaner energy resources
• Increasing investment in the energy grid
• Participating in energy markets to lower customer bills
• Increasing system flexibility to maintain reliable service that our customers require

We are engaging our stakeholders to review and discuss current and future resource plans. Through the IRP process, we expect to file a preliminary update to our plan later this year and an update to the entire plan in the first half of 2020.

Learn more about the IRP and our resource planning at aps.com.