Board of Directors’ Role in Sustainability Oversight

As of January 31, 2018 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 chairman.

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, starting in 2018, the Nuclear and Operating Committee will oversee the company’s sustainability initiatives and strategy.

Data Management and Advanced Analytics Program

APS has embarked on an exciting journey to use data as it has never been used before across the enterprise and in the utility industry. With a continued focus on operational excellence, the group provides predictive and prescriptive analytics which enables solid decision making and the capacity to run, grow and transform the business using quality data and analytics.

In a recent project, the group delivered an analytical model which resulted in the ability to map the simulated degradation of distribution wood poles based upon their age, species, treatment and location within the state. Additionally, the analytical model took asset risk into consideration when determining the prioritization of asset replacement. This analysis created opportunity for greater operational efficiencies and maintenance cost savings.

Data is an asset that is treated as carefully as our physical assets. Data Management and Advanced Analytics Program will advance capabilities across APS that drive performance and accountability while greatly enhancing the ability to build process efficiencies, improve the customer experience, make data more agile and flexible, improve work quality and improve enterprise security.

Aps Business Value

Human Performance and Corrective Action Program

Human Performance (HP) and the Corrective Action Program (CAP) are principles and tools used to drive a sustained focus on Safety and continuous improvement, leading to operational excellence at APS.

Human Performance (is the science that helps us understand the nature of errors, both human and systemic. By gaining insight into what influences human behavior and leads to positive performance results, we are better prepared to protect our employees, customers, assets and environment from significant events.

APS is one of the few electric utilities in the nation to implement a CAP across the entire company to ensure timely identification and resolution of issues. CAP continues to be the heart of our continuous improvement culture and allows us to identify the causes of problems and implement corrective actions that either prevent or reduce the likelihood those problems will arise in the future. Integrating CAP and HP into the daily work of each employee across the company helps make us safer and more efficient.

In 2017, greater emphasis was placed on trending, communicating lessons learned, determining extent of condition and best practices across the company, and how the organization’s systems contribute to human error. These will continue to be areas of focus in 2018. Trending will allow the identification of commonalities among lower-level events so that corrective actions can be implemented that will reduce the likelihood those events will rise to a higher level of significance. Communicating both best practices and lessons learned across the organization facilitates the transferability of what is being done well and can be adopted at a division or department level, as well as the outcome of investigative efforts. Looking holistically at what organizational influences exist that contribute to human error allows appropriate protective barriers to be put in place.

Practicing self-criticality through the utilization of HP and CAP will ensure APS’s future success and sustainability, along with maintaining its position as an industry leader.

Sustainable Cost Management Initiative

Our Sustainable Cost Management Initiative (SCMI) started six years ago to improve our operating and financial results through a strategic planning process to define and align our business priorities at the “enterprise” level, implement the use of metrics that drive these strategies and priorities at the business area level, and to look for efficiencies through collaboration and integration across and within business units. In addition the initiative worked to standardized policies, procedures and processes, reduce organizational overlap, and improve capital prioritization and execution.

A survey in 2016 of hundreds of employees told us that there are opportunities to simplify the business planning process and to help employees understand how their day-to-day activities impact the successful achievement of the metrics and targets set out in these plans. This lead to a second phase of the project in 2017, to “anchor” the progress made through simplification, refinement and further education of the business planning process. This initiative included report automation and self-service repository, as well as additional work stream enhancements in areas such as Councils & Committees, Corporate Resource Operating Models, and Finance & Business Operations End-to-End Process.

One of the successes was an enhanced business planning process that allowed for more engagement, collaboration and transparency between business unit senior leaders. This ultimately leads to a plan that is better understood by employees so they can understand how their job fits into the bigger picture. Additionally, we rolled out new process for Councils and Committees. The objective is to help these groups be most effective, productive and successful, while at the same time eliminating redundancy and staying aligned to the company’s objectives, mandates and strategic initiatives.

SCMI has provided APS with the tools for being a more sustainable culture of strategic thinking and planning, even more disciplined operationally, efficient and flexible, and positioned to take action quickly as we are more agile in an ever changing energy industry.

Environmental Management Systems

In 2017, APS completed the rollout of our ISO 14001 certified Environmental Management Systems (EMS) in the operating areas, bringing our total of certified sites to 22. This new EMS strengthens our environmental awareness, lowers environmental risks and ensures a high level of environmental compliance. Below is the list of ISO 14001 Certified sites and their certificates:

APS has been implementing EMS since 2011 and obtaining certification under the International Organization for Standardization (ISO) 14001 Environmental Standards. We first obtained ISO 14001 certification for the EMS used at all of our gas-fired generating facilities in 2011. In 2012, we received ISO certification for our coal-fired facilities. ISO certification was received in 2013 for the Deer Valley Service Center, our primary transmission and distribution service center. In 2015, we obtained ISO 14001 certification for all of our Phoenix metro area service centers. Six of our state district Transmission Distribution & Customer service centers obtained ISO 14001 certification in 2016 and in 2017 we added on four more state district service centers to complete the service center expansion project.

Implementing an ISO 14001 certified EMS helps us achieve improved performance in several ways, including:

  • Identify and control the environmental impact of our activities, products and services;
  • Standardize our operational approach to managing environmental issues at our facilities through fulfilment of our compliance obligations;
  • Improve our environmental performance and reduce environmental risks;
  • Employ a systematic approach to setting environmental objectives and targets, achieving these targets and demonstrating that they have been achieved

Voluntary Environmental Stewardship Program

As a result of having a certified EMS in place, four of our power plants have received the Platinum Level Voluntary Environmental Stewardship Program (VESP) from the Arizona Department of Environmental Quality (ADEQ). This is the highest award given out under this program. According to ADEQ, this three-year recognition is given to a facility that has met the Gold Level standard, has a functioning EMS with at least one fully completed audited EMS cycle, and commits to community outreach. We look forward to adding our other sites to this list as we continue our commitment to operational excellence and environmental stewardship.

Ethics

APS has built a legacy over the past 130 years of doing the right thing. Our Code of Ethics and Business Practices provides the basic principles that guide our conduct.

The APS Code of Ethics and Business Practices incorporate the APS Core plus expanded emphasis on safety, privacy and physical security. The Code covers a wide range of guidelines for ethical conduct, including being fit for duty, providing a respectful work environment, using company resources appropriately, ensuring regulatory compliance and protecting privacy. To emphasize the importance of ethics in the workplace, all employees and members of the board of directors receive annual training on the Code.

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