In 2023, APS anticipates a capital investment of $6 billion over the next three years to support reliability, customer growth and a clean energy transition. Our investments in infrastructure for 2024 are projected to be $1.95 billion, up from $1.8 billion in 2023.  In 2023, $933 million was budgeted for projects related to transmission and distribution, the avenues by which we deliver our power into the communities and neighborhoods we serve reliably and affordability. 

Three Year Capital Forecast

Source: 2024-2026 as disclosed in the 2023 Form 10-K.

Customer programs like APS Cool Rewards, a demand response program, helped create grid capacity through customers voluntarily reducing energy use while earning bill credits. This program helps us manage customer demand, akin to a virtual power plant that provides a more efficient and flexible resource to our portfolio. The program conserved a record 135 MW, which is the equivalent of a natural gas-fired peaking unit. This program provides a crucial resource during extreme summer heat. APS also supports customer choice for new customer-side technology, such as solar and storage to help customers manage their reliability and resilience.

As of the end of 2023, we had more than 83,700 dispatchable connected devices including thermostats, solar inverters, heat pump water heaters, and residential batteries. In addition, APS interconnected more than 175,100 residential rooftops and more than 2,200 commercial photovoltaic systems by the end of 2023. APS customers have also installed more than 3,250 solar-plus-storage systems.

Distributed technologies require new utility side monitoring, and control technologies that can accommodate the operational changes these resources bring. Challenges of aligning solar production with system peak, managing weather-dependent intermittency, and related power-quality issues must be addressed via technology solutions and intelligent grid operations. Our grid modernization efforts facilitate the integration of these resources while simultaneously ensuring high reliability and power quality by providing system operators with greater visibility, intelligence and control options in the future.

AGT enables grid status visibility and automation to help detect and isolate faults, restore customers, improve reliability, increase power efficiency, manage customer voltage, and enable more distributed generation all while reducing the need for human intervention. Distribution grid solutions such as AGT are some of the many ways in which APS is looking to manage the current distribution system more efficiently to better accommodate load growth and expanding distributed energy resources. As a service provider, we must innovate to optimize all available tools and grid resources to maintain reliability and provide a modernized, resilient, and hardened system. APS plans to invest in AGT, system upgrades and related management systems through several initiatives including investments in distribution line equipment, advanced applications, and other smart grid technologies.

Learn more about our customer technologies and programs.

Energy Storage. APS deploys several advanced technologies on its system, including energy storage. Storage can provide capacity, improve power quality, be utilized for system regulation, integrate renewable generation, and, in certain circumstances, be used to defer certain traditional infrastructure investments. Energy storage can also aid in integrating higher levels of renewables by storing excess energy when system demand is low and renewable production is high, and then releasing the stored energy during peak demand hours later in the day and after sunset. APS is utilizing grid-scale energy storage projects to benefit customers, to increase renewable utilization and to further our understanding of how storage works with other advanced technologies and the grid.

In addition to aligning solar production and customer energy consumption, batteries work to improve grid resiliency. In the event of a grid outage, a utility or a customer with a battery-only installation can keep critical loads energized in the unlikely event of a grid outage.

Learn more about our clean generating technologies.

Microgrids.  Microgrids are generating facilities installed on the customers' premises that provide backup power in case of a grid outage and also provide grid support. APS microgrids play an increased role in how we support customers with critical loads, increase economic development opportunities, and strengthen the grid. Microgrids are beneficial for our system and our customers as they increase reliability and resilience. All APS customers realize benefits from microgrids as they can run in parallel with the APS system, providing frequency response and peak capacity relief.

APS Microgrids were awarded three patents related to autonomous frequency response technology in microgrids. By sharing this technology and microgrid development costs with customers with utmost resiliency needs, cost-effective economic deployment of new microgrid resources may be achieved.

Further, the potential for adding renewable resources and energy storage to these microgrids can improve their responsiveness, increase flexibility, and reduce emissions. Microgrids are an important tool in the acceleration of economic development while efficiently using resources to meet customer resiliency needs and the overall reliability needs of all APS customers.

The microgrid at Marine Corps Air Station Yuma can supply complete backup power to the base in case of a grid outage.

Drone, Robotic Technology and Predictive Maintenance. Our unmanned aircraft system (UAS) program continues to grow and provide benefits to our customers. UAS technology, commonly referred to as “drones,” allows field personnel and engineers to work safer in hazardous terrain, collect hard-to-reach imagery, and evolve engineering practice at lower costs than traditional methods for power line patrols and inspections.

We currently operate an innovative fleet of drones with a continued dedication to strategy, training and program development that promises to improve reliability and safety performance. We have ensured that our UAS program meets all Federal Aviation Administration requirements. UAS-mounted thermal imaging cameras and high-resolution sensors are used to inspect distribution, transmission, generation and communications equipment to determine the overall health of systems. In addition to providing improved inspection data, UAS helps us respond more quickly to outages and issues affecting the grid, such as storm damage.

APS is also implementing state-of-the-art robotic automated inspection systems. We recently added Spot the Dog to our robotic fleet. Robotics are autonomous devices that allow the team to perform inspections in areas that are unsafe for people to enter. The use of robotics provides consistent results, improved efficiency and safety and allows us to perform inspections that were just not practical prior to this advancement.

In the future, both drones and robotics may be using machine learning and artificial intelligence to detect anomalies, reducing the cost to perform annual inspections for proactive maintenance. The use of reporting technology and automation has streamlined the process of identifying risk, prioritizing, and reporting the risk to effectively make better decisions to assist in maintenance that delivers reliability and improved public safety.

In Arizona, approximately half of the primary structures are located near the wildland urban interface (WUI). We are also seeing the effects of climate change and the shorter, drier winters and longer, hotter summers that result.

The APS Comprehensive Fire Mitigation Plan focuses on year-round work to minimize the risk of wildfires. Our top priority is keeping customers, communities and first responders safe while providing reliable power. Through proactive fire mitigation measures, we work to reduce the likelihood of fire in proximity of our equipment and facilities. The plan includes: 

• Vegetation management: Trim and remove trees along our lines to mitigate risk
• Enhanced inspections: Conduct regular inspections to identify needed maintenance
• Improved monitoring: Monitor our system to enable early detection and suppression of wildfires 
• Grid hardening: Upgrade our system to make it more resilient
• Risk modeling: Use advanced tools to identify risk and more effectively plan work

Notably, many of these actions have benefits beyond fire mitigation, as reliability and customer service are also improved.

We use a three-pronged approach to mitigate fire risk. First, we assess site-specific fire risk and develop a model to prioritize resources. Second, we educate the communities we serve about fire mitigation. Third, we create defensible space around poles (DSAP). The goal of the DSAP program is to remove combustible material within a minimum 10-foot radius of equipment poles on a two-year cycle. Fire mitigation also consists of a dedicated hazard vegetation mitigation program aimed at addressing increased tree mortality near electric facilities across the state.

Close collaboration with key stakeholders is also a core element of our program. During fire events, our crews work with federal, state, and local officials to de-energize power lines and ensure the safety of residents and homes in the affected areas. Our rights-of-way, which are managed for compatible vegetation, have been utilized by firefighters during suppression of wildfires across Arizona. As a result of the defensible space created in our utility corridor, there were instances where the fires were prevented from reaching many of our poles and damaging our lines. This greatly improved our ability to quickly restore service after the fires were contained.

While we have had a proactive wildfire prevention program for many years, we are expanding the methods and techniques we use given the impact extreme weather is having on wildfire risk. Starting in May 2024, we added a new wildfire prevention tool called a Public Safety Power Shutoff (PSPS). During extreme high-fire risk conditions, we may choose to activate a PSPS and shut off power to selected areas. This helps protect customers and communities by preventing a live, downed wire or inadvertent spark from starting or contributing to a wildfire.

Learn more about our Wildfire Mitigation and Public Safety Power Shutoff.

Awareness.  Employees and contractors are required to take annual cybersecurity training, depending on their level of access. In that training, they learn techniques to identify suspicious cyber activity and safeguard sensitive customer information. Quarterly security bulletins and other outreach activities help raise employee awareness about emerging threats and risks to the company. Regular awareness testing and training assesses our employees’ susceptibility to certain cyber threats, such as phishing. Individuals who fail the testing are required to take additional, specific training to recognize attacks and reinforce the annual training material.

Defensive Posture.  We utilize a multilayer defensive technology model including firewalls, anti-malware technologies, data encryption technologies, email security services, and data loss prevention. These systems have alerting capabilities to notify cybersecurity personnel when critical events are detected. Additional processes, such as vulnerability scanning, identifying cybersecurity or technology risk to prioritize for remediation, and enterprise monitoring systems detect and alert potentially malicious behavior. Access to systems and data is provided based on business need with additional reviews and/or approvals required for certain specific roles. In addition, the company does maintain a cybersecurity risk insurance policy.

Resiliency.  We monitor emerging cybersecurity threats 24 hours a day, seven days a week. Our Cyber Defense Center has documented processes for identifying, responding to, and internally escalating cybersecurity incidents. Once an incident meets certain criteria, the Cybersecurity Incident Command or, in the most severe cases that impact the entire Company, the Corporate Emergency Operations Center, is activated and formal response procedures are followed to address the incident. To enhance our capabilities and provide improved threat intelligence, we maintain relationships and coordinate with federal, state, and local government partners, utility associations, regulatory bodies, and private sector information-sharing organizations. Additionally, we retain third-party incident response professionals to assist in response investigations, if needed. 

External Audits and Certifications. We engage 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.

Governance. Cybersecurity risk management has been integrated into our overall enterprise risk management program (the “Enterprise Risk Management Program”) through policies and processes that implement a risk management framework designed to identify, manage, and monitor business unit risks throughout the organization. The Enterprise Risk Management Program is overseen by an executive committee (the “Executive Risk Committee”), which meets at least quarterly and is comprised of executive leaders, including the Chairman and Chief Executive Officer, President, and other Executive and Senior Vice Presidents, and is chaired and sponsored by the Chief Financial Officer. Every year, as a part of the Enterprise Risk Management Program, the top risks affecting the company are identified. The Nuclear and Operating Committee of the Board of Directors provides ultimate oversight of cybersecurity risk and also receives briefings at least twice per year from the Cybersecurity Group, and notable audit findings relating to cybersecurity are aggregated and provided to the Board of Directors’ Audit Committee.

Our cybersecurity program also protects the privacy of our customers, employees, and contractors. Controls to protect our stakeholders’ personally identifiable information are present across our awareness, defensive posture, and resiliency efforts. Further, we comply with all applicable privacy regulations and are transparent about our privacy practices in our privacy policy, available on the aps.com website.

The WEIM enables us to take advantage more quickly of favorable pricing opportunities in wholesale energy markets, operate clean generation resources more effectively and pass the savings on to our customers. APS joined the market in 2016, and according to the most recent report released by CAISO, the WEIM has delivered more than $406 million in gross benefits (as of January 2024) to our customers since our participation began.

In addition to WEIM participation, we are actively evaluating participation in an organized day-ahead wholesale market that will strengthen our ability to provide clean, reliable, and affordable power. The current options for an organized day-ahead wholesale market include the CAISO Extended Day-Ahead Market, and Southwest Power Pool's Markets +, which we are evaluating to unlock new pathways to deliver on the APS Promise. As part of our commitment to provide reliable service we also coordinate with our peer utilities through Western Power Pool's Western Resource Adequacy Program (WRAP), which allows us to plan with other utilities.

Learn more about the Western Resource Adequacy Program, CAISO Extended Day Ahead Market, and Southwest Power Pool Markets +. 

The NERC reliability requirements have been developed to address risk associated with planning and operating the North American bulk power system. For instance, these risks may be associated with sophisticated physical and cyber threats, severe cold or hot temperatures, extreme natural events, challenging oil and natural gas interdependencies, and/or a changing resource mix.

While all applicable entities have the common goal to maintain compliance, APS has the mindset that compliance is a natural byproduct of careful and intentional reliability and security practices. Stated another way, compliance does not occur by accident.

At APS, overall reliability and security is a shared responsibility with clear roles defined for oversight and accountability throughout the organization. APS maintains a constant state of readiness including documented processes and tools to address each applicable requirement. Moreover, APS has processes in place for identifying, assessing and prioritizing risks to achieve reliability, security and compliance objectives. APS’s NERC Internal Compliance Program is developed to address these risks. The result is a tailored and continually enhanced approach to identifying concerns before they impact providing safe, reliable electricity to our customers.

APS is constantly developing tools and awareness to achieve safe, reliable and secure energy generation and delivery. This includes staying on the forefront as new standards are developed, leveraging industry lessons learned, proactively implementing above–and-beyond practices and conducting stakeholder outreach building upon a long history of productive relationships in the industry.