Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Presentation (June 2023)
39 slides from Pinnacle West Capital's investor presentation, June 2023
Slide 1: Investor Presentation
Investor Presentation June 2023
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements based on current expectations, includi ng statements regarding our earnings guidance and f inancial outlook and goals. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,”
Slide 3: Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story
T H E P I N N A CL E W EST ST O RY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 3
Slide 4: Arizona's Largest Electric Company
AT A GL A N CE Arizona’s Largest Electric Company Service Territory1 Key Facts as of Dec. 31, 2022 Consolidated assets $22.7B Arizona Revenues $4.3B Market cap ~$8.6B Generating capacity owned or leased – year end ~6.3 GW Customers 1.3M Current % from clean energy ~51% Nuclear plant in U.S. Largest
Slide 5: Attractive Customer Mix and Shifting Generation Profile
Attractive Customer Mix and Shifting Generation Profile Energy Mix Retail Sales Mix1 – Will Shift Going Forward1 Demand Side Other Management >1% 15% Gas 25% Residential Purchased 48% 4% Renewable Commercial 12% & Industrial 52% Coal 20% Nuclear 24% 1 As of December 31, 2022. 5
Slide 6: Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story
T H E P I N N A CL E W EST ST O RY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 6
Slide 7: 2023 EPS guidance
2023 EPS guidance Key Factors and Assumptions as of May 4, 2023 2023 Adjusted gross margin (operating revenues, net of fuel and $2.67 – $2.72 billion purchased power expenses, x/RES,DSM,CCT)1 • Retail customer growth 1.5%-2.5% • Weather-normalized retail electricity sales growth of 3.5%-5.5% • Inclu
Slide 8: Key drivers for EPS guidance
Key drivers for EPS guidance1 1 2023 EPS guidance of $3.95-$4.15 key drivers1,2 Retail customer growth 1.5%-2.5% Normal Weather Weather-normalized retail electricity Depreciation, amortization and property taxes sales growth of 3.5%-5.5% due to higher plant in service Transmission revenues
Slide 9: Robust economic growth in Arizona and our service territory
Robust economic growth in Arizona and our service territory Consistent Residential Growth Past Five Years Strong 2.5% Sales CAGR Past Three Years Residential Customer Growth1 Total Sales Growth2,3 3% 6% APS Residential Growth Natn'l Avg. - Residential 5% 1.5%-2.5% 2.4% 3.5%-5.5% 2.3% 2.2% 4% 4.2% 2%
Slide 10: Best-in-class service territory supports high tech growth and economic development
Best-in-class service territory supports high tech growth and economic development Our Approach: Supports Influx of Manufacturing Focus on Four Main Areas and Distribution – Examples • Taiwan • Rehrig Pacific • Business attraction and expansion Semiconductor Company Increased investment from $80M in
Slide 11: A clear plan for clean energy transition
A clear plan for clean energy transition Progress Towards Meeting Clean Energy Commitment Since 2020, have contracted over 2,300 MW of clean energy and storage to be in service for APS customers by end of 2025 Successfully installed 141 MWs of APS owned batteries at our AZ Sun sites as of April 2023
Slide 12: We Will Pursue Improvements in the Regulatory Environment
We Will Pursue Improvements in the Regulatory Environment ✓ Appealing last rate case to clarify the prudency standard in Arizona ✓ Filed a new rate case to reduce regulatory lag and improve the ROE ✓ Working with stakeholders on common issues including reducing regulatory lag and improving customer
Slide 13: Customer Focused
We Have Embraced a Customer-Centric Strategy Deliver Ensure superior exceptional customer reliability and operating service performance, anchored in safety Make intelligent and Preserve strong clean Customer Focused financial health while investments to support sustaining customer a growing Arizona
Slide 14: Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story
T H E P I N N A CL E W EST ST O RY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 14
Slide 15: Bringing the Residential Customer into the Advanced Economy
Bringing the Residential Customer into the Advanced Economy Initiatives Potential Impact Demand Savings During • Award-winning program to promote installation Peak Afternoon Window of advanced smart thermostats – reduces demand during peak load window 300-500 MW • Super off-peak electric vehicle cha
Slide 16: Customer Driven Initiatives Underway – A Few Examples
Customer Driven Initiatives Underway – A Few Examples Take Charge AZ Customer Advisory Board Energy Management • Pilot program to encourage • Gathers direct insight from • Demand response programs electric vehicle adoption by residential customers reward customers who shift installing charging stati
Slide 17: Leading ESG Practices Guide Our Approach – Snapshot
Leading ESG Practices Guide Our Approach – Snapshot Environmental Social Governance Achieved a CDP Leadership Diversity, equity and 45% of independent directors score in Water Security four inclusion strategy gender or ethnically diverse years in a row¹ 44% of new hires ethnically ESG Executive Coun
Slide 18: Coal Exit Strategy – Years Earlier than Originally Projected
Coal Exit Strategy – 7 Years Earlier than Originally Projected Navajo 315 MW 2019 Cholla 387 MW 2024 Remaining Four Corners 970 MW 20311 2018 2019 2025 2031 2038 Coal Free 1Four Cornerswill have the option to begin seasonal operation in Fall 2023 if deemed to be in the best interest of APS customers
Slide 19: Coal Exit and Expiring Purchase Contracts Will Create a 6,000 MW Supply-Demand Gap by 2035
Coal Exit and Expiring Purchase Contracts Will Create a 6,000 MW Supply-Demand Gap by 2035 Peak Capacity (MW) 12,000 10,000 6,000 MW¹ 8,000 Closing the gap Existing / Signed - opportunity Contracts 6,000 4,000 Existing Owned 2,000 Resources 0 2020 2023 2026 2029 2032 2035 ¹ Source of data: 2020 IRP.
Slide 20: Key New Energy Sources Keeping us Tracking to our Goals
Key New Energy Sources Keeping us Tracking to our Goals Initiatives • Solar generation • Wind generation • Gas as a bridge fuel • Demand-side management • Energy storage solutions • Innovation 20
Slide 21: Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story
T H E P I N N A CL E W EST ST O RY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 21
Slide 22: What Investors Can Expect From Us Moving Forward
What Investors Can Expect From Us Moving Forward 1 Strong EPS growth off 2022 Managing capital plan to support customer growth, reliability and 2 clean transition 3 Steady rate base growth 4 Limiting equity dilution 5 Declining O&M per MWh 6 Attractive dividend yield 7 Optimize our balance sheet in
Slide 23: Projected 5-7% EPS Growth Off 2022
Projected 5-7% EPS Growth Off 20221 Long-Term Outlook Long-Term Upside Potential Remainder of SCRs in rates Acceleration of clean energy transition 5-7% Economic Development driving sales EPS CAGR and customer growth Continued cost management Reduction of regulatory lag 1 Amounts provided are the Co
Slide 24: Managed capital plan to support customer growth, reliability, and clean transition
Managed capital plan to support customer growth, reliability, and clean transition $1.80B $1.85B $1.67B $245 $245 $1.53B $265 $226 $465 $520 Other Generation $360 $345 Clean Generation $260 $300 $300 $217 Transmission $520 $530 $530 Distribution $577 Other $167 $265 $260 $255 2022 2023E 2024E 2025E
Slide 25: Steady rate base growth
Steady rate base growth APS Rate Base Growth Guidance Total Approved Rate Base Year-End 5-7% ACC FERC Annual $15.2 $2.7 Rate Effective 12/01/2021 6/1/2022 $11.7 FERC Date $1.9 Test Year 06/30/20191 12/31/2021 Ended $12.5 Rate Base $8.6B $1.9B ACC $9.8 Equity Layer 54.7% 51.3% Allowed ROE 8.7% 10.75%
Slide 26: No plans to issue equity before end of next rate case
No plans to issue equity before end of next rate case Forecasted sources of capital to fund investments from 2022-2024 Approx. $400-$500 $300 million $5.0 billion Approx. million $1.25 billion PNW Equity/ PNW Debt2 Alternatives Approx. $3 billion APS Debt2 Cash from Total Capital Operations1 Investm
Slide 27: Our goal continues to be declining O&M (as adjusted) per MWh
Our goal continues to be declining O&M (as adjusted) per MWh O&M (as adjusted) per MWh $29.60/MWh Total O&M (as adjusted)1 2022: $892M 2023: $885M-$905M 2022 1 O&M a mounts, as adjusted, exclude RES/DSM a mounts of $95M i n 2022 a nd $110M-$120M i n 2023. Pl anned outage amounts i ncluded in O&M a r
Slide 28: Continue Our Track Record of Consistent Dividend Growth
Continue Our Track Record of Consistent Dividend Growth1 Indicated Annualized Dividend Dividend Targets • Long-term dividend growth $3.46 • Attractive dividend yield ~5% • Managing long term dividend CAGR payout ratio to 65-75% $2.18 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 1 Future di
Slide 29: Strong balance sheet with attractive long-term debt maturity profile
Strong balance sheet with attractive long-term debt maturity profile1 $M APS Long-Term Debt PNW Long-Term Debt $1,200 $1,000 $800 $600 $400 $200 $0 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 As of March 31, 2023 1 Does not i nclude debt at Bright Ca nyon Energy. 29
Slide 30: Credit Ratings Summary
Credit Ratings Summary Senior Corporate Unsecured Short-Term Ratings Ratings Ratings Outlook APS1 Balance Sheet Targets Moody’s A3 A3 P-2 Negative • Strong investment grade credit ratings S&P BBB+ BBB+ A-2 Negative • APS equity layer >50% Fitch BBB+ A- F2 Negative • FFO/Debt range of Pinnacle West1
Slide 31: 2022 APS Rate Case Application
2022 APS Rate Case Application 1 Overview of Rate Increase Request ($ in Millions) Key Components1 Rate Base Growth $130 12 Months Post Test Year Plant 140 Weighted Average Cost of Capital of 7.17% 78 1% Fair Value Increment 78 New Customer Programs, Coal Community 34 Transition and Other Total Reve
Slide 32: 2022 APS Rate Case Application
2022 APS Rate Case Application 1 Adjustment Mechanisms Overview • Eliminate the Environmental Improvement Surcharge and collect costs through base rates • Eliminate the Lost Fixed Cost Recovery Mechanism and collect costs through base rates and the Demand Side Management Adjustor Charge • Modify the
Slide 33: 2022 APS Rate Case Application
2022 APS Rate Case Application Key Financials Test year ended June 30, 2022 Total Rate Base - Adjusted $13.1 Billion ACC Rate Base - Adjusted $10.5 Billion Embedded Long-Term Cost of Debt 3.85% Allowed Return on Equity 10.25% Capital Structure Long-term debt 48.07% Common equity 51.93% Base Fuel Rat
Slide 34: 2022 APS Rate Case Procedural Schedule
2022 APS Rate Case Procedural Schedule1 Arizona Public Service Company Docket # E-01345A-22-0144 Application Filed October 28, 2022 Staff/Intervenor Direct Testimony Due June 5, 2023 Staff/Intervenor Direct Testimony (Rate Design) Due June 15, 2023 APS Rebuttal Testimony Due July 12, 2023 Staff/Inte
Slide 35: Regulatory 2023 key dates
Regulatory 2023 key dates1 ACC Key Dates / Docket # Q1 Q2 Q3 Q4 APS Rebuttal due Hearing to begin 2022 Rate Case: E-01345A-22-0144 July 12 August 10 2024 PSA Rate to Power Supply Adjustor (PSA) E-01345A-19-0236: Effective March 1 be filed Nov 30 Filed May 15; effective Transmission Cost Adjustor E-0
Slide 36: We are Optimistic for the Future: The Growth Story Remains Intact
I N SU MMA RY We are Optimistic for the Future: The Growth Story Remains Intact • Building on proven long-term performance track record • Working to improve regulatory environment over time • Service territory is among the fastest growing in the U.S. • Executing on clear growth strategy including tr
Slide 37: Appendix
PINNACLE WEST APPENDIX
Slide 38: Non-GAAP Measure Reconciliation
Non-GAAP Measure Reconciliation 2022 Actuals4 2023 Guidance4 Operating revenues1 $4.32 billion $4.43 - $4.52 billion Fuel and purchased power expenses1 $1.63 billion $1.64 - $1.67 billion Gross Margin $2.69 billion $2.79 - $2.85 billion Adjustments: Renewable energy and demand side management progra
Slide 39: ESG Leadership – Recognitions
ESG Leadership – Recognitions Training Magazine 2022 A- Score for 2023 Ranked as a Top Pinnacle West’s ESG Water Security Employee and Rating AA1 Forbes Best Employer in Development Organization Arizona Named to the annual ranking of the world’s 2022 Top 100 Green Utilities by 2021 US Women in Nucle
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