Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — EEI Financial Conference 2019
46 slides from Pinnacle West Capital's conference presentation, Nov 8, 2019
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings November 10-12, 2019
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS This presentation contains forward-looking statements based on current expectations, including statements regarding our earnings guidance and financial outlook and goals. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “
Slide 3: Pinnacle West: Who We Are
PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility in the growing Southwest United States Our Business Our Energy Resources Pinnacle West operates Arizona Public Service Company (“APS”), our principal subsidiary $18B Consolidated Arizona’s largest and longest-servin
Slide 4: Building a Sustainable Future
BUILDING A SUSTAINABLE FUTURE We are working to meet business needs with practices that balance a healthy environment, a vibrant economy and strong communities for future generations Clean Affordable Providing an energy mix that is already 50% clean Delivering affordable energy for the benefit of 1.
Slide 5: Coal Exit Strategy
COAL EXIT STRATEGY Plan to reduce carbon intensity by 23% Navajo over the next 15 years 315 MW by end of 2019 Cholla 387 MW by 2025 Remaining 970 MW by 2038 Coal Free 2018 2019 2025 2038 • We have a long history of transitioning to clean energy resources that reduce carbon emissions • Since 2005, ba
Slide 6: Carbon Avoidance and Emission Reductions
CARBON AVOIDANCE AND EMISSION REDUCTIONS APS surpassed the Paris Agreement greenhouse gas reduction goal 9 years early Carbon Avoidance Metric • Measures Companywide carbon reduction, Cumulative Carbon Avoidance not just generation 20 (Million Metric Tons) Carbon Avoidance Opportunities 18.1 15 CO2
Slide 7: Delivering Shareholder Value
DELIVERING SHAREHOLDER VALUE In 2019, Pinnacle West increased its dividend by ~6%, representing the 8th straight year of increases1 Annual Growth Goal of 6% $3.13 $2.95 $2.78 $2.62 $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 2018 2019 1 Future dividends subject to declaration at
Slide 8: Delivering on Our Commitment to Customer Affordability
DELIVERING ON OUR COMMITMENT TO CUSTOMER AFFORDABILITY 2018 - July 2019 Adjustments to Residential Bills 6.48% $144.42 4/1/19 - TEAM I Since 2018, changes to adjustors Credit from federal tax reform have lowered the average $148.89 $141.33 $154.02 4/1/18 - EIS customer’s bill $9.71 4/1/19 - EIS 2/1/
Slide 9: Renewable Resources
RENEWABLE RESOURCES APS Solar Portfolio* APS currently has 1,795 MW* Owned PPA of renewable resources: 239 MW 310 MW • Solar 1,479 MW • Wind 289 MW DG 930 MW • Biomass 14 MW • Geothermal 10 MW • Biogas 3 MW Owned solar includes 170 MW AZ Sun Program, 24 MW of APS owned Distributed Generation (DG), 4
Slide 10: Preliminary IRP
Preliminary IRP We expect a 54% clean energy mix with more than 20% of generation coming from renewable resources by 2022 APS Resource Needs Increasing Clean Energy Resources • Up to 150MW of APS-owned solar to be in service by 2021 • Up to 250MW of wind resources in service no later than 2022 Enhan
Slide 11: What's Next
WHAT’S NEXT Take Charge AZ Pilot Program • EV charging equipment, installation and maintenance for business customers, government agencies and multifamily housing communities • Participants pay for energy costs to charge • We encourage charging during daytime off- peak hours when solar energy is abu
Slide 12: Economic Development
ECONOMIC DEVELOPMENT Arizona’s focus on economic development continues to support growth in the state 2019 – New companies moving into APS’s service territory include: • Microsoft – constructing three world-class data centers • Nike – multimillion-dollar manufacturing facility employing at least 500
Slide 13: Economic Indicators
ECONOMIC INDICATORS Year over Year Employment Growth U.S. Phoenix Maricopa County ranked #1 in U.S. for 5% population growth for third straight year 1 4% 3% 2% Arizona is ranked No. 1 in construction 1% growth and No. 2 in manufacturing.2 0% Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Ph
Slide 14: Appendix
APPENDIX
Slide 15: Senior Management Team
SENIOR MANAGEMENT TEAM Our management team has more than 100 combined years of creating shareholder value in the energy industry Don Brandt (Retiring on November 15th) Jim Hatfield Chairman of the Board, President and Executive Vice President and Chief Executive Officer, Pinnacle West and Chief Fina
Slide 16: 2019 EPS Guidance
2019 EPS GUIDANCE Key Factors & Assumptions as of November 7, 2019 2019 Adjusted gross margin1,2 (operating revenues, net of fuel and $2.32 – $2.39 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% higher compa
Slide 17: 2020 EPS Guidance
2020 EPS GUIDANCE Key Factors & Assumptions as of November 7, 2019 2020 Adjusted gross margin1,2 (operating revenues, net of fuel and $2.48 – $2.54 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 1-2% higher compare
Slide 18: Financial Outlook
FINANCIAL OUTLOOK Key Factors & Assumptions as of November 7, 2019 Gross Margin – Customer and Sales Growth (2019-2021) Assumption Impact Retail customer growth • Expected to average about 1.5-2.5% annually • Strength in Arizona and U.S. economic conditions Weather-normalized retail electricity sale
Slide 19: Year-over-Year EPS Growth
2011 – 2018 Reported EPS Four Corners Step Increase Approved 15% 2017 Rate Increase • Due to our single-state 12-23-14 Effective 8-19-17 jurisdiction with a historical test Year-over-Year EPS Growth 10% year, our earnings growth is non- linear 5% • Earnings growth has historically been stronger imme
Slide 20: APS Capital Expenditures
APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and utilization of advanced technology $ in millions $1,600 PROJECTED $1,472 $1,400 $1,331 $118 $1,237 $53 $1,202 $137 $1,200 $47 $156 $187 $16 $29 Traditional Generation $267 $521 1 $1,000 New Gas Generation $112 $
Slide 21: Distribution Grid Investments
DISTRIBUTION GRID INVESTMENTS Grid Operations and Investment Projected to be approximately $1.5 billion from 2019-2021 Customer Growth Grid Modernization Run and Maintain Approximately 50% of distribution capex Approximately 9% of distribution capex Approximately 41% of distribution capex Line Exten
Slide 22: Operations & Maintenance
OPERATIONS & MAINTENANCE Goal is to keep O&M per kwh flat, adjusted for planned outages $ in millions $933 $858 74 $855 - 875 $830 - $850 63 50 - 60 40 - 50 859 795 805 - 815 790 - 800 2017 2018 2019E 2020E PNW Consolidated ex RES/DSM 1 Planned Fleet Outages 1 Excludes RES/DSM of $91 million in 2017
Slide 23: 2019 Planned Outage Schedule
2019 PLANNED OUTAGE SCHEDULE Coal, Nuclear, and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in Days Days in Days Four Corners 4 21 Palo Verde 1 33 Palo Verde 3 44 Four 5 21 Cholla* 1 50 Corners Cholla* 1 37 Redhawk*
Slide 24: 2020 Planned Outage Schedule
2020 PLANNED OUTAGE SCHEDULE Coal, Nuclear, and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in Days Days in Days Four Four Corners* 5 46 Corners* 5 30 Palo Verde 1 44 Palo Verde 2 30 *Outage duration spans Q1-Q2. Num
Slide 25: Rate Base
RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End Generation & Distribution Transmission ACC FERC Long-term Rate Base Guidance: 19% 6-7% Average Annual Growth $2.1 81% $1.6 ACC FERC $1.5 Rate Ef
Slide 26: Balance Sheet Strength
BALANCE SHEET STRENGTH Near-Term Long-Term Debt Maturities 2019 Major Financing Activities $ in millions • $200 million 18-month APS unsecured $1,000 term loan entered into in February 2019 • $300 million 30-year 4.25% APS senior $800 unsecured notes issued February 2019 $450 • $300 million 10-year
Slide 27: 2019 APS Rate Case Application
2019 APS RATE CASE APPLICATION Filed October 31, 2019 Docket Number: E-01345A-19-0236 Additional details, including filing, can be found at http://www.pinnaclewest.com/investors Adjustor Changes and New Mechanisms Overview Formula Rate - Proposed as an alternative to existing adjustor mechanisms Def
Slide 28: 2019 Rate Case Key Financials
2019 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective December 1, 2020 Test year ended June 30, 2019 Total Rate Base - Adjusted $11.12 Billion ACC Rate Base - Adjusted $8.87 Billion Allowed Return on Equity 10.15% Capital Structure Long-term debt 45.3% Common equity 54.
Slide 29: 2019 Rate Case Key Financials
2019 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective December 1, 2020 Overview of Rate Increase ($ in Millions) - Key Components Four Corners SCRs $ 73 Ocotillo Modernization Project 100 Post-Test Year Plant Additions 66 Net Change in Other Items 64 Tax Expense Adjusto
Slide 30: Arizona Utilities General Rate Cases
ARIZONA UTILITIES GENERAL RATE CASES Tucson Electric Power Company (417,000 customers) Southwest Gas (1.1M customers in AZ) Docket # E-01933A-19-0028 Docket # G-01551A-19-0055 Application Filed April 1, 2019 Application Filed May 1, 2019 Staff/Intervenor Direct Testimony (Revenue) (Oct 11, 2019) Sta
Slide 31: Residential PV Applications
RESIDENTIAL PV APPLICATIONS1 Residential DG (MWdc) Annual Additions 151 133 133 4,000 87 57 74 3,500 2014 2015 2016 2017 2018 2019 YTD 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 Applications 2017 Applications 2018 Applications 2019 Applications 1 Monthly
Slide 32: The Duck Curve
THE “DUCK CURVE” Non-curtailable rooftop solar is changing the load shape of the grid MW 5,000 Meeting Evening Peak 4,500 4,000 • The mid-day dip in load disappears Load before once the sun sets 3,500 renewables • This causes a steep ramp in 3,000 demand heading into the evening peak 2,500 Load afte
Slide 33: Tax Reform
TAX REFORM ACC – TAX EXPENSE ADJUSTOR MECHANISM: • PHASE I: The ACC approved $119 million annual rate reduction reflecting the lower federal tax rate. Effective for the March 2018 billing cycle. • PHASE II: The ACC approved an additional $86.5 million rate reduction to return the unprotected “excess
Slide 34: Credit Ratings and Metrics
CREDIT RATINGS AND METRICS APS Pinnacle West 2016 2017 2018 Corporate Credit Ratings1 APS FFO / Debt 27.4% 29.4% 24.5% Moody’s A2 A3 FFO / Interest 6.9x 7.5x 6.5x S&P A- A- Debt / 47.3% 46.8% 47.0% Fitch A- A- Capitalization Pinnacle West Senior Unsecured1 FFO / Debt 26.3% 26.4% 22.1% Moody’s A2 A3
Slide 35: Ocotillo Modernization Project & Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT & FOUR CORNERS SCRs • Included in the 2017 Rate Review Order1, APS has been granted Accounting Deferral Orders for two large generation-related capital investments – Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and replacing with
Slide 36: Four Corners SCR Step Increase
FOUR CORNERS SCR STEP INCREASE The Administrative Law Judge issued a Recommended Opinion and Order on November 27, 20181 Key Components of APS’s Filed Request Financial Cost of Capital Bill Impact 2019 Full-Year EPS Impact3 • Consistent with prior • 7.85% Return on Rate Base2 • Rate rider applied as
Slide 37: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2023 Terms to January 2021 Sandra Justin Robert Boyd Lea Márquez Kennedy (D) Olson (R) “Bob” Dunn (R) Peterson Burns (R)* (R)** Chairman Other State Officials ACC Executive Director – Matthew Neubert RUCO Director – Jorge “Jordy” Fuentes *Term limited
Slide 38: 2019 Key Dates
2019 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-16-0036 Implemented: Feb 1 2018 LFCR approved 2019 Lost Fixed Cost Recovery: E-01345A-16-0036 2019 LFCR approved LFCR Filed: Feb 15 Filed: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Implementation: Jun
Slide 39: Regulatory Mechanisms
REGULATORY MECHANISMS We have achieved a supportive regulatory structure and improvements in cost recovery timing Adopted / Mechanism Description Last Adjusted Power Supply Adjustor April 2005 / • Recovers variance between actual fuel and purchased power costs and (“PSA”) February 2019 base fuel rat
Slide 40: Regulatory Mechanisms (TCA)
REGULATORY MECHANISMS (TCA) We have achieved constructive transmission rate treatment with annual adjustments • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and projected closings • Update filed each May • Annual rate true-up compares projecte
Slide 41: Regulatory Mechanisms (TCA)
REGULATORY MECHANISMS (TCA) We have achieved constructive transmission rate treatment with annual adjustments 2018 2019 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2017 Rates 2018 Rates (Including True-Up) (Including True-Up) 2018 Revenue 2019 Reve
Slide 42: Regulatory Mechanisms (LFCR)
REGULATORY MECHANISMS (LFCR) • Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2012 settlement • Estimated to offset 30-40% of revenues lost due to ACC-mandated energy efficiency (EE) and distributed renewable generation (DG) initiatives • Subject to an annual 1% year-over-year c
Slide 43: APS Transmission
APS TRANSMISSION Strategic transmission investment is essential to maintain reliability and deliver diversified resources to customers APS TRANSMISSION PLANS • 10-Year Transmission Supplemental Plan filed June 2019 (115 kV and above) TO CRYSTAL NAVAJO • 25 miles of new 230kV transmission lines FOUR
Slide 44: Generation Portfolio
GENERATION PORTFOLIO Plant Location No. of Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 2 Base 1962-1980 100 387 COAL Four Corners Farmington, NM 2 Base 1969-1970 63 970 1,672 MW Navajo Page,
Slide 45: Purchased Power Contracts
PURCHASED POWER CONTRACTS Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (MW) Solana Gila Bend, AZ Abengoa IO Feb-2008 2013 30 250 RE Ajo Ajo, AZ Duke Energy Gen Svcs IO Jan-2010 2011 25 5 SOLAR Sun E AZ 1 Prescott, AZ SunEdison IO Feb-2010 2011 30 10 310 MW Saddl
Slide 46: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Stefanie Layton Director, Investor Relations (602) 250-4541 stefanie.layton@pinnaclewest.com Michelle Clemente (602) 250-3752 michelle.clemente@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 Phoenix, Arizona 85072-3999 Visit us online
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