Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2021 Earnings Presentation
44 slides from Pinnacle West Capital's earnings presentation, Nov 5, 2021
Slide 1: Reset, Recalibration, Renewed Growth
Reset, Recalibration, Renewed Growth Third Quarter 2021 Results and Future Outlook November 5, 2021
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: The Pinnacle West Story: Navigating Short-Term Challenges
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Third Quarter Earnings Rate Case Results Growth Outlook Financial Outlook and 2021 Update – A Reset Remains Strong – Sets Clear Expectations 3 Third Quarter 2021
Slide 4: Third Quarter EPS Driven by Mild Weather Offset by Higher Sales & Usage
Third Quarter EPS Driven by Mild Weather Offset by Higher Sales & Usage 3rd Quarter 2021 vs. 3rd Quarter 2020 $3.07 $(0.14) $0.03 $(0.07) $(0.02) $0.09 $0.01 $0.01 $3.00 $0.02 Operating O&M1 & 2 Other, net2 Effective D&A2 Other Interest, Pension Tax Rate Revenue less Taxes2 net of & OPEB Fuel and AF
Slide 5: 2021 Key Drivers In Line with Expectations and EPS Guidance
2021 Key Drivers In Line with Expectations and EPS Guidance As of November 5, 2021 2021 Key Drivers • Retail customer growth about 1.5%- • Property tax 2.5% • Interest on new debt • Weather-normalized retail electricity • AFUDC sales growth of 3.0%-4.0% • Pension & OPEB • Transmission revenues • Ope
Slide 6: Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Third Quarter Earnings Rate Case Results Growth Outlook Financial Outlook as Expected – A Reset Remains Strong – Sets Clear Expectations 6 Third Quarter 2021
Slide 7: An Anomaly of a Rate Case, Unique in Many Ways
An Anomaly of a Rate Case, Unique in Many Ways ● Compelled by the ACC to file this rate case ● Required to fully litigate with more than 50 parties over 2 years ● One of the primary components of this rate case request was for environmentally mandated investments in a legacy coal plant ● Case carrie
Slide 8: Rate Case Outcome Disappointing, but Clarifies the Path Forward
Rate Case Outcome Disappointing, but Clarifies the Path Forward APS (Rebuttal) ALJ (ROO) ACC Resolution Total Revenue Change $169 $3.6 $(4.8) (Base Rate and Adjustors) ($MM) 5.1% 0.1% (0.1)% Base Rate Increase/Decrease ($MM) $41 $(111.4) $(119.8) ROE 10.00% 9.16% 8.70% Return on Fair Value Increment
Slide 9: Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Third Quarter Earnings Rate Case Results Growth Outlook Financial Outlook as Expected – A Reset Remains Strong – Sets Clear Expectations 9 Third Quarter 2021
Slide 10: Why We Are Optimistic About the Future
Why We Are Optimistic About the Future Key Reasons 1 Solid long-term performance record Robust economic growth in Arizona 2 and our service territory 3 A clear plan for a clean energy transition Ability to navigate the regulatory 4 environment over time 5 Strong commitment to execute strategy 10 Thi
Slide 11: Last 10 Years: Strong Performance Track Record
REASON #1 Last 10 Years: Strong Performance Track Record EPS and Annualized Dividends Per Share $4.87 Earnings per share 5% CAGR $3.32 $3.09 Dividends per share $2.10 5% CAGR 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 11 Third Quarter 2021
Slide 12: Record of Delivering On Our Promise to Provide Affordable Energy
REASON #1 Record of Delivering On Our Promise to Provide Affordable Energy Increase in Residential Electricity Decrease in Average Residential Demand (MWH) Customer Bill Jan. 2018 to Dec. 2020 +6.0% -7.7% Jan. 2018 to Dec. 2020 12 Third Quarter 2021
Slide 13: Arizona Remains Among the Fastest Growing States in the U.S.
REASON #2 Arizona Remains Among the Fastest Growing States in the U.S. Annual Employment Growth Last Three Years1 Steady Housing Growth2,3 Single Family & Multifamily Housing Permits Maricopa County 43,000 1% 18% (1)% CAGR 8,425 National Arizona '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 1 2018-202
Slide 14: Best-in-Class Service Territory Supports High Tech Growth and Economic Development
REASON #2 Best-in-Class Service Territory Supports High Tech Growth and Economic Development Our Approach: Supports Influx of Tech Focus on Four Main Areas and Data Centers – Examples • Microsoft Constructing 3 new mega data centers • Business attraction and expansion • Taiwan Semiconductor • Commun
Slide 15: A Clear Plan for Clean Energy Transition
REASON #3 A Clear Plan for Clean Energy Transition Progress Towards Meeting Clean Energy Commitment1 Announced seasonal operations of Four Corners beginning 2023 Procured nearly 1400 MWs of clean energy and storage to be in service for APS customers by 2024 Charted course for healthy mix of APS-owne
Slide 16: We Will Pursue Improvements in the Regulatory Environment
REASON #4 We Will Pursue Improvements in the Regulatory Environment ✓ Filing a new rate case to reduce regulatory lag and improve the ROE ✓ Work with stakeholders on common issues including reducing regulatory lag and improving customer experience ✓ Continue to find alignment with the regulators ✓ F
Slide 17: We Have Embraced a Customer-Centric Strategy
REASON #5 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 growin
Slide 18: Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Third Quarter Earnings Rate Case Results Growth Outlook Financial Outlook as Expected – A Reset Remains Strong – Sets Clear Expectations 18 Third Quarter 2021
Slide 19: 2022 EPS Driven by Disappointing Rate Case Outcome & Other Factors
2022 EPS Driven by Disappointing Rate Case Outcome & Other Factors1 Projected 2022 vs. Projected 2021 $5.30 $(0.90) $0.18 $(0.30) $(0.20) Net effect of O&M & $(0.18) 2019 Rate Other Growth in $3.90 Depreciable Interest, Case Decision net of Pension Plant & OPEB on Income1 AFUDC Non-service Credits,
Slide 20: 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 kWh 6 Dividend growth commitment 7 Optimize our balance sheet in
Slide 21: Projected 5-7% EPS Growth Off 2022
E X P E C TAT I O N # 1 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 Amo
Slide 22: Managing Capital Plan to Support Customer Growth, Reliability and Clean Transition
E X P E C TAT I O N # 2 Managing Capital Plan to Support Customer Growth, Reliability and Clean Transition $1.65B $1.50B $1.53B $1.53B $190 $210 $250 $270 Traditional Generation $257 $560 $340 $330 Clean Generation $240 $250 $210 $210 Transmission $602 Distribution $510 $530 $500 Other $191 $175 $18
Slide 23: Steady Rate Base Growth
E X P E C TAT I O N # 3 Steady Rate Base Growth APS Rate Base Growth Guidance Total Approved Rate Base Year-End ~5-6% Annual $13.6 Generation & Transmission 79% 21% $2.4 FERC Distribution $10.3 $10.9 $1.8 $1.7 ACC FERC $11.2 ACC $8.6 $9.1 Rate Effective Date 12/01/2021 6/1/2021 Test Year Ended 06/30
Slide 24: No Plans to Issue Equity Before End of Next Rate Case
E X P E C TAT I O N # 4 No Plans to Issue Equity Before End of Next Rate Case Forecasted Source of Capital Investment Funds through 2024 $400-$500 $200-$300 million $4.7 billion Approx. million $1 billion PNW Equity/ PNW Debt Approx. Alternatives $3 billion APS Debt Cash from Total Capital Operation
Slide 25: Our Goal is Flat Total O&M and Declining O&M per kWh
E X P E C TAT I O N # 5 Our Goal is Flat Total O&M and Declining O&M per kWh O&M per kWh $29/kWh Total O&M1 2021: $845M-$865M 2022: $820M-$840M 2021 2022 2023 2024 1 Total O&M amounts exclude RES/DSM, and include planned outage amounts of $45M-55M in 2021 and $40M-$50M in 2022. 25 Third Quarter 2021
Slide 26: Continue Our Track Record of Consistent Dividend Growth
E X P E C TAT I O N # 6 Continue Our Track Record of Consistent Dividend Growth1 Indicated Annualized Dividend Dividend Targets $3.40 • Committed to long-term dividend growth 5% CAGR • Attractive dividend yield • Managing long term dividend payout ratio to 65-75% $2.10 2011 2012 2013 2014 2015 2016
Slide 27: Strong Balance Sheet with Attractive Long-Term Debt Maturity Profile
E X P E C TAT I O N # 7 Strong Balance Sheet with Attractive Long-Term Debt Maturity Profile $M APS Long-Term Debt PNW Long-Term Debt $1,200 $1,000 $800 $600 $400 $200 $0 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 As of September 30, 2021 27 Third Quarter 2021
Slide 28: Our Credit Ratings Support Growth Opportunities
E X P E C TAT I O N # 7 Our Credit Ratings Support Growth Opportunities Senior Corporate Unsecured Short-Term Ratings Ratings Ratings Outlook APS1 Balance Sheet Targets Review for • Strong investment Moody’s A2 A2 P-1 grade credit ratings Downgrade CreditWatch • APS equity layer S&P A- A- A-2 >50% N
Slide 29: Attractive Financial Profile Beyond 2022
Attractive Financial Profile Beyond 20221 Management Actions EPS Growth Dividend Yield • Deferring equity 5-7% 5% Target Committed to issuance growing dividend • Reducing O&M • Optimizing balance Total Shareholder Return sheet 10-12% 1 Amounts provided are the Company’s current projections 29 Third
Slide 30: We are Optimistic for the Future: The Growth Story Remains Intact
IN SUMMARY We are Optimistic for the Future: The Growth Story Remains Intact • Building on proven long-term, 10-year 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 transiti
Slide 31: Q&A Thank You
Q&A Thank You 31 Third Quarter 2021
Slide 32: Appendix
PINNACLE WEST APPENDIX
Slide 33: 2021 EPS Guidance
2021 EPS Guidance Key Factors and Assumptions as of November 5, 2021 2021 Adjusted gross margin (operating revenues, net of fuel and purchased power expenses, x/RES,DSM,CCT) $2.52 – $2.54 billion • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 3-4%
Slide 34: 2022 EPS Guidance
2022 EPS Guidance Key Factors and Assumptions as of November 5, 2021 2022 Adjusted gross margin (operating revenues, net of fuel and $2.50 – $2.53 billion purchased power expenses, x/RES,DSM,CCT) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 1.5-2
Slide 35: Ocotillo and Four Corners Deferral Impacts Summary
Ocotillo and Four Corners Deferral Impacts Summary Ocotillo and SCR Cost Deferrals $ in Millions Q3 2021 Q3 2020 Operating Cost Deferral Impacts: Depreciation and Amortization $6 $7 Operations and Maintenance $(1) $(4) Taxes Other Than Income Taxes $(3) $(3) Debt Return Deferral Impacts: Interest Ch
Slide 36: Clean Energy Commitment – 1,384MW in development since 2020
Clean Energy Commitment – 1,384MW in development since 2020 Robust, Diverse Procurement Activity Energy Storage • 201 MW APS-owned resources to retrofit entire fleet of AZ Sun facilities • 300 MW under two long-term PPAs • All resources to be in service between 2022 and 2024 Solar • 150 MW owned by
Slide 37: 2021 Planned Outage Schedule
2021 Planned Outage Schedule Coal, Nuclear and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Plant Unit Duration in Duration in Days in Days Days Four Four 4 47 4 56 Palo Verde 2 30 Corners* Corners* Palo Verde 3 38 *Outage duration spans Q1-Q2. Numb
Slide 38: 2022 Planned Outage Schedule
2022 Planned Outage Schedule Coal, Nuclear and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Plant Unit Duration in Duration in Days in Days Days N/A N/A N/A Palo Verde 1 30 Palo Verde 3 30 38 Third Quarter 2021
Slide 39: Gross Margin Effects of Weather
Gross Margin Effects of Weather $ in millions pretax Variances vs. Normal 33 4 (25) Q1 Q2 Q3 Q4 2021 $13 Million All periods recalculated to current 10-year rolling average (2009 – 2018). Numbers may not foot due to rounding. 39 Third Quarter 2021
Slide 40: Renewable Energy & Demand Side Management Expenses
Renewable Energy & Demand Side Management Expenses1 Demand Side Management Renewable Energy $18 $11 $11 $14 $11 $12 $12 $9 $10 $7 $6 $7 $6 $3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2020 2021 $73 Million $64 Million 1 Renewable energy and demand side management expenses are offset by adjustment mechanisms. 40 Third Qu
Slide 41: Residential PV Applications
Residential PV Applications1 Residential DG (MWdc) Annual Additions 139 133 5,000 124 122 4,500 2018 2019 2020 2021 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 Applications 2019 Applications 2020 Applications 2021 Applications 1Monthly data eq
Slide 42: Regulatory 2021 Key Dates
Regulatory 2021 Key Dates ACC Key Dates / Docket # Q1 Q2 Q3 Q4 50% Approved Power Supply Adjustor (PSA): E-01345A-16-0036 50% Effective April 1 Effective March 24 November 1 Increase denied Lost Fixed Cost Recovery: E-01345A-16-0036 Filed Feb 15 April 13 Filed May 15 Transmission Cost Adjustor: E-01
Slide 43: Consolidated Statistics
Consolidated Statistics 3 Months Ended September 30, 9 Months Ended September 30, 2021 2020 Incr (Decr) 2021 2020 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 682 $ 726 (44) $ 1,554 $ 1,566 $ (12) Business 481 461 20 1,216 1,146 71 Total Retail 1,163 3 Months En
Slide 44: Consolidated Statistics
Consolidated Statistics 3 Months Ended September 30, 9 Months Ended September 30, 2021 2020 Incr (Decr) 2021 2020 Incr (Decr) ENERGY SOURCES (GWH) 3 Months Ended June 30 Generation Produc tion Nuc lear 2,488 2,531 (42) 7,026 7,153 (127) Coal 2,353 2,354 (1) 4,898 5,011 (113) Gas, Oil and Other 3,096
Pinnacle West Capital — Q3 2021 Earnings Presentation on 6ix