Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Presentation (January 2022)
40 slides from Pinnacle West Capital's investor presentation, Jan 24, 2022
Slide 1: Investor Presentation January 2022
Investor Presentation January 2022
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
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile Rate Case Results Growth Outlook Customer Initiatives Financial Outlook - Solid Foundation - A Reset Remains Strong and ESG Leadership - Sets Clear Expectations 3
Slide 4: Arizona's Largest Electric Company
AT A G L A N C E Arizona’s Largest Electric Company Service Territory1 Key Facts as of Dec. 31, 2020 Consolidated assets $20B Arizona Revenues $3.6B Market cap ~$9B Generating capacity owned or leased – year end ~6.3 GW Customers 1.3M Current % from clean energy ~50% Nuclear plant in U.S. Largest 1
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% 16% Gas 28% Residential Purchased 50% 8% Renewable Commercial 11% & Industrial 49% Coal 14% Nuclear 23% 1 As of December 31, 2020. 5
Slide 6: The Pinnacle West Story: Rate Case Results
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile Rate Case Results Growth Outlook Customer Initiatives Financial Outlook - Solid Foundation - A Reset Remains Strong and ESG Leadership - Sets Clear Expectations 6
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: The Pinnacle West Story: Growth Outlook
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile Rate Case Results Growth Outlook Customer Initiatives Financial Outlook - Solid Foundation - A Reset Remains Strong and ESG Leadership - Sets Clear Expectations 9
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
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
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
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: 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 15: 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 • Business attraction and expansion Constructing 3 new mega data centers • Community development • Taiwa
Slide 16: We Will Pursue Improvements in the Regulatory Environment
REASON #4 We Will Pursue Improvements in the Regulatory Environment ✓ Appealing last rate case to clarify the prudency standard in Arizona ✓ 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 c
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: The Pinnacle West Story: Customer Initiatives
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile Rate Case Results Growth Outlook Customer Initiatives Financial Outlook - Solid Foundation - A Reset Remains Strong and ESG Leadership - Sets Clear Expectations 18
Slide 19: Bringing the Residential Customer into the Advanced Economy
E X A M P L E O F I N N O VAT I O N I N N I T I AT I V E 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 loa
Slide 20: Customer Driven Initiatives Underway – A Few Examples
Customer Driven Initiatives Underway – A Few Examples Take Charge AZ Customer Advisory Board Energy Efficiency • Pilot program to encourage • Gathers direct insight from • Demand response programs electric vehicle adoption by residential customers to reward shift of energy installing charging statio
Slide 21: Pilot Project Exploring Hydrogen for Long Duration Storage
E X A M P L E O F I N N O VAT I O N I N N I T I AT I V E Pilot Project Exploring Hydrogen as Potential Solution for Long Duration Storage Profile of Project Possible Scenario for Palo Verde Nuclear Plant Collaborators • Palo Verde nuclear plant and Idaho National Power from Laboratory storage to gri
Slide 22: Leading ESG Practices Guide Our Approach – Snapshot
Leading ESG Practices Guide Our Approach – Snapshot Environmental Social Governance One of two North American Top quartile employee 30% of independent directors electric utility to achieve safety gender or ethnically diverse CDP Leadership scores for Water and Climate¹ 36% of new hires ethnically ES
Slide 23: Coal Exit Strategy – 7 Years Earlier than Originally Projected
Coal Exit Strategy – 7 Years Earlier than Originally Projected Navajo 315 MW (now retired) Cholla 387 MW 2025 Remaining Four Corners 970 MW 20311 2018 2019 2025 2031 2038 Coal Free 1Starting in 2023 and subject to the necessary approvals, Four Corners will move to a seasonal operating schedule that
Slide 24: Coal Exit and Expiring Purchase Contracts Will Create a 6,000 MW Gap
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 Will need more additions
Slide 25: Key New Energy Sources to Achieve Goals
Key New Energy Sources to Achieve Goals Initiatives Resource Mix Change Today 2035 • Solar generation Coal 14% 0% • Wind generation Gas 28% 6%-17% • Gas as a bridge fuel • Demand-side management Nuclear 23% 16% • Energy storage solutions Purchased 8% 11% • Innovation Renewable/ 27% 56%-67% DSM 25
Slide 26: The Pinnacle West Story: Financial Outlook
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile Rate Case Results Growth Outlook Customer Initiatives Financial Outlook - Solid Foundation - A Reset Remains Strong and ESG Leadership - Sets Clear Expectations 26
Slide 27: 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 28: 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 29: 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 30: 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 31: 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 ACC FERC ~5-6% Annual Rate Effective 12/01/2021 6/1/2021 $13.6 Date 21% $2.4 FERC $10.3 $10.9 Test Year Ended 06/30/20191 12/31/2020 $1.8 $1.7 Rate Base $8.6B $1.8B $11.2 ACC Equity Layer
Slide 32: 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 Sources of Capital to Fund Investments 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 Opera
Slide 33: Our Goal is Flat Total O&M and Declining O&M per MWh
E X P E C TAT I O N # 5 Our Goal is Flat Total O&M and Declining O&M per MWh O&M per MWh $29/MWh 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. 33
Slide 34: 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 35: 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 35
Slide 36: 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 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
Slide 37: 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 37
Slide 38: 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 39: Appendix
PINNACLE WEST APPENDIX
Slide 40: ESG Leadership – 2021 Recognitions
ESG Leadership – 2021 Recognitions Training Magazine A- Score for Climate MSCI Upgrades 2021 Top 100 Learning Change and Water Pinnacle West’s ESG and Development 2021 Inclusive Security Rating to AA1 Organization Workplace Award Named to the annual ranking of the world’s Top 100 Green Utilities by
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