Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q4 2022 Earnings Presentation
34 slides from Pinnacle West Capital's earnings presentation, Feb 27, 2023
Slide 1: Fourth Quarter & Full Year 2022 Results
POWERING GROWTH DELIVERING VALUE Fourth Quarter & Full Year 2022 Results February 27, 2023 1
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: 4th Quarter negative prior rate case impacts partially offset by weather
4th Quarter negative prior rate case impacts partially offset by weather 4th Quarter 2022 vs. 4th Quarter 2021 D&A2 $(0.13) Pension & OPEB Non- O&M1 & 2 service Operating $(0.06) Revenue Other Taxes2 Credits, net less Fuel $0.02 $(0.02) Other, net2,5 and $(0.23) Purchased $0.24 Power1 Interest, net
Slide 4: 2022 full-year EPS primarily impacted by results of prior rate case
2022 full-year EPS primarily impacted by results of prior rate case Full Year 2022 vs. Full Year 2021 Pension & OPEB Non- O&M1 & 2 service Operating Other Taxes2 Credits, net $(0.22) Revenue $0.09 $(0.09) less Fuel and D&A2 $(0.68) Income Taxes4 Purchased Interest, net $(0.06) Power1 AFUDC $0.29 $(0
Slide 5: 2023 EPS guidance
2023 EPS guidance Key Factors and Assumptions as of February 27, 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% •
Slide 6: 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 7: 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 8: 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 9: Pension & Other Post Retirement Benefits (OPEB)
Pension & Other Post Retirement Benefits (“OPEB”) Pension Funded Status1 Components of Benefit Cost 2023E2 Service Cost + 107% Non-Service Costs/(Credit): 106% Interest Cost - Expected Return on Assets3 - 104% Amortization of Prior Service Costs = Amortization of Actuarial Losses/(Gains) - YE 2020 Y
Slide 10: 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/MWh Total O&M (as adjusted)1 2022: $892M 2023: $885M-$905M 1 O&M amounts, as adjusted, exclude RES/DSM amounts of $95M in 2022 and $115M-$125M in 2023. Planned outage amounts included in O&M are $43M in 2022
Slide 11: 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 12: 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 December 31, 2022 1 Does not include debt at Bright Canyon Energy. 12 F
Slide 13: We have executed on key deliverables in 2022
We have executed on key deliverables in 2022 ➢ Appeal last rate case decision ✓ Filed opening brief on April 27 ✓ Filed reply brief on July 27 ✓ Oral Arguments heard November 30 ➢ Make progress on financing plan ✓ Deferring equity issuance until after next rate case ✓ Issued new debt to meet financi
Slide 14: Appendix
PINNACLE WEST APPENDIX
Slide 15: Arizona remains among the fastest growing states in the U.S.
Arizona remains among the fastest growing states in the U.S. 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% 2.3% 3.5%-5.5% 2.2% 4% 4.2% 2
Slide 16: 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 • Williams- • Business attraction and expansion Semiconductor Sonoma Increased investment from Leased 1.2M s
Slide 17: 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 2,100 MW of clean energy and storage to be in service for APS customers by end of 2025 Issued All-Source RFP which seeks 1,000 – 1,500 MWs of resources, including up to 600 – 80
Slide 18: Clean Energy Commitment – ~2,100MW in development since 2020
Clean Energy Commitment – ~2,100MW 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 19: 2022 Planned Outage schedule
2022 Planned Outage schedule Coal, Nuclear and Large Gas Planned Outages Q1 Q2 Q4 Duration Duration in Plant Unit Plant Unit Duration in Days Plant Unit in Days Days N/A N/A N/A Palo Verde 1 35 Palo Verde 3 33 19 Fourth Quarter 2022
Slide 20: 2023 Planned Outage schedule
2023 Planned Outage schedule Coal, Nuclear and Large Gas Planned Outages Q2 Q4 Plant Unit Estimated Duration in Days Plant Unit Estimated Duration in Days Palo Verde 2 35 Palo Verde 1 35 Redhawk CC1 34 20 Fourth Quarter 2022
Slide 21: Gross margin effects of weather
Gross margin effects of weather $ in millions pretax Variances vs. Normal $26 $6 $4 $1 Q1 Q2 Q3 Q4 2022 $37 Million All periods recalculated to current 10-year rolling average (2011 – 2020). Numbers may not foot due to rounding. 21 Fourth Quarter 2022
Slide 22: Renewable Energy & Demand Side Management expenses
Renewable Energy & Demand Side Management expenses1 Demand Side Management Renewable Energy $18 $18 $13 $13 $11 $11 $12 $16 $13 $12 $10 $10 $11 $7 $6 $4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2021 2022 $89 Million $95 Million 1 Renewable energy and demand side management expenses are substantially offset by adjust
Slide 23: Residential PV applications
Residential PV applications1 Residential DG (MWdc) Annual Additions 201 5,000 169 122 139 4,500 2019 2020 2021 2022 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019 Applications 2020 Applications 2021 Applications 2022 Applications 1Monthly data eq
Slide 24: Credit Ratings Summary
Credit Ratings Summary Senior Corporate Unsecured Short-Term Ratings Ratings Ratings Outlook APS1 Balance Sheet Targets Moody’s A3 A3 P-2 Negative • Strong investment grade credit ratings S&P BBB+ BBB+ A-2 Negative • APS equity layer >50% Fitch BBB+ A- F2 Negative • FFO/Debt range of Pinnacle West1
Slide 25: 2022 APS Rate Case Application
2022 APS Rate Case Application 1 Overview of Rate Increase Request ($ 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 26: 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 27: 2022 APS Rate Case Application: Key Financials
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 28: 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 May 22, 2023 Staff/Intervenor Direct Testimony (Rate Design) Due June 5, 2023 APS Rebuttal Testimony Due June 28, 2023 Staff/Inter
Slide 29: Regulatory 2022 key dates
Regulatory 2022 key dates ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-19-0236 Effective Feb 1 Filed Nov 30 Approved May 18 and Lost Fixed Cost Recovery: E-01345A-22-0042 Filed Feb 15 effective June 1 Transmission Cost Adjustor: E-01345A-19-0236 Effective June 1 Approve
Slide 30: Regulatory 2023 key dates
Regulatory 2023 key dates1 ACC Key Dates / Docket # Q1 Q2 Q3 Q4 2019 Rate Case: E-01345A-19-0236 2022 Rate Case: E-01345A-22-0144 Hearing to Begin August 2 Power Supply Adjustor (PSA) E-01345A-19-0236: Effective March 1 To be filed May 15; Transmission Cost Adjustor E-01345A-19-0236: Effective June
Slide 31: Components and Key Drivers of Benefit Costs
Components and Key Drivers of Benefit Costs1 Service Cost (a cost that increases Benefit Cost): • When discount rates decrease Service Cost increases and Benefit Cost increases (and vice versa) • Not impacted by asset assumptions Interest Cost (a cost that increases Benefit Cost): • When discount ra
Slide 32: Non-GAAP Measure Reconciliation
Non-GAAP Measure Reconciliation 2023 Guidance3 Operating revenues1 $4.43 - $4.52 billion Fuel and purchased power expenses1 $1.64 - $1.67 billion Gross Margin $2.79 - $2.85 billion Adjustments: Renewable energy and demand side management programs2 $115 - $125 million Adjusted gross margin $2.67 - $2
Slide 33: Consolidated statistics
Consolidated statistics1 3 Months Ended December 31, 12 Months Ended December 31, 2022 2021 Incr (Decr) 2022 2021 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 398 $ 359 39 $ 2,046 $ 1,913 $ 133 Business 397 370 27 1,768 1,587 181 Total Retail 796 729 66 3,814 3,
Slide 34: Consolidated statistics
Consolidated statistics 3 Months Ended December 31, 12 Months Ended December 31, 2022 2021 Incr (Decr) 2022 2021 Incr (Decr) ENERGY SOURCES (GWH) 3 Months Ended June 30 Generation Production Nuclear 2,212 2,178 34 9,332 9,204 128 Coal 2,578 1,932 645 8,830 6,816 2,014 Gas, Oil and Other 2,319 1,942
Pinnacle West Capital — Q4 2022 Earnings Presentation on 6ix