Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — UBS European Round Robin Virtual Investor Meetings 2020
37 slides from Pinnacle West Capital's conference presentation, Mar 31, 2020
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings March 31 – April 1, 2020
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 -servi
Slide 4: Senior Management Team
SENIOR MANAGEMENT TEAM We maintain a robust pipeline of talent to serve our complex operations and facilitate effective succession planning in a highly competitive talent environment Jeff Guldner Jim Hatfield Chairman of the Board, President and Executive Vice President, Chief Administrative “We hav
Slide 5: A Strategy to Drive Value
A STRATEGY TO DRIVE VALUE The APS Strategic Business Plan is anchored by four themes The Core is the foundation for our that align with industry trends shaping our future and the strategic and business initiatives way we do business Clean Affordable 100% clean, carbon-free Deliver affordable ene
Slide 6: Future Focus: Clean Energy Plan
FUTURE FOCUS: CLEAN ENERGY PLAN Powering Growth, Delivering Value | 6
Slide 7: Future Focus: Clean Energy Plan
FUTURE FOCUS: CLEAN ENERGY PLAN Powering Growth, Delivering Value | 7
Slide 8: Energy Storage Contribution to Reliability
ENERGY STORAGE CONTRIBUTION TO RELIABILITY • System reliability can be maintained by installing Increasing storage longer duration energy storage duration required to maintain reliability • Energy storage helps minimize the need for additional gas resources and allows for higher renewable utilizatio
Slide 9: Coal Exit Strategy
COAL EXIT STRATEGY Plan to exit coal 7 years earlier than originally projected Navajo 315 MW Cholla 387 MW by 2025 Remaining 970 MW by 2031 Coal Free 2018 2019 2025 2031 Powering Growth, Delivering Value | 9
Slide 10: Environmental Recognition
ENVIRONMENTAL RECOGNITION Climate Change and Water Security “A Lists” by CDP: the only U.S. electric utility and 1 of 10 U.S. companies with A’s in both categories Named to the annual ranking of the world’s Top 100 Green Utilities by Energy Intelligence’s EI New Energy MSCI Environmental Sustainabil
Slide 11: Renewable Resources
RENEWABLE RESOURCES APS Solar Portfolio* APS currently has 1,828 MW* of renewable resources: Owned PPA 240 MW 310 MW • Solar 1,512 MW DG • Wind 289 MW 962 MW • Biomass 14 MW • Geothermal 10 MW • Biogas 3 MW Owned solar includes 170 MW AZ Sun Program, 26 MW of APS owned Distributed Generation (DG), 4
Slide 12: Bright Canyon Energy
BRIGHT CANYON ENERGY First acquisition of and ownership position in wind Clear Creek and Nobles 2 Wind Investments Opportunity • 9.9% stake in 242MW Clear Creek wind farm in Missouri • PPA to Associated Electric Cooperative • 5.1% stake in 250MW Nobles 2 wind farm in Minnesota • PPA to Allete subsid
Slide 13: 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 14: Human Capital Management
HUMAN CAPITAL MANAGEMENT We are investing in human capital to attract, retain and engage a diverse, highly skilled workforce Powering Growth, Delivering Value | 14
Slide 15: Diversity and Inclusion
DIVERSITY AND INCLUSION Powering Growth, Delivering Value | 15
Slide 16: Delivering Shareholder Value
DELIVERING SHAREHOLDER VALUE Our management team is committed to increasing shareholder value as a top priority Powering Growth, Delivering Value | 16
Slide 17: Social Capital
SOCIAL CAPITAL We are committed to being a premier corporate citizen while serving Arizona’s energy needs Powering Growth, Delivering Value | 17
Slide 18: Customer Affordability
CUSTOMER AFFORDABILITY Powering Growth, Delivering Value | 18
Slide 19: Appendix
APPENDIX
Slide 20: APS Capital Expenditures
APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and utilization of advanced technology $ in millions PROJECTED $2,000 $1,800 $1,650 $1,725 $121 $1,600 $154 $44 $53 $1,400 $1,331 Traditional Generation $1,231 $1,200 $139 Ocotillo1 $185 $44 $613 $794 $14 Environmen
Slide 21: Operations & Maintenance
OPERATIONS & MAINTENANCE Goal is to keep O&M per kwh flat, adjusted for planned outages $ in millions $933 $858 74 $856 $830 - $850 63 48 40 - 50 795 859 808 790 - 800 2017 2018 2019 2020E PNW Consolidated ex RES/DSM 1 Planned Fleet Outages 1 Excludes RES/DSM of $91 million in 2017, $104 million in
Slide 22: 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 $2.3 81% ACC FERC $1.6 Rate Effecti
Slide 23: Debt Maturities and Major Financing Activities
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 • $300 million 10-year 2.6% APS senior $600 $450 un
Slide 24: 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 25: 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 $8.87 Billion Allowed Return on Equity 10.15% Capital Structure Long-term debt 45.3% Common equity 54.
Slide 26: 2019 Rate Case Key Financials
2019 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective December 1, 2020 Overview of Rate Increase ($ 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 27: APS Rate Case Procedural Schedule
APS Rate Case Procedural Schedule Arizona Public Service Company Docket # E-01345A-19-0236 Application Filed October 31, 2019 Staff/Intervenor Direct Testimony (August 3, 2020) Staff/Intervenor Direct Testimony (Rate Design) (August 10, 2020) APS Rebuttal Testimony (September 1, 2020) Staff/Interven
Slide 28: Arizona Utilities General Rate Cases
ARIZONA UTILITIES GENERAL RATE CASES Tucson Electric Power Company Southwest Gas Docket # E-01933A-19-0028 Docket # G-01551A-19-0055 Application Filed April 1, 2019 Application Filed May 1, 2019 Hearing Commences (Jan 16, 2020) Staff /Intervenor Direct Testimony (Revenue) (Feb 5, Staff’s late-filed
Slide 29: Residential PV Applications
RESIDENTIAL PV APPLICATIONS1 Residential DG (MWdc) Annual Additions 151 133 133 122 4,000 24 3,500 2016 2017 2018 2019 2020 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Applications 2018 Applications 2019 Applications 2020 Applications 1 Monthly data equal
Slide 30: Cumulative Peak Capacity Needs Through 2028
CUMULATIVE PEAK CAPACITY NEEDS THROUGH 2028 Merchant CC Toll (570MW) expires 4,500 Merchant CC Toll Merchant CC Toll (465 MW) expires 4,000 (565MW) expires 3,500 PAC Exchange Large resource (480MW) 3,000 expires CH 1 & 3 needs resulting retirement 2,500 (387MW) from load growth, MW data centers and
Slide 31: System Operating Change: Spring 2025
SYSTEM OPERATING CHANGE Spring 2025 • Energy storage helps reduce the need for winter gas peaking resources and can be charged with zero or negatively priced energy Spring Day – High Renewables with Storage Spring Day – High Renewables, No Storage 6000 6000 5000 5000 4000 4000 3000 3000 2000 2000 10
Slide 32: System Operating Change: Summer 2025
SYSTEM OPERATING CHANGE Summer 2025 • Energy storage reduces the need for gas peaking resources and pipeline capacity Summer Peak Day – High Renewables with Storage Summer Peak Day – High Renewables, No Storage 10000 10000 9000 9000 8000 8000 7000 7000 6000 6000 MW MW 5000 5000 4000 4000 3000 3000 2
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: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status1 Contributions 95% 97% 2019A 2020E 2021E 2022E 90% Pension $150 Up to $100 Each Year OPEB $0 $0 $0 $0 Expense Assumptions 2019 2020 YE 2017 YE 2018 YE 2019 Discount Rate: Pension 4.34% 3.30% Expected Long-Term Return Data as of
Slide 35: 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 36: 2020 Key Dates
2020 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-16-0036 Effective: Feb 1 Lost Fixed Cost Recovery: E-01345A-16-0036 Filed: Feb 14 To be Filed: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Effective: Jun 1 2020 DSM/EE Implementation Plan: E-01345A-19-0
Slide 37: Purchased Power Contracts
PURCHASED POWER CONTRACTS Contract Location Status1 PPA Signed COD Term (Years) Net Capacity (MW) Solana Gila Bend, AZ IO Feb-2008 2013 30 250 RE Ajo Ajo, AZ IO Jan-2010 2011 25 5 Sun E AZ 1 Prescott, AZ IO Feb-2010 2011 30 10 SOLAR 310 MW Saddle Mountain Tonopah, AZ IO Jan - 2011 2012 30 15 Badger
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