Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2020 Earnings Presentation
31 slides from Pinnacle West Capital's earnings presentation, Oct 30, 2020
Slide 1: Powering Growth, Delivering Value: Third Quarter 2020 Results
POWERING GROWTH DELIVERING VALUE Third Quarter 2020 Results October 30, 2020 Third Quarter 2020 | 0
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES 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
Slide 3: EPS Variances
EPS VARIANCES 3rd Quarter 2020 vs. 3rd Quarter 2019 Adjusted Adjusted Pension & Adjusted Adjusted Adjusted 3Q 2020 O&M1, 2 D&A2 OPEB Interest, Income Other, net2 3Q 2019 Adjusted $0.01 $(0.05) Non-service net of Taxes Credits, net AFUDC2 $(0.02) Gross $(0.08) Margin1 $0.06 $(0.01) $0.39 Gross Margin
Slide 4: 2020 EPS Guidance
2020 EPS GUIDANCE Key Factors & Assumptions as of October 30, 2020 2020 Adjusted gross margin1,2 (operating revenues, net of fuel and purchased power expenses) $2.49 – $2.55 billion • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume flat to 1% growth compare
Slide 5: Financial Outlook
FINANCIAL OUTLOOK Key Factors & Assumptions as of October 30, 2020 Gross Margin – Customer and Sales Growth (2020-2022) 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 6: 2020 Record Summer
2020 Record Summer Hottest Recorded Summer • 145 days ≥ 100 degrees • 53 days ≥ 110 degrees • 14 days ≥ 115 degrees 6 days with load > previous all-time peak Peak temperature decreased • 2017 - 119 degrees • 2020 - 118 degrees Previous All-Time Peak Record Third Quarter 2020 | 5
Slide 7: Well-Funded Pension and Healthy Liquidity
WELL-FUNDED PENSION AND HEALTHY LIQUIDITY Pension Funded Status Liquidity and Financing Activity • $1.2 billion revolver capacity 102% • $600 million 30-year 3.35% APS senior unsecured notes issued May 2020 97% • $500 million 5-year 1.30% PNW senior unsecured notes issued June 2020 90% • $400 millio
Slide 8: Economic Indicators
ECONOMIC INDICATORS Monthly Year-over-Year Employment Growth Ending August 2020 U.S. Phoenix Amazon announced 13 new sites and 3,000 5% new jobs coming to the Valley 1 0% -5% Maricopa housing permits increased over -10% 30% year-over-year for July-August 2 -15% Jan-18 Jan-19 Jan-20 Phoenix continues
Slide 9: Economic Development
ECONOMIC DEVELOPMENT FUTURE EXPANSIONS OUR APPROACH FOCUSES ON FOUR MAIN AREAS o Microsoft is constructing all three of its new mega data Business Attraction & Expansion - constructive engagement centers in the West Valley. These datacenters are projected with economic development community partners
Slide 10: 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: 6-7% Average Annual Growth 20% $2.3 80% $1.7 ACC FERC $1.6 Rate Ef
Slide 11: Operations & Maintenance
OPERATIONS & MAINTENANCE Goal is to keep O&M per kWh flat, adjusted for planned outages $ in millions $933 74 $870 - $890 $858 $856 40 - 50 63 48 795 859 808 830-840 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 20
Slide 12: 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 in Days Days Days Four Four 5 46 5 36 Palo Verde 1 44 Corners* Corners* Palo Verde 2 30 *Outage duration spans Q1-Q2. Num
Slide 13: 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 Duration in Plant Unit Duration in in Days Days Days Four Four 4 47 4 25 Palo Verde 2 30 Corners* Corners* Palo Verde 3 30 *Outage duration spans Q1-Q2. Num
Slide 14: APS Capital Expenditures
APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and our transition to a cleaner generation mix $ in millions PROJECTED $2,000 $1,800 $1,725 $1,650 $121 $1,600 $154 $44 $53 $1,400 Traditional Generation $1,231 $1,263 $1,200 Ocotillo1 $152 $794 $185 $613 Environmen
Slide 15: Appendix
APPENDIX Third Quarter 2020 | 14
Slide 16: Average Monthly APS Bill
AVERAGE MONTHLY APS BILL Since 2018, changes to adjustors have lowered the average residential customer’s bill $10.95 (7.31% lower) Third Quarter 2020 | 15
Slide 17: Hydrogen
HYDROGEN Palo Verde collaborates on a pilot project to explore the production of hydrogen at Palo Verde Generating Station Xcel Idaho Energy Palo Verde National Collaborators Include Energy Laboratory Harbor • The pilot program will examine the long-term cost-effectiveness of hydrogen production at
Slide 18: Credit Ratings and Metrics
CREDIT RATINGS AND METRICS Pinnacle 2017 2018 2019 APS West APS Corporate Credit Ratings1 FFO / Debt 29.4% 24.5% 22.5% Moody’s A2 A3 FFO / Interest 7.5x 6.5x 6.4x S&P A- A- Debt / 46.8% 47.0% 47.7% Capitalization Fitch A- A- Pinnacle West Senior Unsecured1 FFO / Debt 26.4% 22.1% 19.5% Moody’s A2 A3
Slide 19: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER $ in millions pretax Variances vs. Normal $55 $50 $45 $40 $35 $30 $25 51 $20 37 $15 $10 $5 12 7 $0 $(5) (13) (1) $(10) $(15) (35) $(20) $(25) $(30) $(35) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 $(28) Million $86 Million All periods recalculated to current 10-year rolling avera
Slide 20: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 Renewable Energy Demand Side Management $40 $ in millions pretax $30 $20 $11 $14 $11 $14 $11 $11 $10 $12 $13 $10 $9 $7 $7 $7 $3 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2020 $86 Million $54 Million 1 Renewable energy and demand side management expenses are o
Slide 21: Residential PV Applications
RESIDENTIAL PV APPLICATIONS1 4,000 Residential DG (MWdc) Annual Additions 151 133 133 122 3,500 99 3,000 2016 2017 2018 2019 2020 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 22: 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 Effective: May 1 Filed: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Effective: Jun 1 2020 DSM/EE Implementation Plan: E-
Slide 23: 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 24: 2019 Rate Case Key Financials
2019 RATE CASE KEY FINANCIALS 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 54.7% Base Fuel Rate (¢/kWh) 3.0168 Post-test year plant period 12 months
Slide 25: Summary of Rate Case Intervenor Recommendations
SUMMARY OF RATE CASE INTERVENOR RECOMMENDATIONS APS ACC Staff RUCO Total Revenue Increase $183.6 $89.7 ($20.8) (Base Rate and Adjustors) 5.6% 2.7% (0.63%) ($MM) Base Rate Increase ($MM) $68.6 ($25.3) ($135.8) ROE 10.15% 9.40% 8.74% Alt 1: 0.00% Return on Fair Value 1.00% Alt 2: 0.30% 0.00% Increment
Slide 26: 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 (October 2, 2020) Staff/Intervenor Direct Testimony (Rate Design) (October 9, 2020) APS Rebuttal Testimony (November 6, 2020) Staff/Interven
Slide 27: 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 Commenced (Jan 16, 2020) Staff /Intervenor Direct Testimony (Revenue) (Feb 5, 2020) Staff’s late-
Slide 28: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Third Quarter 2020 | 27 Numbers may not foot due to rounding.
Slide 29: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Third Quarter 2020 | 28
Slide 30: Consolidated Statistics
CONSOLIDATED STATISTICS Third Quarter 2020 | 29 Numbers may not foot due to rounding.
Slide 31: Consolidated Statistics
CONSOLIDATED STATISTICS - Third Quarter 2020 | 30 Numbers may not foot due to rounding.
Pinnacle West Capital — Q3 2020 Earnings Presentation on 6ix