Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q2 2019 Earnings Presentation
27 slides from Pinnacle West Capital's earnings presentation, Aug 8, 2019
Slide 1: Powering Growth, Delivering Value: Second Quarter 2019 Results
POWERING GROWTH DELIVERING VALUE Second Quarter 2019 Results August 8, 2019 Second Quarter 2019 | 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 2nd Quarter 2019 vs. 2nd Quarter 2018 Adjusted Gross Margin1 Pension & Adjusted $1.48 $(0.53) OPEB Income Adjusted Non-service Adjusted Taxes $0.13 $1.28 O&M1 Credits, net Other, net2 $0.20 $(0.04) $0.04 Gross Margin Transmission $ 0.03 Sales / Usage $ 0.02 LFCR $ 0.01 Weather $ (0.31)
Slide 4: 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 5: Economic Indicators
ECONOMIC INDICATORS Year over Year Employment Growth U.S. Phoenix Maricopa County ranked #1 in U.S. for 5% population growth for third straight year 1 4% 3% 2% Arizona is ranked No. 1 in construction 1% growth and No. 2 in manufacturing.2 0% Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Ph
Slide 6: Balance Sheet Strength
BALANCE SHEET STRENGTH Near-Term Long-Term Debt Maturities 2019 Major Financing Activities $ in millions • $200 million 18-month APS $1,000 unsecured term loan entered into in February 2019 $800 $450 • $300 million 30-year 4.25% APS $600 senior unsecured notes issued February 2019 $400 • Expect up t
Slide 7: 2019 EPS Guidance
2019 EPS GUIDANCE Key Factors & Assumptions as of August 8, 2019 2019 Adjusted gross margin1 (operating revenues, net of fuel and $2.50 – $2.56 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 1-2% higher compared to
Slide 8: Financial Outlook
FINANCIAL OUTLOOK Key Factors & Assumptions as of August 8, 2019 Gross Margin – Customer and Sales Growth (2019-2021) 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 sales
Slide 9: 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: 17% 6-7% Average Annual Growth $2.0 83% $1.5 ACC FERC Rate Effecti
Slide 10: Operations & Maintenance
OPERATIONS & MAINTENANCE Goal is to keep O&M per kwh flat, adjusted for planned outages $ in millions $933 $858 74 $865 - $885 $848 63 50 - 60 72 859 795 815 - 825 776 2016 2017 2018 2019E 1 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Excludes RES/DSM of $83 million in 2016, $91 million in 2
Slide 11: 2019 Planned Outage Schedule
2019 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 Days Days in Days Four Corners 4 21 Palo Verde 1 33 Palo Verde 3 44 Four West Corners 5 21 Cholla* 1 50 Phoenix 4 30 Chol
Slide 12: APS Capital Expenditures
APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and utilization of advanced technology $ in millions $1,600 PROJECTED $1,472 $1,400 $114 $1,237 $1,266 $53 $1,202 $1,200 $142 $172 Traditional Generation $187 $16 $26 $57 $505 1 $1,000 New Gas Generation $112 $164 $
Slide 13: Distribution Grid Investments
DISTRIBUTION GRID INVESTMENTS Grid Operations and Investment Projected to be approximately $1.5 billion from 2019-2021 Customer Growth Grid Modernization Run and Maintain Approximately 50% of distribution capex Approximately 9% of distribution capex Approximately 41% of distribution capex Line Exten
Slide 14: Delivering on Our Commitment to Customer Affordability
DELIVERING ON OUR COMMITMENT TO CUSTOMER AFFORDABILITY 2018 - July 2019 Adjustments to Residential Bills 6.48% $144.42 4/1/19 - TEAM I Since 2018, changes to adjustors Credit from federal tax reform have lowered the average $148.89 $141.33 $154.02 4/1/18 - EIS customer’s bill $9.71 4/1/19 - EIS 2/1/
Slide 15: What's Next
WHAT’S NEXT Take Charge AZ Pilot Program • EV charging equipment, installation and maintenance for business customers, government agencies and multifamily housing communities • Participants pay for energy costs to charge • We encourage charging during daytime off- peak hours when solar energy is abu
Slide 16: Appendix
APPENDIX Second Quarter 2019 | 15
Slide 17: Tax Reform
TAX REFORM Customer Rate Reductions 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 retur
Slide 18: Ocotillo Modernization Project & Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT & FOUR CORNERS SCRs • Included in the 2017 Rate Review Order1, APS has been granted Accounting Deferral Orders for two large generation-related capital investments – Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and replacing with
Slide 19: Four Corners SCR Step Increase
FOUR CORNERS SCR STEP INCREASE The Administrative Law Judge issued a Recommended Opinion and Order on November 27, 20181 Key Components of APS’s Filed Request Financial Cost of Capital Bill Impact 2019 Full-Year EPS Impact3 • Consistent with prior • 7.85% Return on Rate Base2 • Rate rider applied as
Slide 20: Residential PV Applications
RESIDENTIAL PV APPLICATIONS1 Residential DG (MWdc) Annual Additions 151 133 133 4,000 3718 74 57 57 3432 3,500 2014 2015 2016 2017 2018 2019 YTD 3,000 2464 2,500 2143 1944 2033 2,000 1818 1561 1543 1602 1426 1905 1442 1434 1,500 1471 1364 1283 1267 1180 1413 1100 1153 1291 1,000 905 1095 1001 1147 1
Slide 21: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER $ in millions pretax Variances vs. Normal $25 $20 $15 $10 14 $5 9 8 $0 $(5) $(10) (12) $(15) (33) $(20) (23) $(25) $(30) $(35) Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 $(13) Million $(24) Million All periods recalculated to current 10-year rolling average (2007 – 2016) Second Quar
Slide 22: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 Renewable Energy Demand Side Management $40 $ in millions pretax $30 $10 $12 $20 $14 $11 $9 $11 $10 $21 $17 $12 $13 $9 $7 $0 Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 $104 Million $42 Million 1 Renewable energy and demand side management expenses are offset by
Slide 23: 2019 Key Dates
2019 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-16-0036 Implemented: Feb 1 2018 LFCR approved 2019 Lost Fixed Cost Recovery: E-01345A-16-0036 2019 LFCR approved LFCR Filed: Feb 15 Filed: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Implementation: Jun
Slide 24: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended June 30, Four Corners Income tax Income tax and expense at Four expense at RES/ Ocotillo statutory 2019 RES/ Corners statutory 2018 EPS $ in millions pretax, except per share amounts 20191 DSM Deferrals2 rate Adjusted 20181 DSM Deferral 2 rate Adjus
Slide 25: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION 2019 Guidance $ in millions pretax Operating revenues1 $ 3,625 - $ 3,695 Fuel and purchased power expenses1 (1,045) - (1,055) Gross margin 2,580 - 2,640 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted gross margin $ 2,500 - $ 2,5
Slide 26: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended June 30, 6 Months Ended June 30, 2019 2018 Incr (Decr) 2019 2018 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 433 $ 500 (68) $ 784 $ 817 $ (33) Business 396 436 (40) 729 779 (50) Total Retail 828 936 (107) 1,513 1,596 (83)
Slide 27: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended June 30, 6 Months Ended June 30, 2019 2018 Incr (Decr) 2019 2018 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,200 2,137 63 4,712 4,615 96 Coal 1,965 1,733 232 3,738 2,831 907 Gas, Oil and Other 1,626 1,564 61 3,474 3,210 264 Renewables 185 1
Pinnacle West Capital — Q2 2019 Earnings Presentation on 6ix