Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — EEI Financial Conference 2023
40 slides from Pinnacle West Capital's conference presentation, Nov 9, 2023
Slide 1: EEI Investor Meetings
EEI Investor Meetings November 12-14 2023
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 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 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, 2022 Consolidated assets $22.7B Arizona Revenues $4.3B Market cap ~$8.6B Generating capacity owned or leased – year end ~6.3 GW Customers 1.3M Current % from clean energy ~51% Nuclear plant in U.S. Larges
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% 15% Gas 25% Residential Purchased 48% 4% Renewable Commercial 12% & Industrial 52% Coal 20% Nuclear 24% 1 As of December 31, 2022. 5
Slide 6: The Pinnacle West Story
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 6
Slide 7: 2023 EPS guidance
2023 EPS guidance Key Factors and Assumptions as of November 2, 2023 2023 Adjusted gross margin (operating revenues, net of fuel and $2.72 – $2.77 billion purchased power expenses, x/RES,DSM,CCT)1 • Retail customer growth of 1.5%-2.5% • Weather-normalized retail electricity sales growth of 1.0%-3.0%
Slide 8: Key drivers for EPS guidance
Key drivers for EPS guidance1 1 2023 EPS guidance of $4.10-$4.30 key drivers1,2 Retail customer growth of 1.5%-2.5% Depreciation, amortization and property taxes due to higher plant in service Weather-normalized retail electricity sales growth of 1.0%-3.0% Operations and maintenance expense
Slide 9: 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% 2.2% 4% 4.2% 2% 2.1% 1.9
Slide 10: 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 Semiconductor • Rehrig Pacific Company • Business attraction and expansion Increased investment from $80M in
Slide 11: 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 4,500 MW of clean energy and storage to be in service for APS customers by end of 2025 Successfully installed 201 MW of APS owned batteries at our AZ Sun sites and 150 MW of sol
Slide 12: We Will Pursue Improvements in the Regulatory Environment
We Will Pursue Improvements in the Regulatory Environment ✓ Successfully appealed last rate case to clarify the prudency standard in Arizona ✓ Filed a new rate case to reduce regulatory lag and improve the ROE ✓ Working with stakeholders on common issues including reducing regulatory lag and improvi
Slide 13: We Have Embraced a Customer-Centric Strategy
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 growing Arizona
Slide 14: The Pinnacle West Story
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 14
Slide 15: Bringing the Residential Customer into the Advanced Economy
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 load window 300-500 MW • Super off-peak electric vehicle cha
Slide 16: Customer Driven Initiatives Underway – A Few Examples
Customer Driven Initiatives Underway – A Few Examples Take Charge AZ Customer Advisory Board Energy Management • Pilot program to encourage • Gathers direct insight from • Demand response programs electric vehicle adoption by residential customers reward customers who shift installing charging stati
Slide 17: Leading ESG Practices Guide Our Approach – Snapshot
Leading ESG Practices Guide Our Approach – Snapshot Environmental Social Governance Achieved a CDP Leadership Diversity, equity and 45% of independent directors score in Water Security four inclusion strategy gender or ethnically diverse years in a row¹ 44% of new hires ethnically ESG Executive Coun
Slide 18: Coal Exit Strategy – Years Earlier than Originally Projected
Coal Exit Strategy – 7 Years Earlier than Originally Projected Navajo 315 MW 2019 Cholla 387 MW 2024 Remaining Four Corners 970 MW 20311 2018 2019 2025 2031 2038 Coal Free 1As of Fall 2023, Four Corners has the option to begin seasonal operation if deemed to be in the best interest of APS customers,
Slide 19: Coal Exit and Expiring Contracts Create >8,000 MW Supply-Demand Gap by 2038
Coal Exit and Expiring Purchase Contracts Will Create a >8,000 MW Supply-Demand Gap by 2038 Peak Capacity (MW) 14,000 12,000 >5,500MW¹ 10,000 New additions + Peak Capacity (MW) ~2,200MW 8,000 DE and EE Existing / Signed Contracts 6,000 4,000 Existing Owned 2,000 Resources - 2023 2026 2029 2032 2035
Slide 20: Key New Energy Sources Keeping us Tracking to our Goals
Key New Energy Sources Keeping us Tracking to our Goals Initiatives • Solar generation • Wind generation • Gas as a bridge fuel • Demand-side management • Energy storage solutions • Innovation 20
Slide 21: The Pinnacle West Story
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 Company Profile Growth Outlook Customer Initiatives Financial Outlook & 2022 - Solid Foundation Remains Strong and ESG Leadership Rate Case 21
Slide 22: 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 MWh 6 Attractive dividend yield 7 Optimize our balance sheet in
Slide 23: Projected 5-7% EPS Growth Off 2022
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 Amounts provided are the Co
Slide 24: Managed capital plan to support customer growth, reliability, and clean transition
Managed capital plan to support customer growth, reliability, and clean transition $1.80B $1.80B $1.85B $245 $245 $1.53B $305 $226 $325 $465 $520 Other Generation $345 $315 Clean Generation $300 $300 $217 Transmission $590 $530 $530 Distribution $577 Other $167 $265 $260 $255 2022 2023E 2024E 2025E
Slide 25: Steady rate base growth
Steady rate base growth Total APS Rate Base Growth Guidance Approved Rate Base Year-End 5-7% ACC FERC Annual $15.2 $2.7 Rate Effective 12/01/2021 6/1/2023 $11.9 $11.7 FERC Date $2.01 $1.91 Test Year 06/30/20191 12/31/2022 Ended $12.5 $9.8 2 $9.92 ACC Rate Base $8.6B2 $2.0B Equity Layer 54.7% 50.3% A
Slide 26: 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 Approx. $300 million $5.1 billion $1.4 million billion PNW Equity/ Approx. PNW Debt2 Alternatives $3 billion APS Debt2 Cash from Total Capital Operations1 Investme
Slide 27: Our goal continues to be declining O&M per MWh
Our goal continues to be declining O&M (as adjusted) per MWh O&M (as adjusted) per MWh ~$30/MWh Total O&M (as adjusted)1 2022: $892M 2023: $915M-$935M 2022 1 O&M amounts, as adjusted, exclude RES/DSM amounts of $95M in 2022 and $120M-$130M in 2023. Planned outage amounts included in O&M are $43M in
Slide 28: Continue Our Track Record of Consistent Dividend Growth
Continue Our Track Record of Consistent Dividend Growth1 Indicated Annualized Dividend Dividend Targets • Long-term dividend growth $3.46 • Attractive dividend yield ~5% • Managing long term dividend CAGR payout ratio to 65-75% $2.18 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 1 Future di
Slide 29: Strong balance sheet with manageable long-term debt maturity profile
Strong balance sheet with manageable long-term debt maturity profile $M APS Long-Term Debt PNW Long-Term Debt $1,200 $1,000 $800 $600 $400 $200 $0 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 As of September 30, 2023 29
Slide 30: 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 31: 2022 APS Rate Case – Updated Positions
2022 APS Rate Case – Updated Positions Key Financials Test year ended June 30, 2022 ACC Rate Base - Adjusted $10.4 Billion Embedded Long-Term Cost of Debt 3.85% Allowed Return on Equity 10.25% Capital Structure Long-term debt 48.07% Common equity 51.93% Base Fuel Rate (¢/kWh) 3.8321 Post-test year p
Slide 32: 2022 APS Rate Case – Updated Positions
2022 APS Rate Case – Updated Positions1 Adjustment Mechanisms Overview • Eliminate the Environmental Improvement Surcharge and collect costs through base rates • Maintain the Lost Fixed Cost Recovery Mechanism and Demand Side Management Adjustor Charge as separate mechanisms • Adopt a System Reliabi
Slide 33: 2022 APS Rate Case – Updated Positions
2022 APS Rate Case – Updated Positions1 Overview of Rate Increase Rebuttal Request ($ in Millions) Key Components1 Rate Base Growth $130 Revenue Impact of 12 Months Post Test Year Plant and Four Corners ELG 114 Weighted Average Cost of Capital of 7.17% 78 0.5% Fair Value Increment 34 New Customer Pr
Slide 34: 2022 APS Rate Case - Testimony Summary
2022 APS Rate Case - Testimony Summary11 ACC Staff Surrebuttal RUCO Surrebuttal APS Rejoinder Testimony Testimony Testimony Return on Equity 9.68% 8.2%2 10.25% Fair Value Increment 0.50% 0.0% 0.50% Post Test-Year Plant 12 months + Four Corners ELG 6 months 12 months + Four Corners ELG New Capital Tr
Slide 35: 2022 APS Rate Case Procedural Schedule
2022 APS Rate Case Procedural Schedule Arizona Public Service Company Docket # E-01345A-22-0144 Application Filed October 28, 2022 Staff/Intervenor Direct Testimony Due June 5, 2023 Staff/Intervenor Direct Testimony (Rate Design) Due June 15, 2023 APS Rebuttal Testimony Due July 12, 2023 Staff/Inter
Slide 36: Regulatory 2023 key dates
Regulatory 2023 key dates1 ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Hearing commenced Hearing concluded 2022 Rate Case: E-01345A-22-0144 August 10 October 3 2024 PSA Rate to be Power Supply Adjustor (PSA) E-01345A-19-0236: Effective March 1 filed Nov 30 Filed May 15; effective Transmission Cost Adjustor
Slide 37: 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 performance 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 trans
Slide 38: Appendix
PINNACLE WEST APPENDIX
Slide 39: ESG Leadership – Recognitions
ESG Leadership – Recognitions Training Magazine 2022 A- Score for 2023 Ranked as a Top Pinnacle West’s ESG Water Security Employee and Rating AA1 Forbes Best Employer in Development Organization Arizona Named to the annual ranking of the world’s 2022 Top 100 Green Utilities by 2021 US Women in Nucle
Slide 40: Non-GAAP Measure Reconciliation
Non-GAAP Measure Reconciliation 2022 Actuals4 2023 Guidance4 Operating revenues1 $4.32 billion $4.71 - $4.79 billion Fuel and purchased power expenses1 $1.63 billion $1.86 - $1.91 billion Gross Margin $2.69 billion $2.84 - $2.89 billion Adjustments: Renewable energy and demand side management progra
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