Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q2 2018 Earnings Presentation
24 slides from Pinnacle West Capital's earnings presentation, Aug 3, 2018
Slide 1: Second Quarter 2018 Results
SECOND QUARTER 2018 RESULTS August 3, 2018 Second Quarter 2018
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: 2nd Quarter 2018 vs. 2nd Quarter 2017
EPS VARIANCES 2ND QUARTER 2018 VS. 2ND QUARTER 2017 Adjusted Pension Gross Adjusted & Adjusted Margin1 O&M1 OPEB Income $0.12 $(0.23) Adjusted Non- Taxes4 $1.49 D&A Interest, service $0.30 $1.48 Other Credits, Adjusted $(0.13) net of Taxes net Other2,3 $(0.06) AFUDC2 $0.03 $(0.06) $0.02 Adjusted Gro
Slide 4: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to INDICATORS live and do business Year over Year Employment Growth Maricopa County ranked #1 in U.S. for U.S. Phoenix population growth for second straight year - U.S. Census Bureau March 2018 5.0% 4.0% Arizona is a top 5 state in personal
Slide 5: Appendix
APPENDIX Second Quarter 2018
Slide 6: 2018 EPS Guidance
Key Factors & Assumptions as of 2018 EPS GUIDANCE August 3, 2018 2018 Adjusted gross margin1 (operating revenues, net of fuel and $2.47 – $2.52 billion purchased power expenses) • Retail customer growth about 1.5–2.5% • Weather-normalized retail electricity sales volume about 0-1% higher compared to
Slide 7: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK August 3, 2018 Gross Margin – Customer and Sales Growth (2018-2020) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricity sal
Slide 8: Tax Reform
Tax Cuts and Jobs Act provides TAX REFORM benefits to both our customers and shareholders Regulatory Steps Timing Impacts − Received ACC approval of $119 million annual rate − The impact of the lower federal income tax rate is reduction reflecting lower corporate tax rate through based on our quarte
Slide 9: APS Capital Expenditures
APS CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow ($ Millions) Other $1,341 $99 $1,211 $1,181 $1,153 Distribution $82 $117 $115 $419 Transmission $450 Renewable $519 $630 $174 Generation $3 $193 $148 Environmental1 $12 $83 $203 $176 $235 $120 $
Slide 10: Distribution Grid Investments
DISTRIBUTION GRID Grid Operations and Investment Projected $1.6 billion from 2018- INVESTMENTS 2020 Customer Growth Grid Modernization Run and Maintain Approximately 51% of distribution capex Approximately 9% of distribution capex Approximately 40% of distribution capex R T Reclosers – Supervisory A
Slide 11: Rate Base
APS’s revenues come from a RATE BASE regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End ACC FERC Generation & Distribution Transmission Rate Base Guidance: 6-7% Average Annual Growth Rate 17% $1.8 83% $1.4 ACC FERC Rate Effective Da
Slide 12: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ Millions) $905 - $925 $848 $858 75 - 85 72 63 830 - 840 776 795 1 1 2016 2017 2018E 2 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Reclassified to reflect the adoption of the new accounting requirements
Slide 13: Balance Sheet Strength
BALANCE SHEET STRENGTH Long-Term Debt Maturity Schedule Credit Ratings1 ($Millions) • APS Senior Unsecured: A- or equivalent ratings or better at S&P, Moody’s and Fitch $600 • PNW Senior Unsecured: BBB+ or $500 equivalent ratings or better at S&P, Moody’s and Fitch $400 $300 2018 Major Financing Act
Slide 14: Ocotillo Modernization Project and Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT AND 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 wit
Slide 15: Four Corners SCR Step Increase
FOUR CORNERS SCR APS filed for a rate increase STEP INCREASE on April 27, 2018 Key Components of APS’s Filed Request Financial Cost of Capital Bill Impact • Consistent with prior • 7.85% Return on Rate • Rate rider applied as a disclosed estimates Base1 percentage of base rates – Weighted Average Co
Slide 16: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $15 $10 21 $5 10 3 $0 - $(5) $(10) (13) (25) $(15) $(20) Q1 Q2 Q3 Q4 Q1 Q2 2017 2018 $(1) Million $(3) Million All periods recalculated to current 10-year rolling average (2006 – 2015) 16 Second Quarter 2018
Slide 17: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 Pretax Millions Renewable Energy Demand Side Management $40 $30 10 10 12 $20 16 12 21 $10 15 19 17 12 5 $0 2 Q1 Q2 Q3 Q4 Q1 Q2 2017 2018 $91 Million $60 Million 1 Renewable energy and demand side management expenses are offset by adjustment mecha
Slide 18: Residential PV Applications
Residential DG (MWdc) Annual Additions 150 RESIDENTIAL PV 133 74 73 APPLICATIONS1 51 57 44 18 22 10 2009 2012 2014 2016 2018 YTD 4,000 3718 3432 3,500 3,000 2464 2,500 2143 2033 1944 2,000 1818 1561 1602 1426 1445 1364 1442 1434 1,500 1267 1291 1283 1153 1201 1413 1001 1002 962 1349 1,000 822 1157 1
Slide 19: 2018 Key Dates
2018 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Lost Fixed Cost Recovery Filed Feb 15 Decision Expected Q3 E-01345A-11-0224 Transmission Cost Adjustor Filed May 15 E-01345A-11-0224 Implemented Jun 1 Sep 7: File 2019 Plan 2019 DSM/EE Implementation Plan E-01345A-18-0105 2018 DSM Decision Expected
Slide 20: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended June 30, Tax Benefit Four of Lower RES/ Corners Pre-Tax 2018 RES/ 2017 EPS $ millions pretax, except per share amounts 20181 DSM Deferral2 Income Adjusted 20171,3 DSM Adjusted Impact Operating revenues $ 974 $ (34) $ - $ - $ 940 $ 945 $ (25) $ 920 F
Slide 21: Non-GAAP Measure Reconciliation: Guidance
NON-GAAP MEASURE RECONCILIATION GUIDANCE 2018 Guidance $ millions pretax Operating revenues1 $ 3,665 - $ 3,725 Fuel and purchased power expenses1 (1,090) - (1,100) Gross margin 2,575 - 2,625 Adjustments: Renewable energy and demand side management programs (105) - (105) Adjusted gross margin $ 2,470
Slide 22: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended June 30, 6 Months Ended June 30, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) REGULATED ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 500 $ 476 24 $ 817 $ 778 $ 39 Business 436 433 3 779 770 9 Total Retail 936 909 27 1,596 1,548 48 Sales
Slide 23: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended June 30, 6 Months Ended June 30, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,137 2,120 17 4,615 4,632 (17) Coal 1,733 1,407 325 2,831 3,541 (710) Gas, Oil and Other 1,564 1,898 (334) 3,210 3,016 194 Renewable
Slide 24: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended June 30, 6 Months Ended June 30, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 513 571 (58) 513 571 (58) Heating Degree-Days - 3 (3) 323 439 (116) Average Humidity 16% 17% (1)% 16% 17% (1)% 10-Year Avera
Pinnacle West Capital — Q2 2018 Earnings Presentation on 6ix