Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q4 2023 Earnings Presentation
46 slides from Pinnacle West Capital's earnings presentation, Feb 27, 2024
Slide 1: Renewed, Reliable and Resilient
Renewed, Reliable and Resilient Fourth-Quarter and Full-Year 2023 Financial Results, and Future Outlook February 27, 2024
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: Table of Contents
Table of Contents 1. Fourth-Quarter & Full-Year 2023 Financial Results 2. Accomplished Previous Goals & 2022 Rate Case Outcome 3. Growth Outlook & Energy Future 4. Financial Outlook Update
Slide 4: Fourth-Quarter & Full-Year Financial Results
Fourth-Quarter & Full-Year Financial Results
Slide 5: Fourth-Quarter results
Fourth-Quarter results O&M1 D&A Income Interest, net & other Operating AFUDC Other, net taxes Revenue less Fuel Pension & and Purchased OPEB non- 4Q 2022 Power1 service 4Q 2023 credits, net Operating Revenue less Fuel and Purchased Other, net Power Prior year Clear Creek impairment $ 0.11 Sales/Usag
Slide 6: 2023 EPS lifted by record-breaking weather
2023 EPS lifted by record-breaking weather O&M1 D&A Other taxes Income Operating Interest, net Other, net taxes Revenue less Fuel AFUDC and Purchased Pension & Power1 OPEB non- Operating Revenue less Fuel and Purchased service Power credits, net LFCR $ 0.36 RES/DSM/EIS/PSA (Chemicals) $ 0.24 Other,
Slide 7: Accomplished Previous Goals & 2022 Rate Case Outcome
Accomplished Previous Goals & 2022 Rate Case Outcome
Slide 8: Accomplished previous goals set during the financial reset
Accomplished previous goals set during the financial reset ✓ Improved customer experience ➢ From 4th quartile in 2021 to 2nd quartile in 2023 J.D. Power Residential and Business Survey ✓ Top quartile reliability for 10 of the last 11 years ✓ Successfully appealed 2019 rate case ✓ Improved relationsh
Slide 9: The 2022 rate case outcome was reasonable and constructive
The 2022 rate case outcome was reasonable and constructive Key Components of Final Decision Return on Equity 9.55% Fair Value Increment 0.25% Equity Ratio 51.93% 12 months + Four Corners Post Test-Year Plant ELG New Capital Tracking System Reliability Benefit Mechanism surcharge approved • Partial t
Slide 10: Growth Outlook & Energy Future
Growth Outlook & Energy Future
Slide 11: We are focused on solid execution and are optimistic for the future
We are focused on solid execution and are optimistic for the future KEY REASONS 1. Rapidly growing service territory with a diverse customer base 2. An improved regulatory environment 3. Making progress toward our clean energy commitment 4. Tremendous opportunities in transmission growth 5. Continue
Slide 12: Arizona continues to be an attractive service territory with strong customer growth
REASON #1 Arizona continues to be an attractive service territory with strong customer growth Arizona economy continues to be robust Residential Customer Growth1 and attractive 3% • Latest census data places Maricopa County as the fastest-growing county in the nation with the 2.4% 1.5%-2.5% 2.3% mos
Slide 13: Best-in-class service territory supports high tech growth and economic development
REASON #1 Best-in-class service territory supports high tech growth and economic development Arizona is an attractive location for business growth • Infrastructure ─ close proximity to major markets in the West with accessibility by rail or truck • Weather predictability ─ low propensity for natural
Slide 14: Arizona's commercial and industrial growth is diverse
REASON #1 Arizona’s commercial and industrial growth is diverse Source: Arizona Commerce Authority 14
Slide 15: We have an improved regulatory environment
REASON #2 We have an improved regulatory environment Improvements at the Arizona Corporation Commission • Balanced, constructive and more consistent outcomes, including improved ROE to APS • Establishment of Regulatory Lag docket • Reaffirmation of Rate Case Settlement Policy • Continued support of
Slide 16: We are making progress towards our Clean Energy Commitment
REASON #3 We are making progress towards our Clean Energy Commitment Progress Since 2020, have contracted over 4,900 MW of clean energy and storage to be in service for APS customers by end of 2025 Issued 2023 All-Source RFP for approximately 1,000 MW of reliable capacity, including at least 700 MW
Slide 17: Transmission expansion will drive increased capital investment
REASON #4 Transmission expansion will drive increased capital investment Support Increase customer Access to resiliency growth markets Future Transmission Projects Line Length (miles) Voltage Est. In-Service Sundance to Pinal Central & 7 + 15 230 kV 2027 Pinal Central to Milligan Ocotillo to Pinnacl
Slide 18: Maintaining customer affordability and increasing customer satisfaction
REASON #5 We are focused on maintaining customer affordability and increasing customer satisfaction APS rates have remained well below Key Areas of Focus the rate of inflation • Process improvements and preventative maintenance to reduce operating costs Average annual % change 2018-20241 • Innovativ
Slide 19: Future Financial Outlook
PINNACLE WEST CAPITAL CORPORATION
Slide 20: 2024 EPS Guidance of $4.60 - $4.80
2024 EPS Guidance of $4.60 - $4.80 2024 vs 2023 $(0.14) O&M1 $(0.47) $(0.08) $4.70 D&A $4.41 Other taxes $(0.32) $0.03 $0.48 $1.27 All other Interest, net Weather Operating AFUDC Revenue less Fuel and Purchased Power1 Operating Revenue less Fuel and Purchased Power Net Effect of 2022 GRC $ 1.33 All
Slide 21: Key drivers for 2024 EPS guidance
Key drivers for 2024 EPS guidance 2024 EPS guidance of $4.60-$4.80 key drivers1 Long-term guidance and key drivers • Long-term EPS growth target of 5%-7% off New rates in effect March 8, Depreciation, amortization and 2024 property taxes due to higher 2024 midpoint plant in service • Retail cust
Slide 22: Our investor goals going forward
Our investor goals going forward 1. Long-term EPS growth of 5%-7% off 2024 base, supporting competitive total shareholder return 2. Optimized capital plan to reliably serve growing service territory, driving strong rate base growth and supported by SRB 3. Managing a healthy capital structure with ac
Slide 23: Long-term outlook potential remains solid
GOAL #1 Long-term outlook potential remains solid EPS Growth off 2024 Potential drivers for more consistent and timely cost recovery • Reduction of regulatory lag including exploration of alternative rate-making structures • Rate case cadence and potential settlement of future rate cases 5%-7% CAGR
Slide 24: Capital plan to support reliability and continued service territory growth
GOAL #2 Capital plan to support reliability and continued service territory growth APS Total 2024-2026 $6.0B CapEx Profile $2.00B $2.05B $1.95B Today $1.80B $655 $755 $760 $634 Generation One year ago $420 Transmission $340 $415 Distribution $361 Other $7.80B $590 $572 $565 $550 $6.85B $385 $233 $28
Slide 25: SRB will expand our capacity to self build generation
GOAL #2 SRB will expand our capacity to self build generation to meet customer need with reduced lag System Reliability Benefit Surcharge Key Features • Projects that compete on cost and reliability from All-Source Request for Proposals • Determines prudency of new generation between general rate ca
Slide 26: Rate Base growing with our service territory
GOAL #2 Rate Base growing with our service territory Current Approved Rate Base and Test Year Detail End-of-Year Rate Base and Growth Guidance ACC FERC ACC FERC Rate Effective Date 03/08/2024 6/1/2023 $2.6 Test Year Ended 6/30/20221 12/31/2022 $2.01 Equity Layer 51.93% 50.3% Allowed ROE 9.55% 10.75%
Slide 27: Optimized financing plan to support balanced capital structure
GOAL #3 Optimized financing plan to support balanced capital structure 2024-2026 Financing Plan Funding Strategy • External equity to support balanced APS Approx. $400M capital structure and expanded, Future PNW Approx. accretive investment Capital $6B • Deferred capital structure need from end $200
Slide 28: We are focused on cost control and customer affordability
GOAL #4 We are focused on cost control and customer affordability Operations & Maintenance Guidance O&M Guidance (millions) • Reduced year-over-year core O&M excluding planned outages • Final planned major outage in Q4 2024 at Four Corners Unit 5 Planned $75-$85 $46 • Unit 4 final planned major outa
Slide 29: Long term goal remains declining O&M per MWh
GOAL #4 Long term goal remains declining O&M per MWh PNW O&M (as adjusted) per MWh1 Average annual % change 2017-20241 O&M per MWh Weather Normalized Sales (MWh) CPI CPI (PHX) PNW O&M 4.94% 3.50% $30 1.86% 2017 2018 2019 2020 2021 2022 2023 2024E 2023 1 O&M amounts, as adjusted, exclude RES/DSM of $
Slide 30: We have a proven dividend growth track record
GOAL #5 1 We have a proven dividend growth track record Annualized Dividends per Share Dividend Targets • Long-term dividend growth • Attractive ~5% dividend yield • Managing long-term $3.52 dividend payout ratio into sustained 65-75% $2.38 ~4.5% DPS CAGR 2014 2015 2016 2017 2018 2019 2020 2021 2022
Slide 31: Maintaining healthy credit ratings to support affordable growth
GOAL #6 We are focused on maintaining healthy credit ratings to support affordable growth1 Balance Sheet Senior Targets Corporate Unsecured Short-Term • Solid investment-grade Ratings Ratings Ratings Outlook credit ratings APS • APS equity layer >50% • PNW FFO/Debt range Moody’s A3 A3 P-2 Negative o
Slide 32: Debt maturity profile shows well managed and stable financing plan
GOAL #6 Debt maturity profile shows well managed and stable financing plan ($millions) APS Fixed APS Floating PNW Fixed PNW Floating $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 December 31, 2023 32
Slide 33: We have a stable foundation with solid execution going forward
IN SUMMARY We have a stable foundation with solid execution going forward • Service territory is one of the fastest growing in the nation with a diverse customer base • Improved regulatory environment with focus on reducing regulatory lag • Strong customer centric strategy with improving J.D. Power
Slide 34: Thank You Questions & Answers
Thank You Questions & Answers
Slide 35: Appendix
PINNACLE WEST CAPITAL CORPORATION
Slide 36: Arizona's Largest Electric Company
Arizona’s Largest Electric Company Service Territory Key Facts as of Dec. 31, 2023 Consolidated assets $25B Market cap $8.15B Generating capacity owned or leased 6.5GW (year end) Customers 1.4M Current % from clean energy 51% Retail Sales Mix 51%/49% (Non-Residential/Residential) 36
Slide 37: 2024 EPS guidance
2024 EPS guidance Key Factors and Assumptions (as of February 27, 2024) 2024 Adjusted gross margin (operating revenues, net of fuel and $2.93 – $3.00 billion purchased power expenses, x/RES,DSM,CCT)1 • Retail customer growth of 1.5%-2.5% • Weather-normalized retail electricity sales growth of 2.0%-4
Slide 38: 2024 Key Regulatory Dates
2024 Key Regulatory Dates Case/Docket # Q1 Q2 Q3 Q4 Open Meeting completed on 2022 Rate Case: E-01345A-22-0144 February 22 Power Supply Adjustor (PSA) E-01345A-22-0014: 2024 PSA Rate Effective date (no change from 2023) To be filed May 15; Transmission Cost Adjustor E-01345A-22-0014: effective June
Slide 39: Residential PV Applications
Residential PV Applications 5,000 Residential DG (MWdc) Annual Additions 4,500 200 216 139 169 4,000 3,500 2020 2021 2022 2023 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2020 Applications 2021 Applications 2022 Applications 2023 Applications 1 Monthly data eq
Slide 40: Renewable Energy & Demand Side Management expenses
Renewable Energy & Demand Side Management expenses1 ($ in millions pretax) Renewable Energy Demand Side Management $40 $35 $30 $25 $20 $18 $20 $18 $12 $21 $13 $11 $15 $16 $10 $15 $16 $15 $12 $11 $5 $10 $9 $4 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1Renewable Energy and Demand Side Management expenses are substan
Slide 41: 2023 gross margin effects of weather
2023 gross margin effects of weather Variances vs. Normal ($ in millions pretax) $67 $15 $8 Q1 Q2 Q3 Q4 ($17) 2023 Total Weather Impact: $73 Million All periods recalculated to current 10-year rolling average (2012 – 2021). Numbers may not foot due to rounding. 41
Slide 42: We are stewards of a more sustainable Arizona
We are stewards of a more sustainable Arizona Climate Resiliency • Wildfire preparedness and prevention • Reduction of carbon and retirement of over 1,000 MW of coal • Focus on reliability and affordability through All-Source RFPs Company Actions • 42% of new hires in 2023 were racially or ethnicall
Slide 43: 2024 Planned Outage Schedule
2024 Planned Outage Schedule Coal, Nuclear and Large Gas Planned Outages Q1 Q2 Q4 Estimated Duration Estimated Duration Estimated Duration Plant Unit Plant Unit Plant Unit in Days in Days in Days Redhawk CC1 66 West Phoenix CC5 18 Palo Verde 2 36 West Phoenix CC5 71 Palo Verde 3 36 Four Corners 5 66
Slide 44: Non-GAAP Measure Reconciliation
Non-GAAP Measure Reconciliation 2023 Actuals4 2024 Guidance4 Operating revenues1 $4.70 billion $4.92 - $5.02 billion Fuel and purchased power expenses1 $1.79 billion $1.85 - $1.89 billion Gross Margin $2.90 billion $3.06 - $3.13 billion Adjustments: Renewable energy and demand side management progra
Slide 45: Consolidated Statistics
Consolidated Statistics 3 Months Ended December 31, 12 Months Ended December 31, 2023 2022 Incr (Decr) 2023 2022 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 454 $ 398 56 $ 2,289 $ 2,046 $ 243 Business 476 397 79 2,048 1,768 281 Total Retail 930 796 135 4,338 3,
Slide 46: Consolidated Statistics
Consolidated Statistics 3 Months Ended December 31, 12 Months Ended December 31, 2023 2022 Incr (Decr) 2023 2022 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,229 2,212 17 9,250 9,332 (82) Coal 1,223 2,578 (1,354) 6,548 8,830 (2,282) Gas, Oil and Other 2,247 2,319 (73) 9,047 8,770
Pinnacle West Capital — Q4 2023 Earnings Presentation on 6ix