Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — EEI Financial Conference 2018
44 slides from Pinnacle West Capital's conference presentation, Nov 9, 2018
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE EEI Financial Conference l November 11-13, 2018 Powering Growth, Delivering Value
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: Pinnacle West: Who We Are
We are a vertically integrated, PINNACLE WEST: regulated electric utility in the WHO WE ARE growing Southwest United States Our Business Our Plants Pinnacle West operates Arizona Public Service (“APS”), APS co-owns and operates power plants in the Southwest, our principal subsidiary with full operat
Slide 4: Pinnacle West: Our Future
PINNACLE WEST: We are making clean energy and infrastructure investments to OUR FUTURE support Arizona’s growth Our future includes: • More clean energy • A healthier environment • Palo Verde Generating Station, the largest clean energy producer in the country • Infrastructure to power Arizona’s gro
Slide 5: Sustainability
APS’s vision is to create a SUSTAINABILITY sustainable energy future for Arizona Progress and Achievements Five critical areas of our sustainability efforts Board of Directors Nuclear and Operating Carbon Management Committee Charter was amended in 2018 • Plan to reduce carbon intensity by 23% ove
Slide 6: Clean Energy
Clean energy plays an important CLEAN ENERGY role in meeting Arizona’s energy needs today Looking ahead to Arizona’s growing population and expanding economic activity, APS continues supporting resources and technology to ensure our energy is clean, reliable and affordable for all Arizonans The Palo
Slide 7: Storage Projects
We are leading the solar-plus- battery-storage effort, STORAGE PROJECTS advancing innovation and conducting ground-breaking research 2018 Battery Storage RFP • Up to 106 MW located on APS solar plant sites • Utility owned • Anticipated in-service by June 2020 Punkin Center Battery Storage Project •
Slide 8: Renewable Resources
RENEWABLE RESOURCES APS Solar Portfolio* APS currently has 1,683 MW of renewable resources: Owned PPA 239 MW 310 MW • Solar* 1,364 MW • Wind 289 MW DG 815 MW • Biomass 14 MW • Geothermal 10 MW • Biogas 6 MW Owned solar includes 170 MW AZ Sun Program, 25 MW of APS owned Distributed Generation (DG), 4
Slide 9: Customer Programs
Introduced more programs CUSTOMER that benefit both customers PROGRAMS and the Company Smart Thermostats with Demand Response and Pre-Cooling Customer Benefits • Bill credit of $25/year in exchange for demand response APS Benefits • Partner with customers to reduce system load during peak periods Be
Slide 10: Demand Side Management (DSM)
DEMAND SIDE 2018 DSM Plan shifts the focus to align with APS’s changing MANAGEMENT (DSM) resource needs School Bus Electrification • Pilot program to electrify school buses that can charge in the middle of the day Managed EV Charging Program • Fleet, workplace and multifamily charging infrastructure
Slide 11: Residential PV Applications
Residential DG (MWdc) Annual Additions 150 RESIDENTIAL PV 133 97 74 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 2330 1944 2,000 1818 1561 2033 1602 1426 1413 1442 1434 1,500 1267 1291 1366 1283 1153 1364 1442 1001 1230 953 1157 1349 1,000
Slide 12: The "Duck Curve"
Distributed generation is changing THE “DUCK CURVE” the load shape of the grid Current Spring Day Spring Day 2022 Excess renewables create over-generation … and potentially for nuclear generation in challenges … 5,000 the future 5,000 4,500 4,500 4,000 4,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000
Slide 13: Economic Development
ECONOMIC Arizona’s focus on economic development continues to support DEVELOPMENT growth in the state 2017 APS partnered with Greater Phoenix Economic Council and Arizona Commerce Authority to welcome 21 new companies to the state, adding an estimated: • 39.8 MW • 4,300 new jobs • $659.9M in capital
Slide 14: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to INDICATORS live and do business Year over Year Employment Growth U.S. Phoenix 5.0% Maricopa County ranked #1 in U.S. for 4.0% population growth for second straight year 3.0% - U.S. Census Bureau March 2018 2.0% Arizona is a top 5 state i
Slide 15: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 16: Senior Management Team
SENIOR Our management team has more than 100 combined years MANAGEMENT of creating shareholder value in TEAM the energy industry Don Brandt Jim Hatfield Chairman of the Board, President and Executive Vice President and Chief Executive Officer, Pinnacle West & APS Chief Financial Officer, Pinnacle We
Slide 17: 2018 EPS Guidance
Key Factors & Assumptions as of 2018 EPS GUIDANCE November 8, 2018 2018 Adjusted gross margin1,2 (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 compare
Slide 18: 2019 EPS Guidance
Key Factors & Assumptions as of 2019 EPS GUIDANCE November 8, 2018 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 0-1% higher compared
Slide 19: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK November 8, 2018 Gross Margin – Customer and Sales Growth (2018-2020) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Strength in Arizona and U.S. economic conditions Weather-normalized retail electricity sales •
Slide 20: Dividend Growth
Pinnacle West’s indicated annual dividend is $2.95 per share; DIVIDEND GROWTH targeting ~6% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.95 $2.78 $2.62 $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Targeted Future dividen
Slide 21: APS Capital Expenditures
APS CAPITAL Capital expenditures will support our growing customer base and EXPENDITURES utilization of advanced technology ($ Millions) Other $1,341 $99 $1,211 $1,206 $1,153 Distribution $74 $139 $125 $419 Transmission $467 Clean $518 $598 $174 Generation $137 $147 Environmental1 $193 $151 $201 $16
Slide 22: Distribution Grid Investments
DISTRIBUTION GRID Grid Operations and Investment Projected to be $1.6 billion from INVESTMENTS 2018-2020 Customer Growth Grid Modernization Run and Maintain Approximately 51% of distribution capex Approximately 9% of distribution capex Approximately 40% of distribution capex R T Reclosers – Supervis
Slide 23: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ Millions) $905 - $925 $858 $865 - $885 $848 75 - 85 63 50 - 60 72 830 - 840 815 - 825 776 795 1 1 1 2016 2017 2018E 2019E 2 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Reclassified to reflect the adopt
Slide 24: 2019 Planned Outage Schedule
2019 PLANNED OUTAGE Coal, Nuclear and Large Gas and SCHEDULE Oil Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in Days Days in Days Four 4 12 Palo Verde 1 30 Palo Verde 3 44 Corners Four West 5 12 Cholla* 1 16 4 62 Corners Phoen
Slide 25: 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% $1.5 $1.4 ACC FERC Rate Effecti
Slide 26: Tax Reform
Tax Cuts and Jobs Act provides TAX REFORM benefits to both our customers and shareholders • TEAM PHASE I: The ACC approved $119 million annual EPS Impacts rate reduction reflecting the lower federal tax rate. • The impact of the lower federal income tax rate is Effective for the March 2018 billing c
Slide 27: Balance Sheet Strength
BALANCE SHEET STRENGTH Credit Ratings2 Long-Term Debt Maturity Schedule • APS Senior Unsecured: A- or equivalent ratings ($Millions) or better at S&P, Moody’s and Fitch $600 • PNW Senior Unsecured: BBB+ or equivalent ratings or better at S&P, Moody’s and Fitch $500 2018 Major Financing Activities •
Slide 28: Credit Ratings and Metrics
CREDIT RATINGS AND METRICS Pinnacle APS 2015 2016 2017 West Corporate Credit Ratings1 APS Moody’s A2 A3 FFO / Debt 29.7% 26.5% 26.9% S&P A- A- FFO / Interest 5.8x 5.0x 5.2x Debt / Fitch A- A- 45.8% 47.7% 47.3% Capitalization Senior Unsecured1 Pinnacle West Moody’s A2 A3 FFO / Debt 28.9% 25.1% 24.7%
Slide 29: 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 30: Four Corners SCR Step Increase
FOUR CORNERS SCR Hearing concluded on September STEP INCREASE 7, 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 Cost for al
Slide 31: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION* Terms to January 2019 Terms to January 2021 Tom Justin Bob Boyd Andy Forese (R) Olson (R)*** Burns (R)** Dunn (R) Tobin (R) Chairman Other State Officials ACC Interim Executive Director – Matthew Neubert RUCO Director – David Tenney *2018 Election results pending: Rod
Slide 32: 2018 Key Dates
2018 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Lost Fixed Cost Recovery Filed Feb 15 E-01345A-11-0224 Transmission Cost Adjustor Filed May 15 E-01345A-11-0224 Implemented Jun 1 2019 DSM/EE Implementation Plan Dec: File 2019 Plan E-01345A-18-0105 Jun 12: 2018 RES Plan 2019 RES Implementation Pla
Slide 33: Regulatory Mechanisms
We have achieved a supportive REGULATORY regulatory structure and MECHANISMS improvements in cost recovery timing Adopted / Mechanism Description Last Adjusted Power Supply Adjustor April 2005 / • Recovers variance between actual fuel and purchased power costs and (“PSA”) February 2018 base fuel rat
Slide 34: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and projected closings – Update filed each May – Annual rate true-up compares projecte
Slide 35: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments 2017 2018 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2017 Rates 2018 Rates (Including True-Up) (Including True-Up) 2017 Revenue 2018 Reve
Slide 36: Regulatory Mechanisms (LFCR)
REGULATORY Lost Fixed Cost Recovery MECHANISMS (LFCR) • Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2012 settlement 2018 Revenue – Estimated to offset 30-40% of revenues lost due to 2017 Revenue ACC-mandated energy efficiency (EE) and distributed 2016 Revenue renewable genera
Slide 37: Carbon Avoidance and Emission Reductions
CARBON AVOIDANCE APS has reduced carbon dioxide AND EMISSION emissions by 35% since 2005 REDUCTIONS Cumulative Carbon Avoidance Carbon Avoidance Metric • Metric used to measure our overall 15 carbon reduction, not just generation 13.6 but Company wide (Million Metric Tons) CO2 Emissions Carbon Avoid
Slide 38: Water Strategy
APS, and Palo Verde in particular, has provided national and WATER STRATEGY international leadership on the use of reclaimed water for power generation Vision: APS continues to strive for sustainable and cost-effective water supplies for energy production for APS customers Mission: To execute a stra
Slide 39: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2018 (115 kV and above) – 52 miles of new lines – 13 bulk transformer additions Flagstaff • Also includes: – Sun Valley-Mor
Slide 40: Generation Portfolio
GENERATION PORTFOLIO* Plant Location No. of Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 2 Base 1962-1980 100 387 COAL Four Corners Farmington, NM 2 Base 1969-1970 63 970 1,672 MW Navajo Page,
Slide 41: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (MW) Solana Gila Bend, AZ Abengoa IO Feb-2008 2013 30 250 RE Ajo Ajo, AZ Duke Energy Gen Svcs IO Jan-2010 2011 25 5 Sun E AZ 1 Prescott, AZ SunEdison IO Feb-2010 2011 30 10 SOLAR 310 MW Sadd
Slide 42: Non-GAAP Measure Reconciliation: 2018 Guidance
NON-GAAP MEASURE RECONCILIATION 2018 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 $
Slide 43: Non-GAAP Measure Reconciliation: 2019 Guidance
NON-GAAP MEASURE RECONCILIATION 2019 GUIDANCE 2019 Guidance $ 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,
Slide 44: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Stefanie Layton Director, Investor Relations (602) 250-4541 stefanie.layton@pinnaclewest.com Michelle Clemente (602) 250-3752 michelle.clemente@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 Phoenix, Arizona 85072-3999 Visit us online
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