Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Presentation (June 2022)
40 slides from Pinnacle West Capital's investor presentation, Jun 15, 2022
Slide 1: Investor Presentation June 2022
Investor Presentation June 2022
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 - Solid Foundation Remains Strong and ESG Leadership - Sets Clear Expectations 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, 2021 Consolidated assets $22B Arizona Revenues $3.8B Market cap ~$8B Generating capacity owned or leased – year end ~6.3 GW Customers 1.3M Current % from clean energy ~50% Nuclear plant in U.S. Largest 1
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 29% Residential Purchased 50% 5% Renewable Commercial 10% & Industrial 49% Coal 16% Nuclear 25% 1 As of December 31, 2021. 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 - Solid Foundation Remains Strong and ESG Leadership - Sets Clear Expectations 6
Slide 7: Why We Are Optimistic About the Future
Why We Are Optimistic About the Future Key Reasons 1 Solid long-term performance record Robust economic growth in Arizona 2 and our service territory 3 A clear plan for a clean energy transition Ability to navigate the regulatory 4 environment over time 5 Strong commitment to execute strategy 7
Slide 8: Last 10 Years: Strong Performance Track Record
Last 10 Years: Strong Performance Track Record EPS and Annualized Dividends Per Share $5.47 Earnings per share 5% CAGR $3.45 $3.40 Dividends per share $2.18 5% CAGR 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 8
Slide 9: Record of Delivering On Our Promise to Provide Affordable Energy
Record of Delivering On Our Promise to Provide Affordable Energy Increase in Residential Electricity Decrease in Average Residential Demand (MWH) Customer Bill Jan. 2018 to Nov. 2021 +9.0% -5.0% Jan. 2018 to Dec. 2021 9
Slide 10: Arizona remains among the fastest growing states in the U.S.
Arizona remains among the fastest growing states in the U.S. Annual Employment Growth Last Three Years1 Steady Housing Growth2 Single Family & Multifamily Housing Permits Maricopa County 43,378 1% 18% (1)% CAGR 8,425 National Arizona '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 1 2019-2021 2 Maricopa
Slide 11: 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 Data Centers – Examples • Taiwan • Nestle USA • Business attraction and expansion Semiconductor Building 625k sq ft Began building $12B facil
Slide 12: We Will Pursue Improvements in the Regulatory Environment
We Will Pursue Improvements in the Regulatory Environment ✓ Appealing last rate case to clarify the prudency standard in Arizona ✓ Filing a new rate case to reduce regulatory lag and improve the ROE ✓ Work with stakeholders on common issues including reducing regulatory lag and improving customer ex
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 - Solid Foundation Remains Strong and ESG Leadership - Sets Clear Expectations 14
Slide 15: A clear plan for clean energy transition
A clear plan for clean energy transition Progress Towards Meeting Clean Energy Commitment1 Announced seasonal operations of Four Corners beginning 2023 Contracted for nearly 1600 MW of clean energy and storage to be in service for APS customers by end of 2024 Charted course for healthy mix of APS-ow
Slide 16: Coal Exit Strategy – 7 Years Earlier than Originally Projected
Coal Exit Strategy – 7 Years Earlier than Originally Projected Navajo 315 MW (now retired) Cholla 387 MW 2025 Remaining Four Corners 970 MW 20311 2018 2019 2025 2031 2038 Coal Free 1Starting in 2023 and subject to the necessary approvals, Four Corners will move to a seasonal operating schedule that
Slide 17: Coal Exit and Expiring Purchase Contracts Will Create a 6,000 MW Supply-Demand Gap by 2035
Coal Exit and Expiring Purchase Contracts Will Create a 6,000 MW Supply-Demand Gap by 2035 Peak Capacity (MW) 12,000 10,000 6,000 MW¹ 8,000 Closing the gap Existing / Signed - opportunity Contracts 6,000 4,000 Existing Owned 2,000 Resources 0 2020 2023 2026 2029 2032 2035 ¹ Will need more additions
Slide 18: Pilot Project Exploring Hydrogen as Potential Solution for Long Duration Storage
Pilot Project Exploring Hydrogen as Potential Solution for Long Duration Storage Profile of Project Possible Scenario for Palo Verde Nuclear Plant Collaborators • Palo Verde nuclear plant and Idaho National Power from Laboratory storage to grid Pilot Program 100% Plant • Examine long-term cost effec
Slide 19: Key New Energy Sources to Achieve Goals
Key New Energy Sources to Achieve Goals Initiatives Resource Mix Change1 Today 2035 • Solar generation Coal 16% 0% • Wind generation Gas 29% 6%-17% • Gas as a bridge fuel • Demand-side management Nuclear 25% 16% • Energy storage solutions Purchased 5% 11% • Innovation Renewable/ 25% 56%-67% DSM 1 As
Slide 20: 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 21: Customer Driven Initiatives Underway – A Few Examples
Customer Driven Initiatives Underway – A Few Examples Take Charge AZ Customer Advisory Board Energy Efficiency • Pilot program to encourage • Gathers direct insight from • Demand response programs electric vehicle adoption by residential customers to reward shift of energy installing charging statio
Slide 22: Helping our Communities Thrive Creates Lasting Benefits for our Company
Helping our Communities Thrive Creates Lasting Benefits for our Company Community- 24/7 Heat Relief Arizona $12.9 Customer Minded Customer Strategy Teachers Million Assistance Employees Care Center K-12 We donated Employees pledged Answered 76% of Provide qualified Partnered with Gave at total of mo
Slide 23: Enhanced Diversity, Equity and Inclusion Unites Our Team
Enhanced Diversity, Equity and Inclusion Unites Our Team Employee Female New Hires Diversity Officers DEI Strategy in 2021 in 2021 In 2021 In 2021, we launched our DEI Strategy. Key activities in 2021: • Four-part leadership education series for all officers • Company-wide • 33% are ethnically • 44%
Slide 24: Our Strong Governance Enables Successful Execution
Our Strong Governance Enables Successful Execution Board Independence Board Oversight • Ten of our eleven Board members are • Defined oversight of environmental, social and independent governance practices by the Corporate Governance and Public Responsibility Committee • Robust Board refreshment, wi
Slide 25: Diverse Board Representation
Diverse Board Representation • 36% of independent directors gender or ethnically diverse • Diversity in skills, knowledge and expertise • Average tenure will be 8.01 years 1 As of May 18, 2022 25
Slide 26: 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 - Solid Foundation Remains Strong and ESG Leadership - Sets Clear Expectations 26
Slide 27: 2022 EPS guidance
2022 EPS guidance Key Factors and Assumptions as of May 4, 2022 2022 Adjusted gross margin (operating revenues, net of fuel and $2.52 – $2.55 billion purchased power expenses, x/RES,DSM,CCT) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume 1.5-2.5% higher
Slide 28: 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 kWh 6 Dividend growth commitment 7 Optimize our balance sheet in
Slide 29: 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 30: Managed capital plan to support customer growth, reliability, and clean transition
Managed capital plan to support customer growth, reliability, and clean transition $1.65B $1.50B $1.53B $1.53B $190 $214 $250 $270 Other Generation $260 $560 $340 $330 Clean Generation $263 $250 $210 $210 Transmission $595 Distribution $510 $530 $500 Other $170 $175 $185 $190 2021 2022E 2023E 2024E
Slide 31: Steady rate base growth
Steady rate base growth APS Rate Base Growth Guidance Total Approved Rate Base Year-End 5-6% ACC FERC Annual $13.6 Rate Effective 12/01/2021 6/1/2021 $2.4 FERC Date $10.9 $1.8 Test Year 06/30/20191 12/31/2020 Ended $11.2 ACC Rate Base $8.6B $1.8B $9.1 Equity Layer 54.7% 51.6% Allowed ROE 8.7% 10.75%
Slide 32: 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 through 2024 $400-$500 $200-$300 million $4.7 billion Approx. million $1 billion PNW Equity/ PNW Debt2 Alternatives Approx. $3 billion APS Debt2 Cash from Total Capital Operations1 Investment 1 Ca
Slide 33: Our goal is flat total O&M and declining O&M per MWh
Our goal is flat total O&M and declining O&M per MWh O&M per MWh $29/MWh Total O&M1 2021: $865M 2022: $820M-$840M 2021 2022 2023 2024 1 Total O&M amounts exclude RES/DSM, and include planned outage amounts of $54M in 2021 and $40M-$50M in 2022. 33
Slide 34: Continue Our Track Record of Consistent Dividend Growth
Continue Our Track Record of Consistent Dividend Growth1 Indicated Annualized Dividend Dividend Targets • Committed to long-term dividend growth $3.40 • Attractive dividend yield 5% CAGR • Managing long term dividend payout ratio to 65-75% $2.18 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1 Fu
Slide 35: Strong balance sheet with attractive long-term debt maturity profile
Strong balance sheet with attractive long-term debt maturity profile1 $M APS Long-Term Debt PNW Long-Term Debt $1,200 $1,000 $800 $600 $400 $200 $0 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 As of March 31, 2022 1 Does not include debt at Bright Canyon Energy. 35
Slide 36: Our credit ratings support growth opportunities
Our credit ratings support growth opportunities 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
Slide 37: Attractive Financial Profile Beyond 2022
Attractive Financial Profile Beyond 20221 Management Actions EPS Growth Dividend Yield • Deferring equity 5-7% ~5% Target Committed to issuance growing dividend • Reducing O&M • Optimizing balance Total Shareholder Return sheet 10-12% 1 Amounts provided are the Company’s current projections 37
Slide 38: 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, 10-year 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 transiti
Slide 39: Appendix
PINNACLE WEST APPENDIX
Slide 40: ESG Leadership – 2021 Recognitions
ESG Leadership – 2021 Recognitions Training Magazine A- Score for Climate MSCI Upgrades 2021 Top 100 Learning Change and Water Pinnacle West’s ESG and Development 2021 Inclusive Security Rating to AA1 Organization Workplace Award Named to the annual ranking of the world’s Top 100 Green Utilities by
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