Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — 2022 EEI Financial Conference
37 slides from Pinnacle West Capital's conference presentation, Nov 10, 2022
Slide 1: EEI Investor Meetings
EEI Investor Meetings November 13-15, 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: Navigating Short-Term Challenges
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile 2022 Rate Case Growth Outlook Financial Outlook Customer Initiatives -Shift to Clean Remains Strong – Sets Clear Expectations and ESG Leadership 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 ~$8B Generating capacity owned or leased – year end ~6.3 GW Customers 1.3M Current % from clean energy ~50% Nuclear plant in U.S. Largest 1
Slide 5: Attractive Customer Mix and Shifting Generation Profile
Attractive Customer Mix and Shifting Generation Profile Energy Mix Retail Sales Mix1 – Will Shift Going Forward1 Demand Side Other Management >1% 15% Gas 29% Residential Purchased 50% 5% Renewable Commercial 10% & Industrial 49% Coal 16% Nuclear 25% 1 As of December 31, 2021. 5
Slide 6: The Pinnacle West Story: Navigating Short-Term Challenges
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile 2022 Rate Case Growth Outlook Financial Outlook Customer Initiatives Remains Strong – Sets Clear Expectations and ESG Leadership 6
Slide 7: 2022 APS Rate Case Application
2022 APS Rate Case Application 1 Overview of Rate Increase Request ($ in Millions) Key Components1 Rate Base Growth $130 12 Months Post Test Year Plant 140 Weighted Average Cost of Capital of 7.17% 78 1% Fair Value Increment 78 New Customer Programs, Coal Community 34 Transition and Other Total Reve
Slide 8: 2022 APS Rate Case Application
2022 APS Rate Case Application 1 Adjustment Mechanisms Overview • Eliminate the Environmental Improvement Surcharge and collect costs through base rates • Eliminate the Lost Fixed Cost Recovery Mechanism and collect costs through base rates and the Demand Side Management Adjustor Charge • Modify the
Slide 9: 2022 APS Rate Case Application: Key Financials
2022 APS Rate Case Application Key Financials Test year ended June 30, 2022 Total Rate Base - Adjusted $13.1 Billion ACC Rate Base - Adjusted $10.5 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 Rat
Slide 10: The Pinnacle West Story: Navigating Short-Term Challenges
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile 2022 Rate Case Growth Outlook Financial Outlook Customer Initiatives Remains Strong – Sets Clear Expectations and ESG Leadership 10
Slide 11: 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 11
Slide 12: Last 10 Years: Strong Performance Track Record
REASON #1 Last 10 Years: Strong Performance Track Record EPS and Annualized Dividends Per Share $5.47 Earnings per share 5% CAGR $3.45 $3.34 Dividends per share $2.12 5% CAGR 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 12
Slide 13: Arizona Remains Among the Fastest Growing States in the U.S.
REASON #2 Arizona Remains Among the Fastest Growing States in the U.S. Annual Employment Growth Last Three Years1 Steady Housing Growth2,3 Single Family & Multifamily Housing Permits Maricopa County 43,000 1% 18% (1)% CAGR 8,425 National Arizona '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 1 2018-202
Slide 14: Best-in-Class Service Territory Supports High Tech Growth and Economic Development
REASON #2 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
Slide 15: A Clear Plan for Clean Energy Transition
REASON #3 A Clear Plan for Clean Energy Transition Progress Towards Meeting Clean Energy Commitment1 Contracted for nearly 1,600 MW of clean energy and storage to be in service for APS customers by end of 2024 Issued All-Source RFP which seeks 1,000 – 1,500 MWs of resources, including up to 600 – 80
Slide 16: We Will Pursue Improvements in the Regulatory Environment
REASON #4 We Will Pursue Improvements in the Regulatory Environment ✓ Filed 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 experience ✓ Continue to find alignment with the regulators ✓ Fo
Slide 17: We Have Embraced a Customer-Centric Strategy
REASON #5 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 growin
Slide 18: The Pinnacle West Story: Navigating Short-Term Challenges
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile 2022 Rate Case Growth Outlook Financial Outlook Customer Initiatives Remains Strong – Sets Clear Expectations and ESG Leadership 18
Slide 19: 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 20: Projected 5-7% EPS Growth Off 2022
E X P E C TAT I O N # 1 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 Amo
Slide 21: Managing Capital Plan to Support Customer Growth, Reliability and Clean Transition
E X P E C TAT I O N # 2 Managing Capital Plan to Support Customer Growth, Reliability and Clean Transition $1.65B $1.50B $1.53B $1.53B $190 $214 $240 $270 Traditional Generation $260 $560 $350 $330 Clean Generation $263 $210 $210 $210 Transmission $595 Distribution $560 $530 $500 Other $170 $165 $18
Slide 22: Steady Rate Base Growth
E X P E C TAT I O N # 3 Steady Rate Base Growth APS Rate Base Growth Guidance Total Approved Rate Base Year-End ~5-6% ACC FERC Annual $13.6 Rate Effective 79% 21% 12/01/2021 6/1/2022 $11.7 $2.4 FERC Date $10.9 $1.9 $1.8 Test Year 06/30/20191 12/31/2021 Ended $11.2 ACC Rate Base $8.6B $1.9B $9.1 $9.8
Slide 23: No Plans to Issue Equity Before End of Next Rate Case
E X P E C TAT I O N # 4 No Plans to Issue Equity Before End of Next Rate Case Forecasted Source of Capital Investment Funds through 2024 $400-$500 $200-$300 million $4.7 billion Approx. million $1 billion PNW Equity/ PNW Debt2 Approx. Alternatives $3 billion APS Debt2 Cash from Total Capital Operati
Slide 24: Our Goal is Declining O&M per MWh
E X P E C TAT I O N # 5 Our Goal is Declining O&M per MWh O&M per MWh $29/MWh Total O&M1 2021: $865M 2022: $880M-$895M 2021 2024 1 Total O&M amounts exclude RES/DSM, and include planned outage amounts of $54M in 2021 and $40M-$50M in 2022. 24 Third Quarter 2022
Slide 25: Continue Our Track Record of Consistent Dividend Growth
E X P E C TAT I O N # 6 Continue Our Track Record of Consistent Dividend Growth1 Indicated Annualized Dividend Dividend Targets • Committed to long-term dividend growth 5% $3.42 CAGR • Attractive dividend yield • Managing long term dividend payout ratio to 65-75% $2.12 2012 2013 2014 2015 2016 2017
Slide 26: Strong Balance Sheet with Attractive Long-Term Debt Maturity Profile
E X P E C TAT I O N # 7 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 September 30, 2022 1 Does not include debt at B
Slide 27: Our Credit Ratings Support Growth Opportunities
E X P E C TAT I O N # 7 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
Slide 28: The Pinnacle West Story: ESG Leadership and Customer Initiatives
THE PINNACLE WEST STORY Navigating Short-Term Challenges. Longer-Term, A Powerful Growth Story 1 2 3 4 5 Company Profile 2022 Rate Case Growth Outlook Financial Outlook ESG Leadership and Remains Strong – Sets Clear Expectations Customer Initiatives 28
Slide 29: Leading ESG Practices Guide Our Approach – Snapshot
Leading ESG Practices Guide Our Approach – Snapshot Environmental Social Governance One of two North American Launched new diversity, 40% of independent directors electric utility to achieve equity and inclusion gender or ethnically diverse CDP Leadership scores for strategy Water and Climate¹ ESG e
Slide 30: ESG Leadership – 2021 Recognitions
ESG Leadership – 2021 Recognitions Training Magazine A- Score for Climate Pinnacle West’s ESG 2021 Top 100 Learning Change and Water Rating AA1 and Development 2021 Inclusive Security Organization Workplace Award Named to the annual ranking of the world’s Top 100 Green Utilities by US Women in Nucle
Slide 31: 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 have the option to move to a seasonal opera
Slide 32: 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 33: 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 33
Slide 34: Bringing the Residential Customer into the Advanced Economy
E X A M P L E O F I N N O VAT I O N I N N I T I AT I V E 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 loa
Slide 35: 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 36: Appendix
PINNACLE WEST APPENDIX
Slide 37: 2022 EPS guidance
2022 EPS guidance Key Factors and Assumptions as of November 3, 2022 2022 Adjusted gross margin (operating revenues, net of fuel and $2.59 – $2.61 billion purchased power expenses, x/RES,DSM,CCT) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume 2.0-3.0% hi
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