Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q4 2020 Earnings Presentation
34 slides from Pinnacle West Capital's earnings presentation, Feb 24, 2021
Slide 1: Powering Growth, Delivering Value: Fourth Quarter and Full-Year 2020 Results
POWERING GROWTH DELIVERING VALUE Fourth Quarter and Full-Year 2020 Results February 24, 2021 Fourth Quarter 2020 | 1
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES Thi s presentation contains forward-looking statements based on current expectations, including s tatements regarding our earnings guidance a nd financial outlook and goals. These forwa rd-looking s tatements a re often identified by words s
Slide 3: Consolidated EPS Comparison
CONSOLIDATED EPS COMPARISON 2019 vs. 2020 4th Quarter Earnings Full-Year Earnings $4.77 $4.87 $0.57 ($0.17) 2019 2020 2019 2020 2020 EPS would have been $5.04 excluding the AZ Attorney General Settlement 1 1 AZ Attorney General Settlement resulted in a ($0.17) earnings per share impact. See Slide 5.
Slide 4: EPS Variances: 4th Quarter 2020 vs. 4th Quarter 2019
EPS VARIANCES 4th Quarter 2020 vs. 4th Quarter 2019 Adjusted $0.57 O&M1 Adjusted Adjusted Adjusted Pension & $(0.34) D&A2 Other Interest, OPEB Adjusted $(0.08) Taxes2 net of Non-service Gross Adjusted Margin 1 $(0.01) AFUDC2 Credits, net Other, net 2 $0.54 $(0.01) $0.06 $(0.26) Gross Margin $(0.17)
Slide 5: EPS Variances: Full-Year 2020 vs. 2019
EPS VARIANCES Full-Year 2020 vs. 2019 Adjusted O&M1 Adjusted Adjusted Adjusted Pension & $4.77 Adjusted $4.87 $(0.16) D&A2 Other Interest, OPEB Other, net 2 $(0.22) Taxes2 net of Non- $(0.24) Adjusted Adjusted $(0.02) Income AFUDC2 service Gross Taxes $(0.05) Credits, net Margin 1 $0.22 $(0.60) $1.1
Slide 6: Key Drivers and Guidance
KEY DRIVERS AND GUIDANCE AS OF FEBRUARY 24, 2021 2021 Key Drivers • EPS guidance pending APS rate case conclusion • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales growth of 0.5%-1.5% • Transmission revenue • Operations and maintenance • Depreciation and amortizat
Slide 7: 2020 Long-Term Financing Activity
2020 LONG-TERM FINANCING ACTIVITY Pinnacle West • $500 million 5-year 1.30% PNW senior unsecured notes issued June 2020 • All PNW long-term debt maturing in 2020 was repaid in June 2020 APS • $150 million of APS senior unsecured notes repaid in January 2020 • $600 million 30-year 3.35% APS senior un
Slide 8: Long-Term Debt Maturity Profile
LONG-TERM DEBT MATURITY PROFILE ($MM) 1,250 1,000 750 500 250 0 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 APS Long-Term Debt PNW Long-Term Debt As of December 31, 2020 Fourth Quarter 2020 | 8
Slide 9: Economic Development
ECONOMIC DEVELOPMENT FUTURE EXPANSIONS OUR APPROACH FOCUSES ON FOUR MAIN AREAS o Taiwan Semiconductor expected to build $12 Business Attraction & Expansion - constructive billion factory and create a projected 1,900 jobs engagement with economic development community partners and timely, strategic e
Slide 10: Economic Indicators
ECONOMIC INDICATORS Annual Employment Growth Last Three Years 4 In a difficult period for construction 1% nationwide, Phoenix led in industry (1)% job growth1 Phoenix expected to be among hottest US home markets in 2021, according to Zillow 2 National Arizona Steady Housing Growth5 Arizona is the th
Slide 11: APS Capital Expenditures
APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and our transition to a cleaner generation mix PROJECTED $ in millions $2,000 $1,800 $1,600 $1,500 $1,500 $1,500 $1,400 $203 $190 $187 $1,262 $1,200 $199 Traditional Generation $314 $392 $406 Clean Generation $1,000
Slide 12: Rate Base
RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End Generation & Distribution Transmission ACC FERC Long-term Rate Base Guidance: ~6% Average Annual Growth 20% $2.3 80% $1.7 ACC FERC Rate Effectiv
Slide 13: Operations & Maintenance
OPERATIONS & MAINTENANCE Goal is to keep O&M per kWh flat, adjusted for planned outages $ in millions $933 $886 $858 74 $856 45 63 48 795 859 808 841 2 2017 2018 2019 2020 PNW Consolidated ex RES/DSM 1 Planned Fleet Outages 1 Excludes RES/DSM of $91 million in 2017, $104 million in 2018, $86 million
Slide 14: 2021 Planned Outage Schedule
2021 PLANNED OUTAGE SCHEDULE Coal, Nuclear, and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in in Days Days Days Four Four 4 47 4 25 Palo Verde 2 30 Corners* Corners* Palo Verde 3 30 *Outage duration spans Q1-Q2. Num
Slide 15: Appendix
APPENDIX Fourth Quarter 2020 | 15
Slide 16: Future Focus: Clean Energy Plan
FUTURE FOCUS: CLEAN ENERGY PLAN APS Clean Clean energy commitments Energy Commitment • 100% clean, carbon-free electricity by 2050 • 65% clean energy by 2030 with 45% renewable energy • End APS’s use of coal-fired generation by the end of 2031 A clean economic future • Meet our responsibility to pow
Slide 17: Resource Planning
RESOURCE PLANNING 2020 Procurement Activities Storage Contracted • 141 MW located on six APS solar plant sites • Utility owned • Expected in service 2022 Wind Contracted • 20-year PPA for 200 MW of wind resources • Re-power of existing wind facility • Expected in service in 2021 Demand Response Cont
Slide 18: Hydrogen
HYDROGEN Palo Verde collaborates on a pilot project to explore the production of hydrogen at Palo Verde Generating Station Xcel Idaho Energy Palo Verde National Collaborators Include Energy Laboratory Harbor • The pilot program will examine the long-term cost-effectiveness of hydrogen production at
Slide 19: Credit Ratings and Metrics
CREDIT RATINGS AND METRICS APS Pinnacle West S&P Credit Metrics TME 9/30/20 Corporate Credit Ratings 1 APS Moody’s A2 A3 FFO / Debt 22.7% FFO / Interest 7.6x S&P A- A- Debt / Capitalization 49.6% Fitch A- A- Pinnacle West Senior Unsecured1 FFO / Debt 20.0% Moody’s A2 A3 FFO / Interest 6.9x S&P A- BB
Slide 20: Income Taxes
Income Taxes ACC – TAX EXPENSE ADJUSTOR MECHANISM: • PHASE I: ACC approved $119 million annual rate reduction reflecting the lower federal tax rate. Effective March 2018. • PHASE II: ACC approved an additional $86.5 million rate reduction to return the unprotected “excess” deferred taxes to ACC cust
Slide 21: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status ($ in millions) Expense1 2020A 2021E 104% Pension2 $(6) $(41) 97% OPEB $(21) $(37) 90% Contributions 2020A 2021E 2022E 2023E Pension $100 $100 $0 $0 OPEB $0 $0 $0 $0 YE 2018 YE 2019 YE 2020 • Liability driven investment strategy
Slide 22: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER $ in millions pretax Variances vs. Normal $55 $45 $35 $25 51 37 $15 24 $5 $(5) (1) $(15) $(25) $(35) Q1 Q2 Q3 Q4 2020 $110 Million All periods recalculated to current 10-year rolling average (2008 – 2017). Numbers may not foot due to rounding. Fourth Quarter 2020 | 22
Slide 23: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 Renewable Energy Demand Side Management $40 $ in millions pretax $30 $20 $11 $14 $11 $11 $11 $11 $14 $10 $12 $13 $10 $9 $9 $7 $7 $6 $0 $3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 $86 Million $73 Million 1 Renewable energy and demand side management expe
Slide 24: Residential PV Applications
RESIDENTIAL PV APPLICATIONS1 Residential DG (MWdc) Annual Additions 133 139 3,000 122 13 2,500 2018 2019 2020 2021 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 Applications 2019 Applications 2020 Applications 2021 Applications 1 Monthly data equals applications receiv
Slide 25: 2021 Key Dates
2021 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-16-0036 Effective: April 1 Lost Fixed Cost Recovery: E-01345A-16-0036 File: Feb 15 File: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Effective: Jun 1 2021 DSM/EE Implementation Plan: E-01345A-20- 0151 2
Slide 26: 2019 Rate Case Rebuttal Testimony
2019 RATE CASE REBUTTAL TESTIMONY Filed November 6, 2020 Docket Number: E-01345A-19-0236 Additional details, including filing, can be found at http://www.pinnaclewest.com/investors Rebuttal Testimony Highlights Advanced Energy - Recover clean energy investments Mechanism (AEM) - Could replace the De
Slide 27: APS Rebuttal Testimony Key Financials
APS REBUTTAL TESTIMONY KEY FINANCIALS Test year ended June 30, 2019 Total Rate Base - Adjusted $11.2 Billion ACC Rate Base - Adjusted $8.9 Billion Allowed Return on Equity 10.0% Capital Structure Long-term debt 45.3% Common equity 54.7% Base Fuel Rate (¢/kWh) 3.1451 Post-test year plant period 12 mo
Slide 28: APS Rebuttal Testimony - Revenue Requirement
APS REBUTTAL TESTIMONY - REVENUE REQUIREMENT Dollars Customer Bill Impact = Net Base Rate Increase + Net Adjustor Changes Bill Impact (millions) Total Revenue Deficiency in APS’s Application $184 5.6% Base Rate Changes Net adjustments $(28) -0.9% TEAM $(119) -3.6% All other adjustor mechanisms $4 0.
Slide 29: Summary of Rate Case Intervenor Recommendations
SUMMARY OF RATE CASE INTERVENOR RECOMMENDATIONS APS (Rebuttal) ACC Staff (Surrebuttal) RUCO (Surrebuttal) Total Revenue Increase $169 $59.8 ($50.0) (Base Rate and Adjustors) 5.1% 1.8% (1.5%) ($MM) Base Rate Increase ($MM) $40 ($55.2) ($165.0) ROE 10.00% 9.40% 8.70% Alt 1: 0.00% Return on Fair Value
Slide 30: APS Rate Case Procedural Schedule
APS RATE CASE PROCEDURAL SCHEDULE Arizona Public Service Company Docket # E-01345A-19-0236 Application Filed October 31, 2019 Staff/Intervenor Direct Testimony (October 2, 2020) Staff/Intervenor Direct Testimony (Rate Design) (October 9, 2020) APS Rebuttal Testimony (November 6, 2020) Staff/Interven
Slide 31: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended December 31, Four Four Corners Income tax Corners Income tax and expense at and expense at RES/ Ocotillo statutory 2020 RES/ Ocotillo statutory 2019 EPS $ in millions pretax, except per share amounts 20201 DSM Deferrals2 rate Other Adjusted 20191 DS
Slide 32: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Twelve Months Ended December 31, Four Four Corners Income tax AZ Corners Income tax and expense at Attorney and expense at RES/ Ocotillo statutory General 2020 RES/ Ocotillo statutory 2019 EPS $ in millions pretax, except per share amounts 20201 DSM Deferrals2 rate Se
Slide 33: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 30, 2020 2019 Incr (Decr) 2020 2019 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 363 $ 309 $ 54 $ 1,929 $ 1,761 $ 168 Business 340 315 25 1,486 1,510 (23) Total Retail 703 624 79 3,415
Slide 34: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31 12 Months Ended December 31 2020 2019 Incr (Decr) 2020 2019 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,029 2,087 (58) 9,182 9,289 (107) Coal 1,287 1,760 (474) 6,298 8,120 (1,822) Gas, Oil and Other 2,614 2,372 242 10,615 8,817
Pinnacle West Capital — Q4 2020 Earnings Presentation on 6ix