Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q1 2020 Earnings Presentation
33 slides from Pinnacle West Capital's earnings presentation, May 8, 2020
Slide 1: Powering Growth, Delivering Value: First Quarter 2020 Results
POWERING GROWTH DELIVERING VALUE First Quarter 2020 Results May 8, 2020 First Quarter 2020 | 0
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: EPS Variances: 1st Quarter 2020 vs. 1st Quarter 2019
EPS VARIANCES 1st Quarter 2020 vs. 1st Quarter 2019 Gross Margin Transmission $ (0.01) Weather $ (0.08) Federal Tax Reform $ (0.15) Other $ 0.03 Adjusted Income Adjusted Taxes Other, net2 Adjusted Pension & Adjusted $0.18 $(0.02) Gross $0.27 OPEB Interest, Margin1 Non-service net of $0.16 $(0.21) Ad
Slide 4: 2020 EPS Guidance
2020 EPS GUIDANCE Key Factors & Assumptions as of May 8, 2020 2020 Adjusted gross margin1,2 (operating revenues, net of fuel and purchased power expenses) $2.48 – $2.54 billion • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 1-2% higher compared to
Slide 5: Financial Outlook
FINANCIAL OUTLOOK Key Factors & Assumptions as of May 8, 2020 Gross Margin – Customer and Sales Growth (2020-2022) Assumption Impact Retail customer growth • Expected to average about 1.5-2.5% annually • Strength in Arizona and U.S. economic conditions Weather-normalized retail electricity sales vol
Slide 6: COVID-19 Events and Energy Update
COVID-19 EVENTS AND ENERGY UPDATE Our top priority is to provide reliable service to our customers while maintaining the health and safety of our employees Our Company has made preparations and is executing our plan to effectively manage the current environment and mitigate future impacts. Providing
Slide 7: Pinnacle West Profile
PINNACLE WEST PROFILE We are a financially healthy company well positioned to succeed in achieving our long-term goals Strong balance sheet Sufficient liquidity De-risked pension plan through liability driven investment strategy Sales weighted heavily in the Q3 hot summer months Large resi
Slide 8: Energy Usage and Sales
ENERGY USAGE AND SALES Second half of March and April show decrease in C&I and increase in residential. Too soon to reach conclusions on usage trends. From March 13th Customer Estimated EPS impact 1% through April 30th the change in annual sales EPS impact from the net Residential $0.09 reduction in
Slide 9: Preliminary Weather-Normalized Energy Trend
PRELIMINARY WEATHER-NORMALIZED ENERGY TREND Friday, March 13: date when the trend in normalized load begins to change First Quarter 2020 | 8
Slide 10: Strong Balance Sheet and Healthy Liquidity
STRONG BALANCE SHEET AND HEALTHY LIQUIDITY Near-Term Long-Term Debt Maturities Liquidity and Financing Activity $ in millions • $1.2 billion revolver capacity $1,000 ₋ As of May 1st have drawn down $310 million $800 All remaining long- • Option to increase revolver capacity term debt maturities by $
Slide 11: Pension Plan
PENSION PLAN Well funded pension plan with investment strategy that mitigates funding status volatility Pension Funded Status • Liability driven investment 97% 96.4% strategy helps reduce 90% funded status volatility • Approximately 65% of the pension portfolio is in fixed income assets • Hedge 100%
Slide 12: Operations and Supply Chain
OPERATIONS AND SUPPLY CHAIN Our operations team has health and safety protocols consistent with our pandemic crisis management plan in place Crisis Preparedness • Executing effectively under our crisis management and business continuity plans • Employee safety top priority with remote working polici
Slide 13: Economic Indicators
ECONOMIC INDICATORS Year over Year Employment Growth U.S. Phoenix Arizona’s job growth ranked second in the 5% nation in 20191 4% 3% 2% Maricopa County ranked #1 in U.S. for 1% population growth for third straight year 2 0% Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Arizona is the 3rd fastest-
Slide 14: Economic Development
ECONOMIC DEVELOPMENT FUTURE EXPANSIONS OUR APPROACH FOCUSES ON FOUR MAIN AREAS o White Claw/Mark Anthony Brewing Inc. announced plans to Business Attraction & Expansion - constructive engagement build a 916,000-square-foot facility co-located next to Red with economic development community partners
Slide 15: 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: 19% 6-7% Average Annual Growth $2.3 81% ACC FERC $1.6 Rate Effecti
Slide 16: Operations & Maintenance
OPERATIONS & MAINTENANCE Goal is to keep O&M per kWh flat, adjusted for planned outages $ in millions $933 $858 74 $856 $830 - $850 63 48 40 - 50 795 859 808 790 - 800 2017 2018 2019 2020E PNW Consolidated ex RES/DSM 1 Planned Fleet Outages 1 Excludes RES/DSM of $91 million in 2017, $104 million in
Slide 17: 2020 Planned Outage Schedule
2020 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 Days Days in Days Four Four Corners* 5 46 Corners* 5 29 Palo Verde 1 44 Palo Verde 2 30 *Outage duration spans Q1-Q2. Num
Slide 18: APS Capital Expenditures
APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and utilization of advanced technology $ in millions PROJECTED $2,000 $1,800 $1,650 $1,725 $121 $1,600 $154 $44 $53 $1,400 $1,331 Traditional Generation $1,231 $1,200 $141 Ocotillo1 $185 $45 $613 $794 $14 Environmen
Slide 19: Appendix
APPENDIX First Quarter 2020 | 18
Slide 20: Credit Ratings and Metrics
CREDIT RATINGS AND METRICS APS Pinnacle West 2017 2018 2019 Corporate Credit Ratings1 APS FFO / Debt 29.4% 24.5% 22.5% Moody’s A2 A3 FFO / Interest 7.5x 6.5x 6.4x S&P A- A- Debt / 46.8% 47.0% 47.7% Fitch A- A- Capitalization Pinnacle West Senior Unsecured1 FFO / Debt 26.4% 22.1% 19.5% Moody’s A2 A3
Slide 21: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER $ in millions pretax Variances vs. Normal $25 $20 $15 $10 $5 12 7 $0 $(5) (13) (1) $(10) $(15) (35) $(20) $(25) $(30) $(35) Q1 Q2 Q3 Q4 Q1 2019 2020 $(28) Million $(1) Million All periods recalculated to current 10-year rolling average (2008 – 2017) First Quarter 2020
Slide 22: 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 $10 $13 $10 $9 $7 $7 $0 Q1 Q2 Q3 Q4 Q1 2019 2020 $86 Million $18 Million 1 Renewable energy and demand side management expenses are offset by adjustment
Slide 23: Residential PV Applications
RESIDENTIAL PV APPLICATIONS1 Residential DG (MWdc) Annual Additions 151 133 133 122 4,000 34 3,500 2016 2017 2018 2019 2020 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2017 Applications 2018 Applications 2019 Applications 2020 Applications 1 Monthly data equal
Slide 24: 2020 Key Dates
2020 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-16-0036 Effective: Feb 1 Lost Fixed Cost Recovery: E-01345A-16-0036 Filed: Feb 14 Effective: May 1 To be Filed: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Effective: Jun 1 2020 DSM/EE Implementation Pl
Slide 25: 2019 APS Rate Case Application
2019 APS RATE CASE APPLICATION Filed October 31, 2019 Docket Number: E-01345A-19-0236 Additional details, including filing, can be found at http://www.pinnaclewest.com/investors Adjustor Changes and New Mechanisms Overview Formula Rate - Proposed as an alternative to existing adjustor mechanisms Def
Slide 26: 2019 Rate Case Key Financials
2019 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective December 1, 2020 Test year ended June 30, 2019 Total Rate Base - Adjusted $11.12 Billion ACC Rate Base - Adjusted $8.87 Billion Allowed Return on Equity 10.15% Capital Structure Long-term debt 45.3% Common equity 54.
Slide 27: 2019 Rate Case Key Financials
2019 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective December 1, 2020 Overview of Rate Increase ($ in Millions) - Key Components Four Corners SCRs $ 73 Ocotillo Modernization Project 100 Post-Test Year Plant Additions 66 Net Change in Other Items 64 Tax Expense Adjusto
Slide 28: 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 (August 3, 2020) Staff/Intervenor Direct Testimony (Rate Design) (August 10, 2020) APS Rebuttal Testimony (September 1, 2020) Staff/Interven
Slide 29: Arizona Utilities General Rate Cases
ARIZONA UTILITIES GENERAL RATE CASES Tucson Electric Power Company Southwest Gas Docket # E-01933A-19-0028 Docket # G-01551A-19-0055 Application Filed April 1, 2019 Application Filed May 1, 2019 Hearing Commences (Jan 16, 2020) Staff /Intervenor Direct Testimony (Revenue) (Feb 5, Staff’s late-filed
Slide 30: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended March 31, Four Four Corners Income tax Corners Income tax and expense at and expense at RES/ Ocotillo statutory 2020 RES/ Ocotillo statutory 2019 EPS 2 2 $ in millions pretax, except per share amounts 20201 DSM Deferrals rate Other Adjusted 20191 DS
Slide 31: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION 2020 Guidance $ in millions pretax Operating revenues1 $ 3,570 - $ 3,640 Fuel and purchased power expenses1 (1,030) - (1,040) Gross margin 2,540 - 2,600 Adjustments: Renewable energy and demand side management programs (65) - (65) Adjusted gross margin $ 2,475 - $ 2,5
Slide 32: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended March 31, 2020 2019 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 325 $ 352 (26) Business 303 333 (29) Total Retail 628 684 (56) Sales for Resale (Wholesale) 15 36 (22) Transmission for Others 16 15 1 Other Miscellaneous Ser
Slide 33: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended March 31, 2020 2019 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,405 2,512 (107) Coal 1,407 1,773 (367) Gas, Oil and Other 2,082 1,848 234 Renewables 114 118 (4) Total Generation Production 6,008 6,252 (244) Purchased Power - Conventional 21
Pinnacle West Capital — Q1 2020 Earnings Presentation on 6ix