Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2022 Earnings Presentation
30 slides from Pinnacle West Capital's earnings presentation, Nov 3, 2022
Slide 1: Powering Growth, Delivering Value: Third Quarter 2022 Results
POWERING GROWTH DELIVERING VALUE Third Quarter 2022 Results November 3, 2022 1
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: 3rd Quarter negative prior rate case impacts partially offset by weather
3rd Quarter negative prior rate case impacts partially offset by weather 3rd Quarter 2022 vs. 3rd Quarter 2021 D&A2 $(0.18) Pension O&M1 & 2 & OPEB Non- $(0.13) service Other Taxes2 Credits, net Operating $0.03 $(0.02) Revenue Income Taxes4 less Fuel $0.10 and Purchased Interest, net Power1 Operatin
Slide 4: 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 – $2.61 billion purchased power expenses, x/RES,DSM,CCT) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume 2.0-3.0% hi
Slide 5: Key drivers for EPS guidance
Key drivers for EPS guidance1 1 2022 key drivers • Retail customer growth 1.5%-2.5% • Property Tax • Weather-normalized retail electricity • Interest expense sales growth of 2%-3% • AFUDC • Transmission revenues • Pension and OPEB • Operations and maintenance • Depreciation and amortization Long-ter
Slide 6: 2022 APS Rate Case Application
2022 APS Rate Case Application 1 Overview of Rate Increase Request ($ 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 7: 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 8: 2022 APS Rate Case Application
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 9: 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 $240 $270 Other Generation $260 $560 $350 $330 Clean Generation $263 $210 $210 $210 Transmission $595 Distribution $560 $530 $500 Other $170 $165 $185 $190 2021 2022E 2023E 2024E
Slide 10: 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 6/1/2022 $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 Equity Layer 54.7% 51.3% Allowed
Slide 11: Our goal continues to be declining O&M per MWh
Our goal continues to be declining O&M per MWh O&M per MWh $29/MWh Total O&M1 2021: $865M 2022: $880M-$895M 1 Total O&M amounts exclude RES/DSM, and include planned outage amounts of $54M in 2021 and $40M-$50M in 2022. 11 Third Quarter 2022
Slide 12: 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 13: 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 September 30, 2022 1 Does not include debt at Bright Canyon Energy. 13
Slide 14: We continue to make progress towards key deliverables
We continue to make progress towards key deliverables ➢ File appeal of last rate case ✓ Filed notice of appeal on December 17 ✓ Filed opening brief on April 27 ✓ Filed reply brief on July 27 ✓ Oral Arguments set for November 30 ➢ Make progress on financing plan ✓ Deferring equity issuance until afte
Slide 15: Appendix
PINNACLE WEST APPENDIX
Slide 16: 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 17: 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 18: A clear plan for clean energy transition
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 – 800 MWs of r
Slide 19: Clean Energy Commitment – ~1,600MW in development since 2020
Clean Energy Commitment – ~1,600MW in development since 2020 Robust, Diverse Procurement Activity Energy Storage • 201 MW APS-owned resources to retrofit entire fleet of AZ Sun facilities • 300 MW under two long-term PPAs • All resources to be in service between 2022 and 2024 Solar • 150 MW owned by
Slide 20: 2022 Planned Outage schedule
2022 Planned Outage schedule Coal, Nuclear and Large Gas Planned Outages Q1 Q2 Q4 Estimated Duration Plant Unit Plant Unit Duration in Days Plant Unit Duration in in Days Days N/A N/A N/A Palo Verde 1 35 Palo Verde 3 35 20 Third Quarter 2022
Slide 21: 2023 Planned Outage schedule
2023 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 N/A N/A N/A Palo Verde 2 35 Palo Verde 1 35 Redhawk CC1 34 21 Third Quarter 2022
Slide 22: Gross margin effects of weather
Gross margin effects of weather $ in millions pretax Variances vs. Normal $26 $6 $1 Q1 Q2 Q3 Q4 2022 $33 Million All periods recalculated to current 10-year rolling average (2011 – 2020). Numbers may not foot due to rounding. 22 Third Quarter 2022
Slide 23: Renewable Energy & Demand Side Management expenses
Renewable Energy & Demand Side Management expenses1 Demand Side Management Renewable Energy $18 $18 $13 $13 $11 $12 $16 $13 $12 $10 $10 $7 $6 $4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2021 2022 $89 Million $73 Million 1 Renewable energy and demand side management expenses are offset by adjustment mechanisms. 23 Th
Slide 24: Residential PV applications
Residential PV applications1 Residential DG (MWdc) Annual Additions 169 149 139 5,000 122 4,500 2019 2020 2021 2022 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019 Applications 2020 Applications 2021 Applications 2022 Applications 1Monthly data eq
Slide 25: Our credit ratings support growth opportunities
Our credit ratings support growth opportunities Senior Corporate Unsecured Short-Term Ratings Ratings Ratings Outlook APS1 Balance Sheet Targets Moody’s A3 A3 P-2 Negative • Strong investment grade credit ratings S&P BBB+ BBB+ A-2 Negative • APS equity layer >50% Fitch BBB+ A- F2 Negative • FFO/Debt
Slide 26: Regulatory 2022 key dates
Regulatory 2022 key dates ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA): E-01345A-19-0236 Effective Feb 1 Approved May 18 and Lost Fixed Cost Recovery: E-01345A-22-0042 Filed Feb 15 effective Jun 1 Transmission Cost Adjustor: E-01345A-19-0236 Effective Jun 1 2022 DSM/EE Implementa
Slide 27: Pension & Other Post Retirement Benefits (“OPEB”)
Pension & Other Post Retirement Benefits (“OPEB”) ($ in millions) Pension Funded Status1 Contributions 2021A 2022E 2023E 2024E 107% Pension $100 $0 $0 $0 104% OPEB $0 $0 $0 $0 Benefit Expense Notes • Using the corridor accounting approach, gains and losses outside of 97% the established corridor are
Slide 28: Components and Key Drivers of Benefit Costs
Components and Key Drivers of Benefit Costs1 Service Cost (a cost that increases Benefit Cost): • When discount rates decrease Service Cost increases and Benefit Cost increases (and vice versa) • Not impacted by asset assumptions Interest Cost (a cost that increases Benefit Cost): • When discount ra
Slide 29: Consolidated statistics
Consolidated statistics1 3 Months Ended September 30, 9 Months Ended September 30, 2022 2021 Incr (Decr) 2022 2021 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 743 $ 682 61 $ 1,648 $ 1,554 $ 94 Business 548 481 67 1,370 1,216 154 Total Retail 1,291 1,163 128 3,0
Slide 30: Consolidated statistics
Consolidated statistics 3 Months Ended September 30, 9 Months Ended September 30, 2022 2021 Incr (Decr) 2022 2021 Incr (Decr) ENERGY SOURCES (GWH) Generation Production 3 Months Ended June 30 Nuclear 2,532 2,488 44 7,121 7,026 94 Coal 2,591 2,349 242 6,252 4,884 1,369 Gas, Oil and Other 2,814 3,096
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