Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2017 Earnings Presentation
26 slides from Pinnacle West Capital's earnings presentation, Nov 3, 2017
Slide 1: Third Quarter 2017 Results
THIRD QUARTER 2017 RESULTS November 3, 2017 Third Quarter 2017
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: Consolidated EPS Comparison 2017 vs. 2016
CONSOLIDATED EPS COMPARISON 2017 VS. 2016 3rd Quarter Year-to-Date On-Going Earnings On-Going Earnings $4.16 $2.46 $2.35 $3.47 2017 2016 2017 2016 3rd Quarter Year-to-Date GAAP Net Income GAAP Net Income $2.46 $2.35 $4.16 $3.47 3 Third Quarter 2017
Slide 4: On-Going EPS Variances 3rd Quarter 2017 vs. 3rd Quarter 2016
ON-GOING EPS VARIANCES 3RD QUARTER 2017 VS. 3RD QUARTER 2016 Gross Margin(1) O&M(1) D&A Interest, net $0.22 $(0.02) $(0.07) Other Taxes of AFUDC Other, net $(0.02) $0.01 $(0.01) $2.46 $2.35 Gross Margin Rate Increase $ 0.13 Sales $ 0.02 Weather $ 0.02 Transmission $ 0.04 LFCR $ (0.01) Other $ 0.02 3
Slide 5: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to live and do INDICATORS business Nonresidential Building Vacancy – Metro Phoenix Vacancy Rate Maricopa County ranked #1 in U.S. for 25% population growth in 2016 Office - U.S. Census Bureau March 2017 20% 15% Industrial Above-average job
Slide 6: On-Going EPS Guidance
ON-GOING EPS GUIDANCE AS OF NOVEMBER 3, 2017 Key Drivers 2017 - 2018 $4.25 – $4.45 + Rate increase* $4.15 – $4.30 + Adjustment mechanisms, primarily Transmission Cost Adjustor (TCA) and Lost Fixed Cost Recovery (LFCR) + Selective Catalytic Reduction (SCR) and Ocotillo deferrals* + Modest sales growt
Slide 7: Appendix
APPENDIX Third Quarter 2017
Slide 8: 2017 On-Going EPS Guidance
2017 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE November 3, 2017 2017 Electricity gross margin* (operating revenues, net of fuel and $2.45 – $2.50 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% hi
Slide 9: 2018 On-Going EPS Guidance
2018 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE November 3, 2017 2018 Electricity gross margin* (operating revenues, net of fuel and $2.61 – $2.66 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0.5-1.5%
Slide 10: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK November 3, 2017 Gross Margin – Customer Growth and Weather (2017-2019) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricity
Slide 11: Dividend Growth
Pinnacle West’s indicated annual dividend is $2.78 per share; DIVIDEND GROWTH targeting ~6% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.78 $2.62 $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 2018 2019 Targeted Future dividends subject
Slide 12: Rate Base
APS’s revenues come from a RATE BASE regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End ACC FERC Generation & Distribution Transmission 17% $1.8 83% $1.4 $1.4 ACC FERC Rate Effective Date 8/19/2017 6/1/2017 $8.2 $6.5 $6.8 Test Year
Slide 13: APS Capital Expenditures
APS CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow ($ Millions) Other $1,337 $1,224 $77 $1,181 Distribution $87 $82 $420 $1,009 Transmission $388 $124 $421 Renewable $182 Generation $127 $3 $437 $102 $178 $199 Environmental(1) $16 $220 $90 $245
Slide 14: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ Millions) $860 - $880 $828 $830 - $850 $788 $805 75 - 85 $772 55 - 65 52 72 37 38 756 775 - 785 785 - 795 751 753 734 2013 2014 2015 2016 2017E 2018E* PNW Consolidated ex RES/DSM** Planned Fleet Outages * 2018
Slide 15: Planned Outage Cycles
PLANNED OUTAGE The length of time between CYCLES outages varies from plant to plant Palo Verde Generating Station − Palo Verde will continue to have two refueling outages each year (18 months cycles for each of the three units) − APS’s share of the annual planned outage expense at Palo Verde has bee
Slide 16: Balance Sheet Strength
BALANCE SHEET STRENGTH Credit Ratings Debt Maturity Schedule • A- or equivalent ratings or better at S&P, Moody’s ($Millions) and Fitch $600 2017 Major Financing Activities $500 • $300 million 10-year 2.95% APS senior unsecured notes issued September 2017 $400 • $250 million re-opening in March of A
Slide 17: 2017 Rate Review Order
2017 RATE REVIEW ORDER* EFFECTIVE AUGUST 19, 2017 Key Financial Proposals – Base Rate Changes Annualized Base Rate Revenue Changes ($ millions) Non-fuel, Non-depreciation Base Rate Increase $ 87.2 Decrease fuel and Purchased Power over Base Rates (53.6) Increase due to Changes in Depreciation Schedu
Slide 18: 2017 Rate Review Order
2017 RATE REVIEW ORDER* EFFECTIVE AUGUST 19, 2017 Key Proposals – Revenue Requirement • Cost deferral order from in-service dates to incorporation of SCRs in rates using a step-increase no Four Corners later than January 1, 2019 Ocotillo Modernization • Cost deferral order from in-service dates to e
Slide 19: Ocotillo Modernization Project and Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT AND FOUR CORNERS SCRs • Included in the 2017 Rate Review Order*, APS has been granted Accounting Deferral Orders for two large generation-related capital investments – Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and replacing wit
Slide 20: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $15 $10 12 $5 10 4 2 $0 (4) $(5) (10) (13) $(10) $(15) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 $(3) Million $4 Million All periods recalculated to current 10-year rolling average (2005-2014) 20 Third Quarter 2017
Slide 21: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Pretax Millions Renewable Energy Demand Side Management $40 $30 $20 16 18 12 15 13 $10 12 15 12 8 7 6 4 5 $0 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 $83 Million $62 Million * Renewable energy and demand side management expenses are offset by adjustment
Slide 22: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended September 30, EPS $ millions pretax, except per share amounts 2017 2016 Impact Operating revenues* $ 1,183 $ 1,167 Fuel and purchased power expenses* (310) (336) Gross margin 873 831 $ 0.23 Adjustments: Renewable energy and demand side management pr
Slide 23: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION 2017 Guidance $ millions pretax Operating revenues* $ 3,540 - $ 3,600 Fuel and purchased power expenses* (1,010) - (1,020) Gross margin 2,530 - 2,580 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted gross margin $ 2,450 - $ 2,500
Slide 24: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION 2018 Guidance $ millions pretax Operating revenues* $ 3,790 - $ 3,850 Fuel and purchased power expenses* (1,090) - (1,100) Gross margin 2,700 - 2,750 Adjustments: Renewable energy and demand side management programs (90) - (90) Adjusted gross margin $ 2,610 - $ 2,660
Slide 25: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended September 30, 9 Months Ended September 30, 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 662 $ 647 15 $ 1,439 $ 1,398 $ 41 Business 474 480 (6) 1,245 1,244 1 Total Retail 1,136 1,127 9 2,684 2
Slide 26: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended September 30, 9 Months Ended September 30, 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 1,153 1,160 (7) 1,724 1,663 61 Heating Degree-Days - - - 439 397 42 Average Humidity 32% 31% 1% 26% 27% (1)% 10-Ye
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