Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — UBS European Tour April 2-4, 2019
29 slides from Pinnacle West Capital's conference presentation, Apr 1, 2019
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE UBS European Tour l April 2-4, 2019 Powering Growth, Delivering Value
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: Pinnacle West: Who We Are
We are a vertically integrated, PINNACLE WEST: regulated electric utility in the WHO WE ARE growing Southwest United States Our Business Our Plants Pinnacle West operates Arizona Public Service APS co-owns and operates power plants in the Southwest, Company (“APS”), our principal subsidiary with ful
Slide 4: A Strategy to Drive Value
A STRATEGY TO DRIVE VALUE The Core is the foundation The APS Strategic Business Plan is anchored for our strategic and by four themes that align with industry trends business initiatives shaping our future and the way we do business Clean Affordable Build a clean energy future Deliver affordable
Slide 5: Pinnacle West: Our Future
PINNACLE WEST: We are making clean energy and infrastructure investments to OUR FUTURE support Arizona’s growth Our future includes: • More clean energy • A healthier environment • Palo Verde Generating Station, the largest clean energy producer in the country • Infrastructure to power Arizona’s gro
Slide 6: Clean Energy Investments
CLEAN ENERGY Plans to invest in 950 MW of INVESTMENTS new clean technology by 2025 2018 Battery Storage RFP • 141 MW located on six APS solar plant sites • Utility owned • Anticipated in-service by mid-2020 2018 Peaking Capacity RFP • 150 MW of battery storage • 20 year power purchase agreements beg
Slide 7: Sustainability
APS’s vision is to create a SUSTAINABILITY sustainable energy future for Arizona Five critical areas of our sustainability efforts Today, we serve customers with an energy mix that is 50% Carbon Management clean • Commitment to exit coal by 2038 • MSCI Environmental Sustainability and Governance A r
Slide 8: Coal Exit Strategy
We have already retired 849 MWs COAL EXIT STRATEGY of coal-fired generation Plan to reduce carbon intensity by 23% over the next 15 years Navajo 315 MW by end of Cholla 2019 387 MW by 2025 Remaining 970 MW by 2038 Coal Free 2018 2019 2025 2038 • We have a long history of transitioning to clean energ
Slide 9: Carbon Avoidance and Emission Reductions
CARBON AVOIDANCE APS surpassed the Paris AND EMISSION Agreement greenhouse gas reduction goal 9 years early REDUCTIONS Cumulative Carbon Avoidance Carbon Avoidance Metric • Measures Companywide carbon reduction, 20 not just generation (Million Metric Tons) 18.1 15 Carbon Avoidance Opportunities CO2
Slide 10: Water Strategy
APS, and Palo Verde in particular, has provided national and WATER STRATEGY international leadership on the use of reclaimed water for power generation Vision: APS continues to strive for sustainable and cost-effective water supplies for energy production for APS customers Mission: To execute a stra
Slide 11: Renewable Resources
RENEWABLE RESOURCES APS Solar Portfolio* APS currently has 1,717 MW of renewable resources: Owned PPA 238 MW 310 MW • Solar* 1,398 MW • Wind 289 MW DG 850 MW • Biomass 14 MW • Geothermal 10 MW • Biogas 6 MW Owned solar includes 170 MW AZ Sun Program, 24 MW of APS owned Distributed Generation (DG), 4
Slide 12: Residential PV Applications
Residential DG (MWdc) Annual Additions 151 RESIDENTIAL PV 133 133 74 APPLICATIONS1 57 22 2014 2015 2016 2017 2018 2019 YTD 4,000 3718 3432 3,500 3,000 2464 2,500 2143 1944 2033 2,000 1818 1561 1602 1426 1986 1442 1434 1413 1364 1,500 1267 1291 1283 1153 1160 1172 1001 1,000 1260 850 854 1095 770 115
Slide 13: Economic Development
ECONOMIC Arizona’s focus on economic development continues to support DEVELOPMENT growth in the state Arizona is the 4th fastest-growing state in the U.S. according to new Census data.1 2018 – APS partnered with Greater Phoenix Economic Council and Arizona Commerce Authority to welcome 17 new compan
Slide 14: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 15: Senior Management Team
SENIOR Our management team has more than 100 combined years MANAGEMENT of creating shareholder value in TEAM the energy industry Don Brandt Jim Hatfield Chairman of the Board, President and Executive Vice President and Chief Executive Officer, Pinnacle West and Chief Financial Officer, Pinnacle West
Slide 16: APS Capital Expenditures
APS CAPITAL Capital expenditures will support our growing customer base and a EXPENDITURES cleaner energy mix ($ in millions) $1,484 $108 Other $1,202 $1,226 $1,203 Distribution $94 $126 $147 $559 Transmission $481 $508 $462 Clean $199 Generation $116 $169 Environmental1 $202 $147 $439 $65 $269 New
Slide 17: Distribution Grid Investments
DISTRIBUTION GRID Grid Operations and Investment Projected to be more than $1.5 INVESTMENTS billion from 2019-2021 Customer Growth Grid Modernization Run and Maintain Approximately 50% of distribution capex Approximately 9% of distribution capex Approximately 41% of distribution capex Line Extension
Slide 18: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ in millions) $933 $858 74 $865 - $885 $848 63 50 - 60 72 859 795 815 - 825 776 2016 2017 2018 2019E 1 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Excludes RES/DSM of $83 million in 2016, $91 million in
Slide 19: 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 Long-term Rate Base Guidance: 6-7% Average Annual Growth 17% $2.0 83% $1.5 ACC FERC $9.6 Rate Ef
Slide 20: Tax Reform
Tax Cuts and Jobs Act provides TAX REFORM benefits to both our customers and shareholders Customer Impacts EPS Impacts • TEAM PHASE I: The ACC approved $119 million • The impact of the lower federal income tax rate is annual rate reduction reflecting the lower federal tax based on our quarterly pre-
Slide 21: Balance Sheet Strength
BALANCE SHEET STRENGTH Long-Term Debt Maturity Schedule Credit Ratings2 ($ in millions) • APS Senior Unsecured: A- or equivalent $1,000 ratings or better at S&P, Moody’s and Fitch • PNW Senior Unsecured: BBB+ or equivalent ratings or better at S&P, Moody’s $800 and Fitch $450 2019 Major Financing Ac
Slide 22: Credit Ratings and Metrics
CREDIT RATINGS AND METRICS Pinnacle APS 2015 2016 2017 West Corporate Credit Ratings1 APS Moody’s A2 A3 FFO / Debt 29.7% 26.5% 26.9% S&P A- A- FFO / Interest 5.8x 5.0x 5.2x Debt / Fitch A- A- 45.8% 47.7% 47.3% Capitalization Senior Unsecured1 Pinnacle West Moody’s A2 A3 FFO / Debt 28.9% 25.1% 24.7%
Slide 23: Ocotillo Modernization Project and Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT AND FOUR CORNERS SCRs • Included in the 2017 Rate Review Order1, 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 24: Four Corners SCR Step Increase
FOUR CORNERS SCR The Administrative Law Judge issued a Recommended Opinion STEP INCREASE and Order on November 27, 20181 Key Components of APS’s Filed Request Financial Cost of Capital Bill Impact • Consistent with prior • 7.85% Return on Rate • Rate rider applied as a disclosed estimates Base2 perc
Slide 25: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2023 Terms to January 2021 Sandra Justin Bob Boyd Andy Kennedy (D) Olson (R) Burns (R)* Dunn (R) Tobin (R) Other State Officials ACC Executive Director – Matthew Neubert RUCO Director – David Tenney *Term limited - elected to four-year terms (limited t
Slide 26: 2019 Key Dates
2019 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA) Implemented: Feb 1 E-01345A-16-0036 Lost Fixed Cost Recovery 2018 LFCR approved 2019 E-01345A-16-0036 LFCR Filed: Feb 15 Transmission Cost Adjustor To be filed: May 15 E-01345A-16-0036 Implementation: Jun 1 2020 DSM/EE I
Slide 27: The "Duck Curve"
Non-Curtailable Rooftop Solar is THE “DUCK CURVE” Changing the Load Shape of the Grid MW 5,000 Meeting Evening Peak 4,500 4,000 • The mid-day dip in load disappears once the sun sets 3,500 Load before renewables • This causes a steep ramp in demand heading into the evening 3,000 peak 2,500 Load afte
Slide 28: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Twelve Months Ended December 31, Tax Benefit Four of Lower RES/ Corners Pre-Tax 2018 RES/ 2017 EPS $ in millions pretax, except per share amounts 20181 DSM Deferral2 Income Adjusted 20171,3 DSM Adjusted Impact Operating revenues $ 3,691 $ (108) $ - $ - $ 3,583 $ 3,565
Slide 29: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Stefanie Layton Director, Investor Relations (602) 250-4541 stefanie.layton@pinnaclewest.com Michelle Clemente (602) 250-3752 michelle.clemente@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 Phoenix, Arizona 85072-3999 Visit us online
Pinnacle West Capital — UBS European Tour April 2-4, 2019 on 6ix