Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2023 Earnings Presentation
32 slides from Pinnacle West Capital's earnings presentation, Nov 2, 2023
Slide 1: Powering Growth, Delivering Value: Third Quarter 2023 Results
POWERING GROWTH DELIVERING VALUE Third Quarter 2023 Results November 2, 2023 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 impacted by record summer heat
3rd Quarter impacted by record summer heat 3rd Quarter 2023 vs. 3rd Quarter 2022 O&M1 D&A $0.01 Pension $(0.09) Interest, net Other, net Income & & OPEB Non- service AFUDC $0.08 other taxes2 Credits, net $(0.14) $0.13 Operating Revenue $(0.10) less Fuel and Purchased Power1 $2.88 $0.73 Operating Rev
Slide 4: 2023 EPS guidance
2023 EPS guidance Key Factors and Assumptions as of November 2, 2023 2023 Adjusted gross margin (operating revenues, net of fuel and $2.72 – $2.77 billion purchased power expenses, x/RES,DSM,CCT)1 • Retail customer growth of 1.5%-2.5% • Weather-normalized retail electricity sales growth of 1.0%-3.0%
Slide 5: Key drivers for EPS guidance
Key drivers for EPS guidance1 1 2023 EPS guidance of $4.10-$4.30 key drivers1,2 Retail customer growth of 1.5%-2.5% Depreciation, amortization and property taxes due to higher plant in service Weather-normalized retail electricity sales growth of 1.0%-3.0% Operations and maintenance expense
Slide 6: Managed capital plan to support customer growth, reliability, and clean transition
Managed capital plan to support customer growth, reliability, and clean transition $1.80B $1.80B $1.85B $245 $245 $1.53B $305 $226 $325 $465 $520 Other Generation $345 $315 Clean Generation $300 $300 $217 Transmission $590 $530 $530 Distribution $577 Other $167 $265 $260 $255 2022 2023E 2024E 2025E
Slide 7: Steady rate base growth
Steady rate base growth Total APS Rate Base Growth Guidance Approved Rate Base Year-End 5-7% ACC FERC Annual $15.2 $2.7 Rate Effective 12/01/2021 6/1/2023 $11.9 $11.7 FERC Date $2.01 $1.91 Test Year 06/30/20191 12/31/2022 Ended $12.5 $9.8 2 $9.92 ACC Rate Base $8.6B2 $2.0B Equity Layer 54.7% 50.3% A
Slide 8: Our goal continues to be declining O&M per MWh
Our goal continues to be declining O&M (as adjusted) per MWh O&M (as adjusted) per MWh ~$30/MWh Total O&M (as adjusted)1 2022: $892M 2023: $915M-$935M 2022 1 O&M amounts, as adjusted, exclude RES/DSM amounts of $95M in 2022 and $120M-$130M in 2023. Planned outage amounts included in O&M are $43M in
Slide 9: 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 from 2022-2024 Approx. $400-$500 Approx. $300 million $5.1 billion $1.4 million billion PNW Equity/ Approx. PNW Debt2 Alternatives $3 billion APS Debt2 Cash from Total Capital Operations1 Investme
Slide 10: Strong balance sheet with manageable long-term debt maturity profile
Strong balance sheet with manageable long-term debt maturity profile $M APS Long-Term Debt PNW Long-Term Debt $1,200 $1,000 $800 $600 $400 $200 $0 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 As of September 30, 2023 10 Third Quarter 2023
Slide 11: Appendix
PINNACLE WEST APPENDIX
Slide 12: Arizona remains among the fastest growing states in the U.S.
Arizona remains among the fastest growing states in the U.S. Consistent Residential Growth Past Five Years Strong 2.5% Sales CAGR Past Three Years Residential Customer Growth1 Total Sales Growth2,3 3% 6% APS Residential Growth Natn'l Avg. - Residential 5% 1.5%-2.5% 2.4% 2.3% 2.2% 4% 4.2% 2% 2.1% 1.9
Slide 13: 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 Distribution – Examples • Taiwan Semiconductor • Rehrig Pacific Company • Business attraction and expansion Increased investment from $80M in
Slide 14: A clear plan for clean energy transition
A clear plan for clean energy transition Progress Towards Meeting Clean Energy Commitment Since 2020, have contracted over 4,500 MW of clean energy and storage to be in service for APS customers by end of 2025 Successfully installed 201 MW of APS owned batteries at our AZ Sun sites and 150 MW of sol
Slide 15: Clean Energy Commitment – Over 4,500MW in development since 2020
Clean Energy Commitment – Over 4,500MW in development since 2020 Robust, Diverse Procurement Activity Energy Storage • 201 MW APS owned resources to retrofit entire fleet of AZ Sun facilities − Service began in 2023 • 1,842 MW under long-term PPAs • All resources to be in service between 2022 and 20
Slide 16: 2023 Planned Outage schedule
2023 Planned Outage schedule Coal, Nuclear and Large Gas Planned Outages Q2 Q4 Plant Unit Duration in Days Plant Unit Estimated Duration in Days Palo Verde 2 34 Palo Verde 1 35 16 Third Quarter 2023
Slide 17: 2024 Planned Outage schedule
2024 Planned Outage schedule Coal, Nuclear and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Plant Unit Plant Unit Duration in Days Duration in Days Duration in Days Redhawk CC1 66 West Phoenix CC5 18 Palo Verde 2 35 West Phoenix CC5 71 Palo Verde 3 35 Four Corners 5 66
Slide 18: Gross margin effects of weather
Gross margin effects of weather $ in millions pretax Variances vs. Normal $67 $15 Q1 Q2 Q3 Q4 ($17) 2023 $65 Million All periods recalculated to current 10-year rolling average (2012 – 2021). Numbers may not foot due to rounding. 18 Third Quarter 2023
Slide 19: Renewable Energy & Demand Side Management expenses
Renewable Energy & Demand Side Management expenses1 Demand Side Management Renewable Energy $20 $18 $18 $21 $13 $11 $16 $15 $16 $12 $11 $10 $9 $4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2022 2023 $95 Million $99 Million 1Renewable Energy and Demand Side Management expenses are substantially offset by adjustment mec
Slide 20: Residential PV applications
Residential PV applications1 Residential DG (MWdc) Annual Additions 200 169 171 5,000 139 4,500 2020 2021 2022 2023 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 2020 Applications 2021 Applications 2022 Applications 2023 Applications 1Monthly data eq
Slide 21: Credit Ratings Summary
Credit Ratings Summary 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 range of Pinnacle West1
Slide 22: 2022 APS Rate Case – Updated Positions
2022 APS Rate Case – Updated Positions Key Financials Test year ended June 30, 2022 ACC Rate Base - Adjusted $10.4 Billion Embedded Long-Term Cost of Debt 3.85% Allowed Return on Equity 10.25% Capital Structure Long-term debt 48.07% Common equity 51.93% Base Fuel Rate (¢/kWh) 3.8321 Post-test year p
Slide 23: 2022 APS Rate Case – Updated Positions
2022 APS Rate Case – Updated Positions1 Adjustment Mechanisms Overview • Eliminate the Environmental Improvement Surcharge and collect costs through base rates • Maintain the Lost Fixed Cost Recovery Mechanism and Demand Side Management Adjustor Charge as separate mechanisms • Adopt a System Reliabi
Slide 24: 2022 APS Rate Case – Updated Positions
2022 APS Rate Case – Updated Positions1 Overview of Rate Increase Rebuttal Request ($ in Millions) Key Components1 Rate Base Growth $130 Revenue Impact of 12 Months Post Test Year Plant and Four Corners ELG 114 Weighted Average Cost of Capital of 7.17% 78 0.5% Fair Value Increment 34 New Customer Pr
Slide 25: 2022 APS Rate Case - Testimony Summary
2022 APS Rate Case - Testimony Summary11 ACC Staff Surrebuttal RUCO Surrebuttal APS Rejoinder Testimony Testimony Testimony Return on Equity 9.68% 8.2%2 10.25% Fair Value Increment 0.50% 0.0% 0.50% Post Test-Year Plant 12 months + Four Corners ELG 6 months 12 months + Four Corners ELG New Capital Tr
Slide 26: 2022 APS Rate Case Procedural Schedule
2022 APS Rate Case Procedural Schedule Arizona Public Service Company Docket # E-01345A-22-0144 Application Filed October 28, 2022 Staff/Intervenor Direct Testimony Due June 5, 2023 Staff/Intervenor Direct Testimony (Rate Design) Due June 15, 2023 APS Rebuttal Testimony Due July 12, 2023 Staff/Inter
Slide 27: Regulatory 2023 key dates
Regulatory 2023 key dates1 ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Hearing commenced Hearing concluded 2022 Rate Case: E-01345A-22-0144 August 10 October 3 2024 PSA Rate to be Power Supply Adjustor (PSA) E-01345A-19-0236: Effective March 1 filed Nov 30 Filed May 15; effective Transmission Cost Adjustor
Slide 28: Pension & Other Post Retirement Benefits (OPEB)
Pension & Other Post Retirement Benefits (“OPEB”) Pension Funded Status1 Components of Benefit Cost 2023E2 Service Cost + 107% Non-Service Costs/(Credit): 106% Interest Cost - Expected Return on Assets3 - 104% Amortization of Prior Service Costs = Amortization of Actuarial Losses/(Gains) - YE 2020 Y
Slide 29: 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 30: Non-GAAP Measure Reconciliation
Non-GAAP Measure Reconciliation 2022 Actuals4 2023 Guidance4 Operating revenues1 $4.32 billion $4.71 - $4.79 billion Fuel and purchased power expenses1 $1.63 billion $1.86 - $1.91 billion Gross Margin $2.69 billion $2.84 - $2.89 billion Adjustments: Renewable energy and demand side management progra
Slide 31: Consolidated statistics
Consolidated statistics 3 Months Ended September 30, 9 Months Ended September 30, 2023 2022 Incr (Decr) 2023 2022 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 883 $ 743 $ 140 $ 1,835 $ 1,648 $ 187 Business 649 548 101 1,572 1,370 202 Total Retail 1,533 1,291 242
Slide 32: Consolidated statistics
Consolidated statistics 3 Months Ended September 30, 9 Months Ended September 30, 2023 2022 Incr (Decr) 2023 3 Months 2022 Ended June Incr30 (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,524 2,532 (8) 7,022 7,121 (99) Coal 2,127 2,591 (464) 5,325 6,252 (927) Gas, Oil and Other 3,072 2,
Pinnacle West Capital — Q3 2023 Earnings Presentation on 6ix