Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q4 2019 Earnings Presentation
39 slides from Pinnacle West Capital's earnings presentation, Feb 21, 2020
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Fourth Quarter and Full-Year 2019 Results February 21, 2020 Fourth Quarter 2019 | 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: Consolidated EPS Comparison
CONSOLIDATED EPS COMPARISON 2019 vs. 2018 4th Quarter Earnings Full-Year Earnings $4.77 $4.54 $0.57 $0.23 2019 2018 2019 2018 Fourth Quarter 2019 | 2
Slide 4: EPS Variances: 4th Quarter 2019 vs. 2018
EPS VARIANCES 4th Quarter 2019 vs. 4th Quarter 2018 Gross Margin Adjusted Transmission $ 0.04 Income Taxes Sales / Usage $ (0.01) $0.72 $0.57 LFCR $ 0.00 Adjusted Weather $ 0.05 Gross Margin1 Federal Tax Reform $ (0.58) $0.23 $(0.54) Other $ (0.04) Pension & Adjusted OPEB Adjusted Other Non-service
Slide 5: EPS Variances: Full Year 2019 vs. 2018
EPS VARIANCES Full Year 2019 vs. 2018 Adjusted Adjusted Income Gross Adjusted Pension & Taxes Margin1 Interest, OPEB $1.06 $4.77 $4.54 $(1.13) Adjusted Adjusted net of Non-service O&M1 D&A2 AFUDC2 Credits, net $0.52 $(0.02) $(0.02) $(0.18) Gross Margin Transmission $ (0.01) Sales / Usage $ 0.03 LFCR
Slide 6: EPS Guidance
EPS GUIDANCE AS OF FEBRUARY 21, 2020 $4.75 – $4.95 Key Drivers 2019 – 2020 $4.77 + Lower O&M, primarily due to the Navajo Power Plant retirement, lower fossil planned outage expense and cost management; offset by an increase in expenses associated with revised disconnect policies + Sales growth + Hi
Slide 7: 2020 EPS Guidance Key Factors & Assumptions
2020 EPS GUIDANCE Key Factors & Assumptions as of February 21, 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 compar
Slide 8: Financial Outlook
FINANCIAL OUTLOOK Key Factors & Assumptions as of February 21, 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 sal
Slide 9: Balance Sheet Strength
BALANCE SHEET STRENGTH Near-Term Long-Term Debt Maturities 2019 Major Financing Activities $ in millions • $200 million 18-month APS unsecured $1,000 term loan entered into in February 2019 • $300 million 30-year 4.25% APS senior $800 unsecured notes issued February 2019 • $300 million 10-year 2.6%
Slide 10: Economic Development
ECONOMIC DEVELOPMENT Arizona’s focus on economic development continues to support growth in the state 2019 – New companies moving into APS’s service territory include: • Microsoft – constructing three world-class data centers • Nike – multimillion-dollar manufacturing facility employing at least 500
Slide 11: Economic Indicators
ECONOMIC INDICATORS Year over Year Employment Growth U.S. Phoenix 5% 4% Arizona’s job growth ranked second in the 3% nation in 2019 1 2% 1% 0% Maricopa County ranked #1 in U.S. for Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 population growth for third straight year 2 Single Family & Mul
Slide 12: 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 13: 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 14: 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 30 Palo Verde 1 44 Palo Verde 2 30 *Outage duration spans Q1-Q2. Num
Slide 15: 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 $139 Ocotillo1 $185 $44 $613 $794 $14 Environmen
Slide 16: APS Clean Energy Commitment
FUTURE FOCUS: CLEAN ENERGY PLAN Clean energy commitments APS Clean • 100% clean, carbon-free electricity by 2050 Energy Commitment • 65% clean energy by 2030 with 45% renewable energy • End APS’s use of coal-fired generation by the end of 2031 A clean economic future • Meet our responsibility to pow
Slide 17: Pathways to 100% Clean
FUTURE FOCUS: CLEAN ENERGY PLAN Pathways to 100% Clean Renewable additions of 300-500 MW/year to meet a 45% target by 2030 Next Steps: Collaboration, alignment and innovation • Reliability and affordability are foundational • Collaborate with customers, stakeholders and regulators • Promote economy-
Slide 18: Energy Storage Contribution to Reliability
ENERGY STORAGE CONTRIBUTION TO RELIABILITY • System reliability can be maintained by installing Increasing storage longer duration energy storage duration required to maintain reliability • Energy storage helps minimize the need for additional gas resources and allows for higher renewable utilizatio
Slide 19: Appendix
APPENDIX Fourth Quarter 2019 | 18
Slide 20: Credit Ratings and Metrics
CREDIT RATINGS AND METRICS APS Pinnacle West 2016 2017 2018 Corporate Credit Ratings1 APS FFO / Debt 27.4% 29.4% 24.5% Moody’s A2 A3 FFO / Interest 6.9x 7.5x 6.5x S&P A- A- Debt / 47.3% 46.8% 47.0% Fitch A- A- Capitalization Pinnacle West Senior Unsecured1 FFO / Debt 26.3% 26.4% 22.1% Moody’s A2 A3
Slide 21: Tax Reform
TAX REFORM ACC – TAX EXPENSE ADJUSTOR MECHANISM: • PHASE I: The ACC approved $119 million annual rate reduction reflecting the lower federal tax rate. Effective for the March 2018 billing cycle. • PHASE II: The ACC approved an additional $86.5 million rate reduction to return the unprotected “excess
Slide 22: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status1 97% ($ in millions) 95% Expense2 2019A 2020E 90% Pension1 $20 $(4) OPEB $(20) $(21) YE 2017 YE 2018 YE 2019 Contributions 2019A 2020E 2021E 2022E Pension $150 Up to $100 Each Year The pension plan employs a liability driven inv
Slide 23: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER $ in millions pretax Variances vs. Normal $25 $20 $15 $10 14 $5 8 9 0 $0 $(5) (12) (14) $(10) (23) $(15) (33) $(20) $(25) $(30) $(35) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 $(13) Million $(37) Million All periods recalculated to current 10-year rolling average (2007 – 2016
Slide 24: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 Renewable Energy Demand Side Management $40 $ in millions pretax $30 $10 $12 $20 $14 $11 $14 $9 $11 $11 $10 $21 $17 $12 $13 $9 $10 $9 $7 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 $104 Million $86 Million 1 Renewable energy and demand side management e
Slide 25: Residential PV Applications
RESIDENTIAL PV APPLICATIONS1 Residential DG (MWdc) Annual Additions 151 133 122 4,000 3,500 10 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 equals applica
Slide 26: Cumulative Peak Capacity Needs Through 2028
CUMULATIVE PEAK CAPACITY NEEDS THROUGH 2028 Merchant CC Toll (570MW) expires 4,500 Merchant CC Toll Merchant CC Toll (465 MW) expires 4,000 (565MW) expires 3,500 PAC Exchange Large resource (480MW) 3,000 expires CH 1 & 3 needs resulting retirement 2,500 (387MW) from load growth, MW data centers and
Slide 27: System Operating Change: Spring 2025
SYSTEM OPERATING CHANGE Spring 2025 • Energy storage helps reduce the need for winter gas peaking resources and can be charged with zero or negatively priced energy Spring Day – High Renewables with Storage Spring Day – High Renewables, No Storage 6000 6000 5000 5000 4000 4000 3000 3000 2000 2000 10
Slide 28: System Operating Change: Summer 2025
SYSTEM OPERATING CHANGE Summer 2025 • Energy storage reduces the need for gas peaking resources and pipeline capacity Summer Peak Day – High Renewables with Storage Summer Peak Day – High Renewables, No Storage 10000 10000 9000 9000 8000 8000 7000 7000 6000 6000 MW MW 5000 5000 4000 4000 3000 3000 2
Slide 29: 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 To be Filed: May 15 Transmission Cost Adjustor: E-01345A-16-0036 Effective: Jun 1 2020 DSM/EE Implementation Plan: E-01345A-19-0
Slide 30: 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 31: 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 $8.87 Billion Allowed Return on Equity 10.15% Capital Structure Long-term debt 45.3% Common equity 54.
Slide 32: 2019 Rate Case Key Financials: Key Components
2019 RATE CASE KEY FINANCIALS APS has requested a rate increase to become effective December 1, 2020 Overview of Rate Increase ($ 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 33: 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 (May 20, 2020) Staff/Intervenor Direct Testimony (Rate Design) (May 27, 2020) APS Rebuttal Testimony (Jun 18, 2020) Staff/Intervenor Surrebu
Slide 34: 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 35: Non-GAAP Measure Reconciliation: Three Months
NON-GAAP MEASURE RECONCILIATION Three Months Ended December 31, Four Corners Income tax Income tax and expense at Four expense at RES/ Ocotillo statutory 2019 RES/ Corners statutory 2018 EPS $ in millions pretax, except per share amounts 20191 DSM Deferrals2 rate Other Adjusted 20181 DSM Deferral 2
Slide 36: Non-GAAP Measure Reconciliation: Twelve Months
NON-GAAP MEASURE RECONCILIATION Twelve Months Ended December 31, Four Income Corners Income tax tax and expense at Four expense at RES/ Ocotillo statutory 2019 RES/ Corners statutory 2018 EPS $ in millions pretax, except per share amounts 20191 DSM Deferrals2 rate Other Adjusted 20181 DSM Deferral 2
Slide 37: Non-GAAP Measure Reconciliation: 2020 Guidance
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 38: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 31, 2019 2018 Incr (Decr) 2019 2018 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 309 $ 355 $ (46) $ 1,761 $ 1,867 $ (106) Business 315 353 (38) 1,510 1,629 (119) Total Retail 624 708 (8
Slide 39: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 31, 2019 2018 Incr (Decr) 2019 2018 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,087 1,974 113 9,289 9,052 237 Coal 1,760 2,373 (613) 8,120 7,817 303 Gas, Oil and Other 2,372 1,812 559 8,817 7,856 961 Re
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