Slide 1: Fourth Quarter and Full-Year 2017 Results
FOURTH QUARTER AND FULL-YEAR 2017 RESULTS February 23, 2018 Fourth Quarter and Full-Year 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 4th Quarter Full-Year GAAP Net Income GAAP Net Income $4.35 $3.95 $0.47 $0.19 2017 2016 2017 2016 3 Fourth Quarter and Full-Year 2017
Slide 4: EPS Variances: 4th Quarter 2017 vs. 4th Quarter 2016
EPS VARIANCES 4TH QUARTER 2017 VS. 4TH QUARTER 2016 Adjusted Adjusted Gross Margin(1) O&M(1) $0.29 $(0.27) D&A $(0.13) $0.47 Other Taxes $(0.06) Other, net Effective Tax $(0.04) Rate Gross Margin $(0.07) Rate Increase $ 0.17 $0.19 Sales / Usage $ 0.05 LFCR $ - Transmission $ 0.06 Weather $ (0.03) Ot
Slide 5: EPS Variances: Full Year 2017 vs. 2016
EPS VARIANCES FULL YEAR 2017 VS. 2016 Adjusted Adjusted Gross Margin(1) O&M(1) D&A $0.85 $(0.03) $(0.27) Other Taxes $(0.10) Interest, net of AFUDC Other, net $(0.02) $(0.03) $4.35 Gross Margin Rate Increase $ 0.30 Sales / Usage $ 0.13 LFCR $ 0.08 $3.95 Transmission $ 0.23 Weather $ 0.03 Other $ 0.0
Slide 6: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to INDICATORS live and do business Year over Year Employment Growth1 U.S. Phoenix Arizona population surpassed 7 million in 5.0% 2017 4.0% Arizona #1 state in the country in 2017 3.0% for in-bound moves - North American Moving Services Janu
Slide 7: EPS Guidance
EPS GUIDANCE AS OF FEBRUARY 23, 2018 Raising 2018 Guidance Range 1 Key Drivers 2017 - 2018 $4.35 - $4.55 + Rate increase* + Adjustment mechanisms, primarily $4.35 Transmission Cost Adjustor (TCA) and Lost Fixed Cost Recovery (LFCR) + Selective Catalytic Reduction (SCR) and Ocotillo deferrals* + Mode
Slide 8: Appendix
APPENDIX Fourth Quarter and Full-Year 2017
Slide 9: 2018 EPS Guidance: Key Factors & Assumptions
Key Factors & Assumptions as of 2018 EPS GUIDANCE February 23, 2018 2018 Electricity gross margin* (operating revenues, net of fuel and $2.47 - $2.52 billion purchased power expenses) • Retail customer growth about 1.5–2.5% • Weather-normalized retail electricity sales volume about 0.5-1.5% higher c
Slide 10: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK February 23, 2018 Gross Margin – Customer and Sales Growth (2018-2020) 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: Tax Reform
Tax Cuts and Jobs Act provides TAX REFORM benefits to both our customers and shareholders Regulatory Steps Key Impacts − Received ACC approval of $119M annual rate Income reduction reflecting lower corporate tax rate 2017 Tax Reform Impacts Regulatory Tax ($ millions) Liability through the Tax Expen
Slide 12: APS Capital Expenditures
APS CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow ($ Millions) Other $1,341 $99 $1,211 $1,181 $1,153 Distribution $80 $153 $101 $419 Transmission $444 Renewable $541 $174 $617 Generation $3 $148 $193 Environmental(1) $16 $91 $215 $235 $120 $180
Slide 13: 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 Rate Base Guidance: 6-7% Average Annual Growth Rate 17% $1.8 83% $1.4 ACC FERC Rate Effective Da
Slide 14: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ Millions) $860 - $880 $828 $833 $788 $805 75 - 85 $772 72 63 37 52 38 756 770 785 - 795 751 753 734 2013 2014 2015 2016 2017 2018E* PNW Consolidated ex RES/DSM** Planned Fleet Outages * 2018 excludes impacts r
Slide 15: Planned Outage Cycles
PLANNED OUTAGE The length of time between CYCLES outages varies from plant to plant Palo Verde Generating Station − Palo Verde will continue to have two refueling outages each year (18 months cycles for each of the three units) − APS’s share of the annual planned outage expense at Palo Verde has bee
Slide 16: Balance Sheet Strength
BALANCE SHEET STRENGTH Credit Ratings (1) Long-Term Debt Maturity Schedule • A- or equivalent ratings or better at S&P, Moody’s ($Millions) and Fitch $600 2017 Major Financing Activities $500 • $250 million re-opening in March of APS’s outstanding 4.35% senior unsecured notes due November 2045 $400
Slide 17: 2017 Rate Review Order
2017 RATE REVIEW ORDER* EFFECTIVE AUGUST 19, 2017 Key Financial Proposals – Base Rate Changes Annualized Base Rate Revenue Changes ($ 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: Revenue Requirement and Rate Design
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: Four Corners SCR Rate Rider
FOUR CORNERS SCR APS will file for a rate increase RATE RIDER in April 2018 Key Components of APS’s Anticipated Request Financial Cost of Capital Bill Impact • Consistent with prior • 7.85% Return on Rate • Rate rider applied as a disclosed estimates Base2 percentage of base rates – Weighted Average
Slide 21: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status(1) ($ in millions) 95% Expense(2) 2017A 2018E(3) 88% 88% Pension(1) $21 $8 OPEB $(18) $(13) Contributions 2017A 2018E 2019E 2020E YE 2015 YE 2016 YE 2017 Pension $100 Up to $250 • Funded status of the pension plan finished OPEB
Slide 22: Residential PV Applications
Residential DG (MWdc) Annual Additions 150 RESIDENTIAL PV 133 74 APPLICATIONS* 51 57 44 18 22 10 2 2009 2012 2014 2016 2018 YTD 4,000 3817 3591 3,500 3,000 2495 2210 2,500 1971 2033 2,000 1843 1578 1603 1463 1413 1443 1434 1291 1364 1,500 1267 1283 1153 1001 1002 1349 1,000 759 1157 1158 1189 1168 1
Slide 23: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $15 $10 12 $5 10 4 2 $0 (2) (4) $(5) (10) (13) $(10) $(15) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2017 $(3) Million $2 Million All periods recalculated to current 10-year rolling average (2005-2014) 23 Fourth Quarter and Full-Year 2017
Slide 24: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Pretax Millions Renewable Energy Demand Side Management $40 $30 10 $20 16 18 12 15 13 $10 12 15 19 12 8 7 6 4 5 $0 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2016 2017 $83 Million $91 Million * Renewable energy and demand side management expenses are offset by ad
Slide 25: 2018 Key Dates
2018 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery Implement File Feb 15 E-01345A-11-0224 May 1 Transmission Cost Adjustor File May 15 E-01345A-11-0224 Implement Jun 1 2019 DSM/EE Implementation Plan 2018 DSM Decision Decision expected by Ju
Slide 26: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended December 31, EPS $ millions pretax, except per share amounts 2017 2016 Impact Operating revenues* $ 760 $ 739 Fuel and purchased power expenses* (204) (243) Gross margin 556 496 $ 0.33 Adjustments: Renewable energy and demand side management program
Slide 27: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Twelve Months Ended December 31, EPS $ millions pretax, except per share amounts 2017 2016 Impact Operating revenues* $ 3,565 $ 3,499 Fuel and purchased power expenses* (981) (1,076) Gross margin 2,584 2,423 $ 0.89 Adjustments: Renewable energy and demand side managem
Slide 28: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION 2018 Guidance $ millions pretax Operating revenues* $ 3,645 - $ 3,705 Fuel and purchased power expenses* (1,090) - (1,100) Gross margin 2,555 - 2,605 Adjustments: Renewable energy and demand side management programs (85) - (85) Adjusted gross margin $ 2,470 - $ 2,520
Slide 29: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 31, 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 353 $ 332 21 $ 1,792 $ 1,730 $ 62 Business 370 362 8 1,615 1,605 10 Total Retail 723 694 29 3,407 3,335
Slide 30: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended December 31, 12 Months Ended December 31, 2017 2016 Incr (Decr) 2017 2016 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 52 57 (5) 1,776 1,720 56 Heating Degree-Days 203 282 (79) 642 679 (37) Average Humidity 22% 29% (7)% 24% 27% (3)% 1