Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2018 Earnings Presentation
31 slides from Pinnacle West Capital's earnings presentation, Nov 8, 2018
Slide 1: Third Quarter 2018 Results
THIRD QUARTER 2018 RESULTS November 8, 2018 Third Quarter 2018
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 2018 vs. 2017
CONSOLIDATED EPS COMPARISON 2018 VS. 2017 3rd Quarter Earnings Year-to-Date Earnings $2.80 $4.31 $4.16 $2.46 2018 2017 2018 2017 3 Third Quarter 2018
Slide 4: EPS Variances 3Q 2018 vs. 3Q 2017
EPS VARIANCES 3RD QUARTER 2018 VS. 3RD QUARTER 2017 Pension & Adjusted OPEB Income Adjusted Non- Taxes3 Adjusted Adjusted $2.80 Gross service Adjusted $0.48 O&M1 Interest, Margin1 Other Credits, Other, D&A net of $2.46 $0.04 $(0.12) Taxes AFUDC2 net net2 $(0.08) $0.03 $(0.04) $(0.01) $0.04 Gross Mar
Slide 5: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to INDICATORS live and do business Year over Year Employment Growth Maricopa County ranked #1 in U.S. for U.S. Phoenix population growth for second straight year - U.S. Census Bureau March 2018 5.0% 4.0% Arizona is a top 5 state in personal
Slide 6: EPS Guidance
EPS GUIDANCE AS OF NOVEMBER 8, 2018 Key Drivers 2018 - 2019 $4.75 – $4.95 + Four Corners Selective Catalytic Reduction (SCR) step-increase + Modest sales growth $4.35 – $4.55 + Higher transmission revenue + Lower O&M, primarily due to lower planned outage expense and cost management + Lower/flat int
Slide 7: Appendix
APPENDIX Third Quarter 2018
Slide 8: 2018 EPS Guidance
Key Factors & Assumptions as of 2018 EPS GUIDANCE November 8, 2018 2018 Adjusted gross margin1,2 (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 0-1% higher compare
Slide 9: 2019 EPS Guidance
Key Factors & Assumptions as of 2019 EPS GUIDANCE November 8, 2018 2019 Adjusted gross margin1 (operating revenues, net of fuel and $2.50 – $2.56 billion purchased power expenses) • Retail customer growth about 1.5–2.5% • Weather-normalized retail electricity sales volume about 0-1% higher compared
Slide 10: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK November 8, 2018 Gross Margin – Customer and Sales Growth (2018-2020) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Strength in Arizona and U.S. economic conditions Weather-normalized retail electricity sales •
Slide 11: Tax Reform
Tax Cuts and Jobs Act provides TAX REFORM benefits to both our customers and shareholders • TEAM PHASE I: The ACC approved $119 million annual EPS Impacts rate reduction reflecting the lower federal tax rate. • The impact of the lower federal income tax rate is Effective for the March 2018 billing c
Slide 12: APS Capital Expenditures
APS CAPITAL Capital expenditures will support our growing customer base and EXPENDITURES utilization of advanced technology ($ Millions) Other $1,341 $99 $1,211 $1,206 $1,153 Distribution $74 $139 $125 $419 Transmission $467 Clean $518 $598 $174 Generation $137 $147 Environmental1 $193 $151 $201 $16
Slide 13: Distribution Grid Investments
DISTRIBUTION GRID Grid Operations and Investment Projected to be $1.6 billion from INVESTMENTS 2018-2020 Customer Growth Grid Modernization Run and Maintain Approximately 51% of distribution capex Approximately 9% of distribution capex Approximately 40% of distribution capex R T Reclosers – Supervis
Slide 14: Dividend Growth
Pinnacle West’s indicated annual dividend is $2.95 per share; DIVIDEND GROWTH targeting ~6% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.95 $2.78 $2.62 $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Targeted Future dividen
Slide 15: 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% $1.5 $1.4 ACC FERC Rate Effecti
Slide 16: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ Millions) $905 - $925 $858 $865 - $885 $848 75 - 85 63 50 - 60 72 830 - 840 815 - 825 776 795 1 1 1 2016 2017 2018E 2019E 2 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Reclassified to reflect the adopt
Slide 17: 2019 Planned Outage Schedule
2019 PLANNED OUTAGE Coal, Nuclear and Large Gas and SCHEDULE Oil Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in Days Days in Days Four 4 12 Palo Verde 1 30 Palo Verde 3 44 Corners Four West 5 12 Cholla* 1 16 4 62 Corners Phoen
Slide 18: Balance Sheet Strength
BALANCE SHEET STRENGTH Credit Ratings2 Long-Term Debt Maturity Schedule • APS Senior Unsecured: A- or equivalent ratings ($Millions) or better at S&P, Moody’s and Fitch $600 • PNW Senior Unsecured: BBB+ or equivalent ratings or better at S&P, Moody’s and Fitch $500 2018 Major Financing Activities •
Slide 19: 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 20: 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 21: Four Corners SCR Step Increase
FOUR CORNERS SCR Hearing concluded on September STEP INCREASE 7, 2018 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 Base1 percentage of base rates – Weighted Average Cost for al
Slide 22: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $15 $10 21 $5 10 9 3 $0 - $(5) $(10) (13) (25) $(15) $(20) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2017 2018 $(1) Million $6 Million All periods recalculated to current 10-year rolling average (2006 – 2015) 22 Third Quarter 2018
Slide 23: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 Pretax Millions Renewable Energy Demand Side Management $40 $30 10 10 12 $20 16 14 12 21 $10 15 19 17 12 12 5 $0 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2017 2018 $91 Million $86 Million 1 Renewable energy and demand side management expenses are offset by adjustm
Slide 24: Residential PV Applications
Residential DG (MWdc) Annual Additions 150 RESIDENTIAL PV 133 97 74 APPLICATIONS1 51 57 44 18 22 10 2009 2012 2014 2016 2018 YTD 4,000 3718 3432 3,500 3,000 2464 2,500 2143 2330 1944 2,000 1818 1561 2033 1602 1426 1413 1442 1434 1,500 1267 1291 1366 1283 1153 1364 1442 1001 1230 953 1157 1349 1,000
Slide 25: 2018 Key Dates
2018 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Lost Fixed Cost Recovery Filed Feb 15 E-01345A-11-0224 Transmission Cost Adjustor Filed May 15 E-01345A-11-0224 Implemented Jun 1 2019 DSM/EE Implementation Plan Dec: File 2019 Plan E-01345A-18-0105 Jun 12: 2018 RES Plan 2019 RES Implementation Pla
Slide 26: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended September 30, Tax Benefit Four of Lower RES/ Corners Pre-Tax 2018 RES/ 2017 EPS $ millions pretax, except per share amounts 20181 DSM Deferral2 Income Adjusted 20171,3 DSM Adjusted Impact Operating revenues $ 1,268 $ (27) $ - $ - $ 1,241 $ 1,183 $ (
Slide 27: Non-GAAP Measure Reconciliation: 2018 Guidance
NON-GAAP MEASURE RECONCILIATION 2018 GUIDANCE 2018 Guidance $ millions pretax Operating revenues1 $ 3,665 - $ 3,725 Fuel and purchased power expenses1 (1,090) - (1,100) Gross margin 2,575 - 2,625 Adjustments: Renewable energy and demand side management programs (105) - (105) Adjusted gross margin $
Slide 28: Non-GAAP Measure Reconciliation: 2019 Guidance
NON-GAAP MEASURE RECONCILIATION 2019 GUIDANCE 2019 Guidance $ millions pretax Operating revenues1 $ 3,625 - $ 3,695 Fuel and purchased power expenses1 (1,045) - (1,055) Gross margin 2,580 - 2,640 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted gross margin $ 2,
Slide 29: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended September 30, 9 Months Ended September 30, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 695 $ 661 34 $ 1,512 $ 1,439 $ 73 Business 497 474 23 1,275 1,245 30 Total Retail 1,192 1,136 56 2,787
Slide 30: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended September 30, 9 Months EndedSeptember 30, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,462 2,514 (52) 7,078 7,146 (68) Coal 2,612 2,093 519 5,443 5,634 (191) Gas, Oil and Other 2,833 2,666 167 6,044 5,682 362
Slide 31: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended September 30, 9 Months Ended September 30, 2018 2017 Incr (Decr) 2018 2017 Incr (Decr) WEATHER INDICATORS - RESIDENTIAL Actual Cooling Degree-Days 1,304 1,153 151 1,817 1,724 93 Heating Degree-Days - - - 323 439 (116) Average Humidity 32% 32% (0)% 26% 26% 0% 10
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