Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Presentation (June 2018)
31 slides from Pinnacle West Capital's investor presentation, Jun 14, 2018
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings l June 14, 2018 Powering Growth, Delivering Value
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: Value Proposition
VALUE PROPOSITION We are executing on our financial and operational objectives … Leverage Operational Excellence Financial Strength Economic Growth Top decile safety performance Annual dividend growth target of Arizona’s long-term growth among peers 6%, subject to declaration at fundamentals r
Slide 4: Sustainability
APS’s vision is to create a SUSTAINABILITY sustainable energy future for Arizona Pinnacle West and APS have adopted a strategic framework that Five critical areas of our sustainability efforts supports our operating foundation Carbon Management • 50% of our diverse energy mix is carbon-free • Plan t
Slide 5: Technology Innovation
TECHNOLOGY Technological advancements for a more efficient and informed INNOVATION Worker of the Future Advanced Data Analytics Workforce Automation • Leveraging data using state • Utilizing APS’s drone of the art Machine Learning program to save over $1 and Artificial Intelligence million dollars t
Slide 6: Advanced Grid Investments
Modernizing the distribution grid ADVANCED GRID with advanced technology investments – resulting in INVESTMENTS improved reliability for customers and more efficient operations Grid Operations & Investment Projected $1.6 Billion from 2018-2020 R T Reclosers – Supervisory Advanced Distribution Cap Ba
Slide 7: Customer Programs
CUSTOMER Programs that benefit both the PROGRAMS Company and customers Smart Thermostats with Demand Response and Pre-Cooling Customer Benefits • Bill credit of $25/year in exchange for demand response APS Benefits • Partner with customers to reduce system load during peak periods Behind the Meter B
Slide 8: Demand Side Management (DSM)
DEMAND SIDE 2018 DSM Plan shifts the focus to align with APS’s changing MANAGEMENT (DSM) resource needs School Bus Electrification – Pilot program to electrify school buses that can charge in the middle of the day Managed EV Charging Program – Fleet, workplace and multifamily charging infrastructure
Slide 9: Renewable Resources
RENEWABLE APS has been supporting solar RESOURCES energy for more than 60 years APS Solar Portfolio* APS currently has 1,625 MW of renewable resources: Owned PPA 239 MW 310 MW • Solar* 1,306 MW • Wind 289 MW DG 757 MW • Biomass 14 MW • Geothermal 10 MW • Biogas 6 MW Owned solar includes 170 MW AZ Su
Slide 10: APS Solar
Providing more renewable energy APS SOLAR and technology to all customers APS Solar Partner Program (Installations Complete) – Installed 10 MW of APS-owned residential PV systems with advanced controllable inverters that can vary power output – 4 MWh of grid-tied battery storage on 2 of the particip
Slide 11: Storage Projects
Energy storage is an important STORAGE PROJECTS part of our Integrated Resource Plan Punkin Center Battery Storage Project • 2 MW / 8 MWH lithium ion battery • Placed in service March 2018 • Defers the rebuild of around 20 miles of 21 kV distribution line for approximately 5-10 years • Acts as gener
Slide 12: Resource Planning
RESOURCE PLANNING* Peak** 8,405 MW 9,835 MW 11,410 MW Resource Reductions 2017-2022 2017-2027 2017-2032 (Retirements, Expirations) -487 MW -872 MW -872 MW Ocotillo steam unit retirements and Ocotillo steam unit retirements, Ocotillo steam unit retirements, Navajo contract expiration Navajo contract
Slide 13: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 14: Senior Management Team
SENIOR Our management team has more than 100 combined years of MANAGEMENT creating shareholder value in the TEAM energy industry Don Brandt Jim Hatfield Chairman of the Board, President and Executive Vice President and Chief Executive Officer, Pinnacle West & APS Chief Financial Officer, Pinnacle We
Slide 15: 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 $81 $152 $115 $419 Transmission $442 Renewable $174 $545 $612 Generation $3 $152 $193 Environmental1 $16 $85 $191 $235 $120 $188 $
Slide 16: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ Millions) $905 - $925 $848 $858 75 - 85 72 63 830 - 840 776 795 1 1 2016 2017 2018E 2 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Reclassified to reflect the adoption of the new accounting requirements
Slide 17: Tax Reform
Tax Cuts and Jobs Act provides TAX REFORM benefits to both our customers and shareholders Regulatory Steps Timing Impacts − Received ACC approval of $119 million annual rate − The impact of the lower federal income tax rate is reduction reflecting lower corporate tax rate through based on our quarte
Slide 18: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to INDICATORS live and do business Nonresidential Building Vacancy – Metro Phoenix Maricopa County ranked #1 in U.S. for Vacancy Rate population growth for second straight year 25% - U.S. Census Bureau March 2018 20% Office 15% Industrial A
Slide 19: Economic Development
ECONOMIC Arizona’s focus on economic development continues to support DEVELOPMENT growth in the state 2017 APS partnered with Greater Phoenix Economic Council and Arizona Commerce Authority to welcome 21 new companies to the state, adding an estimated: — 39.8 MW — 4,300 new jobs — $659.9M in capital
Slide 20: 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% $1.4 ACC FERC Rate Effective Da
Slide 21: Balance Sheet Strength
BALANCE SHEET STRENGTH Credit Ratings1 Long-Term Debt Maturity Schedule • A- or equivalent ratings or better at S&P, Moody’s ($Millions) and Fitch $600 2018 Major Financing Activities $500 • Currently expect up to $600 million of long-term debt issuance at APS 1 We are disclosing credit ratings to e
Slide 22: Credit Ratings and Metrics
CREDIT RATINGS AND Credit metrics remain a key focus METRICS Pinnacle APS 2012 2013 2014 2015 2016 2017 West Corporate Credit Ratings1 APS Moody’s A2 A3 FFO / Debt 27.7% 31.5% 27.5% 29.7% 26.5% 26.9% S&P A- A- FFO / Interest 4.8x 5.6X 5.5x 5.8x 5.0x 5.2x Debt / Fitch A- A- 50.7% 47.7% 45.3% 45.8% 47
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 APS filed for a rate increase STEP INCREASE on April 27, 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 Co
Slide 25: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2019 Terms to January 2021 Tom Justin Bob Boyd Andy Forese (R) Olson (R)** Burns (R)* Dunn (R) Tobin (R) Chairman Other State Officials ACC Executive Director – Ted Vogt RUCO Director – David Tenney * Term limited - elected to four-year terms (limited
Slide 26: 2018 Key Dates
2018 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery Implemented Filed Feb 15 E-01345A-11-0224 May 1 Transmission Cost Adjustor Filed May 15 E-01345A-11-0224 Implemented Jun 1 2019 DSM/EE Implementation Plan 2018 DSM Decision Sep 7: File 2019
Slide 27: Integrated Resource Plan
INTEGRATED The ACC can acknowledge the filing of an IRP, but they do not RESOURCE PLAN approve IRP’s 15-Year Plan IRP Cycle Acknowledgement Decision Impact Looking Ahead • An Integrated • Occurs every 2-3 years • ACC does not • A non- • The next IRP Resource Plan • Utility-and Commission- approve or
Slide 28: Residential PV Applications
Residential DG (MWdc) Annual Additions 150 RESIDENTIAL PV 133 74 55 APPLICATIONS1 51 57 44 18 22 10 2009 2012 2014 2016 2018 YTD 4,000 3771 3505 3,500 3,000 2474 2,500 2167 1955 2033 2,000 1827 1564 1602 1436 1413 1364 1442 1434 1,500 1267 1291 1283 1153 1143 1002 835 1349 1,000 1109 1157 1158 1189
Slide 29: The Duck Curve
Distributed generation is changing THE “DUCK CURVE” the load shape of the grid Current Spring Day Spring Day 2022 Excess renewables create over-generation … and potentially for nuclear generation in challenges … 5,000 the future 5,000 4,500 4,500 4,000 4,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000
Slide 30: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2018 (115 kV and above) – 52 miles of new lines – 13 bulk transformer additions Flagstaff • Also includes: – Sun Valley-Mor
Slide 31: 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
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