Pinnacle West Capital Corporation: 3rd Quarter 2018 Presentation

Tickers: PNW
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 "estimate," "predict," "may," "believe," "plan," "expect," "require," "intend," "assume," "project" and similar words. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. These factors include, but are not limited to: our ability to manage capital expenditures and operations and maintenance costs while maintaining high reliability and customer service levels; variations in demand for electricity, including those due to weather seasonality, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures and distributed generation; power plant and transmission system performance and outages; competition in retail and wholesale power markets; regulatory and judicial decisions, developments and proceedings; new legislation, ballot initiatives and regulation, including those relating to environmental requirements, regulatory policy, nuclear plant operations and potential deregulation of retail electric markets; fuel and water supply availability; our ability to achieve timely and adequate rate recovery of our costs, including returns on and of debt and equity capital investments; our ability to meet renewable energy and energy efficiency mandates and recover related costs; risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty; current and future economic conditions in Arizona, including in real estate markets; the development of new technologies which may affect electric sales or delivery; the cost of debt and equity capital and the ability to access capital markets when required; environmental, economic and other concerns surrounding coal-fired generation, including regulation of greenhouse gas emissions; volatile fuel and purchased power costs; the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement benefit plans and the resulting impact on future funding requirements; the liquidity of wholesale power markets and the use of derivative contracts in our business; potential shortfalls in insurance coverage; new accounting requirements or new interpretations of existing requirements; generation, transmission and distribution facility and system conditions and operating costs; the ability to meet the anticipated future need for additional generation and associated transmission facilities in our region; the willingness or ability of our counterparties, power plant participants and power plant land owners to meet contractual or other obligations or extend the rights for continued power plant operations; and restrictions on dividends or other provisions in our credit agreements and ACC orders. These and other factors are discussed in Risk Factors described in Part I, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which you should review carefully before placing any reliance on our financial statements, disclosures or earnings outlook. Neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by law.

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In this presentation, references to net income and earnings per share (EPS) refer to amounts attributable to common shareholders.

We present "gross margin" per diluted share of common stock. Gross margin refers to operating revenues less fuel and purchased power expenses. Gross margin is a "non-GAAP financial measure," as defined in accordance with SEC rules. The appendix contains a reconciliation of this non-GAAP financial measure to the referenced revenue and expense line items on our Consolidated Statements of Income, which are the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles in the United States of America (GAAP). We view gross margin as an important performance measure of the core profitability of our operations, and is used by our management in analyzing the operations of our business. We believe that investors benefit from having access to the same financial measures that management uses.

We present "adjusted interest, net of AFUDC" and "adjusted other" that have been adjusted for the deferral impacts of the Four Corner's Selective Catalytic Reduction equipment. We also present "adjusted gross margin" and "adjusted operations and maintenance" that have been adjusted to exclude costs and offsetting operating revenues associated with renewable energy and demand side management programs. We also present "adjusted income taxes" that shows the impact of tax reform. Adjusted interest, net of AFUDC, adjusted other, adjusted gross margin, adjusted operations and maintenance, and adjusted income taxes are "non-GAAP financial measures," as defined in accordance with SEC rules. The appendix contains a reconciliation to show the deferral impacts of the Four Corners Selective Catalytic Reduction equipment, the exclusion of costs and offsetting operating revenues associated with renewable energy and demand side management programs, and the impact of tax reform. We believe the information provided in the reconciliation provides investors with useful indicators of our results that are comparable among periods because they exclude the effects of unusual items that may occur on an irregular basis, such as the installation of the SCR equipment and tax reform impacts, and exclude the effects of programs that overstate our gross margin.

CONSOLIDATED EPS COMPARISON

2018 VS. 2017

3rdQuarter Earnings

Year-to-Date Earnings

$2.80

$4.31

$4.16

2018

2017

2018

2017

EPS VARIANCES

3RD QUARTER 2018 VS. 3RD QUARTER 2017

Pension &

3Q 2017Other

$2.46

Other Taxes $(0.04)Adjusted Interest, net of AFUDC2$(0.01)

OPEB Non-service Credits, net $0.04

Adjusted Other, net2$0.03

Adjusted Income Taxes3$0.48

$2.80

3Q 2018

  • 1Excludes costs and offsetting operating revenues associated with renewable energy and demand side management programs.

  • 2Driver adjusted for the deferral impacts of the Four Corners Selective Catalytic Reduction (SCR) equipment.

  • 3The effects of federal corporate tax cuts positively impacted results by $0.14 per share.

See non-GAAP reconciliation in Appendix.

ECONOMIC INDICATORS

Arizona and Metro Phoenix remain attractive places to live and do business

Year over Year Employment Growth

U.S.Phoenix

Maricopa County ranked #1 in U.S. for population growth for second straight year

5.0%

- U.S. Census Bureau March 2018

4.0%

3.0%

2.0%

1.0%

0.0%

Arizona is a top 5 state in personal income growth

- U.S. Bureau of Economic Analysis March 2018

Above-average job growth in tourism, health care, manufacturing, financial services, and construction

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Single Family & Multifamily Housing Permits

Maricopa County

40,000 30,000 20,000

Single FamilyMultifamilyProjected

10,000

0

APS partnered with Greater Phoenix Economic Council and Arizona Commerce Authority to welcome 21 new companies to the state in 2017

2017 housing construction at highest level since 2007

Arizona #1 state in the country in 2017 for in-bound moves

- North American Moving Services January 2018

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18E

5

Third Quarter 2018

Disclaimer

Pinnacle West Capital Corporation published this content on 08 November 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 08 November 2018 14:05:01 UTC