Attached files
| file | filename |
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| 8-K - 8-K - PINNACLE WEST CAPITAL CORP | form8-k2017earningsguidance.htm |
Pinnacle West 2017 On-Going EPS Guidance
2017 ON-GOING EPS GUIDANCE
Pinnacle West 2017 On-Going EPS Guidance2
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, ballet 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, 2016 and in Part II, Item 1A of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended June 30, 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.
In this presentation, references to net income and earnings per share (EPS) refer to amounts attributable to common shareholders.
We present “electricity 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.
We refer to “on-going EPS” in this presentation, which is also a non-GAAP financial measure. 2017 on-going EPS is currently projected to be the same as 2017 GAAP
EPS. We believe on-going earnings provides investors with a useful indicator of our results that is comparable among periods because it excludes the effects of unusual
items that may occur on an irregular basis.
Investors should note that these non-GAAP financial measures may involve judgments by management, including whether an item is classified as an unusual item.
These measures are key components of our internal financial reporting and are 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.
Pinnacle West 2017 On-Going EPS Guidance3
2017 ON-GOING
EPS GUIDANCE1
Key Factors & Assumptions as of
August 21, 2017
2017
Electricity gross margin* (operating revenues, net of fuel and
purchased power expenses) $2.45 – $2.50 billion
• Retail customer growth about 1.5-2.5%
• Weather-normalized retail electricity sales volume about 0-1.0% higher
compared to prior year taking into account effects of customer conservation,
energy efficiency and distributed renewable generation initiatives
• Actual weather through July; normal weather patterns remainder of year
Operating and maintenance (O&M)* $830 – $850 million
Other operating expenses (depreciation and amortization, taxes other than
income taxes, and other miscellaneous expenses) $730 – $750 million
Interest expense, net of allowance for borrowed and equity funds used during
construction (Total AFUDC $65 million) $155 – $165 million
Net income attributable to noncontrolling interests ~$20 million
Effective tax rate 33%
Average diluted common shares outstanding ~112.6 million
On-going EPS Guidance2 $4.15 – $4.30
* Excludes O&M of $80 million, and offsetting revenues, associated with renewable energy and demand side management programs.
1 2017 on-going EPS guidance has been issued following the Arizona Corporation Commission’s (ACC) decision in APS’s rate case and assumes rates, timing
and other factors established in the decision. The ACC’s decision is subject to requests for rehearing and potential appeal.
2 2017 on-going EPS is currently projected to be the same as 2017 GAAP EPS.
Pinnacle West 2017 On-Going EPS Guidance4
2017 FINANCIAL
OUTLOOK
2018 on-going EPS guidance will
be provided on the third quarter
2017 earnings conference call
• Goal is to keep O&M per kWh flat, adjusted for planned outages
• Targeting ~5% annual dividend growth*
• Goal of earning at least 9.5% Return on Equity
− Earned Return on Equity based on average Total Shareholder’s Equity
for PNW consolidated, weather-normalized
• Other key assumptions disclosed in the second quarter 2017 earnings
presentation remain**
* Future dividends subject to declaration at Board of Directors’ discretion.
** See Exhibit 99.2 to the Pinnacle West/APS Current Report on Form 8-K filed on August 3, 2017.
Pinnacle West 2017 On-Going EPS Guidance
APPENDIX
Pinnacle West 2017 On-Going EPS Guidance6
NON-GAAP MEASURE RECONCILIATION
$ millions pretax
Operating revenues* 3,540$ - 3,600$
Fuel and purchased power expenses* (1,010) - (1,020)
Gross margin 2,530 - 2,580
Adjustments:
Renewable energy and
demand side management programs (80) - (80)
Adjusted gross margin 2,450$ - 2,500$
Operations and maintenance* 910$ - 930$
Adjustments:
Renewable energy and demand
side management programs (80) - (80)
Adjusted operations and maintenance 830$ - 850$
* Line items from Consolidated Statements of Income
Reconciliation Range