Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (March 2016)
44 slides from Pinnacle West Capital's roadshow presentation, Mar 18, 2016
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings l March 21-23, 2016 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: Pinnacle West: Who We Are
We are a vertically integrated, PINNACLE WEST: regulated electric utility in the WHO WE ARE growing southwest United States Pinnacle West (NYSE: PNW) - Market Capitalization*: $7.9 billion - Enterprise Value*: $11.8 billion - Consolidated Assets: $15.0 billion - Indicated Annual Dividend*: $2.50 - D
Slide 4: Value Proposition
VALUE PROPOSITION We are executing on our financial and operational objectives … Financial Strength • Consolidated earned ROE more than 9.5% (weather-normalized) through 2016 • Annual dividend growth target of 5%, subject to declaration at Board of Director’s discretion • Strong credit ratings and b
Slide 5: Dividend Growth
Pinnacle West’s annual dividend is DIVIDEND GROWTH $2.50 per share; targeting ~5% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 Projected Future dividends subject to declaration at Board of Dire
Slide 6: Resource Planning
All source request for proposal issued in March 2016 for 400-600 RESOURCE PLANNING MW of capacity; delivery no later than June 1, 2020* MW 14,000 Composition of Energy Mix by Resource** Load Requirement Including Reserves 2015 12,000 27.2% 9.8% 10,000 18.9% Resource Planning Gas 35.0% Requirement 9.
Slide 7: Capital Expenditures
CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow $1,285 ($ Millions) $1,205 $82 Other $88 $1,124 $1,057 $82 $345 Distribution $85 $357 Transmission $376 $340 $210 Renewable $123 $1 Generation $120 $110 $201 $199 $1 $130 Environmental $58 $235 $44
Slide 8: 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 17% $1.8 83% $1.5 $1.3 Most Recent Rate Decisions ACC FERC $7.4 Rate Effective Date 7/1/2012 6/1
Slide 9: The Grid Is Evolving – Increasingly Dynamic and Complex
THE GRID IS EVOLVING – INCREASINGLY DYNAMIC AND COMPLEX • Grid stability, power quality and reliability remain the core of a sustainable electrical system • APS is at the forefront of utilities designing and planning for the electric grid • Rates need to be modernized to enable advanced technologies
Slide 10: Rate Design Modernization
RATE DESIGN MODERNIZATION Rate Changes Needed to Align Components of Modern Rates Fixed Costs and Revenues • Demand Rate – Charge for maximum kW draw in any hour of the month; appropriate for recovering fixed costs that vary with the Variable Costs – APS customer’s max load (versus kWh) Costs Reside
Slide 11: Solar Partner Program
SOLAR PARTNER Learning how to efficiently enable the integration of rooftop solar PROGRAM and battery storage with our grid • Overview – Installing 10 MW of APS-owned residential PV systems on 1,500 homes – Advanced controllable inverters that can vary power output depending on grid conditions – Inc
Slide 12: Solar Innovation Study
Examining the integration of SOLAR INNOVATION behind the meter advanced STUDY technologies with demand-based rates • Overview – Installing APS-owned residential PV systems on 75 homes with various configurations of battery storage, energy efficiency, demand controls and smart thermostats connected t
Slide 13: Ocotillo Power Plant (Tempe, AZ)
OCOTILLO POWER PLANT (TEMPE, AZ) • Overview and Benefits Existing – Maintains system reliability through retirement of aging steam units – Replacement units more efficient and meet need for fast-ramping capability New – Aids integration of renewables • Estimated cost: $500M • Expected timeline – Ear
Slide 14: Residential vs. Utility-Scale Solar
RESIDENTIAL VS. Performance at system peak UTILITY-SCALE SOLAR On August 15th, APS customers hit “peak demand” for 2015 using more than 7,300 MW of electricity Residential Rooftop Solar AZ Sun Utility-Scale Solar 500 7,362 8,000 500 7,362 8,000 6,952 Rooftop Output AZ Sun Output 6,315 System Load Sy
Slide 15: Operational Considerations with Increased Variable Generation
OPERATIONAL CONSIDERATIONS WITH INCREASED VARIABLE GENERATION The grid provides real-time voltage and • Steep ramp rate of backup generation power needed to start air conditioners and • Instant variability other motors loads (for typical AC unit) • Voltage control at distribution level 15 Powering G
Slide 16: APS Is a Leader in Solar
APS IS A LEADER IN SOLAR APS Solar Portfolio* AZ Sun Projects Capacity Developer Actual COD* Paloma 17 MW First Solar Sep 2011 AZ Sun PPA Cotton Center 17 MW Solon Oct 2011 174 MW 310 MW Hyder Phase 1 11 MW SunEdison Oct 2011 Hyder Phase 2 5 MW SunEdison Feb 2012 DG 475 MW Chino Valley 19 MW SunEdis
Slide 17: Environmental Plan
Regional Haze compliance is the ENVIRONMENTAL PLAN biggest driver of environmental spend over the next few years Cooling Water Mercury and Other Regional Haze / BART Coal Combustion Intake Hazardous Air Pollutants (SCR) Residuals Structures – (ACI + Baghouse) CWA 316(b) MATS compliance by April Anno
Slide 18: Coal Fleet Strategy
APS’s proactive approach to reducing emissions leads to coal’s COAL FLEET STRATEGY expected share of the energy mix being reduced to 17% 9% 15% Percent of Portfolio MWh 10% EE/DR 15% 19% Renewable Energy Natural Gas 35% 35% Coal 17% Nuclear 27% 18% Emissions 2015 2029 • 820 MW of coal has been retir
Slide 19: Water Strategy
APS, and Palo Verde in particular, has provided national and WATER STRATEGY international leadership on the use of reclaimed water for power generation Vision: To secure and maintain a sustainable and cost-effective supply of water to enable reliable energy production for APS customers Mission: To d
Slide 20: Palo Verde Nuclear Generating Station
PALO VERDE NUCLEAR Largest nuclear generating plant GENERATING STATION in the United States • Total Capacity: 4,000 MW (3 units) Low risk of natural events at Palo Verde – APS operated – APS share: 1,146 MW – Output: 32.5 million MWh in 2015 – Approximately 2,300 employees In Service License* Unit 1
Slide 21: 2016 Key Dates
2016 KEY DATES ACC Key Dates Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings E-01345A- Lost Fixed Cost Recovery Jan 15 11-0224 E-01345A- Transmission Cost Adjustor May 15 11-0224 Renewable Energy Surcharge TBD Jul 1 E-01345A- APS Rate Case Jun 1: Initial filing TBD TBD 16-0036 Oct 1: File E-00
Slide 22: APS Notice of Intent to File Rate Case Application
APS NOTICE OF INTENT TO FILE RATE CASE APPLICATION • APS intends to file rate case application on June 1, 2016, using adjusted test year for the twelve months ended December 31, 2015 – 120 days’ Notice of Intent filed on January 29, 2016 • APS will propose new rates go into effect on July 1, 2017 •
Slide 23: Arizona Electric Utilities General Rate Cases
ARIZONA ELECTRIC UTILITIES GENERAL RATE CASES UNS Electric Tucson Electric Power Company Docket # E-04204A-15-0142 Docket # E-01933A-15-0322 Application filed May 5, 2015 Application filed Sep 4, 2015 Direct testimony - ex rate design, cost of service (Nov 6, 2015) Direct testimony – ex rate design
Slide 24: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 25: Leadership Team
Our top executives have more than 100 combined years of LEADERSHIP TEAM creating shareholder value in the energy industry Don Brandt Chairman & Chief Executive Officer Jim Mark Randy Jeff Hatfield Schiavoni Edington Guldner EVP & Chief EVP & Chief EVP & SVP Financial Operating Chief Nuclear Public P
Slide 26: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to live and do INDICATORS business Job Growth (Total Nonfarm) – Metro Phoenix YoY Change Construction, healthcare, tourism, 10.0% financial activities, business services, and consumer services adding jobs at 5.0% a rate above 3% 0.0% Arizon
Slide 27: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK February 19, 2016 Gross Margin – Customer Growth and Weather (2016-2018) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricit
Slide 28: Operations & Maintenance Outlook
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages OUTLOOK ($ Millions) $94 $137 $103 $150 $124 $96 $825 - $805 $845 $761 $788 $772 $754 2011 2012 2013 2014 2015 2016E PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by a
Slide 29: Balance Sheet Strength
BALANCE SHEET STRENGTH Debt Maturity Schedule Credit Ratings ($Millions) • A- rating or better at S&P, Moody’s and Fitch $500 $400 2016 Major Financing Activities • Currently expect up to $650 million of long- term debt, including issuance to refinance $300 $250 million of debt maturing in August $5
Slide 30: Four Corners Power Plant
FOUR CORNERS POWER PLANT • On December 30, 2013, APS and Southern California Edison (“SCE”) completed previously announced transaction whereby APS agreed to purchase SCE’s 48% interest in Units 4 and 5 of Four Corners – Final purchase price: $182 million – APS will continue to operate Four Corners a
Slide 31: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2016 (115 kV and above) – 110 miles of new lines • Also includes: – Delaney-Palo Verde 500kV (2016) Flagstaff – Delaney-Sun
Slide 32: Bright Canyon Energy – Transmission Growth
BRIGHT CANYON ENERGY – TRANSMISSION GROWTH BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities WECC TRANSCANYON A 50/50 Joint Venture formed with BHE U.S. Transmission, subsidiary of Berkshire Hathaway Energy, to pursue transmission opportunities in the western Un
Slide 33: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2017 Terms to January 2019 Bob Bob Andy Tom Doug Burns (R) Stump (R)* Tobin (R) Forese (R) Little (R) Chairman Other State Officials ACC Utility Division Director - Tom Broderick RUCO Director - David Tenney * Term limited - elected to four-year terms
Slide 34: APS Cost of Service Analysis
APS COST OF SERVICE Results show customers with solar do not pay entire cost to ANALYSIS serve • Cost of Service study shows specific costs incurred to deliver electric service to customers • Study credits solar customers the measurable costs that APS avoids, primarily reduced fuel Cost of Service f
Slide 35: Key Dates for Rate Design
KEY DATES FOR RATE DESIGN • Residential demand rates started due • Time of Use rates initiated - Nearly to central air conditioning load Early half of our residential customers are (currently about 10% of customers 1980’s on TOU rates have a rate with a demand charge) • Net metering Technical Worksh
Slide 36: APS Rate Design: A Solid Foundation to Build On
APS RATE DESIGN: Over 50% of APS residential customers are already on A SOLID FOUNDATION time-of-use rates, including TO BUILD ON 11% on demand rates APS residential customer base has grown from 400,000 in early 1980’s to over one million today 100% 75% 50% 25% 0% Standard TOU - Energy TOU - Demand
Slide 37: Advanced Metering Infrastructure (AMI 2.0)
ADVANCED METERING INFRASTRUCTURE (AMI 2.0) • Overview – APS began deploying advanced “smart” meters in 2006, reaching full deployment with 1.2 million meters in 2014 – In 2015, APS started replacing 140,000 end-of-life meters with advanced meters • Benefits – Building a more interoperable advanced m
Slide 38: Residential PV Applications
Residential DG (MW) Annual Additions RESIDENTIAL PV 44 51 57 74 APPLICATIONS* 15 19 23 2009 2011 2013 2015 1500 1436 1327 1318 1296 1207 1229 1211 1250 1179 1106 1000 907 939 845 871 837 785 699 730 710 750 641 610 500 523 442 500 357 339 249 250 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 201
Slide 39: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Renewable Energy (RES) Requirements Energy Efficiency Requirements • Portion of retail sales to be supplied by • Cumulative savings from energy renewable resources efficiency programs must be equivalent – 6% by 2016 to 22% of annual retail
Slide 40: Retail Sales Impact from Energy Efficiency and Distributed Generation
RETAIL SALES IMPACT FROM ENERGY EFFICIENCY AND DISTRIBUTED GENERATION Distributed Generation (DG) Impact Annual Retail Sales Growth % • DG makes up 0.5% or less of the negative impact to retail sales growth as shown in the chart • Average residential rooftop solar system produces 10,000 – 12,000 KWh
Slide 41: Operational Excellence
OPERATIONAL EXCELLENCE Customer Satisfaction Palo Verde Ranked 8th highest nationally among 54 large investor-owned electric Palo Verde has exceeded its own record for generation - 32.5 million utilities in 2015 J.D. Power residential customer survey. megawatt-hours annual production in 2015. Palo V
Slide 42: Generation Portfolio
GENERATION PORTFOLIO* Plant Location No. of Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 2 Base 1962-1980 100 387 COAL Four Corners Farmington, NM 2 Base 1969-1970 63 970 1,672 MW Navajo Page,
Slide 43: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (MW) Solana Gila Bend, AZ Abengoa IO Feb-2008 2013 30 250 RE Ajo Ajo, AZ Duke Energy Gen Svcs IO Jan-2010 2011 25 5 Sun E AZ 1 Prescott, AZ SunEdison IO Feb-2010 2011 30 10 SOLAR 310 MW Sadd
Slide 44: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Paul J. Mountain, CFA Director, Investor Relations Telephone: (602) 250-4952 E-mail: paul.mountain@pinnaclewest.com Chalese Haraldsen Telephone: (602) 250-5643 E-mail: chalese.haraldsen@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 P
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