Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — EEI Financial Conference 2011
51 slides from Pinnacle West Capital's conference presentation, Nov 6, 2011
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE EEI Financial Conference November 6-9, 2011
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements based on current expectations, including statements regarding our 2011 earnings outlook. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,”
Slide 3: Non-GAAP Financial Measures
Non-GAAP Financial Measures In this presentation, references to net income and earnings per share (EPS) refer to amounts attributable to common shareholders. We refer to “on-going earnings” in this presentation, which is a non-GAAP financial measure. We believe on-going earnings provide investors wi
Slide 4: Corporate Overview
CORPORATE OVERVIEW ~~ w PINNACLE WEST
Slide 5: Pinnacle West: Our Value Proposition
2 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors: Deliver superior shareholder returns through…
Slide 6: Pinnacle West: Who We Are
3 PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility. NYSE Ticker PNW Market Cap $5 Billion Enterprise Value $8 Billion STATE OF ARIZONA Principal Subsidiary • Arizona’s largest electric utility • $12 billion assets Service Territory • 1.1 million customer accounts
Slide 7: A Respected, Veteran Leadership Team
4 A RESPECTED, VETERAN LEADERSHIP TEAM Our top executives have more than 130 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Don Mark Randy Dave Falck Jim Robinson Schiavoni Edington EVP, Hatfield APS SVP EVP & General SVP & CFO President Fossil Chief N
Slide 8: Financial Overview
FINANCIAL OVERVIEW STRENGTHENING OUR FINANCIAL PROFILE
Slide 9: Consolidated On-Going EPS Outlook
6 CONSOLIDATED ON-GOING EPS OUTLOOK Our on-going earnings improved since 2009. Per Share $3.50 $3.03* $2.75 - $2.90** $3.00 $2.50 $2.33 $2.00 $1.50 $1.00 $0.50 $0.00 2009 2010 2011 Guidance * Reflects 2011 reclassification of APS Energy Services as discontinued operation. As of 11/1/11 ** Guidance n
Slide 10: 2011 On-Going EPS Guidance
7 2011 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of November 1, 2011. • Electricity gross margin (operating revenues,* net of fuel and purchased power expenses) about $2.03 billion to $2.08 billion, which was previously expected to be $2.01 billion to $2.06 billion • Retail customer growt
Slide 11: Top-Tier Dividend Yield
8 TOP-TIER DIVIDEND YIELD Pinnacle West’s annual dividend is $2.10 per share — providing a top-tier yield with a near-average payout. Dividend Yield 7% PNW 6% 5% 4% 3% Industry Averages 2% 1% 0% 30% 40% 50% 60% 70% 80% 90% 100% Industry Yield as of October 15, 2011 Dividend Payout Industry Payout 12
Slide 12: Superior Shareholder Returns
9 SUPERIOR SHAREHOLDER RETURNS Our total return to shareholders has outperformed our industry and the broad market over the past five years. Pinnacle West S&P 500 S&P 1500 Electric Utilities 50% 45.5% 45.4% 40% 30% 32.6% 20% 20.9% 19.5% 17.4% 15.0% 10% 12.0% 9.0% 4.4% 0% (8.3)% (10.0)% (18.6)% (20.0
Slide 13: ROE Improvement: A Multi-Pronged Approach
ROE IMPROVEMENT: 10 A MULTI-PRONGED APPROACH Improving our earned return on equity is one of our top priorities. Earned ROEs Key Initiatives 10% • Supportive electric utility rates • Regulatory framework 9% improvements 8% • Cost management initiatives • Efficiency and effectiveness 7% throughout or
Slide 14: APS Operations & Maintenance Expense Trends
APS OPERATIONS & MAINTENANCE 11 EXPENSE TRENDS Our goal is to keep O&M growth in line with retail sales growth. $ Millions 800 600 400 200 0 2006 2007 2008 2009 2010 Excludes RES and demand-side management costs STRENGTHENING OUR FINANCIAL PROFILE
Slide 15: Ample Financing Access
12 AMPLE FINANCING ACCESS Investment-grade credit ratings, capitalization and liquidity should provide adequate access to bank and capital markets. Capitalization & Liquidity 2011 - 2012 Major Financing Activities December 31, 2010 $ Billions 2011 $500M APS revolver refinancing* 8 7 2011 $175M PNW s
Slide 16: Credit Ratings
13 CREDIT RATINGS We have investment-grade credit ratings. APS Parent Corporate Credit Ratings Moody’s Baa2 Baa3 S&P BBB BBB Fitch BBB- BBB- Senior Unsecured Moody’s Baa2 - S&P BBB - Fitch BBB - Outlook Moody’s Stable Stable S&P Positive Positive Fitch Stable Stable We are disclosing these ratings t
Slide 17: S&P Credit Metrics
14 S&P CREDIT METRICS Our key credit metrics have been improving. 2006 2007 2008 2009 2010 APS FFO / Debt 17.5% 17.2% 22.1% 22.8% 22.3% FFO / Interest 4.2x 4.1x 5.1x 4.8x 4.6x Debt / Capitalization 56.6% 55.2% 57.4% 56.8% 53.0% Pinnacle West FFO / Debt 16.3% 15.7% 18.0% 18.4% 22.5% FFO / Interest 3.
Slide 18: Non-GAAP EPS Reconciliation
15 NON-GAAP EPS RECONCILIATION Consolidated On-Going EPS Outlook Year-Ended December 31, 2009 and 2010. 2009 2010 2011 Actual Actual Guidance* Net income attributable to common shareholders $ 0.67 $ 3.27 Adjustment - Discontinued Operations Real estate operations 1.65 0.05 APS Energy Services 0.01 (
Slide 19: Regulatory Overview
REGULATORY OVERVIEW IMPROVING OUR REGULATORY ENVIRONMENT
Slide 20: Arizona Corporation Commissioners
17 ARIZONA CORPORATION COMMISSIONERS The new composition provides opportunities for additional relationships and process efficiencies. Terms Through January 2013 Terms Through January 2015 Sandra Kennedy Paul Newman Bob Stump Brenda Burns Gary Pierce (Rep)* (Dem) (Dem) (Rep) (Rep) Chairman * Term li
Slide 21: 2011 Retail Rate Case Proposal Benefits
2011 RETAIL RATE CASE PROPOSAL 18 BENEFITS The rate case proposals contains a number of benefits for customers and shareholders. • Provides financial support APS needs to achieve Arizona’s energy goals • Encourages progress toward sustainable energy future • Supports renewable energy and energy effi
Slide 22: 2011 Retail Rate Case Filing Key Financial Components
2011 RETAIL RATE CASE FILING 19 KEY FINANCIAL COMPONENTS APS has requested a base rate increase to become effective July 1, 2012. Annual Revenue Change Non-fuel base rate increase $ 194.1 6.6% Amounts transferring from adjustment mechanism revenues Renewable Energy Surcharge revenues related to AZ S
Slide 23: 2011 Retail Rate Case Filing Key Financial Assumptions
2011 RETAIL RATE CASE FILING 20 KEY FINANCIAL ASSUMPTIONS Updated rate base, cost of capital and fuel prices underpin the rate request amounts. Rate base $5.7 billion Return on equity 11% Capital structure Long-term debt 46.1% Common equity 53.9% Base fuel rate (¢/kWh) 3.24 Projected fuel-price year
Slide 24: 2011 Retail Rate Case Filing Details of Request
2011 RETAIL RATE CASE FILING 21 DETAILS OF REQUEST Other key proposals continue constructive regulatory treatment and limit regulatory lag. • Post test-year plant additions through rate effective date • $259 million AZ Sun projects • $161 million other projects • Revenue-per-customer decoupling mech
Slide 25: 2011 Retail Rate Case Filing ACC Procedural Schedule
2011 RETAIL RATE CASE FILING 22 ACC PROCEDURAL SCHEDULE The procedural schedule provides a process which could allow a final decision by July 1, 2012, consistent with APS’s 2009 regulatory settlement. Nov. 18, 2011 ACC Staff and intervenors' direct testimony due, except rate design Nov. 30, 2011 Set
Slide 26: Progressive Regulatory Settlement Positions APS Well Through 2012
PROGRESSIVE REGULATORY SETTLEMENT 23 POSITIONS APS WELL THROUGH 2012 APS’s 2009 regulatory settlement contains a number of investor benefits. • Strengthens APS’s earned ROE and financial condition • Supports common dividend • Demonstrates increased cooperation among APS, ACC Staff, residential consu
Slide 27: 2009 Regulatory Settlement Summary
24 2009 REGULATORY SETTLEMENT SUMMARY The settlement provisions include earnings support until APS’s next rate case decision. Estimated Pretax Earnings Benefits $ Millions 2010 2011 2012 Settlement agreement terms Base rate increase $ 207 $ 207 $ 207 Line extensions treated as revenue 23 25 49 Pensi
Slide 28: Our Regulatory Mix
25 OUR REGULATORY MIX The bulk of APS’s revenues comes from a regulated retail rate base and a meaningful transmission business. Most Recent Rate Decisions ACC FERC Transmission 18% Rates Effective Date 1/1/2010 6/1/2011 Test Year Ended 12/31/2007* 12/31/2010 Generation & Distribution Rate Base $5.6
Slide 29: Constructive Transmission Rate Regulation
CONSTRUCTIVE TRANSMISSION 26 RATE REGULATION We have achieved transmission rate treatment with annual adjustments. • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and certain projections • Retail portion flows through ACC Transmission Cost Adju
Slide 30: Significant Regulatory Progress Since 2005
SIGNIFICANT REGULATORY PROGRESS 27 SINCE 2005 We have achieved a more supportive regulatory structure and improvements in cost recovery timing. Adopted/ Mechanism Last Adjusted Description Power Supply April 2005 / • Recovers 90% of variance between actual fuel and purchased power costs and base fue
Slide 31: Growth and Operations Overview
GROWTH AND OPERATIONS OVERVIEW CAPITALIZING ON INTRINSIC GROWTH MAINTAINING OPERATIONAL EXCELLENCE
Slide 32: Positive Long-Term Demographics
29 POSITIVE LONG-TERM DEMOGRAPHICS APS’s customer growth generally outpaces U.S. and Arizona population growth. Superior Growth APS Customer Growth Annual Growth Millions 5% 2 1.8 4% 2.5%* 3% 1.1 1 2% 1% 0% 0 1990 1992 1994 1990 1995 2000 2002 2004 1996 1998 2000 2005 2015 2006 2008 2010 2012 2014 2
Slide 33: APS Rate Base Growth Strong
30 APS RATE BASE GROWTH STRONG We expect our rate base will grow at a 7% average rate. APS Rate Base APS Capital Expenditures $ Billions $ Millions 1,400 8 1,200 1,000 Other 6 Distribution 800 4 FERC Transmission 600 ACC Renewables 400 2 Environmental 200 Traditional Generation 0 0 2010 2011 2012 20
Slide 34: Customer Satisfaction … A Key Priority
31 CUSTOMER SATISFACTION … A KEY PRIORITY Our employees provide top-tier customer service. Lowering Outage Time Outstanding Residential Per Customer Customer Satisfaction Rating Average Outage Rating Minutes/Year 700 APS 120 675 100 650 Industry Average 80 625 600 60 575 40 550 20 525 0 500 2005 200
Slide 35: Superior Power Plant Performance
32 SUPERIOR POWER PLANT PERFORMANCE Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Performance Metrics APS 91% 100% 100% APS Commercial Availability 92% APS Capacity Factor 90% 90% Industry Capacity Factor 81% 80% 80% 68% Industry 91% 70% 70% 60% 60% 2003 20
Slide 36: Environmental, Sustainability and Governance Leadership
ENVIRONMENTAL, SUSTAINABILITY 33 AND GOVERNANCE LEADERSHIP We are recognized internationally for our achievements. Dow Jones Ranked 294 of 1,000 Sustainability Index Companies Worldwide Ranked 15th Overall Highest for Any Utility Global 100 Most Sustainable Social Responsibility Index Corporations i
Slide 37: 2010 Retail Customer, Sales and Revenue Mixes
2010 RETAIL CUSTOMER, 34 SALES AND REVENUE MIXES Our business mix is attractive due to favorable climate and other conditions in our market area. 11% 11% 8% 6% 8% 47% 47% 50% 51% 45% 45% 42% 43% 89% 89% Customers Retail Sales Operating Revenues Year-End 27,709 GWh $2.9 Billion 1.1 Million Residentia
Slide 38: 2010 APS Generation and Energy Fuel Mixes
2010 APS GENERATION AND 35 ENERGY FUEL MIXES Our balanced resource mix provides our customers reliability and manages price volatility. 18% 21% 18% 21% 27% 220% 2% 26% 34% 32% 54% 16% 54% 17% 28% 28% 36% 46%4 6 % 36% Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 33,781 GWh 26,828 GWh 6
Slide 39: Resource Planning, Renewables and Energy Efficiency Overview
RESOURCE PLANNING, RENEWABLES AND ENERGY EFFICIENCY OVERVIEW MAKING COMPELLING CAPITAL INVESTMENTS
Slide 40: Resource Planning for Reliability and Sustainability
RESOURCE PLANNING FOR 37 RELIABILITY AND SUSTAINABILITY Through a balanced resource mix including renewable resources and energy efficiency programs, we will meet future load growth. MW 14,000 14,000 Load Requirement 3% Four Corners Transactions, Net 12,000 Including 15% Reserves 4% Other Future Pur
Slide 41: Renewable Energy Rises with the Sun
38 RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of the World.” Arizona Germany and Japan are among countries with highest installed solar capacity, yet have solar conditions far inferior to Arizona MAKING COMPELLING CAPITAL INVESTMENTS
Slide 42: APS AZ Sun Program
39 APS AZ SUN PROGRAM Owning solar resources makes sense for our customers, communities, environment, and provides returns to our shareholders. Utility-scale solar photovoltaic plants to be owned by APS Phase I – Underway Phase II - Proposed • 100 MW • Additional 100 MW • Up to $500 million capital
Slide 43: AZ Sun Program Summary Phase I
40 AZ SUN PROGRAM SUMMARY PHASE I APS is investing up to $500 million to own 100 MW of solar generation by year-end 2014. Name Location Capacity Developer Target COD* Paloma Gila Bend, AZ 17 MW First Solar Sept. 2011 Cotton Center Gila Bend, AZ 17 MW Solon Oct. 2011 Hyder Phase 1 Hyder, AZ 11 MW Sun
Slide 44: Solana: A "Sunny Place"
41 SOLANA: A “SUNNY PLACE” Solana will provide about one-third of APS’s renewable energy target of 10% by 2015. • 250-MW 30-year PPA for all output (~900 GWh/year) • Concentrating solar trough facility 70 miles southwest of Phoenix • Expected to be first major stored-heat plant in U.S. on targeted 2
Slide 45: Four Corners Power Plant Transactions
FOUR CORNERS POWER PLANT 42 TRANSACTIONS Our proposal represents a balanced solution to new environmental regulations. Acquire Southern California Edison’s 739 MW interest in Units 4 & 5 and shut down 560 MW Units 1 – 3 • Purchase price: $294 million • Acquisition target date: late 2012 • Estimated
Slide 46: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE 43 AND ENERGY EFFICIENCY STANDARDS We are committed to aggressive renewable and energy efficiency standards. Renewable Energy (RES) Minimum Requirements Portion of retail sales to be supplied by renewable resources • 5% by 2015 • 15% by 2025 Distributed energy component
Slide 47: APS Energy Efficiency Initiatives Increasing
APS ENERGY EFFICIENCY 44 INITIATIVES INCREASING APS plans to double customers’ energy efficiency savings from 2010 through 2012. Cumulative Annual Energy Savings Associated with EE/DSM Programs GWh • Program costs currently recovered 2,250 through retail rate adjustor 2,000 • Under 2009 retail regul
Slide 48: Transmission Investment Essential
45 TRANSMISSION INVESTMENT ESSENTIAL Strategic transmission is necessary to maintain reliability and deliver diversified resources to our customers. NAVAJO • 10-Year Transmission Plan (115-kV and above) FOUR NORTH CORNERS 100 MW • $450 million of new 970 MW transmission investment • 258 miles of new
Slide 49: Four Corners Power Plant Facts & Figures
FOUR CORNERS POWER PLANT 46 FACTS & FIGURES Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercial Operation Date 1963 1963 1964 1969 1970 Original Cost ($M) $37 $369 $166 Net Book Value at 12/31/10 ($M) $20 $125 $63 Current Depreciation Ends 2031 Mid-2016 Mid-2016 Mid-2016 2031 2031 Current Expiratio
Slide 50: Renewable Purchase Power Contracts
47 RENEWABLE PURCHASE POWER CONTRACTS Commercial Owner/ PPA Operation Term Capacity Fuel / Contract Location Developer Status 1 Signed Date (years) Net (MW) Solar Solana Gila Bend, AZ Abengoa UC Feb-2008 2013 30 250 Ajo Ajo, AZ Duke Energy Gen Svcs IO Jan-2010 2011 25 5 Prescott Prescott, AZ SunEdis
Slide 51: A Well-Balanced Generation Portfolio
48 A WELL-BALANCED GENERATION PORTFOLIO Commercial Ownership Net Capacity Fuel / Plant Location Units Dispatch Ops. Date Operator Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1-3 Base 1986 - 1989 APS 29.1% 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1-3 Base 1962 - 1980 APS 100 647 Fo
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