Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q2 2015 Earnings Presentation
22 slides from Pinnacle West Capital's earnings presentation, Jul 30, 2015
Slide 1: Second Quarter 2015 Results
SECOND QUARTER 2015 RESULTS July 30, 2015 Second Quarter 2015
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
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
Slide 3: Consolidated EPS Comparison 2015 vs. 2014
CONSOLIDATED EPS COMPARISON 2015 VS. 2014 2nd Quarter Year-to-Date On-Going Earnings On-Going Earnings $1.34 $1.25 $1.19 $1.10 2015 2014 2015 2014 2nd Quarter Year-to-Date GAAP Net Income GAAP Net Income $1.10 $1.19 $1.25 $1.34 3 Second Quarter 2015
Slide 4: On-Going EPS Variances
ON-GOING EPS VARIANCES 2ND QUARTER 2015 VS. 2ND QUARTER 2014 Gross Net Margin(1) Decrease $(0.02) $(0.09) D&A(2) $(0.07) Interest, Net of AFUDC Other, net $0.04 $(0.04) = (1) Excludes costs, and offsetting operating revenues, associated with renewable energy (excluding AZ Sun), demand side managemen
Slide 5: Gross Margin EPS Drivers
GROSS MARGIN EPS DRIVERS 2ND QUARTER 2015 VS. 2ND QUARTER 2014 Lost Fixed Cost Recovery Mechanism Weather Four $0.02 $(0.06) Corners Rate Change $0.08 Transmission Revenue $(0.04) Wholesale Net Contract Decrease $(0.02) $(0.02) = See non-GAAP reconciliation for gross margin in appendix. 5 Second Qua
Slide 6: Arizona Economic Indicators
Business services, healthcare, ARIZONA ECONOMIC tourism, and consumer services INDICATORS leading job recovery – each growing 3-7% YoY Home Prices – Metro Phoenix Nonresidential Building Vacancy – Metro Phoenix Value Relative to Jan ‘05 Vacancy Rate 175 25% Office 150 20% Industrial 125 15% 100 10%
Slide 7: Balance Sheet Strength
BALANCE SHEET STRENGTH Debt Maturity Schedule Credit Ratings ($Millions) • A- rating or better at S&P, Moody’s and Fitch $500 • Moody’s and Fitch upgraded APS and PNW in Q2 $400 2015 Major Financing Activities • $250 million 5-year 2.20% APS senior $300 unsecured notes issued in January 2015 $500 •
Slide 8: 2015 On-Going EPS Guidance
2015 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE July 30, 2015 2015 Electricity gross margin* (operating revenues, net of fuel and $2.27 – $2.32 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% to pr
Slide 9: Appendix
APPENDIX Second Quarter 2015
Slide 10: 2015 Key Dates
2015 KEY DATES ACC Key Dates Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery E-01345A-11-0224 Jan 15 Net Metering – Quarterly Installation Filings E-01345A-13-0248 Jan 15 Apr 15 Jul 15 Oct 15 Transmission Cost Adjustor E-01345A-11-0224 May 15 Renewable Energy Surcharge
Slide 11: Credit Ratings
CREDIT RATINGS Investment Grade Credit Ratings APS Parent Corporate Credit Ratings Moody’s A2 A3 S&P A- A- Fitch A- A- Senior Unsecured Moody’s A2 - S&P A- - Fitch A - Outlook Moody’s Stable Stable S&P Stable Stable Fitch Stable Stable We are disclosing credit ratings to enhance understanding of our
Slide 12: Retail Sales Impact from Energy Efficiency and Distributed Generation
RETAIL SALES IMPACT FROM ENERGY EFFICIENCY AND DISTRIBUTED GENERATION The difference between customer growth and Annual Retail Sales Growth weather-normalized retail sales, mostly driven by EE and DG, has ranged from (1)-(2)%, in line with guidance, despite some larger quarterly variances. • 2015 YT
Slide 13: Residential PV Applications
RESIDENTIAL PV APPLICATIONS Residential DG (MW) Annual Additions 51 57 44 23 15 19 1,400 77 53 2009 2010 2011 2012 2013 2014 1,200 1,228 1,249 1,000 94 48 63 969 69 84 800 874 71 878 863 90 62 782 803 735 728 64 45 600 102 637 654 34 527 41 545 400 33 83 450 364 346 28 200 250 0 0 Jan Feb Mar Apr Ma
Slide 14: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK July 30, 2015 Gross Margin – Customer Growth and Weather (2015-2017) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricity •
Slide 15: Operations & Maintenance Outlook
OPERATIONS & Targeting to be top quartile in MAINTENANCE peer benchmarking for staffing OUTLOOK ($ Millions) 2015+ Outlook $137 $103 $150 $124 $109 • Goal is to keep O&M per $121 kWh flat • Complete documentation of over 1,800 policies, processes and procedures, including $775 - more than 275 proces
Slide 16: Capital Expenditures
70% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (30%) and depreciation cash flow (40%) $1,285 ($ Millions) $79 Other $1,111 $1,056 $92 $331 $100 Distribution $883 $73 $375 $325 $146 Transmission $2 $242 $180 $113 Renewable $192 $1 Generation $192 $178 $80 $63 $4
Slide 17: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and projected closings – Update filed each May – Annual rate true-up compares projecte
Slide 18: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments 2014 2015 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2014 Rates 2015 Rates (Including True-Up) (Including True-Up) 2014 Revenue 2015 Reve
Slide 19: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $10 5 $0 (4) (7) (6) (10) (17) $(10) $(20) Q1 Q2 Q3 Q4 Q1 Q2 2014 2015 $(23) Million $(16) Million All periods recalculated to current 10-year rolling average (2004-2013). 19 Second Quarter 2015
Slide 20: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Pretax Millions Renewable Energy Demand Side Management $50 $40 $30 17 $20 16 12 11 14 14 $10 15 10 11 12 8 7 $0 Q1 Q2 Q3 Q4 Q1 Q2 2014 2015 $103 Million $44 Million * O&M expenses related to renewable energy, demand side management and similar r
Slide 21: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended June 30, EPS $ millions pretax, except per share amounts 2015 2014 Impact Operating revenues* $ 890 $ 906 Fuel and purchased power expenses* (281) (291) Gross margin 609 615 $ (0.03) Adjustments: Renewable energy (excluding AZ Sun), dem
Slide 22: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION OTHER NON-GAAP Three Months Ended June 30, Palo Verde Lease 2015 EPS 2 $ millions pretax, except per share amounts 2015 Extensions Adjusted 2014 Impact Depreciation and amortization1 123 (5) 118 105 $ (0.07) Net income attributable to noncontrolling interests1 4 5 9 9
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