Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (August 2014)
40 slides from Pinnacle West Capital's roadshow presentation, Aug 12, 2014
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Meetings | August 12-13, 2014 Delivering Superior Shareholder 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: Value Proposition
VALUE PROPOSITION • Maintaining focus on core electric utility business Experienced Management • Delivering long-term value Team Driving Focused • Creating a sustainable energy future for Arizona and the communities we serve Strategy • Driving cost management discipline through increased transparenc
Slide 4: Pinnacle West: Who We Are
PINNACLE WEST: We are a vertically integrated, regulated electric utility in the WHO WE ARE growing southwest U.S. NYSE Ticker PNW Market Cap* $6 Billion Enterprise Value* $9.5 Billion Dividend Yield* 4% Consolidated Assets $13.7 Billion Principal Subsidiary • Arizona’s largest and longest-serving e
Slide 5: Leadership Team
Our top executives have more than 100 combined years of LEADERSHIP TEAM creating shareholder value in the energy industry Don Brandt Chairman & CEO Mark Randy Jeff Jim Schiavoni Edington Guldner Hatfield EVP & Chief EVP & SVP EVP Operating Chief Nuclear Customers & & CFO Officer Officer Regulation 5
Slide 6: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS 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% Retail 75 5% 50 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Apr '05 '06 '07 '08 '09 '10 '11 '12 '13 '14Q2 Si
Slide 7: Arizona Economy – Homebuilders Agree Phoenix Has Solid Long-Term Outlook
ARIZONA ECONOMY – HOMEBUILDERS AGREE PHOENIX HAS SOLID LONG-TERM OUTLOOK “I am bullish on Phoenix over the long term…I believe that going into 2015 we're going to experience a more normal market in Arizona after things get more in balance.” “We remain confident in the long-term growth of the opportu
Slide 8: Customer Growth
CUSTOMER GROWTH Annual Growth 5% • Customer growth drives 85% of retail sales 4% (excluding impacts of customer conservation, energy efficiency and distributed renewable 3% generation initiatives) • Retail customer growth to 2% average about 2.5% annually 2014-2016 1% 0% 1990 1994 1998 2002 2006 201
Slide 9: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) • Weather-normalized retail sales growth about 1% for 2014-2016 after impacts of energy efficiency, customer conservation and distributed renewable generation initiatives (excluding Lost Fixed Cost Recovery) Distributed Generation (DG) Impact • DG makes up 0.
Slide 10: 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 – 5% by 2015 to 22% of annual retail
Slide 11: Operational Excellence
OPERATIONAL EXCELLENCE Customer Satisfaction Palo Verde Ranked 5th highest nationally among 54 large investor-owned Palo Verde has exceeded 30 million megawatt-hours annual electric utilities in 2014 J.D. Power residential customer survey. production 9 times – the only U.S. plant to ever do so. APS
Slide 12: Resource Planning
RESOURCE PLANNING* MW Composition of Energy Mix by Resource 14,000 Load Requirement Including Reserves 2014 12,000 27.7% 9.5% 10,000 17.0% Gas 35.3% Resource Planning 7.5% Requirement 20.1% Coal 8,000 Existing Contracts Nuclear 6,000 2029 RE + DE 15.3% 4,000 EE 28.5% 13.6% Existing Owned Resources 2
Slide 13: Capital Expenditures
80% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (40%) and depreciation cash flow (40%) ($ Millions) $1,263 $48 Other $1,026 $986 $363 $931 $41 Distribution $44 $74 $234 $373 Transmission $230 $196 $132 Renewable $177 $212 Generation $166 $213 $20 $131 $8 $58 $22
Slide 14: 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 – Estimated environmental compliance: $350 mi
Slide 15: Ocotillo Power Plant (Tempe, AZ)
Ocotillo modernization project OCOTILLO POWER will maintain valley grid PLANT (TEMPE, AZ) reliability and increase APS’s generating capacity by 290 MW • Maintains system reliability through retirement of aging steam units • Replacement units meet need for increased portfolio responsiveness • Aids in
Slide 16: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2014 (115 kV and above) – $496 million of transmission investment – 275 miles of new lines – Includes Hassayampa-North Gila
Slide 17: PNW Transmission
PNW TRANSMISSION BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities JOINT VENTURE WITH MIDAMERICAN TRANSMISSION Bright Canyon formed TransCanyon, a 50/50 JV with MidAmerican Transmission, to pursue transmission opportunities in the western United States DELANEY-C
Slide 18: AZ Sun Program
Owning solar resources makes sense for our customers and the AZ SUN PROGRAM environment and provides earnings growth potential • Community-scale photovoltaic solar plants to be owned by APS • Constructive rate recovery through RES until included in base rates • 118 MW in commercial operation to date
Slide 19: APS-Owned Rooftop Solar Proposal
• TBD APS-OWNED ROOFTOP SOLAR PROPOSAL • APS proposed an option to the ACC to convert 20 MW of AZ Sun into APS- owned residential rooftop solar, equates to approximately 3,000 customers • Requesting ACC review within two months (September) to ensure compliance of renewable energy commitments by the
Slide 20: Consolidated Financial Outlook
CONSOLIDATED FINANCIAL OUTLOOK Earned ROE Dividend Growth Goal Indicated Annual Dividend Rate at Year-End 11% PNW 9.9% Consolidated 10% goal to earn at least 9.5% annually 9% $2.27 $2.18 8% $2.10 7% 6% 2008 2009 2010 2011 2012 2013 2014 2015 Goal APS PNW* 2011 2012 2013 2014 2015 Projected * Continu
Slide 21: 2014 Key Dates
2014 KEY DATES Docket # Q1 Q2 Q3 Q4 Key Regulatory Filings Lost Fixed Cost Recovery 11-0224 Jan 15 Transmission Cost Adjustor May 15 Renewable Energy Surcharge Jul 1 10-Year Transmission Plan (Annual) 13-0002 Jan 31 2014 Integrated Resource Plan (Biennial) 13-0070 Apr 1 Net Metering (Decision No. 74
Slide 22: Key Rate Design Principles
KEY RATE DESIGN Smarter rates for smarter grid PRINCIPLES Arizona Public Service, Tucson Electric Power, Residential Utility Consumer Office and Arizona solar developers filed a joint letter with the ACC agreeing on the following rate design principles: Customer-focused Rate design changes needed to
Slide 23: Arizona Corporation Commission
ARIZONA November 2014 elections will CORPORATION determine two seats; elected to serve four-year term COMMISSION Terms To January 2017 Terms To January 2015 New Commissioners Incumbents Susan Bob Bob Stump (R)* Brenda Gary Bitter Smith (R) Burns (R) Chairman Burns (R) Pierce (R)* * Term limited 23 D
Slide 24: Financing
FINANCING 2014 Major Financing Activities Debt Maturity Schedule • $250 million 30-year 4.70% APS senior ($Millions) unsecured notes issued in January 2014 $600 with proceeds used primarily to fund acquisition of Four Corners $500 • $250 million 10-year 3.35% APS senior unsecured notes issued June 2
Slide 25: Appendix
APPENDIX Delivering Superior Shareholder Value
Slide 26: Credit Ratings
CREDIT RATINGS Investment Grade Credit Ratings APS Parent Corporate Credit Ratings Moody’s A3 Baa1 S&P A- A- Fitch BBB+ BBB+ Senior Unsecured Moody’s A3 - S&P A- - Fitch A- - Outlook Moody’s Stable Stable S&P Stable Stable Fitch Stable Stable We are disclosing credit ratings to enhance understanding
Slide 27: Operations & Maintenance
OPERATIONS & Our goal is to keep consolidated O&M growth at or below retail MAINTENANCE sales growth levels ($ Millions) $137 $99 $150 $124 $121 $95 $790 - $810 $788* $727 $749 $754 $761 2009 2010 2011 2012 2013 2014E Consolidated RES/DSM** Note: Pinnacle West O&M for 2009-2014E: $10M, $9M, $8M, $11
Slide 28: Sustainable Cost Management Initiative (SCMI)
SUSTAINABLE COST MANAGEMENT INITIATIVE (“SCMI”) Motivation for Change Sustainable Changes Tiered Metrics • Capitalize on changes driven by aging workforce Linked to incentives to drive accountability across all levels Business Planning Enterprise • Improve organizational efficiencies To increase tra
Slide 29: APS Is a Leader in Solar
APS IS A LEADER We are committed to making Arizona the solar capital of IN SOLAR America APS Solar Portfolio* APS 2013 Rankings AZ Sun 154 MW PPA • 3rd of all U.S. utilities for solar energy 310 MW installed in 2013 (410 MW) DG • 4th for new solar installed in 2013 350 MW (368 watts/customer) • 4th
Slide 30: Net Metering
Rooftop solar customers still NET METERING use the grid 24 hours a day TYPICAL GRID INTERACTION FOR ROOFTOP SOLAR • Customers with rooftop solar systems do not pay for all of the electric services they use (i.e. rooftop customers still need support from the grid 24 hours a day) • These unpaid costs
Slide 31: Residential PV Applications
RESIDENTIAL PV Residential rooftop solar applications continue to trend APPLICATIONS higher in 2014 2013 2014 1000 958 907 911 907 900 868 858 800 770 794 779 685 683 700 583 583 600 495 500 436 402 400 344 283 300 200 100 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • As of June 30, 2014, over
Slide 32: Emerging Technologies Rely on the Grid
EMERGING All of these technologies are TECHNOLOGIES dependent on the grid RELY ON THE GRID Rooftop Solar Home Energy Management Battery Storage Electrical System Fuel Cells Electric Vehicles Microgrids 32 Delivering Superior Shareholder Value
Slide 33: Operational Challenges
OPERATIONAL CHALLENGES The grid provides real-time voltage • Steep ramp rate of backup generation and power needed to start air • Instant variability conditioners and other motors loads • Voltage control at distribution level 33 Delivering Superior Shareholder Value
Slide 34: APS 5-Year Deployment Plan
APS 5-YEAR DEPLOYMENT PLAN Advanced Distribution Energy Management Synchrophasors (WISP) Integrated Volt/VAR Management System System (EMS) Upgrades Control (IVVC) Deploying Over 5,000 Field Devices Investing $170 million Communicating Fault Smart Meters Strategic Indicators (CFI) Fiber Supervisory
Slide 35: Regulatory Mechanisms
We have achieved a more REGULATORY supportive regulatory structure MECHANISMS and improvements in cost recovery timing Adopted / Mechanism Description Last Adjusted Power Supply Adjustor April 2005 / • Recovers variance between actual fuel and purchased power costs and (“PSA”) February 2014 base fue
Slide 36: 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 April – Annual rate true-up compares projec
Slide 37: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2013 Rates 2014 Rates (Including True-Up) (Including True-Up) 2013 Revenue 2014 Reve
Slide 38: Regulatory Mechanisms (LFCR)
REGULATORY Lost Fixed Cost Recovery MECHANISMS (LFCR) • Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2012 2015 Revenue settlement 2014 Revenue – Estimated to offset 30-40% of 2013 Revenue revenues lost due to ACC- 2012 Revenue mandated energy efficiency (EE) Rate Recovery and
Slide 39: Generation Portfolio
GENERATION PORTFOLIO* Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 647 COAL Four Corners Farmington, NM 4, 5 Base 1969-1970 63 970 1,932 MW Navajo
Slide 40: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Fuel/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
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