Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (May 2017)
41 slides from Pinnacle West Capital's roadshow presentation, May 12, 2017
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings l May 12, 2017 1 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*: $9.5 billion - Enterprise Value*: $13.9 billion - Consolidated Assets: $16.2 billion - Indicated Annual Dividend*: $2.62 - D
Slide 4: Value Proposition
VALUE PROPOSITION We are executing on our financial and operational objectives … Financial Strength • Annual dividend growth target of 5%, subject to declaration at Board of Director’s discretion • Strong credit ratings and balance sheet • Rate base growth of 6-7% (2015-2019); investing in a portfol
Slide 5: 2016 Highlights & Accomplishments
2016 HIGHLIGHTS & ACCOMPLISHMENTS PNW Total Shareholder Return of 25.3%, outperforming the electric utilities index and broad market Increased indicated annual dividend for fifth straight year, by 5% Maintained strong credit ratings (mid to low A) from all three rating agencies Completed 40M
Slide 6: Dividend Growth
Pinnacle West’s indicated annual dividend is $2.62 per share; DIVIDEND GROWTH targeting ~5% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.62 $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 2018 Projected Future dividends subject to declara
Slide 7: APS Capital Expenditures
APS CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow ($ Millions) Other $1,337 $1,224 $71 Distribution $87 $1,139 $71 $1,009 $398 Transmission $388 $84 $415 Renewable $207 Generation $127 $4 $491 $102 $197 $136 $17 Environmental(1) $100 $220 $237
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 Rate Base Year-End ACC FERC Generation & Distribution Transmission 17% $1.8 83% $1.4 Most Recent Rate Decisions ACC FERC As Filed 6/1/2016 $8.3 Rate Effective Date 7/1/2017
Slide 9: Resource Planning
Over 1.3 gigawatts of new quick RESOURCE PLANNING start, combustion turbine capacity needed by 2025 MW 2017-2032 Supply / Demand Gap Composition of Energy Mix by Resource* 14,000 2017 13% Total Load Requirements 12,000 29% 12% Gas 10,000 25% 21% Coal Future Grid-Scale 8,000 Generation Nuclear 6,000
Slide 10: The Grid Is Evolving – Driving New Investments in Technology
THE GRID IS EVOLVING – DRIVING NEW INVESTMENTS IN TECHNOLOGY • 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 next generation electric grid • New technology advances and changing c
Slide 11: Distribution Grid Investments
Modernizing the distribution grid DISTRIBUTION GRID with advanced technology investments – resulting in INVESTMENTS improved reliability for customers and more efficient operations Utility-Scale Technology Customer Facing Technology Integrated Volt/VAR Substation Health Rooftop Solar Battery Storage
Slide 12: Sustainability
APS’s vision is to create a SUSTAINABILITY sustainable energy future for Arizona We assessed our sustainability actions to identify our highest priority elements. These elements are: Carbon Management, Energy Innovation, Safety and Security, Water Resources and People. Examples of 2016 accomplishmen
Slide 13: Renewable Resources
RENEWABLE APS is a leader in solar RESOURCES APS currently has 1,475 MW APS Solar Portfolio* of renewable resources: Owned PPA • Solar* 1,156 MW 214 MW 310 MW • Wind 289 MW DG • Biomass 14 MW 632 MW • Geothermal 10 MW • Biogas 6 MW Owned solar includes 170 MW AZ Sun Program, 4 MW of other APS owned
Slide 14: Solar Partner Program
SOLAR PARTNER Learning how to efficiently enable the integration of rooftop solar PROGRAM and battery storage with our grid • Overview – Installed 10 MW of APS-owned residential PV systems; approximately 1,600 systems with average system size of 6kW – Advanced controllable inverters that can vary po
Slide 15: 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 16: Environmental Plan
Regional Haze compliance is the ENVIRONMENTAL biggest driver of environmental PLAN spend over the next few years Mercury and Other Hazardous Regional Haze / BART Air Pollutants Coal Combustion Residuals (SCR) (ACI + Baghouse) MATS compliance by April 2015, Announced in 1999, with site-specific Annou
Slide 17: 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 11% Percent of Portfolio MWh Gas 29% 41% Coal 21% 11% Nuclear 25% 17% RE + DE 12% 18% 13% 13% EE Emissions 2017 2032 • 820 MW of coal has been retired including 560 MW
Slide 18: 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: APS continues to strive for sustainable and cost-effective water supplies for energy production for APS customers. Mission: To execute a str
Slide 19: 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: 32.2 million MWh in 2016 – Approximately 2,700 employees In Service License* Unit 1
Slide 20: APS Rate Case
APS RATE CASE • Filed June 1, 2016 • Docket Number: E-01345A-16-0036 • Additional details, including filing, can be found at http://www.azenergyfuture.com/rate-review/ Procedural Schedule File Settlement Agreement March 27, 2017 Direct Testimony in Support of/in Opposition to the April 3, 2017 Settl
Slide 21: 2017 Proposed Rate Case Settlement
2017 PROPOSED RATE CASE SETTLEMENT Key Financial Proposals – Base Rate Changes Annualized Base Rate Revenue Changes ($ millions) Non-fuel, Non-depreciation Base Rate Increase $ 87.2 Decrease fuel and Purchased Power over Base Rates (53.6) Increase due to Changes in Depreciation Schedules 61.0 Total
Slide 22: 2017 Proposed Rate Case Settlement
2017 PROPOSED RATE CASE SETTLEMENT Key Proposals – Revenue Requirement • Cost deferral order from in-service dates to incorporation of SCRs in rates using a step-increase no Four Corners later than January 1, 2019 Ocotillo Modernization • Cost deferral order from in-service dates to effective date i
Slide 23: Appendix
APPENDIX 23 Powering Growth, Delivering Value
Slide 24: 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 Bob David Jeff Hatfield Schiavoni Bement Falck Guldner EVP & Chief EVP & Chief EVP & Chief EVP & General SVP Financial Oper
Slide 25: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to live and do INDICATORS business Nonresidential Building Vacancy – Metro Phoenix Vacancy Rate Maricopa County ranked #1 in U.S. for 25% population growth in 2016 Office - U.S. Census Bureau March 2017 20% 15% Industrial Above-average job
Slide 26: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK May 2, 2017 Gross Margin – Customer Growth and Weather (2017-2019) Assumption Impact Retail customer growth • Projected to average in the range of about 2-3% • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electric
Slide 27: Operations & Maintenance
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages ($ Millions) $137 $103 $83 $150 $124 $96 $805 $828 $761 $788 $772 $754 2011 2012 2013 2014 2015 2016 PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by adjustment mechan
Slide 28: Balance Sheet Strength
BALANCE SHEET STRENGTH Debt Maturity Schedule Credit Ratings ($Millions) • A- or equivalent ratings or better at S&P, Moody’s and Fitch $600 2017 Major Financing Activities $500 • $250 million re-opening in March of APS’s outstanding 4.35% senior unsecured notes due $400 November 2045 • Currently ex
Slide 29: Credit Ratings and Metrics
CREDIT RATINGS AND Key credit metrics remain strong METRICS APS Parent 2011 2012 2013 2014 2015 2016 Corporate Credit Ratings APS Moody’s A2 A3 FFO / Debt 23.6% 27.7% 31.5% 27.5% 29.7% 26.5% S&P A- A- FFO / Interest 4.2x 4.8x 5.6X 5.5x 5.8x 5.0x Fitch A- A- Debt / 52.9% 50.7% 47.7% 45.3% 45.8% 47.8%
Slide 30: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2017 (115 kV and above) – 52 miles of new lines – 5 bulk transformer additions • Also includes: Flagstaff – Sun Valley-Morg
Slide 31: Bright Canyon Energy
BRIGHT CANYON ENERGY BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue long-term growth opportunities in the electric energy industry TRANSCANYON A 50/50 Joint Venture formed with BHE U.S. Transmission, a subsidiary of Berkshire Hathaway Energy, to develop, build and own transmission in
Slide 32: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2019 Terms to January 2020 Tom Doug Bob Boyd Andy Forese (R) Little (R) Burns (R)* Dunn (R) Tobin (R) Chairman Other State Officials ACC Executive Director – Ted Vogt RUCO Director – David Tenney * Term limited - elected to four-year terms (limited to
Slide 33: 2017 Key Dates
2017 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery Jan 15 E-01345A-11-0224 Transmission Cost Adjustor May 15 E-01345A-11-0224 2018 DSM/EE Implementation Plan Jun 1 2018 RES Implementation Plan for Reset Jul 1 of Renewable Energy Adjustor APS
Slide 34: Rooftop Solar Customers Use the Grid 24 Hours per Day
ROOFTOP SOLAR CUSTOMERS USE THE GRID 24 HOURS PER DAY TYPICAL GRID INTERACTION FOR ROOFTOP SOLAR • Customers with rooftop solar systems do not pay for all of the electric services they use • These unpaid costs are then paid by other customers (through higher rates) that can’t have or don’t want sola
Slide 35: Residential vs. Utility-Scale Solar
RESIDENTIAL VS. Performance at system peak UTILITY-SCALE SOLAR On June 19th, APS customers hit “peak demand” for 2016 using more than 7,400 MW of electricity Residential Rooftop Solar AZ Sun Utility-Scale Solar 500 Residential Rooftop 7,445 8,000 500 AZ Sun 7445 8,000 System Load 6,908 System Load 6
Slide 36: Residential PV Applications
Residential DG (MWdc) Annual Additions RESIDENTIAL PV 133 74 APPLICATIONS* 51 57 44 34 18 22 10 2009 2011 2013 2015 2017 Q1 2,500 2,182 2,250 2,051 2,000 1,809 1,750 1,616 1,644 1,489 1,547 1,415 1,374 1,500 1,293 1,348 1,268 1,154 1,250 1,003 1,349 1,002 1,000 1,157 1,158 1,141 1,189 1,168 760 1,07
Slide 37: 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 – 7% by 2017 to 22% of annual retai
Slide 38: Operational Excellence
OPERATIONAL EXCELLENCE Power Quality and Reliability Palo Verde Ranked 9th highest nationally among 53 large investor-owned electric Palo Verde is the only plant in the U.S. to exceed 30M MW utilities in 2016 J.D. Power residential customer survey. of annual production. APS Industry Average 34 32.33
Slide 39: 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 40: 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 41: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Paul J. Mountain, CFA General Manager, Investor Relations & Audit Services (602) 250-4952 paul.mountain@pinnaclewest.com Ted Geisler Director, Investor Relations (602) 250-3200 ted.geisler@pinnaclewest.com Chalese Haraldsen (602) 250-5643 chalese.haraldsen@pinnaclewest.co