Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (March 2017)
40 slides from Pinnacle West Capital's roadshow presentation, Mar 20, 2017
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings l March 20-22, 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*: $9.1 billion - Enterprise Value*: $13.5 billion - Consolidated Assets: $15.5 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 $2.10 2011 2012 2013 2014 2015 2016 2017 2018 Projected Future dividends subject to declara
Slide 7: Resource Planning
Future resources need projected RESOURCE PLANNING in excess of 3,500 MW by 2022 and over 5,400 MW by 2027 MW 2017-2032 Supply / Demand Gap Composition of Energy Mix by Resource* 14,000 2017 13% 12,000 Total Load Requirements 23% 11% 10,000 Gas 26% 27% Coal 8,000 Future Grid-Scale Generation Existing
Slide 8: APS Capital Expenditures
APS CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow ($ Millions) Other $1,337 $1,224 $74 Distribution $87 $1,124 $72 $402 $994 Transmission $388 $81 $406 Renewable $206 Generation $127 $480 $4 $102 $195 $137 $1 Environmental(1) $105 $220 $237 $11
Slide 9: 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 - Proposed1 FERC Rate Effective Date 7/1/2017 6/1/2016 $
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: 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: Energy Innovation, Water Resources, Carbon Management, People, and Safety and Security. Examples of 2016 accomplishme
Slide 12: Renewable Resources
RENEWABLE APS is a leader in solar RESOURCES APS currently has 1,440 MW APS Solar Portfolio* of renewable resources: Owned PPA • Solar* 1,121 MW 214 MW 310 MW • Wind 289 MW DG • Biomass 14 MW 597 MW • Geothermal 10 MW • Biogas 6 MW Owned solar includes 170 MW AZ Sun Program, 4 MW of other APS owned
Slide 13: 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 14: 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 15: Environmental Plan
ENVIRONMENTAL Regional Haze compliance is the biggest driver of environmental PLAN 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 16: 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 14% Percent of Portfolio MWh Gas 23% 36% Coal 27% 14% Nuclear 26% 18% RE + DE 18% 11% 13% 14% EE Emissions 2017 2032 • 820 MW of coal has been retired including 560 MW
Slide 17: 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 18: 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 2,700 employees In Service License* Unit 1
Slide 19: APS Rate Case
APS RATE CASE • Filed June 1, 2016 • Propose new rates go into effect on July 1, 2017 • 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 24, 2017 Direct Testimony in
Slide 20: 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 21: 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 22: Appendix
APPENDIX 22 Powering Growth, Delivering Value
Slide 23: 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 24: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to live and do INDICATORS business Nonresidential Net Absorption – Metro Phoenix Millions Sq. Ft Office Retail Above-average job growth in 5 construction and financial services 4 3 Vacancy rates in office and retail space 2 have fallen to p
Slide 25: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK February 24, 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 el
Slide 26: 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 $754 2011 2012 2013 2014 2015 2016 PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by adjustment mechan
Slide 27: Balance Sheet Strength
BALANCE SHEET STRENGTH Debt Maturity Schedule Credit Ratings ($Millions) • A- rating or better at S&P, Moody’s and Fitch $600 2016 Major Financing Activities $500 • $100 million 3-year term loan closed April 2016 • $350 million 30-year 3.75% APS senior unsecured $400 notes issued May 2016 • $250 mil
Slide 28: 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 – Morgan-Sun Vall
Slide 29: 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 30: 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 31: 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 32: Arizona Electric Utilities General Rate Cases
ARIZONA ELECTRIC UTILITIES GENERAL RATE CASES UNS Electric (93,000 customers) Tucson Electric Power Company (415,000 customers) Docket # E-04204A-15-0142 Docket # E-01933A-15-0322 Application Filed May 5, 2015 Application Filed Nov 5, 2015 Hearing (Mar 1 – 24, 2016) Non-unanimous Revenue Requirement
Slide 33: 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 34: 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 35: Residential PV Applications
Residential DG (MWdc) Annual Additions RESIDENTIAL PV 133 74 APPLICATIONS* 51 57 44 25 18 22 10 2009 2011 2013 2015 2017 2500 2250 2000 1750 1500 1250 1000 750 939 871 836 783 500 710 610 641 523 250 442 357 339 249 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 Applications 2015 Application
Slide 36: 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 37: Operational Excellence
OPERATIONAL EXCELLENCE Power Quality and Reliability Palo Verde Ranked 9th highest nationally among 53 large investor-owned electric Palo Verde has exceeded its own record for generation - 32.5 million utilities in 2016 J.D. Power residential customer survey. megawatt-hours annual production in 2015
Slide 38: 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 39: 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 40: 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
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