Pinnacle West Capital Corporation · NYSE:PNW

Pinnacle West Capital — Q2 2012 Earnings Presentation

29 slides from Pinnacle West Capital's earnings presentation, Aug 2, 2012

  1. Slide 1: 2nd Quarter 2012 Results

    2nd Quarter 2012 Results Second Quarter 2012

  2. 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,” “

  3. Slide 3: Amounts Attributable to Common Shareholders and Non-GAAP Financial Measures

    Amounts Attributable to Common Shareholders and Non-GAAP Financial Measures In this presentation, references to net income and earnings per share (EPS) refer to amounts attributable to common shareholders. We present “gross margin” per diluted share of common stock. Gross margin refers to operating

  4. Slide 4: CEO Discussion Agenda

    CEO Discussion Agenda  Improving regulatory environment  Selective capital investments  Maintaining operational excellence  Looking ahead Second Quarter 2012 4

  5. Slide 5: CFO Agenda

    CFO Agenda  2nd quarter results  Credit ratings upgrades and financing  Arizona economic outlook  Earnings guidance and financial outlook Second Quarter 2012 5

  6. Slide 6: Consolidated EPS Comparisons

    Consolidated EPS Comparisons 2nd Quarter 2012 vs. 2nd Quarter 2011 Net Income On-Going Earnings Per Share Per Share $1.25 $1.25 $1.11 $1.12 $1.00 $1.00 $0.79 $0.78 $0.75 $0.75 $0.50 $0.50 $0.25 $0.25 $0.00 $0.00 2012 2011 2012 2011 Second Quarter 2012 6

  7. Slide 7: Non-GAAP EPS Reconciliation 2nd Quarter 2012 vs. 2nd Quarter 2011

    Non-GAAP EPS Reconciliation 2nd Quarter 2012 vs. 2nd Quarter 2011 2nd Qtr 2nd Qtr 2012 2011 Change EPS as reported $ 1.11 $ 0.79 $ 0.32 Less income (loss) from discontinued operations (0.01) 0.01 (0.02) On-going EPS $ 1.12 $ 0.78 $ 0.34 Second Quarter 2012 7

  8. Slide 8: On-Going EPS Variances

    On-Going EPS Variances 2nd Quarter 2012 vs. 2nd Quarter 2011 Lower infrastructure- related costs Higher O&M* $0.06 $(0.05) Higher Other, net Net gross margin* $(0.02) Increase $0.35 $0.34 = * Excludes costs, and offsetting operating revenues, associated with renewable energy (net of AZ Sun), energy

  9. Slide 9: Gross Margin EPS Drivers

    Gross Margin EPS Drivers 2nd Quarter 2012 vs. 2nd Quarter 2011 Fuel costs Lower retail Net and hedge Other, net kWh sales Increase mark-to-market, $0.04 $(0.01) net of PSA $0.35 deferrals Retail transmission $0.04 = charge increase $0.05 Weather effects $0.23 See non-GAAP reconciliation in appendix.

  10. Slide 10: Investment-Grade Credit Ratings

    Investment-Grade Credit Ratings APS Parent Corporate Credit Ratings Moody’s Baa1 Baa2 S&P BBB BBB Fitch BBB BBB Senior Unsecured Moody’s Baa1 - S&P BBB - Fitch BBB+ - Outlook Moody’s Stable Stable S&P Positive Positive Fitch Stable Stable We are disclosing these ratings to enhance understanding of o

  11. Slide 11: Arizona Economic Indicators

    Arizona Economic Indicators Employment & Excess Housing Non-Farm Job Growth Metro Phoenix Excess Housing Year-Over- APS Service Territory Year Change 10.0% 40,000 8.0% 35,000 6.0% 30,000 4.0% 2.0% 25,000 0.0% 20,000 (2.0)% 15,000 (4.0)% 10,000 (6.0)% (8.0)% 5,000 (10.0)% 0 '05 '06 '07 '08 '09 '10 '1

  12. Slide 12: Arizona Economic Indicators

    Arizona Economic Indicators Metro Phoenix Housing Prices & Nonresidential Vacancy Home Prices Nonresidential Building Vacancy Value Relative to Jan ‘05 Vacancy Rate 175 25% Office 150 20% 125 15% Retail 100 10% 75 5% 50 0% '05 '06 '07 '08 '09 '10 '11 '12 '05 '06 '07 '08 '09 '10 '11 '12 YTD YTD Secon

  13. Slide 13: Cost Management Initiatives

    Cost Management Initiatives APS O&M Expense Trends  Solid achievements to date $ Millions 800  Goal: O&M growth in line with retail sales growth 600  Initiatives  Company-wide 400 benchmarking and evaluations  Workforce attrition 200 opportunities  Knowledge transfer 0  Process documentation

  14. Slide 14: Consolidated Financial Outlook

    Consolidated Financial Outlook As of August 2, 2012 On-Going EPS Consolidated Earned ROE Goal $4.00 10% $3.35 – $3.50 8.8% Average 9.5% $3.50 $2.99 8% $3.00 $2.50 6% $2.00 $1.50 4% $1.00 2% $0.50 $0.00 0% 2011 2012 2011 2012 2013 2014 2015 Guidance Projected See key factors and assumptions in append

  15. Slide 15: Appendix

    Appendix Second Quarter 2012

  16. Slide 16: 2012 On-Going EPS Guidance

    2012 On-Going EPS Guidance Key Factors & Assumptions as of August 2, 2012  Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) about $2.13 billion to $2.18 billion • Retail customer growth about 1% • Weather-normalized retail electricity sales volume slightly be

  17. Slide 17: 2012-2015 Financial Outlook

    2012-2015 Financial Outlook Key Drivers & Assumptions as of August 2, 2012  2012 retail rate settlement effective July 1, 2012  Revenue provisions  Retail base rate changes effective July 1, 2012  Adjustment mechanisms  Four Corners acquisition  AZ Sun additions to flow through RES until next

  18. Slide 18: 2012-2015 Financial Outlook

    2012-2015 Financial Outlook Key Drivers & Assumptions as of August 2, 2012 (cont.)  Modestly improving Arizona and U.S. economic conditions  Retail customer growth to average 2% annually  Weather-normalized retail electricity sales volume growth:  Relatively flat after customer conservation and

  19. Slide 19: Non-GAAP EPS Reconciliation

    Non-GAAP EPS Reconciliation Consolidated On-Going EPS Guidance Year 2011 Year 2012 Actual Guidance* Net income attributable to common shareholders $ 3.09 Less income (loss) from discontinued operations: Real estate (0.01) Energy services business 0.11 On-going EPS $ 2.99 $ 3.35 - $ 3.50 * As of Augu

  20. Slide 20: 2012 Retail Rate Case Settlement

    2012 Retail Rate Case Settlement Key Benefits from Investor Perspective The settlement 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 en

  21. Slide 21: 2012 Retail Rate Case Settlement

    2012 Retail Rate Case Settlement Key Financial Provisions – Base Rate Changes The provisions of the settlement became effective July 1, 2012, as originally requested by APS. Annualized Base Rate Revenue Changes ($ millions) Non-fuel base rate increase $ 116.3 Fuel-related base rate decrease (153.1)

  22. Slide 22: 2012 Retail Rate Case Settlement

    2012 Retail Rate Case Settlement Key Proposals – Other than Base Rates Other key provisions provide customers rate stability while continuing constructive regulatory treatment and limiting regulatory lag.  Post test-year plant additions – 15 months’ additions included in rate base  Constructive ne

  23. Slide 23: 2012 Retail Rate Case Settlement

    2012 Retail Rate Case Settlement Key Financial Assumptions Updated rate base, cost of capital and fuel prices underpin settlement amounts. Rate base $5.7 billion Allowed return on equity 10% Capital structure Long-term debt 46.1% Common equity 53.9% Base fuel rate (¢/kWh) 3.21¢ Projected fuel-price

  24. Slide 24: APS AZ Sun Program

    APS AZ Sun Program  Up to 200 MW utility-scale photovoltaic solar plants to be owned by APS  In service 2011 through 2015  Constructive rate recovery through RES until included in base rates  Commitments to date:  104 MW with $446 million estimated capital investment  Project summary Name Net

  25. Slide 25: Four Corners Power Plant Proposed Plan

    Four Corners Power Plant Proposed Plan Acquire Southern California Edison’s 739 MW interest in Units 4 & 5 and shut down 560 MW Units 1 – 3  Purchase price: $294 million (subject to adjustments)  Acquisition target date: No earlier than December 1, 2012  Estimated environmental compliance investm

  26. Slide 26: Gross Margin Effects of Weather Variances Versus Normal

    Gross Margin Effects of Weather Variances Versus Normal* Pretax Millions $25 20 $20 15 $15 9 8 $10 4 $5 2 $0 ($5) (4) (4) ($10) ($15) ($20) ($25) ($30) (26) (27) ($35) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2012 *All periods recalculated to conform to current presentation. Second Quarter 2012 26

  27. Slide 27: Quarterly Mark-to-Market on Hedge Contracts

    Quarterly Mark-to-Market on Hedge Contracts* Pretax Millions $10 5 $5 1 0 0 $0 (1) (1) (2) (2) (2) (2) $(5) $(10) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2012 * Related to APS 10% share under Power Supply Adjustor (PSA), net of related deferrals. Second Quarter 2012 27

  28. Slide 28: Renewable Energy, Demand Side Management and Similar Regulatory Expenses

    Renewable Energy, Demand Side Management and Similar Regulatory Expenses* Pretax Millions $50 $45 $40 2 $35 23 2 $30 15 2 18 16 $25 12 13 8 11 19 $20 16 $15 21 23 $10 18 19 19 19 19 16 12 $5 10 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2012 Renewable Energy Demand Side Management Competition Rules

  29. Slide 29: Non-GAAP Measure Reconciliation

    Non-GAAP Measure Reconciliation Gross Margin Three Months Ended June 30, EPS $ millions pretax, except per share amounts 2012 2011 Change Operating revenues* $ 879 $ 800 Fuel and purchased power expenses* (265) (244) Gross margin 614 556 $ 0.32 Less: Renewable energy (excluding AZ Sun), energy effic

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