Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — FY2014 Earnings Presentation
26 slides from Pinnacle West Capital's earnings presentation, Feb 20, 2015
Slide 1: Fourth Quarter and Full-Year 2014 Results
FOURTH QUARTER AND FULL-YEAR 2014 RESULTS February 20, 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: Agenda
AGENDA CEO CFO • Regulatory Update • 2014 Financial Results • 2015 Key Dates • Arizona Economic Outlook • Strategic Investments • Financing • Earnings Guidance 3 Fourth Quarter and Full-Year 2014
Slide 4: Consolidated EPS Comparison 2014 vs. 2013
CONSOLIDATED EPS COMPARISON 2014 VS. 2013 4th Quarter Full-Year On-Going Earnings On-Going Earnings Weather- Normalized $3.68 $3.66 $3.58 $3.60 Weather- Normalized $0.22 $0.05 2014 2013 2014 2013 4th Quarter Full-Year GAAP Net Income GAAP Net Income $0.05 $0.22 $3.58 $3.66 4 Fourth Quarter and Full-
Slide 5: On-Going EPS Variances Full Year 2014 vs. 2013
ON-GOING EPS VARIANCES FULL YEAR 2014 VS. 2013 Weather Interest, Net $3.66 $(0.16) Other, net of AFUDC $0.10 $(0.04) Effective Gross Tax Rate Margin(1) O&M(1) $(0.02) $0.09 $(0.04) Other $3.58 Taxes $(0.01) Gross Margin LFCR $0.06 TCA $(0.04) AZ Sun $0.08 2013 Other $(0.01) 2014 (1) Excludes costs,
Slide 6: On-Going EPS Variances 4th Quarter 2014 vs. 4th Quarter 2013
ON-GOING EPS VARIANCES 4TH QUARTER 2014 VS. 4TH QUARTER 2013 Interest, Net of AFUDC O&M(1) $0.04 $(0.18) D&A Gross Margin(1) $0.01 $0.07 Net Decrease $(0.17) Effective Tax Rate $(0.06) Other, Net $(0.05) = (1) Excludes costs, and offsetting operating revenues, associated with renewable energy (exclu
Slide 7: Gross Margin EPS Drivers
GROSS MARGIN EPS DRIVERS 4TH QUARTER 2014 VS. 4TH QUARTER 2013 Net Other, Net Increase $0.01 $0.07 Higher Retail kWh Sales = $0.01 Weather $0.03 AZ Sun Lost Fixed $0.01 Cost Recovery Mechanism $0.01 See non-GAAP reconciliation for gross margin in appendix. 7 Fourth Quarter and Full-Year 2014
Slide 8: 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 Nov '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Q4 S
Slide 9: Financing
FINANCING Debt Maturity Schedule 2014 Major Financing Activities • $250 million 30-year 4.70% APS senior ($Millions) unsecured notes issued in January 2014 with $600 proceeds used primarily to fund acquisition of Four Corners $500 • $250 million 10-year 3.35% APS senior unsecured notes issued June 2
Slide 10: On-Going EPS Guidance
ON-GOING EPS GUIDANCE AS OF FEBRUARY 20, 2015 Affirming 2015 Guidance range Outlook through 2016 $3.75 - $3.95 • Goal of earning more than 9.5% Return on Equity • Adjustment mechanisms (Lost Fixed Cost Recovery, $3.58 Transmission Cost Adjustor, AZ Sun, Four Corners, etc.) providing increasing contr
Slide 11: 2015 Key Dates
2015 KEY DATES ACC Key Dates Docket # Q1 Q2 Q3 Q4 Key Regulatory Filings Lost Fixed Cost Recovery 11-0224 Jan 15 Net Metering – Quarterly Installation Filings 13-0248 Jan 15 Apr 15 Jul 15 Oct 15 Transmission Cost Adjustor 11-0224 May 15 Renewable Energy Surcharge TBD Jul 1 2014 Integrated Resource P
Slide 12: Appendix
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Slide 13: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status(1) ($ in millions) 90% 90% Expense(2) 2014A 2015E 2016E Pension(1) $14 $14 $7 77% OPEB $6 ($9) ($8) Contributions 2014A 2015E 2016E 2017E YE 2012 YE 2013 YE 2014 Up to Up to Pension $175 $100 • Funded status of the pension plan
Slide 14: 2015 On-Going EPS Guidance Key Factors & Assumptions
2015 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE February 20, 2015 2015 Electricity gross margin* (operating revenues, net of fuel and $2.30 – $2.35 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% t
Slide 15: Financial Outlook 2015-2017 Key Factors & Assumptions
2015 – 2017 Key Factors & Assumptions as of FINANCIAL OUTLOOK February 20, 2015 Gross Margin – Customer Growth and Weather Assumption Impact Retail customer growth • Expected to average about 2-3% annually (2015-2017) • Modestly improving Arizona and U.S. economic conditions Weather-normalized retai
Slide 16: Sustainable Cost Management Ingrained in Business Planning Framework
SUSTAINABLE COST MANAGEMENT INGRAINED IN BUSINESS PLANNING FRAMEWORK Enterprise Process Improvement is current phase of Sustainable Cost Management -- a standardized, systematic approach to determining how to do our work better including documentation, driven by retiring workforce and need to contro
Slide 17: Operations & Maintenance Outlook
OPERATIONS & Targeting to be top quartile in MAINTENANCE peer benchmarking for staffing OUTLOOK ($ Millions) 2015+ Outlook $137 $103 $113 • Goal is to keep O&M per $121 $150 $124 kWh flat • Complete documentation of over 1,800 policies, processes and procedures, including more than 275 process $795
Slide 18: Capital Expenditures
70% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (30%) and depreciation cash flow (40%) ($ Millions) $1,293 $1,265 $81 $98 Other $1,091 $83 $362 $385 Distribution $883 $73 $329 Transmission $133 $180 $242 $1 $162 $2 $203 Renewable $161 Generation $192 $86 $36 $63
Slide 19: APS Solar Partner Program
• TBD APS SOLAR PARTNER PROGRAM • APS to implement 10 MW of APS-owned residential rooftop solar in 2015 − On December 19, 2014, ACC voted that it had no objection to APS implementing the program − Equates to approximately 1,500 customers − Will be filed for recovery in next general rate case − 2 MW
Slide 20: Residential PV Applications
RESIDENTIAL PV APPLICATIONS 2013 Applications* 2013 Canceled Apps 2014 Applications* 2014 Canceled Apps 1,200 83 1,000 60 82 34 114 124 77 108 800 136 115 59 47 116 60 40 116 600 70 30 151 38 980 881 880 898 400 33 793 83 787 810 800 731 731 744 733 642 653 658 93 570 28 549 513 433 453 200 364 346
Slide 21: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax As Previously Reported Millions Adjusted for current 10-year Rolling $20 Average (2003-2012) 12 $10 11 16 6 10 6 $0 1 (4) (7) (4) (7) (10) (13) (7) $(10) (13) (13) $(20) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 $9 Million, as previously reported $
Slide 22: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Pretax Millions Renewable Energy Demand Side Management $50 $40 25 $30 24 20 17 17 $20 19 17 16 15 16 12 14 $10 20 14 16 14 15 10 12 12 10 10 11 8 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 $124 Million $137 Million $103 Million * O&M
Slide 23: Non-GAAP Measure Reconciliation: Gross Margin
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended December 31, EPS $ millions pretax, except per share amounts 2014 2013 Impact Operating revenues* $ 727 $ 700 Fuel and purchased power expenses* (257) (237) Gross margin 470 463 $ 0.03 Adjustments: Renewable energy (excluding AZ Sun), d
Slide 24: Non-GAAP Measure Reconciliation: Other Non-GAAP
NON-GAAP MEASURE RECONCILIATION OTHER NON-GAAP Three Months Ended December 31, Four Palo Verde Four Corners Lease 2014 Corners 2013 EPS 2 $ millions pretax, except per share amounts 2014 Deferral Extensions Adjusted 2013 Deferral Adjusted Impact 1 Operations and maintenance $ 261 $ (5) $ - $ 256 $ 2
Slide 25: Non-GAAP Measure Reconciliation: Gross Margin
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Twelve Months Ended December 31, EPS $ millions pretax, except per share amounts 2014 2013 Impact Operating revenues* $ 3,492 $ 3,455 Fuel and purchased power expenses* (1,180) (1,096) Gross margin 2,312 2,359 $ (0.26) Adjustments: Renewable energy (exclu
Slide 26: Non-GAAP Measure Reconciliation: Other Non-GAAP
NON-GAAP MEASURE RECONCILIATION OTHER NON-GAAP Twelve Months Ended December 31, Four Palo Verde Four Corners Lease 2014 Corners 2013 EPS 2 $ millions pretax, except per share amounts 2014 Deferral Extensions Adjusted 2013 Deferral Adjusted Impact 1 Operations and maintenance $ 908 $ (18) $ - $ 890 $