Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (June 2013)
44 slides from Pinnacle West Capital's roadshow presentation, Jun 25, 2013
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Meetings June 25-28, 2013
Slide 2: Forward-Looking Statements
2 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
3 PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility. NYSE Ticker PNW Market Cap $6.2 Billion Enterprise Value ~$10 Billion STATE OF ARIZONA Dividend Yield 3.9% Principal Subsidiary • Arizona’s largest electric utility • $13 billion assets Service Territory • 1.1 mi
Slide 4: Pinnacle West: Our Value Proposition
4 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors: Deliver superior shareholder returns through…
Slide 5: Positive Long-Term Demographics
5 POSITIVE LONG-TERM DEMOGRAPHICS APS’s customer growth generally outpaces U.S. and Arizona population growth. Superior Growth Annual Growth • Retail customer growth to 5% average 2% annually 2013 - 2015 4% • Weather-normalized retail sales growth less 3% than 1% after customer conservation, energy
Slide 6: Positive Near-Term Trends
6 POSITIVE NEAR-TERM TRENDS Housing and non-residential sectors are showing steady improvement. Home Prices Nonresidential Building Vacancy 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 '05 '06 '07 '08
Slide 7: Solid Capital Recovery and Strong Rate Base Growth
SOLID CAPITAL RECOVERY AND 7 STRONG RATE BASE GROWTH We expect our rate base will grow 6% per year on average, and we have constructive recovery of capital expenditures. APS Capital Expenditures APS Rate Base Growth by Recovery Mechanism $ Millions $ Billions Year-End 10 1,400 1,200 8 1,000 Other Ca
Slide 8: Four Corners Power Plant Proposed Plan
8 FOUR CORNERS POWER PLANT PROPOSED PLAN Our proposal represents a balanced solution to new environmental regulations. 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) • Estimated environmenta
Slide 9: APS AZ Sun Program Provides Earnings Growth Potential
APS AZ SUN PROGRAM PROVIDES 9 EARNINGS GROWTH POTENTIAL Owning solar resources makes sense for our customers and environment and provides returns to our shareholders. • Utility-scale photovoltaic solar plants to be owned by APS • Constructive rate recovery through RES until included in base rates •
Slide 10: Transmission Investment Essential
10 TRANSMISSION INVESTMENT ESSENTIAL Strategic transmission is necessary to maintain reliability and deliver diversified resources to our customers. NAVAJO FOUR NORTH • 10-Year Transmission Plan filed CORNERS 100 MW January 2013 (115 kV and above) 970 MW • $612 million of new BAGDAD YOUNGS CANYON CH
Slide 11: ROE Improvement
11 ROE IMPROVEMENT Improving our earned return on equity is one of our top priorities. Earned ROEs Outlook Through 2015 11% • 6% rate base growth,** but regulatory recovery not perfect 10% At least 9.5% annually • Adjustment mechanisms provide substantial recovery during stay-out, 9% but incomplete
Slide 12: Initiatives Helping Control Operating and Capital Costs
A VARIETY OF INITIATIVES HAVE BEEN HELPING 12 CONTROL OPERATING AND CAPITAL COSTS Our goal is to keep O&M growth in line with retail sales growth. Sustainable Cost Management Initiative Fossil Generation Realignment Palo Verde Unit Production Cost Reductions Enterprise-wide Supply Chain Management C
Slide 13: Operational Highlights
13 OPERATIONAL HIGHLIGHTS We focus on maintaining top-tier performance companywide. Customer Satisfaction • Ranked 3rd highest nationally among 55 large investor-owned electric utilities in 2012 J.D. Power residential customer survey Strong Nuclear and Coal Baseload Resources 2012 capacity factors
Slide 14: Common Dividend Outlook
14 COMMON DIVIDEND OUTLOOK Our financial results facilitate growing cash returns to our shareholders. Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $4.00 $3.50 $3.00 $2.50 $2.18* $2.10 $2.00 $1.50 $1.00 $0.50 $0.00 2011 2012 2013 2014 2015 Projected *As of May 3, 2013 Future divide
Slide 15: 2012 Retail Rate Case Settlement Key Benefits
2012 RETAIL RATE CASE SETTLEMENT 15 KEY BENEFITS The settlement contains a number of benefits for shareholders and customers. Shareholder Benefits • Regulatory certainty • Base rate stay-out until at least mid-2016 • Rate gradualism through adjustment mechanisms • Financial support APS needs to achi
Slide 16: 2012 Retail Rate Case Settlement Key Provisions – Other Than Base Rates
2012 RETAIL RATE CASE SETTLEMENT 16 KEY PROVISIONS – OTHER THAN BASE RATES Key provisions continue constructive regulatory treatment and limit regulatory lag. • Constructive new or modified adjustment mechanisms • Lost Fixed Cost Recovery (LFCR) rate mechanism to address ratemaking effects of energy
Slide 17: Appendix
APPENDIX ere PINNACLE WEST CAPITAL CORPORATION
Slide 18: A Respected, Veteran Leadership Team
18 A RESPECTED, VETERAN LEADERSHIP TEAM Our top executives have more than 100 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Jim Jim Mark Randy Jeff Hatfield Schiavoni Edington Guldner Hatfield SVP & CFO EVP EVP & SVP EVP Operations Chief Nuclear Custo
Slide 19: Positive Near-Term Trends
19 POSITIVE NEAR-TERM TRENDS Arizona’s economy is reflecting more sustained growth and activity. Non-Farm Job Growth Metro Phoenix Vacant 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
Slide 20: Long-Term Growth Drives Cap Ex
20 LONG-TERM GROWTH DRIVES CAP EX Investment is required throughout the business to meet expected demand growth APS Capital Expenditures by Function $ Millions 1,400 1,200 Other 1,000 Distribution 800 Transmission 600 Renewables Environmental 400 Traditional 200 Generation 0 2012 2013 2014 2015 Proj
Slide 21: Our Regulatory Mix
21 OUR REGULATORY MIX The bulk of APS’s revenues comes from a regulated retail rate base and a meaningful transmission business. $6.9 Billion Total Approved Rate Base Most Recent Rate Decisions ACC FERC Rate Effective Dates 7/1/2012 6/1/2013 Test Year Ended 12/31/2010* 12/31/2012 Rate Base $5.7 B $1
Slide 22: Four Corners Power Plant Facts & Figures
FOUR CORNERS POWER PLANT 22 FACTS & FIGURES Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercial Operation Date 1963 1963 1964 1969 1970 Original Cost ($M) * $59 $382 $165 Net Book Value at 12/31/12 ($M) * $41 $0 $129 Current Depreciation Ends 2038 Mid-2012 2038 2038 Current Expiration Dates Site Le
Slide 23: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE 23 AND ENERGY EFFICIENCY STANDARDS Our programs address Arizona’s aggressive renewable energy and energy efficiency standards. Renewable Energy (RES) Minimum Requirements Portion of retail sales to be supplied by renewable resources • 5% by 2015 • 15% by 2025 Distributed
Slide 24: AZ Sun Program Summary
24 AZ SUN PROGRAM SUMMARY APS is investing in utility-scale solar generation. Actual or Name Location Capacity Developer Target COD* Paloma Gila Bend, AZ 17 MW First Solar Sept. 2011 Cotton Center Gila Bend, AZ 17 MW Solon Oct. 2011 Hyder I Phase 1 Hyder, AZ 11 MW SunEdison Oct. 2011 Hyder I Phase 2
Slide 25: Solana: A "Sunny Place"
25 SOLANA: A “SUNNY PLACE” Solana will provide more than one-quarter of APS’s renewable energy target by 2015. • 250-MW 30-year PPA for all output (~900 GWh/year) • Concentrating solar trough facility 70 miles southwest of Phoenix • On target for 2013 commercial operation • 90%+ on-peak capacity fac
Slide 26: Renewable Purchase Power Contracts
26 RENEWABLE PURCHASE POWER CONTRACTS Commercial Owner/ PPA Operation Term Capacity 1 Fuel / Contract Location Developer Status Signed Date (years) Net (MW) Solar Solana Gila Bend, AZ Abengoa UC 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 Su
Slide 27: Resource Planning for Reliability and Sustainability
RESOURCE PLANNING FOR 27 RELIABILITY AND SUSTAINABILITY We will meet future load growth through a balanced resource mix including renewable resources and energy efficiency programs. MW 14,000 Load Requirement 3% Four Corners Transactions, Net Including Reserves 12,000 21% Future Energy Efficiency 24
Slide 28: 2012 APS Generation and Energy Fuel Mixes
2012 APS GENERATION AND 28 ENERGY FUEL MIXES Our balanced resource mix provides our customers reliability and manages price volatility. 18% 21% 19% 18% 27% 22% 26% 26% 34% 32% 54% 53% 21% 17% 28% 28% 32% 39% 36% 46% Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 34,229 GWh 27,635 GWh 6,
Slide 29: A Well-Balanced Generation Portfolio
29 A WELL-BALANCED GENERATION PORTFOLIO Ownership Net Capacity Fuel / Plant Location Units Dispatch Commercial Ops. Date Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1-3 Base 1986 - 1989 29.1% 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1-3 Base 1962 - 1980 100 647 Four Corners Farmin
Slide 30: Constructive Transmission Rate Regulation
CONSTRUCTIVE TRANSMISSION 30 RATE REGULATION We have achieved transmission rate treatment with annual adjustments. • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and certain projections • Retail portion flows through ACC Transmission Cost Adju
Slide 31: 2013 – 2015 Financial Outlook
31 2013 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of May 3, 2013 • 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 n
Slide 32: 2013 – 2015 Financial Outlook (continued)
32 2013 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of May 3, 2013 (continued) • Modestly improving Arizona and U.S. economic conditions • Retail customer growth to average 2% annually • Weather-normalized retail electricity sales volume growth: • Less than 1% after customer conservation
Slide 33: Strong Cost Management Focus
33 STRONG COST MANAGEMENT FOCUS Our goal is to keep O&M growth in line with retail sales growth. APS O&M Expense Trends $ Millions • Solid achievements to date 800 • Initiatives • Company-wide 600 benchmarking and evaluations 400 • Workforce attrition opportunities • Knowledge transfer 200 • Process
Slide 34: Sustainable Cost Management Initiative (SCMI)
SUSTAINABLE COST MANAGEMENT 34 INITIATIVE (“SCMI”) Continued success requires a more rigorous, standardized approach to running the business. Motivation Sustainable Changes • Recognize combined challenges Tiered Metrics • Costs • Capital Business Planning • Sales growth • Regulatory stay-out Corpora
Slide 35: U.S. Nuclear Operating Costs
35 U.S. NUCLEAR OPERATING COSTS Palo Verde operating costs are below industry averages and improving. Dollars per Megawatt-Hour Industry Average Industry Median 2007 2008 2009 2010 2011 2012
Slide 36: Superior Power Plant Performance
36 SUPERIOR POWER PLANT PERFORMANCE Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Performance Metrics APS 92% 100% 100% APS Commercial Availability 93% APS Capacity Factor 90% 90% Industry Capacity Factor 71% 80% 80% 70% Industry 91% 70% 63% 60% 60% 2003 20
Slide 37: Arizona Corporation Commissioners
37 ARIZONA CORPORATION COMMISSIONERS Three seats for four-year terms through January 2017 were addressed in the November 2012 election. 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 (
Slide 38: 2012 Retail Rate Case Settlement Key Financial Provisions – Base Rates & Timing
2012 RETAIL RATE CASE SETTLEMENT 38 KEY FINANCIAL PROVISIONS – BASE RATES & TIMING The provisions of the settlement became effective July 1, 2012, as originally requested by APS. Annual Revenue Change Annualized Base Rate Revenue Changes ($ millions) Non-fuel base rate increase $ 116.3 Fuel-related
Slide 39: 2012 Retail Rate Case Settlement Key Financial Assumptions
2012 RETAIL RATE CASE SETTLEMENT 39 KEY FINANCIAL ASSUMPTIONS Updated rate base, cost of capital and fuel prices underpin the 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
Slide 40: Significant Regulatory Progress
40 SIGNIFICANT REGULATORY PROGRESS We have achieved a more supportive regulatory structure and improvements in cost recovery timing. Adopted/ Mechanism Last Adjusted Description Power Supply April 2005 / • Recovers variance between actual fuel and purchased power costs and base fuel rate Adjustor (“
Slide 41: Ready Access to Capital
41 READY ACCESS TO CAPITAL Strong access to capital resources is supported by solid credit ratings, manageable debt maturities and ample liquidity. 2013 Major Financing Activities APS Long-Term Debt Maturities $ Millions • $100 million APS senior notes* 450 • Remarketing tax-exempt debt 400 350 • Fa
Slide 42: Solid Credit Ratings
42 SOLID CREDIT RATINGS Available liquidity remains substantial and our credit ratings have improved. APS Parent Credit Facilities and Liquidity* Corporate Credit Capacity Ratings Borrower ($ Millions) Maturities Moody’s Baa1 Baa2 APS $ 500 Nov. ‘16 S&P BBB+ BBB+ APS 500 Apr. ‘18 Fitch BBB+ BBB+ Sen
Slide 43: S&P Credit Metrics
43 S&P CREDIT METRICS Our key credit metrics have been improving. 2008 2009 2010 2011 2012 APS FFO / Debt 22.1% 22.8% 22.3% 20.8% 29.7% FFO / Interest 5.1x 4.8x 4.6x 4.6X 6.6x Debt / Capitalization 57.4% 56.8% 53.0% 53.0% 50.8% Pinnacle West FFO / Debt 18.0% 18.4% 22.5% 20.3% 28.1% FFO / Interest 4.
Slide 44: 2012 Retail Customers, Sales and Revenue Mixes
2012 RETAIL CUSTOMERS, 44 SALES AND REVENUE MIXES Our business mix is attractive due to favorable climate and other conditions in our market area. 11% 11% 8% 6% 8% 47% 47% 50% 42% 43% 52% 45% 45% 89% 89% Customers Retail Sales Operating Revenues Year-End 28,154 GWh $3.1 Billion 1.1 Million Residenti
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