Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — UBS Utilities and Natural Gas Conference 2016
40 slides from Pinnacle West Capital's conference presentation, Mar 1, 2016
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE UBS Utilities and Natural Gas Conference | March 1, 2016 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: Value Proposition
VALUE PROPOSITION We are executing on our financial and operational objectives … Financial Strength • Consolidated earned ROE more than 9.5% (weather-normalized) through 2016 • Annual dividend growth target of 5%, subject to declaration at Board of Director’s discretion • Strong credit ratings and b
Slide 4: Rate Base
APS’s revenues come from a RATE BASE regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End ACC FERC Generation & Distribution Transmission 17% $1.8 83% $1.5 $1.3 Most Recent Rate Decisions ACC FERC $7.4 Rate Effective Date 7/1/2012 6/1
Slide 5: Capital Expenditures
CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow $1,285 ($ Millions) $1,205 $82 Other $88 $1,124 $1,057 $82 $345 Distribution $85 $357 Transmission $376 $340 $210 Renewable $123 $1 Generation $120 $110 $201 $199 $1 $130 Environmental $58 $235 $44
Slide 6: Resource Planning
ACC adopted revised IRP filing schedule; final IRP due April 2017 RESOURCE PLANNING to allow time to consider impacts of Clean Power Plan MW 14,000 Composition of Energy Mix by Resource* Load Requirement Including Reserves 2015 12,000 27.2% 9.8% 10,000 18.9% Resource Planning Gas 35.0% Requirement 9
Slide 7: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to live and do INDICATORS business Job Growth (Total Nonfarm) – Metro Phoenix YoY Change Construction, healthcare, tourism, 10.0% financial activities, business services, and consumer services adding jobs at 5.0% a rate above 3% 0.0% Arizon
Slide 8: The Grid Is Evolving – Increasingly Dynamic and Complex
THE GRID IS EVOLVING – INCREASINGLY DYNAMIC AND COMPLEX • 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 electric grid • Rates need to be modernized to enable advanced technologies
Slide 9: Solar Partner Program
SOLAR PARTNER Learning how to efficiently enable the integration of rooftop solar PROGRAM and battery storage with our grid • Overview – Installing 10 MW of APS-owned residential PV systems on 1,500 homes – Advanced controllable inverters that can vary power output depending on grid conditions – Inc
Slide 10: 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 11: Advanced Metering Infrastructure (AMI 2.0)
ADVANCED METERING INFRASTRUCTURE (AMI 2.0) • Overview – APS began deploying advanced “smart” meters in 2006, reaching full deployment with 1.2 million meters in 2014 – In 2015, APS started replacing 140,000 end-of-life meters with advanced meters • Benefits – Building a more interoperable advanced m
Slide 12: Ocotillo Power Plant (Tempe, AZ)
OCOTILLO POWER PLANT (TEMPE, AZ) • Overview and Benefits Existing – Maintains system reliability through retirement of aging steam units – Replacement units more efficient and meet need for fast-ramping capability New – Aids integration of renewables • Estimated cost: $500M • Expected timeline – Ear
Slide 13: Rate Design Modernization
RATE DESIGN MODERNIZATION Rate Changes Needed to Align Components of Modern Rates Fixed Costs and Revenues • Demand Rate – Charge for maximum kW draw in any hour of the month; appropriate for recovering fixed costs that vary with the Variable Costs – APS customer’s max load (versus kWh) Costs Reside
Slide 14: APS Cost of Service Analysis
APS COST OF SERVICE Results show customers with solar do not pay entire cost to ANALYSIS serve • Cost of Service study shows specific costs incurred to deliver electric service to customers • Study credits solar customers the measurable costs that APS avoids, primarily reduced fuel Cost of Service f
Slide 15: APS Rate Design: A Solid Foundation to Build On
APS RATE DESIGN: Over 50% of APS residential customers are already on A SOLID FOUNDATION time-of-use rates, including TO BUILD ON 11% on demand rates APS residential customer base has grown from 400,000 in early 1980’s to over one million today 100% 75% 50% 25% 0% Standard TOU - Energy TOU - Demand
Slide 16: Key Dates for Rate Design
KEY DATES FOR RATE DESIGN • Residential demand rates started due • Time of Use rates initiated - Nearly to central air conditioning load Early half of our residential customers are (currently about 10% of customers 1980’s on TOU rates have a rate with a demand charge) • Net metering Technical Worksh
Slide 17: Environmental Plan
Regional Haze compliance is the ENVIRONMENTAL PLAN biggest driver of environmental 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 18: 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 17% 9% 15% Percent of Portfolio MWh 10% EE/DR 15% 19% Renewable Energy Natural Gas 35% 35% Coal 17% Nuclear 27% 18% Emissions 2015 2029 • 820 MW of coal has been retir
Slide 19: 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: To secure and maintain a sustainable and cost-effective supply of water to enable reliable energy production for APS customers Mission: To d
Slide 20: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2017 Terms to January 2019 Bob Bob Andy Tom Doug Burns (R) Stump (R)* Tobin (R) Forese (R) Little (R) Chairman Other State Officials ACC Utility Division Director - Tom Broderick RUCO Director - David Tenney * Term limited - elected to four-year terms
Slide 21: 2016 Key Dates
2016 KEY DATES ACC Key Dates Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings E-01345A- Lost Fixed Cost Recovery Jan 15 11-0224 E-01345A- Transmission Cost Adjustor May 15 11-0224 Renewable Energy Surcharge TBD Jul 1 E-01345A- APS Rate Case Filing Jun 1 16-0036 Mar 1: Preliminary Oct 1: File E-
Slide 22: APS Notice of Intent to File Rate Case Application
APS NOTICE OF INTENT TO FILE RATE CASE APPLICATION • APS intends to file rate case application on June 1, 2016, using adjusted test year for the twelve months ended December 31, 2015 – 120 days’ Notice of Intent filed on January 29, 2016 • APS will propose new rates go into effect on July 1, 2017 •
Slide 23: Arizona Electric Utilities General Rate Cases
ARIZONA ELECTRIC UTILITIES GENERAL RATE CASES UNS Electric Tucson Electric Power Company Docket # E-04204A-15-0142 Docket # E-01933A-15-0322 Application filed May 5, 2015 Application filed Sep 4, 2015 Direct testimony - ex rate design, cost of service (Nov 6, 2015) Direct testimony – ex rate design
Slide 24: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 25: Operations & Maintenance Outlook
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages OUTLOOK ($ Millions) $94 $137 $103 $150 $124 $96 $825 - $805 $845 $761 $788 $772 $754 2011 2012 2013 2014 2015 2016E PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by a
Slide 26: Operational Excellence
OPERATIONAL EXCELLENCE Customer Satisfaction Palo Verde Ranked 8th highest nationally among 54 large investor-owned electric Palo Verde has exceeded its own record for generation - 32.5 million utilities in 2015 J.D. Power residential customer survey. megawatt-hours annual production in 2015. Palo V
Slide 27: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK February 19, 2016 Gross Margin – Customer Growth and Weather (2016-2018) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricit
Slide 28: Dividend Growth
Pinnacle West’s annual dividend is DIVIDEND GROWTH $2.50 per share; targeting ~5% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 Projected Future dividends subject to declaration at Board of Dire
Slide 29: Balance Sheet Strength
BALANCE SHEET STRENGTH Debt Maturity Schedule Credit Ratings ($Millions) • A- rating or better at S&P, Moody’s and Fitch $500 $400 2016 Major Financing Activities • Currently expect up to $650 million of long- term debt, including issuance to refinance $300 $250 million of debt maturing in August $5
Slide 30: Four Corners Power Plant
FOUR CORNERS POWER PLANT • On December 30, 2013, APS and Southern California Edison (“SCE”) completed previously announced transaction whereby APS agreed to purchase SCE’s 48% interest in Units 4 and 5 of Four Corners – Final purchase price: $182 million – APS will continue to operate Four Corners a
Slide 31: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2016 (115 kV and above) – 110 miles of new lines • Also includes: – Delaney-Palo Verde 500kV (2016) Flagstaff – Delaney-Sun
Slide 32: Bright Canyon Energy – Transmission Growth
BRIGHT CANYON ENERGY – TRANSMISSION GROWTH BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities WECC TRANSCANYON A 50/50 Joint Venture formed with BHE U.S. Transmission, subsidiary of Berkshire Hathaway Energy, to pursue transmission opportunities in the western Un
Slide 33: 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 – 6% by 2016 to 22% of annual retail
Slide 34: Retail Sales Impact from Energy Efficiency and Distributed Generation
RETAIL SALES IMPACT FROM ENERGY EFFICIENCY AND DISTRIBUTED GENERATION Distributed Generation (DG) Impact Annual Retail Sales Growth % • DG makes up 0.5% or less of the negative impact to retail sales growth as shown in the chart • Average residential rooftop solar system produces 10,000 – 12,000 KWh
Slide 35: APS Is a Leader in Solar
APS IS A LEADER IN SOLAR APS Solar Portfolio AZ Sun Projects Capacity Developer Actual COD* Paloma 17 MW First Solar Sep 2011 AZ Sun PPA Cotton Center 17 MW Solon Oct 2011 174 MW 310 MW Hyder Phase 1 11 MW SunEdison Oct 2011 Hyder Phase 2 5 MW SunEdison Feb 2012 DG 475 MW Chino Valley 19 MW SunEdiso
Slide 36: Operational Considerations with Increased Variable Generation
OPERATIONAL CONSIDERATIONS WITH INCREASED VARIABLE GENERATION The grid provides real-time voltage and • Steep ramp rate of backup generation power needed to start air conditioners and • Instant variability other motors loads (for typical AC unit) • Voltage control at distribution level 36 Powering G
Slide 37: Residential vs. Utility-Scale Solar
RESIDENTIAL VS. Performance at system peak UTILITY-SCALE SOLAR On August 15th, APS customers hit “peak demand” for 2015 using more than 7,300 MW of electricity Residential Rooftop Solar AZ Sun Utility-Scale Solar 500 7,362 8,000 500 7,362 8,000 6,952 Rooftop Output AZ Sun Output 6,315 System Load Sy
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 Director, Investor Relations Telephone: (602) 250-4952 E-mail: paul.mountain@pinnaclewest.com Chalese Haraldsen Telephone: (602) 250-5643 E-mail: chalese.haraldsen@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 P
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