Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — UBS Natural Gas, Electric Power and Coal Conference 2009
55 slides from Pinnacle West Capital's conference presentation, Mar 4, 2009
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today March 3-4, 2009
Slide 2: Forward-Looking Statement
Forward-Looking Statement This presentation contains forward-looking statements, including statements regarding our earnings outlook, capital expenditure estimates and growth rates. Neither Pinnacle West nor APS assumes any obligation to update these statements or make any further statements on any
Slide 3: Who We Are
Who We Are At our core, we are an electricity company. NYSE Ticker: PNW Market Cap: $3 Billion Enterprise Value: $7 Billion 2008 Assets $12 Billion Regulated Electric Utility $11 Billion Real Estate Developer $547 Million Competitive Energy Services Provider $70 Million Venture Investments EL DORADO
Slide 4: PNW: Our Value Proposition
PNW: Our Value Proposition Capitalizing on Compelling Capital Attractive Fundamentals Investment Opportunities Vertically integrated utility Abundant solar resource High growth service territory in Arizona Diversified energy mix Nuclear expansion option – leveraging our experience Operat
Slide 5: Shaping Our Business Environment
Shaping Our Business Environment Integrating stakeholder agendas ensures a successful and sustainable future. Reliable, safe & affordable energy Environmentally conscious Customers Energy options & control Superior customer service Economic stimulus s Provide capital for tor Energy ind
Slide 6: A Leadership Team of Industry Veterans
A Leadership Team of Industry Veterans Our top executives have more than 150 combined years of creating shareholder value in the energy industry Don Brandt CEO Jim Don Randy Hatfield Robinson Edington SVP & Steve APS John EVP & CFO Wheeler President Denman Chief Nuclear EVP & COO SVP Officer Custome
Slide 7: SunCor Initiatives
SunCor Initiatives IDAHO Objective is to maximize value Boise of SunCor’s assets Re-evaluating SunCor’s strategy (process under way) UTAH Expect to review details during St. George first-quarter earnings call Sedona Prescott Santa Fe Phoenix NEW MEXICO ARIZONA
Slide 8: Arizona's Largest and Longest-Serving Electric Utility
Arizona’s Largest and Longest-Serving Electric Utility Serving Arizona customers since 1887 – 15 years before statehood. Service Territory 1.1 million customer accounts 34,646 square miles Customer Growth 1.4% in 2008 1% growth expected through 2010 3-4% historically – well above industry
Slide 9: Today's Agenda Reflects Our Focus
Today’s Agenda Reflects Our Focus Delivering Shareholder Value Achieving Strong Financial Performance Embracing Collaborative Regulatory Processes Powering Arizona’s Energy Future
Slide 10: Powering Arizona's Energy Future
Powering Arizona’s Energy Future
Slide 11: Positive, but Slower Growth Near Term
Positive, but Slower Growth Near Term Despite slowing growth, we expect continued positive growth in retail sales. Retail Sales (MWh) Customer Growth 40,000 5% 35,000 4% 30,000 25,000 3% 20,000 2% 15,000 10,000 1% 5,000 0 0% '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Slide 12: Growth Consistently Outperforms U.S.
Growth Consistently Outperforms U.S. Arizona has ranked in the top five for population growth over the last 20 years. After every downturn, there has been a rebound in growth. Annual Growth 6% 5% 4% 3% 2% 1% 0% '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 A
Slide 13: Planning for New Energy Resources
Planning for New Energy Resources Tomorrow’s energy needs require a flexible and responsive approach to changing industry dynamics. MW 13,000 11,500 10,000 8,500 Resource Resource planning planning fills fills the the gap gap 7,000 5,500 4,000 2,500 1,000 2009 2011 2013 2015 2017 2019 2021 2023 2025
Slide 14: A Balanced and Strategic Approach
A Balanced and Strategic Approach We have competitive advantages to capitalize on renewable and nuclear resources to provide a diversified energy mix. Energy Mix 100% Renewables & EE Renewables Abundant solar resources in Arizona & Energy High customer interest and incentives Natural Efficiency
Slide 15: Renewable Energy Rises With the Sun
Renewable Energy Rises With the Sun We intend to make Arizona the “Solar Capital of the World.” Solar Insolation Comparison (kWh/year) Germany - one of countries with highest installed capacities despite Seattle-like weather conditions Japan’s solar insolation is Germany comparable to Florida, ranke
Slide 16: Solana: A "Sunny Place" for Renewables
Solana: A “Sunny Place” for Renewables Solana will provide APS with more solar electricity per customer than any other U.S. utility. 280-MW concentrating solar trough 30-year PPA for all output (900 GWh/year) Planned commercial operation in 2012 Near existing transmission lines Thermal sto
Slide 17: Palo Verde: Energy Cornerstone of the Southwest
Palo Verde: Energy Cornerstone of the Southwest The envy of the nuclear industry for more than a decade, Palo Verde is back on track as a top performer. Capacity Factors Our Goals By 2013 100% Generation Industry 90% Consistent site capacity factor greater than 88% 84% Outages of 30 days per uni
Slide 18: Top-Tier Coal Fleet Performance
Top-Tier Coal Fleet Performance Our coal plants are industry performance leaders. Capacity Factors Top-quartile capacity factors 100% for past 14 years Strong 2008 capacity factors APS 86% • Four Corners at 86% • Cholla at 87% 75% Industry 75% Performance Drivers: • Conservative operating prac
Slide 19: Our Natural Gas Fleet Provides Flexibility
Our Natural Gas Fleet Provides Flexibility A flexible and cost-effective natural gas fleet helps us diversify our energy mix and deliver electricity when it’s needed most. Efficient Intermediate Fleet Peaking Fleet Provides Flexibility* There When We Need Them Capacity Availability Factor Factor 100
Slide 20: Transmission Investment is Key
Transmission Investment is Key Strategic investment is needed to maintain reliability and bring diversified resources to our customers. NAVAJO FOUR NORTH 10-Year Transmission Plan: CORNERS 100 100 MW MW • $1 billion of new 970 MW transmission investment • Over 280 miles of new lines • Increases im
Slide 21: APS: Superior Customer Satisfaction
APS: Superior Customer Satisfaction Our employees take pride in providing top-tier customer service. Low Outage Time Outstanding Residential Per Customer Customer Satisfaction Ratings Outage Minutes/Year Top-Quartile Rating 120 Performance 750 APS 100 700 80 650 60 600 40 550 20 0 500 '98 '99 '00 '0
Slide 22: Embracing Collaborative Regulatory Processes
Embracing Collaborative Regulatory Processes
Slide 23: A Fresh Regulatory Approach
A Fresh Regulatory Approach We are taking a proactive approach with our Commission. APS’ key regulatory goals: In support of these goals, Timely cost recovery and several matters are currently return on investment pending: Financial strength and stability General retail rate case Resource an
Slide 24: APS and ACC Share Similar Values
APS and ACC Share Similar Values As Arizona grows, APS and the ACC are working together to ensure safe, reliable and affordable electricity. Rates / Reliability Keeping rates reasonable while maintaining superior reliability ROE Allow for timely recovery of costs and return on investment Renewab
Slide 25: Our Regulatory Mix
Our Regulatory Mix The bulk of APS’ revenues come from our regulated retail rate base; we also have a meaningful transmission business. Most Recent Rate Decisions ACC FERC Transmission Transmission Effective Date 7/1/2007 6/1/2008 18% 18% Test Year Ending 9/30/2005 12/31/2007 Generation Generation &
Slide 26: APS Revenues by Recovery Mechanisms
APS Revenues by Recovery Mechanisms We have received supportive regulatory decisions providing more timely recovery. Regulated Electricity Revenue Test Year by Recovery Mechanism Historical Forecasted $ Millions 3,500 3,000 PSA 2,500 TCA RES 2,000 DSM* 1,500 EIS* 1,000 Base Rates 500 Other** 0 2004
Slide 27: ACC Approved Interim Rates
ACC Approved Interim Rates The interim rate decision supports APS’ financial strength while providing customers rate stability. Approved by ACC December 18, 2008 Base rate surcharge effective until general rate case decision $65.2 million annual pretax retail revenues Effective for customer
Slide 28: Comparison of Rate Case Positions
Comparison of Rate Case Positions Diverse stakeholder positions in our rate case provide an opportunity to establish middle ground – and a potential settlement. APS ACC Request Staff RUCO AECC Annual revenue increases ($ millions): Non-fuel rate increase $ 264 $ 155 $ (14) $ 206 Net fuel-related rat
Slide 29: Rate Case: A Work in Progress
Rate Case: A Work in Progress We have paused our traditional regulatory schedule to pursue settlement discussions. Completed Timing Stage March 24, 2008 Initial Rate Filing June 2, 2008 Updated Rate Filing December 19, 2008 Staff & Intervenor Testimony – Part 1 January 9, 2009 Staff & Intervenor Tes
Slide 30: Federal Rate Regulation Progress
Federal Rate Regulation Progress We have achieved constructive, timely transmission rate treatment. FERC Formula Rates adopted in 2008 • Based on FERC Form 1 and certain projections • Retail portion flows through ACC Transmission Cost Adjustor • Adjusted annually • Allowed ROE of 10.75%
Slide 31: Achieving Strong Financial Performance
Achieving Strong Financial Performance
Slide 32: Capex: Past, Present and Future
Capex: Past, Present and Future We have reduced capex based on current slowed growth, yet still plan to spend significant amounts for infrastructure. $ Millions 1,200 Generation 1,000 800 Transmission 600 Distribution 400 Other 200 Deferrals/Reductions 0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 33: APS Expects Strong Rate Base Growth
APS Expects Strong Rate Base Growth Continuing customer growth translates to strong growth in our rate base. $ Millions al G ro wth Rate 8,000 o m p o u n d A nnu 5% C 6,000 4,000 2,000 0 2007 2008 2009 2010 2011 2012 Combined ACC and FERC rate base. Growth driven primarily by capital expenditures.
Slide 34: Reducing Costs, Not Service
Reducing Costs, Not Service We spend less on O&M per customer than our peers without sacrificing reliability and customer service. O&M* Low Relative to Industry Workforce Becoming More Efficient O&M Expense Customers Per Customer Per Employee $400 250 e* * r ag $350 A ve u st ry 225 In d $300 S AP 2
Slide 35: Managing Costs and Efficiency
Managing Costs and Efficiency We are focused on reducing costs and mitigating volatility exposure. Long-term Coal & Nuclear Fuel Supply Contracts Hedging Program • APS manages price volatility risk for fuel and power purchases through rolling 36-month hedge Workforce Reduction • About 550 posi
Slide 36: Adequate Liquidity Resources
Adequate Liquidity Resources We have sufficient liquidity and access to credit. December 31, 2008 * Est. 2009 Cash Credit Facilities Available Liquidity Sources & Uses $ Millions Capacity 2,000 Borrower ($ Millions) Matures PNW $ 283 Dec. ’10 1,800 APS 377 Dec. ’10 1,600 APS 489 Sep. ’11 Cushion 1,4
Slide 37: No Near-term Debt Maturities
No Near-term Debt Maturities Pinnacle West and APS have no significant refinancing requirements until 2011. $ Millions 700 600 500 400 300 200 100 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 APS PNW SunCor As of February 27, 2009
Slide 38: Top-Tier Dividend Yield
Top-Tier Dividend Yield Pinnacle West’s annual dividend is $2.10 per share. Yield 12% PNW 10% 8.0% 8% Industry Average 5.9% 6% 4% 2% 0% Pinnacle West Electric Utilities As of February 27, 2009
Slide 39: 2009 - 2010 Earnings Guidance
2009 - 2010 Earnings Guidance As of February 20, 2009 We estimate our consolidated EPS will be within a reasonable range around $2.30 in 2009 and $3.00 in 2010. Guidance Estimates* Key Assumptions 2009 2010 2009 APS $ 2.35 $ 3.00 Interim base rate surcharge effective entire year Parent and all B
Slide 40: Delivering Shareholder Value
Delivering Shareholder Value
Slide 41: PNW: Our Value Proposition
PNW: Our Value Proposition Capitalizing on Compelling Capital Attractive Fundamentals Investment Opportunities Vertically integrated utility Abundant solar resource High growth service territory in Arizona Diversified energy mix Nuclear expansion option – leveraging our experience Operat
Slide 42: Appendix
ore PINNACLE WEST CAPITAL CORPORATION Appendix
Slide 43: Investment Grade Credit Ratings
Investment Grade Credit Ratings Ratings Pinnacle West APS Senior Unsecured Debt Moody’s Baa3 Baa2 S&P BB+ BBB- Fitch - BBB Outlook Moody’s Stable Stable S&P Stable Stable Fitch Negative Stable Commercial Paper Moody’s P3 P2 S&P A3 A3 Fitch F3 F3
Slide 44: Solid Revolver Bank Groups
Solid Revolver Bank Groups PNW APS APS % of Bank ($ in millions) 2010 2010 2011 Total Original Total BNY Mellon $ 30 $ 40 $ 40 $ 110 9% Bank of America 17 23 70 110 9% Citigroup 29 39 38 106 9% JP Morgan Chase 29 39 38 106 9% Wells Fargo 17 23 66 106 9% KeyBank 29 39 30 98 8% Credit Suisse 17 23 38
Slide 45: The New ACC
The New ACC Terms Through January 2011 Kristin Mayes Gary Pierce Chairman Elected November 2008, Terms Through January 2013 Sandra Kennedy Paul Newman Bob Stump
Slide 46: General Retail Rate Case Components
General Retail Rate Case Components Proposed Revenue Increase Important Request Elements Post Test-Year Large Projects Adjusted 2007 test year In-Service Traditional $25 Recognize capital Rate Base Other Post Test-Year expenditures through $72 $34 Plant In-Service requested decision date Addre
Slide 47: Significant Regulatory Progress Since 2005
Significant Regulatory Progress Since 2005 We have made progress towards a supportive regulatory structure and improvement in the timing of cost recovery. Adopted / Mechanism Last Adj. Description Power Supply Adjustor April 2005 / • Recovers 90% of variance between actual fuel and purchased power c
Slide 48: Key ACC Regulatory Proceedings
Key ACC Regulatory Proceedings Case Description Docket Number 2008 General Rate Case Currently in settlement discussions. E-01345A-08-0172 2008 Interim Rate Approval As part of 2008 rate request, APS received E-01345A-08-0172 $65.2 million interim base rate surcharge effective January 1, 2009. Deman
Slide 49: Influencing National Energy Policies
Influencing National Energy Policies We are actively working with our Regulators and Legislators on initiatives important to the industry. • Stimulus Package – Tax Provisions • Solar projects under construction by end of 2010 and in service by end of 2016 • Treasury Grant: 30% of capital cost; at co
Slide 50: A Diversified, Balanced Resource Plan
A Diversified, Balanced Resource Plan
Slide 51: A Well-Balanced Generation Portfolio
A Well-Balanced Generation Portfolio` Ownership / Net Capacity Fuel / Plant Location Units Dispatch COD Operator Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1,2,3 Base 1986 APS 29.1 1,147 Total Nuclear 1,147 Coal Cholla Joseph City, AZ 1,2,3 Base 1962 - 1980 APS 100 641 Four Corners Farmington
Slide 52: Conventional Contracts Mean Predictability
Conventional Contracts Mean Predictability Purchase Contract Period Capacity, Net Fuel / Contract Type Period Counterparty Status* Start Expiration (MW) Other/NA Purchase SRP Year-round SRP IO Jun-1955 Jun-2010 238 Agreement Seasonal May 15 - PacifiCorp PacifiCorp IO Oct-1996 Oct-2020 480 Exchange S
Slide 53: Renewable Contracts Provide Bridge
Renewable Contracts Provide Bridge COD/ Expected Term Capacity, Net * Fuel / Contract Location Developer Status PPA Signed COD (years) (MW) Solar Solana (CSP Trough) Gila Bend, AZ Abengoa AD Feb-2008 2012 30 280 Total Solar 280 Wind Aragonne Mesa Santa Rosa, NM Babcock & Brown IO Dec-2005 Dec-2006 2
Slide 54: Environmental, Sustainability and Technology Recognition
Environmental, Sustainability and Technology Recognition • Innovest’s highest rating (AAA) and ranked #2 electric utility • Dow Jones Sustainability Index • Global 100 Most Sustainable Corporations in World by Corporate Knights • Storebrand’s Social Responsibility Index “best in class” distinction •
Slide 55: Employee Innovation Supports Customer Reliability
Employee Innovation Supports Customer Reliability We’re not just an energy company, we embrace technological innovation in our industry. Recipient of 2008 EEI Award 27 U.S. patents issued since 1997 • State-of-the-art solar technology advancements • Underground piping system inspections & maintena
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