Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (October 2009)
57 slides from Pinnacle West Capital's roadshow presentation, Oct 5, 2009
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today Investor Meetings October 5-9, 2009 0
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements based on current expectations, and neither Pinnacle West nor APS assumes any obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forwa
Slide 3: Who We Are
Who We Are At our core, we are an electric utility. NYSE Ticker: PNW Market Cap: $3 Billion Enterprise Value: $7 Billion Assets June 30, 2009 Vertically Integrated Electric Utility $11.3 Billion $12 Billion Real Estate Developer $292 Million Competitive Energy Services Provider $75 Million Venture I
Slide 4: APS: Arizona's Largest and Longest-Serving Electric Utility
APS: Arizona’s Largest and Longest-Serving Electric Utility Serving Arizona customers since 1887 – 15 years before statehood. Arizona Service Territory • 1.1 million customer accounts • 34,646 square miles Customer Growth • 1.4% in 2008 Continental United States • 1% average annual growth expected t
Slide 5: PNW: Our Value Proposition
PNW: Our Value Proposition We Are A Capitalizing on Green Company Attractive Fundamentals • Abundant solar conditions • Vertically integrated in Arizona electric utility • Other renewables • High growth service territory • Nuclear expansion option • Diversified energy mix • Transmission expansion De
Slide 6: Recognized as One of America's Greenest Companies
Recognized as One of America’s Greenest Companies Newsweek ranked Pinnacle West 13th best among U.S. utilities. 5
Slide 7: Renewable Energy Rises With the Sun
Renewable Energy Rises With the Sun Arizona’s solar conditions are among the best in the world. Solar Insolation Comparison (kWh/kW year) Germany - one of countries with highest installed capacities despite Seattle-like weather conditions Japan’s solar insolation is Germany comparable to Florida, ra
Slide 8: Solana: A "Sunny Place"
Solana: A “Sunny Place” Solana will generate enough clean, renewable electricity to meet the needs of about 70,000 Arizona homes. • 280-MW concentrating solar trough • 30-year PPA for all output (~900 GWh/year) • Planned commercial operation in 2013 • Near existing transmission lines • 70 miles sout
Slide 9: Community Power Project – Flagstaff, Arizona
Community Power Project – Flagstaff, Arizona APS’ innovative pilot project encourages distributed renewable resources, integrated with smart grid technology. • 200 to 300 rooftop solar photovoltaic systems on single feeder • 1.5 to 2 MW of distributed generation APS-owned • 1 MW central storage roof
Slide 10: Transmission Investment is Key
Transmission Investment is Key Strategic investment is needed to maintain reliability and bring diversified resources to our customers. NAVAJO NORTH 100 100 MW MW FOUR CORNERS • 10-Year Transmission Plan: $1 billion of new 970 MW transmission investment Over 280 miles of new lines Increases im
Slide 11: 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 Funding opportunities • Legislation Climate change Energy policy 10
Slide 12: Positive Long-Term Demographics
Positive Long-Term Demographics Arizona has ranked in the top five for population growth over the last 20 years. In spite of economic slowdown, APS expects 55% customer growth by 2025. Superior Historical Growth APS Customer Growth Annual Growth Millions 6% 2.0 1.7 5% 55% 1.5 4% 1.1 3% 1.0 2% 0.5 1%
Slide 13: A Balanced and Strategic Resource Plan
A Balanced and Strategic Resource Plan We have competitive advantages to capitalize on renewable and nuclear resources to provide a diversified energy mix. Energy Mix (MWh) 100% Renewables & EE Renewables Abundant solar resources in Arizona & Energy High customer interest and incentives Natural
Slide 14: APS CapEx Drives Strong Rate Base Growth
APS CapEx Drives Strong Rate Base Growth We have reduced capex based on current slowed growth – yet still expect strong rate base growth. APS Capital Expenditures APS Rate Base $ Millions $ Billions 1,200 10 th Rate 1,000 l G row nua 8 n d An Generation om po u 800 5% C Transmission 6 600 Distributi
Slide 15: Multi-Pronged Approach to ROE Improvement
Multi-Pronged Approach to ROE Improvement We are actively working to improve our return on equity. Electricity Electricity Rate Rate Increases Increases Regulatory Regulatory Framework Framework Improvements Improvements ROE Goal Improvement Cost Cost Savings Savings Initiatives Initiatives Efficien
Slide 16: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement The proposed revenue increases total $230 million in 2010 and will improve APS’ financial condition. Proposed APS Settlement Request Base Retail Rates – Annualized revenue increases ($ millions): Non-fuel $ 196 $ 264 Net fuel-related 11 14
Slide 17: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement Other key provisions add financial value for APS and benefits for other stakeholders. Key non-revenue financial provisions: • $30 million annual expense reductions to be sustained through 2014 ($150 million cumulatively) • Pension and OPEB
Slide 18: Cost Savings Initiatives Underway
Cost Savings Initiatives Underway Engaged and highly motivated workforce Supply Chain Transformation Process Effective and • Collaborative, enterprise- efficient execution wide process • New technology platform Better leverage • Common performance metrics technology • Significant annual savings expe
Slide 19: 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 toward top performance. Capacity Factors Accomplishments & Goals 100% • March 2009 NRC returned plant to routine inspection and oversight Industry 88% • December 2008
Slide 20: Intense Focus on Operational Excellence
Intense Focus on Operational Excellence We strive to maintain top-quartile performance throughout our business, and continually raise the bar higher. Coal Fleet • Top quartile capacity factor in industry over past 14 years Customer Satisfaction • Top quartile in J.D. Power and Associates U.S. survey
Slide 21: 2009 - 2010 Earnings Guidance
2009 - 2010 Earnings Guidance As of August 4, 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 • Full-year interim base rates Parent and all • No additional other, net
Slide 22: Top-Tier Dividend Yield
Top-Tier Dividend Yield Pinnacle West’s annual dividend is $2.10 per share. 10% 8% 6.4% 5% 5.0% 3% 2.6% 0% Aug. 31, Dec. 31, Mar. 31, Jun. 30, Aug. 31, 2008 2008 2009 2009 2009 PNW Electric Utility Average S&P 500 Index 21
Slide 23: PNW: Our Value Proposition
PNW: Our Value Proposition We Are A Capitalizing on Green Company Attractive Fundamentals Delivering Superior Shareholder Returns Strengthening Compelling Capital Financial Investment and Risk Profiles Opportunities Improving Regulatory Environment 22
Slide 24: Appendix
oe PINNACLE WEST CAPITAL CORPORATION Appendix
Slide 25: A Leadership Team of Industry Veterans
A Leadership Team of Industry Veterans Our top executives have more than 160 combined years of creating shareholder value in the energy industry. Donald E. Brandt Chairman & CEO James R. Donald G. Randall K. Mark A. Steven M. David P. Hatfield Robinson Edington Schiavoni Wheeler Falck SVP & APS EVP
Slide 26: 2008 Retail Customer, Sales And Revenue Mixes
2008 Retail Customer, Sales And Revenue Mixes Customers Retail Operating Year-End Sales Revenues 1.1 Million 28,794 GWh $2.9 Billion Residential Commercial Industrial Other 25
Slide 27: 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 26
Slide 28: Adequate Liquidity and Financing Access
Adequate Liquidity and Financing Access We have sufficient liquidity and access to credit. June 30, 2009 Est. 2009 Cash Credit Facilities Available Liquidity Sources & Uses $ Millions Capacity 1,600 Borrower ($ Millions) Matures PNW $ 283 Dec. ’10 1,400 APS 377 Dec. ’10 Cushion Cash* APS 489 Sep. ’1
Slide 29: 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 30: APS Continually Ranks in Top Quartile in Residential Customer Satisfaction
APS Continually Ranks in Top Quartile in Residential Customer Satisfaction Our employees take pride in providing top-tier customer service. Lowering Average Annual Outage Time Outstanding Residential Per Customer Customer Satisfaction Rating Outage Rating Minutes/Year 700 125 675 APS Industry 100 65
Slide 31: Superior Fossil Generation Performance
Superior Fossil Generation Performance Our coal plants are consistently strong performers. Capacity Factors 100% • Solid capacity factors (12 months ended June 30, 2009) APS Four Corners: 89% 84% Cholla: 82% Industry 73% • Performance Drivers: 75% Conservative operating practices Rigorous te
Slide 32: 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 33: 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 34: A Diversified, Balanced Resource Plan
A Diversified, Balanced Resource Plan 33
Slide 35: Arizona Renewable Resource Obligations
Arizona Renewable Resource Obligations APS is committed to renewable energy well in excess of the State’s requirements. Arizona Renewable Energy Standard (RES) • Sets minimum renewable energy amounts 5% of energy for retail sales by 2015 15% of energy for retail sales by 2025 • Includes distribu
Slide 36: Renewable Contracts Provide Bridge
Renewable Contracts Provide Bridge COD/ Developer/ Expected Term Capacity * Fuel / Contract Location Operator Status PPA Signed COD (years) (MW) Solar Solana (CSP Trough) Gila Bend, AZ Abengoa AD Feb-2008 2013 30 280 Total Solar 280 Wind Aragonne Mesa Santa Rosa, NM Bluearc Mgmt. Group IO Dec-2005 D
Slide 37: Potential Transmission To Support Renewable Resources
Potential Transmission To Support Renewable Resources New transmission would allow delivery of more renewable energy to Phoenix and California. Palo Verde to North Gila 2 Phoenix 1 36
Slide 38: Potential Transmission To Support Renewable Resources
Potential Transmission To Support Renewable Resources New transmission would allow delivery of more renewable energy to Phoenix and California. Delaney to Palo Verde Phoenix 2 37
Slide 39: APS' Increasing Commitment to Energy Efficiency
APS’ Increasing Commitment to Energy Efficiency APS will double customers’ energy efficiency savings over the next three years. Cumulative Annual Energy Savings Associated with EE/DSM Programs • Energy efficiency and demand- side management (DSM) benefit GWh 2,000 customers and APS by: Reducing en
Slide 40: American Recovery and Reinvestment Act Opportunities for APS
American Recovery and Reinvestment Act Opportunities for APS APS is seeking stimulus funding opportunities to provide reliable, sustainable and affordable energy for our customers. Projects Funding Greenhouse Gas Reduction Project: $70.5 million Conversion of coal into substitute natural gas Granted
Slide 41: Potential Climate Change Legislation
Potential Climate Change Legislation We are managing our exposure to evolving climate change policy. • Climate change legislation still developing • APS risk mitigation: New resources emphasize renewables No new coal generation planned Actively monitoring and addressing developments 40
Slide 42: 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 6/1/2009 20% 20% Test Year Ending 9/30/2005 12/31/2008 Generation & Distributi
Slide 43: Arizona Corporation Commissioners
Arizona Corporation Commissioners Terms Through January 2011 Kristin Mayes Gary Pierce (Rep) Chairman (Rep) Elected November 2008, Terms Through January 2013 Sandra Kennedy (Dem) Paul Newman (Dem) Bob Stump (Rep) 42
Slide 44: 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 45: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement The proposed settlement has a number of benefits from investors’ perspective. • Strengthens APS’ financial condition and supports common dividend • Provides greater level of cost recovery and return on investment • Demonstrates cooperation
Slide 46: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement The current schedule should allow new rates to become effective on January 1, 2010. An expedited process has been agreed upon for future rate cases. Settlement procedural schedule to allow new rates effective January 1, 2010: • Definitive
Slide 47: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement Other key financial provisions add value to the proposed settlement terms. Expense Reduction Commitment Beginning in 2010, identify additional $10 million pretax expense reductions above $20 million identified March 2009 $30 million
Slide 48: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement Other key financial provisions add value to the proposed settlement terms. Palo Verde License Extension Extension of operating licenses to 60 years from 40 years requested December 2008 • Process expected to take about two years Effe
Slide 49: 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 50: 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 51: Key ACC Regulatory Proceedings
Key ACC Regulatory Proceedings Case Description Docket Number 2008 General Rate Case Announced settlement May 4, 2009. E-01345A-08-0172 Hearings in progress. 2008 Interim Rate Approval As part of 2008 rate request, APS received $65.2 million interim base E-01345A-08-0172 rate surcharge effective Jan
Slide 52: Progressive Federal Rate Regulation
Progressive Federal Rate Regulation We have achieved constructive 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 (TCA) Adjusted annually with 10.75% allowed ROE 51
Slide 53: Transmission Revenue Increases
Transmission Revenue Increases 1st Increase 2nd Increase 3rd Increase Annual Effective Annual Effective Annual Effective Revenue Date Revenue Date Revenue Date Retail Portion (TCA) $27M 3/1/2008 $13M 7/3/2008 $21M 8/1/2009 Wholesale Portion $ 1M 3/1/2008 $ 2M 6/1/2008 $ 2M 6/1/2009 Total Increase $2
Slide 54: A Well-Balanced Generation Portfolio
A Well-Balanced Generation Portfolio` Com mercial Ow nership / N et C apacity 1 Fuel / Plant Location Units Dispatch O ps. Date Operator Interest (M W ) N uclear Palo Verde W intersb urg, AZ 1,2,3 Base 1986 - 1989 APS 29.1 1,147 Total Nuclear 1,147 C oal Cholla Joseph City, AZ 1,2,3 Base 1962 - 1980
Slide 55: Environmental, Sustainability and Technology Leadership
Environmental, Sustainability and Technology Leadership We have been recognized internationally for our achievements. Edison Electric Institute’s Dow Jones Global 100 Most Sustainable 2008 Top Industry Award Sustainability Index Corporations in World (Technical Innovation) Social Responsibility Repo
Slide 56: 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
Slide 57: Impacts of SunCor Restructuring
Impacts of SunCor Restructuring Our plan maximizes the value of SunCor’s remaining assets and eliminates its outstanding debt. Eliminate SunCor’s debt Produce $80 million of cash tax IDAHO benefits (estimated to be Boise received late 2010) Reduce pretax G&A burn from UTAH $44 million in 2008
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