Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q2 2014 Earnings Presentation
31 slides from Pinnacle West Capital's earnings presentation, Jul 31, 2014
Slide 1: Second Quarter 2014 Results
SECOND QUARTER 2014 RESULTS July 31, 2014
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
Regulatory Update Operational Excellence CEO AGENDA
Slide 4: Agenda (CFO)
2nd Quarter 2014 Results Arizona Economic Outlook Financial Outlook CFO AGENDA
Slide 5: Consolidated EPS Comparison 2014 vs. 2013
CONSOLIDATED EPS COMPARISON 2014 VS. 2013 2nd Quarter GAAP Net Income $1.19 $1.18 2nd Quarter On-Going Earnings Year-to-Date GAAP Net Income $1.34 $1.40 Year-to-Date On-Going Earnings
Slide 6: On-Going EPS Variances 2nd Quarter 2014 vs. 2nd Quarter 2013
D&A $(0.01) Gross Margin(1) $(0.06) = Net Increase $0.01 ON-GOING EPS VARIANCES 2ND QUARTER 2014 VS. 2ND QUARTER 2013 Excludes costs, and offsetting operating revenues, associated with renewable energy (excluding AZ Sun), demand side management and similar regulatory programs. Note: Drivers adjusted
Slide 7: Gross Margin EPS Drivers 2nd Quarter 2014 vs. 2013
GROSS MARGIN EPS DRIVERS 2ND QUARTER 2014 VS. 2ND QUARTER 2013 Lost Fixed Cost Recovery Mechanism $0.02 Other, Net (incl AZ Sun) $0.01 Retail kWh Sales $(0.04) Retail Transmission Revenue $(0.02) = Net Decrease $(0.06) Weather $(0.03) See non-GAAP reconciliation for gross margin in appendix.
Slide 8: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Nonresidential Building Vacancy – Metro Phoenix Single Family & Multifamily Housing Permits Maricopa County Home Prices – Metro Phoenix Value Relative to Jan ‘05 Vacancy Rate Office Retail Job Growth (Total Nonfarm) - Arizona YoY Change E Q2 Q2 Apr
Slide 9: Arizona Economy – Homebuilders Agree Phoenix Has Solid Long-Term Outlook
ARIZONA ECONOMY – HOMEBUILDERS AGREE PHOENIX HAS SOLID LONG-TERM OUTLOOK “I am bullish on Phoenix over the long termI believe that going into 2015 we're going to experience a more normal market in Arizona after things get more in balance.” “We remain confident in the long-term growth of the opportun
Slide 10: Financing
FINANCING ($Millions) Debt Maturity Schedule 2014 Major Financing Activities $250 million 30-year 4.70% APS senior unsecured notes issued in January 2014 with proceeds used primarily to fund acquisition of Four Corners $250 million 10-year 3.35% APS senior unsecured notes issued June 2014 with proce
Slide 11: 2014 On-Going EPS Guidance
2014 ON-GOING EPS GUIDANCE Key Factors & Assumptions as of July 31, 2014 2014 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.22 – $2.27 billion Retail customer growth about 2% Weather-normalized retail electricity sales volume about +0.5% to prior year ta
Slide 12: Appendix
APPENDIX OMe PINACLEWEST
Slide 13: 2014 Key Dates
2014 KEY DATES Docket # Q1 Q2 Q3 Q4 Key Regulatory Filings Lost Fixed Cost Recovery 11-0224 Jan 15 Transmission Cost Adjustor May 15 Renewable Energy Surcharge Jul 1 10-Year Transmission Plan (Annual) 13-0002 Jan 31 2014 Integrated Resource Plan (Biennial) 13-0070 Apr 1 Net Metering (Decision No. 74
Slide 14: Key Rate Design Principles
KEY RATE DESIGN PRINCIPLES Smarter rates for smarter grid Arizona Public Service, Tucson Electric Power, Residential Utility Consumer Office and Arizona solar developers filed a joint letter with the ACC agreeing on the following rate design principles: Customer-focused Meaningful options Meet lifes
Slide 15: APS Is a Leader in Solar
APS IS A LEADER IN SOLAR We are committed to making Arizona the solar capital of America 3rd of all U.S. utilities for solar energy installed in 2013 (410 MW) 4th for new solar installed in 2013 (368 watts/customer) 4th for overall solar capacity (740 MW) 5th for overall solar capacity per customer
Slide 16: Residential PV Applications
As of June 30, 2014, over 26,800 residential grid-tied solar photovoltaic (PV) systems have been installed in APS’s service territory Q2 2014 applications totaled approximately 2,000, in line with Q2 2013 APS anticipates that it will be in compliance with the Renewable Energy Standard (RES) resident
Slide 17: APS-Owned Rooftop Solar Proposal
APS-OWNED ROOFTOP SOLAR PROPOSAL APS proposed an option to the ACC to convert 20 MW of AZ Sun into APS-owned residential rooftop solar, equates to approximately 3,000 customers Requesting ACC review within two months (September) to ensure compliance of renewable energy commitments by the end of 2015
Slide 18: Capital Expenditures
CAPITAL EXPENDITURES 80% of capital expenditures are recovered through rate adjustors (40%) and depreciation cash flow (40%) ($ Millions) $931 $1,026 2014 – 2016 as disclosed in Second Quarter 2014 Form 10-Q Distribution Transmission Renewable Generation Environmental Traditional Generation Projecte
Slide 19: 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 Estimated environmental compliance: $350 million, primarily in 2016-2017 A
Slide 20: APS Transmission
10-Year Transmission Plan filed January 2014 (115 kV and above) $496 million of transmission investment 275 miles of new lines Includes Hassayampa-North Gila (HANG2) ~110 miles; 500 kV Construction started March 2013 Estimated in-service mid 2015 Projects to deliver renewable energy approved by ACC
Slide 21: PNW Transmission – Bright Canyon Energy
PNW TRANSMISSION BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities JOINT VENTURE WITH MIDAMERICAN TRANSMISSION Bright Canyon formed a 50/50 JV with Mid-American Transmission to pursue transmission opportunities in the western United States DELANEY-COLORADO RIVER
Slide 22: Customer Growth
CUSTOMER GROWTH Annual Growth Customer growth drives 85% of retail sales (excluding impacts of customer conservation, energy efficiency and distributed renewable generation initiatives) Retail customer growth to average about 2.5% annually 2014-2016
Slide 23: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) YoY Retail Sales Before Customer Programs Energy Efficiency & Customer Conservation Distributed Generation Weather-normalized retail sales growth about 1% for 2014-2016 after impacts of energy efficiency, customer conservation and distributed renewable genera
Slide 24: Regulatory Mechanisms (TCA)
FERC Formula Rates adopted in 2008 Adjusted annually with 10.75% allowed ROE Based on FERC Form 1 and projected closings Update filed each April Annual rate true-up compares projected revenue requirement to actual, with variance incorporated into next annual update Retail portion flows through ACC T
Slide 25: Regulatory Mechanisms (TCA) Timeline
6/1 Rate Goes Into Effect REGULATORY MECHANISMS (TCA) We have achieved constructive transmission rate treatment with annual adjustments 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 6/1 Rate Goes Into Effect ~5/15 File/Post FERC Rate ~4/15
Slide 26: Operations & Maintenance
OPERATIONS & MAINTENANCE Our goal is to keep consolidated O&M growth at or below retail sales growth levels Note: Pinnacle West O&M for 2009-2014E: $10M, $9M, $8M, $11M, $27M and $15M, respectively. * 2013 includes $9M related to the closure of Four Corners Units 1, 2 and 3 deferred for regulatory r
Slide 27: Consolidated Financial Outlook
CONSOLIDATED FINANCIAL OUTLOOK Earned ROE Dividend Growth Goal Indicated Annual Dividend Rate at Year-End 11% PNW 9.9% Consolidated 10% goal to earn at least 9.5% annually 9% $2.27 $2.18 8% $2.10 7% 6% 2008 2009 2010 2011 2012 2013 2014 2015 Goal APS PNW* 2011 2012 2013 2014 2015 Projected * Continu
Slide 28: Gross Margin Effects of Weather Variances vs. Normal
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $9 Million, as previously reported $11 Million, adjusted for current normals $(7) Million 11 As Previously Reported Adjusted for current 10-year Rolling Average (2003-2012)
Slide 29: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* * O&M expenses related to renewable energy, demand side management and similar regulatory programs are offset by comparable revenue amounts. Pretax Millions $124 Million $137 Million $48 Million
Slide 30: Non-GAAP Measure Reconciliation: Gross Margin
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended June 30, EPS $ millions pretax, except per share amounts 2014 2013 Impact Operating revenues* $ 906 $ 916 Fuel and purchased power expenses* (291) (278) Gross margin 615 638 $ (0.12) Adjustments: Renewable energy (excluding AZ Sun), dem
Slide 31: Non-GAAP Measure Reconciliation: Other Non-GAAP
NON-GAAP MEASURE RECONCILIATION OTHER NON-GAAP Three Months Ended June 30, Four Corners 2014 EPS $ millions pretax, except per share amounts 2014 Deferral Adjusted 2013** Impact Operations and maintenance* $ 211 (2) $ 209 $ 229 Renewable energy (excluding AZ Sun), demand side management and similar
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