Pinnacle West Capital Corporation · NYSE:PNW

Pinnacle West Capital — Investor Presentation (October 2003)

52 slides from Pinnacle West Capital's investor presentation, October 2003

  1. Slide 1: Focusing On Our Growing Core Business

    Focusing On Our Growing Core Business Analyst Presentations Boston and New York October 2003

  2. Slide 2: Forward-Looking Statements

    Forward-Looking Statements This presentation contains forward-looking statements based on current expectations and we assume no obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forward-looking statements are ofte

  3. Slide 3: Pinnacle West Managing for the Future

    Pinnacle West Managing for the Future ƒ A vertically integrated utility in a high-growth market area ƒ Sustaining exceptional operational performance ƒ Maintaining agility in a dynamic regulatory environment ƒ Managing risk in changing energy markets

  4. Slide 4: Solid Customer Growth Foundation

    Solid Customer Growth Foundation Leading 2002 Population Growth States APS 2nd in customer growth nationally Capitalizing on Superior Growth

  5. Slide 5: Customer Growth 3 to 4 Times U.S. Average

    Customer Growth 3 to 4 Times U.S. Average 6% 4% 2% 0% 1998 1999 2000 2001 2002 YTD 2003 APS Industry Average Capitalizing on Superior Growth

  6. Slide 6: Generation Highlights

    Generation Highlights ƒ Low production cost ƒ Strong outage management ƒ Leading nuclear operations ƒ Proactive environmental management Sustaining Exceptional Operational Performance

  7. Slide 7: Top-Tier Performance

    Top-Tier Performance 1998 – 2002 Baseload Averages Strong Operating Favorable Performance Production Costs $/MWh 18 100% 75% 17 50% 16 25% 15 0% 14 Net Equivalent Equivalent Capacity Availability Forced Factor Factor Outage Rate APS Industry Sustaining Exceptional Operational Performance

  8. Slide 8: Transmission & Distribution Highlights

    Transmission & Distribution Highlights ƒ Award-winning customer satisfaction ƒ Strong operational efficiency ƒ Sound reliability focus Sustaining Exceptional Operational Performance

  9. Slide 9: Achieving Superior Customer Satisfaction

    Achieving Superior Customer Satisfaction APS ranked 3rd in customer satisfaction among 56 utilities according to J.D. Power & Associates Sustaining Exceptional Operational Performance

  10. Slide 10: Strong Transmission and Distribution Efficiency

    Strong Transmission and Distribution Efficiency 2002 Top Quartile O&M/Customer $400 APS* $300 $200 Average $100 $0 * Excluding 2002 severance charges Sustaining Exceptional Operational Performance

  11. Slide 11: Planning for Growth and Reliability

    Planning for Growth and Reliability APS System Load and Resources MW 12,000 Peak System Requirement + 10,000 15% Reserves 8,000 Resource Deficit 6,000 PWEC Assets & Track B 4,000 2,000 Existing APS Capacity 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sustaining Exceptional Operational P

  12. Slide 12: Reliability Remains Essential

    Reliability Remains Essential WECC Available Transmission Capability* 3,007 4,119 2,368 340 301 1,672 3,913 * Summer 2006 estimate Sustaining Exceptional Operational Performance

  13. Slide 13: Focusing on Our Vertically Integrated Operations

    Focusing on Our Vertically Integrated Operations ƒ Capturing benefits of strong underlying growth ƒ Remaining steadfastly focused every day on: - Customer care and satisfaction - Operational excellence - System reliability Sustaining Exceptional Operational Performance

  14. Slide 14: APS Regulatory Strategy

    APS Regulatory Strategy ƒ Relationships built on consistency, accountability, performance and trust ƒ Strong presentation of APS position ƒ Focus on reliability issue ƒ Settlement opportunities Pursuing Constructive Regulatory Outcomes

  15. Slide 15: APS General Rate Case

    APS General Rate Case Key Provisions ƒ 9.8% ($175 million) annual rate increase ƒ Rate base treatment of 1,800 MW of Arizona assets currently owned by Pinnacle West Energy ƒ Recovery of previous $234 million write-off Pursuing Constructive Regulatory Outcomes

  16. Slide 16: APS Prices Low Relative to CPI

    APS Prices Low Relative to CPI Cumulative Change 40% CPI 38% 30% 20% 10% 0% APS 6% (10)% (20)% '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 Pursuing Constructive Regulatory Outcomes

  17. Slide 17: Planning for Growth and Reliability

    Planning for Growth and Reliability APS System Load and Resources MW 12,000 Peak System Requirement + 10,000 15% Reserves 8,000 Resource Deficit 6,000 PWEC Assets & Track B 4,000 2,000 Existing APS Capacity 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pursuing Constructive Regulatory Out

  18. Slide 18: ACC Procurement Process Demonstrates Need for PWEC Assets

    ACC Procurement Process Demonstrates Need for PWEC Assets MW 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 2006 ACC Bid Amount Non-PWEC Bids Undeliverable Bids Pursuing Constructive Regulatory Outcomes

  19. Slide 19: General Rate Case Milestones

    General Rate Case Milestones Filing June 2003 Discovery August 2003 – April 2004 Testimony January - March 2004 Hearing Begins April 7, 2004 Briefing Proposed Order Final Order Pursuing Constructive Regulatory Outcomes

  20. Slide 20: Other Significant ACC Activity

    Other Significant ACC Activity ƒ Adjustment mechanisms docket ƒ Review of retail competition rules ƒ Workshops on environmental risk management and DSM ƒ Evaluation of environmental portfolio standard ƒ Code of conduct filing ƒ Future of Track B procurement ƒ Commission elections Pursuing Constructi

  21. Slide 21: Marketing & Trading Objectives

    Marketing & Trading Objectives ƒ Effectively manage fuel and purchased power risks ƒ Optimize the economic use of APS’ generation and transmission assets ƒ Maintain risk management discipline with particular emphasis on credit risk Managing Market Risks and Commodity Exposures

  22. Slide 22: Managing Commodity Risks for APS Native Load

    Managing Commodity Risks for APS Native Load ƒ Gas and power hedge program in place since mid-1990’s ƒ Forward gas and power hedge plan details: - 2004 Currently 50% hedged with near-term target of 75% by year-end 2003 - 2005-2006 Target of 50% hedged by year-end 2003 Managing Market Risks and Commo

  23. Slide 23: Southwestern Spark Spread Outlook Weak through 2005

    Southwestern Spark Spread Outlook Weak through 2005 $/MWh $35 $30 $25 $20 $15 $10 $5 $0 2002 2003 2004 2005 Historical Spot Forward Based on Palo Verde on-peak power and Permian natural gas (7,000 heat rate) Managing Market Risks and Commodity Exposures

  24. Slide 24: Western Market Challenges

    Western Market Challenges ƒ Continuing pressure on forward spark spreads expected through 2005 ƒ Fewer creditworthy counterparties ƒ New capacity additions ƒ Short-term bias of wholesale customers Managing Market Risks and Commodity Exposures

  25. Slide 25: 2003 Earnings Outlook

    2003 Earnings Outlook Outlook: Lower half of $2.55 - $2.85 per share range Major factors: ƒ Unplanned outages $(0.19) ƒ Lower trading contributions $(0.14) ƒ Tax credits $0.15 ƒ AFUDC accounting $0.12 ƒ Hot weather $0.02 to $0.05 Focusing On Financial Performance

  26. Slide 26: 2004 Earnings Outlook

    2004 Earnings Outlook Base level earnings = $2.50 per share Key assumptions: ƒ Rate increase not reflected ƒ No trading contributions ƒ Combined SunCor and APS Energy Services earnings of $0.44 per share Sensitivities: ƒ Rate increase + $0.00 - $0.76 ƒ Weather variations +/- $0.11 ƒ KWH sales variat

  27. Slide 27: Consolidated Annual EPS Outlook

    Consolidated Annual EPS Outlook Beyond 2004 and Rate Case Resolution At least $3.40 per share, assuming: ƒ ACC grants APS’ rate request ƒ Trading contributions of $0.07 per share ƒ Combined SunCor and APS Energy Services earnings of $0.33 per share in 2005 and $0.11 per share after 2005 Focusing On

  28. Slide 28: Future Capital Expenditures

    Future Capital Expenditures* $ Millions 1,200 900 600 300 0 2002 2003 2004 2005 Projected APS Delivery APS Generation PWEC Generation Other *Excluding SunCor Focusing On Financial Performance

  29. Slide 29: Strong EBITDA Interest Coverage

    Strong EBITDA Interest Coverage Times 8 6 4 2 0 1998 1999 2000 2001 2002* Pinnacle W est S&P Electrics * Pinnacle West excluding non-recurring items Focusing On Financial Performance

  30. Slide 30: Superior Dividend Growth

    Superior Dividend Growth* 1998-2002 Earnings Per Share Dividends Per Share 10% 10% 5% 5% S&P PNW** PNW Electrics 0% 0% S&P Electrics (5)% (5)% * 5-year compound annual growth rates ** Excluding non-recurring items Focusing On Financial Performance

  31. Slide 31: APITAL CORPOR 1ON

    > it APITAL CORPOR 1ON

  32. Slide 32: Appendix

    Appendix

  33. Slide 33: Top Dividend Growth 1998 - 2002

    Top Dividend Growth 1998 - 2002 PNW 10% 0% (10)% (20)% (30)% Appendix

  34. Slide 34: Strong Consolidated Cash Flow Outlook (2003)

    Strong Consolidated Cash Flow Outlook* 2003 Sources Requirements Cash From Long-term Capital Debt Operations Financing Expenditures Repayments Common Dividends Approximately $1.2 Billion * Projected Appendix

  35. Slide 35: Strong Consolidated Cash Flow Outlook (2004)

    Strong Consolidated Cash Flow Outlook* 2004 Sources Requirements Cash From Long-term Capital Debt Operations Financing Expenditures Repayments Common Dividends Approximately $1.1 Billion * Projected Appendix

  36. Slide 36: Pinnacle West EBITDA Interest Coverage

    Pinnacle West EBITDA Interest Coverage* Reconciliation ($ millions) 1998 1999 2000 2001 2002 Income from continuing operations $ 243 $ 270 $ 302 $ 327 $ 215 Income taxes 139 142 194 214 138 Interest expense, net of capitalized interest 145 145 145 128 144 Depreciation and amortization 413 420 431 42

  37. Slide 37: Liquidity Resources

    Liquidity Resources APS: $250M commercial paper facility Unused long-term debt shelf capability of $500M Pinnacle West (parent): $250M commercial paper facility Unused long-term debt shelf capability of $390M Appendix

  38. Slide 38: Current Credit Ratings

    Current Credit Ratings S&P Moody’s Arizona Public Service Co. First Mortgage Bonds/ Senior Secured Debt A- A3 Senior Unsecured Debt BBB Baa1 Secured Lease Obligation Bonds BBB Baa2 Commercial Paper A2 P2 Pinnacle West Capital Corp. Senior Unsecured Debt BBB- Baa2 Commercial Paper A2 P2 Appendix

  39. Slide 39: Wholesale Electricity Prices

    Wholesale Electricity Prices Palo Verde On-Peak and Forward Curve with Historical Spot $/MWh $70 $60 $50 $40 $30 $20 $10 $0 2002 2003 2004 2005 Palo Verde On-peak Palo Verde Forward Appendix

  40. Slide 40: Natural Gas Prices

    Natural Gas Prices Permian On-Peak and Forward Curve with Historical Spot $/MMBTU $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 2002 2003 2004 2005 Actual Gas Gas Forward Appendix

  41. Slide 41: Improving APS Customer Efficiency

    Improving APS Customer Efficiency Cumulative Change 15% 12% 9% 6% 3% 0% 1999 2000 2001 2002 Average Customers Employees Appendix

  42. Slide 42: APS Capacity Factors

    APS Capacity Factors Palo Verde Site Average Coal Average 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% '97 '98 '99 '00 '01 '02 '97 '98 '99 '00 '01 '02 Palo Verde Industry Coal Industry Appendix

  43. Slide 43: Pinnacle West Energy Plants

    Pinnacle West Energy Plants Commercial Operation New Facilities MWs Location June 2001 West Phoenix 4 120 Phoenix, AZ July 2002 Saguaro CT 3 80 Red Rock, AZ July 2002 Redhawk 1 and 2 1,060 Arlington, AZ July 2003 West Phoenix 5 530 Phoenix, AZ Arizona Total 1,790 June 2004 * Silverhawk 570 ** Las Ve

  44. Slide 44: Arizona Transmission System

    Arizona Transmission System UTAH UTAH UTAH COLORADO NAVAJO SHIPROCK MEAD/ GLEN SAN JUAN MRKTPLACE/ CANYON LAS VEGAS FOUR TRIBAL CORNERS LAND MOENKOP I FLAGSTAFF MCKINLEY CHOLLA CALIFORNIA CORONADO SPRINGER- VILLE BOUSE PINN. WEST WING CALIFORNIA PEAK PERKINS PALO VERDE LIBERTY GREENLEE KYRENE (AEPCO

  45. Slide 45: Arizona Corporation Commissioners

    Arizona Corporation Commissioners Party Commissioner Current Term Commissioner Affiliation Since Expires Marc Spitzer, Chairman Republican Jan. 2001 Jan. 2007 Michael Gleason Republican Jan. 2003 Jan. 2005 Jeff Hatch-Miller Republican Jan. 2003 Jan. 2005 Kristin Mayes Republican Oct. 2003 Jan. 2005

  46. Slide 46: APS Track B Procurement Contracts

    APS Track B Procurement Contracts Awarded May 2003 MW 2,000 1,500 1,000 500 0 2003 2004 2005 2006 PW EC PPL EnergyPlus, LLC Panda Gila River, LP Appendix

  47. Slide 47: Adjustment Mechanisms Docket

    Adjustment Mechanisms Docket ƒ Hearing conducted April 2003 ƒ ALJ recommendation ƒ Issued October 1 ƒ Recommends approval of adjustment mechanisms, with significant modifications ƒ Ultimate implementation in rate case ƒ Comments due October 10 ƒ ACC consideration possible on October 22 Appendix

  48. Slide 48: Average Residential Retail Price Ranking

    Average Residential Retail Price Ranking* Southwestern U.S. ¢/kWh 16 14 12 10 8 6 4 2 0 PPW SRP PNM APS T EP NPC EE PG&E SCE SDG&E * As of December 31, 2002 Appendix

  49. Slide 49: Average Commercial Retail Price Ranking

    Average Commercial Retail Price Ranking* Southwestern U.S. ¢/kWh 16 14 12 10 8 6 4 2 0 PPW SRP APS PNM EE NPC T EP SCE PG&E SDG&E * As of December 31, 2002 Appendix

  50. Slide 50: Average Industrial Retail Price Ranking

    Average Industrial Retail Price Ranking* Southwestern U.S. ¢/kWh 14 12 10 8 6 4 2 0 PPW SRP PNM APS EE T EP NPC SCE PG&E SDG&E * As of December 31, 2002 Appendix

  51. Slide 51: APS Energy Services

    APS Energy Services Overview ƒ Financial Results YTD June 2003 2002 2001 Pretax Earnings $18 M $28 M $(10) M ƒ Future Drivers – Seize opportunities to grow existing business at reasonable margin levels – Renew existing contracts in California (estimated at declining margins) – Realize steady growth

  52. Slide 52: Non-Energy Subsidiaries Overview

    Non-Energy Subsidiaries Overview Assets ƒ Objectives $497 Million - Cash flow and profit potential to parent $30M El Dorado ƒ Current activities - SunCor accelerated asset sales program $467M - Harvesting venture capital SunCor portfolio as it matures ƒ Growth opportunities - Select real estate oppo

Pinnacle West Capital — Investor Presentation (October 2003) on 6ix