Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (March 2014)
35 slides from Pinnacle West Capital's roadshow presentation, Mar 18, 2014
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Meetings | March – April 2014
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 • Maintaining focus on core electric utility business Experienced Management • Delivering long-term value Team Driving Focused • Creating a sustainable energy future for Arizona and the communities we serve Strategy • Driving cost management discipline through increased transparenc
Slide 4: Pinnacle West: Who We Are
PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility in the growing southwest U.S. NYSE Ticker PNW Market Cap* ~$6 Billion Enterprise Value* ~$9 Billion Dividend Yield* 4.1% Consolidated Assets Over $13 Billion Principal Subsidiary Arizona’s largest and longest-servin
Slide 5: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Nonresidential Building Vacancy – Metro Phoenix New Home Sales & Single Family Permits Home Prices – Metro Phoenix Value Relative to Jan ‘05 Vacancy Rate Office Retail Job Growth (Total Nonfarm) - Arizona YoY Change
Slide 6: 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 7: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) YoY Retail Sales Before Customer Programs Energy Efficiency & Customer Conservation Distributed Energy Weather-normalized retail sales growth about 1% for 2014-2016 after impacts of energy efficiency, customer conservation and distributed renewable generation
Slide 8: Arizona's Renewable Resource and Energy Efficiency Standards
Cumulative savings from energy efficiency programs must be equivalent to 22% of annual retail sales by 2020 Annual milestones in place to measure progress toward cumulative 2020 goal 9.5% by 2015 22% by 2020 ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Portion of retail sales to be s
Slide 9: Operational Excellence
OPERATIONAL EXCELLENCE Palo Verde Palo Verde has exceeded 30 million megawatt-hours annual production 9 times – the only U.S. plant to ever do so. Safety 2013 lowest number of recordable injuries in company history. Customer Satisfaction Ranked 5th highest nationally among 54 large investor-owned el
Slide 10: Earned ROE
PNW Consolidated At least 9.5% Annually EARNED ROE Delivering consistent earned return on equity is one of our top priorities Earned ROE * Continuing operations Adjustment mechanisms (Lost Fixed Cost Recovery, Transmission Cost Adjustor, etc.) providing increasing contribution Modest load growth Con
Slide 11: Rate Base
RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business $6.9 Billion Total Approved Rate Base 6-7% Compound Annual Growth Rate Projected Most Recent Rate Decisions ACC FERC Rate Effective Date 7/1/2012 6/1/2013 Test Year Ended 12/31/2010* 12/31/2012 Rate
Slide 12: Dividend Growth
DIVIDEND GROWTH Pinnacle West’s annual dividend is $2.27 per share; targeting ~4% annual dividend growth Projected Annual Dividend Growth Approx. 4% Yield as of February 28, 2014 Payout 12 Months Ended December 31, 2013 Dividend Yield Dividend Payout PNW Industry Averages Future dividends subject to
Slide 13: Capital Expenditures
CAPITAL EXPENDITURES 80% of capital expenditures are recovered through rate adjustors (40%) and depreciation cash flow (40%) ($ Millions) $986* $965 $1,026 Other Distribution Transmission Renewable Generation Environmental Traditional Generation Projected $1,263 * 2013 shown on accrual basis. Capita
Slide 14: Resource Planning
RESOURCE PLANNING* Existing Owned Resources Includes retirement of Four Corners 1-3 Existing Contracts Four Corners 4-5 Resource Planning Requirement Load Requirement Including Reserves MW Gas Coal Nuclear RE + DE EE Composition of Energy Mix by Resource Note: RE = Renewable Energy; DE = Distributed
Slide 15: Ocotillo Power Plant (Tempe, AZ)
OCOTILLO POWER PLANT (TEMPE, AZ) Ocotillo modernization project will maintain valley grid reliability and increase APS’s generating capacity by 290 MW Maintains system reliability through retirement of aging steam units Replacement units meet need for increased portfolio responsiveness Aids integrat
Slide 16: 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 17: 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 18: AZ Sun Program
Utility-scale photovoltaic solar plants to be owned by APS Constructive rate recovery through RES until included in base rates 118 MW in commercial operation to date; 150 MW by end of 2014 Commitments to date: – 170 MW; $695 million estimated capital investment AZ SUN PROGRAM Owning solar resources
Slide 19: Net Metering
Customers with rooftop solar systems do not pay for all of the electric services they use (i.e. rooftop customers still need support from the grid 24 hours a day) These unpaid costs are then paid, through higher rates, by non-rooftop solar customers The issue will get bigger over time as application
Slide 20: 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 $10M, respectively. * 2013 includes $9M related to the closure of Four Corners Units 1, 2 and 3 deferred for regulatory r
Slide 21: Sustainable Cost Management Initiative
Motivation for Change SUSTAINABLE COST MANAGEMENT INITIATIVE (“SCMI”) Capitalize on changes driven by aging workforce Improve organizational efficiencies Strengthen governance and clarify accountability Refine understanding of cost structure to better identify opportunities Manage costs during regul
Slide 22: Pension & Other Post Retirement Benefits
Pension funded status for GAAP purposes increased to 90% at year-end 2013 due to earned returns, higher discount rates, plan contributions in excess of minimum required contributions and a liability driven investment strategy Improved funded status has lowered pension & OPEB expense for 2014 relativ
Slide 23: 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) TBD Apr 1 Net Metering (Decision No. 74202)
Slide 24: Appendix
APPENDIX OMe PINACLEWEST
Slide 25: 2014 – 2016 Financial Outlook
2014 – 2016 FINANCIAL OUTLOOK Key Factors & Assumptions as of February 21, 2014 Assumption Impact Retail customer growth Expected to average about 2.5% annually (2014-2016) Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricity sales volume growth About 1% afte
Slide 26: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Three seats of four-year terms through January 2017 were addressed in the November 2012 election Bob Stump (R)* Chairman Brenda Burns (R) Gary Pierce (R)* Terms To January 2015 Terms To January 2017 Susan Bitter Smith (R) Bob Burns (R) Incumbents New Commissioners * Te
Slide 27: Regulatory Mechanisms
Mechanism Adopted / Last Adjusted Description Power Supply Adjustor (“PSA”) April 2005 / February 2014 Recovers variance between actual fuel and purchased power costs and base fuel rate Includes forward-looking, historical and transition components Renewable Energy Surcharge (“RES”) May 2008 / Janua
Slide 28: Regulatory Mechanisms (TCA)
FERC Formula Rates adopted in 2008 Adjusted annually with 10.75% allowed ROE Based on FERC Form 1 and certain projections Retail portion flows through ACC Transmission Cost Adjustor REGULATORY MECHANISMS (TCA) We have achieved constructive transmission rate treatment with annual adjustments Annual R
Slide 29: Regulatory Mechanisms (LFCR)
Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2012 settlement Estimated to offset 30-40% of revenues lost due to ACC-mandated energy efficiency (EE) and distributed renewable generation (DG) initiatives Annual filing by January 15th each year with new rates in effect March 1st,
Slide 30: Credit Ratings
CREDIT RATINGS APS Parent Corporate Credit Ratings Moody’s A3 Baa1 S&P A- A- Fitch BBB+ BBB+ Senior Unsecured Moody’s A3 - S&P A- - Fitch A- - Outlook Moody’s Stable Stable S&P Stable Stable Fitch Stable Stable We are disclosing credit ratings to enhance understanding of our sources of liquidity and
Slide 31: Financing
FINANCING ($Millions) Debt Maturity Schedule 2014 Major Financing Activities $250 million 30-year 4.70% APS senior unsecured notes issued in January 2014 Currently expect about $550 million additional long-term debt issuance in 2014, including issuance to refinance $300 million of maturing debt In a
Slide 32: Credit Facilities and Liquidity
Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for our commercial paper programs Pinnacle West and APS currently have ample borrowing capacity under our respective credit facilities, and may readily access these facilitie
Slide 33: Renewable Energy Rises with the Sun
Germany and Japan are among countries with highest installed solar capacity, yet have solar conditions far inferior to Arizona Arizona ranks 1st in the U.S. for solar energy development* RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of America” Arizona * Enviro
Slide 34: Generation Portfolio
GENERATION PORTFOLIO Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR 1,146 MW Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 COAL 1,932 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 647 Four Corners Farmington, NM 4, 5 Base 1969-1970 63 970 Navajo P
Slide 35: Purchased Power Contracts
PURCHASED POWER CONTRACTS Fuel/Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (MW) SOLAR 310 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
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