Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (April 2012)
50 slides from Pinnacle West Capital's roadshow presentation, Apr 10, 2012
Slide 1: Delivering Superior Shareholder Value: Investor Meetings
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Meetings April 10 - 13, 2012
Slide 2: Forward-Looking Statements
2 FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements based on current expectations. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume” and similar words. Because
Slide 3: Pinnacle West: Who We Are
3 PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility. NYSE Ticker PNW Market Cap $5 Billion Enterprise Value $9 Billion STATE OF ARIZONA Principal Subsidiary • Arizona’s largest electric utility • $13 billion assets Service Territory • 1.1 million customer accounts
Slide 4: Pinnacle West: Our Value Proposition
4 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors: Deliver superior shareholder returns through…
Slide 5: Pinnacle West: Our Value Proposition
5 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 6: Positive Long-Term Demographics
6 POSITIVE LONG-TERM DEMOGRAPHICS APS’s customer growth generally outpaces U.S. and Arizona population growth. Superior Growth APS Customer Growth Annual Millions Growth 2 5% 1.8 4% 2.6%* 1.1 3% 1 2% 1% 0% 0 19901992 19941995 1990 20002002 20042005 1996 1998 2000 2010 2006 2008 2010 2012 2014 2016 2
Slide 7: APS Rate Base Growth Strong
7 APS RATE BASE GROWTH STRONG We expect our rate base will grow at a 6% average rate. APS Rate Base APS Capital Expenditures $ Billions $ Millions 1,200 10 1,000 8 Other 800 Distribution 6 600 Transmission FERC 4 ACC Renewables 400 Environmental 2 200 Traditional Generation 0 0 2010 2011 2012 2013 2
Slide 8: Pinnacle West: Our Value Proposition
8 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 9: Operational Highlights
9 OPERATIONAL HIGHLIGHTS We focus on maintaining top-tier performance companywide. Customer Satisfaction Ranked 4th highest nationally among 55 large investor-owned electric utilities in 2011 J.D. Power residential customer survey Strong Nuclear and Coal Baseload Resources 2011 capacity factors
Slide 10: Pinnacle West: Our Value Proposition
10 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 11: Renewable Energy Rises with the Sun
11 RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of the World.” Arizona Germany and Japan are among countries with highest installed solar capacity, yet have solar conditions far inferior to Arizona MAKING COMPELLING CAPITAL INVESTMENTS
Slide 12: APS AZ Sun Program Provides Earnings Growth Potential
APS AZ SUN PROGRAM PROVIDES 12 EARNINGS GROWTH POTENTIAL Owning solar resources makes sense for our customers and environment and provides returns to our shareholders. • Up to 200 MW utility-scale photovoltaic solar plants owned by APS • Up to $975 million capital investment • In service 2011 throug
Slide 13: Four Corners Power Plant Transactions
13 FOUR CORNERS POWER PLANT TRANSACTIONS Our proposal represents a balanced solution to new environmental regulations. Acquire Southern California Edison’s 739 MW interest in Units 4 & 5 and shut down 560 MW Units 1 – 3 • Purchase price: $294 million • Acquisition target date: late 2012 • Estimated
Slide 14: Transmission Investment Essential
14 TRANSMISSION INVESTMENT ESSENTIAL Strategic transmission is necessary to maintain reliability and deliver diversified resources to our customers. NAVAJO • 10-Year Transmission Plan (115-kV and above) FOUR NORTH CORNERS 100 MW • $550 million of new 970 MW transmission investment • 269 miles of new
Slide 15: Pinnacle West: Our Value Proposition
15 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 16: 2012 Proposed Retail Rate Case Settlement: Key Benefits
2012 PROPOSED RETAIL RATE CASE SETTLEMENT 16 KEY BENEFITS FROM INVESTOR PERSPECTIVE The proposed settlement contains a number of benefits for customers and shareholders. • Provides financial support APS needs to achieve Arizona’s energy goals • Encourages progress toward sustainable energy future •
Slide 17: 2012 Rate Case Settlement: Key Financial Proposals
2012 PROPOSED RETAIL RATE CASE SETTLEMENT 17 KEY FINANCIAL PROPOSALS – BASE RATES & TIMING The provisions of the settlement are targeted to become effective July 1, 2012, as originally requested by APS. Annual Revenue Change Annualized Base Rate Revenue Changes ($ millions) Non-fuel base rate increa
Slide 18: 2012 Rate Case Settlement: Key Proposals Other Than Base Rates
2012 PROPOSED RETAIL RATE CASE SETTLEMENT 18 KEY PROPOSALS – OTHER THAN BASE RATES Other key proposals provide customers rate stability while continuing constructive regulatory treatment and limiting regulatory lag. • Post test-year plant additions – 15 months’ additions included in rate base • Cons
Slide 19: Pinnacle West: Our Value Proposition
19 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 20: ROE Improvement: A Multi-Pronged Approach
20 ROE IMPROVEMENT: A MULTI-PRONGED APPROACH Improving our earned return on equity is one of our top priorities. Earned ROEs Key Initiatives 10% • Supportive electric utility rates • Regulatory framework 9% improvements 8% • Cost management initiatives • Efficiency and effectiveness 7% throughout or
Slide 21: Top-Tier Dividend Yield
21 TOP-TIER DIVIDEND YIELD Pinnacle West’s annual dividend is $2.10 per share — providing a top-tier yield with a near-average payout. Dividend Yield 7% 6% PNW 5% 4% 3% Industry Averages 2% 1% 0% 30% 40% 50% 60% 70% 80% 90% 100% Yield as of March 31, 2012 Dividend Payout Payout 12 Months Ended Decem
Slide 22: Superior Shareholder Returns
22 SUPERIOR SHAREHOLDER RETURNS Our total return to shareholders has outperformed our industry and the broad market over the past five years. Pinnacle West S&P 500 S&P 1500 Electric Utilities 100% 80% 77.3% 60% 40% 48.6% 45.6% 32.3% 20% 26.7% 25.7% 21.8% 21.4% 17.5% 19.0% 2.1% 0% (1.2)% (20.0)% 1 Ye
Slide 23: Our Commitment to Investors: Delivering Superior Shareholder Returns
23 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors… Delivering Superior Shareholder Returns
Slide 24: Appendix
APPENDIX ~~ w PINNACLE WEST
Slide 25: A Respected, Veteran Leadership Team
25 A RESPECTED, VETERAN LEADERSHIP TEAM Our top executives have more than 130 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Don Mark Randy Dave Falck Jim Robinson Schiavoni Edington EVP, Hatfield APS SVP EVP & General SVP & CFO President Fossil Chief
Slide 26: 2012 On-Going Earnings Key Drivers
26 2012 ON-GOING EARNINGS KEY DRIVERS Key drivers that may affect 2012 on-going earnings. • Retail customer growth about 1% • Weather-normalized retail electricity sales volume growth slightly negative taking into account effects of Company’s energy efficiency initiatives • Weather • 2009 regulatory
Slide 27: Ample Financing Access
27 AMPLE FINANCING ACCESS Investment-grade credit ratings, capitalization and liquidity should provide adequate access to bank and capital markets. Capitalization & Liquidity 2011 - 2012 Major Financing Activities December 31, 2011 2011 $1B APS revolver refinancing* $ Billions 8 2011 $200M PNW revol
Slide 28: Credit Ratings
28 CREDIT RATINGS We have investment-grade credit ratings. APS Parent Corporate Credit Ratings Moody’s Baa2 Baa3 S&P BBB BBB Fitch BBB- BBB- Senior Unsecured Moody’s Baa2 - S&P BBB - Fitch BBB - Outlook Moody’s Stable Stable S&P Positive Positive Fitch Stable Stable We are disclosing these ratings t
Slide 29: S&P Credit Metrics
29 S&P CREDIT METRICS Our key credit metrics have been improving. 2007 2008 2009 2010 2011 APS FFO / Debt 17.2% 22.1% 22.8% 22.3% 19.4% FFO / Interest 4.1x 5.1x 4.8x 4.6x 4.3X Debt / Capitalization 55.2% 57.4% 56.8% 53.0% 54.4% Pinnacle West FFO / Debt 15.7% 18.0% 18.4% 22.5% 18.4% FFO / Interest 3.
Slide 30: APS Operations & Maintenance Expense Trends
30 APS OPERATIONS & MAINTENANCE EXPENSE TRENDS Our goal is to keep O&M growth in line with retail sales growth. $ Millions 800 600 400 200 0 2006 2007 2008 2009 2010 2011 Excludes RES and demand-side management costs. 2011 also excludes $28 million pretax related to settlement of prior-period Four C
Slide 31: Environmental, Sustainability and Governance Leadership
31 ENVIRONMENTAL, SUSTAINABILITY AND GOVERNANCE LEADERSHIP We are recognized internationally for our achievements. Ranked on Dow Jones Ranked 15th Overall Highest for Any Utility Rated 4th Highest Sustainability Index since 2005 Intelligent Utility U.S. DOE/EPA Sustained Excellence since 2008 Partne
Slide 32: Customer Satisfaction: A Key Priority
32 CUSTOMER SATISFACTION: A KEY PRIORITY Our employees provide top-tier customer service. Lowering Outage Time Outstanding Residential Per Customer Customer Satisfaction Rating Average Outage Rating Minutes/Year 700 APS 120 675 100 650 Industry Average 80 625 600 60 575 40 550 20 525 0 500 2007 2008
Slide 33: Superior Power Plant Performance
33 SUPERIOR POWER PLANT PERFORMANCE Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Performance Metrics APS 91% 100% 100% APS Commercial Availability 91% APS Capacity Factor 90% 90% Industry Capacity Factor 80% 80% 80% 67% 70% Industry 92% 70% 60% 60% 2003 20
Slide 34: 2011 Retail Customer, Sales and Revenue Mixes
34 2011 RETAIL CUSTOMER, SALES AND REVENUE MIXES Our business mix is attractive due to favorable climate and other conditions in our market area. 11% 11% 8% 6% 8% 47% 47% 50% 51% 45% 45% 42% 43% 89% 89% Customers Retail Sales Operating Revenues Year-End 28,210 GWh $3.0 Billion 1.1 Million Residentia
Slide 35: 2011 APS Generation and Energy Fuel Mixes
35 2011 APS GENERATION AND ENERGY FUEL MIXES Our balanced resource mix provides our customers reliability and manages price volatility. 1% 18% 21% 19% 21% 18% 27% 26% 22% 34% 32% 54% 17% 53% 17% 28% 28% 37% 45%4 6 % 36% Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 33,407 GWh 27,055 GW
Slide 36: Arizona Corporation Commissioners
36 ARIZONA CORPORATION COMMISSIONERS The new composition provides opportunities for additional relationships and process efficiencies. Terms Through January 2013 Terms Through January 2015 Sandra Kennedy Paul Newman Bob Stump Brenda Burns Gary Pierce (Rep)* (Dem) (Dem) (Rep) (Rep) Chairman * Term li
Slide 37: 2012 Rate Case Settlement: Key Financial Assumptions
2012 PROPOSED RETAIL RATE CASE SETTLEMENT 37 KEY FINANCIAL ASSUMPTIONS Updated rate base, cost of capital and fuel prices underpin the proposed settlement amounts. Rate base $5.7 billion Allowed return on equity 10% Capital structure Long-term debt 46.1% Common equity 53.9% Base fuel rate (¢/kWh) 3.
Slide 38: 2009 Regulatory Settlement Positioned APS Well Through 2012
38 2009 REGULATORY SETTLEMENT POSITIONED APS WELL THROUGH 2012 APS’s 2009 regulatory settlement contained a number of investor benefits. • Strengthened APS’s earned ROE and financial condition • Supported common dividend • Demonstrated increased cooperation among APS, ACC Staff, residential consumer
Slide 39: 2009 Regulatory Settlement Summary
39 2009 REGULATORY SETTLEMENT SUMMARY The settlement provisions included earnings support until APS’s next rate case decision. Estimated Pretax Earnings Benefits* $ Millions 2010 2011 2012 Settlement agreement terms Base rate increase $ 207 $ 207 $ 207 Line extensions treated as revenue 23 25 49 Pen
Slide 40: Our Regulatory Mix
40 OUR REGULATORY MIX The bulk of APS’s revenues comes from a regulated retail rate base and a meaningful transmission business. Most Recent Rate Decisions ACC FERC Transmission 18% Rates Effective Date 1/1/2010 6/1/2011 Test Year Ended 12/31/2007* 12/31/2010 Generation & Distribution Rate Base $5.6
Slide 41: Constructive Transmission Rate Regulation
41 CONSTRUCTIVE TRANSMISSION RATE REGULATION We have achieved transmission rate treatment with annual adjustments. • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and certain projections • Retail portion flows through ACC Transmission Cost Adju
Slide 42: Significant Regulatory Progress Since 2005
42 SIGNIFICANT REGULATORY PROGRESS SINCE 2005 We have achieved a more supportive regulatory structure and improvements in cost recovery timing. Adopted/ Mechanism Last Adjusted Description Power Supply April 2005 / • Recovers 90% of variance between actual fuel and purchased power costs and base fue
Slide 43: A Well-Balanced Generation Portfolio
43 A WELL-BALANCED GENERATION PORTFOLIO Ownership Net Capacity Fuel / Plant Location Units Dispatch Commercial Ops. Date Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1-3 Base 1986 - 1989 29.1% 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1-3 Base 1962 - 1980 100 647 Four Corners Farmin
Slide 44: Resource Planning for Reliability and Sustainability
44 RESOURCE PLANNING FOR RELIABILITY AND SUSTAINABILITY Through a balanced resource mix including renewable resources and energy efficiency programs, we will meet future load growth. MW 14,000 Load Requirement 3% Four Corners Transactions, Net Including Reserves 12,000 21% Future Energy Efficiency 2
Slide 45: Four Corners Power Plant Facts & Figures
45 FOUR CORNERS POWER PLANT FACTS & FIGURES Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercial Operation Date 1963 1963 1964 1969 1970 Original Cost ($M) $37 $369 $166 Net Book Value at 12/31/10 ($M) $20 $125 $63 Current Depreciation Ends 2031 Mid-2016 Mid-2016 Mid-2016 2031 2031 Current Expiratio
Slide 46: Arizona's Renewable Resource and Energy Efficiency Standards
46 ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS We are committed to aggressive renewable and energy efficiency standards. Renewable Energy (RES) Minimum Requirements Portion of retail sales to be supplied by renewable resources • 5% by 2015 • 15% by 2025 Distributed energy component
Slide 47: AZ Sun Program Summary
47 AZ SUN PROGRAM SUMMARY APS is investing in up to 200 MW of solar generation. Actual or Name Location Capacity Developer Target COD* Paloma Gila Bend, AZ 17 MW First Solar Sept. 2011 Cotton Center Gila Bend, AZ 17 MW Solon Oct. 2011 Hyder Phase 1 Hyder, AZ 11 MW SunEdison Oct. 2011 Hyder Phase 2 H
Slide 48: Renewable Purchase Power Contracts
48 RENEWABLE PURCHASE POWER CONTRACTS Commercial Owner/ PPA Operation Term Capacity 1 Fuel / Contract Location Developer Status Signed Date (years) Net (MW) Solar Solana Gila Bend, AZ Abengoa UC Feb-2008 2013 30 250 Ajo Ajo, AZ Duke Energy Gen Sacs IO Jan-2010 2011 25 5 Prescott Prescott, AZ SunEdis
Slide 49: Solana: A "Sunny Place"
49 SOLANA: A “SUNNY PLACE” Solana will provide about one-third of APS’s renewable energy target of 10% by 2015. • 250-MW 30-year PPA for all output (~900 GWh/year) • Concentrating solar trough facility 70 miles southwest of Phoenix • Expected to be first major stored-energy plant in U.S. on targeted
Slide 50: APS Energy Efficiency Initiatives Increasing
50 APS ENERGY EFFICIENCY INITIATIVES INCREASING APS plans to double customers’ energy efficiency savings from 2010 through 2012. Cumulative Annual Energy Savings Associated with EE/DSM Programs GWh 2,250 • Program costs currently recovered through retail rate adjustor 2,000 • Under 2009 retail regul
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