Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (December 2012)
65 slides from Pinnacle West Capital's roadshow presentation, Dec 10, 2012
Slide 1: Delivering Superior Shareholder Value: Investor Meetings
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Meetings December 10-11, 2012
Slide 2: Forward-Looking Statements
2 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: Non-GAAP Financial Measures
3 NON-GAAP FINANCIAL MEASURES In this presentation, we refer to “on-going earnings per share,” which is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We believe on-going earnings per share provides investors with a useful indicator of our results that is comparable among p
Slide 4: Pinnacle West: Who We Are
4 PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility. NYSE Ticker PNW Market Cap $6 Billion Enterprise Value $9 Billion Yield 4% STATE OF ARIZONA Principal Subsidiary • Arizona’s largest electric utility • $13 billion assets Service Territory CONTINENTAL UNITED STAT
Slide 5: Pinnacle West: Our Value Proposition
5 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors: Deliver superior shareholder returns through…
Slide 6: Pinnacle West: Our Value Proposition
6 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 7: Positive Long-Term Demographics
7 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 1995 1990 1992 1994 1996 1998 2000 2002 2004 2005 2006 2008 2010 2012 2014 2016 2011 2030 Pr
Slide 8: Long-Term Growth Drives Cap Ex
8 LONG-TERM GROWTH DRIVES CAP EX Investment is required throughout the business to meet expected demand growth APS Capital Expenditures by Function $ Millions 1,400 1,200 Other 1,000 Distribution 800 Transmission 600 Renewables Environmental 400 Traditional 200 Generation 0 2011 2012 2013 2014 2015
Slide 9: Solid Capital Recovery and Strong Rate Base Growth
SOLID CAPITAL RECOVERY AND 9 STRONG RATE BASE GROWTH We expect our rate base will grow 6% per year on average, and we have constructive recovery of capital expenditures. APS Capital Expenditures APS Rate Base Growth by Recovery Mechanism $ Millions $ Billions Year-End 1,400 10 1,200 8 1,000 Other Ca
Slide 10: Pinnacle West: Our Value Proposition
10 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 11: Operational Highlights
11 OPERATIONAL HIGHLIGHTS We focus on maintaining top-tier performance companywide. Customer Satisfaction Ranked 3rd highest nationally among 55 large investor-owned electric utilities in 2012 J.D. Power residential customer survey Strong Nuclear and Coal Baseload Resources 2011 capacity factors
Slide 12: Pinnacle West: Our Value Proposition
12 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 13: Renewable Energy Rises with the Sun
13 RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of the World.” Arizona 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 14: APS AZ Sun Program Provides Earnings Growth Potential
APS AZ SUN PROGRAM PROVIDES 14 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 15: Four Corners Power Plant Proposed Plan
15 FOUR CORNERS POWER PLANT PROPOSED PLAN Our proposal represents a balanced solution to new environmental regulations. Economic, environmental and social benefits Acquire Southern California Edison’s 739 MW interest in Units 4 & 5 and shut down 560 MW Units 1 – 3 • Purchase price: $294 million (sub
Slide 16: Transmission Investment Essential
16 TRANSMISSION INVESTMENT ESSENTIAL Strategic transmission is necessary to maintain reliability and deliver diversified resources to our customers. NAVAJO FOUR • 10-Year Transmission Plan NORTH CORNERS 100 MW (115-kV and above) 970 MW • $550 million of new BAGDAD YOUNGS CHOLLA transmission investme
Slide 17: Pinnacle West: Our Value Proposition
17 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 18: 2012 Retail Rate Case Settlement Key Benefits
2012 RETAIL RATE CASE SETTLEMENT 18 KEY BENEFITS The settlement contains a number of benefits for shareholders and customers. Shareholder Benefits • Regulatory certainty • Base rate stay-out until at least mid-2016 • Rate gradualism through adjustment mechanisms • Financial support APS needs to achi
Slide 19: Rate Case Settlement Key Financial Provisions – Base Rates & Timing
2012 RETAIL RATE CASE SETTLEMENT 19 KEY FINANCIAL PROVISIONS – BASE RATES & TIMING The provisions of the settlement became effective July 1, 2012, as originally requested by APS. Annual Revenue Change Annualized Base Rate Revenue Changes ($ millions) Non-fuel base rate increase $ 116.3 Fuel-related
Slide 20: Rate Case Settlement Key Provisions – Other Than Base Rates
2012 RETAIL RATE CASE SETTLEMENT 20 KEY PROVISIONS – OTHER THAN BASE RATES Other key provisions continue constructive regulatory treatment and limit regulatory lag. • Post test-year plant additions – 15 months’ additions included in rate base • Constructive new or modified adjustment mechanisms • Lo
Slide 21: Pinnacle West: Our Value Proposition
21 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 22: ROE Improvement: A Multi-Pronged Approach
22 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 At least 9.5% annually • Regulatory framework 9% improvements • Cost management initiatives 8% • Efficiency and effecti
Slide 23: Strong Cost Management Focus
23 STRONG COST MANAGEMENT FOCUS Our goal is to keep O&M growth in line with retail sales growth. APS O&M Expense Trends $ Millions 800 • Solid achievements to date • Initiatives 600 • Company-wide benchmarking and evaluations 400 • Workforce attrition opportunities 200 • Knowledge transfer • Process
Slide 24: Effective Cost Management Initiatives
24 EFFECTIVE COST MANAGEMENT INITIATIVES A variety of initiatives have been helping control operating and capital costs. Sustainable Cost Management Initiative Fossil Generation Realignment Palo Verde Unit Production Cost Reductions Enterprise-wide Supply Chain Management Corporate Efficiency Study
Slide 25: Sustainable Cost Management Initiative (SCMI)
25 SUSTAINABLE COST MANAGEMENT INITIATIVE (“SCMI”) Continued success requires a more rigorous, standardized approach to running the business. Motivation Sustainable Changes • Recognize combined challenges Tiered Metrics • Costs • Capital Business Planning • Sales growth • Regulatory stay-out Corpora
Slide 26: Consolidated On-Going EPS Outlook
26 CONSOLIDATED ON-GOING EPS OUTLOOK Our strategies and financial performance are producing earnings growth. On-Going EPS Outlook Through 2015 $4.00 $3.35 – $3.50 $3.45 – $3.60 • 6% rate base growth,* but $3.50 regulatory recovery not perfect $2.99 $3.00 • Adjustment mechanisms provide substantial r
Slide 27: Common Dividend Outlook
27 COMMON DIVIDEND OUTLOOK Our financial results facilitate growing cash returns to our shareholders Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $4.00 $3.50 $3.00 $2.50 $2.18* $2.10 $2.00 $1.50 $1.00 $0.50 $0.00 2011 2012 2013 2014 2015 Projected * Increase effective 4th quarter
Slide 28: Superior Shareholder Returns
28 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 29: Pinnacle West: Our Value Proposition – Delivering Superior Shareholder Returns
29 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors… Delivering Superior Shareholder Returns
Slide 30: Appendix
APPENDIX wee PINNACLE WEST CAPITAL CORPORATION
Slide 31: A Respected, Veteran Leadership Team
31 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 Jim Jim Don Mark Randy Jeff Hatfield Hatfield Robinson Schiavoni Edington Guldner SVP APS EVP EVP & SVP SVP & CFO & CFO Preside
Slide 32: Positive Near-Term Trends
32 POSITIVE NEAR-TERM TRENDS Arizona’s economy is reflecting more sustained growth and activity. Non-Farm Job Growth Metro Phoenix Vacant Housing Year-Over- APS Service Territory Year Change 10.0% 40,000 8.0% 35,000 6.0% 30,000 4.0% 25,000 2.0% 0.0% 20,000 (2.0)% 15,000 (4.0)% 10,000 (6.0)% 5,000 (8
Slide 33: Foreclosure Headwinds Winding Down
33 FORECLOSURE HEADWINDS WINDING DOWN Metro Phoenix home foreclosure sales are the lowest since 2007. Existing Single Family Home Sales Key Trends 120,000 45% 40% • Existing home sales activity 100,000 remains robust 35% • Investor interest peaked in Q1 80,000 30% 2012 25% • 20% of market Q1 60,000
Slide 34: New Home Market Breathing Again
34 NEW HOME MARKET BREATHING AGAIN Metro Phoenix new home construction beginning to see benefits from lower vacancies and higher prices in existing housing. New Home Sales & Single Family Permits Key Trends 30,000 • After three very weak sales 25,000 years, Metro Phoenix new home construction is tur
Slide 35: Positive Near-Term Trends
35 POSITIVE NEAR-TERM TRENDS Housing and non-residential sectors are showing steady improvement. Home Prices Nonresidential Building Vacancy Value Relative to Jan ‘05 Vacancy Rate 175 25% Office 150 20% Industrial 125 15% 100 10% Retail 75 5% 50 0% '05 '06 '07 '08 '09 '10 '11 '12 '05 '06 '07 '08 '09
Slide 36: 2012 On-Going EPS Guidance
36 2012 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of November 9, 2012 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) about $2.13 billion to $2.18 billion • Retail customer growth about 1% • Weather-normalized retail electricity sales volume slig
Slide 37: 2013 On-Going EPS Guidance
37 2013 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of November 9, 2012 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) about $2.20 billion to $2.25 billion • Retail customer growth about 1.5% • Weather-normalized retail electricity sales volume ab
Slide 38: 2012 – 2015 Financial Outlook
38 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of November 9, 2012 • 2012 retail rate settlement effective July 1, 2012 • Revenue provisions • Retail base rate changes effective July 1, 2012 • Adjustment mechanisms • Four Corners acquisition • AZ Sun additions to flow through RES un
Slide 39: 2012 – 2015 Financial Outlook (continued)
39 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of November 9, 2012 (continued) • Modestly improving Arizona and U.S. economic conditions • Retail customer growth to average 2% annually • Weather-normalized retail electricity sales volume growth: • Relatively flat after customer cons
Slide 40: Non-GAAP EPS Reconciliation
40 NON-GAAP EPS RECONCILIATION Consolidated On-Going EPS Guidance Year 2011 Year 2012 Year 2013 Actual Guidance* Guidance* Net income attributable to common shareholders $ 3.09 Less income (loss) from discontinued operations: Real estate (0.01) Energy services business 0.11 On-going EPS $ 2.99 $ 3.3
Slide 41: Ready Access to Capital
41 READY ACCESS TO CAPITAL Strong access to capital resources is supported by solid credit ratings, manageable debt maturities and ample liquidity. 2012 Major Financing Activities APS Long-Term Debt Maturities • $375M APS senior notes refinancing* $ Millions $450 • Remarketing of $32M Maricopa 2009B
Slide 42: Solid Credit Ratings
42 SOLID CREDIT RATINGS Available liquidity remains substantial and our credit ratings have improved. APS Parent Credit Facilities and Liquidity* Corporate Credit Capacity Ratings Borrower ($ Millions) Maturities Moody’s Baa1 Baa2 APS $ 500 Feb. ’15 S&P BBB+ BBB+ APS 500 Nov. ’16 Fitch BBB BBB Senio
Slide 43: S&P Credit Metrics
43 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% 20.8% FFO / Interest 4.1x 5.1x 4.8x 4.6x 4.6X Debt / Capitalization 55.2% 57.4% 56.8% 53.0% 53.0% Pinnacle West FFO / Debt 15.7% 18.0% 18.4% 22.5% 20.3% FFO / Interest 3.
Slide 44: Attractive Dividend Yield
44 ATTRACTIVE DIVIDEND YIELD Pinnacle West’s annual dividend is $2.18 per share — providing a solid yield. Dividend Yield 7% 6% PNW 5% 4% 3% Industry Averages 2% 1% 0% 30% 40% 50% 60% 70% 80% 90% 100% Yield as of November 30, 2012 Dividend Payout Payout 12 Months Ended September 30, 2012 STRENGTHENI
Slide 45: U.S. Nuclear Operating Costs
45 U.S. NUCLEAR OPERATING COSTS Palo Verde operating costs are below industry averages and improving. Dollars per Megawatt-Hour Industry Average Industry Median 2007 2008 2009 2010 2011 2012 Projected STRENGTHENING OUR FINANCIAL PROFILE
Slide 46: Environmental, Sustainability and Governance Leadership
46 ENVIRONMENTAL, SUSTAINABILITY AND GOVERNANCE LEADERSHIP We are recognized internationally for our achievements. Rated 4th Highest Intelligent Ranked on Dow Jones Utility in 2011 North America Sustainability Index since 2005 Environmental Certification Gas/Oil Fleet – 2011 Coal Fleet - 2012 1st ut
Slide 47: Customer Satisfaction: A Key Priority
47 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 700 120 APS 675 100 650 Industry Average 80 625 600 60 575 40 550 20 525 0 500 2007 2008
Slide 48: Superior Power Plant Performance
48 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% 63% 70% Industry 91% 70% 60% 60% 2003 20
Slide 49: 2011 Retail Customer, Sales and Revenue Mixes
49 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 50: 2011 APS Generation and Energy Fuel Mixes
50 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 51: Arizona Corporation Commissioners
51 ARIZONA CORPORATION COMMISSIONERS Three seats for four-year terms through January 2017 were addressed in the November 2012 election. Terms To January 2017 Terms To January 2015 New Commissioners Incumbents Susan Bob Bob Brenda Gary Pierce (R)* Bitter-Smith (R) Burns (R) Stump (R)* Burns (R) Chair
Slide 52: Rate Case Settlement Key Financial Assumptions
2012 RETAIL RATE CASE SETTLEMENT 52 KEY FINANCIAL ASSUMPTIONS Updated rate base, cost of capital and fuel prices underpin the 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) 3.21¢ Projected fuel
Slide 53: 2009 Regulatory Settlement Positioned APS Well Through 2012
53 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 54: 2009 Regulatory Settlement Summary
54 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 55: Our Regulatory Mix
55 OUR REGULATORY MIX The bulk of APS’s revenues comes from a regulated retail rate base and a meaningful transmission business. $6.9 Billion Total Approved Rate Base Most Recent Rate Decisions ACC FERC Rate Effective Dates 7/1/2012 6/1/2012 Test Year Ended 12/31/2010* 12/31/2011 Rate Base $5.7 B $1
Slide 56: Constructive Transmission Rate Regulation
56 CONSTRUCTIVE TRANSMISSION RATE REGULATION We have achieved transmission rate treatment with annual adjustments. • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and certain projections • Retail portion flows through ACC Transmission Cost Adju
Slide 57: Significant Regulatory Progress
57 SIGNIFICANT REGULATORY PROGRESS We have achieved a more supportive regulatory structure and improvements in cost recovery timing. Adopted/ Mechanism Last Adjusted Description Power Supply April 2005 / • Recovers variance between actual fuel and purchased power costs and base fuel rate Adjustor (“
Slide 58: A Well-Balanced Generation Portfolio
58 A WELL-BALANCED GENERATION PORTFOLIO Ownership Net Capacity Fuel / Plant Location Units Dispatch Commercial Ops. Date Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1-3 Base 1986 - 1989 29.1% 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1-3 Base 1962 - 1980 100 647 Four Corners Farmin
Slide 59: Resource Planning for Reliability and Sustainability
59 RESOURCE PLANNING FOR RELIABILITY AND SUSTAINABILITY We will meet future load growth through a balanced resource mix including renewable resources and energy efficiency programs. MW 14,000 Load Requirement 3% Four Corners Transactions, Net Including Reserves 12,000 21% Future Energy Efficiency 24
Slide 60: Four Corners Power Plant Facts & Figures
60 FOUR CORNERS POWER PLANT FACTS & FIGURES Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercial Operation Date 1963 1963 1964 1969 1970 Original Cost ($M) $41 $382 $164 Net Book Value at 6/30/12 ($M) $27 $0 $130 Current Depreciation Ends 2038 Mid-2012 2038 2038 Current Expiration Dates Site Lease J
Slide 61: Arizona's Renewable Resource and Energy Efficiency Standards
61 ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Our programs address Arizona’s aggressive renewable energy 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
Slide 62: AZ Sun Program Summary
62 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 I Phase 1 Hyder, AZ 11 MW SunEdison Oct. 2011 Hyder I Phase
Slide 63: Renewable Purchase Power Contracts
63 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 Svcs IO Jan-2010 2011 25 5 Prescott Prescott, AZ SunEdis
Slide 64: Solana: A "Sunny Place"
64 SOLANA: A “SUNNY PLACE” Solana will provide more than one-quarter of APS’s renewable energy target by 2015. • 250-MW 30-year PPA for all output (~900 GWh/year) • Concentrating solar trough facility 70 miles southwest of Phoenix • On target for 2013 commercial operation • 90%+ on-peak capacity fac
Slide 65: APS Energy Efficiency Initiatives
65 APS ENERGY EFFICIENCY INITIATIVES APS plans to continue increasing customers’ energy efficiency savings. Cumulative Annual Energy Savings Associated with EE/DSM Programs GWh • Portion of lost revenue to be 2,750 recovered through retail rate 2,500 adjustor beginning July 1, 2012 2,250 • Program c
Pinnacle West Capital — Non-Deal Roadshow (December 2012) on 6ix