Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Barclays Capital CEO Energy/Power Conference 2009
50 slides from Pinnacle West Capital's conference presentation, Sep 10, 2009
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today Barclays Capital CEO Energy/Power Conference September 10, 2009
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements based on current expectations, and neither Pinnacle West nor APS assumes any obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forwa
Slide 3: Who We Are
Who We Are At our core, we are an electric utility. NYSE Ticker: PNW Market Cap: $3 Billion Enterprise Value: $7 Billion Assets June 30, 2009 Vertically Integrated Electric Utility $11.3 Billion $12 Billion Real Estate Developer $292 Million Competitive Energy Services Provider $75 Million Venture I
Slide 4: A Leadership Team of Industry Veterans
A Leadership Team of Industry Veterans Our top executives have more than 160 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Jim Steve Don Mark Randy Dave Hatfield Wheeler Robinson Schiavoni Edington Falck SVP & EVP APS SVP EVP & EVP, CFO Customer Presi
Slide 5: PNW: Our Value Proposition
PNW: Our Value Proposition Delivering Superior Shareholder Returns • Vertically integrated electric utility Capitalizing on • High growth service territory Attractive • Diversified energy mix Fundamentals • Operational excellence • Strong, energetic leadership • Distribution system growth Compelling
Slide 6: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement The proposed settlement has a number of benefits from investors’ perspective. Strengthens APS’ financial condition and supports common dividend Provides greater level of cost recovery and return on investment Demonstrates cooperation
Slide 7: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement The proposed revenue increases total $230 million in 2010 and will improve APS’ financial condition. Proposed APS Settlement Request Base Retail Rates – Annualized revenue increases ($ millions): Non-fuel $ 196 $ 264 Net fuel-related 11 14
Slide 8: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement The settling parties have agreed to expedite processing future rate cases and to other non-financial provisions. Future rate case process APS to file general base rate cases on or after June 1, 2011 and June 1, 2013 Base rate increas
Slide 9: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement The proposed schedule should allow a final decision by year-end 2009. Term sheet filed May 4, 2009 Definitive settlement agreement filed June 12, 2009 Supporting parties’ testimony due July 1, 2009 Opposing parties’ testimony due July 22,
Slide 10: Opportunities to Build on Improving Regulatory Dialogue
Opportunities to Build on Improving Regulatory Dialogue State economic vitality Customers Federal and state energy policy APS Long-term resource plan Creating a ACC Sustainable Solar and renewables Energy Future Communities Environmental stewardship for Arizona Governor & Legislature Other Stakehold
Slide 11: Positive Long-Term Demographics
Positive Long-Term Demographics Arizona has ranked in the top five for population growth over the last 20 years. In spite of economic slowdown, APS expects 55% customer growth by 2025. Superior Historical Growth APS Customer Growth Annual Growth Millions 6% 2.0 1.7 5% 55% 1.5 4% 1.1 3% 1.0 2% 0.5 1%
Slide 12: A Balanced and Strategic Resource Plan
A Balanced and Strategic Resource Plan We have competitive advantages to capitalize on renewable and nuclear resources to provide a diversified energy mix. Energy Mix (MWh) 100% Renewables & EE Renewables Abundant solar resources in Arizona & Energy High customer interest and incentives Natural
Slide 13: Renewable Energy Rises With the Sun
Renewable Energy Rises With the Sun We intend to make Arizona the “Solar Capital of the World.” Solar Insolation Comparison (kWh/year) Germany - one of countries with highest installed capacities despite Seattle-like weather conditions Japan’s solar insolation is Germany comparable to Florida, ranke
Slide 14: Arizona: Solar Hot Spot
Arizona: Solar “Hot Spot” With Solana and Starwood Solar I, APS will provide more solar electricity per customer than any other U.S. utility. Solana Starwood Solar I Capacity (Gross MW) 280 290 70 miles southwest 75 miles west Location of Phoenix of Phoenix (Gila Bend) (Harquahala Valley) Planned Co
Slide 15: Transmission Investment is Key
Transmission Investment is Key Strategic investment is needed to maintain reliability and bring diversified resources to our customers. NAVAJO NORTH 100 100 MW MW FOUR CORNERS 10-Year Transmission Plan: $1 billion of new 970 MW transmission investment Over 280 miles of new lines Increases im
Slide 16: Progressive Federal Rate Regulation
Progressive Federal Rate Regulation We have achieved constructive transmission rate treatment. FERC Formula Rates adopted in 2008 Based on FERC Form 1 and certain projections Retail portion flows through ACC Transmission Cost Adjustor Adjusted annually with 10.75% allowed ROE 2009 FERC For
Slide 17: Palo Verde: Energy Cornerstone of the Southwest
Palo Verde: Energy Cornerstone of the Southwest The envy of the nuclear industry for more than a decade, Palo Verde is back on track toward top performance. Capacity Factors Accomplishments & Goals 100% March 2009 NRC returned plant to routine inspection and oversight Industry 88% December 2008
Slide 18: Continuing Superior Operating Performance
Continuing Superior Operating Performance Our coal plants are consistently strong performers. Capacity Factors Solid capacity factors 100% (12 months ended June 30, 2009) Four Corners: 89% APS Cholla: 82% 84% Performance Drivers: 75% Industry 73% Conservative operating practices Rigorous
Slide 19: APS Continually Ranks in Top Quartile in Residential Customer Satisfaction
APS Continually Ranks in Top Quartile in Residential Customer Satisfaction Our employees take pride in providing top-tier customer service. Lowering Average Annual Outage Time Outstanding Residential Per Customer Customer Satisfaction Rating Outage Rating Minutes/Year 700 125 675 APS APS Industry 10
Slide 20: APS CapEx Drives Strong Rate Base Growth
APS CapEx Drives Strong Rate Base Growth We have reduced capex based on current slowed growth – yet still expect strong rate base growth. APS Capital Expenditures APS Rate Base $ Millions 1,200 $ Millions th Rate 8,000 l G row a nn u ou nd A 1,000 Comp 5% Generation 6,000 800 Transmission 600 4,000
Slide 21: Adequate Liquidity Resources
Adequate Liquidity Resources We have sufficient liquidity and access to credit. June 30, 2009 Est. 2009 Cash Credit Facilities Available Liquidity Sources & Uses $ Millions Capacity 1,600 Borrower ($ Millions) Matures PNW $ 283 Dec. ’10 1,400 APS 377 Dec. ’10 Cushion Cash* APS 489 Sep. ’11 1,200 $40
Slide 22: Cost Savings Initiatives Underway
Cost Savings Initiatives Underway Engaged and highly motivated workforce Supply Chain Transformation Process Effective and • Collaborative, enterprise- efficient execution wide process • New technology platform Better leverage • Common performance metrics technology • Significant annual savings expe
Slide 23: Impacts of SunCor Restructuring
Impacts of SunCor Restructuring Our plan maximizes the value of SunCor’s remaining assets and eliminates its outstanding debt. Eliminate SunCor’s debt Produce $80 million of cash tax benefits (estimated to be IDAHO Boise received late 2010) Reduce pretax G&A burn from $44 million in 2008 to ne
Slide 24: 2009 - 2010 Earnings Guidance
2009 - 2010 Earnings Guidance As of August 4, 2009 We estimate our consolidated EPS will be within a reasonable range around $2.30 in 2009 and $3.00 in 2010. Guidance Estimates* Key Assumptions 2009 2010 2009 APS $ 2.35 $ 3.00 • Full-year interim base rates Parent and all • No additional other, net
Slide 25: Top-Tier Dividend Yield
Top-Tier Dividend Yield Pinnacle West’s annual dividend is $2.10 per share. 10% 8% 6.6% 5% 5.0% July 31, 2009 3% 0% Jul. 31, Sep. 30, Dec. 31, Mar. 31, Jun. 30, 2008 2008 2008 2009 2009 PNW Electric Industry Average 24
Slide 26: PNW: Our Value Proposition Delivering Superior Shareholder Returns
PNW: Our Value Proposition Capitalizing on Attractive Fundamentals Delivering Superior Compelling Capital Shareholder Returns Investment Opportunities $2.10 per share annual dividend Investment-grade credit ratings Improving Regulatory Environment Adequate liquidity and access to capital Con
Slide 27: Appendix
oe PINNACLE WEST CAPITAL CORPORATION Appendix
Slide 28: Investment-Grade Credit Ratings
Investment-Grade Credit Ratings Ratings Pinnacle West APS Senior Unsecured Debt Moody’s Baa3 Baa2 S&P BB+ BBB- Fitch - BBB Outlook Moody’s Stable Stable S&P Stable Stable Fitch Negative Stable Commercial Paper Moody’s P3 P2 S&P A3 A3 Fitch F3 F3 27
Slide 29: Managing Costs and Efficiency
Managing Costs and Efficiency We are focused on reducing costs and mitigating volatility exposure. Long-term Coal & Nuclear Fuel Supply Contracts Hedging Program APS manages price volatility risk for fuel and power purchases through rolling 36-month hedge Workforce Reduction About 550 posi
Slide 30: Arizona's Largest and Longest-Serving Electric Utility
Arizona’s Largest and Longest-Serving Electric Utility Serving Arizona customers since 1887 – 15 years before statehood. Service Territory 1.1 million customer accounts 34,646 square miles Customer Growth 1.4% in 2008 1% average annual growth expected through 2011 3-4% historically – well
Slide 31: 2008 Retail Customer, Sales And Revenue Mixes
2008 Retail Customer, Sales And Revenue Mixes Customers Retail Operating Year-End Sales Revenues 1.1 Million 28,794 Gwh $2.9 Billion Residential Commercial Industrial Other 30
Slide 32: Arizona Corporation Commissioners
Arizona Corporation Commissioners Terms Through January 2011 Kristin Mayes Gary Pierce (Rep) Chairman (Rep) Elected November 2008, Terms Through January 2013 Sandra Kennedy (Dem) Paul Newman (Dem) Bob Stump (Rep) 31
Slide 33: Influencing National Energy Policies
Influencing National Energy Policies We are actively working with our Regulators and Legislators on initiatives important to the industry. • Stimulus Package Tax Provisions • Solar projects under construction by end of 2010 and in service by end of 2016 • Treasury Grant: 30% of capital cost; at co
Slide 34: ACC Approved Interim Rates
ACC Approved Interim Rates The interim rate decision supports APS’ financial strength while providing customers rate stability. Approved by ACC December 18, 2008 Base rate surcharge effective until general rate case decision $65.2 million annual pretax retail revenues Effective for customer
Slide 35: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement Other key financial provisions add value to the proposed settlement terms. Expense Reduction Commitment Beginning in 2010, identify additional $10 million pretax expense reductions above $20 million identified March 2009 $30 million
Slide 36: Retail Rate and Financial Stability Plan Proposed Settlement
Retail Rate and Financial Stability Plan Proposed Settlement Other key financial provisions add value to the proposed settlement terms. Palo Verde Life Extension Extension of operating licenses to 60 years from 40 years requested December 2008 • Process expected to take about two years Effecti
Slide 37: Our Regulatory Mix
Our Regulatory Mix The bulk of APS’ revenues come from our regulated retail rate base; we also have a meaningful transmission business. Most Recent Rate Decisions ACC FERC Transmission Transmission Effective Date 7/1/2007 6/1/2009 20% 20% Test Year Ending 9/30/2005 12/31/2008 Generation Generation &
Slide 38: APS Revenues by Recovery Mechanisms
APS Revenues by Recovery Mechanisms We have received supportive regulatory decisions providing more timely recovery. Regulated Electricity Revenue Test Year by Recovery Mechanism Historical Forecasted $ Millions 3,500 3,000 PSA 2,500 TCA RES 2,000 DSM* 1,500 EIS* 1,000 Base Rates 500 Other** 0 2004
Slide 39: Significant Regulatory Progress Since 2005
Significant Regulatory Progress Since 2005 We have made progress towards a supportive regulatory structure and improvement in the timing of cost recovery. Adopted / Mechanism Last Adj. Description Power Supply Adjustor April 2005 / Recovers 90% of variance between actual fuel and purchased power c
Slide 40: Key ACC Regulatory Proceedings
Key ACC Regulatory Proceedings Case Description Docket Number 2008 General Rate Case Announced settlement May 4, 2009. E-01345A-08-0172 Hearings in progress. 2008 Interim Rate Approval As part of 2008 rate request, APS received $65.2 million interim base E-01345A-08-0172 rate surcharge effective Jan
Slide 41: Transmission Revenue Increases
Transmission Revenue Increases 1st Increase 2nd Increase 3rd Increase Annual Effective Annual Effective Annual Effective Revenue Date Revenue Date Revenue Date Retail Portion (TCA) $27M 3/1/2008 $13M 7/3/2008 $21M 8/1/2009 Wholesale Portion $ 1M 3/1/2008 $ 2M 6/1/2008 $ 2M 6/1/2009 Total Increase $2
Slide 42: Our Natural Gas Fleet Provides Flexibility
Our Natural Gas Fleet Provides Flexibility A flexible and cost-effective natural gas fleet helps us diversify our energy mix and deliver electricity when it’s needed most. Efficient Intermediate Fleet Peaking Fleet Provides Flexibility* There When We Need Them Capacity Availability Factor Factor 100
Slide 43: Planning for New Energy Resources
Planning for New Energy Resources Tomorrow’s energy needs require a flexible and responsive approach to changing industry dynamics. MW 13,000 11,500 10,000 8,500 Resource Resource planning planning fills fills the the gap gap 7,000 5,500 4,000 2,500 1,000 2009 2011 2013 2015 2017 2019 2021 2023 2025
Slide 44: A Diversified, Balanced Resource Plan
A Diversified, Balanced Resource Plan 43
Slide 45: Solana: A Sunny Place
Solana: A “Sunny Place” Solana will generate enough clean, renewable electricity to meet the needs of about 70,000 Arizona homes. 280-MW concentrating solar trough 30-year PPA for all output (~900 GWh/year) Planned commercial operation in 2013 Near existing transmission lines 70 miles sout
Slide 46: Starwood Solar I: A Major Resource
Starwood Solar I: A Major Resource Starwood Solar I is another meaningful step in making Arizona the “Solar Capital of the World.” 290 MW concentrating solar trough 30-year PPA for all output Planned commercial operation in 2013 75 miles west of Phoenix Thermal storage capability To be o
Slide 47: A Well-Balanced Generation Portfolio
A Well-Balanced Generation Portfolio` Com mercial Ow nership / N et C apacity 1 Fuel / Plant Location Units Dispatch O ps. Date Operator Interest (M W ) N uclear Palo Verde W intersb urg, AZ 1,2,3 Base 1986 - 1989 APS 29.1 1,147 Total Nuclear 1,147 C oal Cholla Joseph City, AZ 1,2,3 Base 1962 - 1980
Slide 48: Renewable Contracts Provide Bridge
Renewable Contracts Provide Bridge COD/ Developer/ Expected Term Capacity, Net * Fuel / Contract Location Operator Status PPA Signed COD (years) (MW) Solar Solana (CSP Trough) Gila Bend, AZ Abengoa AD Feb-2008 2013 30 280 Starwood Solar I (CSP Trough) Harquahala, AZ Starwood Energy/ AD May-2009 2013
Slide 49: Environmental, Sustainability and Technology Recognition
Environmental, Sustainability and Technology Recognition • Innovest’s highest rating (AAA) and ranked #2 electric utility • Dow Jones Sustainability Index • Global 100 Most Sustainable Corporations in World by Corporate Knights • Storebrand’s Social Responsibility Index “best in class” distinction •
Slide 50: Employee Innovation Supports Customer Reliability
Employee Innovation Supports Customer Reliability We’re not just an energy company, we embrace technological innovation in our industry. Recipient of 2008 EEI Award 27 U.S. patents issued since 1997 State-of-the-art solar technology advancements Underground piping system inspections & maintena
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