Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (June 2015)
38 slides from Pinnacle West Capital's roadshow presentation, Jun 24, 2015
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings | June 24-26, 2015 Powering Growth, Delivering Value
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: Pinnacle West: Who We Are
We are a vertically integrated, PINNACLE WEST: regulated electric utility in the WHO WE ARE growing southwest U.S. Pinnacle West (NYSE: PNW) - Market Capitalization*: $6.3 billion - Enterprise Value*: $10.1 billion - Consolidated Assets: $14.3 billion - Indicated Annual Dividend*: $2.38 - Dividend Y
Slide 4: Value Proposition
VALUE PROPOSITION Operational • Top decile ratings in Customer Satisfaction, top quartile in Reliability and Safety • Palo Verde continues record levels of electricity production Excellence • Disciplined cost management Leverage to Economic • Arizona’s long-term growth fundamentals remain largely in
Slide 5: Operational Excellence
OPERATIONAL EXCELLENCE Customer Satisfaction Palo Verde Ranked 5th highest nationally among 54 large investor-owned electric Palo Verde has exceeded its own record for generation–32.3 million utilities in 2014 J.D. Power residential customer survey. megawatt-hours annual production in 2014. Palo Ver
Slide 6: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Home Prices – Metro Phoenix Nonresidential Building Vacancy – Metro Phoenix 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 '13 '14 '15 Jan '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Slide 7: Retail Sales
RETAIL SALES Distributed Generation (DG) Impact • DG makes up 0.5% (or less) of the negative impact to retail sales growth as shown in the chart; equates to approximately 60 GWh out of our total retail sales of over 28,000 GWh • Average residential rooftop solar system produces 10,000 – 12,000 KWh p
Slide 8: Resource Planning
RESOURCE PLANNING* MW Composition of Energy Mix by Resource* 14,000 Load Requirement Including Reserves 2014 12,000 27.7% 9.5% 17.0% 10,000 35.3% Gas Resource Planning 7.5% Requirement 20.1% Coal 8,000 Existing Contracts Nuclear 6,000 RE + DE 2029 15.3% EE 35.0% 4,000 14.7% Existing Owned Resources
Slide 9: Rate Base
APS’s revenues come from a RATE BASE regulated retail rate base and meaningful transmission business APS Rate Base Growth $7.0 Billion Total Approved Rate Base Year-End ACC FERC Generation & Distribution Transmission 17% 83% $2.0 $1.4 Most Recent Rate Decisions ACC FERC Rate Effective Date 7/1/2012
Slide 10: Capital Expenditures
70% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (30%) and depreciation cash flow (40%) $1,332 ($ Millions) $70 Other $1,056 $1,064 $68 $439 $82 Distribution $883 $73 $316 $323 Transmission $191 $242 $101 $2 $1 Renewable $207 $173 Generation $192 $181 $87 $63 $35
Slide 11: Ocotillo Power Plant (Tempe, AZ)
Ocotillo modernization project OCOTILLO POWER will maintain valley grid PLANT (TEMPE, AZ) reliability and increase APS’s generating capacity by 290 MW Existing • Benefits: – Maintains system reliability through retirement of aging steam units – Replacement units meet need for increased portfolio res
Slide 12: Environmental Plan
Regional Haze compliance is the ENVIRONMENTAL PLAN biggest driver of environmental spend over the next few years Cooling Water Mercury and Other Regional Haze / BART Coal Combustion Intake Hazardous Air Pollutants (SCR) Residuals Structures – (ACI + Baghouse) CWA 316(b) MATS compliance by April 2015
Slide 13: Coal Fleet Strategy
APS’s proactive approach to reducing emissions leads to coal’s COAL FLEET STRATEGY expected share of the energy mix being reduced to 17% 7% Percent of Portfolio MWh 15% 10% 15% 20% EE/DR Renewable Energy 35% 35% Natural Gas Coal 17% Nuclear 28% 18% 2014 2029 Emissions • Four Corners: 2013 transactio
Slide 14: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2015 (115 kV and above) – 275 miles of new lines – Includes Hassayampa-North Gila (HANG2) • ~110 miles; 500kV Flagstaff • C
Slide 15: Bright Canyon Energy – Transmission Growth
BRIGHT CANYON ENERGY – TRANSMISSION GROWTH BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities TRANSCANYON A 50/50 Joint Venture formed with BHE U.S. Transmission, subsidiary of Berkshire Hathaway Energy, to pursue transmission WECC opportunities in the western Un
Slide 16: Dividend Growth
Pinnacle West’s annual dividend is DIVIDEND GROWTH $2.38 per share; targeting ~5% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End Dividend Yield 6% PNW 5% 4% $2.38 $2.27 3% Industry Averages $2.18 2% $2.10 1% 0% 30% 50% 70% 90% Dividend Payout 2011 2012 2013 20
Slide 17: 2015 Key Dates
2015 KEY DATES ACC Key Dates Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery E-01345A-11-0224 Jan 15 Net Metering – Quarterly Installation Filings E-01345A-13-0248 Jan 15 Apr 15 Jul 15 Oct 15 Transmission Cost Adjustor E-01345A-11-0224 May 15 Renewable Energy Surcharge
Slide 18: APS Is a Leader in Solar and Rate Design
APS IS A LEADER IN SOLAR AND RATE DESIGN APS Solar Portfolio* APS 2014 Rankings AZ Sun 174 MW PPA • 4th - Cumulative MW by an investor-owned 310 MW utility (805 megawatts) DG 424 MW • 4th - Annual interconnections (7,931), up one spot from last year • 5th - Solar capacity per customer by an investor
Slide 19: Key Dates for Rate Design
KEY DATES FOR RATE DESIGN • Residential demand rates started • Time of Use rates initiated - due to central air conditioning load Early Nearly half of our residential (currently about 10% of customers 1980’s customers are on TOU rates have a rate with a demand charge) • Net metering Technical Worksh
Slide 20: Grid Access Charge Request Is Next Step in Modernizing Rate Design
GRID ACCESS CHARGE REQUEST IS NEXT STEP IN MODERNIZING RATE DESIGN Rate design changes needed to align Rate Design Modernization Steps: fixed costs and revenue • Grid Access Charge filing on April 2, 2015 Costs – APS Revenue – APS – Interim solution Residential Classes Residential Classes (2010) (20
Slide 21: APS Solar Innovation
APS SOLAR Partnering with Arizona solar INNOVATION installers Distributed Generation- Solar Partner Program Related Pilots • Installing 10 MW of APS-owned residential • APS is conducting two DG-related pilots in rooftop solar Phoenix to implement and study various − Equates to approximately 1,500 cu
Slide 22: Residential PV Applications
RESIDENTIAL PV APPLICATIONS Residential DG (MW)- Annual Additions 51 57 44 23 15 19 1,400 64 2009 2010 2011 2012 2013 2014 1,200 1234 1,000 94 47 63 69 84 60 800 88 874 792 62 64 737 45 600 100 34 529 41 969 878 863 400 33 83 803 728 637 654 28 545 450 200 364 346 250 0 Jan 14-Jan 15-Jan2 Feb 14-Feb
Slide 23: AZ Sun Program
Owning solar resources makes sense for our customers and the AZ SUN PROGRAM environment and provides earnings growth potential • Community-scale photovoltaic solar plants to be owned by APS • Constructive rate recovery through RES until included in base rates • Commitments to date: 170 MW, $674 mill
Slide 24: Net Metering
Rooftop solar customers still NET METERING use the grid 24 hours a day TYPICAL GRID INTERACTION FOR ROOFTOP SOLAR • 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
Slide 25: Operational Considerations with Increased Variable Generation
OPERATIONAL CONSIDERATIONS WITH INCREASED VARIABLE GENERATION The grid provides real-time voltage and • Steep ramp rate of backup generation power needed to start air conditioners and • Instant variability other motors loads (for typical AC unit) • Voltage control at distribution level 25 Powering G
Slide 26: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 27: Leadership Team
Our top executives have more than 100 combined years of LEADERSHIP TEAM creating shareholder value in the energy industry Don Brandt Chairman & Chief Executive Officer Jim Mark Randy Jeff Hatfield Schiavoni Edington Guldner EVP & Chief EVP & Chief EVP & SVP Financial Operating Chief Nuclear Public P
Slide 28: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2017 Terms to January 2019 Susan Bob Bob Tom Doug Bitter Smith (R) Burns (R) Stump (R)* Forese (R) Little (R) Chairman * Term limited - elected to four-year terms (limited to two consecutive) 28 Powering Growth, Delivering Value
Slide 29: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Renewable Energy (RES) Requirements Energy Efficiency Requirements • Portion of retail sales to be supplied by • Cumulative savings from energy renewable resources efficiency programs must be equivalent – 5% by 2015* to 22% of annual retai
Slide 30: Regulatory Mechanisms
We have achieved a more REGULATORY supportive regulatory structure MECHANISMS and improvements in cost recovery timing Adopted / Mechanism Description Last Adjusted Power Supply Adjustor April 2005 / • Recovers variance between actual fuel and purchased power costs and (“PSA”) February 2015 base fue
Slide 31: Sustainable Cost Management Ingrained in Business Planning Framework
SUSTAINABLE COST MANAGEMENT INGRAINED IN BUSINESS PLANNING FRAMEWORK Enterprise Process Improvement is current phase of Sustainable Cost Management -- a standardized, systematic approach to determining how to do our work better including documentation, driven by retiring workforce and need to contro
Slide 32: Operations & Maintenance Outlook
OPERATIONS & Targeting to be top quartile in MAINTENANCE peer benchmarking for staffing OUTLOOK ($ Millions) 2015+ Outlook $137 $103 $115 $150 $124 • Goal is to keep O&M per $121 kWh flat • Complete documentation of over 1,800 policies, processes and procedures, including $795 - more than 275 proces
Slide 33: Credit Ratings
CREDIT RATINGS Investment Grade Credit Ratings APS Parent Corporate Credit Ratings Moody’s A2 A3 S&P A- A- Fitch A- A- Senior Unsecured Moody’s A2 - S&P A- - Fitch A - Outlook Moody’s Stable Stable S&P Stable Stable Fitch Stable Stable We are disclosing credit ratings to enhance understanding of our
Slide 34: S&P Credit Metrics
S&P CREDIT METRICS Key credit metrics remain strong 2010 2011 2012 2013 2014 APS FFO / Debt 23.7% 23.6% 27.7% 31.5% 26.6% FFO / Interest 3.3x 4.2x 4.8x 5.6X 5.8x Debt / 52.6% 52.9% 50.7% 47.7% 46.3% Capitalization Pinnacle West FFO / Debt 22.3% 23.0% 26.7% 29.8% 23.6% FFO / Interest 3.1x 3.8x 4.4x 4
Slide 35: Financing
FINANCING Debt Maturity Schedule 2015 Major Financing Activities ($Millions) • $250 million 5-year 2.20% APS senior unsecured notes issued in January $600 2015 • Currently expect up to an additional $500 $325 million of new long-term debt, in addition to refinancing maturing debt $400 – Refinanced $
Slide 36: Generation Portfolio
GENERATION PORTFOLIO* Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 647 COAL Four Corners Farmington, NM 4, 5 Base 1969-1970 63 970 1,932 MW Navajo
Slide 37: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Fuel/Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (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 SOLAR 310 MW
Slide 38: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Paul J. Mountain, CFA Director, Investor Relations Telephone: (602) 250-4952 E-mail: paul.mountain@pinnaclewest.com Chalese Haraldsen Telephone: (602) 250-5643 E-mail: chalese.haraldsen@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 P
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