Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — UBS Natural Gas, Electric Power and Coal Conference 2010
49 slides from Pinnacle West Capital's conference presentation, Mar 3, 2010
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today UBS Natural Gas, Electric Power and Coal Conference March 3, 2010 0
Slide 2: Forward-Looking Statements
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 a
Slide 3: Non-GAAP Financial Measures
Non-GAAP Financial Measures In this presentation, we refer to “on-going earnings,” which is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We view on-going earnings as an important performance measure of the core profitability of our operations. We believe on-going earnings
Slide 4: PNW: Our Value Proposition
PNW: Our Value Proposition We Are A Capitalizing on Green Company Attractive Fundamentals Abundant solar conditions Vertically integrated in Arizona electric utility Other renewables High growth service territory Nuclear expansion option Diversified energy mix Transmission expansion De
Slide 5: Who We Are
Who We Are At our core, we are an electric utility. NYSE Ticker: PNW Market Cap: $4 Billion Enterprise Value: $7 Billion Assets December 31, 2009 Vertically Integrated Electric Utility $11.5 Billion $12 Billion Real Estate Developer $147 Million Competitive Energy Services Provider $74 Million Ventu
Slide 6: 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 7: APS Continually Ranks in Top Quartile in Business Customer Satisfaction
APS Continually Ranks in Top Quartile in Business Customer Satisfaction Our employees take pride in providing top-tier customer service. Lowering Average Annual Outage Time Outstanding Business Per Customer Customer Satisfaction Rating Outage Rating Minutes/Year 725 125 700 APS Industry Average 100
Slide 8: Palo Verde: Energy Cornerstone of the Southwest
Palo Verde: Energy Cornerstone of the Southwest One of the top nuclear industry performers for more than a decade, Palo Verde is back on track toward top performance. Capacity Factors Accomplishments & Goals 100% NRC returned plant to routine inspection and oversight March 2009 Industry 88% 20-y
Slide 9: Superior Fossil Generation Performance
Superior Fossil Generation Performance Our coal plants are consistently strong performers. Capacity Factors 100% Solid 2009 capacity factors Four Corners: 88% APS Cholla: 77% 82% Performance Drivers: 75% Industry 73% Conservative operating practices Highly experienced plant management
Slide 10: 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 11: Arizona's World-Class Solar Potential
Arizona’s World-Class Solar Potential We intend to make Arizona the “Solar Capital of the World.” Solar Insolation Comparison (kWh/year) Germany - among countries with highest installed capacities despite Seattle-like weather conditions Japan’s solar Germany insolation comparable to Florida Japan Ar
Slide 12: APS Major Renewables Projects
APS Major Renewables Projects APS’ commitment to renewables remains strong. Retail regulatory settlement provisions • 1.7 million MWh additional generation in service by end of 2015 • Photovoltaic solar projects • Arizona wind projects • Rate recovery through Renewable Energy Surcharge adjustor, Pow
Slide 13: Multi-Pronged Approach to ROE Improvement
Multi-Pronged Approach to ROE Improvement We are actively working to improve our return on equity. Electricity Electricity Rate Rate Increases Increases Regulatory Regulatory Framework Framework Improvements Improvements ROE Goal Improvement Cost Cost Savings Savings Initiatives Initiatives Efficien
Slide 14: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement The regulatory settlement has a number of benefits from investors’ perspective. Increased retail base rates effective January 1, 2010 Strengthens APS’ earned ROE and financial condition and supports common dividend Provides greater level of cost recovery
Slide 15: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement Settlement provisions include earnings support until next rate case. 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 Pension and OPEB defe
Slide 16: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement An expedited process has been agreed upon for future rate cases to reduce processing regulatory lag. • Settling parties intend to process future cases within 12 months of sufficiency findings • APS may file general base rate cases on or after June 1, 2011 and J
Slide 17: Opportunities to Continue Improving Regulatory Dialogue
Opportunities to Continue Improving Regulatory Dialogue Regulatory framework Customers and processes State economic vitality APS Federal and state energy policy Creating a ACC Sustainable Long-term resource plan Energy Future Communities Environmental stewardship for Arizona Governor & Legislature O
Slide 18: 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 $ Billions 1,400 10 1,200 th Rate l G row nua 8 n d An 1,000 Generation om po u 6% C Transmission 6 800 Distribu
Slide 19: Adequate Liquidity and Financing Access
Adequate Liquidity and Financing Access Dec. 31, 2009* Est. 2010 Cash Credit Facilities* Available Liquidity Sources & Uses $ Millions Capacity 2,250 Borrower ($ Millions) Matures APS $ 489 Sep. ’11 2,000 APS 500 Feb. ’13 Cushion 1,750 PNW 200 Feb. ’13 $848 $1,189 1,500 Liquidity 1,250 Cash Availabl
Slide 20: Consolidated EPS Summary Year 2009 vs. Year 2008
Consolidated EPS Summary Year 2009 vs. Year 2008 Reported On-Going Per Share Per Share $2.50 $2.40 $2.50 $2.36 $2.33 $2.00 $2.00 $1.50 $1.50 $1.00 $1.00 $0.67 $0.50 $0.50 $0.00 $0.00 2009 2008 2009 2008 * See non-GAAP reconciliation in the Appendix. 19
Slide 21: Consolidated On-Going EPS Guidance
Consolidated On-Going EPS Guidance 2010 – 2011 As of February 19, 2010 2010 $2.95 - $3.10 per share 2011 Estimated to be within guidance range provided for 2010, with some opportunity for modestly exceeding the range 20
Slide 22: Cost Savings To Support Future Results
Cost Savings To Support Future Results Our cost management efforts will help improve financial results beyond those achievable through proposed regulatory decisions. Enterprise-wide emphasis Better leverage technology Optimize assets Cost and resources Savings Effective, efficient execution Engaged,
Slide 23: Top-Tier Dividend Yield
Top-Tier Dividend Yield Pinnacle West’s annual dividend is $2.10 per share. 10% 8% 5.7% 5% 4.5% 3% 2.1% 0% Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, 2008 2009 2009 2009 2009 PNW Electric Utility Average S&P 500 Index 22
Slide 24: PNW: Our Value Proposition
PNW: Our Value Proposition We Are A Capitalizing on Green Company Attractive Fundamentals Delivering Superior Shareholder Returns Strengthening Compelling Capital Financial Investment and Risk Profiles Opportunities Improving Regulatory Environment 23
Slide 25: Appendix
oe PINNACLE WEST CAPITAL CORPORATION Appendix
Slide 26: 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 27: 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 0.6% in 2009 1% average annual growth expected through 2011 3-4% historical average –
Slide 28: Consolidated On-Going EPS Guidance 2010 Key Factors and Assumptions
Consolidated On-Going EPS Guidance 2010 Key Factors and Assumptions • APS earnings to comprise nearly all of on-going consolidated earnings • Normal weather patterns for year • Implementation of APS’ retail regulatory settlement effective January 1, 2010 • Retail customer growth of about 1% • Weathe
Slide 29: Non-GAAP EPS Reconciliation
Non-GAAP EPS Reconciliation Year 2009 vs. Year 2008 2009 2008 Change EPS per diluted share as reported $ 0.67 $ 2.40 $ (1.73) Adjustments: Real estate segment 1.66 0.26 1.40 Income tax credits related to prior years - (0.30) 0.30 Severance costs - 0.08 (0.08) Plant sale tax resolution - (0.08) 0.08
Slide 30: 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 29
Slide 31: 2009 Retail Customer, Sales And Revenue Mixes
2009 Retail Customer, Sales And Revenue Mixes Customers Retail Operating Year-End Sales Revenues 1.1 Million 28,173 GWh $3.0 Billion 89% 47% 45% 50% 43% 11% 8% 6% Residential Commercial Industrial Other 30
Slide 32: 2009 APS Generation and Energy Fuel Mixes
2009 APS Generation and Energy Fuel Mixes Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 34,514 GWh 27,374 GWh 6,288 MW 36% 46% 28% 17% 32% 54% 26% 18% 21% 22% Nuclear Coal Gas & Oil Purchased Power 31
Slide 33: 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) 32
Slide 34: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement The retail revenue increases total $230 million in 2010 and will improve APS’ financial condition. Rates effective January 1, 2010 Annualized base rate revenue increases ($ millions): Non-fuel $ 196 Net fuel-related 11 Net increase $ 207 Allowed ROE (%) 11 Equi
Slide 35: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement Other key provisions add financial value for APS and benefits for other stakeholders. Key non-revenue financial provisions: • $30 million annual cost reduction in 2010 to be sustained through 2014 • Pension and OPEB cost increases to be deferred in 2011 and 201
Slide 36: Key ACC Regulatory Proceedings
Key ACC Regulatory Proceedings Case Description Docket Number 2008-2009 General Retail Rate Case Settlement approved effective January 1, 2010 E-01345A-08-0172 2008 Interim Rate Approval APS received $65.2 million interim base rate surcharge E-01345A-08-0172 effective January 1, 2009 until new baser
Slide 37: Significant Regulatory Progress Since 2005
Significant Regulatory Progress Since 2005 We have made progress toward 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 co
Slide 38: Constructive Transmission Rate Regulation
Constructive Transmission 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 (TCA) Adjusted annually with 10.75% allowed ROE • T
Slide 39: 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 1/1/2010 6/1/2009 16% 16% Test Year Ending 12/31/2007 12/31/2008 Generation & Distribut
Slide 40: 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 Base Rates 1,000 Other** 500 0 2004 2005
Slide 41: Renewable Resource Obligations
Renewable Resource Obligations APS is committed to renewable energy well in excess of the State’s requirements. APS retail regulatory settlement provisions 1.7 million MWh additional generation or savings to be in service by end of 2015 New resources to be in addition to resources and commitment
Slide 42: 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 43: Proposed AZ Sun Program
Proposed AZ Sun Program APS plans to add 100 megawatts of owned solar photovoltaic generation by the end of 2014. • 100 MW of photovoltaic solar plants to be owned by APS • Estimated $500 million capital investment • To be placed into service in 2011 through 2014 • Size and timing to be determined t
Slide 44: Community Power Project – Flagstaff, Arizona
Community Power Project – Flagstaff, Arizona APS’ innovative pilot project encourages distributed renewable resources, integrated with smart grid technology. 200 to 300 rooftop solar photovoltaic systems on single feeder 1.5 to 2 MW of distributed generation APS-owned 4 weather stations in roo
Slide 45: A Well-Balanced Generation Portfolio
A Well-Balanced Generation Portfolio` Commercial Ownership / Net Capacity Fuel / Plant Location Units Dispatch Ops. Date Operator Interest 1 (MW) Nuclear Palo Verde Wintersburg, AZ 1,2,3 Base 1986 - 1989 APS 29.1 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1,2,3 Base 1962 - 1980 APS 100 64
Slide 46: Renewable Contracts Provide Bridge
Renewable Contracts Provide Bridge COD/ Developer/ Expected Term Capacity * Fuel / Contract Location Operator Status PPA Signed COD (years) (MW) Solar Solana (CSP Trough) Gila Bend, AZ Abengoa AD Feb-2008 2013 30 280 Total Solar 280 Wind Aragonne Mesa Santa Rosa, NM Bluearc Mgmt. Group IO Dec-2005 D
Slide 47: Recognized as One of America's Greenest Companies
Recognized as One of America’s Greenest Companies Newsweek ranked Pinnacle West 13th best among U.S. utilities. 46
Slide 48: Environmental, Sustainability and Technology Leadership
Environmental, Sustainability and Technology Leadership We have been recognized internationally for our achievements. Edison Electric Institute’s Dow Jones Global 100 Most Sustainable 2008 Top Industry Award Sustainability Index Corporations in World (Technical Innovation) Social Responsibility Repo
Slide 49: 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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