Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (September 2016)
37 slides from Pinnacle West Capital's roadshow presentation, Sep 14, 2016
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings l September 14, 2016 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: Value Proposition
VALUE PROPOSITION We are executing on our financial and operational objectives … Financial Strength • Consolidated earned ROE more than 9.5% (weather-normalized) through 2016 • Annual dividend growth target of 5%, subject to declaration at Board of Director’s discretion • Strong credit ratings and b
Slide 4: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK August 2, 2016 Gross Margin – Customer Growth and Weather (2016-2018) Assumption Impact Retail customer growth • Expected to average about 2-3% annually • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricity •
Slide 5: Capital Expenditures
CAPITAL Capital expenditures are funded primarily through internally EXPENDITURES generated cash flow $1,307 ($ Millions) $1,205 $83 Other $93 $1,124 $1,057 $81 Distribution $346 $85 $359 Transmission $398 $340 $217 $122 Renewable $1 Generation $107 $201 $139 $201 $1 $103 Environmental(1) $58 $227 $
Slide 6: Resource Planning
ACC adopted revised IRP filing schedule; final IRP due April 2017 RESOURCE PLANNING to allow time to consider impacts of Clean Power Plan MW 14,000 Composition of Energy Mix by Resource* Load Requirement Including Reserves 2016 12,000 26% 11% 10,000 25% 23% Gas Resource Planning 12% 8,000 Requiremen
Slide 7: Economic Indicators
ECONOMIC Arizona and Metro Phoenix remain attractive places to live and do INDICATORS business Job Growth (Total Nonfarm) – Metro Phoenix YoY Change Construction, business services, 5.0% financial services and healthcare adding jobs at a rate above 4% 2.5% Housing construction on pace to have its be
Slide 8: The Grid Is Evolving – Increasingly Dynamic and Complex
THE GRID IS EVOLVING – INCREASINGLY DYNAMIC AND COMPLEX • Grid stability, power quality and reliability remain the core of a sustainable electrical system • APS is at the forefront of utilities designing and planning for the electric grid • Rates need to be modernized to enable advanced technologies
Slide 9: 2016 APS Rate Case
2016 APS RATE CASE Powering Growth, Delivering Value
Slide 10: 2016 APS Rate Case Application
2016 APS RATE CASE APPLICATION • Filed June 1, 2016 • Propose new rates go into effect on July 1, 2017 • Docket Number: E-01345A-16-0036 • Additional details, including filing, can be found at http://www.azenergyfuture.com/rate-review/ Procedural Schedule Staff and Intervenor Direct Testimony (ex ra
Slide 11: 2016 Rate Case Key Financials
APS has requested a rate 2016 RATE CASE increase to become effective KEY FINANCIALS July 1, 2017 Test year ended December 31, 2015 Total Rate Base - Adjusted $8.01 Billion ACC Rate Base - Adjusted $6.77 Billion Allowed Return on Equity 10.5% Capital Structure Long-term debt 44.2% Common equity 55.8%
Slide 12: 2016 Rate Case Key Financials
APS has requested a rate 2016 RATE CASE increase to become effective KEY FINANCIALS July 1, 2017 Overview of Rate Increase ($ in Millions) – Key Components Post-Test Year Plant Additions $ 98.1 Fair Value Increment 51.9 ROE Increase from 10.0% to 10.5% 29.3 Increase due to Changes in Depreciation Sc
Slide 13: 2016 Rate Case Framework
2016 RATE CASE “A Bridge to the Future” FRAMEWORK Rate Case Objectives Focus on Focus on Focus on Focus on Clean Energy Customers Innovation Sustainability • Generate power from • Optimize customer • Prudently invest in new • Achieve an earned diverse portfolio and service and reliability technologi
Slide 14: 2016 Rate Case Summary
2016 RATE CASE SUMMARY Focus on Focus Focus Focus on Clean Energy on Customers on Innovation Sustainability Ocotillo Modernization Residential Rate Design Solar Partners Programs Power Supply Adjustment Project Modernization • Installing 10 MW of • Include environmental • Requesting cost deferral •
Slide 15: APS Cost of Service
Appropriate to place residential APS COST OF SERVICE solar customers into a unique sub-category of customers • Cost of service shows disparities in ratio Percent of Cost to Serve* of allocated costs to provide electric service, and what customer classes pay for the services received 108% • Solar cus
Slide 16: Rate Design Modernization
Rate design that better aligns RATE DESIGN pricing with cost to serve and MODERNIZATION leverages existing platform Focus Area Current State Rate Case Objective Time-of-Use • > 50% of residential customers are on a • Most residential customers on a TOU rate Rates (TOU) TOU rate • On-peak hours from
Slide 17: Rate Design Modernization
Key residential rate proposals RATE DESIGN designed to reduce cost shift MODERNIZATION among customers • Streamlined rate choices for residential Current Proposed customers including combinations of the Customer Bill Customer Bill following: – Reduced kWh charges for variable portion (energy rate) –
Slide 18: Rate Design: A Solid Foundation to Build On
RATE DESIGN: Over 50% of APS residential customers are already on A SOLID FOUNDATION time-of-use rates, including TO BUILD ON 11% on demand rates 100% 75% 50% 25% 0% Standard TOU - Energy TOU - Demand 18 Powering Growth, Delivering Value
Slide 19: Ocotillo Modernization Project and Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT AND FOUR CORNERS SCRs • Included in the 2016 rate case application, APS is requesting Accounting Deferral Orders for two large generation-related capital investments – Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and replacing wit
Slide 20: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 21: Operations & Maintenance Outlook
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages OUTLOOK ($ Millions) $82 $137 $103 $150 $124 $96 $825 - $805 $845 $761 $788 $772 $754 2011 2012 2013 2014 2015 2016E PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by a
Slide 22: Retail Sales Impact from Energy Efficiency and Distributed Generation
RETAIL SALES IMPACT FROM ENERGY EFFICIENCY AND DISTRIBUTED GENERATION Distributed Generation (DG) Impact Annual Retail Sales Growth % • DG makes up 0.5% or less of the negative impact to retail sales growth as shown in the chart • Average residential rooftop solar system produces 10,000 – 12,000 KWh
Slide 23: Dividend Growth
Pinnacle West’s annual dividend is DIVIDEND GROWTH $2.50 per share; targeting ~5% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.50 $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 2017 Projected Future dividends subject to declaration at Board of Dire
Slide 24: Balance Sheet Strength
BALANCE SHEET STRENGTH Debt Maturity Schedule Credit Ratings ($Millions) • A- rating or better at S&P, Moody’s and Fitch $600 2016 Major Financing Activities $500 • Repaid, at maturity, $250 million of 6.25% senior unsecured notes due August 1 $400 • $350 million 30-year 3.75% APS senior unsecured n
Slide 25: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2016 (115 kV and above) – 110 miles of new lines • Also includes: – Delaney-Palo Verde 500kV (2016) Flagstaff – Delaney-Sun
Slide 26: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2017 Terms to January 2019 Bob Bob Andy Tom Doug Burns (R) Stump (R)* Tobin (R) Forese (R) Little (R) Chairman Other State Officials ACC Utility Division Director - Tom Broderick** RUCO Director - David Tenney * Term limited - elected to four-year term
Slide 27: 2016 Key Dates
2016 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery Jan 15 E-01345A-11-0224 Transmission Cost Adjustor May 15 E-01345A-11-0224 Renewable Energy Adjustor Jul 1 E-01345A-16-0238 APS Rate Case Dec 21: Direct Jan 29: NOI Filing Jun 1: Initial fil
Slide 28: Arizona Electric Utilities General Rate Cases
ARIZONA ELECTRIC UTILITIES GENERAL RATE CASES UNS Electric (93,000 customers) Tucson Electric Power Company (415,000 customers) Docket # E-04204A-15-0142 Docket # E-01933A-15-0322 Application Filed May 5, 2015 Application Filed Nov 5, 2015 Hearing (Mar 1 – 24, 2016) Intervenor and Staff Direct Testi
Slide 29: 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 Anno
Slide 30: 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 14% 12% Percent of Portfolio MWh 14% 11% EE 18% RE +DE 26% 36% Gas 25% Coal 14% Nuclear 26% 18% Emissions 2016 2031 • 820 MW of coal has been retired including 560 MW
Slide 31: Water Strategy
APS, and Palo Verde in particular, has provided national and WATER STRATEGY international leadership on the use of reclaimed water for power generation Vision: APS continues to strive for sustainable and cost-effective water supplies for energy production for APS customers. Mission: To execute a str
Slide 32: Residential vs. Utility-Scale Solar
RESIDENTIAL VS. Performance at system peak UTILITY-SCALE SOLAR On August 15th, APS customers hit “peak demand” for 2015 using more than 7,300 MW of electricity Residential Rooftop Solar AZ Sun Utility-Scale Solar 500 7,362 8,000 500 7,362 8,000 6,952 Rooftop Output AZ Sun Output 6,315 System Load Sy
Slide 33: Rooftop Solar Customers Use the Grid 24 Hours per Day
ROOFTOP SOLAR CUSTOMERS USE THE GRID 24 HOURS PER DAY TYPICAL GRID INTERACTION FOR ROOFTOP SOLAR • Customers with rooftop solar systems do not pay for all of the electric services they use • These unpaid costs are then paid by other customers (through higher rates) that can’t have or don’t want sola
Slide 34: Residential PV Applications
Residential DG (MW) Annual Additions RESIDENTIAL PV 44 51 57 74 APPLICATIONS* 15 19 23 2009 2011 2013 2015 1750 1657 1620 1500 1427 1354 1310 1182 1160 1162 1198 1181 1250 1148 1088 1041 1008 939 1000 785 834 871 837 785 717 710 750 610 641 487 683 523 442 500 357 339 249 250 0 Jan Feb Mar Apr May J
Slide 35: Generation Portfolio
GENERATION PORTFOLIO* Plant Location No. of Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 2 Base 1962-1980 100 387 COAL Four Corners Farmington, NM 2 Base 1969-1970 63 970 1,672 MW Navajo Page,
Slide 36: Purchased Power Contracts
PURCHASED POWER CONTRACTS* 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 Sadd
Slide 37: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Paul J. Mountain, CFA General Manager, Investor Relations & Audit Services (602) 250-4952 paul.mountain@pinnaclewest.com Ted Geisler Director, Investor Relations (602) 250-3200 ted.geisler@pinnaclewest.com Chalese Haraldsen (602) 250-5643 chalese.haraldsen@pinnaclewest.co
Pinnacle West Capital — Non-Deal Roadshow (September 2016) on 6ix