Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Presentation (October 2001)
54 slides from Pinnacle West Capital's investor presentation, Oct 23, 2001
Slide 1: Managing in Changing Environments
wee ~~ PINVACLEWEST CAPITAL GORFORATION = Managing in Changing Environments Analyst Presentations Boston and New York October 23-24, 2001 @ 2001 Pinnacle West Capital Cor
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements based on current expectations and the company assumes no obligation to update these statements. Because actual results may differ materially from expectations, the Company cautions readers not to place undue reliance on
Slide 3: Strategic Overview
Strategic Overview e Build superior value for shareholders e Capturing growth opportunities — Intrinsic growth in delivery business — Meeting energy needs in the West — Shaping market development in the West e Operational excellence e Risk management e Regulatory environment and developments e Gener
Slide 4: Shaping Ongoing Market Development in Arizona and the West
Shaping Ongoing Market Developmen in Arizona and the West > - @ 2001 Pinnacle West Capital Corporation Competitive generation: Distinctive, independent markets Interstate transmission Market structure Legislative and regulatory influences
Slide 5: Volatility Managed with Hedging
Volatility Managed with Hedgin Retail Load Fuel and Purchased Power $ Millions 600 1Q 2Q 3Q 4Q 19 2Q 3Q 2000 2001 WActual with hedge Without hedge based on prices when used Without hedge based on prices 90 days before used @ 2001 Pinnacle West Capital Corporation
Slide 6: 2001 Regulatory Plan Overview
2001 Regulatory Plan Overview
Slide 7: 2001 Regulatory Plan: Components
2001 Regulatory Plan Components No change to 1999 regulatory settlement Provides energy reliability for delivery business customers Strengthens regional competitive generation market Provides mix of long-term and short-term revenue for generation business Transitions generation assets into competiti
Slide 8: 2001 Regulatory Plan: Contract Paths
2001 Regulatory Plan Contract Paths PNW Energy Contracts a “we Wholesale Market @ 2001 Pinnacle West Capital Corporation
Slide 9: 2001 Regulatory Plan: Major Provisions
2001 Regulatory Plan Major Provisions e Purchase power agreement between APS and Pinnacle West Capital — APS full requirements — 2004 through 2015 — Pricing (after 2004) « Cost-based facilities charge, adjusted every three years, to recover fixed generation costs including 11.25% ROE on regulated co
Slide 10: 2001 Regulatory Plan: Major Provisions (continued)
2001 Regulatory Plan Major Provisions (continued) e Generation transfer by end of 2002 — Fossil plants — Nuclear assets « Competitive bidding requirements for APS . — Variance from 50% bidding requirement in ACC electric competition rules = 270 MW of load to be bid in 2003 — Annually in 2004-2008, a
Slide 11: 2001 Regulatory Plan: Major Provisions (continued)
2001 Regulatory Plan Major Provisions (continued) e Resources available to Pinnacle West Capital to meet APS requirements ~ Dedicated generating assets of Pinnacle West Energy — Competitively-bid power and, if assignable, existing long-term power purchase agreements @ 2001 Pin
Slide 12: 2001 Regulatory Plan: Key Steps & Target Dates
2001 Regulatory Plan Key Steps & Target Dates e Filing with ACC Oct. 2001 e ACC approval of variance request Jan. 2002 and purchase power agreement e FERC acceptance of: Mar. 2002 — APS/Pinnacle West Capital purchase power agreement - Pinnacle West Energy/ Pinnacle West Capital contract e Generation
Slide 13: Generation Overview
Generation Overview @ 2001 Pinnacle West Capital Corporation
Slide 14: Top-Tier Power Plant Performance
Pinnacle West Top-Tier Power Plant.Performance Palo Verde Capacity Factor 100% PNW 90% 80% 70% 75.5% National 60% Average 50% + Coal Plants Capacity Factor 100% PNW 83.4% 90% 80% 70% 70.0% National Average 60% yag0 1995 1999 2000 Aug 2001 50% + qggo 1995 1999 2000 Aug 2001 @ 2001 Pinnacle West Capit
Slide 15: Growing Generation Capability
Pinnacle West Growing Generation Capability Commercial _— Operation 3 Fare ia New Facilities MW Reliability Merchant 2001 West Phoenix 4 120* 4 2002 Redhawk1&2 ~~ 4,060 v 2002 Saguaro CT 4 80 v 2003 West Phoenix 5 530 v 2004 Silverhawk 427" v 2005 Redhawk 3 530 v 2006 Redhawk 4 530 v * In service Ju
Slide 16: Generation Operating Strengths
Pinnacle West Generation Operating Strengths e Among largest generators in the West e Fuel diversity and dependency e Production cost very competitive e Nuclear production - 9 consecutive years top in the nation e Long-term, low -cost coal contracts e Plant reliability better than industry average e
Slide 17: Energy Delivery and Sales
Energy Delivery and Sales @ 2001 Pinnacle West Capital Corporation
Slide 18: Agenda
Agenda e« Western U.S. power market issues e Power marketing and trading — Hedging — Marketing and trading e APS regulated delivery @ 2001 Pinnadt
Slide 19: Western U.S. Power Market Issues
Western.U.S. Power Market Issues @ 2001 Pinnacle West Capital Corporation
Slide 20: FERC Activity
FERC Activity e Wholesale electricity price caps e California refunds e Northwest refunds @ 2001 Pinnadt
Slide 21: Effect of FERC Electricity Price Caps
Effect of FERC Electricity Price Caps Palo Verde On-Peak Prices (Quarterly Averages) $iMWwh 250 200 150 400 3) . es 1Q 2Q 3Q 4Q 10 2Q 3Q 4Q 1Q 2Q 3Q 4Q 10 2Q 30 4Q 1999 2000 2001 2002 Actual Estimated* > Based on forward prices as of 10/10/01 @ 2001 Pinnacle West Capital Corporation
Slide 22: Regional Transmission Organizations (RTO)
Regional Transmission Organizations (RTO) « FERC actions e Western perspectives e Arizona Corporation Commission perspective e APS a leader @ 2001 Pinnadt
Slide 23: Cheyenne Light,
Cheyenne Light, Fuel & Power Co. utlicorp United, Ine. Arizona Public Service Co. @ 2001 Pinnacle West Capital Corporation
Slide 24: Power Marketing & Trading
Pinnacle West Power Marketing & Trading @ 2001 Pinnacle West Capital Corporation
Slide 25: Power Marketing & Trading
Pinnacle West Power Marketing & Trading Hedging Electricity and Gas Needs Wholesale Sales and Trading q @ 2001 Pinnadt
Slide 26: Hedging Techniques
Hedging Techniques e Electricity — Forward Contracts — Options — Basis Swaps e Natural Gas — NYMEX Futures Contracts — Basis Swaps — Swing Options @ 2001 Pinnadt
Slide 27: Enterprise Electric Hedge Strategy
Enterprise Electric Hedge Strate: 2001 2002 Existing Resources m New Generation @ Hedge & Reliability @ 2001 Pinnacle West Capital Corporation
Slide 28: Power Marketing Results in Changing Markets
Pinnacle West Power Marketing Results In Changing Markets $ Millions S/MWwh ue ~“ $08 $108 792 eal 7 S100 g $200 $80 $150 $60 $100 $40 oo $60 $0 + $0 ee en ee | 2000 2001 mm Power Marketing & Trading Gross Margin” — Wholesale Electricity Prices * Pretax revenue net of energy costs @ 2001 Pinnacle We
Slide 29: Regulated Delivery
Regulated Delivery @ 2001 Pinnacle West Capital Corporation
Slide 30: APS Regulated Delivery Strategies
APS Regulated Delivery Strategies: e High-growth service territory e« Value to customers — Price competitiveness — Reliability — Excellent service e Energy procurement risk management e Unit cost reduction e Regulatory relationships @ 2001 Pinnadt
Slide 31: Customer Growth
r Customer Growth . . . . 1995 1996 1997 1998 1999 2009 | YTD MAPS Windustry Average 9/30/2001 @ 2001 Pinnacle West Capital Corporation
Slide 32: Arizona Regulatory Issues Update
Arizona Regulatory Issues Update! e 2001 regulatory plan e Court appeals status — Electric competition rules — 1999 APS settlement e 2003 rate filing @ 2001 Pinnadt
Slide 33: Pinnacle West Market Opportunities Summary
Pinnacle West Market Opportuniti Summary e Optimizing benefits of retail load e Capturing wholesale market opportunities e Managing procurement risks @ 2001 Pinnadt
Slide 34: Financial & Economic Overview
Financial & Economic Overview @ 2001 Pinnacle West Capital Corporation
Slide 35: Phoenix Single-Family Building Permits
Phoenix Single-Family Building Perm 1997 1998 1999 2000 2001 2002 2003 —— Projected —— Source: Arizona Real Estate Center (Actual) PNW Forecast Dept. (Projected) @ 2001 Pinnacle West Capital Corporation
Slide 36: Regional Economic Strength: Population Growth
Regional Economic Strength Arizona Vs U.S. Population Growth 1997 1998 1999 2000 2001 2002 2003 —— Projected —— WArizona U.S. Source : University of Arizona Division of Economic and Business Research @ 2001 Pinnacle West Capital Corporation
Slide 37: Regional Economic Strength: Job Growth
Regional Economic Strength Arizona Vs U.S. Job Growth 1997 1998 1999 2000 2001 2002 2003 —— Projected —— Arizona @U.S. Source : University of Arizona Division of Economic and Business Research @ 2001 Pinnacle West Capital Corporation
Slide 38: Retail Customer Growth
Retail Customer Growth Current Expectations 3.7% 3.7% 2000 2001 2002 2003 2004 @ 2001 Pinnacle West Capital Corporation
Slide 39: PNW Earnings Growth Performance
PNW Earnings Growth Performance 1998-2000 CAGR First Quartile a 30% PNW 10.3% 20% | 10% 0% 10% -20%' @ 2001 Pinnacle West Capital Corporation
Slide 40: PNW Dividend Growth Performance
PNW Dividend Growth Performance 5 Year CAGR PNW 8.4% Industry (1.0)% Litho 1995 1996 1997 1998 1999 2000 PNW industry @ 2001 Pinnacle West Capital Corporation
Slide 41: Credit Ratings Profile
Credit Ratings Profile S&P Moody's Fitch Arizona Public Service Co. Senior Secured Debt A- A3 A- Senior Unsecured Debt BBB Baa1 BBB+ Secured Lease Obligation Bonds 1=}=}=} Baa2 BBB Commercial Paper A2 P2 F2 Pinnacle West Capital Corp. Senior Unsecured Debt BBB Baa2 BBB Commercial Paper A2 P2 F2 Pinn
Slide 42: Capital Expenditures
Capital Expenditures ($ Millions) 1,200 1,000 800 600 400 200 2001 2002 2003 Delivery @ Existing Generation @ Generation Expansion @ Other @ 2001 Pinnacle West Capital Corporation
Slide 43: PNW Consolidated Debt Ratio
PNW Consolidated Debt Ratio 1995 1996 1997 1998 1999 2000 9130101* * Preliminary @ 2001 Pinnacle West Capital Corporation
Slide 44: PNW Cash Interest Coverage Ratio
PNW Cash Interest Coverage Rati Times = 6.0 ~ = 4.0 2.0 0.0 1995 1996 1997 1998 1999 2000 © 9/30/2001* * Preliminary @ 2001 Pinnacle West Capital Corporation
Slide 45: Credit Rating Considerations
Credit Rating Considerations e Maintain commitment to investment grade ratings at APS, PNW, and PWEC e Moderate increase in consolidated leverage offset by reducing business risk @ 2001 Pinnadt
Slide 46: FAS 133
FAS 133 Adopted for gas derivatives January 1, 2001 Adopted new guidance for electricity derivatives July 1, 2001 Requires all derivatives to be recorded at fair value on the balance sheet Provides hedge accounting treatment if certain criteria are met If not a hedge, changes in fair value are recor
Slide 47: FAS 133 & EITF 98-10 PNW Applications
FAS 133 & EITF 98-10 PNW Applications Normal Business e Electricity forward contracts e Electricity options in the money at inception Hedge Accounting (other comprehensive income) e Most gas forwards and futures e Certain purchased options Current Earnings e Trading e Hedge ineffectiveness e Certain
Slide 48: Price Retail Revenues
Price Retail Revenues Retail Revenues +++: Actual Fuel Cost @ 2001 Pinnacle West Capital Corporation
Slide 49: PNW Non-Energy Subsidiaries
PNW Non-Energy Subsidiaries - * Objectives Assets * - Cash flow and profit $514 Million potential to parent a —-, ae s22m _° Current activities El Dorado —_ Developing real estate in Southwest — Harvesting venture capital portfolio as it matures $492 M SunCor « Growth opportunities — Select real est
Slide 50: EPS Performance
EPS Performance $iShare ~ $250 ~ ae $200 ie $150 Es $100 “ “tt $000 | I ‘etOh 2ndQtr doh ANG tc and Sido thot tet and ad clr 1999 2000 2001 @ 2001 Pinnacle West Capital Corporation
Slide 51: EPS Performance in Volatile Wholesale Market
EPS Performance ina Volatile Wholesale Market $1.00 $100 $0.50 | | | $60 $0.00 30 4th Qndah SdOh hal tetGl 2nd dak 4th Gtr tet GH And ate Sid Gtr 1999 2000 2001 im EPS — Wholesale Prices @ 2001 Pinnacle West Capital Corporation
Slide 52: "Visible" Earnings Factors
“Visible” Earnings Factors Retail customer growth ah, Retail price decreases Regulatory asset amortization Generation reliability program El Dorado Interest expense 2001 @ 2001 Pinnacle West Capital Corporation
Slide 53: Other Earnings Factors
Other Earnings Factors e Economic factors e Weather impact e Power marketing and trading activity « Generation growth e FAS 133 @ 2001 Pinnadt
Slide 54: Pinnacle West Capital Corporation
—— Ve PINNACLE WEST CAPITAL CORPORATION @ 2001 Pinn:
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