Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Day (November 2012)
97 slides from Pinnacle West Capital's investor day presentation, Nov 9, 2012
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Pinnacle West Analyst Day November 9, 2012
Slide 2: Forward-Looking Statements
2 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: Non-GAAP Financial Measures
3 NON-GAAP FINANCIAL MEASURES In this presentation, we refer to “on-going earnings per share,” which is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We believe on-going earnings per share provides investors with a useful indicator of our results that is comparable among p
Slide 4: Strategic Overview
DELIVERING SUPERIOR SHAREHOLDER VALUE STRATEGIC OVERVIEW Don Brandt
Slide 5: Pinnacle West: Who We Are
2 PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility. NYSE Ticker PNW Market Cap $6 Billion Enterprise Value $9 Billion Yield 4% STATE OF ARIZONA Principal Subsidiary • Arizona’s largest electric utility • $13 billion assets Service Territory • 1.1 million customer
Slide 6: Arizona Corporation Commissioners
3 ARIZONA CORPORATION COMMISSIONERS Three seats for four-year terms through January 2017 were addressed in the November 2012 election. Terms Through 2017 Terms Through 2015 New Commissioners Incumbents Susan Bob Bob Brenda Gary Pierce (R)* Bitter-Smith (R) Burns (R) Stump (R)* Burns (R) Chairman *Te
Slide 7: Superior Shareholder Returns
4 SUPERIOR SHAREHOLDER RETURNS Our total return to shareholders has outperformed our industry and the broad market over the past five years. Pinnacle West S&P 500 S&P 1500 Electric Utilities 100% 80% 77.3% 60% 40% 48.6% 45.6% 32.3% 20% 26.7% 25.7% 21.8% 21.4% 17.5% 19.0% 2.1% 0% (1.2)% (20.0)% 1 Yea
Slide 8: Operations Overview
DELIVERING SUPERIOR SHAREHOLDER VALUE OPERATIONS OVERVIEW Mark Schiavoni
Slide 9: Operations Overview Agenda
2 OPERATIONS OVERVIEW AGENDA Planning and operational execution position APS for success. Safety • Top decile in the industry Resource Planning • Meeting growing energy needs through a balanced resource mix Energy Innovation • Strategically piloting and implementing advanced technologies Energy Deli
Slide 10: Safety = #1 Critical Area of Focus
3 SAFETY = #1 CRITICAL AREA OF FOCUS APS continues to build and maintain a safety-first culture that strives for “zero incidents.” OSHA Recordable Incidents Accident Injury Rate 2007 – 3Q2012 200 2.8 177 2.4 160 2.0 120 108 1.6 97 80 1.2 65 2011 EEI Top Quartile 58 49 0.8 40 2011 EEI Top Decile 0.4
Slide 11: Resource Planning for Reliability and Sustainability
RESOURCE PLANNING FOR 4 RELIABILITY AND SUSTAINABILITY We will meet future load growth through a balanced resource mix including renewable resources and energy efficiency programs. Additional Resources by 2027 MW 14,000 Load Requirement Including Reserves 3% Four Corners Transactions, Net 12,000 21%
Slide 12: Resource Planning for Reliability and Sustainability
RESOURCE PLANNING FOR 5 RELIABILITY AND SUSTAINABILITY APS has multiple resources options to serve future energy growth. • Plans to meet near-term needs include renewable energy and energy efficiency additions • Options for future resource decisions • Intermediate term: renewable energy and natural
Slide 13: Renewable Energy Rises with the Sun
6 RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of the World.” Arizona Arizona Germany and Japan are among countries with highest installed solar capacity, yet have solar conditions far inferior to Arizona
Slide 14: APS AZ Sun Program Provides Earnings Growth Potential
APS AZ SUN PROGRAM PROVIDES 7 EARNINGS GROWTH POTENTIAL Owning solar resources makes sense for our customers and the environment and provides returns to shareholders. • Up to 200 MW utility-scale photovoltaic solar plants owned by APS • Up to $975 million capital investment • In service 2011 through
Slide 15: Solana
8 SOLANA Solana will provide more than one-quarter of APS’s renewable energy target by 2015. • 250 MW 30-year PPA for all output (~900 GWh/year) • Concentrating solar trough facility 70 miles southwest of Phoenix • On target for 2013 commercial operation • 90%+ on-peak capacity factor with use of th
Slide 16: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE 9 AND ENERGY EFFICIENCY STANDARDS Our programs address Arizona’s aggressive renewable energy and energy efficiency standards. Renewable Energy (RES) Minimum Requirements Portion of retail sales to be supplied by renewable resources • 5% by 2015 • 15% by 2025 Distributed
Slide 17: APS Energy Innovation Initiatives
10 APS ENERGY INNOVATION INITIATIVES APS is strategically piloting and implementing a number of advanced technologies. INFORMATION TECHNOLOGY APS’s primary objectives to Cyber Security deploying a smarter Communications Infrastructure grid: • Optimize System Reliability & Performance • Empower GENER
Slide 18: Transmission Investment Essential
11 TRANSMISSION INVESTMENT ESSENTIAL Strategic transmission is necessary to maintain reliability and deliver diversified resources to our customers. • 10-Year Transmission Plan NAVAJO FOUR NORTH CORNERS 100 MW (115-kV and above) 970 MW • $550 million of new transmission investment • 269 miles of new
Slide 19: Energy Delivery Performance
12 ENERGY DELIVERY PERFORMANCE Top-quartile reliability is reducing the frequency of customer outages. Average number of customer System Average Interruption • Comprehensive maintenance and interruptions/year Frequency Index (SAIFI) inspection program includes: 1.20 • EEI Edison Award winning TOAN,
Slide 20: Fossil Fleet Summer Performance
13 FOSSIL FLEET SUMMER PERFORMANCE APS’s Fossil Fleet is delivering exceptional performance during the summer peak season. Summer Performance June – September GWh EAF Fossil Summer 7,000 94% Equivalent Availability Factor (EAF) 2010 2011 2012 6,900 93% Coal 79.2% 90.9% 86.6% 6,800 92% 6,700 Gas & Oi
Slide 21: Environmental Update
14 ENVIRONMENTAL UPDATE APS is actively pursuing options to comply with environmental regulations. • Mercury and Air Toxics Standards (MATS) • EPA program to control mercury and other air pollutants • Regional Haze • EPA program to reduce visibility impact of SO2 and NOx • Cooling Water Intake Struc
Slide 22: Environmental, Sustainability and Governance Leadership
ENVIRONMENTAL, SUSTAINABILITY 15 AND GOVERNANCE LEADERSHIP We are recognized internationally for our achievements. Ranked on Dow Jones Rated 4th Highest Intelligent Sustainability Index since 2005 Utility in 2011 Environmental Certification Gas/Oil Fleet – 2011 Coal Fleet - 2012 1st utility in world
Slide 23: Operations Overview Appendix
Operations Overview Appendix
Slide 24: A Well-Balanced Generation Portfolio
17 A WELL-BALANCED GENERATION PORTFOLIO Ownership Net Capacity Fuel / Plant Location Units Dispatch Commercial Ops. Date Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1-3 Base 1986 - 1989 29.1% 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1-3 Base 1962 - 1980 100 647 Four Corners Farmin
Slide 25: Renewable Purchase Power Contracts
18 RENEWABLE PURCHASE POWER CONTRACTS Commercial Owner/ PPA Operation Term Capacity Fuel / Contract Location Developer Status1 Signed Date (years) Net (MW) Solar Solana Gila Bend, AZ Abengoa UC Feb-2008 2013 30 250 Ajo Ajo, AZ Duke Energy Gen Svcs IO Jan-2010 2011 25 5 Prescott Prescott, AZ SunEdiso
Slide 26: Four Corners Power Plant Facts & Figures
FOUR CORNERS POWER PLANT 19 FACTS & FIGURES Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercial Operation Date 1963 1963 1964 1969 1970 Original Cost ($M) $41 $382 $164 Net Book Value at 6/30/12 ($M) $27 $0 $130 Current Depreciation Ends 2038 Mid-2012 2038 2038 Current Expiration Dates Site Lease J
Slide 27: Palo Verde Overview
DELIVERING SUPERIOR SHAREHOLDER VALUE PALO VERDE OVERVIEW Randy Edington
Slide 28: Palo Verde Overview Agenda
2 PALO VERDE OVERVIEW AGENDA • Business plan/objectives • Performance trends • Major capital improvements • Fukushima follow-up • Operating license extensions
Slide 29: Palo Verde Mission
3 PALO VERDE MISSION We SAFELY and efficiently generate electricity for the long term.
Slide 30: Palo Verde Mission
4 PALO VERDE MISSION We SAFELY and efficiently generate electricity for the long term.
Slide 31: Palo Verde Mission
5 PALO VERDE MISSION We SAFELY and efficiently generate electricity for the long term.
Slide 32: Palo Verde Business Plan
6 PALO VERDE BUSINESS PLAN Our business plan guides all of our operations and initiatives. We SAFELY and efficiently generate electricity for the long term
Slide 33: Palo Verde Goals by 2013/2014
7 PALO VERDE GOALS BY 2013/2014 We target top-quartile cost per megawatt-hour by 2014. Safety • TISAR top quartile • No NRC Reactor Oversight Process issues: • No greater than GREEN findings • No cross-cutting issues • Industry metrics Cost • Less than $20 per MWh Generation (2 cents per kWh) • Grea
Slide 34: Palo Verde Business and Strategic Plans
8 PALO VERDE BUSINESS AND STRATEGIC PLANS
Slide 35: STARS Alliance
9 STARS ALLIANCE We team with other nuclear plants to create efficiencies and purchasing power. • Headquarters • Palo Verde (Arizona) • Callaway (Missouri) • Comanche Peak (Texas) CA KS • Diablo Canyon (California) MO AZ • San Onofre (California) • South Texas (Texas) TX • Wolf Creek (Kansas)
Slide 36: Palo Verde Net Generation
10 PALO VERDE NET GENERATION Palo Verde has exceeded 30 million megawatt-hours annual production seven times – the only U.S. plant to ever do so. 32 31.5 31.2 31.3 30.8 31 30.6 30.4 30.4 30.2 30 Million Megawatt Hours 29 28 27 26 25 24 23 22 21 20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20
Slide 37: Total Industrial Accident Rate
11 TOTAL INDUSTRIAL ACCIDENT RATE Palo Verde’s safety metrics compare favorably with industry norms and are improving. 0.6 ISAR TISAR 0.5 4th Quartile 0.4 ISAR/TISAR Rate 0.3 3rd Quartile 0.2 0.17 2nd Quartile 0.1 0.08 0.05 1st Quartile 0 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1
Slide 38: U.S. Nuclear Operating Costs
12 U.S. NUCLEAR OPERATING COSTS Palo Verde operating costs are below industry averages and improving. Dollars per Megawatt-Hour Industry Average Industry Median 2007 2008 2009 2010 2011 2012 Projected
Slide 39: Palo Verde Major Capital Projects
13 PALO VERDE MAJOR CAPITAL PROJECTS Completed capital projects position Palo Verde well for safe, efficient operations for the long term. • Major capital projects completed in past 10 years • Steam generator replacements • Reactor vessel head replacements • New rapid refueling packages • Main trans
Slide 40: Palo Verde Major Capital Projects
14 PALO VERDE MAJOR CAPITAL PROJECTS • Steam generators • Installed 2003-2007 • Reactor vessel heads • Installed 2009-2010
Slide 41: Palo Verde Major Capital Projects
15 PALO VERDE MAJOR CAPITAL PROJECTS Before • Rapid refueling After packages • Installed 2009-2010 • Increased efficiency and safety • Reduced future outage durations
Slide 42: Palo Verde Major Capital Projects
16 PALO VERDE MAJOR CAPITAL PROJECTS • Main transformers • 2008 to 2018 • Main generator rotors • Most recent outage • Circulating water system tie-in for potential future cooling towers • 2009-2010
Slide 43: Palo Verde Major Capital Projects
17 PALO VERDE MAJOR CAPITAL PROJECTS Energy Education Center • Public education • Response coordination in state-of-the-art Emergency Operations Facility • Joint Information Center
Slide 44: Fukushima Follow-Up
18 FUKUSHIMA FOLLOW-UP Fukushima Event Response Team Room
Slide 45: Fukushima Follow-Up
19 FUKUSHIMA FOLLOW-UP • Low risk of natural events at Palo Verde • Seismic and flooding walk-downs conducted • Changes in NRC regulations and industry standards Palo Verde
Slide 46: Fukushima Follow-Up
20 FUKUSHIMA FOLLOW-UP • FLEX / Beyond Design Bases Event Mitigation • Enhanced Procedures and Emergency Plans • Significant Investment in Safety
Slide 47: Palo Verde Economic Impact
21 PALO VERDE ECONOMIC IMPACT Palo Verde is estimated to favorably impact Arizona by $1.8 billion each year. • Largest single commercial taxpayer in Arizona • Nearly $50 million in property taxes annually • Local purchases of materials and services • Palo Verde employees donate approximately $1 mill
Slide 48: Palo Verde License Renewal
22 PALO VERDE LICENSE RENEWAL We SAFELY and efficiently generate electricity for the long term. 2067 2066 2065 2047 2046 2045 2027 2026 2025
Slide 49: Regulatory Overview
DELIVERING SUPERIOR SHAREHOLDER VALUE REGULATORY OVERVIEW Jeff Guldner
Slide 50: Regulatory Overview Agenda
2 REGULATORY OVERVIEW AGENDA • Regulatory Landscape • Regulatory Strategic Framework • Goals and Initiatives • FERC Developments • Conclusions
Slide 51: Our Regulatory Mix
3 OUR REGULATORY MIX The bulk of APS’s revenues comes from a regulated retail rate base and a meaningful transmission business. $6.9 Billion Total Approved Rate Base Most Recent Rate Decisions ACC FERC Rate Effective Dates 7/1/2012 6/1/2012 Test Year Ended 12/31/2010* 12/31/2011 Rate Base $5.7 B $1.
Slide 52: Constructive Regulatory Environment
4 CONSTRUCTIVE REGULATORY ENVIRONMENT Enables creative solutions towards a common goal: healthy utility that will help Arizona’s sustainable energy future. • Commission and Stakeholder Engagement • Productive and Constructive Regulatory Relationships • Culture of Compliance
Slide 53: Improving Our Regulatory Environment: Historical Perspective
IMPROVING OUR REGULATORY ENVIRONMENT: 5 HISTORICAL PERSPECTIVE We have reduced our rate case cycle length significantly while achieving increasingly constructive outcomes. Prolonged Proceedings Financial Results 2003-05 2005-07 2008-09 2011-12 Case Case Case Case 18 Months 20 Months 22 Months 12 Mon
Slide 54: Current Regulatory Framework
6 CURRENT REGULATORY FRAMEWORK Traditional themes are trending towards sustained constructive outcomes. Themes Progress Regulatory Lag Recovery of post-test year plant in rates and certain capital through adjustors. Historical Test Year Enhanced Commission engagement, constructive regulatory relatio
Slide 55: Beyond a Historical Test Year
7 BEYOND A HISTORICAL TEST YEAR Retail rate mechanisms mitigate strict historical test-year framework. Current Arizona Retail Rate Structure Traditional Adjustors that Post-Test Year Cost Enhanced Fixed Historical Test Recover Revenue Plant in Rate Base Deferrals Cost Recovery Year Requirements • Ra
Slide 56: FERC Overview
8 FERC OVERVIEW We have achieved constructive transmission rate treatment and actively engage in key policy matters. • Ratemaking • Formula rates updated annually • Retail transmission cost adjuster • Policy Development • Transmission returns on equity • FERC Order 1000 compliance • Non-RTO performa
Slide 57: Regulatory Initiatives
9 REGULATORY INITIATIVES We have a near-term business plan that supports the Company’s overall objectives • Begin recovery of Four Corners acquisition by end of 2013 • Target next retail rate decision by mid-2016 • Continue active engagement of stakeholders in integrated resource planning process to
Slide 58: Customer Satisfaction: A Key Priority
10 CUSTOMER SATISFACTION: A KEY PRIORITY Strong customer service supports constructive regulatory outcomes. Outstanding Residential Customer Satisfaction Rating Rating 700 APS 675 650 Industry Average 625 600 575 550 525 500 2012 J.D. Power Residential Customer Survey
Slide 59: 2012 Regulatory Settlement Positioned APS Well Through 2016
2012 REGULATORY SETTLEMENT 11 POSITIONED APS WELL THROUGH 2016 An intentional structure of on-going financial support buttresses a four-year stay-out. Rate Rider for Four Corners Acquisition Costs Forward-Looking Improvements to 4 Year Lost Fixed Cost Recovery Environmental Mechanism Surcharge Stay-
Slide 60: Conclusions
12 CONCLUSIONS We remain focused on achieving supportive regulatory structures and productive cost recovery process and timing. • Positive regulatory developments • Constructive on-going relationships • Address future of continuing change
Slide 61: Regulatory Overview Appendix
Regulatory Overview Appendix
Slide 62: 2012 Retail Rate Case Settlement Key Benefits
2012 RETAIL RATE CASE SETTLEMENT 14 KEY BENEFITS The settlement contains a number of benefits for shareholders and customers. Shareholder Benefits • Regulatory certainty • Base rate stay-out until at least mid-2016 • Rate gradualism through adjustment mechanisms • Financial support APS needs to achi
Slide 63: Settlement Key Financial Provisions – Base Rates & Timing
2012 RETAIL RATE CASE SETTLEMENT 15 KEY FINANCIAL PROVISIONS – BASE RATES & TIMING The provisions of the settlement became effective July 1, 2012, as originally requested by APS. Annual Revenue Change Annualized Base Rate Revenue Changes ($ millions) Non-fuel base rate increase $ 116.3 Fuel-related
Slide 64: Settlement Key Provisions – Other Than Base Rates
2012 RETAIL RATE CASE SETTLEMENT 16 KEY PROVISIONS – OTHER THAN BASE RATES Other key provisions continue constructive regulatory treatment and limit regulatory lag. • Post test-year plant additions – 15 months’ additions included in rate base • Constructive new or modified adjustment mechanisms • Lo
Slide 65: Settlement Key Financial Assumptions
2012 RETAIL RATE CASE SETTLEMENT 17 KEY FINANCIAL ASSUMPTIONS Updated rate base, cost of capital and fuel prices underpin the settlement amounts. Rate base $5.7 billion Allowed return on equity 10% Capital structure Long-term debt 46.1% Common equity 53.9% Base fuel rate (¢/kWh) 3.21¢ Projected fuel
Slide 66: Financial Overview
DELIVERING SUPERIOR SHAREHOLDER VALUE FINANCIAL OVERVIEW Jim Hatfield
Slide 67: Financial Overview Agenda
2 FINANCIAL OVERVIEW AGENDA • Third quarter earnings • Financial objectives • 2012 – 2015 outlook • Capital expenditures • O&M cost management initiatives • Earnings guidance and dividend outlook • Debt and liquidity profile • Value proposition
Slide 68: Consolidated EPS Comparisons
3 CONSOLIDATED EPS COMPARISONS 3rd Quarter 2012 versus 3rd Quarter 2011 Net Income On-Going Earnings Per Share Per Share $3.00 $3.00 $2.50 $2.32 $2.50 $2.21 $2.21 $2.24 $2.00 $2.00 $1.50 $1.50 $1.00 $1.00 $0.50 $0.50 $0.00 $0.00 2012 2011 2012 2011 See non-GAAP reconciliation in appendix
Slide 69: On-Going EPS Variances
4 ON-GOING EPS VARIANCES 3rd Quarter 2012 versus 3rd Quarter 2011 Lower infrastructure- related costs Higher O&M* $0.04 $(0.10) Higher gross margin* $0.16 Lower prior-year effective tax rate $(0.09) Net Other, net Decrease $(0.04) $(0.03) = * Excludes costs, and offsetting operating revenues, associ
Slide 70: Gross Margin EPS Drivers
5 GROSS MARGIN EPS DRIVERS 3rd Quarter 2012 versus 3rd Quarter 2011 Other, net Weather effects $0.05 $(0.17) Retail transmission revenue increase $0.09 2012 regulatory settlement $0.21 Lower retail kWh sales Net $(0.02) Increase $0.16 = See non-GAAP reconciliation in appendix
Slide 71: Long-Term Financial Objectives
6 LONG-TERM FINANCIAL OBJECTIVES Our long-term goal is to provide continued superior returns to our shareholders. • Deliver strong consistent total return • Capitalize on dynamic service territory growth • Emphasize capital and O&M budgeting disciplines • Maintain solid investment-grade credit ratin
Slide 72: Positive Long-Term Demographics
7 POSITIVE LONG-TERM DEMOGRAPHICS APS’s customer growth generally outpaces U.S. and Arizona population growth. Superior Growth APS Customer Growth Annual Millions Growth 2 5% 1.8 4% 2.6%* 3% 1.1 1 2% 1% 0% 1990 1995 2000 2005 2010 2016 0 Projected 2011 2030 APS Customer Growth Arizona Population Gro
Slide 73: Positive Near-Term Trends
8 POSITIVE NEAR-TERM TRENDS Arizona’s economy is reflecting more sustained growth and activity. Non-Farm Job Growth Metro Phoenix Vacant Housing Year-Over- APS Service Territory Year Change 10.0% 40,000 8.0% 35,000 6.0% 30,000 4.0% 25,000 2.0% 0.0% 20,000 (2.0)% 15,000 (4.0)% 10,000 (6.0)% 5,000 (8.
Slide 74: Foreclosure Headwinds Winding Down
9 FORECLOSURE HEADWINDS WINDING DOWN Metro Phoenix home foreclosure sales are the lowest since 2007. Existing Single Family Home Sales Key Trends 120,000 45% 40% • Existing home sales activity 100,000 remains robust 35% • Investor interest peaked in Q1 80,000 30% 2012 25% • 20% of market Q1 60,000 2
Slide 75: New Home Market Breathing Again
10 NEW HOME MARKET BREATHING AGAIN Metro Phoenix new home construction beginning to see benefits from lower vacancies and higher prices in existing housing. New Home Sales & Single Family Permits Key Trends 30,000 • After three very weak sales 25,000 years, Metro Phoenix new home construction is tur
Slide 76: Positive Near-Term Trends
11 POSITIVE NEAR-TERM TRENDS Housing and non-residential sectors are showing steady improvement. Home Prices Nonresidential Building Vacancy 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 '05 '06 '07 '08 '09
Slide 77: Long-Term Growth Drives Cap Ex
12 LONG-TERM GROWTH DRIVES CAP EX Investment is required throughout the business to meet expected demand growth. APS Capital Expenditures by Function $ Millions 1,400 1,200 Other 1,000 Distribution 800 Transmission 600 Renewables 400 Environmental 200 Traditional Generation 0 2011 2012 2013 2014 201
Slide 78: Solid Capital Recovery and Strong Rate Base Growth
SOLID CAPITAL RECOVERY AND 13 STRONG RATE BASE GROWTH We expect our rate base will grow 6% per year on average, and we have constructive recovery of capital expenditures. APS Capital Expenditures APS Rate Base Growth by Recovery Mechanism $ Millions $ Billions Year-End 1,400 10 1,200 8 1,000 Other C
Slide 79: Rate Adjustors Complement Base Rate Increases
RATE ADJUSTORS COMPLEMENT 14 BASE RATE INCREASES Regulatory structure provides support for gross margin growth throughout base rate stay-out period. 2012 2013 2014 2015 Base Rate Increase 55% 45% — — Four Corners — 55% 45% — Transmission Cost Adjustor X X X X AZ Sun X X X X Lost Fixed Cost Recovery
Slide 80: Strong Cost Management Focus
15 STRONG COST MANAGEMENT FOCUS Our goal is to keep O&M growth in line with retail sales growth. APS O&M Expense Trends $ Millions 800 600 400 200 0 2006 2007 2008 2009 2010 2011 2012E 2013E Excludes RES and demand-side management costs. 2011 also excludes $28 million related to prior-period transmi
Slide 81: Sustainable Cost Management Initiative (SCMI)
SUSTAINABLE COST MANAGEMENT 16 INITIATIVE (“SCMI”) Continued success requires a more rigorous, standardized approach to running the business. Motivation Sustainable Changes • Recognize combined challenges Tiered Metrics • Costs • Capital Business Planning • Sales growth • Stayout Corporate Resources
Slide 82: Consolidated Financial Outlook
17 CONSOLIDATED FINANCIAL OUTLOOK Our strategies and financial performance are producing earnings growth. On-Going EPS Outlook Through 2015 $4.00 $3.35 – $3.50 $3.45 – $3.60 • 6% rate base growth,* but $3.50 regulatory recovery not perfect $2.99 $3.00 • Adjustment mechanisms provide substantial reco
Slide 83: Consolidated Financial Outlook: Dividend Growth Goal
18 CONSOLIDATED FINANCIAL OUTLOOK Our financial results facilitate growing cash returns to our shareholders. Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $4.00 $3.50 $3.00 $2.50 $2.10 $2.18* $2.00 $1.50 $1.00 $0.50 $0.00 2011 2012 2013 2014 2015 Projected * Increase effective 4th
Slide 84: Consolidated Financial Outlook: ROE Goal
19 CONSOLIDATED FINANCIAL OUTLOOK Our goal is to consistently earn a competitive return on average common equity. Consolidated Earned ROE Goal* 10% 8.8% At Least 9.5% Per Year 8% 6% 4% 2% 0% 2011 2012 2013 2014 2015 Projected * As of November 9, 2012
Slide 85: Superior Shareholder Returns
20 SUPERIOR SHAREHOLDER RETURNS Our total return to shareholders has outperformed our industry and the broad market over the past five years. Pinnacle West S&P 500 S&P 1500 Electric Utilities 100% 80% 77.3% 60% 40% 48.6% 45.6% 32.3% 20% 26.7% 25.7% 21.8% 21.4% 17.5% 19.0% 2.1% 0% (1.2)% (20.0)% 1 Ye
Slide 86: Ready Access to Capital
21 READY ACCESS TO CAPITAL Strong access to capital resources is supported by solid credit ratings, manageable debt maturities and ample liquidity. 2012 Major Financing Activities APS Long-Term Debt Maturities • $375M APS senior notes refinancing* $ Millions $450 • Remarketing of $32MM Maricopa $400
Slide 87: Solid Credit Ratings
22 SOLID CREDIT RATINGS Available liquidity remains substantial and our credit ratings have improved. Credit Facilities and Liquidity* APS Parent Corporate Credit Capacity Ratings Borrower ($ Millions) Maturities Moody’s Baa1 Baa2 APS $ 500 Feb. ’15 S&P BBB BBB APS 500 Nov. ’16 Fitch BBB BBB PNW 200
Slide 88: Pinnacle West: Our Value Proposition
23 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors…
Slide 89: Financial Overview Appendix
Financial Overview Appendix
Slide 90: 2012 On-Going EPS Guidance
25 2012 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of November 9, 2012 • Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) about $2.13 billion to $2.18 billion • Retail customer growth about 1% • Weather-normalized retail electricity sales volume slig
Slide 91: 2013 On-Going EPS Guidance
26 2013 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of November 9, 2012 • Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) about $2.20 billion to $2.25 billion • Retail customer growth about 1.5% • Weather-normalized retail electricity sales volume ab
Slide 92: 2012 – 2015 Financial Outlook
27 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of November 9, 2012 2012 retail rate settlement effective July 1, 2012 • Revenue provisions • Retail base rate changes effective July 1, 2012 • Adjustment mechanisms • Four Corners acquisition • AZ Sun additions to flow through RES unti
Slide 93: 2012 – 2015 Financial Outlook
28 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of November 9, 2012 (continued) • Modestly improving Arizona and U.S. economic conditions; specifically, no major disruptions to the on-going national economic recovery [resulting from political action or inaction] • Retail customer gro
Slide 94: Non-GAAP EPS Reconciliation
29 NON-GAAP EPS RECONCILIATION Consolidated On-Going EPS Guidance Year 2011 Year 2012 Year 2013 Actual Guidance* Guidance* Net income attributable to common shareholders $ 3.09 Less income (loss) from discontinued operations: Real estate (0.01) Energy services business 0.11 On-going EPS $ 2.99 $ 3.3
Slide 95: S&P Credit Metrics
30 S&P CREDIT METRICS Our key credit metrics have been improving. 2007 2008 2009 2010 2011 APS FFO / Debt 17.2% 22.1% 22.8% 22.3% 20.8% FFO / Interest 4.1x 5.1x 4.8x 4.6x 4.6x Debt / Capitalization 55.2% 57.4% 56.8% 53.0% 53.0% Pinnacle West FFO / Debt 15.7% 18.0% 18.4% 22.5% 20.3% FFO / Interest 3.
Slide 96: Non-GAAP EPS Reconciliation
31 NON-GAAP EPS RECONCILIATION 3rd Quarter 2012 vs. 3rd Quarter 2011 3rd Qtr 3rd Qtr 2012 2011 Change EPS as reported $ 2.21 $ 2.32 $ (0.11) Less income from discontinued operations - (0.08) 0.08 On-going EPS $ 2.21 $ 2.24 $ (0.03)
Slide 97: Non-GAAP Measure Reconciliation
32 NON-GAAP MEASURE RECONCILIATION 3rd Quarter 2012 vs. 3rd Quarter 2011 Gross Margin Three Months Ended September 30, EPS $ millions pretax, except per share amounts 2012 2011 Change Operating revenues* $ 1,110 $ 1,125 Fuel and purchased power expenses* (303) (338) Gross margin 807 787 $ 0.11 Less: