Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Presentation (March 2009)
55 slides from Pinnacle West Capital's investor presentation, Mar 3, 2009
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today March 3-4, 2009
Slide 2: Forward-Looking Statement
Forward-Looking Statement This presentation contains forward-looking statements, including statements regarding our earnings outlook, capital expenditure estimates and growth rates. Neither Pinnacle West nor APS assumes any obligation to update these statements or make any further statements on any
Slide 3: Who We Are
Who We Are NYSE Ticker: PNW Market Cap: $3 Billion Enterprise Value: $7 Billion Competitive Energy Services Provider $70 Million Venture Investments $28 Million Real Estate Developer $547 Million Regulated Electric Utility $11 Billion 2008 Assets $12 Billion At our core, we are an electricity compan
Slide 4: PNW: Our Value Proposition
PNW: Our Value Proposition Deliver Superior Shareholder Returns Capitalizing on Attractive Fundamentals Vertically integrated utility High growth service territory Diversified energy mix Operational excellence Strong, energetic leadership Strengthening Financial Position $2.10 per share annual divid
Slide 5: Shaping Our Business Environment
Shaping Our Business Environment Integrating stakeholder agendas ensures a successful and sustainable future.
Slide 6: A Leadership Team of Industry Veterans
A Leadership Team of Industry Veterans Our top executives have more than 150 combined years of creating shareholder value in the energy industry Jim Hatfield SVP & CFO Don Robinson APS President & COO Randy Edington EVP & Chief Nuclear Officer Don Brandt CEO Steve Wheeler EVP Customer Service & Regu
Slide 7: SunCor Initiatives
SunCor Initiatives IDAHO UTAH NEW MEXICO ARIZONA Boise St. George Santa Fe Sedona Prescott Phoenix Objective is to maximize value of SunCor's assets Re-evaluating SunCor's strategy (process under way) Expect to review details during first-quarter earnings call
Slide 8: Service Territory
Service Territory 1.1 million customer accounts 34,646 square miles Customer Growth 1.4% in 2008 1% growth expected through 2010 3-4% historically - well above industry average Resources 6,274 MW owned/leased capacity 1,958 MW contracted conventional resources in operation 502 MW contracted renewabl
Slide 9: Today's Agenda Reflects Our Focus
Today's Agenda Reflects Our Focus Delivering Shareholder Value Achieving Strong Financial Performance Embracing Collaborative Regulatory Processes Powering Arizona's Energy Future
Slide 10: Powering Arizona's Energy Future
Powering Arizona's Energy Future
Slide 11: Positive, but Slower Growth Near Term
Positive, but Slower Growth Near Term Despite slowing growth, we expect continued positive growth in retail sales. Year '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Retail Sales (MWh) 21364.2395 22388.264 22681.811 23444.426 24343.777 25620.559 26605.138 28024.959
Slide 12: Growth Consistently Outperforms U.S.
Growth Consistently Outperforms U.S. APS Customer Growth Arizona Population Growth U.S Population Growth '87 0.0467 0.051 0.009 '88 0.033 0.023 0.009 '89 0.0262 0.022 0.009 '90 0.0225 0.018 0.011 '91 0.0222 0.03 0.013 '92 0.027 0.032 0.014 '93 0.0291 0.032 0.013 '94 0.0372 0.035 0.012 '95 0.0403 0.0
Slide 13: Planning for New Energy Resources
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Owned - Operating 6267 6270 6270 6270 6270 6270 6270 6270 6270 6270 6270 6270 6270 6270 6270 6270 6270 Contracted - Operating 1909 2231 2231 2231 2226 2226 2226 1726 1226 1226 1226 666 186 36 26 26 26 Contracted - P
Slide 14: A Balanced and Strategic Approach
A Balanced and Strategic Approach We have competitive advantages to capitalize on renewable and nuclear resources to provide a diversified energy mix. Provides flexibility to incorporate renewables Maintains gas consumption near 2009 levels Excellent and reliable base load resource Less exposure to
Slide 15: Renewable Energy Rises With the Sun
Germany Renewable Energy Rises With the Sun We intend to make Arizona the "Solar Capital of the World." Japan Solar Insolation Comparison (kWh/year) Japan's solar insolation is comparable to Florida, ranked 11th in the U.S. Arizona Germany - one of countries with highest installed capacities despite
Slide 16: Solana: A Sunny Place for Renewables
Solana: A "Sunny Place" for Renewables 280-MW concentrating solar trough 30-year PPA for all output (900 GWh/year) Planned commercial operation in 2012 Near existing transmission lines Thermal storage capability with summer on-peak capacity factor over 90% To be built, owned and operated by Abengoa
Slide 17: Palo Verde: Energy Cornerstone of the Southwest
Palo Verde: Energy Cornerstone of the Southwest '03 '04 '05 '06 '07 '08 APS Capacity Factors 0.874 0.837 0.774 0.707 0.79 0.844 Industry Average 0.852 0.885 0.873 0.885 0.908 APS Industry Capacity Factors Our Goals By 2013 Generation Consistent site capacity factor greater than 88% Outages of 30 day
Slide 18: Top-Tier Coal Fleet Performance
Top-Tier Coal Fleet Performance '03 '04 '05 '06 '07 '08 APS Capacity Factors 0.75800000013148 0.842 0.871 0.863 0.875 0.861 Industry Average 0.685 0.706 0.719 0.736 0.748 APS Industry Our coal plants are industry performance leaders. Capacity Factors Top-quartile capacity factors for past 14 years S
Slide 19: Our Natural Gas Fleet Provides Flexibility
Our Natural Gas Fleet Provides Flexibility A flexible and cost-effective natural gas fleet helps us diversify our energy mix and deliver electricity when it's needed most. Efficient Intermediate Fleet Provides Flexibility* Peaking Fleet There When We Need Them '03 '04 '05 '06 '07 '08 APS Capacity Fa
Slide 20: Transmission Investment is Key
100 MW 970 MW 1032 MW 350 MW 4300 MW 1005 MW Legend NORTH SAGUARO N .. GILA PALO VERDE - - HASSAYAMPA YUCCA GILA BEND REDHAWK KYRENE WEST WING BAGDAD 2016 PINNACLE PEAK CHOLLA NAVAJO 2014 .. 2014 2009 CORONADO FLAGSTAFF ( APS ) 2012 2 0 1 0 2009 SUNDANCE 2013 HARQUAHALA FOUR CORNERS DESERT BASIN TBD
Slide 21: APS: Superior Customer Satisfaction
APS: Superior Customer Satisfaction '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 105 96 105 112 81 97 79 106 90 91 92 Low Outage Time Per Customer Outstanding Residential Customer Satisfaction Ratings Our employees take pride in providing top-tier customer service. 1 Outage Minutes/Year Rating Compan
Slide 22: Embracing Collaborative Regulatory Processes
Embracing Collaborative Regulatory Processes
Slide 23: A Fresh Regulatory Approach
A Fresh Regulatory Approach We are taking a proactive approach with our Commission. APS' key regulatory goals: Timely cost recovery and return on investment Financial strength and stability Resource and transmission plan approvals Support for renewables and energy efficiency Collaboration on compreh
Slide 24: APS and ACC Share Similar Values
APS and ACC Share Similar Values Rates / Reliability Keeping rates reasonable while maintaining superior reliability ROE Allow for timely recovery of costs and return on investment Renewable Resources Diversify resource base to include renewables Conventional Resources Identify additional resources
Slide 25: Our Regulatory Mix
Our Regulatory Mix Transmission 0.965 Generation Distribution 4.4 Transmission 18% Generation & Distribution 82% ACC FERC Effective Date 7/1/2007 6/1/2008 Test Year Ending 9/30/2005 12/31/2007 Rate Base $4.4 B $1.0 B Equity Layer 55% 54% Allowed ROE 10.75% 10.75% The bulk of APS' revenues come from
Slide 26: APS Revenues by Recovery Mechanisms
APS Revenues by Recovery Mechanisms We have received supportive regulatory decisions providing more timely recovery. Test Year Historical Forecasted PSA TCA RES DSM* EIS* Base Rates Other** 2004 2005 2006 2007 2008 Base Rate Revenues 1957 2114 2239 2536 2662 RES 7 7 8 9 25 TCA 0 0 0 0 31 PSA 0 0 265
Slide 27: ACC Approved Interim Rates
ACC Approved Interim Rates Approved by ACC December 18, 2008 Base rate surcharge effective until general rate case decision $65.2 million annual pretax retail revenues Effective for customer bills after December 31, 2008 Subject to refund, with interest, pending general rate case outcome APS to targ
Slide 28: Comparison of Rate Case Positions
Comparison of Rate Case Positions Rate base ($ billions) $ 5.4 $ 5.3 $ 4.9 $ 5.4 Common equity 54% Return on common equity 11.50% 11.00% 9.60% 11.50% APS Request ACC Staff RUCO Annual revenue increases ($ millions): Non-fuel rate increase $ 264 $ 155 $ (14) $ 206 Net fuel-related rate increase 14 11
Slide 29: Rate Case: A Work in Progress
Rate Case: A Work in Progress Completed Timing Stage March 24, 2008 Initial Rate Filing June 2, 2008 Updated Rate Filing December 19, 2008 Staff & Intervenor Testimony - Part 1 January 9, 2009 Staff & Intervenor Testimony - Part 2 In process January 30, 2009 Settlement Discussions Commenced October
Slide 30: Federal Rate Regulation Progress
Federal Rate Regulation Progress FERC Formula Rates adopted in 2008 Based on FERC Form 1 and certain projections Retail portion flows through ACC Transmission Cost Adjustor Adjusted annually Allowed ROE of 10.75% We have achieved constructive, timely transmission rate treatment.
Slide 31: Achieving Strong Financial Performance
Achieving Strong Financial Performance
Slide 32: Capex: Past, Present and Future
Capex: Past, Present and Future We have reduced capex based on current slowed growth, yet still plan to spend significant amounts for infrastructure. 2004 2005 2006 2007 2008 2009 2010 2011 2012 Generation 144 356 176 353 310 288 274 319 392 Transmission 67 92 113 138 163 275 99 185 204 Distribution
Slide 33: APS Expects Strong Rate Base Growth
APS Expects Strong Rate Base Growth Continuing customer growth translates to strong growth in our rate base. 2007 2008 2009 2010 2011 2012 5907 6311 6643 6923 7163 7569 5% Compound Annual Growth Rate $ Millions Combined ACC and FERC rate base. Growth driven primarily by capital expenditures.
Slide 34: Reducing Costs, Not Service
Reducing Costs, Not Service '00 '01 '02 '03 '04 '05 '06 '07 APS 237 233 246 258 275 302 319 329 Industry 299 287 308 308 315 341 347 366 We spend less on O&M per customer than our peers without sacrificing reliability and customer service. O&M* Low Relative to Industry O&M Expense Per Customer Indus
Slide 35: Managing Costs and Efficiency
Managing Costs and Efficiency Long-term Coal & Nuclear Fuel Supply Contracts Hedging Program APS manages price volatility risk for fuel and power purchases through rolling 36-month hedge Workforce Reduction About 550 positions eliminated in 2008 Interim Rate Case Efficiency Review Cost savings of at
Slide 36: Adequate Liquidity
Adequate Liquidity Resources Capacity Borrower ($ Millions) Matures PNW $ 283 Dec. '10 APS 377 Dec. '10 APS 489 Sep. '11 SunCor 125 Feb. '10 $1,274 Solid bank group No MAC clauses or "clean down" provisions We have sufficient liquidity and access to credit. Credit Facilities Cash ST Debt Current LTD
Slide 37: No Near-term Debt Maturities
No Near-term Debt Maturities 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 SunCor 81.5 9.5 89.5 2 PNW 175 APS 400 379 301.3 488 250 500 $ Millions APS PNW SunCor As of February 27, 2009 Pinnacle West and APS have no significant refinancing requirements until 2011.
Slide 38: Top Highest Yielding Companies
Top 15 Highest Yielding Companies Dividend Yield Average INTEGRYS ENERGY GROUP 0.1131 0.0589 NISOURCE INC. 0.1051 0.0589 HAWAIIAN ELECTRIC 0.0894 0.0589 UIL HOLDINGS CORPORATION 0.084 0.0589 TECO ENERGY, INC. 0.0835 0.0589 PINNACLE WEST 0.08 0.0589 DTE ENERGY COMPANY 0.0792 0.0589 PEPCO HOLDINGS, IN
Slide 39: Guidance Estimates
Guidance Estimates* 2009 2010 APS $ 2.35 $ 3.00 Parent and all other, net (0.05) - Estimated EPS $ 2.30 $ 3.00 Key Assumptions 2009 Interim base rate surcharge effective entire year Before effects of potential general retail rate case decision 2010 General retail rate case request granted in full an
Slide 40: Delivering Shareholder Value
Delivering Shareholder Value
Slide 41: PNW: Our Value Proposition
PNW: Our Value Proposition Deliver Superior Shareholder Returns Capitalizing on Attractive Fundamentals Vertically integrated utility High growth service territory Diversified energy mix Operational excellence Strong, energetic leadership Strengthening Financial Position $2.10 per share annual divid
Slide 42: Appendix
oe PINNACLE WEST CAPITAL CORPORATION Appendix
Slide 43: Ratings
Ratings Pinnacle West APS Senior Unsecured Debt Moody's Baa3 Baa2 S&P BB+ BBB- Fitch - BBB Outlook Moody's Stable Stable S&P Stable Stable Fitch Negative Stable Commercial Paper Moody's P3 P2 S&P A3 A3 Fitch F3 F3 Investment Grade Credit Ratings
Slide 44: Solid Revolver Bank Groups
PNW APS APS % of Bank ($ in millions) 2010 2010 2011 Total Original Total BNY Mellon $ 30 $ 40 $ 40 $ 110 9% Bank of America 17 23 70 110 9% Citigroup 29 39 38 106 9% JP Morgan Chase 29 39 38 106 9% Wells Fargo 17 23 66 106 9% KeyBank 29 39 30 98 8% Credit Suisse 17 23 38 78 7% Barclay's 17 23 30 70
Slide 45: The New ACC
Kristin Mayes Chairman Gary Pierce Terms Through January 2011 Elected November 2008, Terms Through January 2013 Sandra Kennedy Paul Newman Bob Stump The New ACC
Slide 46: General Retail Rate Case Components
Traditional Rate Base Post Test Year Projects Post Test Year Plant Attrition Adjustment Other-Net Net Fuel Increase Cost of Capital East 72 25 34 79 6 14 48 West North Adjusted 2007 test year Recognize capital expenditures through requested decision date Address earnings attrition Implement new grow
Slide 47: Recovery Mechanisms
Mechanism Adopted / Last Adj. Description Power Supply Adjustor ("PSA") April 2005 / February 2009 Recovers 90% of variance between actual fuel and purchased power costs and base fuel rate Includes forward-looking, historical and transition components Transmission Cost Adjustor ("TCA") April 2005 /
Slide 48: Regulatory Case Descriptions and Docket Numbers
Case Description Docket Number 2008 General Rate Case Currently in settlement discussions. E-01345A-08-0172 2008 Interim Rate Approval As part of 2008 rate request, APS received $65.2 million interim base rate surcharge effective January 1, 2009. E-01345A-08-0172 Demand Side Management Programs 2008
Slide 49: Influencing National Energy Policies
Influencing National Energy Policies Stimulus Package Tax Provisions Solar projects under construction by end of 2010 and in service by end of 2016 Treasury Grant: 30% of capital cost; at commercial operation date, or ITC: 30% of capital cost; available during construction Selected Appropriations Re
Slide 50: A Diversified, Balanced Resource Plan
A Diversified, Balanced Resource Plan
Slide 51: A Well-Balanced Generation Portfolio
A Well-Balanced Generation Portfolio'
Slide 52: Conventional Contracts Mean Predictability
Conventional Contracts Mean Predictability
Slide 53: Renewable Contracts Provide Bridge
Renewable Contracts Provide Bridge
Slide 54: Environmental, Sustainability and Technology Recognition
Innovest's highest rating (AAA) and ranked #2 electric utility Dow Jones Sustainability Index Global 100 Most Sustainable Corporations in World by Corporate Knights Storebrand's Social Responsibility Index "best in class" distinction EPA Climate Protection Award SEPA Top 10 Utility Solar Ranking Top
Slide 55: Employee Innovation Supports Customer Reliability
"APS' new system for monitoring transformer performance (TOAN) is a remarkable achievement and could potentially benefit electric utilities everywhere.... This system represents a significant step forward in managing and monitoring the electric grid." Thomas Kuhn Edison Electric Institute President
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