Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Barclays Capital CEO Energy-Power Conference 2010
48 slides from Pinnacle West Capital's conference presentation, Sep 15, 2010
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today Barclays CEO Energy-Power Conference September 15-16, 2010
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements based on our current expectations, and neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by applicable law. These forward-looking
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 Capitalizing on Strengthening Attractive Financial Fundamentals and Risk Profiles Delivering Superior Shareholder Returns Improving Focusing on Regulatory Green Resources Environment Compelling Capital Investment Opportunities
Slide 5: Focusing on Core Regulated Electric Utility Business
Focusing on Core Regulated Electric Utility Business We are Arizona’s largest and longest-serving electric utility. NYSE Ticker: PNW Market Cap: $4 Billion Enterprise Value: $8 Billion Assets APS Service Territory June 30, 2010 1.1 million customers Vertically Integrated 35,000 square miles $12 Bill
Slide 6: Benefits of Non-Utility Asset Divestitures
Benefits of Non-Utility Asset Divestitures Transactions demonstrate focus on core utility business, while maximizing asset values and eliminating related debt. SunCor real estate divestiture (2009-2010) Substantially complete IDAHO Eliminated SunCor’s debt and future Boise real estate earnings v
Slide 7: Positive Long-Term Demographics
Positive Long-Term Demographics Arizona has ranked in the top five for population growth over the last 20 years. APS expects strong future customer growth, in spite of current economic slowdown. Superior Historical Growth APS Customer Growth Annual Growth Millions 2.0 6% 1.7 5% 52% 1.5 4% 1.1 3% 1.0
Slide 8: Intense Focus on Operational Excellence
Intense Focus on Operational Excellence We strive to maintain top-tier performance throughout our business, and continually raise the bar higher. Baseload Nuclear and Coal Fleet Capacity factors above industry averages Customer Satisfaction Ranked 3rd best nationally out of 55 electric utilities
Slide 9: Near-Term Resource Planning Issues
Near-Term Resource Planning Issues Arizona has stringent 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 energy component 30% of total requirement
Slide 10: APS Strong Commitment to Renewable Energy
APS Strong Commitment to Renewable Energy 2009 retail settlement enhanced commitments and regulatory support. December 2009 retail regulatory settlement provisions 1.7 million MWh additional renewable generation in service by end of 2015 About twice state Renewable Energy Standard requirement
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: AZ Sun Program
AZ Sun Program APS plans to add 100 megawatts of owned solar photovoltaic generation by the end of 2014. 100 MW photovoltaic solar plants to be owned by APS Up to $500 million capital investment To be in service in 2011 - 2014 Projects 15 MW at Luke Air Force Base (mid-2011) Additional p
Slide 13: APS Recent Renewable Resource Projects
APS Recent Renewable Resource Projects Substantial efforts underway to expand renewable energy for Arizona. Photovoltaic solar resources Turnkey contracts for ownership or long-term purchase power agreements to be 15-50 MW each Request for proposals issued January 2010 Proposals received April
Slide 14: APS Energy Efficiency Initiatives Increasing
APS Energy Efficiency Initiatives Increasing APS will double customers’ energy efficiency savings over the next three years. Cumulative Annual Energy Savings Associated with EE/DSM Programs Program costs currently GWh 2,000 recovered through retail DSM adjustor 1,500 Decoupling or other financia
Slide 15: Multi-Pronged Approach to ROE Improvement
Multi-Pronged Approach to ROE Improvement We are actively working to improve our return on equity. Electricity Rate Increases Regulatory Framework Improvements ROE Goal Improvement Cost Savings Initiatives Efficiency and Effectiveness Throughout Organization
Slide 16: Progressive 2009 Regulatory Settlement Positions APS Well for Next Two Years
Progressive 2009 Regulatory Settlement Positions APS Well for Next Two Years APS’ regulatory settlement has a number of benefits for investors. Retail base rate increase effective January 1, 2010 Strengthens APS’ earned ROE and financial condition and supports common dividend Provides greater
Slide 17: Opportunities to Continue Improving Regulatory Dialogue
Opportunities to Continue Improving Regulatory Dialogue Generic Dockets Decoupling and other financial mechanisms to promote energy efficiency Line extensions Feed-in tariffs Renewable transmission Energy efficiency rules Resource planning rules November 2, 2010 General Election Two se
Slide 18: 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 regulatory decisions. Enterprise-wide emphasis Better leverage technology Optimize assets Cost and resources Savings Effective, efficient execution Engaged, motivate
Slide 19: APS CapEx Drives Strong Rate Base Growth
APS CapEx Drives Strong Rate Base Growth We have reduced capital expenditures based on current economic conditions, yet still expect strong rate base growth. APS Capital Expenditures APS Rate Base $ Millions $ Billions 1,200 10 1,000 8 Generation 800 Transmission 6 600 Distribution 4 400 Other 2 200
Slide 20: Adequate Financing Access and Liquidity
Adequate Financing Access and Liquidity Our credit metrics have improved significantly over the past five years. 2010 Major Financing Activities Feb. $500 million APS revolver renewal Feb. $200 million PNW revolver renewal April $253 million common stock offering Credit Facilities Ratings Capacity P
Slide 21: Consolidated On-Going EPS
Consolidated On-Going EPS Improvement in on-going earnings of approximately 30% expected for 2010. EPS 2009 Actual: $2.33 per share $3.10 $2.95 Guidance as of August 3, 2010 $2.33 2010 $2.95 - $3.10 per share 2011 Estimated to be within guidance range provided for 2010, with some opportunity for
Slide 22: Top-Tier Dividend Yield
Top-Tier Dividend Yield Pinnacle West’s annual dividend is $2.10 per share. 8% 6% 5.3% 4.7% 4% 2% 2.0% 0% Aug. 31, Nov. 30, Feb. 28, May 31, Aug. 31, 2009 2009 2010 2010 2010 Pinnacle West Electric Utility Average S&P 500 Index
Slide 23: PNW: Our Value Proposition
PNW: Our Value Proposition Capitalizing on Strengthening Attractive Financial Fundamentals and Risk Profiles Delivering Superior Shareholder Returns Improving Focusing on Regulatory Green Resources Environment Compelling Capital Investment Opportunities
Slide 24: Appendix
2 o> PINNACLE WEST CAPITAL CORPORATION Appendix
Slide 25: PNW: Details of Our Value Proposition
PNW: Details of Our Value Proposition Capitalizing on Strengthening Financial Attractive Fundamentals and Risk Profiles Vertically integrated Investment-grade credit ratings electric utility and adequate liquidity High-growth service territory Risk reduction Diversified energy mix Conver
Slide 26: A Leadership Team of Industry Veterans
A Leadership Team of Industry Veterans Our top executives have more than 130 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Jim Don Mark Randy Dave Hatfield Robinson Schiavoni Edington Falck SVP & APS SVP EVP & EVP, CFO President Fossil Chief Nuclear G
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. Arizona Service Territory 1.1 million customer accounts 34,646 square miles Customer Growth 0.6% in 2009 Continental United States 1% average annual growth expected throug
Slide 28: 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 $3.0 Billion 89% 47% 45% 50% 43% 11% 8% 6% Residential Commercial Industrial Other
Slide 29: Customer Satisfaction … A Key Priority
Customer Satisfaction … A Key Priority Our employees take pride in providing top-tier customer service. Lowering Outage Time Outstanding Residential Per Customer Customer Satisfaction Rating Average Outage Rating Minutes/Year 700 125 APS 675 Industry 100 Average 650 625 75 600 50 575 550 25 525 0 50
Slide 30: 2009 APS Generation and Energy Fuel Mixes
2009 APS Generation and Energy Fuel Mixes Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 34,514 GWh 27,374 GWh 6,288 MW 36% 28% 17% 26% 54% 21% 18% Nuclear Coal Gas & Oil Purchased Power
Slide 31: Superior Power Plant Performance
Superior Power Plant Performance Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Performance Metrics 100% APS Commercial Availability 100% APS Capacity Factor Industry Industry Capacity Factor 92% 90% 88% 89% 90% APS 80% 80% 82% APS Industry 70% 70% 65% 60% 6
Slide 32: Arizona Corporation Commissioners
Arizona Corporation Commissioners Terms Through January 2011 Kristin Mayes Gary Pierce (Rep) Chairman (Rep) Elected November 2008, Terms Through January 2013 Sandra Kennedy (Dem) Paul Newman (Dem) Bob Stump (Rep)
Slide 33: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement The regulatory settlement has a number of benefits from investors’ perspective. Increased retail base rates effective January 1, 2010 Strengthens APS’ earned ROE and financial condition and supports common dividend Provides greater level of cost recovery
Slide 34: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement Settlement provisions include earnings support until next rate case. Estimated Pretax Earnings Benefits ($ 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 35: 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 36: 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 37: 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 38: Constructive Transmission Rate Regulation
Constructive Transmission Rate Regulation We have achieved constructive transmission rate treatment. FERC Formula Rates adopted in 2008 Adjusted annually with 10.75% allowed ROE Based on FERC Form 1 and certain projections Retail portion flows through ACC Transmission Cost Adjustor (TCA) R
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 Effective Date 1/1/2010 6/1/2010 16% Test Year Ending 12/31/2007 12/31/2009 Generation & Distribution Rate Base $5.
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: 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 Adjusted Description Power Supply Adjustor April 2005 / Recovers 90% of variance between actual fuel and purchased powe
Slide 42: Further Transmission Investment is Key
Further Transmission Investment is Key Strategic investment is needed to maintain reliability and bring diversified resources to our customers. NAVAJO 10-Year Transmission Plan FOUR NORTH CORNERS 100 MW (115kV and above): 970 MW $520 million of new transmission investment BAGDAD FLAGSTAFF (APS )
Slide 43: 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 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.
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
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