Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — EEI Financial Conference 2015
47 slides from Pinnacle West Capital's conference presentation, Nov 8, 2015
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE EEI Financial Conference | November 8 - 10, 2015 Powering Growth, Delivering Value
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES 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
Slide 3: Pinnacle West: Who We Are
We are a vertically integrated, PINNACLE WEST: regulated electric utility in the WHO WE ARE growing southwest U.S. Pinnacle West (NYSE: PNW) - Market Capitalization*: $7.1 billion - Enterprise Value*: $10.8 billion - Consolidated Assets: $14.9 billion - Indicated Annual Dividend*: $2.50 - Dividend Y
Slide 4: 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 5: Rate Base
APS’s revenues come from a RATE BASE regulated retail rate base and meaningful transmission business APS Rate Base Growth $7.0 Billion Total Rate Base Year-End ACC FERC Generation & Distribution Transmission 17% $1.8 83% $1.5 $1.3 Most Recent Rate Decisions ACC FERC $7.6 Rate Effective Date 7/1/2012
Slide 6: Capital Expenditures
70% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (30%) and depreciation cash flow (40%) ($ Millions) $1,285 $81 Other $1,111 $1,056 $85 $317 Distribution $89 $883 Transmission $73 $347 $336 $180 $1 Renewable $242 Generation $125 $198 $193 $13 Environmental $192 $
Slide 7: 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 2015 12,000 27.2% 9.8% 10,000 18.9% Resource Planning Gas 35.0% Requirement 9
Slide 8: 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, healthcare, tourism, 10.0% financial activities, business services, and consumer services adding jobs at 5.0% a rate above 3% 0.0% Phoeni
Slide 9: 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 10: Solar Partner Program
SOLAR PARTNER Learning how to efficiently enable the integration of rooftop solar PROGRAM and battery storage with our grid • Overview – Installing 10 MW of APS-owned residential PV systems on 1,500 homes – Advanced controllable inverters that can vary power output depending on grid conditions – Inc
Slide 11: Solar Innovation Study
Examining the integration of SOLAR INNOVATION behind the meter advanced STUDY technologies with demand-based rates • Overview – Installing APS-owned residential PV systems on 75 homes with various configurations of battery storage, energy efficiency, demand controls and smart thermostats connected t
Slide 12: Advanced Metering Infrastructure (AMI 2.0)
ADVANCED METERING INFRASTRUCTURE (AMI 2.0) • Overview – APS began deploying advanced “smart” meters in 2006, reaching full deployment with 1.2 million meters in 2014 – In 2015, APS started replacing 140,000 end-of-life meters with advanced meters • Benefits – Building a more interoperable advanced m
Slide 13: Ocotillo Power Plant (Tempe, AZ)
OCOTILLO POWER PLANT (TEMPE, AZ) • Overview Existing – Maintains system reliability through retirement of aging steam units – Replacement units more efficient and meet need for fast-ramping capability New • Benefits – Aids integration of renewables • Estimated cost: $500M • Expected timeline – Early
Slide 14: Rate Design Modernization
RATE DESIGN MODERNIZATION Rate Changes Needed to Align Components of Modern Rates Fixed Costs and Revenues • Demand Rate – Charge for maximum kW draw in any hour of the month; appropriate for recovering fixed costs that vary with the Variable Costs – APS customer’s max load (versus kWh) Costs Reside
Slide 15: APS Cost of Service Analysis
APS COST OF SERVICE Results show customers with solar do not pay entire cost to ANALYSIS serve • Cost of Service study shows specific costs incurred to deliver electric service to customers • Study credits solar customers the measurable costs that APS avoids, primarily reduced fuel Cost of Service f
Slide 16: APS Rate Design: A Solid Foundation to Build On
APS 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 APS residential customer base has grown from 400,000 in early 1980’s to over one million today 100% 75% 50% 25% 0% Standard TOU - Energy TOU - Demand
Slide 17: Key Dates for Rate Design
KEY DATES FOR RATE DESIGN • Residential demand rates started due • Time of Use rates initiated - Nearly to central air conditioning load Early half of our residential customers are (currently about 10% of customers 1980’s on TOU rates have a rate with a demand charge) • Net metering Technical Worksh
Slide 18: Palo Verde Nuclear Generating Station
PALO VERDE NUCLEAR Largest nuclear generating plant GENERATING STATION in the United States • Total Capacity: 4,000 MW (3 units) Low risk of natural events at Palo Verde – APS operated – APS share: 1,146 MW – Output: 32.3 million MWh in 2014 – Approximately 2,800 employees In Service License* Unit 1
Slide 19: 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 20: 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 17% 9% 15% Percent of Portfolio MWh 10% EE/DR 15% 19% Renewable Energy Natural Gas 35% 35% Coal 17% Nuclear 27% 18% 2015 2029 Emissions • Four Corners: 2013 transactio
Slide 21: 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: To secure and maintain a sustainable and cost-effective supply of water to enable reliable energy production for APS customers Mission: To d
Slide 22: Arizona Corporation Commission and Residential Utility Consumer Office
ARIZONA CORPORATION COMMISSION AND RESIDENTIAL UTILITY CONSUMER OFFICE Terms to January 2017 Terms to January 2019 Susan Bob Bob Tom Doug Bitter Smith (R) Burns (R) Stump (R)* Forese (R) Little (R) Chairman Other State Officials ACC Staff Director - Tom Broderick RUCO Director - David Tenney (R) * T
Slide 23: 2015 Key Dates
2015 KEY DATES ACC Key Dates Docket # Q1 Q2 Q3 Q4 Key Recurring Regulatory Filings Lost Fixed Cost Recovery E-01345A-11-0224 Jan 15 Net Metering – Quarterly Installation Filings E-01345A-13-0248 Jan 15 Apr 15 Jul 15 Oct 15 Transmission Cost Adjustor E-01345A-11-0224 May 15 Renewable Energy Surcharge
Slide 24: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 25: Leadership Team
Our top executives have more than 100 combined years of LEADERSHIP TEAM creating shareholder value in the energy industry Don Brandt Chairman & Chief Executive Officer Jim Mark Randy Jeff Hatfield Schiavoni Edington Guldner EVP & Chief EVP & Chief EVP & SVP Financial Operating Chief Nuclear Public P
Slide 26: On-Going EPS Guidance
ON-GOING EPS GUIDANCE AS OF OCTOBER 30, 2015 Key Drivers 2015 - 2016 $3.90 - $4.10* + Adjustment mechanisms, $3.75 - $3.95* primarily Transmission Cost Adjustor (TCA) and Lost Fixed Cost Recovery (LFCR) + Modest sales growth – Higher O&M, primarily planned fossil outages 2015 Guidance 2016 Guidance
Slide 27: 2015 On-Going EPS Guidance
2015 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE October 30, 2015 2015 Electricity gross margin* (operating revenues, net of fuel and $2.27 – $2.32 billion purchased power expenses) • Retail customer growth about 1.0-2.0% • Weather-normalized retail electricity sales volume about 0-1.0% to
Slide 28: 2016 On-Going EPS Guidance
2016 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE October 30, 2015 2016 Electricity gross margin* (operating revenues, net of fuel and $2.34 – $2.39 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% to
Slide 29: Operations & Maintenance Outlook
OPERATIONS & Goal is to keep O&M per kWh flat, MAINTENANCE adjusted for planned outages OUTLOOK ($ Millions) $114 $137 $103 $150 $124 $104 $775 - $825 - $805 $795 $845 $761 $788 $754 2011 2012 2013 2014 2015E 2016E PNW Consolidated RES/DSM* *Renewable energy and demand side management expenses are o
Slide 30: Financial Outlook
Key Factors & Assumptions as of FINANCIAL OUTLOOK October 30, 2015 Gross Margin – Customer Growth and Weather (2015-2017) 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 31: 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 $2.10 2011 2012 2013 2014 2015 2016 2017 Projected Future dividends subject to declaration at Board of Dire
Slide 32: Balance Sheet Strength
BALANCE SHEET STRENGTH Debt Maturity Schedule Credit Ratings ($Millions) • A- rating or better at S&P, Moody’s and Fitch $500 2015 Major Financing Activities • $250 million 5-year 2.20% APS senior unsecured $400 notes issued in January 2015 • $300 million 10-year 3.15% APS senior unsecured notes iss
Slide 33: Credit Ratings and Metrics
CREDIT RATINGS AND Key credit metrics remain strong METRICS APS Parent 2010 2011 2012 2013 2014 Corporate Credit Ratings APS Moody’s A2 A3 FFO / Debt 23.7% 23.6% 27.7% 31.5% 26.6% S&P A- A- FFO / Interest 3.3x 4.2x 4.8x 5.6X 5.8x Fitch A- A- Debt / 52.6% 52.9% 50.7% 47.7% 46.3% Capitalization Senior
Slide 34: Operational Excellence
OPERATIONAL EXCELLENCE Customer Satisfaction Palo Verde Ranked 5th highest nationally among 54 large investor-owned electric Palo Verde has exceeded its own record for generation–32.3 million utilities in 2014 J.D. Power residential customer survey. megawatt-hours annual production in 2014. Palo Ver
Slide 35: Four Corners Power Plant
FOUR CORNERS POWER PLANT • On December 30, 2013, APS and Southern California Edison (“SCE”) completed previously announced transaction whereby APS agreed to purchase SCE’s 48% interest in Units 4 and 5 of Four Corners – Final purchase price: $182 million – APS will continue to operate Four Corners a
Slide 36: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2015 (115 kV and above) – 275 miles of new lines – Includes Hassayampa-North Gila (HANG2) • ~110 miles; 500kV Flagstaff • C
Slide 37: Bright Canyon Energy – Transmission Growth
BRIGHT CANYON ENERGY – TRANSMISSION GROWTH BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities WECC TRANSCANYON A 50/50 Joint Venture formed with BHE U.S. Transmission, subsidiary of Berkshire Hathaway Energy, to pursue transmission opportunities in the western Un
Slide 38: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Renewable Energy (RES) Requirements Energy Efficiency Requirements • Portion of retail sales to be supplied by • Cumulative savings from energy renewable resources efficiency programs must be equivalent – 5% by 2015* to 22% of annual retai
Slide 39: 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 40: APS Is a Leader in Solar
APS IS A LEADER IN SOLAR APS Solar Portfolio AZ Sun Projects Capacity Developer Actual COD* Paloma 17 MW First Solar Sep 2011 AZ Sun PPA Cotton Center 17 MW Solon Oct 2011 174 MW 310 MW Hyder Phase 1 11 MW SunEdison Oct 2011 Hyder Phase 2 5 MW SunEdison Feb 2012 DG 452 MW Chino Valley 19 MW SunEdiso
Slide 41: Net Metering
Rooftop solar customers still NET METERING use the grid 24 hours a day TYPICAL GRID INTERACTION FOR ROOFTOP SOLAR • Customers with rooftop solar systems do not pay for all of the electric services they use (i.e. rooftop customers still need support from the grid 24 hours a day) • These unpaid costs
Slide 42: Operational Considerations with Increased Variable Generation
OPERATIONAL CONSIDERATIONS WITH INCREASED VARIABLE GENERATION The grid provides real-time voltage and • Steep ramp rate of backup generation power needed to start air conditioners and • Instant variability other motors loads (for typical AC unit) • Voltage control at distribution level 42 Powering G
Slide 43: Residential PV Applications
RESIDENTIAL PV APPLICATIONS Residential DG (MW) Annual Additions 51 57 44 1,800 23 15 19 1,600 79 2009 2010 2011 2012 2013 2014 1,400 1,479 96 106 94 1,200 1,235 1,272 38 1,203 1,161 1,000 113 65 69 950 81 92 800 108 859 100 872 851 70 795 754 53 70 719 720 600 112 648 629 47 517 47 532 400 36 86 44
Slide 44: Regulatory Mechanisms
We have achieved a more REGULATORY supportive regulatory structure MECHANISMS and improvements in cost recovery timing Mechanism Adopted Last Adjusted Description • Recovers variance between actual fuel and purchased power costs Power Supply April 2005 February 2015 and base fuel rate Adjustor (“PSA
Slide 45: Generation Portfolio
GENERATION PORTFOLIO* Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 6472 COAL Four Corners Farmington, NM 4, 5 Base 1969-1970 63 970 1,932 MW Navajo
Slide 46: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Fuel/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
Slide 47: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Paul J. Mountain, CFA Director, Investor Relations Telephone: (602) 250-4952 E-mail: paul.mountain@pinnaclewest.com Chalese Haraldsen Telephone: (602) 250-5643 E-mail: chalese.haraldsen@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 P
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