Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Credit Suisse 2008 Energy Summit
50 slides from Pinnacle West Capital's conference presentation, Feb 5, 2008
Slide 1: Credit Suisse 2008 Energy Summit
Credit Suisse 2008 Energy Summit February 5, 2008
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements based on current expectations, and neither Pinnacle West Capital Corporation (“Pinnacle West”) nor Arizona Public Service Company (“APS”) assumes any obligation to update these statements or make any further statements
Slide 3: Create Shareholder Value
Create Shareholder Value Customer service excellence Solid operating performance Cost management focus Constructive regulatory outcomes Real estate asset optimization Shareholder value
Slide 4: Regulatory Initiatives
Regulatory Initiatives Promote interactive and cooperative regulatory process Respond to ACC “growth should pay for itself” Address resource planning Expand renewables and promote energy efficiency programs Address earnings attrition
Slide 5: Who Should Pay for Growth?
Who Should Pay for Growth? October 22, 2007 Fees for Service “Arizona Corporation Commission “This freebie was costing regulators are exploring ways ratepayers,” Commissioner to require property owners to pay Mayes said. “We are going for services traditionally provided to require growth to pay for
Slide 6: APS Proposed Amendments to Line Extension Schedule
APS Proposed Amendments to Line Extension Schedule ACC 2007 rate order required APS to file amendments to eliminate allowances for new service Shift burden of rising distribution infrastructure costs away from current customer base to growth
Slide 7: APS Proposed Amendments to Line Extension Schedule
APS Proposed Amendments to Line Extension Schedule APS proposed amendments • Collect line extension costs on current basis $3,500 - $5,000 per new meter set • Account for amounts collected as revenue • Grandfather existing line extension agreements
Slide 8: FERC Transmission Rate Case
FERC Transmission Rate Case $37 million wholesale rate increase requested • $30 million applicable to APS retail rates Proposed formula-based rates with annual adjustment Rate base: $847 million Capital structure: 47% debt, 53% equity ROE requested: 11.3% 2006 test year
Slide 9: FERC Rate Case Time Line
FERC Rate Case Time Line FERC request filed July 10, 2007 FERC rates effective March 1, 2008 (subject to refund) APS retail adjustor • Application filed December 31, 2007 • Rates requested effective March 1, 2008 • ACC Staff recommendation filed January 28, 2008
Slide 10: Fundamental Market Growth
Fundamental Market Growth Arizona Arizona vs vs U.S. U.S. Metro Metro Phoenix Phoenix Population Population Growth Growth Single-Family Single-Family Building Building Permits Permits 4% 4% 50,000 50,000 3% 40,000 40,000 3% 30,000 30,000 2% 2% 20,000 20,000 1% 1% 10,000 10,000 0% 0% 00 2003 2003 200
Slide 11: APS Resource Requirements for Native Load
APS Resource Requirements for Native Load 2006 - 2010 Average Annual Growth 3.5% MW 10,000 10,000 Peak Load & Reserves 8,000 8,000 6,000 6,000 4,000 4,000 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 Projected Long-term Resources Market Purchases Peaking Shortfall
Slide 12: APS 2nd in Customer Satisfaction Among Western Electric IOU's
APS 2nd in Customer Satisfaction Among Western Electric IOU’s Residential Commercial J.D. J.D. Power Power J.D. J.D. Power Power Rating Rating Rating Rating 800 800 APS 800 800 APS 750 750 750 750 700 700 700 700 650 650 650 650 600 600 600 600 550 550 550 550 500 500 500 500 2007 J.D. Power Custome
Slide 13: Top-Tier Coal Performance
Top-Tier Coal Performance Capacity Capacity Factors Factors 2007 2007 Highlights Highlights 100% 100% Record Record fleet fleet capacity capacity factors factors for for fourth fourth straight straight year year 75% 75% Cholla Cholla •• Set Set new new production production record record 5.1 5
Slide 14: Nuclear Challenges & Opportunities
Nuclear Challenges & Opportunities Capacity Capacity Factors Factors 100% 100% Top Top U.S. U.S. power power producer producer past past 15 15 years years 75% 75% Unit Unit 11 vibration vibration issue issue resolved resolved inin 2006 2006 50% Goal Goal to to achieve achieve site site 50%
Slide 15: SunCor Overview
SunCor Overview Commercial and residential real estate developer in IDAHO Western U.S. Boise Total assets = $673 million Equity = $289 million Diverse geographic and business mix UTAH • 6 master-planned communities St. George • 3 major commercial projects Sedona • 500,000 square feet Prescot
Slide 16: SunCor Gross Margin Contribution by Business Line
SunCor Gross Margin Contribution by Business Line $$ Millions Millions Pretax Pretax 175 175 Home Home Sales Sales 150 150 Condo Condo Sales Sales 125 125 100 100 Land Land Sales Sales 75 75 Commercial Commercial Property Property & & Management Management 50 50 Sale Sale of of Assets Assets** 25 25
Slide 17: Consolidated EPS Summary
Consolidated EPS Summary 4th Quarter Year Per Per Share Share Per Per Share Share $0.50 $4.00 $3.27 $3.05 $0.40 $3.00 $0.30 $2.00 $0.18 $0.20 $1.00 $0.10 $0.03 $0.00 $0.00 2007 2006 2007 2006
Slide 18: Consolidated EPS Summary of Major Variances
Consolidated EPS Summary of Major Variances 4th Quarter 2007 vs 4th Quarter 2006 $$ 0.05 0.05 Retail Retail sales sales growth growth $$ 0.03 0.03 Rate Rate increase increase impacts impacts $$ 0.03 0.03 Lower Lower other other taxes taxes $(0.17) $(0.17) Higher Higher O&M O&M costs costs $(0.04) $(
Slide 19: Consolidated EPS Summary of Major Variances
Consolidated EPS Summary of Major Variances Year 2007 vs Year 2006 $$ 0.28 0.28 Retail Retail sales sales growth growth $$ 0.23 0.23 Weather Weather effects effects $$ 0.13 0.13 Rate Rate increase increase impacts impacts $$ 0.05 0.05 Marketing Marketing & & trading trading $(0.37) $(0.37) SunCor Su
Slide 20: 2008 Earnings Guidance
2008 Earnings Guidance As of January 30, 2008 Consolidated earnings expected to be within reasonable range around $2.50 per share • APS 2008 earnings –– Basically flat compared with 2007 excluding abnormal weather and prior years’ tax adjustments –– Assumes new transmission rates effective March 1
Slide 21: Cost Review Staff Reduction
Cost Review Staff Reduction Targeted reduction – 300 positions Targeted completion – end of first quarter 2008 $7 million estimated pretax annual O&M savings
Slide 22: Cost Review Non-Staff O&M Reductions
Cost Review Non-Staff O&M Reductions Process efficiencies and reduction of projects throughout organization Reductions in medical expenses, communications and advertising costs $7 million estimated pretax annual savings
Slide 23: Cost Review Capital Expenditure Reductions
Cost Review Capital Expenditure Reductions More than $200 million over next five years • $130 million Slower projected customer growth • $ 60 million Improved planning, logistics and scheduling • $ 20 million Deferral of system upgrades and projects not affecting reliability
Slide 24: Significant Capital Investment to Support Growth
Significant Capital Investment to Support Growth $$ Millions Millions 1,400 1,400 1,200 1,200 APS APS Distribution Distribution 1,000 1,000 800 800 APS APS Transmission Transmission 600 600 APS APS Generation Generation 400 400 200 200 Other Other 00 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009
Slide 25: Strong Equity Ratios to Support Growth
Strong Equity Ratios to Support Growth Consolidated Consolidated APS APS 60% 60% 60% 60% 52% 52% 49% 49% 50% 50% 50% 50% 40% 40% 40% 40% 30% 30% 30% 30% 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007* 2007* 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007* 2007* ** Unaudited Unaudited
Slide 26: U.S. Electric Utilities Dividend Yields
U.S. Electric Utilities Dividend Yields Pinnacle Pinnacle West West Annual Annual Dividend Dividend PNW PNW $2.10 $2.10 Per Per Share Share 6% 6% 5.0% 5.0% 5% 5% Industry Industry Average Average 4% 4% 3.6% 3.6% 3% 3% 2% 2% 1% 1% 0% 0% Pinnacle Pinnacle West West Electric Electric Utilities Utilitie
Slide 27: Summary
Summary Customer service excellence Solid operating performance Cost management focus Constructive regulatory outcomes Real estate asset optimization Shareholder value
Slide 28: meee’
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Slide 29: Appendix
Appendix
Slide 30: Current Credit Ratings Profile
Current Credit Ratings Profile S&P S&P Moody’s Moody’s Fitch Fitch Pinnacle Pinnacle West West (Parent) (Parent) Senior Senior Unsecured Unsecured Debt* Debt* BB+ BB+ Baa3 Baa3 N/A N/A Commercial Commercial Paper Paper A3 A3 P3 P3 F3 F3 Outlook Outlook Stable Stable Negative Negative Negative Negati
Slide 31: Liquidity Resources
Liquidity Resources APS $400 million revolver through December 2010 $500 million revolver through September 2011 Next long-term debt maturity 2011 As of December 31, 2007 • Short-term borrowing approximately $200 million • Cash and invested position approximately $50 million Pinnacle West (p
Slide 32: Arizona Corporation Commissioners
Arizona Corporation Commissioners Party Party Commissioner Commissioner Term Term Commissioner Commissioner Affiliation Affiliation Since Since Expires Expires Mike Mike Gleason, Gleason, Chairman Chairman Republican Republican Jan. Jan. 2003 2003 Jan. Jan. 2009 2009 Jeff Jeff Hatch-Miller Hatch-Mil
Slide 33: APS Retail Rate Case Summary of Request and Final Order
APS Retail Rate Case Summary of Request and Final Order APS Rate ACC Final Request 2007 Order Annual Annual base base rate rate increase increase Fuel-related Fuel-related $$ 315M 315M $$ 315M 315M Non-fuel Non-fuel 120M 120M 7M 7M Total Total $$ 435M 435M $$ 322M 322M Percent Percent increase incre
Slide 34: 2007 ACC Rate Case Decision Key Components
2007 ACC Rate Case Decision Key Components Updated base fuel rate to 2007 levels Improved timely recovery of fuel and purchased power costs Validated APS’ fuel hedging and procurement programs Reflected APS’ requested capital structure Implemented environmental improvement surcharge Bega
Slide 35: Power Supply Adjustor Revisions
Power Supply Adjustor Revisions Effective July 1, 2007 Annual adjustor components • Forward-looking estimate of fuel and purchased power costs • True up to reconcile prior-year actual and estimated costs 4 mill/kWh annual cap on PSA rate changes • Previously 4 mill/kWh lifetime cap
Slide 36: PSA Annual Adjustor and Surcharges
PSA Annual Adjustor and Surcharges Mills/kWh Duration 2007 annual adjustor 4.0 2/1/07 – mid-2008* Palo Verde 2005 deferral surcharge 1.2 7/1/07 – 6/30/08 2008 annual adjustor 4.0 2/1/08 – 1/31/09 * Extended to collect $46 million 2007 deferrals related to mid-2007 implementation of new base rates
Slide 37: APS Retail Service Territory
APS Retail Service Territory Phoenix APS Retail Service Territory
Slide 38: Arizona's Standing in U.S. Population Growth
Arizona’s Standing in U.S. Population Growth 4 9 1 3 8 6 10 2 5 7 Annual percent change 2006 – 2007, U.S. Census Bureau
Slide 39: Economic Growth Underpins Retail Sales Growth
Economic Growth Underpins Retail Sales Growth Annual Growth 6% 6% 4% 4% 2% 2% 0% 0% 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 Arizona Population APS Customers APS Retail Sales* * Weather normalized
Slide 40: APS 2007 Retail Customer and Sales Mix
APS 2007 Retail Customer and Sales Mix 1.1 Million Customers 29,172 GWh Sales 89% 47% 44% 11% 9% Residential Commercial Industrial
Slide 41: 2007 Energy Fuel Mix
2007 Energy Fuel Mix Consolidated Native Load Coal Coal 29% 29% 40% 40% Nuclear Gas 17% 17% 15% 15% Nuclear Gas Purchased 24% 24% 19% 19% Power 17% 17% 39% 39% Purchased Power
Slide 42: New Gas Resources
New Gas Resources 96 MW gas peaking asset • Yuma CTs • Under construction • In service summer 2008 560 MW gas purchase power agreement • 10-year term beginning June 2010 • Summer product, expanding to 6 months as needed
Slide 43: Renewable Resource Requirements
Renewable Resource Requirements Arizona Renewable Energy Standard (RES) Sets minimum renewable energy amounts • 5% of energy for retail sales by 2015 • 15% of energy for retail sales by 2025 Includes distributed energy component • 30% of total by 2011
Slide 44: Potential Inter-Regional Transmission
Potential Inter-Regional Transmission Expand resources to meet rapid load growth Wyoming Enhance resource portfolio reliability and Nevada economics Utah Increase system California import capability Improve fuel diversity Arizona New Mexico Access renewable TransWest TransWestExpress Expre
Slide 45: Arizona Transmission System
Arizona Transmission System UTAH UTAH UTAH COLORADO NAVAJO SHIPROCK SAN MEAD/ GLEN CANYON JUAN MARKETPLACE/ LAS VEGAS TRIBAL FOUR FOUR LAND CORNERS CORNERS MOENKOPI FLAGSTAFF MCKINLEY CHOLLA CORONADO CALIFORNIA SPRINGER- VILLE BOUSE PINNACLE PEAK CALIFORNIA WEST WING PERKINS PALO VERDE LIBERTY GREEN
Slide 46: WECC Available Transmission Capability
WECC Available Transmission Capability 3,007 4,038 2,678 6,453 440 225 Summer 2007 estimates (MW)
Slide 47: SunCor Project Diversity by Type
SunCor Project Diversity by Type Legacy Properties Post-1990 Properties $ Millions $ Millions 500 500 400 400 300 300 200 200 100 100 0 - 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 Master Planned Master Planned Owned Ventures with Landowners Commercial & Other
Slide 48: SunCor Geographic Project Diversity
SunCor Geographic Project Diversity Legacy Properties Post-1990 Properties $ Millions $ Millions 400 500 400 300 300 200 200 100 100 0 0 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 Metro Phoenix Northern Arizona Utah New Mexico Idaho
Slide 49: SunCor Active Projects
SunCor Active Projects Year Original 12/31/07 Acquired Acreage Acreage Master-Planned Communities Palm Valley (Phoenix, AZ) 1987 11,300 2,500 Rancho Viejo Phase I (Santa Fe, NM)* 1996 2,500 1,500 Coral Canyon (St. George, UT)* 1998 2,500 750 StoneRidge (Northern AZ)* 2001 1,840 1,100 Avimor (Boise,
Slide 50: Social Responsibility Awards
Social Responsibility Awards Innovest’s Innovest’s highest highest rating rating (AAA) (AAA) and and ranked ranked #2 #2 electric electric utility utility Dow Dow Jones Jones Sustainability Sustainability Index Index Global Global 100 100 Most Most Sustainable Sustainable Corporations Corpo
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