Pinnacle West Capital Corporation · NYSE:PNW

Pinnacle West Capital — Pinnacle West 2002 Analyst Conference

31 slides from Pinnacle West Capital's conference presentation, Oct 18, 2002

  1. Slide 1: Financial Overview

    Financial Overview Mike Palmeri Analyst Conference October 18, 2002  2002 Pinnacle West Capital Corporation

  2. Slide 2: Pinnacle West Financial Focus

    Pinnacle West Financial Focus Q Manage business strategies for superior long-term shareholder value creation Q Continue superior long-term combined earnings and dividend growth Q Improve balance sheet strength Q Ensure adequate liquidity 2  2002 Pinnacle West Capital Corporation

  3. Slide 3: Economic Outlook

    Economic Outlook  2002 Pinnacle West Capital Corporation

  4. Slide 4: Arizona Vs. U.S. Population Growth

    Arizona Vs. U.S. Population Growth Percentage Change 4 3 2 1 0 '97 '98 '99 '00 '01 '02 '03 '04 Projected Arizona U.S. 4  2002 Pinnacle West Capital Corporation

  5. Slide 5: Phoenix Single-Family Building Permits

    Phoenix Single-Family Building Permits Thousands 35 33 31 29 27 25 '97 '98 '99 '00 '01 '02 '03 '04 Projected 5  2002 Pinnacle West Capital Corporation

  6. Slide 6: Maricopa County Real Non-Residential Investment Activity

    Maricopa County Real Non-Residential Investment Activity Y/Y Change 150% 100% 50% 0% -50% 1998 1999 2000 2001 2002* Office Buildings Total * Year-to-date March 2002 6  2002 Pinnacle West Capital Corporation

  7. Slide 7: Arizona vs. U.S. Wage and Salary Employment Growth

    Arizona vs. U.S. Wage and Salary Employment Growth Percentage Change 5 4 3 2 1 0 -1 '97 '98 '99 '00 '01 '02 '03 '04 Projected Arizona U.S. 7  2002 Pinnacle West Capital Corporation

  8. Slide 8: Superior APS Retail Customer Growth

    Superior APS Retail Customer Growth Percent 5.0 4.0 3.0 2.0 1.0 0.0 1997 1998 1999 2000 2001 2002 2003 2004 Projected APS Industry Average 8  2002 Pinnacle West Capital Corporation

  9. Slide 9: Earnings Drivers: 2002 vs. 2001 Regulated

    Pinnacle West Earnings Drivers * 2002 vs. 2001 (After-tax) Q Regulated • Customer sales growth (RNF) $32M • Fuel, purchased power, reliability and outages 80M • Off system sales (68M) • Severance costs (22M) • Pension/OPEB expense (6M) • Depreciation and other (10M) * Estimated change in income befo

  10. Slide 10: Earnings Drivers: 2002 vs. 2001 Other Unregulated

    Pinnacle West Earnings Drivers * 2002 vs. 2001 (After-tax) Q Other Unregulated • Marketing and Trading $(62M) • Unregulated generation (11M) • Holding company costs (7M) • APS Energy Services 20M • SunCor/El Dorado (1M) * Estimated 10  2002 Pinnacle West Capital Corporation

  11. Slide 11: Earnings Drivers: 2003 vs. 2002 Regulated

    Pinnacle West Earnings Drivers * 2003 vs. 2002 (After-tax) Q Regulated • Customer sales growth (RNF) $44M • No severance costs 22M • O&M target reductions 18M • Pension/OPEB expense (13M) • Higher gas and power costs (59M) • Depreciation and other (13M) * Estimated 11  2002 Pinnacle West Capital Co

  12. Slide 12: Earnings Drivers: 2003 vs. 2002 Unregulated

    Pinnacle West Earnings Drivers * 2003 vs. 2002 (After-tax) Q Unregulated • Marketing and Trading - • Unregulated generation - • Holding company costs - • SunCor & El Dorado + Neutral * Estimated 12  2002 Pinnacle West Capital Corporation

  13. Slide 13: Power Marketing and Trading Results

    Pinnacle West Power Marketing and Trading Results Estimated Gross Margin Realized MTM Gains* $317M $64M $171M $126M $28M $29M $12M $29M $18M 90% 58% 84% ‘98 ‘99 ‘00 ‘01 TME ‘02 ‘03 ‘04 ‘05 & 6/30/02 thereafter Net change in mark-to-market * Based on accumulated mark-to- Realized gain market gains as

  14. Slide 14: Limited capital devoted to Power Marketing and Trading business

    Limited capital devoted to Power Marketing and Trading business < 3.5% of Total Assets 14  2002 Pinnacle West Capital Corporation

  15. Slide 15: Accounting Topics

    Accounting Topics Asset Retirement Q Effective 1/2003; Obligation - Expect no material FAS 143 impact to earnings Stock Options - Q Elected to adopt FAS 123 July 1, 2002 Q Applied on a prospective basis Q Estimated earnings effect of under $0.5M in 2002; normalized level of $1.5M 15  2002 Pinnacle

  16. Slide 16: Final Accounting Guidance - Trading Contracts (EITF 02-3)

    Final Accounting Guidance - Trading Contracts (EITF 02-3) Q Applies to previously recorded gross revenues and purchased power costs for electricity trading under EITF 98-10 Q New guidance adopted July 2002 requires trading contracts to be recorded on net basis in revenues Q Gross margins are not imp

  17. Slide 17: Pension Contributions

    Pension Contributions $ Millions Q Company contributions 80 in recent years were optional 60 Q Cash contributions will likely be required 40 in 2003 20 '99 '00 '01 '02 '03* * Estimated range 17  2002 Pinnacle West Capital Corporation

  18. Slide 18: Other Benefit Cost Impacts

    Other Benefit Cost Impacts Q Pension • Lower investment returns are expected to impact other comprehensive income with a $60 - $100 million charge to equity Q Pension and OPEB expense • Estimated incremental after-tax pension and OPEB effects of approximately $5 million in 2002 and between $10-$15 m

  19. Slide 19: El Dorado Investment Company

    El Dorado Investment Company Projected assets as of 12/31/02 $33 million NAC International Other High Tech Venture Investments Capital Partnership & Assets 19  2002 Pinnacle West Capital Corporation

  20. Slide 20: NAC International

    NAC International Q Spent nuclear fuel storage and transportation business • Recapitalization and consolidation to PNW in 3Q 2002 • Recovery plan designed to mitigate ongoing financial support 20  2002 Pinnacle West Capital Corporation

  21. Slide 21: Current Financing Plans With Regulatory Shift

    Current Financing Plans With Regulatory Shift Q Financing application • PWEC dedicated generation assets • APS balance sheet strength Q Access capital markets within 90 days of approval of financing application Q Preserves flexibility to seek appropriate regulatory treatment 21  2002 Pinnacle West

  22. Slide 22: Financial Benchmarks

    Financial Benchmarks  2002 Pinnacle West Capital Corporation

  23. Slide 23: Balancing Growth and Financial Strength

    Pinnacle West Balancing Growth and Financial Strength Capital Expenditures Consolidated Debt Ratio* $ Millions 2005 Target of ≤ 55% 1,200 60% 900 50% 600 40% 300 0 30% 2001 2002 2003 2004 2000 2001 6/30/02 2005 TME Other Generation Expansion * Includes Palo Verde sale/leaseback Existing Generation D

  24. Slide 24: Pinnacle West versus Industry Cash Flow Per Share

    Pinnacle West versus Industry Cash Flow Per Share $ per Share 10.00 8.89 8.80 8.11 8.64 7.69 7.39 8.00 6.42 5.42 5.46 6.00 4.75 4.92 5.04 4.00 2.00 0.00 1997 1998 1999 2000 2001 6/30/02 TME Pinnacle West S&P 500 Electric Index Average 24  2002 Pinnacle West Capital Corporation

  25. Slide 25: Pinnacle West versus Industry EBITDA Interest Coverage

    Pinnacle West versus Industry * EBITDA Interest Coverage Times 8 Pinnacle West 6 4 2 0 * S&P 500 Electric Index at 6/30/02 25  2002 Pinnacle West Capital Corporation

  26. Slide 26: Pinnacle West versus Industry Total Debt to EBITDA

    Pinnacle West versus Industry * Total Debt to EBITDA Times 12 Pinnacle West 10 8 6 4 2 0 * S&P 500 Electric Index at 6/30/02 26  2002 Pinnacle West Capital Corporation

  27. Slide 27: Pinnacle West versus Industry Annual Dividend Growth

    Pinnacle West versus Industry Annual Dividend Growth Percent 15 9.8 8.9 10 8.2 7.5 7.0 3.8 5 0.2 0.4 0 -1.4 -1.2 (5) 1997 1998 1999 2000 2001 Pinnacle West S&P 500 Electric Index Average 27  2002 Pinnacle West Capital Corporation

  28. Slide 28: Pinnacle West versus Industry Dividend Payout

    Pinnacle West versus Industry Dividend Payout Percent 146 150 125 100 81 75 64 58 75 41 43 42 40 39 50 25 0 1997 1998 1999 2000 2001 Pinnacle West S&P 500 Electric Index Average 28  2002 Pinnacle West Capital Corporation

  29. Slide 29: Pinnacle West versus Industry Dividend Growth - 5 Year CAGR

    Pinnacle West versus Industry * Dividend Growth - 5 Year CAGR Percent 10 Pinnacle West 8 6 4 2 0 * Reflects S&P 500 Electric Index companies with positive CAGR from 1996 - 2001 29  2002 Pinnacle West Capital Corporation

  30. Slide 30: Pinnacle West versus Industry Dividend Yield

    Pinnacle West versus Industry * Dividend Yield Percent 50 Pinnacle West 40 30 20 10 0 * Reflects S&P 500 Electric Index companies with declared dividends 12 months ended 6/30/02; stock price as of 10/8/02 30  2002 Pinnacle West Capital Corporation

  31. Slide 31: Financial Summary

    Financial Summary Q Commitment to strong dividend growth policy Q Solid cash flow results Q Focused on core business Q Maximize long-term asset values Q Active management of financial and business risks 31  2002 Pinnacle West Capital Corporation

Pinnacle West Capital — Pinnacle West 2002 Analyst Conference on 6ix