Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Bank of America Energy & Power Conference 2003
48 slides from Pinnacle West Capital's conference presentation, Nov 17, 2003
Slide 1: Maintaining Focus in a Changing Climate
Pinnacle West Capital Corporation Maintaining Focus in a Changing Climate Bank of America Energy & Power Conference November 17, 2003
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements based on current expectations and we assume no obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forward-looking statements are ofte
Slide 3: Pinnacle West Capital Corporation
Pinnacle West Capital Corporation • Largest electric utility in Arizona • Headquartered in Phoenix, Arizona, 6th largest U.S. city • Consolidated assets of $9 billion
Slide 4: Maintaining Focus in a Changing Climate
Maintaining Focus in a Changing Climate • A vertically integrated utility in a high-growth market area • Focusing on strong operational and financial performance • Pursuing constructive regulatory outcomes • Managing risks in changing energy markets • Creating long-term value for shareholders
Slide 5: Exceptional Customer Growth
Exceptional Customer Growth Leading 2002 Population Growth States 10 8 1 7 6 9 2 5 4 3
Slide 6: Superior Annual Customer Growth
Superior Annual Customer Growth APS - More Than Three Times National Average 6% 4% 2% Industry Industry Average Average 0% 1998 1999 2000 2001 2002 YT D 2003
Slide 7: APS' Growing Peak Load
APS’ Growing Peak Load 1999 - 2003 Annual Growth of 4.6% MW 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1999 2000 2001 2002 2003 2004 2005 Projected
Slide 8: Focusing on Strong Operational Performance
Focusing on Strong Operational Performance Generation • Palo Verde – top U.S. power producer • Top-tier baseload performance • Silverhawk construction on target Delivery • High customer growth and satisfaction • Superior reliability • Transmission and distribution expansion to meet growth and sustai
Slide 9: Top-Tier Generation Performance
Top-Tier Generation Performance 1998 – 2002 Baseload Averages Strong Operating Favorable Performance Production Costs $/MWh 100% 18 75% 17 50% 16 25% 15 0% 14 Net Net Equivalent Equivalent Equivalent Equivalent Capacity Availability Capacity Availability Forced Forced Factor Factor Factor Factor Out
Slide 10: Sustaining Outstanding Customer Satisfaction
Sustaining Outstanding Customer Satisfaction APS 3rd best among 120 56 electric utilities 110 100 90 80 70 60 Source: J.D. Power & Associates 2003 Electric Utility Residential Customer Satisfaction Survey (56 Companies)
Slide 11: Focusing on Operational Efficiency
Focusing on Operational Efficiency Average Customers per Employee 150 11% Efficiency Improvement 145 140 135 130 1998 1999 2000 2001 2002
Slide 12: Strong Transmission and Distribution Efficiency
Strong Transmission and Distribution Efficiency 2002 Top Quartile O&M/Customer $400 APS* $300 $200 Average Average $100 $0 * Excluding 2002 severance charges
Slide 13: APS Regulatory Strategy
APS Regulatory Strategy • Relationships built on consistency, accountability, performance and trust • Strong presentation of APS position • Focus on reliability issue • Settlement opportunities
Slide 14: General Rate Case
General Rate Case Key Provisions • 9.8% ($175 million) annual rate increase • Rate base treatment of 1,800 MW of PWEC Arizona assets • Recovery of previous $234 million write-off • Recovery of fuel and purchased power costs • 11.5% return on equity
Slide 15: APS Prices Low Relative to Consumer Price Index
APS Prices Low Relative to Consumer Price Index Cumulative Change 40 CPI 38% 30 20 10 0 APS 6% (10) (20) '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04
Slide 16: Planning for Growth and Reliability
Planning for Growth and Reliability APS System Load and Resources MW 12,000 Peak System Requirement + 10,000 15% Reserves 8,000 Resource Deficit 6,000 PWEC Assets & Track B 4,000 Existing APS Capacity 2,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Slide 17: ACC Procurement Process Demonstrates Need for PWEC Assets
ACC Procurement Process Demonstrates Need for PWEC Assets MW 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 2006 ACC Bid Amount Deliverable Non-PWEC Bids Undeliverable Non-PWEC Bids
Slide 18: General Rate Case Milestones
General Rate Case Milestones Filing June 2003 Discovery August 2003 – April 2004 Testimony January - March 2004 Hearing Begins April 7, 2004 Briefing Proposed Order Final Order
Slide 19: Financial Objectives
Financial Objectives • Achieve strong long-term financial performance • Maintain financial strength and flexibility • Preserve investment-grade credit ratings • Manage strong cash flow to support growth • Continue focus on cost management and operational efficiencies
Slide 20: 2003 Earnings Outlook
2003 Earnings Outlook Outlook: Lower half of $2.55 - $2.85 per share range Major factors: • Unplanned outages $(0.19) • Lower trading contributions $(0.14) • Tax credits $0.15 • AFUDC accounting $0.12 • Hot weather $0.02 to $0.05
Slide 21: 2004 Earnings Outlook
2004 Earnings Outlook Base level earnings = $2.50 per share Key assumptions: • Rate increase not reflected • No trading contributions • Combined SunCor and APS Energy Services earnings of $0.44 per share Sensitivities: • Rate increase + $0.00 - $0.76 • Weather variations +/- $0.11 • KWH sales variat
Slide 22: Earnings Outlook
Earnings Outlook Beyond 2004 and Rate Case Resolution At least $3.40 per share, assuming: • ACC grants APS’ rate request • Trading contributions of $0.07 per share • Combined SunCor and APS Energy Services earnings of $0.33 per share in 2005 and $0.11 per share after 2005
Slide 23: Strong EBITDA Interest Coverage
Strong EBITDA Interest Coverage Times 8 6 4 2 0 1998 1999 2000 2001 2002* Pinnacle W est S&P Electrics * Pinnacle West excluding non-recurring items
Slide 24: Balancing Growth & Financial Strength
Balancing Growth & Financial Strength Capital Expenditures Consolidated Debt Ratio* Excluding Excluding SunCor SunCor $ Millions 1,200 Percent 60 2005 Target of 50% 900 50 600 40 300 0 30 2001 2002 2003 2004 2005 2001 2002 2005 Projected Other * Includes Palo Verde sale/leaseback PW EC Generation AP
Slide 25: Consistent Historical Dividend Growth
Consistent Historical Dividend Growth $0.10 Per Share Annually Per Share $2.00 Most recent $1.80 increase 10/22/03 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Slide 26: Superior EPS and Dividend Growth
Superior EPS and Dividend Growth** 1998-2002 Earnings Per Share Dividends Per Share 10% 10% 5% 5% S&P PNW** PNW Electrics 0% 0% S&P Electrics (5)% (5)% * 5-year compound annual growth rates ** Excluding non-recurring items
Slide 27: Maintaining Focus in a Changing Climate
Maintaining Focus in a Changing Climate • A vertically integrated utility in a high-growth market area • Focusing on strong operational and financial performance • Pursuing constructive regulatory outcomes • Managing risks in changing energy markets • Creating long-term value for shareholders
Slide 28: YON
e YON PINNACLE WEST CAPITAL CORPORATION
Slide 29: Appendix
Appendix
Slide 30: Top Dividend Growth 1998 - 2002
Top Dividend Growth 1998 - 2002 Percent PNW 10 0 (10) (20) (30)
Slide 31: Strong Consolidated Cash Flow Outlook 2003
Strong Consolidated Cash Flow Outlook* 2003 Sources Requirements Cash From Long-term Capital Debt Operations Financing Expenditures Repayments Common Dividends Approximately $1.2 Billion * Projected
Slide 32: Strong Consolidated Cash Flow Outlook 2004
Strong Consolidated Cash Flow Outlook* 2004 Sources Requirements Cash From Long-term Capital Debt Operations Financing Expenditures Repayments Common Dividends Approximately $1.1 Billion * Projected – assuming rate increase granted as requested
Slide 33: Pinnacle West EBITDA Interest Coverage Reconciliation
Pinnacle West EBITDA Interest Coverage* Reconciliation ($ millions) 1998 1999 2000 2001 2002 Income from continuing operations $ 243 $ 270 $ 302 $ 327 $ 215 Income taxes 139 142 194 214 138 Interest expense, net of capitalized interest 145 145 145 128 144 Depreciation and amortization 413 420 431 42
Slide 34: Liquidity Resources
Liquidity Resources APS: • $250 million commercial paper facility • Unused long-term debt shelf capability of $500 million Pinnacle West (parent): • $250 million commercial paper facility • Unused long-term debt shelf capability of $230 million
Slide 35: Current Credit Ratings
Current Credit Ratings S&P Moody’s Arizona Public Service Co. First Mortgage Bonds/ Senior Secured Debt A- A3 Senior Unsecured Debt BBB Baa1 Secured Lease Obligation Bonds BBB Baa2 Commercial Paper A2 P2 Pinnacle West Capital Corp. Senior Unsecured Debt BBB- Baa2 Commercial Paper A2 P2
Slide 36: Improving APS Customer Efficiency
Improving APS Customer Efficiency Cumulative Change 15% 12% 9% 6% 3% 0% 1999 2000 2001 2002 Average Customers Employees
Slide 37: APS Capacity Factors
APS Capacity Factors Palo Verde Site Average Coal Average 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% '97 '98 '99 '00 '01 '02 '97 '98 '99 '00 '01 '02 Palo Verde Industry Coal Industry
Slide 38: Pinnacle West Energy Plants
Pinnacle West Energy Plants Commercial Operation New Facilities MWs Location June 2001 West Phoenix 4 120 Phoenix, AZ July 2002 Saguaro CT 3 80 Red Rock, AZ July 2002 Redhawk 1 and 2 1,060 Arlington, AZ July 2003 West Phoenix 5 530 Phoenix, AZ Arizona Total 1,790 June 2004 * Silverhawk 570 ** Las Ve
Slide 39: Arizona Transmission System
Arizona Transmission System UTAH UTAH UTAH COLORADO NAVAJO SHIPROCK MEAD/ GLEN SAN JUAN MRKTPLACE/ CANYON LAS VEGAS FOUR CORNERS MOENKOPI FLAGSTAFF MCKINLEY CHOLLA CALIFORNIA CORONADO SPRINGER- VILLE BOUSE PINNACLE PEAK CALIFORNIA WEST WING PERKINS PALO VERDE LIBERTY GREENLEE KYRENE (AEPCO) KEY: (TE
Slide 40: Reliability Remains Essential
Reliability Remains Essential WECC Available Transmission Capability* 3,007 4,119 2,368 340 301 1,672 3,913 * Summer 2006 estimate
Slide 41: Arizona Corporation Commissioners
Arizona Corporation Commissioners Party Commissioner Current Term Commissioner Affiliation Since Expires Marc Spitzer, Chairman Republican Jan. 2001 Jan. 2007 Michael Gleason Republican Jan. 2003 Jan. 2005 Jeff Hatch-Miller Republican Jan. 2003 Jan. 2005 Kristin Mayes Republican Oct. 2003 Jan. 2005
Slide 42: APS Track B Procurement Contracts
APS Track B Procurement Contracts Awarded May 2003 MW 2,000 1,500 1,000 500 0 2003 2004 2005 2006 PW EC PPL EnergyPlus, LLC Panda Gila River, LP
Slide 43: Average Residential Retail Price Ranking
Average Residential Retail Price Ranking* Southwestern U.S. ¢/kWh 16 14 12 10 Average Average 8 6 4 2 0 PPW SRP PNM APS T EP NPC EE PG&E SCE SDG&E * As of December 31, 2002
Slide 44: Average Commercial Retail Price Ranking
Average Commercial Retail Price Ranking* Southwestern U.S. ¢/kWh 16 14 12 10 Average Average 8 6 4 2 0 PPW SRP APS PNM EE NPC T EP SCE PG&E SDG&E * As of December 31, 2002
Slide 45: Average Industrial Retail Price Ranking
Average Industrial Retail Price Ranking* Southwestern U.S. ¢/kWh 14 12 10 8 Average Average 6 4 2 0 PPW SRP PNM APS EE T EP NPC SCE PG&E SDG&E * As of December 31, 2002
Slide 46: APS Energy Services
APS Energy Services Overview YTD Sept 2003 2002 2001 Pretax Earnings $20 M $28 M $(10) M Future Drivers – Seize opportunities to grow existing business at reasonable margin levels – Renew existing contracts in California (estimated at declining margins) – Realize steady growth of ESCO and distri
Slide 47: Non-Energy Subsidiaries Overview
Non-Energy Subsidiaries Overview Assets • Objectives $496 Million • Cash flow and profit potential to parent $31M El Dorado • Current activities • SunCor accelerated asset sales program $465M SunCor • Harvesting venture capital portfolio as it matures • Growth opportunities September 30, 2003 • Sele
Slide 48: SunCor Financial Outlook
SunCor Financial Outlook 2003 - 2005 • Expect annual earnings to be about double 2002 level of $19 million • Expect cash distributions to the parent of $80 - $100 million annually
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