Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — EEI Financial Conference 2013
47 slides from Pinnacle West Capital's conference presentation, Nov 8, 2013
Slide 1: Delivering Superior Shareholder Value - EEI Financial Conference
DELIVERING SUPERIOR SHAREHOLDER VALUE EEI Financial Conference | November 10-13, 2013
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS 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 “estimate,” “predict,” “may,” “
Slide 3: Value Proposition
VALUE PROPOSITION Experienced Management Team Driving Focused Strategy Leverage to Arizona Economic Recovery Executing on Operational Excellence Delivering on Achievable Long-Term Targets through Stay Out Maintaining focus on core electric utility business Delivering long-term shareholder value Crea
Slide 4: Pinnacle West: Who We Are
PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility in the growing southwest U.S. NYSE Ticker PNW Market Cap* $6.2 Billion Enterprise Value** ~$9.4 Billion Dividend Yield* 4.1% Consolidated Assets $14 Billion Principal Subsidiary Arizona’s largest and longest-serving
Slide 5: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Nonresidential Building Vacancy – Metro Phoenix New Home Sales & Single Family Permits Home Prices – Metro Phoenix Job Growth (Total Nonfarm) - Arizona Value Relative to Jan ‘05 YTD YTD Vacancy Rate Office Retail YoY Change YTD
Slide 6: Long-Term Economic Outlook
LONG-TERM ECONOMIC OUTLOOK Annual Growth Retail customer growth to average 2% annually 2013-2015, and expected to accelerate thereafter Projected
Slide 7: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) YoY Retail Sales Before Customer Programs Energy Efficiency & Customer Conservation Distributed Energy Weather-normalized retail sales growth less than 1% for 2013-2015 after impacts of energy efficiency, customer conservation and distributed renewable genera
Slide 8: Operational Excellence
OPERATIONAL EXCELLENCE Palo Verde Palo Verde has exceeded 30 million megawatt-hours annual production 8 times – the only U.S. plant to ever do so. Safety 2012 lowest number of recordable injuries in company history. Customer Satisfaction Ranked 5th highest nationally among 54 large investor-owned el
Slide 9: Earned ROE
PNW Consolidated At least 9.5% annually EARNED ROE Delivering consistent earned return on equity is one of our top priorities Adjustment mechanisms (Lost Fixed Cost Recovery, Transmission Cost Adjustor, etc.) providing increasing contribution Modest load growth Continued focus on sustainable cost ma
Slide 10: Rate Base
RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business $6.9 Billion Total Approved Rate Base 6% Compound Annual Growth Rate Projected Most Recent Rate Decisions ACC FERC Rate Effective Date 7/1/2012 6/1/2013 Test Year Ended 12/31/2010* 12/31/2012 Rate Ba
Slide 11: Dividend Growth
DIVIDEND GROWTH Pinnacle West’s annual dividend is $2.27 per share; targeting ~4% annual dividend growth Projected Annual Dividend Growth Approx. 4% Yield as of October 31, 2013 Payout 12 Months Ended June 30, 2013 Dividend Yield Dividend Payout PNW Industry Averages Future dividends subject to decl
Slide 12: Cost Management
COST MANAGEMENT A variety of initiatives have been helping control operating and capital costs Ongoing effort to instill culture of cost management and efficiency Fleet operating model to streamline workforce and reduce costs Reduced production costs per kWh from 2.2¢ to 2.0¢ $30 million annual savi
Slide 13: Sustainable Cost Management Initiative
Motivation for Change SUSTAINABLE COST MANAGEMENT INITIATIVE (“SCMI”) Capitalize on changes driven by aging workforce Improve organizational efficiencies Strengthen governance and clarify accountability Refine understanding of cost structure to better identify opportunities Manage costs during regul
Slide 14: Operations & Maintenance
OPERATIONS & MAINTENANCE Our goal is to keep O&M growth at or below retail sales growth levels Note: Pinnacle West O&M for 2009-2012: $10M, $9M, $8M and $11M, respectively * Approximate range embedded in 2013 operating expenses guidance of $1.37 - $1.40 billion, excluding deferrable O&M costs associ
Slide 15: Capital Expenditures
CAPITAL EXPENDITURES 80% of capital expenditures are recovered through rate adjustors (40%) and depreciation cash flow (40%) ($ Millions) $1,055 $909 $1,110 2013 – 2015 as disclosed in September 30, 2013 Form 10-Q Distribution Transmission Renewable Generation Environmental Traditional Generation Pr
Slide 16: Resource Planning
RESOURCE PLANNING We will meet future load growth through a balanced mix including natural gas, renewable resources and energy efficiency programs Existing Owned Resources Includes retirement of Four Corners 1-3 Existing Contracts Four Corners 4-5 Resource Planning Requirement Load Requirement Inclu
Slide 17: Four Corners Acquisition
Acquire Southern California Edison’s 739 MW interest in Units 4 & 5 and shut down Units 1-3 (560 MW) Purchase price: $294 million, subject to adjustments, including reduction of $7.5 million per month from October 2012 to the date of closing Estimated environmental compliance: $300 million, primaril
Slide 18: Transmission
10-Year Transmission Plan filed January 2013 (115 kV and above) $612 million of new transmission investment 275 miles of new lines Includes Hassayampa-North Gila (HANG2) 500 kV ~110 miles Construction started March 2013 Estimated in-service mid 2015 Projects to deliver renewable energy approved by A
Slide 19: Renewable Energy Rises with the Sun
Germany and Japan are among countries with highest installed solar capacity, yet have solar conditions far inferior to Arizona Arizona ranks 1st in the U.S. for solar energy development* RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of America” Arizona * Enviro
Slide 20: Arizona's Renewable Resource and Energy Efficiency Standards
Cumulative savings from energy efficiency programs must be equivalent to 22% of annual retail sales by 2020 Annual milestones in place to measure progress toward cumulative 2020 goal 3% by 2012 9.5% by 2015 22% by 2020 ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Portion of retail sa
Slide 21: AZ Sun Program
Utility-scale photovoltaic solar plants to be owned by APS Constructive rate recovery through RES until included in base rates 86 MW in commercial operation to date; 118 MW by end of 2013 Commitments to date: 150 MW; $609 million estimated capital investment AZ SUN PROGRAM Owning solar resources mak
Slide 22: Solana
Largest solar plant of its kind, capable of powering 70,000 APS customers 250 MW 30-year PPA for all output (~900 GWh/year) Concentrating solar trough facility 70 miles southwest of Phoenix Commercial operation began October 2013 90%+ on-peak capacity factor with use of thermal storage capability Fi
Slide 23: Environmental Compliance Requirements
Regional Haze / BART (SCR) Mercury and Other Hazardous Air Pollutants (ACI + Baghouse) Coal Combustion Residuals Cooling Water Intake – 316(b) EPA Ruling Announced in 1999, with site-specific requirements announced more recently MATS compliance by April 2015, with potential for one-year extension De
Slide 24: Net Metering
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 are then paid, through higher rates, by non-rooftop solar customers The issue will get bigger over time as application
Slide 25: APS Proposed Net Metering Options
With either option, APS recommends: An increase in the upfront cash incentives for customers who want the choice of rooftop solar Existing solar customers would be grandfathered under the current rules for 20 years APS PROPOSED NET METERING OPTIONS Either option ensures rooftop solar customers get f
Slide 26: 2013 Consolidated On-Going EPS Guidance
2013 CONSOLIDATED ON-GOING EPS GUIDANCE: $3.55 - $3.70 Key Factors & Assumptions as of October 31, 2013 2013 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.22 - $2.24 billion Retail customer growth about 1.5% Weather-normalized retail electricity sales vo
Slide 27: 2014 Consolidated On-Going EPS Guidance
2014 CONSOLIDATED ON-GOING EPS GUIDANCE: $3.60 - $3.75 Key Factors & Assumptions as of October 31, 2013 2014 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.22 – $2.27 billion Retail customer growth about 2.0% Weather-normalized retail electricity sales vo
Slide 28: 2013-2015 Financial Outlook
2013 – 2015 FINANCIAL OUTLOOK Key Factors & Assumptions as of October 31, 2013 Assumption Impact Retail customer growth Expected to average 2% annually (2013-2015) Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electricity sales volume growth Less than 1% after cus
Slide 29: Superior Shareholder Returns
SUPERIOR SHAREHOLDER RETURNS Total Shareholder Return - Periods Ended October 31, 2013
Slide 30: Appendix
APPENDIX OMe PINACLEWEST
Slide 31: Leadership Team
LEADERSHIP TEAM Our top executives have more than 100 combined years of creating shareholder value in the energy industry Don Brandt Chairman & CEO Mark Schiavoni EVP Operations Jeff Guldner SVP Customers & Regulation Randy Edington EVP & Chief Nuclear Officer
Slide 32: Superior Power Plant Performance
3,127 MW total managed capacity (includes owned and non-owned) 1,753 MW APS share Fleet operating strategy Commercial availability metric measures plant reliability during high-demand periods and market responsiveness SUPERIOR POWER PLANT PERFORMANCE 3,937 MW total managed capacity 1,146 MW total AP
Slide 33: Palo Verde
PALO VERDE Palo Verde operating costs are below industry averages and improving Industry Average Industry Median Source: Electric Utility Cost Group (EUCG) Dollars per Megawatt-House
Slide 34: Fukushima Follow-Up
Low risk of natural events at Palo Verde Seismic and flooding walk-downs conducted Changes in NRC regulations and industry standards NRC Regional Response Centers to be located in Phoenix and Memphis Fukushima-related costs are approximately $100 million (APS share is 29.1%), which has been included
Slide 35: Energy Delivery
ENERGY DELIVERY Top-quartile reliability is reducing the frequency of customer outages Comprehensive maintenance and inspection program includes: EEI Edison Award winning TOAN, state-of-the art, on-line transformer diagnostics system Extensive circuit breaker maintenance program Award-winning vegeta
Slide 36: Financing
FINANCING Major Financing Activities Currently expect $500 million total long-term debt issuance in 2014, $300 million of which is related to refinancing maturing debt Potential need for new debt financing up to $250 million, subject to closing of Four Corners transaction in 2013 In addition, there
Slide 37: Credit Metrics and Ratings
CREDIT METRICS AND RATINGS 2008 2009 2010 2011 2012 APS FFO / Debt 22.1% 22.8% 22.3% 20.8% 29.7% FFO / Interest 5.1x 4.8x 4.6x 4.6x 6.6x Debt / Capitalization 57.4% 56.8% 53.0% 53.0% 50.8% Pinnacle West FFO / Debt 18.0% 18.4% 22.5% 20.3% 28.1% FFO / Interest 4.3x 4.0x 4.6x 4.5x 5.9x Debt / Capitaliz
Slide 38: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Three seats of four-year terms through January 2017 were addressed in the November 2012 election Bob Stump (R)* Chairman Brenda Burns (R) Gary Pierce (R)* Terms To January 2015 Terms To January 2017 Susan Bitter Smith (R) Bob Burns (R) Incumbents New Commissioners * Te
Slide 39: 2012 Retail Rate Case Settlement
Shareholder Benefits Regulatory certainty Base rate stay-out until at least mid-2016 Rate gradualism through adjustment mechanisms Financial support APS needs to achieve Arizona’s energy goals 10% allowed return on equity; included 15 months’ of post-test-year plant additions Customer Benefits Rate
Slide 40: 2012 Retail Rate Case Settlement: Key Financial Provisions
Base Rates and Timing Annual Revenue Charges Annualized Base Rate Revenue Changes ($ millions) Non-fuel base rate increase $116.3 Fuel-related base rate decrease (153.1) Revenues related to AZ Sun and other solar projects to be transferred from Renewable Energy Surcharge to base rates 36.8 Net base
Slide 41: Regulatory Mechanisms
Mechanism Adopted / Last Adjusted Description Power Supply Adjustor (“PSA”) April 2005 / February 2013 Recovers variance between actual fuel and purchased power costs and base fuel rate Includes forward-looking, historical and transition components Renewable Energy Surcharge (“RES”) May 2008 / Febru
Slide 42: Regulatory Mechanisms: Lost Fixed Cost Recovery
Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2012 settlement Estimated to offset 30-40% of revenues lost due to ACC-mandated energy efficiency (EE) and distributed renewable generation (DG) initiatives Annual filing by January 15th each year with new rates in effect March 1st,
Slide 43: Transmission Formula Rates
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 TRANSMISSION We have achieved constructive transmission rate treatment with annual adjustments Annual Revenue Rate Eff
Slide 44: Regulatory Calendar
REGULATORY CALENDAR LIST OF SELECTED DOCKETS Docket # 2012 Retail Rate Settlement (including Four Corners rate recovery) E-01345A-11-0224 Energy Efficiency and Integrated Resource Planning* E-00000XX-13-0214 2014 Renewable Energy Standard Implementation Plan E-01345A-13-0140 Net Metering E-01345A-13
Slide 45: Generation Portfolio
GENERATION PORTFOLIO Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR 1,146 MW Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 COAL 1,753 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 647 Four Corners Farmington, NM 1-3 Base 1963-1964 100 560 Four Cor
Slide 46: Purchased Power Contracts
PURCHASED POWER CONTRACTS Fuel/Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (MW) SOLAR 310 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
Slide 47: Environmental, Sustainability and Governance Leadership
ENVIRONMENTAL, SUSTAINABILITY AND GOVERNANCE LEADERSHIP Top 10 Utility Solar Ranking Best practices in utility arboriculture since 1997 U.S. DOE/EPA Sustained Excellence since 2008 Partner of the Year since 2005 Ranked on Dow Jones North America Sustainability Index 2005-2012 Rated 4th Highest Intel
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