Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (October 2003)
51 slides from Pinnacle West Capital's roadshow presentation, Oct 6, 2003
Slide 1: Focusing On Our Growing Core Business
Focusing On Our Growing Core Business Analyst Presentations Boston and New York October 2003
Slide 2: 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 often identified by words such
Slide 3: Pinnacle West Managing for the Future
Pinnacle West Managing for the Future A vertically integrated utility in a high-growth market area Sustaining exceptional operational performance Maintaining agility in a dynamic regulatory environment Managing risk in changing energy markets
Slide 4: Capitalizing on Superior Growth: Population Growth States
Leading 2002 Population Growth States Solid Customer Growth Foundation APS 2nd in customer growth nationally Capitalizing on Superior Growth
Slide 5: Customer Growth to Times U.S. Average
Customer Growth 3 to 4 Times U.S. Average 1998 1999 2000 2001 2002 YTD 2003 YTD 2002 APS 0.04 0.042 0.041 0.037 0.031 0.032 0.032 Industry Average 0.011 0.011 0.011 0.011 0.011 0.011 0.011 Capitalizing on Superior Growth
Slide 6: Generation Highlights
Generation Highlights Generation Highlights Sustaining Exceptional Operational Performance Low production cost Strong outage management Leading nuclear operations Proactive environmental management
Slide 7: Top-Tier Performance
Top-Tier Performance 1998 - 2002 Baseload Averages NCF EAF EFOR APS 0.852 0.882 0.058 Industry 0.751 0.84 0.07 Equivalent Forced Outage Rate Equivalent Availability Factor Net Capacity Factor APS Industry 16.21 17.66 $/MWh APS Industry Favorable Production Costs Strong Operating Performance Sustaini
Slide 8: Transmission & Distribution Highlights
Transmission & Distribution Highlights Sustaining Exceptional Operational Performance Sustaining Exceptional Operational Performance Award-winning customer satisfaction Strong operational efficiency Sound reliability focus
Slide 9: Achieving Superior Customer Satisfaction
Achieving Superior Customer Satisfaction APS ranked 3rd in customer satisfaction among 56 utilities according to J.D. Power & Associates J.D. Power & Associates J.D. Power & Associates J.D. Power & Associates J.D. Power & Associates J.D. Power & Associates Sustaining Exceptional Operational Performa
Slide 10: Strong Transmission and Distribution Efficiency
Strong Transmission and Distribution Efficiency O&M/Customer APS* Sustaining Exceptional Operational Performance Average 2002 Top Quartile * Excluding 2002 severance charges
Slide 11: Planning for Growth and Reliability
Planning for Growth and Reliability APS System Load and Resources 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015 2017 2019 2021 2022 Existing 4757 4790 4792 4827 4454 4481 4481 4481 4481 4480 4481 4481 4481 4481 4481 4481 4481 4481 4001 4001 PWEC 1700 1700 1700 1700 1700 1700 1700 1700
Slide 12: Reliability Remains Essential
301 340 3,007 4,119 3,913 2,368 1,672 Reliability Remains Essential WECC Available Transmission Capability* Sustaining Exceptional Operational Performance * Summer 2006 estimate
Slide 13: Focusing on Our Vertically Integrated Operations
Focusing on Our Vertically Integrated Operations Capturing benefits of strong underlying growth Remaining steadfastly focused every day on: Customer care and satisfaction Operational excellence System reliability Sustaining Exceptional Operational Performance
Slide 14: 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 Pursuing Constructive Regulatory Outcomes
Slide 15: APS General Rate Case Key Provisions
APS General Rate Case Key Provisions 9.8% ($175 million) annual rate increase Rate base treatment of 1,800 MW of Arizona assets currently owned by Pinnacle West Energy Recovery of previous $234 million write-off Pursuing Constructive Regulatory Outcomes
Slide 16: APS Prices Low Relative to CPI
CPI APS '91 0 0 0 0 '92 3 0.03 0 0 '93 6 0.06 0 0 '94 9 0.09 -3 -0.03 '95 12 0.12 -3 -0.03 '96 15 0.15 -6 -0.06 '97 18 0.18 -7 -0.07 '98 20 0.2 -8 -0.08 '99 22 0.22 -9 -0.09 '00 26 0.26 -11 -0.11 '01 30 0.3 -12 -0.12 '02 32 0.32 -14 -0.14 '03 35 0.35 -15 -0.15 '04 38 0.38 -6 -0.06 CPI 38% APS 6% APS
Slide 17: Planning for Growth and Reliability
Planning for Growth and Reliability APS System Load and Resources 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015 2017 2019 2021 2022 Existing 4757 4790 4792 4827 4454 4481 4481 4481 4481 4480 4481 4481 4481 4481 4481 4481 4481 4481 4001 4001 PWEC 1700 1700 1700 1700 1700 1700 1700 1700
Slide 18: ACC Procurement Process Demonstrates Need for PWEC Assets
2003 2004 2005 2006 ACC Bid Amount 2100 2549 2820 2037 Undeliverable Bids 850 1463 1388 650 Non-PWEC Bids 925 2175 2125 905 2003 2004 2005 2006 Contestable Load Bids w/o PWEC 850 1463 1388 650 ACC Procurement Process Demonstrates Need for PWEC Assets MW ACC Bid Amount Undeliverable Bids Non-PWEC Bid
Slide 19: General Rate Case Milestones
General Rate Case Milestones Briefing Proposed Order Final Order Hearing Begins April 7, 2004 Testimony January - March 2004 Filing June 2003 Discovery August 2003 - April 2004 Pursuing Constructive Regulatory Outcomes
Slide 20: Other Significant ACC Activity
Other Significant ACC Activity Adjustment mechanisms docket Review of retail competition rules Workshops on environmental risk management and DSM Evaluation of environmental portfolio standard Code of conduct filing Future of Track B procurement Commission elections Pursuing Constructive Regulatory
Slide 21: Marketing & Trading Objectives
Marketing & Trading Objectives Effectively manage fuel and purchased power risks Optimize the economic use of APS' generation and transmission assets Maintain risk management discipline with particular emphasis on credit risk Managing Market Risks and Commodity Exposures
Slide 22: Southwestern Spark Spread Outlook
Southwestern Spark Spread Outlook Weak through 2005 Historical Spot Forward 9/2/2003 7.84 10/2/2003 5.17 11/2/2003 5.33 12/2/2003 7.72 1/3/2003 4.52 2/3/2003 6.35 3/3/2003 11.68 4/3/2003 7.15 5/3/2003 10.46 6/3/2003 10.35 7/3/2003 23.42 8/3/2003 16.43 9/3/2003 12.36 10/3/2003 10.01 11/3/2003 7.34 12
Slide 23: Western Market Challenges
Western Market Challenges Continuing pressure on forward spark spreads expected through 2005 Fewer creditworthy counterparties New capacity additions Short-term bias of wholesale customers Managing Market Risks and Commodity Exposures
Slide 24: 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 Focusing On Financial Performance
Slide 25: 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 variation +/- $0.1
Slide 26: Consolidated Annual EPS Outlook Beyond 2004
Consolidated Annual EPS 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 Focusing On Financ
Slide 27: Future Capital Expenditures
2002 2003 2004 2005 APS Delivery 369 273 289 354 APS Generation 132 123 108 169 PWEC Generation 374 259 41 21 Other 109 22 13 20 $ Millions Projected *Excluding SunCor Focusing On Financial Performance APS Delivery PWEC Generation APS Generation Other Future Capital Expenditures*
Slide 28: Strong EBITDA Interest Coverage
Strong EBITDA Interest Coverage 1998 1999 2000 2001 2002* Pinnacle West 5.734 6.215 6.444 6.238 5.35 S&P Electrics 4.729 4.563 3.928 3.982 3.68 Focusing On Financial Performance Times * Pinnacle West excluding non-recurring items
Slide 29: Superior Dividend Growth
1998-2002 EPS PNW 0.072 EPS IND -0.035 1998-2002 EPS PNW 0.062 EPS IND 0.026 Superior Dividend Growth* 1998-2002 S&P Electrics Dividends Per Share PNW Earnings Per Share PNW** * 5-year compound annual growth rates ** Excluding non-recurring items Focusing On Financial Performance S&P Electrics
Slide 30: Slide 30
Slide 31: Appendix
Appendix
Slide 32: Dividend growth comparison with peers
1yr CDGR 5 yr CDGR Pinnacle West Capital 0.063 0.072 Energy East Corporation 0.043 0.065 PP&L Resources, Inc. 0.1 0.053 Vectren Corporation 0.038 0.044 FPL Group, Inc. 0.036 0.039 NiSource Inc. 0 0.039 TECO Energy, Inc. 0.029 0.038 Pub. Svc. Enterprise Group 0.028 0.029 NSTAR 0.019 0.028 Cleco Corpo
Slide 33: Strong Consolidated Cash Flow Outlook 2003
Sources Strong Consolidated Cash Flow Outlook* 2003 2003 Operating cash flow 675 Long-term financing 500 Cash From Operations Long-term Financing 2003 Common Dividends 150 Cap Ex 675 Debt redemptions 350 Capital Expenditures Common Dividends Requirements Debt Repayments Approximately $1.2 Billion *
Slide 34: Strong Consolidated Cash Flow Outlook 2004
Sources 2004 Operating cash flow 750 Long-term financing 350 Cash From Operations Long-term Financing 2004 Common Dividends 150 Cap Ex 450 Debt redemptions 500 Capital Expenditures Requirements Debt Repayments Approximately $1.1 Billion Common Dividends Strong Consolidated Cash Flow Outlook* 2004 *
Slide 35: Pinnacle West EBITDA Interest Coverage Reconciliation
Pinnacle West EBITDA Interest Coverage* Reconciliation ($ 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 36: Liquidity Resources
Liquidity Resources APS: $250M commercial paper facility Unused long-term debt shelf capability of $500M Pinnacle West (parent): $250M commercial paper facility Unused long-term debt shelf capability of $390M Appendix
Slide 37: 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 Appendix
Slide 38: Wholesale Electricity Prices
Wholesale Electricity Prices Palo Verde On-Peak and Forward Curve with Historical Spot Palo Verde On-peak Palo Verde Forward 9/2/2003 33.29 10/2/2003 34.6 11/2/2003 34.3 12/2/2003 40.47 1/3/2003 41.16 2/3/2003 58.35 3/3/2003 55.21 4/3/2003 43.81 5/3/2003 49.07 6/3/2003 54.29 7/3/2003 63.21 8/3/2003
Slide 39: Natural Gas Prices
Natural Gas Prices Permian On-Peak and Forward Curve with Historical Spot Actual Gas Gas Forward 9/2/2003 3.24 10/2/2003 3.81 11/2/2003 3.75 12/2/2003 4.29 1/3/2003 4.84 2/3/2003 7.04 3/3/2003 5.83 4/3/2003 4.84 5/3/2003 5.12 6/3/2003 5.88 7/3/2003 5.29 8/3/2003 4.87 9/3/2003 4.74 10/3/2003 4.48 11/
Slide 40: Improving APS Customer Efficiency
Improving APS Customer Efficiency 1999 2000 2001 2002 Average Customers 0 0.041 0.079 0.113 Employees 0 0.018 0.053 0.018 Cumulative Change Appendix
Slide 41: APS Capacity Factors
'97 '98 '99 '00 '01 '02 Palo Verde 0.906 0.925 0.93 0.927 0.881 0.944 Industry 0.72 0.77 0.85 0.8 0.88 '97 '98 '99 '00 '01 '02 Coal 0.748 0.771 0.792 0.832 0.838 0.804 Industry 0.65 0.666 0.674 0.706 0.694 APS Capacity Factors Palo Verde Site Average Coal Average Appendix
Slide 42: Pinnacle West Energy Plants
Pinnacle West Energy Plants 120 80 1,060 530 1,790 570 2,360 Commercial Operation MWs June 2001 July 2002 July 2002 July 2003 June 2004 West Phoenix 4 Saguaro CT 3 Redhawk 1 and 2 West Phoenix 5 Arizona Total Silverhawk Totals New Facilities Appendix Location Phoenix, AZ Red Rock, AZ Arlington, AZ P
Slide 43: Arizona Transmission System
CALIFORNIA CALIFORNIA CALIFORNIA MOENKOP I MEAD/ MRKTPLACE/ LAS VEGAS NAVAJO TRIBAL LAND SAN JUAN FOUR CORNERS SHIPROCK GLEN CANYON UTAH UTAH COLORADO FLAGSTAFF CHOLLA MCKINLEY CORONADO SPRINGER- VILLE GREENLEE (AEPCO) (TEP) SILVERKING APACHE VAIL SOUTH BICKNELL N GILA PALO VERDE LIBERTY KYRENE PINN
Slide 44: 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 45: APS Track B Procurement Contracts Awarded
Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec PWEC 1700 1700 1700 1700 1700 1700 1700 1700 1700 1700 1700 1700 1700 1700 1700 PPL EnergyPlus, LLC 112 112 112 150 150 150 150
Slide 46: Adjustment Mechanisms Docket
Adjustment Mechanisms Docket Hearing conducted April 2003 ALJ recommendation Issued October 1 Recommends approval of adjustment mechanisms, with significant modifications Ultimate implementation in rate case Comments due October 10 ACC consideration possible on October 22 Appendix
Slide 47: Average Residential Retail Price Ranking
Average Residential Retail Price Ranking* Southwestern U.S. PPW 6.6 9.19 SRP 7.63 9.19 PNM 8.58 9.19 APS 8.68 9.19 TEP 8.79 9.19 NPC 9.33 9.19 EE 10.6 9.19 PG&E 13.31 9.19 SCE 13.53 9.19 SDG&E 14.34 9.19 ¢/kWh * As of December 31, 2002 Appendix
Slide 48: Average Commercial Retail Price Ranking
PPW 5.21 9.69 SRP 6.28 9.69 APS 7.48 9.69 PNM 7.61 9.69 EE 8.74 9.69 NPC 9.35 9.69 TEP 10.45 9.69 SCE 12.9 9.69 PG&E 14.41 9.69 SDG&E 14.49 9.69 ¢/kWh * As of December 31, 2002 Appendix Average Commercial Retail Price Ranking* Southwestern U.S.
Slide 49: Average Industrial Retail Price Ranking
PPW 3.69 6.98 SRP 4.02 6.98 PNM 5.09 6.98 APS 5.57 6.98 EE 5.72 6.98 TEP 7.11 6.98 NPC 8.21 6.98 SCE 8.79 6.98 PG&E 9.17 6.98 SDG&E 12.47 6.98 ¢/kWh * As of December 31, 2002 Appendix Average Industrial Retail Price Ranking* Southwestern U.S.
Slide 50: APS Energy Services Overview
APS Energy Services Overview Financial Results YTD June 2003 2002 2001 Pretax Earnings $18 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 an
Slide 51: Non-Energy Subsidiaries Overview
Non-Energy Subsidiaries Overview 6/30/2003 SunCor 467 El Dorado 30 Objectives Cash flow and profit potential to parent Current activities SunCor accelerated asset sales program Harvesting venture capital portfolio as it matures Growth opportunities Select real estate opportunities Future investments
Pinnacle West Capital — Non-Deal Roadshow (October 2003) on 6ix