Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (March 2015)
47 slides from Pinnacle West Capital's roadshow presentation, Mar 31, 2015
Slide 1: Powering Growth, Delivering Value
POWERING GROWTH DELIVERING VALUE Investor Meetings – Toronto and Montreal | March 31 – April 1, 2015 Powering Growth, Delivering Value
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: Pinnacle West: Who We Are
We are a vertically integrated, PINNACLE WEST: regulated electric utility in the WHO WE ARE growing southwest U.S. Principal subsidiary: - Arizona Public Service Company, Arizona’s largest and longest-serving electric utility - Regulated utility provides stable, regulated earnings and cash flow base
Slide 4: Pinnacle West: Key Metrics
PINNACLE WEST: KEY METRICS NYSE Ticker: PNW Operating Revenues (2014): $3.5 Billion Market Capitalization*: $7.1 billion Residential 52% Commercial Enterprise Value*: $10.8 billion Industrial Consolidated Assets: $14.3 billion 1% Other 42% Indicated Annual Dividend*: $2.38 6% Dividend Yield*: $3.6%
Slide 5: Value Proposition
VALUE PROPOSITION Operational • Top decile ratings in Customer Satisfaction, top quartile in Reliability and Safety • Palo Verde continues record levels of electricity production Excellence • Disciplined cost management Leverage to Economic • Arizona’s long-term growth fundamentals remain largely in
Slide 6: Operational Excellence
OPERATIONAL EXCELLENCE Customer Satisfaction Palo Verde Ranked 5th highest nationally among 54 large investor-owned electric Palo Verde has exceeded its own record for generation–32.3 million utilities in 2014 J.D. Power residential customer survey. megawatt-hours annual production in 2014. Palo Ver
Slide 7: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Home Prices – Metro Phoenix Nonresidential Building Vacancy – Metro Phoenix Value Relative to Jan ‘05 Vacancy Rate 175 25% Office 150 20% Industrial 125 15% 100 10% Retail 75 5% 50 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Dec '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Q4 S
Slide 8: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) • Weather-normalized retail sales growth on average about 0.5-1.5% for 2015- 2017 after impacts of energy efficiency, customer conservation and distributed renewable generation initiatives (excluding Lost Fixed Cost Recovery) Distributed Generation (DG) Impac
Slide 9: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Renewable Energy (RES) Requirements Energy Efficiency Requirements • Portion of retail sales to be supplied by • Cumulative savings from energy renewable resources efficiency programs must be equivalent – 5% by 2015* to 22% of annual retai
Slide 10: Key Dates for Rate Design
KEY DATES FOR RATE DESIGN • Residential demand rates started • Time of Use rates initiated - due to central air conditioning load Early Nearly half of our residential (currently about 10% of customers 1980’s customers are on TOU rates have a rate with a demand charge) • APS proposed stakeholder • Sp
Slide 11: Key Rate Design Principles
KEY RATE DESIGN Smarter rates for smarter grid PRINCIPLES Arizona Public Service, Tucson Electric Power, Residential Utility Consumer Office and Arizona solar developers filed a joint letter with the ACC agreeing on the following rate design principles: Customer-focused Rate design changes needed to
Slide 12: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION Terms to January 2017 Terms to January 2019 Susan Bob Bob Tom Doug Bitter Smith (R) Burns (R) Stump (R)* Forese (R) Little (R) Chairman * Term limited - elected to four-year terms (limited to two consecutive) 12 Powering Growth, Delivering Value
Slide 13: Resource Planning
RESOURCE PLANNING* MW Composition of Energy Mix by Resource* 14,000 Load Requirement Including Reserves 2014 12,000 27.7% 9.5% 17.0% 10,000 35.3% Gas Resource Planning 7.5% Requirement 20.1% Coal 8,000 Existing Contracts Nuclear 6,000 RE + DE 2029 15.3% EE 35.0% 4,000 14.7% Existing Owned Resources
Slide 14: Capital Expenditures
70% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (30%) and depreciation (40%) on average for 2014-2017 ($ Millions) $1,293 $1,265 $81 $98 Other $1,091 $83 $362 $385 Distribution $883 $73 $329 Transmission $133 $180 $242 $1 $162 $2 $203 Renewable $161 Generation $
Slide 15: Environmental
Regional Haze compliance is the ENVIRONMENTAL biggest driver of environmental spend over the next 3-4 years Mercury and Other Regional Haze / BART Coal Combustion Cooling Water Hazardous Air Pollutants (SCR) Residuals Intake – 316(b) (ACI + Baghouse) MATS compliance by April 2015, Announced in 1999,
Slide 16: Bright Canyon Energy – Transmission Growth
BRIGHT CANYON ENERGY – TRANSMISSION GROWTH BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities TRANSCANYON A 50/50 Joint Venture formed with MidAmerican Transmission, subsidiary of Berkshire Hathaway Energy, to pursue transmission WECC opportunities in the western
Slide 17: Delaney Colorado River Transmission Line – Key Dates
DELANEY COLORADO RIVER TRANSMISSION LINE – KEY DATES CAISO Transmission Planning Process Bid Submitted November 19, 2014 Post List of Sufficient Applications April 16, 2015 (i.e. list of bidders) Post List of Qualified Sponsors May 7, 2015 Post Approved Sponsor & Report August 31, 2015 (i.e. winning
Slide 18: Sustainable Cost Management Ingrained in Business Planning Framework
SUSTAINABLE COST MANAGEMENT INGRAINED IN BUSINESS PLANNING FRAMEWORK Enterprise Process Improvement is current phase of Sustainable Cost Management -- a standardized, systematic approach to determining how to do our work better including documentation, driven by retiring workforce and need to contro
Slide 19: Dividend Growth
Pinnacle West’s annual dividend is DIVIDEND GROWTH $2.38 per share; targeting ~5% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End Dividend Yield 6% 5% PNW 4% $2.38 $2.27 3% Industry Averages $2.18 2% $2.10 1% 0% 30% 50% 70% 90% Dividend Payout 2011 2012 2013 20
Slide 20: 2015 Key Dates
2015 KEY DATES ACC Key Dates Docket # Q1 Q2 Q3 Q4 Key Regulatory Filings Lost Fixed Cost Recovery 11-0224 Jan 15 Net Metering – Quarterly Installation Filings 13-0248 Jan 15 Apr 15 Jul 15 Oct 15 Transmission Cost Adjustor 11-0224 May 15 Renewable Energy Surcharge TBD Jul 1 2014 Integrated Resource P
Slide 21: Appendix
APPENDIX Powering Growth, Delivering Value
Slide 22: Leadership Team
Our top executives have more than 100 combined years of LEADERSHIP TEAM creating shareholder value in the energy industry Don Brandt Chairman & Chief Executive Officer Jim Mark Randy Jeff Hatfield Schiavoni Edington Guldner EVP & Chief EVP & Chief EVP & SVP Financial Operating Chief Nuclear Customer
Slide 23: Palo Verde Nuclear Generating Station
PALO VERDE NUCLEAR Largest generating nuclear plant GENERATING STATION in the United States • Total Capacity: 4,000 MW (3 units) Low risk of natural events at Palo Verde o APS share: 1,146 MW; APS operated o Output: 32.3 million MWh in 2014 o Approximately 2,800 employees In Service License* Unit 1
Slide 24: Palo Verde Operating Costs Are Below Industry Averages and Improving
PALO VERDE OPERATING COSTS ARE BELOW INDUSTRY AVERAGES AND IMPROVING Dollars per Megawatt-Hour $23.26 $21.13 Industry Average $19.93 Industry Median 2007 2008 2009 2010 2011 2012 2013 2014 Source: Electric Utility Cost Group (EUCG) 24 Powering Growth, Delivering Value
Slide 25: Ocotillo Power Plant (Tempe, AZ)
Ocotillo modernization project OCOTILLO POWER will maintain valley grid PLANT (TEMPE, AZ) reliability and increase APS’s generating capacity by 290 MW • Benefits: – Maintains system reliability through retirement of aging steam units – Replacement units meet need for increased portfolio responsivene
Slide 26: Four Corners Power Plant
FOUR CORNERS POWER PLANT • On December 30, 2013, APS and Southern California Edison (“SCE”) completed previously announced transaction whereby APS agreed to purchase SCE’s 48% interest in Units 4 and 5 of Four Corners – Final purchase price: $182 million – APS will continue to operate Four Corners a
Slide 27: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2015 (115 kV and above) – 275 miles of new lines – Includes Hassayampa-North Gila (HANG2) • ~110 miles; 500kV Flagstaff • C
Slide 28: AZ Sun Program
Owning solar resources makes sense for our customers and the AZ SUN PROGRAM environment and provides earnings growth potential • Community-scale photovoltaic solar plants to be owned by APS • Constructive rate recovery through RES until included in base rates • Commitments to date: 170 MW, $674 mill
Slide 29: APS Solar Partners Program
• TBD APS SOLAR PARTNERS PROGRAM • APS to implement 10 MW of APS-owned residential rooftop solar − On December 19, 2014, ACC voted that it had no objection to APS implementing the program − Equates to approximately 1,500 customers − Will be filed for recovery in next general rate case − 2 MW (of the
Slide 30: Residential PV Applications
RESIDENTIAL PV APPLICATIONS 2014 Applications* 2014 Canceled Apps 2015 Applications* 2015 Canceled Apps 1,200 83 1,000 60 34 77 22 800 59 60 40 28 600 30 980 38 881 898 400 33 780 83 810 731 642 658 600 28 549 453 200 364 346 250 0 Jan 14-Jan 15-Jan2 14-Feb Feb 15-Feb Mar 14-Mar2 15-Mar Apr 14-Apr3
Slide 31: Net Metering
Rooftop solar customers still NET METERING use the grid 24 hours a day TYPICAL GRID INTERACTION FOR ROOFTOP SOLAR • 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
Slide 32: Operational Considerations with Increased Variable Generation
OPERATIONAL CONSIDERATIONS WITH INCREASED VARIABLE GENERATION The grid provides real-time voltage and • Steep ramp rate of backup generation power needed to start air conditioners and • Instant variability other motors loads (for typical AC unit) • Voltage control at distribution level 32 Powering G
Slide 33: Emerging Technologies Rely on the Grid
EMERGING All of these technologies are part TECHNOLOGIES of an integrated grid RELY ON THE GRID Rooftop Solar Home Energy Management Battery Storage Electrical System Fuel Cells Electric Vehicles Microgrids 33 Powering Growth, Delivering Value
Slide 34: Reliability Services Require Technology Advancements on the Utility Side
RELIABILITY SERVICES REQUIRE TECHNOLOGY ADVANCEMENTS ON THE UTILITY SIDE Advanced Distribution Energy Management Synchrophasors (WISP) Integrated Volt/VAR System (EMS) Upgrades Control (IVVC) Management System Communicating Fault Smart Meters Indicators (CFI) Strategic Fiber Supervisory Controlled S
Slide 35: AMI Installation Complete
AMI INSTALLATION COMPLETE • APS has reached full AMI (Advanced Metering Infrastructure) deployment, a project lasting eight years – 1,250,000 Elster meters deployed – Includes nearly 30,000 solar production meters • Benefits to customers: – Aid customers in choosing the optimal rate plan to reduce e
Slide 36: Credit Ratings
CREDIT RATINGS Investment Grade Credit Ratings APS Parent Corporate Credit Ratings Moody’s A3 Baa1 S&P A- A- Fitch BBB+ BBB+ Senior Unsecured Moody’s A3 - S&P A- - Fitch A- - Outlook Moody’s Positive Positive S&P Stable Stable Fitch Positive Positive We are disclosing credit ratings to enhance under
Slide 37: S&P Credit Metrics
Key credit metrics have been S&P CREDIT METRICS improving 2010 2011 2012 2013 2014 APS FFO / Debt 23.7% 23.6% 27.7% 31.5% 26.6% FFO / Interest 3.3x 4.2x 4.8x 5.6X 5.8x Debt / 52.6% 52.9% 50.7% 47.7% 46.3% Capitalization Pinnacle West FFO / Debt 22.3% 23.0% 26.7% 29.8% 23.6% FFO / Interest 3.1x 3.8x
Slide 38: Financing
FINANCING Debt Maturity Schedule 2014 Major Financing Activities • $250 million 30-year 4.70% APS senior ($Millions) unsecured notes issued in January 2014 with $600 proceeds used primarily to fund acquisition of Four Corners $500 • $250 million 10-year 3.35% APS senior unsecured notes issued June 2
Slide 39: Financial Outlook
2015 – 2017 Key Factors & Assumptions as of FINANCIAL OUTLOOK February 20, 2015 Gross Margin – Customer Growth and Weather Assumption Impact Retail customer growth • Expected to average about 2-3% annually (2015-2017) • Modestly improving Arizona and U.S. economic conditions Weather-normalized retai
Slide 40: Operations & Maintenance Outlook
OPERATIONS & Targeting to be top quartile in MAINTENANCE peer benchmarking for staffing OUTLOOK ($ Millions) 2015+ Outlook $137 $103 $113 • Goal is to keep O&M per $150 $124 $121 kWh flat • Complete documentation of over 1,800 policies, processes and procedures, including $795 - more than 275 proces
Slide 41: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status(1) ($ in millions) 90% 90% Expense(2) 2014A 2015E 2016E Pension(1) $14 $14 $7 77% OPEB $6 ($9) ($8) Contributions 2014A 2015E 2016E 2017E YE 2012 YE 2013 YE 2014 Up to Up to Pension $175 $100 • Funded status of the pension plan
Slide 42: Regulatory Mechanisms
We have achieved a more REGULATORY supportive regulatory structure MECHANISMS and improvements in cost recovery timing Adopted / Mechanism Description Last Adjusted Power Supply Adjustor April 2005 / • Recovers variance between actual fuel and purchased power costs and (“PSA”) February 2015 base fue
Slide 43: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and projected closings – Update filed each April – Annual rate true-up compares projec
Slide 44: Regulatory Mechanisms (LFCR)
REGULATORY Lost Fixed Cost Recovery MECHANISMS (LFCR) • Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2015 Revenue 2012 settlement 2014 Revenue – Estimated to offset 30-40% of 2013 Revenue revenues lost due to ACC- 2012 Revenue mandated energy efficiency (EE) and distributed re
Slide 45: Generation Portfolio
GENERATION PORTFOLIO* Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 647 COAL Four Corners Farmington, NM 4, 5 Base 1969-1970 63 970 1,932 MW Navajo
Slide 46: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Fuel/Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (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 SOLAR 310 MW
Slide 47: Investor Relations Contacts
INVESTOR RELATIONS CONTACTS Paul J. Mountain, CFA Director, Investor Relations Telephone: (602) 250-4952 E-mail: paul.mountain@pinnaclewest.com Chalese Haraldsen Telephone: (602) 250-5643 E-mail: chalese.haraldsen@pinnaclewest.com Pinnacle West Capital Corporation P.O. Box 53999, Mail Station 9998 P
Pinnacle West Capital — Non-Deal Roadshow (March 2015) on 6ix