Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — FY2013 Earnings Presentation
28 slides from Pinnacle West Capital's earnings presentation, Feb 21, 2014
Slide 1: 4th Quarter and Full-Year 2013 Results
4TH QUARTER AND FULL-YEAR 2013 RESULTS February 21, 2014
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES 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
Slide 3: CEO Agenda
CEO AGENDA • Operational Excellence • Strategic Investments • 2014 Calendar 3 Fourth Quarter 2013
Slide 4: CFO Agenda
CFO AGENDA • 4th Quarter and 2013 Full-Year Results • Arizona Economic Outlook • Balance Sheet Strength • 2014 Outlook 4 Fourth Quarter 2013
Slide 5: Consolidated EPS Comparison
CONSOLIDATED EPS COMPARISON 2013 VS. 2012 4th Quarter Full-Year On-Going Earnings On-Going Earnings $3.66 $3.50 $0.24 $0.22 2013 2012 2013 2012 4th Quarter Full-Year GAAP Net Income GAAP Net Income $0.22 $0.20 $3.66 $3.45 5 Fourth Quarter 2013
Slide 6: On-Going EPS Variances
ON-GOING EPS VARIANCES 4TH QUARTER 2013 VS. 4TH QUARTER 2012 Higher Other Other, Net Operating (primarily taxes) Expenses (2) $0.06 $(0.03) Lower Gross Margin (3) $(0.11) Lower Interest Expenses Lower O&M (1)(3) $0.01 $0.05 Net Decrease $(0.02) = (1) Excludes $9M related to the closure of Four Corne
Slide 7: Gross Margin EPS Drivers
GROSS MARGIN EPS DRIVERS 4TH QUARTER 2013 VS. 4TH QUARTER 2012 Lost Fixed Cost Recovery Lower Retail Mechanism kWh Sales $0.02 $(0.03) Net Retail Decrease Transmission Revenue $(0.11) $(0.04) Weather $(0.05) Other Items, Net $(0.01) = 7 Fourth Quarter 2013
Slide 8: 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 YTD-Nov '05 '06 '07 '08 '09 '10 '11 '12 '13 New Home
Slide 9: Customer Growth
CUSTOMER GROWTH Annual Growth • Customer growth drives 5% 85% of retail sales (excluding impacts of customer conservation, energy efficiency 4% and distributed renewable generation initiatives) • Retail customer growth to 3% average about 2.5% annually 2014-2016 2% – Weather normalized retail sales
Slide 10: Economic Outlook
ECONOMIC OUTLOOK #1 Arizona is the #1 state for projected 3rd Phoenix ranked 3rd job growth by on Forbes’ 2014 list Forbes (1) of America’s Fastest- Growing Cities (2) (1) “Arizona, Texas Head List of Best States for Expected Job Growth. Forbes/Moody’s Analytics, September 25, 2013. (2) “America’s 2
Slide 11: Credit Ratings and Financing
CREDIT RATINGS AND FINANCING Investment Grade Credit Ratings Major Financing Activities APS Parent Corporate Credit Ratings • $250 million 30-year 4.70% APS Moody’s A3 Baa1 senior unsecured notes issued in S&P A- A- January 2014 Fitch BBB+ BBB+ Senior Unsecured • Currently expect about $550 Moody’s
Slide 12: Pension & Other Post Retirement Benefits (OPEB)
PENSION & OTHER POST RETIREMENT BENEFITS (“OPEB”) Pension Funded Status(1)(2) ($ in millions) 90% Expense(3) 2013A 2014E 2015E Pension(1) $31 ~$10 ~$10 77% OPEB $18 ~$10 ~$10 Contributions 2013A 2014E 2015E 2016E YE 2012 YE 2013 Pension $141 $175 Up to $100 Up to $25 • Pension funded status for GAAP
Slide 13: Appendix
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Slide 14: 2014 Key Dates
2014 KEY DATES Docket # Q1 Q2 Q3 Q4 Key Regulatory Adjustor Filings Lost Fixed Cost Recovery 11-0224 January 15 Transmission Cost Adjustor May 15 Renewable Energy Surcharge July 1 10-Year Transmission Plan (Annual) 13-0002 January 31 2014 Integrated Resource Plan (Biennial) - April 1 Net Metering (D
Slide 15: AZ Sun Program
Owning solar resources makes sense for our customers and the AZ SUN PROGRAM environment and provides earnings growth potential • Utility-scale photovoltaic solar plants to be owned by APS • Constructive rate recovery through RES until included in base rates • 118 MW in commercial operation to date;
Slide 16: Four Corners Power Plant
• Our proposal represents a balanced solution to new FOUR CORNERS POWER PLANT environmental regulations. • 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 –
Slide 17: Ocotillo Power Plant
OCOTILLO POWER PLANT • Ocotillo modernization project will maintain valley grid reliability and increase APS’s generating capacity by 290 MW • Located in Tempe, AZ • Expected project completion summer 2018 • Estimated project cost of $600M - $700M in 2016-2018 Current Future State (2) Westinghouse P
Slide 18: Capital Expenditures
80% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (40%) and depreciation cash flow (40%) ($ Millions) $1,263 $48 Other $1,026 $986 $965 $363 Distribution $41 $44 $54 $234 $374 Transmission $255 $196 $132 Renewable $198 $213 Generation $166 $213 $20 $118 $7 $57 $30
Slide 19: Rate Base
APS’s revenues come from a RATE BASE regulated retail rate base and meaningful transmission business APS Rate Base Growth $6.9 Billion Total Approved Rate Base Year-End ACC FERC Generation & Distribution Transmission 17% 83% $2.2 $2.0 $1.3 $1.4 $1.7 $2.0 Most Recent Rate Decisions ACC FERC Rate Effe
Slide 20: 2014 On-Going EPS Guidance
2014 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE February 21, 2014 2014 Electricity gross margin* (operating revenues, net of fuel and $2.22 – $2.27 billion purchased power expenses) • Retail customer growth about 2.0% • Weather-normalized retail electricity sales volume about +0.5% to pri
Slide 21: Operations & Maintenance
OPERATIONS & Our goal is to keep consolidated O&M growth at or below retail MAINTENANCE sales growth levels ($ Millions) $137 $94 $150 $124 $121 $95 $790 - $810 $788* $727 $749 $754 $761 2009 2010 2011 2012 2013 2014E Consolidated RES/DSM** Note: Pinnacle West O&M for 2009-2014E: $10M, $9M, $8M, $11
Slide 22: Financial Outlook
2014 – 2016 Key Factors & Assumptions as of FINANCIAL OUTLOOK February 21, 2014 Gross Margin – Customer Growth and Weather Assumption Impact Retail customer growth • Expected to average about 2.5% annually (2014-2016) • Modestly improving Arizona and U.S. economic conditions Weather-normalized retai
Slide 23: Consolidated Financial Outlook
CONSOLIDATED FINANCIAL OUTLOOK Earned ROE Dividend Growth Goal Indicated Annual Dividend Rate at Year-End 11% PNW Consolidated 10% 9.9% At least 9.5% Annually 9% $2.27 $2.18 8% $2.10 7% 6% 2008 2009 2010 2011 2012 2013 2014 2015 Goal APS PNW* Outlook* 2011 2012 2013 2014 2015 Projected * Continuing
Slide 24: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $30 25 21 $20 16 10 $10 6 3 $0 (1) (3) $(10) (7) (11) (10) $(20) (22) $(30) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 $8 Million $10 Million $9 Million All periods recalculated to confirm to current 10-year rolling average
Slide 25: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Pretax Millions Renewable Energy Demand Side Management $50 $40 23 25 $30 18 16 13 24 20 19 17 $20 17 16 15 $10 23 19 19 19 20 14 16 14 10 12 12 10 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 2013 $150 Million $124 Million $137 Million * O&M
Slide 26: Non-GAAP EPS Reconciliation
NON-GAAP EPS RECONCILIATION 4TH QUARTER 2013 VS. 4TH QUARTER 2012 Three Months Ended December 31, 2013 2012 Net income attributable to common shareholders $ 0.22 $ 0.20 Adjustments: Loss from discontinued operations - 0.04 On-going EPS $ 0.22 $ 0.24 26 Fourth Quarter 2013
Slide 27: Non-GAAP EPS Reconciliation
NON-GAAP EPS RECONCILIATION YTD 2013 VS. YTD 2012 Twelve Months Ended December 31, 2013 2012 Net income attributable to common shareholders $ 3.66 $ 3.45 Adjustments: Loss from discontinued operations - 0.05 On-going EPS $ 3.66 $ 3.50 27 Fourth Quarter 2013
Slide 28: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended December 31, EPS $ millions pretax, except per share amounts 2013 2012 Impact Operating revenues* $ 700 $ 693 Fuel and purchased power expenses* (237) (211) Gross margin 463 482 $ (0.10) Adjustments: Renewable energy (excluding AZ Sun),