Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Deutsche Bank Securities Energy, Utilities and Power Conference 2009
51 slides from Pinnacle West Capital's conference presentation, May 28, 2009
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today Deutsche Bank Securities Energy, Utilities and Power Conference May 27-28, 2009
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements based on current expectations, and neither Pinnacle West nor APS assumes any obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forwa
Slide 3: Who We Are
Who We Are At our core, we are an electric company. NYSE Ticker: PNW Market Cap: $3 Billion Enterprise Value: $7 Billion Assets March 31, 2009 Regulated Electric Utility $11 Billion $11 Billion Real Estate Developer $314 Million Competitive Energy Services Provider $75 Million Venture Investments EL
Slide 4: A Leadership Team of Industry Veterans
A Leadership Team of Industry Veterans Our top executives have more than 140 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Jim Steve Don Mark Randy Hatfield Wheeler Robinson Schiavoni Edington SVP & EVP APS SVP EVP & CFO Customer President Fossil Chie
Slide 5: PNW: Our Value Proposition
PNW: Our Value Proposition Delivering Superior Shareholder Returns • Vertically integrated utility Capitalizing on • High growth service territory Attractive • Diversified energy mix Fundamentals • Operational excellence • Strong, energetic leadership • Distribution system growth Compelling Capital
Slide 6: Recent Developments
Recent Developments Retail rate settlement announcement Palo Verde return to routine NRC oversight SunCor restructuring
Slide 7: APS Proposed Retail Rate Settlement
APS Proposed Retail Rate Settlement Rate and Financial Stability Plan The proposed settlement has a number of benefits from investors’ perspective. Strengthens APS’ financial condition and supports common dividend Provides greater level of cost recovery and return on investment Continues stron
Slide 8: APS Proposed Retail Rate Settlement: Revenue Increases
APS Proposed Retail Rate Settlement Rate and Financial Stability Plan The proposed revenue increases total $230 million in 2010 – 83% of APS’ request. Proposed APS Settlement Request Base Retail Rates – Annualized revenue increases ($ millions): Non-fuel $ 196 $ 264 Net fuel-related 11 14 Net increa
Slide 9: APS Proposed Retail Rate Settlement: Expense Reduction and Deferrals
APS Proposed Retail Rate Settlement Rate and Financial Stability Plan Other key financial provisions add value to the proposed settlement terms. Expense Reduction Commitment Beginning in 2010, identify additional $10 million pretax expense reductions above $20 million identified March 2009 $30
Slide 10: APS Proposed Retail Rate Settlement: Palo Verde and Equity
APS Proposed Retail Rate Settlement Rate and Financial Stability Plan Other key financial provisions add value to the proposed settlement terms. Palo Verde Life Extension Extension of operating licenses to 60 years from 40 years requested December 2008 • Process expected to take about two years
Slide 11: APS Proposed Retail Rate Settlement: Future Rate Cases
APS Proposed Retail Rate Settlement Rate and Financial Stability Plan The settling parties have agreed to expedite processing future rate cases and to other non-financial provisions. Future rate case process APS to file general base rate cases on or after June 1, 2011 and June 1, 2013 Base rat
Slide 12: APS Proposed Retail Rate Settlement: Schedule
APS Proposed Retail Rate Settlement Rate and Financial Stability Plan The proposed schedule should allow a final decision by year-end 2009. Term sheet filed May 4, 2009 Definitive settlement agreement filing June 12, 2009 Supporting parties’ testimony due July 1, 2009 Opposing parties’ testimony due
Slide 13: Palo Verde: Energy Cornerstone of the Southwest
Palo Verde: Energy Cornerstone of the Southwest The envy of the nuclear industry for more than a decade, Palo Verde is back on track as a top performer. Capacity Factors Accomplishments & Goals 100% March 2009 NRC returned plant to 90% routine inspection and oversight Industry 87% December 2008
Slide 14: SunCor Restructuring Plan
SunCor Restructuring Plan Our real estate subsidiary restructuring streamlines our strategic focus. Properties being sold ($200 million*) Homebuilding operations IDAHO Master-planned communities and Boise golf courses in four states Properties to be retained ($70 million*) Commercial assets at
Slide 15: Financial Impacts of SunCor Restructuring
Financial Impacts of SunCor Restructuring Our plan maximizes the value of SunCor’s remaining assets and eliminates its outstanding debt. 1st quarter 2009 real estate impairment, severance and related costs $1.26 per share Eliminate SunCor’s debt Produce $80 million of cash tax benefits (estima
Slide 16: Positive Long-Term Demographics
Positive Long-Term Demographics Arizona has ranked in the top five for population growth over the last 20 years. In spite of economic slowdown, APS expects 55% customer growth by 2025. Superior Historical Growth APS Customer Growth Annual Growth Millions 6% 2.0 1.7 5% 55% 1.5 4% 1.1 3% 1.0 2% 0.5 1%
Slide 17: A Balanced and Strategic Resource Plan
A Balanced and Strategic Resource Plan We have competitive advantages to capitalize on renewable and nuclear resources to provide a diversified energy mix. Energy Mix (MWh) 100% Renewables & EE Renewables Abundant solar resources in Arizona & Energy High customer interest and incentives Natural
Slide 18: Renewable Energy Rises With the Sun
Renewable Energy Rises With the Sun We intend to make Arizona the “Solar Capital of the World.” Solar Insolation Comparison (kWh/year) Germany - one of countries with highest installed capacities despite Seattle-like weather conditions Japan’s solar insolation is Germany comparable to Florida, ranke
Slide 19: Arizona: Solar Hot Spot
Arizona: Solar “Hot Spot” With Solana and Starwood Solar I, APS will provide more solar electricity per customer than any other U.S. utility. Solana Starwood Solar I Capacity (Gross MW) 280 290 70 miles southwest 75 miles west Location of Phoenix of Phoenix (Gila Bend) (Harquahala Valley) Planned Co
Slide 20: Transmission Investment is Key
Transmission Investment is Key Strategic investment is needed to maintain reliability and bring diversified resources to our customers. NAVAJO NORTH 100 100 MW MW FOUR CORNERS 10-Year Transmission Plan: $1 billion of new 970 MW transmission investment Over 280 miles of new lines Increases im
Slide 21: Progressive Federal Rate Regulation
Progressive Federal Rate Regulation We have achieved constructive, timely transmission rate treatment. FERC Formula Rates adopted in 2008 Based on FERC Form 1 and certain projections Retail portion flows through ACC Transmission Cost Adjustor Adjusted annually with 10.75% allowed ROE 2009
Slide 22: APS CapEx Drives Strong Rate Base Growth
APS CapEx Drives Strong Rate Base Growth We have reduced capex based on current slowed growth – yet still expect strong rate base growth. APS Capital Expenditures APS Rate Base $ Millions $ Millions ate 1,200 th R 8,000 Grow nual n d An om po u 1,000 5% C Generation 6,000 800 Transmission 600 Distri
Slide 23: Adequate Liquidity Resources
Adequate Liquidity Resources We have sufficient liquidity and access to credit. March 31, 2009 Est. 2009 Cash Credit Facilities Available Liquidity Sources & Uses $ Millions Capacity 1,600 Borrower ($ Millions) Matures PNW $ 283 Dec. ’10 1,400 APS 377 Dec. ’10 Cushion APS 489 Sep. ’11 1,200 $407 $1,
Slide 24: 2009 - 2010 Earnings Guidance Affirmed
2009 - 2010 Earnings Guidance Affirmed As of May 5, 2009 We estimate our consolidated EPS will be within a reasonable range around $2.30 in 2009 and $3.00 in 2010. Guidance Estimates* Key Assumptions 2009 2010 2009 APS $ 2.35 $ 3.00 Full-year interim base rates Parent and all No additional other
Slide 25: Top-Tier Dividend Yield
Top-Tier Dividend Yield Pinnacle West’s annual dividend is $2.10 per share. 10% 8% 7.7% 5.7% 5% 3% 0% Mar. 31, Jun. 30, Sep. 30, Dec. 31, Apr. 30, 2008 2008 2008 2008 2009 PNW Electric Industry Average
Slide 26: PNW: Our Value Proposition
PNW: Our Value Proposition Capitalizing on Attractive Fundamentals Delivering Superior Compelling Capital Investment Opportunities Shareholder Returns $2.10 per share annual dividend Improving Investment-grade credit ratings Regulatory Environment Adequate liquidity and access to capital Con
Slide 27: Appendix
oe PINNACLE WEST CAPITAL CORPORATION Appendix
Slide 28: Investment Grade Credit Ratings
Investment Grade Credit Ratings Ratings Pinnacle West APS Senior Unsecured Debt Moody’s Baa3 Baa2 S&P BB+ BBB- Fitch - BBB Outlook Moody’s Stable Stable S&P Stable Stable Fitch Negative Stable Commercial Paper Moody’s P3 P2 S&P A3 A3 Fitch F3 F3
Slide 29: Managing Costs and Efficiency
Managing Costs and Efficiency We are focused on reducing costs and mitigating volatility exposure. Long-term Coal & Nuclear Fuel Supply Contracts Hedging Program APS manages price volatility risk for fuel and power purchases through rolling 36-month hedge Workforce Reduction About 550 posi
Slide 30: Arizona's Largest and Longest-Serving Electric Utility
Arizona’s Largest and Longest-Serving Electric Utility Serving Arizona customers since 1887 – 15 years before statehood. Service Territory 1.1 million customer accounts 34,646 square miles Customer Growth 1.4% in 2008 1% growth expected through 2010 3-4% historically – well above industry
Slide 31: The New ACC
The New ACC Terms Through January 2011 Kristin Mayes Gary Pierce (Rep) Chairman (Rep) Elected November 2008, Terms Through January 2013 Sandra Kennedy (Dem) Paul Newman (Dem) Bob Stump (Rep)
Slide 32: Influencing National Energy Policies
Influencing National Energy Policies We are actively working with our Regulators and Legislators on initiatives important to the industry. • Stimulus Package Tax Provisions • Solar projects under construction by end of 2010 and in service by end of 2016 • Treasury Grant: 30% of capital cost; at co
Slide 33: Pre-Settlement Retail Rate Case Positions
Pre-Settlement Retail Rate Case Positions Diverse stakeholder positions in our rate case provided an opportunity to establish middle ground – and a proposed settlement. APS ACC Request Staff RUCO AECC Annual revenue increases ($ millions): Non-fuel rate increase $ 264 $ 155 $ (14) $ 206 Net fuel-rel
Slide 34: General Retail Rate Case Components
General Retail Rate Case Components APS Requested Revenue Increase Important Request Elements Post Test-Year Large Projects Adjusted 2007 test year In-Service Traditional $25 Recognize capital Rate Base Other Post Test-Year expenditures through $72 $34 Plant In-Service requested decision date
Slide 35: ACC Approved Interim Rates
ACC Approved Interim Rates The interim rate decision supports APS’ financial strength while providing customers rate stability. Approved by ACC December 18, 2008 Base rate surcharge effective until general rate case decision $65.2 million annual pretax retail revenues Effective for customer
Slide 36: Our Regulatory Mix
Our Regulatory Mix The bulk of APS’ revenues come from our regulated retail rate base; we also have a meaningful transmission business. Most Recent Rate Decisions ACC FERC Transmission Transmission Effective Date 7/1/2007 6/1/2008 18% 18% Test Year Ending 9/30/2005 12/31/2007 Generation Generation &
Slide 37: APS Revenues by Recovery Mechanisms
APS Revenues by Recovery Mechanisms We have received supportive regulatory decisions providing more timely recovery. Regulated Electricity Revenue Test Year by Recovery Mechanism Historical Forecasted $ Millions 3,500 3,000 PSA 2,500 TCA RES 2,000 DSM* 1,500 EIS* 1,000 Base Rates 500 Other** 0 2004
Slide 38: Significant Regulatory Progress Since 2005
Significant Regulatory Progress Since 2005 We have made progress towards a supportive regulatory structure and improvement in the timing of cost recovery. Adopted / Mechanism Last Adj. Description Power Supply Adjustor April 2005 / Recovers 90% of variance between actual fuel and purchased power c
Slide 39: Key ACC Regulatory Proceedings
Key ACC Regulatory Proceedings Case Description Docket Number 2008 General Rate Case Announced settlement May 4, 2009. E-01345A-08-0172 Awaiting procedural schedule. 2008 Interim Rate Approval As part of 2008 rate request, APS received E-01345A-08-0172 $65.2 million interim base rate surcharge effec
Slide 40: Transmission Revenue Increases
Transmission Revenue Increases 1st Increase 2nd Increase 3rd Increase Annual Revenue Effective Annual Effective Annual Effective Request Settlement Date Revenue Date Revenue Date Retail Portion (TCA) $30M $27M 3/1/2008 $13M 7/3/2008 $21M 7/1/2009* Wholesale Portion $ 7M $ 1M 3/1/2008 $ 2M 6/1/2008 $
Slide 41: Continuing Superior Operating Performance
Continuing Superior Operating Performance Our coal plants are consistently strong performers. Capacity Factors 100% Solid capacity factors (12 months ended March 31, 2009) Four Corners at 87% APS Cholla at 90% 87% Performance Drivers: 75% Industry 75% Conservative operating practices Rig
Slide 42: Our Natural Gas Fleet Provides Flexibility
Our Natural Gas Fleet Provides Flexibility A flexible and cost-effective natural gas fleet helps us diversify our energy mix and deliver electricity when it’s needed most. Efficient Intermediate Fleet Peaking Fleet Provides Flexibility* There When We Need Them Capacity Availability Factor Factor 100
Slide 43: Planning for New Energy Resources
Planning for New Energy Resources Tomorrow’s energy needs require a flexible and responsive approach to changing industry dynamics. MW 13,000 11,500 10,000 8,500 Resource Resource planning planning fills fills the the gap gap 7,000 5,500 4,000 2,500 1,000 2009 2011 2013 2015 2017 2019 2021 2023 2025
Slide 44: A Diversified, Balanced Resource Plan
A Diversified, Balanced Resource Plan
Slide 45: Solana: A Sunny Place
Solana: A “Sunny Place” Solana will generate enough clean, renewable electricity to meet the needs of about 70,000 Arizona homes. 280-MW concentrating solar trough 30-year PPA for all output (~900 GWh/year) Planned commercial operation in 2012 Near existing transmission lines 70 miles sout
Slide 46: Starwood Solar I: A Major Resource
Starwood Solar I: A Major Resource Starwood Solar I is another meaningful step in making Arizona the “Solar Capital of the World.” 290MW concentrating solar trough 30-year PPA for all output Planned commercial operation in 2013 75 miles west of Phoenix Thermal storage capability To be ow
Slide 47: A Well-Balanced Generation Portfolio
A Well-Balanced Generation Portfolio` Com mercial Ow nership / N et C apacity 1 Fuel / Plant Location Units Dispatch O ps. Date Operator Interest (M W ) N uclear Palo Verde W intersb urg, AZ 1,2,3 Base 1986 - 1989 APS 29.1 1,147 Total Nuclear 1,147 C oal Cholla Joseph City, AZ 1,2,3 Base 1962 - 1980
Slide 48: Conventional Contracts Mean Predictability
Conventional Contracts Mean Predictability Purchase Contract Period Capacity, Net Fuel / Contract Type Period Counterparty Status* Start Expiration (MW) Other/NA Purchase SRP Year-round SRP IO Jun-1955 Jun-2010 238 Agreement Seasonal May 15 - PacifiCorp PacifiCorp IO Oct-1996 Oct-2020 480 Exchange S
Slide 49: Renewable Contracts Provide Bridge
Renewable Contracts Provide Bridge COD/ Expected Term Capacity, Net * Fuel / Contract Location Developer Status PPA Signed COD (years) (MW) Solar Solana (CSP Trough) Gila Bend, AZ Abengoa AD Feb-2008 2012 30 280 Total Solar 280 Wind Aragonne Mesa Santa Rosa, NM Babcock & Brown IO Dec-2005 Dec-2006 2
Slide 50: Environmental, Sustainability and Technology Recognition
Environmental, Sustainability and Technology Recognition • Innovest’s highest rating (AAA) and ranked #2 electric utility • Dow Jones Sustainability Index • Global 100 Most Sustainable Corporations in World by Corporate Knights • Storebrand’s Social Responsibility Index “best in class” distinction •
Slide 51: Employee Innovation Supports Customer Reliability
Employee Innovation Supports Customer Reliability We’re not just an energy company, we embrace technological innovation in our industry. Recipient of 2008 EEI Award 27 U.S. patents issued since 1997 State-of-the-art solar technology advancements Underground piping system inspections & maintena
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