Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q2 2014 Earnings Presentation
33 slides from Pinnacle West Capital's earnings presentation, Jul 31, 2014
Slide 1: Second Quarter 2014 Results
SECOND QUARTER 2014 RESULTS July 31, 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 • Regulatory Update • Operational Excellence 3 Second Quarter 2014
Slide 4: CFO Agenda
CFO AGENDA • 2nd Quarter 2014 Results • Arizona Economic Outlook • Financial Outlook 4 Second Quarter 2014
Slide 5: Consolidated EPS Comparison
CONSOLIDATED EPS COMPARISON 2014 VS. 2013 2nd Quarter Year-to-Date On-Going Earnings On-Going Earnings $1.40 $1.34 $1.19 $1.18 2014 2013 2014 2013 2nd Quarter Year-to-Date GAAP Net Income GAAP Net Income $1.19 $1.18 $1.34 $1.40 5 Second Quarter 2014
Slide 6: On-Going EPS Variances
ON-GOING EPS VARIANCES 2ND QUARTER 2014 VS. 2ND QUARTER 2013 Other Gross Margin(1) $0.02 $(0.06) Effective Tax Rate $0.02 Interest, Net of AFUDC $0.02 O&M(1) D&A $0.03 $(0.01) Other Taxes $(0.01) Net Increase $0.01 = (1) Excludes costs, and offsetting operating revenues, associated with renewable en
Slide 7: Gross Margin EPS Drivers
GROSS MARGIN EPS DRIVERS 2ND QUARTER 2014 VS. 2ND QUARTER 2013 Other, Net Lost Fixed (incl AZ Sun) Weather Cost Recovery $0.01 $(0.03) Mechanism $0.02 Net Retail kWh Decrease Sales $(0.04) $(0.06) Retail Transmission Revenue $(0.02) = See non-GAAP reconciliation for gross margin in appendix. 7 Secon
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 '14 Apr '05 '06 '07 '08 '09 '10 '11 '12 '13 '14Q2 Si
Slide 9: Arizona Economy – Homebuilders Agree Phoenix Has Solid Long-Term Outlook
ARIZONA ECONOMY – HOMEBUILDERS AGREE PHOENIX HAS SOLID LONG-TERM OUTLOOK “I am bullish on Phoenix over the long term…I believe that going into 2015 we're going to experience a more normal market in Arizona after things get more in balance.” “We remain confident in the long-term growth of the opportu
Slide 10: Financing
FINANCING 2014 Major Financing Activities Debt Maturity Schedule • $250 million 30-year 4.70% APS senior ($Millions) unsecured notes issued in January 2014 $600 with proceeds used primarily to fund acquisition of Four Corners $500 • $250 million 10-year 3.35% APS senior unsecured notes issued June 2
Slide 11: 2014 On-Going EPS Guidance
2014 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE July 31, 2014 2014 Electricity gross margin* (operating revenues, net of fuel and $2.22 – $2.27 billion purchased power expenses) • Retail customer growth about 2% • Weather-normalized retail electricity sales volume about +0.5% to prior yea
Slide 12: Appendix
er? t ‘s aie e ened pee sh shocenee eee uh, PN PINNACLE WEST CAPITAL CORPORATION
Slide 13: 2014 Key Dates
2014 KEY DATES Docket # Q1 Q2 Q3 Q4 Key Regulatory Filings Lost Fixed Cost Recovery 11-0224 Jan 15 Transmission Cost Adjustor May 15 Renewable Energy Surcharge Jul 1 10-Year Transmission Plan (Annual) 13-0002 Jan 31 2014 Integrated Resource Plan (Biennial) 13-0070 Apr 1 Net Metering (Decision No. 74
Slide 14: 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 15: APS Is a Leader in Solar
APS IS A LEADER We are committed to making Arizona the solar capital of IN SOLAR America APS Solar Portfolio* APS 2013 Rankings AZ Sun 154 MW PPA • 3rd of all U.S. utilities for solar energy 310 MW installed in 2013 (410 MW) DG • 4th for new solar installed in 2013 350 MW (368 watts/customer) • 4th
Slide 16: 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 • 118 MW in commercial operation to date
Slide 17: Residential PV Applications
RESIDENTIAL PV Residential rooftop solar applications continue to trend APPLICATIONS higher in 2014 2013 2014 1000 958 907 911 907 900 868 858 800 770 794 779 685 683 700 583 583 600 495 500 436 402 400 344 283 300 200 100 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • As of June 30, 2014, over
Slide 18: APS-Owned Rooftop Solar Proposal
• TBD APS-OWNED ROOFTOP SOLAR PROPOSAL • APS proposed an option to the ACC to convert 20 MW of AZ Sun into APS- owned residential rooftop solar, equates to approximately 3,000 customers • Requesting ACC review within two months (September) to ensure compliance of renewable energy commitments by the
Slide 19: 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 $363 $931 $41 Distribution $44 $74 $234 $373 Transmission $230 $196 $132 Renewable $177 $212 Generation $166 $213 $20 $131 $8 $58 $22
Slide 20: 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 • Maintains system reliability through retirement of aging steam units • Replacement units meet need for increased portfolio responsiveness • Aids in
Slide 21: 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 – Estimated environmental compliance: $350 mi
Slide 22: APS Transmission
Strategic transmission investment is essential to maintain reliability APS TRANSMISSION and deliver diversified resources to customers • 10-Year Transmission Plan filed January 2014 (115 kV and above) – $496 million of transmission investment – 275 miles of new lines – Includes Hassayampa-North Gila
Slide 23: PNW Transmission
PNW TRANSMISSION BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities JOINT VENTURE WITH MIDAMERICAN TRANSMISSION Bright Canyon formed a 50/50 JV with Mid-American Transmission to pursue transmission opportunities in the western United States DELANEY-COLORADO RIVER
Slide 24: Customer Growth
CUSTOMER GROWTH Annual Growth 5% • Customer growth drives 85% of retail sales 4% (excluding impacts of customer conservation, energy efficiency and distributed renewable 3% generation initiatives) • Retail customer growth to 2% average about 2.5% annually 2014-2016 1% 0% 1990 1994 1998 2002 2006 201
Slide 25: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) • Weather-normalized retail sales growth about 1% for 2014-2016 after impacts of energy efficiency, customer conservation and distributed renewable generation initiatives (excluding Lost Fixed Cost Recovery) Distributed Generation (DG) Impact • DG makes up 0.
Slide 26: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and projected closings – Update filed each April – Annual rate true-up compares projec
Slide 27: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2013 Rates 2014 Rates (Including True-Up) (Including True-Up) 2013 Revenue 2014 Reve
Slide 28: Operations & Maintenance
OPERATIONS & Our goal is to keep consolidated O&M growth at or below retail MAINTENANCE sales growth levels ($ Millions) $137 $99 $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 29: Consolidated Financial Outlook
CONSOLIDATED FINANCIAL OUTLOOK Earned ROE Dividend Growth Goal Indicated Annual Dividend Rate at Year-End 11% PNW 9.9% Consolidated 10% goal to earn 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* 2011 2012 2013 2014 2015 Projected * Continu
Slide 30: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax As Previously Reported Millions Adjusted for current 10-year Rolling Average $20 (2003-2012) 12 11 $10 16 6 10 6 1 $0 (7) (10) (13) $(10) (13) (13) $(20) Q1 Q2 Q3 Q4 Q1 Q2 2013 2014 $9 Million, as previously reported $(7) Million $11 Millio
Slide 31: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Pretax Millions Renewable Energy Demand Side Management $50 $40 25 $30 24 20 19 17 $20 17 16 15 16 14 $10 20 14 16 14 10 12 12 10 10 8 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2013 2014 $124 Million $137 Million $48 Million * O&M expenses related to
Slide 32: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended June 30, EPS $ millions pretax, except per share amounts 2014 2013 Impact Operating revenues* $ 906 $ 916 Fuel and purchased power expenses* (291) (278) Gross margin 615 638 $ (0.12) Adjustments: Renewable energy (excluding AZ Sun), dem
Slide 33: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION OTHER NON-GAAP Three Months Ended June 30, Four Corners 2014 EPS $ millions pretax, except per share amounts 2014 Deferral Adjusted 2013** Impact Operations and maintenance* $ 211 (2) $ 209 $ 229 Renewable energy (excluding AZ Sun), demand side management and similar
Pinnacle West Capital — Q2 2014 Earnings Presentation on 6ix