Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (August 2011)
56 slides from Pinnacle West Capital's roadshow presentation, Aug 10, 2011
Slide 1: Delivering Superior Shareholder Value: Investor Meetings
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Meetings August 10 – 12, 2011
Slide 2: Forward-Looking Statements
2 FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements based on current expectations, including statements regarding our 2011 earnings outlook. These forward-looking statements are often identified by words such as “estimate,” “predict,” “may,” “believe,” “plan,” “expect,
Slide 3: Pinnacle West: Who We Are
3 PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility. NYSE Ticker PNW Market Cap $5 Billion Enterprise Value $8 Billion Vertically Integrated Regulated Electric Utility $12 Billion Assets Non-Utility Subsidiaries $61 Million Assets As of June 30, 2011
Slide 4: Focusing on Core Regulated Electric Utility Business
FOCUSING ON CORE REGULATED 4 ELECTRIC UTILITY BUSINESS APS is Arizona’s largest and longest-serving electric utility. Service Territory • 1.1 million customer accounts • 34,646 square miles Customer Growth STATE OF ARIZONA • 1.3% average annual growth expected 2011-2013 • 3-4% historical average — w
Slide 5: A Respected, Veteran Leadership Team
5 A RESPECTED, VETERAN LEADERSHIP TEAM Our top executives have more than 130 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Don Mark Randy Dave Falck Jim Robinson Schiavoni Edington EVP EVP, Hatfield f ld APS SVP EVP & General SVP & CFO President Fossi
Slide 6: Pinnacle West: Our Value Proposition
6 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors: Deliver superior shareholder returns through…
Slide 7: Pinnacle West: Our Value Proposition
7 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 8: Positive Long-Term Demographics
8 POSITIVE LONG-TERM DEMOGRAPHICS APS’s customer growth generally outpaces U.S. and Arizona population growth. Superior p Growth APS Customer Growth Annual Growth Millions 2.5%* 1990 1995 2000 2005 2010 2015 Projected *Compound Compound Annual Growth Rate APS Customer Growth Arizona Population Growt
Slide 9: APS Cap Ex Drives Strong Rate Base Growth
APS CAP EX DRIVES STRONG 9 RATE BASE GROWTH We reduced capital expenditures based on current economic conditions, yet still expect strong rate base growth. APS Capital Expenditures APS Rate Base $ Millions $ Billions 1,400 1,200 1,000 Other 800 Distribution 600 Transmission Renewable 400 Environment
Slide 10: Pinnacle West: Our Value Proposition
10 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 11: Customer Satisfaction … A Key Priority
11 CUSTOMER SATISFACTION … A KEY PRIORITY Our employees provide top-tier customer service. Lowering Outage Time Outstanding Residential Per Customer Customer Satisfaction Rating Average Outage Rating Minutes/Year APS Industry Average 2011 J.D. Power Residential Customer Survey MAINTAINING OPERATIONA
Slide 12: Superior Power Plant Performance
12 SUPERIOR POWER PLANT PERFORMANCE Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Performance Metrics APS 91% 92% 81% Industry 91% 68% APS Commercial Availability APS Capacity Factor Industry Capacity Factor MAINTAINING OPERATIONAL EXCELLENCE
Slide 13: Environmental, Sustainability and Governance Leadership
ENVIRONMENTAL, SUSTAINABILITY 13 AND GOVERNANCE LEADERSHIP We are recognized worldwide for our achievements. Dow Jones Ranked 294 of 1,000 Sustainability Index Companies Worldwide R k d 15th Overall Ranked O ll Highest for Any Utility Global 100 Most Sustainable Social Responsibility Index Corporati
Slide 14: Pinnacle West: Our Value Proposition
14 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 15: Resource Planning for Reliability and Sustainability
RESOURCE PLANNING FOR 15 RELIABILITY AND SUSTAINABILITY Through a balanced resource mix including renewable resources and energy efficiency programs, we will meet future load growth. MW 14,000 14,000 Load Requirement 3% Four Corners Transactions, Net 12,000 Including 15% Reserves 4% Other Future Pur
Slide 16: Renewable Energy Rises with the Sun
16 RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of the World.” Arizona Germany and Japan are among countries with highest installed solar capacity capacity, yet have solar conditions far inferior to Arizona MAKING COMPELLING CAPITAL INVESTMENTS
Slide 17: APS AZ Sun Program
17 APS AZ Sun Program Owning solar resources makes sense for our customers, communities, environment, and provides returns to our shareholders. Utility scale solar photovoltaic plants to be owned by APS Utility-scale Phase I – Underway Phase II - Proposed • 100 MW • Additional 100 MW • Up to $500 mi
Slide 18: Four Corners Power Plant Transactions
FOUR CORNERS POWER PLANT 18 TRANSACTIONS Our proposal represents a balanced solution to new environmental regulations. Acquire A i Southern S th California C lif i Edison’s Edi ’ 739 MW interest i t t in Units 4 & 5 and shut down 560 MW Units 1 – 3 • Purchase price: $294 million • Acquisition q targ
Slide 19: Transmission Investment Essential
19 TRANSMISSION INVESTMENT ESSENTIAL Strategic transmission is necessary to maintain reliability and deliver diversified resources to our customers. NAVAJO • 10-Year 10 Y Transmission T i i Plan Pl (115-kV and above) FOUR NORTH CORNERS 100 MW • $450 million of new 970 MW transmission investment CHOL
Slide 20: Pinnacle West: Our Value Proposition
20 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 21: Arizona Corporation Commissioners
21 ARIZONA CORPORATION COMMISSIONERS The new composition provides opportunities for additional relationships and process efficiencies. Terms Through January 2013 Terms Through January 2015 Sandra Kennedy Paul Newman Bob Stump Brenda Burns Gary Pierce (Rep)* (Dem) (Dem) (Rep) (Rep) Chairman * Term li
Slide 22: 2011 Retail Rate Case Filing Benefits
2011 RETAIL RATE CASE FILING 22 BENEFITS The rate case provisions contain a number of benefits for customers and shareholders. • Provides financial support APS needs to achieve Arizona’s energy goals • Encourages progress toward sustainable energy future • Supports renewable energy and energy effici
Slide 23: 2011 Retail Rate Case Filing Key Financial Components
2011 RETAIL RATE CASE FILING 23 KEY FINANCIAL COMPONENTS APS has requested a base rate increase to become effective July 1, 2012. Annuall A Revenue Change Non-fuel base rate increase $ 194.1 6.6% Amounts transferring from adjustment mechanism revenues Renewable Energy Surcharge revenues related to A
Slide 24: 2011 Retail Rate Case Filing Key Financial Assumptions
2011 RETAIL RATE CASE FILING 24 KEY FINANCIAL ASSUMPTIONS Updated rate base, cost of capital and fuel prices underpin the rate request amounts. Rate base $5.7 billion Return on equity q y 11% Capital structure Long-term debt 46.1% C Common equity i 53 9% 53.9% Base fuel rate (¢/kWh) 3.24 Projected f
Slide 25: 2011 Retail Rate Case Filing Details of Request
2011 RETAIL RATE CASE FILING 25 DETAILS OF REQUEST Other key provisions continue constructive regulatory treatment and limit regulatory lag. • Post test-year plant additions through rate effective date • $259 million AZ Sun projects • $161 million other projects • Revenue-per-customer decoupling mec
Slide 26: 2011 Retail Rate Case Filing ACC Procedural Schedule
2011 RETAIL RATE CASE FILING 26 ACC Procedural Schedule The procedural schedule provides a process which could allow a final decision by July 1, 2012, consistent with APS’s 2009 regulatory settlement. N 18, Nov. 18 2011 ACC StStaff ff and d iintervenors' t ' di directt ttestimony ti d due, except co
Slide 27: Pinnacle West: Our Value Proposition
27 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 28: Consolidated On-Going EPS Outlook
28 CONSOLIDATED ON-GOING EPS OUTLOOK Our on-going earnings improved since 2009. Per Share $2.75 - $2.90** **See key factors and assumptions in Appendix. As of 8/2/11 STRENGTHENING OUR FINANCIAL PROFILE
Slide 29: ROE Improvement: A Multi-Pronged Approach
ROE IMPROVEMENT: 29 A MULTI-PRONGED APPROACH Improving our earned return on equity is one of our top priorities. E Earned d ROEs ROE Key Initiatives • Supportive electric utility rates • Regulatory framework improvements • Cost management initiatives • Efficiency and effectiveness throughout organiz
Slide 30: APS Operations & Maintenance Expense Trends
APS OPERATIONS & 30 MAINTENANCE EXPENSE TRENDS Our goal is to keep O&M growth in line with retail sales growth. $ Millions Excludes RES and demand-side management costs STRENGTHENING OUR FINANCIAL PROFILE
Slide 31: Ample Financing Access
31 AMPLE FINANCING ACCESS Investment-grade credit ratings, capitalization and liquidity should provide adequate access to bank and capital markets. C it li ti & Liquidity Capitalization Li idit 2011 - 2012 Major M j Financing Fi i Activities A ti iti December 31, 2010 $ Billions 2011 $500M APS revol
Slide 32: Top-Tier Dividend Yield
32 TOP-TIER DIVIDEND YIELD Pinnacle West’s annual dividend is $2.10 per share — providing a top-tier yield with a near-average payout. Dividend Yield PNW Industryy Averages g Dividend Payout Dividend Yield as of July 31, 2011 Dividend Payout 12 Months Ended March 31 31, 2011 STRENGTHENING OUR FINANC
Slide 33: Superior Shareholder Returns
33 SUPERIOR SHAREHOLDER RETURNS Our total return to shareholders has outperformed our industry and the broad market over the past five years. Pinnacle West S&P 500 S&P 1500 Electric Utilities Periods ended December 31, 2010 STRENGTHENING OUR FINANCIAL PROFILE
Slide 34: Our Value Proposition: Deliver Superior Shareholder Returns
34 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors… Deliver Superior S S Shareholder Returns
Slide 35: Appendix
APPENDIX ed PINNACLE WEST CAPITAL CORPORATION
Slide 36: 2011 On-Going EPS Guidance
36 2011 On-Going EPS Guidance Key Factors and Assumptions as of August 2, 2011 • Electricity gross margin (operating revenues revenues,* * net of fuel and purchased power expenses) about $2.01 billion to $2.06 billion, which was previously expected to be $2.05 billion to $2.10 billion – Retail custo
Slide 37: Credit Ratings
37 CREDIT RATINGS We have investment-grade credit ratings. APS Parent Corporate Credit Ratings Moody’s Baa2 Baa3 S&P BBB BBB Fitch BBB- BBB- Senior Unsecured Moody’s Baa2 - S&P BBB - Fitch BBB - Outlook M d ’ Moody’s St bl Stable St bl Stable S&P Positive Positive Fitch Stable Stable We are disclosi
Slide 38: S&P Credit Metrics
38 S&P CREDIT METRICS Our key credit metrics have been improving. 2006 2007 2008 2009 2010 APS FFO / Debt 17.5% 17.2% 22.1% 22.8% 22.3% FFO / Interest 4.2x 4.1x 5.1x 4.8x 4.6x Debt / Capitalization 56.6% 55.2% 57.4% 56.8% 53.0% Pinnacle West FFO / Debt 16.3% 15.7% 18.0% 18.4% 22.5% FFO / Interest 38
Slide 39: Cost Efficiency Supports Future Results
COST EFFICIENCY SUPPORTS 39 FUTURE RESULTS Our cost management and efficiency efforts will improve financial results beyond those achievable solely through regulatory decisions. Enterprise-wide emphasis Engaged, motivated Better leverage workforce Cost gy technology Efficiency Effective, efficient O
Slide 40: 2010 Retail Customer, Sales and Revenue Mixes
2010 RETAIL CUSTOMER, 40 SALES AND REVENUE MIXES Our business mix is attractive due to favorable climate and other conditions in our market area. 11% 8% 47% 50% 45% 43% 89% Customers Retail Sales Operating Revenues Year-End 27,709 GWh $2.9 Billion 1.1 Million Residential Commercial Industrial Other
Slide 41: 2010 APS Generation and Energy Fuel Mixes
2010 APS GENERATION AND 41 ENERGY FUEL MIXES Our balanced resource mix provides our customers reliability and manages price volatility. 18% 21% 22% 26% 32% 54% 17% 28% 36% 46% Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 33,781 GWh 26,828 GWh 6,293 MW Nuclear Coal Gas & Oil Purchased
Slide 42: Superior Power Plant Performance
42 SUPERIOR POWER PLANT PERFORMANCE Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Performance Metrics APS 91% APS Commercial Availability 92% APS Capacity Factor Industry Capacity Factor 81% 68% Industry 91% • Returned to superior performance • Consistent s
Slide 43: A Well-Balanced Generation Portfolio
43 A WELL-BALANCED GENERATION PORTFOLIO Commercial Ownership Net Capacity Fuel / Plant Location Units Dispatch Ops. Date Operator Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1-3 Base 1986 - 1989 APS 29.1% 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1-3 Base 1962 - 1980 APS 100 647 Fo
Slide 44: Renewable Purchase Power Contracts
44 RENEWABLE PURCHASE POWER CONTRACTS Commercial Original PPA Operation Term Capacity 1 Fuel / Contract Location Developer Status Signed Date (years) Net (MW) Solar Solana Gila Bend, Bend AZ Abengoa UC Feb-2008 Feb 2008 2013 30 250 Ajo Ajo, AZ Recurrent UC Jan-2010 2011 25 5 Prescott Prescott, AZ Su
Slide 45: Four Corners Power Plant Facts & Figures
FOUR CORNERS POWER PLANT 45 FACTS & FIGURES Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercial Operation Date 1963 1963 1964 1969 1970 Original Cost ($M) $37 $369 $166 Net Book Value at 12/31/10 ($M) $20 $125 $63 Current Depreciation Ends 2031 Mid-2016 Mid-2016 Mid-2016 2031 2031 Current Expiratio
Slide 46: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE 46 AND ENERGY EFFICIENCY STANDARDS We are committed to aggressive renewable and energy efficiency standards. Renewable Energy (RES) Minimum Requirements Portion of retail sales to be supplied by renewable resources • 5% by 2015 • 15% by 2025 Distributed energy component
Slide 47: AZ Sun Program Summary Phase I
47 AZ SUN PROGRAM SUMMARY PHASE I APS is investing up to $500 million to own 100 MW of solar generation by year-end 2014. Name Location Capacity Developer Target COD* Paloma Gila Bend, AZ 17 MW First Solar 2011 Cotton Center Gila Bend, AZ 17 MW Solon 2011 Hyder Phase 1 Hyder, AZ 11 MW SunEdison 2011
Slide 48: Solana: A "Sunny Place"
48 SOLANA: A “SUNNY PLACE” Solana will provide about one-third of APS’s renewable energy target of 10% by 2015. • 250-MW 30-year PPA for all output (~900 GWh/year) • Concentrating solar trough facility 70 miles southwest of Phoenix • Expected to be first major stored-heat plant in U.S. on targeted 2
Slide 49: APS Energy Efficiency Initiatives Increasing
APS ENERGY EFFICIENCY 49 INITIATIVES INCREASING APS plans to double customers’ energy efficiency savings from 2010 through 2012. Cumulative Annual Energy Savings Associated with EE/DSM Programs GWh • Program costs currently recovered through retail DSM adjustor • Decoupling or other financial mechan
Slide 50: APS Line Extension Policy Proposal
50 APS LINE EXTENSION POLICY PROPOSAL APS has requested line extension policy changes in a separate docket. • Restore sharing of extension costs between new customers and APS • Implement 750-foot free footage allowance and other measures dependent upon customer class • Accounting to revert to contri
Slide 51: Progressive Regulatory Settlement Positions APS Well Through 2012
PROGRESSIVE REGULATORY SETTLEMENT 51 POSITIONS APS WELL THROUGH 2012 APS’s 2009 regulatory settlement contains a number of investor benefits. • Strengthens APS’s APS s earned ROE and financial condition • Supports common dividend • Demonstrates increased cooperation among APS, ACC Staff, residential
Slide 52: 2009 Regulatory Settlement Summary
52 2009 REGULATORY SETTLEMENT SUMMARY The settlement provisions include earnings support until APS’s next rate case decision. Estimated Pretax Earnings Benefits $ Millions 2010 2011 2012 Settlement agreement terms Base rate increase $ 207 $ 207 $ 207 Line extensions treated as revenue 23 25 49 Pensi
Slide 53: Our Regulatory Mix
53 OUR REGULATORY MIX The bulk of APS’s revenues comes from a regulated retail rate base and a meaningful transmission business. Most Recent Rate Decisions ACC FERC Transmission 18% Rates Effective Date 1/1/2010 6/1/2011 Test Year Ended 12/31/2007* 12/31/2010 Generation & Distribution Rate Base $5.6
Slide 54: APS Revenues by Recovery Mechanism
54 APS REVENUES BY RECOVERY MECHANISM Supportive regulatory treatment through adjustment mechanisms supplements base rates. Regulated Electricity Revenue by Recovery Mechanism $ Millions Test Year Historical Forecast Base Rates RES TCA PSA DSM Other IMPROVING OUR REGULATORY ENVIRONMENT
Slide 55: Constructive Transmission Rate Regulation
CONSTRUCTIVE TRANSMISSION 55 RATE REGULATION We have achieved transmission rate treatment with annual adjustments. • FERC Formula Rates adopted in 2008 • Adjusted annually with 10.75% allowed ROE • Based on FERC Form 1 and certain projections • Retail portion flows through ACC Transmission Cost Adju
Slide 56: Significant Regulatory Progress Since 2005
SIGNIFICANT REGULATORY PROGRESS 56 SINCE 2005 We have achieved a more supportive regulatory structure and improvements in cost recovery timing. Adopted/ Mechanism Last Adjusted Description Power Supply April 2005 / • Recovers 90% of variance between actual fuel and purchased power costs and base fue
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