Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q1 2014 Earnings Presentation
28 slides from Pinnacle West Capital's earnings presentation, May 2, 2014
Slide 1: First Quarter 2014 Results
FIRST QUARTER 2014 RESULTS May 2, 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 • Resource Planning • Operational Excellence • Regulatory Update 3 First Quarter 2014
Slide 4: CFO Agenda
CFO AGENDA • 1st Quarter 2014 Results • Arizona Economic Outlook • Financial Outlook 4 First Quarter 2014
Slide 5: Consolidated EPS Comparison
CONSOLIDATED EPS COMPARISON 2014 VS. 2013 1st Quarter On-Going Earnings $0.22 $0.21 $0.16 $0.14 Excluding Weather 2014 2013 2014 2013 1st Quarter GAAP Net Income $0.14 $0.22 5 First Quarter 2014
Slide 6: On-Going EPS Variances
ON-GOING EPS VARIANCES 1ST QUARTER 2014 VS. 1ST QUARTER 2013 Lower O&M(1)(4) Higher D&A(2) $0.09 $(0.03) Higher Other Taxes(3) $(0.02) Other, Net $(0.03) Lower Gross Margin(4) Net $(0.09) Decrease $(0.08) = (1) Excludes $5.6M of O&M associated with Four Corners transaction deferred for regulatory re
Slide 7: Gross Margin EPS Drivers
GROSS MARGIN EPS DRIVERS 1ST QUARTER 2014 VS. 1ST QUARTER 2013 Retail Other, Net Transmission (including AZ Sun) Revenue $0.04 $(0.03) Lost Fixed Higher Retail Weather Cost Recovery kWh Sales $(0.13) Mechanism $0.01 $0.02 Net Decrease $(0.09) = See non-GAAP reconciliation for gross margin in appendi
Slide 8: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Home Prices – Metro Phoenix Nonresidential Building Vacancy – Metro Phoenix Value Relative to Jan ‘05 Vacancy Rate 175 25% Office 150 20% Industrial 125 15% 100 10% Retail 75 5% 50 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Jan '05 '06 '07 '08 '09 '10 '11 '12 '13 '14Q1 Ne
Slide 9: Customer Growth
CUSTOMER GROWTH Annual Growth 5% • Customer growth drives 85% of retail sales 4% (excluding impacts of customer conservation, energy efficiency and distributed renewable 3% generation initiatives) • Retail customer growth to 2% average about 2.5% annually 2014-2016 1% 0% 1990 1994 1998 2002 2006 201
Slide 10: Economic Outlook
ECONOMIC OUTLOOK #1 Arizona is the #1 state for projected 3rd Phoenix ranked 3rd job growth by on Forbes’ 2014 list Forbes (1) of America’s Fastest- Growing Cities (2) (1) “Arizona, Texas Head List of Best States for Expected Job Growth. Forbes/Moody’s Analytics, September 25, 2013. (2) “America’s 2
Slide 11: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) • Weather-normalized retail sales growth about 1% for 2014-2016 after impacts of energy efficiency, customer conservation and distributed renewable generation initiatives (excluding Lost Fixed Cost Recovery) Distributed Energy (DE) Impact • DE makes up 0.5% (
Slide 12: Financing
FINANCING Debt Maturity Schedule 2014 Major Financing Activities ($Millions) • $250 million 30-year 4.70% APS senior $600 unsecured notes issued in January 2014 $500 • Currently expect about $550 million additional long-term debt issuance in 2014, including issuance to refinance $400 $125 $300 milli
Slide 13: 2014 On-Going EPS Guidance
2014 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE May 2, 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 year
Slide 14: Appendix
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Slide 15: Resource Planning
RESOURCE PLANNING* MW Composition of Energy Mix by Resource 14,000 Load Requirement Including Reserves 2014 12,000 27.7% 9.5% 10,000 17.0% Gas 35.3% Resource Planning 7.5% Requirement 20.1% Coal 8,000 Existing Contracts Nuclear 6,000 2029 RE + DE 15.3% 4,000 EE 28.5% 13.6% Existing Owned Resources 2
Slide 16: 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 17: 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 18: 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 19: 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 20: Four Corners Power Plant
FOUR CORNERS POWER PLANT • On December 30, 2013, APS and Southern California ALJ Procedural Schedule Edison (“SCE”) completed previously announced transaction whereby APS agreed to purchase SCE’s Staff/Intervenor Direct June 19, 2014 48% interest in Units 4 and 5 of Four Corners Testimony – Final pu
Slide 21: 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 22: 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 $973 $363 $41 Distribution $44 $71 $234 $240 $374 Transmission $196 $132 Renewable $206 $213 $213 Generation $166 $20 $130 $7 $57 $25
Slide 23: Operations & Maintenance
OPERATIONS & Our goal is to keep consolidated O&M growth at or below retail MAINTENANCE sales growth levels ($ 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 24: Financial Outlook
2014 – 2016 Key Factors & Assumptions as of FINANCIAL OUTLOOK May 2, 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 retail elec
Slide 25: 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 26: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $20 16 10 $10 $0 $(10) (7) (10) (13) $(20) Q1 Q2 Q3 Q4 Q1 2013 2014 $9 Million $(13) Million All periods recalculated to confirm to current 10-year rolling average (2003 – 2012). 26 First Quarter 2014
Slide 27: 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 $10 20 14 16 14 10 12 12 10 10 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2012 2013 2014 $124 Million $137 Million $26 Million * O&M expenses related to renewab
Slide 28: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended March 31, EPS $ millions pretax, except per share amounts 2014 2013 Impact Operating revenues* $ 686 $ 687 Fuel and purchased power expenses* (250) (231) Gross margin 436 456 $ (0.11) Adjustments: Renewable energy (excluding AZ Sun), de
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