Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Credit Suisse 2008 Energy Summit
50 slides from Pinnacle West Capital's conference presentation, Feb 4, 2008
Slide 1: Credit Suisse 2008 Energy Summit
Credit Suisse 2008 Energy Summit February 5, 2008
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains forward-looking statements based on current expectations, and neither Pinnacle West Capital Corporation ("Pinnacle West") nor Arizona Public Service Company ("APS") assumes any obligation to update these statements or make any further statements
Slide 3: Create Shareholder Value
Customer service excellence Solid operating performance Cost management focus Constructive regulatory outcomes Real estate asset optimization Shareholder value Create Shareholder Value
Slide 4: Regulatory Initiatives
Regulatory Initiatives Promote interactive and cooperative regulatory process Respond to ACC "growth should pay for itself" Address resource planning Expand renewables and promote energy efficiency programs Address earnings attrition
Slide 5: Who Should Pay for Growth?
Who Should Pay for Growth? Fees for Service "Arizona Corporation Commission regulators are exploring ways to require property owners to pay for services traditionally provided for free, with the costs spread among ratepayers. These include potential fees for new electric and natural gas customers."
Slide 6: APS Proposed Amendments to Line Extension Schedule
APS Proposed Amendments to Line Extension Schedule ACC 2007 rate order required APS to file amendments to eliminate allowances for new service Shift burden of rising distribution infrastructure costs away from current customer base to growth
Slide 7: APS Proposed Amendments to Line Extension Schedule
APS Proposed Amendments to Line Extension Schedule APS proposed amendments Collect line extension costs on current basis $3,500 - $5,000 per new meter set Account for amounts collected as revenue Grandfather existing line extension agreements
Slide 8: FERC Transmission Rate Case
FERC Transmission Rate Case $37 million wholesale rate increase requested $30 million applicable to APS retail rates Proposed formula-based rates with annual adjustment Rate base: $847 million Capital structure: 47% debt, 53% equity ROE requested: 11.3% 2006 test year
Slide 9: FERC Rate Case Time Line
FERC Rate Case Time Line FERC request filed July 10, 2007 FERC rates effective March 1, 2008 (subject to refund) APS retail adjustor Application filed December 31, 2007 Rates requested effective March 1, 2008 ACC Staff recommendation filed January 28, 2008
Slide 10: Fundamental Market Growth
Population % Change 2003 2004 2005 2006 2007 Arizona 0.026 0.029 0.035 0.036 0.03 U.S. 0.01 0.01 0.009 0.01 0.01 Fundamental Market Growth Metro Phoenix Single-Family Building Permits Arizona vs U.S. Population Growth 2002 2003 2004 2005 2006 2007 permits 34312 39654 48129 43258 27976 22000 Estimate
Slide 11: APS Resource Requirements for Native Load
2006 2007 2008 2009 2010 MW APS Resource Requirements for Native Load 2006 - 2010 Average Annual Growth 3.5% Projected Peak Load & Reserves Long-term Resources Market Purchases Peaking Shortfall
Slide 12: APS 2nd in Customer Satisfaction Among Western Electric IOUs
Company Score Portland General Electric 716 Arizona Public Service 691 PacifiCorp 679 Southern California Edison 669 Pacific Gas and Electric 668 Xcel Energy-West 656 San Diego Gas & Electric 655 PNM Resources 651 Puget Sound Energy 651 Sierra Pacific Resources 605 Industry Average 669 Company Score
Slide 13: Top-Tier Coal Performance
Top-Tier Coal Performance '03 '04 '05 '06 '07 APS 0.758 0.842 0.871 0.869 0.875 Industry Average* 0.685 0.706 0.719 0.708 Record fleet capacity factors for fourth straight year Cholla Set new production record 5.1 million MWh Capacity factor 90% Four Corners Capacity factor 86% 14.6 million MWh gene
Slide 14: Nuclear Challenges & Opportunities
Nuclear Challenges & Opportunities Capacity Factor Capacity Factors loss due to various maintenance issues Unit 1 '05 0.662 Unit 1 '06 0.423 0.471 Unit 1 '07 0.77 Unit 2 '05 0.819 Unit 2 '06 0.852 Unit 2 '07 0.952 Unit 3 '05 0.839 Unit 3 '06 0.855 Unit 3 '07 0.639 Top U.S. power producer past 15 yea
Slide 15: SunCor Overview
SunCor Overview IDAHO UTAH NEW MEXICO ARIZONA Boise St. George Santa Fe Albuquerque Sedona Prescott Phoenix As of December 31, 2007 (unaudited) Commercial and residential real estate developer in Western U.S. Total assets = $673 million Equity = $289 million Diverse geographic and business mix 6 mas
Slide 16: SunCor Gross Margin Contribution by Business Line
SunCor Gross Margin Contribution by Business Line Gross Margin Contribution ($ Millions) 2002 2003 2004 2005 2006 2007 Home sales 26 33 41 48 58 17 Condo sales 4 1 Land sales 21 35 66 54 57 43 Commercial property and management 12 29 13 7 15 14 Sale of assets 15 40 6 28 19 21 Total pretax gross marg
Slide 17: Consolidated EPS Summary
Consolidated EPS Summary Per Share EPS 2007 2006 4th Quarter 0.03 0.18 Year 3.1 3.27 EPS 2007 2006 4th Quarter -0.06 -0.07 Year 3.05 3.27 Per Share 4th Quarter Year
Slide 18: Consolidated EPS Summary of Major Variances: 4th Quarter
$ 0.05 Retail sales growth $ 0.01 Other items - net $(0.17) Higher O&M costs Consolidated EPS Summary of Major Variances $(0.03) SunCor 4th Quarter 2007 vs 4th Quarter 2006 $(0.04) 2006 income tax credits related to prior years $ 0.03 Rate increase impacts $ 0.03 Lower other taxes $(0.03) Higher dep
Slide 19: Consolidated EPS Summary of Major Variances: Year
$ 0.28 Retail sales growth $(0.26) Higher O&M costs Consolidated EPS Summary of Major Variances $(0.37) SunCor Year 2007 vs Year 2006 $(0.17) Higher depreciation and interest $ 0.23 Weather effects $ 0.13 Rate increase impacts $(0.03) Other items - net $ 0.05 Marketing & trading $(0.08) Regulatory d
Slide 20: 2008 Earnings Guidance
Consolidated earnings expected to be within reasonable range around $2.50 per share APS 2008 earnings Basically flat compared with 2007 excluding abnormal weather and prior years' tax adjustments Assumes new transmission rates effective March 1, 2008 Does not include potential effects of line extens
Slide 21: Cost Review: Staff Reduction
Cost Review Staff Reduction Targeted reduction - 300 positions Targeted completion - end of first quarter 2008 $7 million estimated pretax annual O&M savings
Slide 22: Cost Review: Non-Staff O&M Reductions
Cost Review Non-Staff O&M Reductions Process efficiencies and reduction of projects throughout organization Reductions in medical expenses, communications and advertising costs $7 million estimated pretax annual savings
Slide 23: Cost Review: Capital Expenditure Reductions
Cost Review Capital Expenditure Reductions More than $200 million over next five years $130 million Slower projected customer growth $ 60 million Improved planning, logistics and scheduling $ 20 million Deferral of system upgrades and projects not affecting reliability
Slide 24: Significant Capital Investment to Support Growth
($ Millions) 2005 2006 2007 2008 2009 2010 APS Distribution 325 357 372 420 440 430 APS Transmission 92 113 138 210 310 270 APS Generation 356 176 353 380 390 370 Other (a) 49 23 40 70 60 60 Total excluding SunCor 822 669 903 1080 1200 1130 SunCor (b) 106 201 161 100 90 100 Total 928 870 1064 1180 1
Slide 25: Strong Equity Ratios to Support Growth
Strong Equity Ratios to Support Growth 2002 2003 2004 2005 2006 2007 Consolidated Equity Ratio 0.452 0.454 0.474 0.532 0.513 0.493 2002 2003 2004 2005 2006 2007 APS equity ratio 0.493 0.457 0.451 0.538 0.527 0.519 Consolidated APS Excluding off-balance sheet adjustments 2002 2003 2004 2005 49% 52% 2
Slide 26: Top Highest Yielding Companies
Top 15 Highest Yielding Companies Dividend Yield Average GREAT PLAINS ENERGY INC 0.0566 0.0367 HAWAIIAN ELECTRIC INDS 0.0545 0.0367 INTEGRYS ENERGY GROUP INC (old WPS) 0.0511 0.0367 PROGRESS ENERGY INC 0.0504 0.0367 PINNACLE WEST CAPITAL CORP 0.0495 0.0367 NISOURCE INC 0.0487 0.0367 CH ENERGY GROUP
Slide 27: Summary
Customer service excellence Solid operating performance Cost management focus Constructive regulatory outcomes Real estate asset optimization Shareholder value Summary
Slide 28: Slide 28
Slide 29: Appendix
Appendix:
Slide 30: Current Credit Ratings Profile
Current Credit Ratings Profile S&P Moody's Fitch Pinnacle West (Parent) Senior Unsecured Debt* BB+ Baa3 N/A Commercial Paper A3 P3 F3 Outlook Stable Negative Negative APS Senior Unsecured Debt BBB- Baa2 BBB Commercial Paper A3 P2 F3 Outlook Stable Negative Stable * Preliminary
Slide 31: Liquidity Resources
Liquidity Resources APS $400 million revolver through December 2010 $500 million revolver through September 2011 Next long-term debt maturity 2011 As of December 31, 2007 Short-term borrowing approximately $200 million Cash and invested position approximately $50 million Pinnacle West (parent) $300
Slide 32: Arizona Corporation Commissioners
Arizona Corporation Commissioners Party Commissioner Term Commissioner Affiliation Since Expires Mike Gleason, Chairman Republican Jan. 2003 Jan. 2009 Jeff Hatch-Miller Republican Jan. 2003 Jan. 2009 Kristin Mayes Republican Oct. 2003 Jan. 2011 William Mundell Republican June 1999 Jan. 2009 Gary Pie
Slide 33: APS Retail Rate Case Summary of Request and Final Order
Annual base rate increase Fuel-related $ 315M $ 315M Non-fuel 120M 7M Total $ 435M $ 322M Percent increase 20.4% 15.1% Base fuel rate per kWh 3.25¢ 3.25¢ Return on equity 11.5% 10.75% Capital structure Long-term debt 45% 45% Common equity 55% 55% Rate base $4.46B $4.40B APS Retail Rate Case Summary
Slide 34: 2007 ACC Rate Case Decision Key Components
2007 ACC Rate Case Decision Key Components Updated base fuel rate to 2007 levels Improved timely recovery of fuel and purchased power costs Validated APS' fuel hedging and procurement programs Reflected APS' requested capital structure Implemented environmental improvement surcharge Began addressing
Slide 35: Power Supply Adjustor Revisions
Power Supply Adjustor Revisions Effective July 1, 2007 Annual adjustor components Forward-looking estimate of fuel and purchased power costs True up to reconcile prior-year actual and estimated costs 4 mill/kWh annual cap on PSA rate changes Previously 4 mill/kWh lifetime cap
Slide 36: PSA Annual Adjustor and Surcharges
PSA Annual Adjustor and Surcharges Mills/kWh Duration 2007 annual adjustor 4.0 2/1/07 - mid-2008* Palo Verde 2005 deferral surcharge 1.2 7/1/07 - 6/30/08 2008 annual adjustor 4.0 2/1/08 - 1/31/09 * Extended to collect $46 million 2007 deferrals related to mid-2007 implementation of new base rates
Slide 37: APS Retail Service Territory
APS Retail Service Territory Phoenix APS Retail Service Territory
Slide 38: Arizona's Standing in U.S. Population Growth
1 4 2 3 Arizona's Standing in U.S. Population Growth 8 10 6 7 5 9 Annual percent change 2006 - 2007, U.S. Census Bureau
Slide 39: Economic Growth Underpins Retail Sales Growth
2003 2004 2005 2006 2007 Arizona Population 0.027 0.03 0.036 0.031 0.03 APS Customers 0.033 0.037 0.043 0.044 0.033 APS Retail Sales* 0.04 0.052 0.039 0.055 0.021 Economic Growth Underpins Retail Sales Growth * Weather normalized Annual Growth Arizona Population APS Customers APS Retail Sales*
Slide 40: APS 2007 Retail Customer and Sales Mix
APS 2007 Retail Customer and Sales Mix Customers 2007 Residential 966013 Commercial 115304 Industrial 3597 Other 1414 Total 1086328 2006 Customers 2006 Sales (MWh) Residential 936464 0.89 12993961 0.47 Commercial 110547 0.11 12348200 0.44 Industrial 3526 2475311 0.09 Other 1358 152925 Total 1051895
Slide 41: 2007 Energy Fuel Mix
2007 Energy Fuel Mix % of Native Load Nuclear 0.17 Coal 0.29 Gas, oil and other 0.15 Firm Purchases 0.39 Total 1 Coal Nuclear Purchased Power Gas Consolidated % of Native Load Nuclear 0.24 Coal 0.4 Gas, oil and other 0.19 Purchased Power 0.17 Total 1 Native Load Nuclear Coal Gas Purchased Power
Slide 42: New Gas Resources
New Gas Resources 96 MW gas peaking asset Yuma CTs Under construction In service summer 2008 560 MW gas purchase power agreement 10-year term beginning June 2010 Summer product, expanding to 6 months as needed
Slide 43: Arizona Renewable Energy Standard (RES)
Arizona Renewable Energy Standard (RES) Sets minimum renewable energy amounts 5% of energy for retail sales by 2015 15% of energy for retail sales by 2025 Includes distributed energy component 30% of total by 2011 Renewable Resource Requirements
Slide 44: Potential Inter-Regional Transmission
Potential Inter-Regional Transmission Expand resources to meet rapid load growth Enhance resource portfolio reliability and economics Increase system import capability Improve fuel diversity Access renewable wind and clean coal resources Arizona Utah Nevada Wyoming California New Mexico TransWest Ex
Slide 45: Arizona Transmission System
Arizona Transmission System CALIFORNIA CALIFORNIA CALIFORNIA MOENKOPI MEAD/ MARKETPLACE/ LAS VEGAS NAVAJO SAN JUAN FOUR CORNERS GLEN CANYON UTAH UTAH COLORADO FLAGSTAFF CHOLLA MCKINLEY CORONADO SPRINGER- VILLE GREENLEE (AEPCO) (TEP) SILVERKING APACHE VAIL SOUTH BICKNELL N GILA PALO VERDE LIBERTY KYR
Slide 46: WECC Available Transmission Capability
WECC Available Transmission Capability 3,007 225 440 6,453 2,678 4,038 Summer 2007 estimates (MW)
Slide 47: SunCor Project Diversity by Type
Legacy Properties ($ Millions) 2002 2003 2004 2005 2006 2007 Master Planned Owned 301 173 148 170 172 152 Master Planned Developed for Others Commercial, Golf and Other 5 2 1 1 1 1 Total Legacy Properties 306 175 149 171 173 153 POST-1990 PROPERTIES 2002 2003 2004 2005 2006 2007 Master Planned Owned
Slide 48: SunCor Geographic Project Diversity
Legacy ($ Millions) 2001 2002 2003 2004 2005 2006 2007 Metro Phoenix 277 306 175 149 171 173 153 Northern AZ Utah New Mexico Idaho Total Legacy 277 306 175 149 171 173 Legacy Properties Post-1990 Properties 2002 2003 2004 2005 2006 2007 Post-1990 ($ Millions) 2002 2003 2004 2005 2006 2007 Metro Phoe
Slide 49: SunCor Active Projects
Year Acquired Original Acreage 12/31/07 Acreage Master-Planned Communities Palm Valley (Phoenix, AZ) 1987 11,300 2,500 Rancho Viejo Phase I (Santa Fe, NM)* 1996 2,500 1,500 Coral Canyon (St. George, UT)* 1998 2,500 750 StoneRidge (Northern AZ)* 2001 1,840 1,100 Avimor (Boise, ID)* 2003 12,500 12,500
Slide 50: Social Responsibility Awards
Social Responsibility Awards 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 EPA Climate Protection Award
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