Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Non-Deal Roadshow (October 2012)
55 slides from Pinnacle West Capital's roadshow presentation, October 2012
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Meetings October 1-5, 2012
Slide 2: Forward-Looking Statements
2 FORWARD-LOOKING STATEMENTS 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 “estimate,” “predict,” “may,”
Slide 3: Non-GAAP Financial Measures
3 NON-GAAP FINANCIAL MEASURES In this presentation, we refer to “on-going earnings per share,” which is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We believe on-going earnings per share provides investors with a useful indicator of our results that is comparable among p
Slide 4: Pinnacle West: Who We Are
4 PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility. NYSE Ticker PNW Market Cap $6 Billion Enterprise Value $9 Billion Yield 4% STATE OF ARIZONA Principal Subsidiary • Arizona’s largest electric utility • $13 billion assets Service Territory CONTINENTAL UNITED STAT
Slide 5: Pinnacle West: Our Value Proposition
5 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors: Deliver superior shareholder returns through…
Slide 6: Pinnacle West: Our Value Proposition
6 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 7: Positive Long-Term Demographics
7 POSITIVE LONG-TERM DEMOGRAPHICS APS’s customer growth generally outpaces U.S. and Arizona population growth. Superior Growth APS Customer Growth Annual Millions Growth 2 5% 1.8 4% 2.6%* 1.1 3% 1 2% 1% 0% 0 19901992 19941995 1990 20002002 20042005 1996 1998 2000 2010 2006 2008 2010 2012 2014 2016 2
Slide 8: APS Cap Ex Drives Strong Rate Base Growth
8 APS CAP EX DRIVES STRONG RATE BASE GROWTH We expect our rate base will grow 6% per year on average, and we have constructive recovery of capital expenditures. APS Capital Expenditures APS Capital Expenditures by Function by Recovery Mechanism $ Millions $ Millions 1,400 1,400 1,200 1,200 Other Oth
Slide 9: Pinnacle West: Our Value Proposition
9 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 10: Operational Highlights
10 OPERATIONAL HIGHLIGHTS We focus on maintaining top-tier performance companywide. Customer Satisfaction Ranked 3rd highest nationally among 55 large investor-owned electric utilities in 2012 J.D. Power residential customer survey Strong Nuclear and Coal Baseload Resources 2011 capacity factors
Slide 11: Pinnacle West: Our Value Proposition
11 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 12: Renewable Energy Rises with the Sun
12 RENEWABLE ENERGY RISES WITH THE SUN We are helping Arizona become the “Solar Capital of the World.” Arizona Arizona Germany and Japan are among countries with highest installed solar capacity, yet have solar conditions far inferior to Arizona MAKING COMPELLING CAPITAL INVESTMENTS
Slide 13: APS AZ Sun Program Provides Earnings Growth Potential
APS AZ SUN PROGRAM PROVIDES 13 EARNINGS GROWTH POTENTIAL Owning solar resources makes sense for our customers and environment and provides returns to our shareholders. • Up to 200 MW utility-scale photovoltaic solar plants owned by APS • Up to $975 million capital investment • In service 2011 throug
Slide 14: Four Corners Power Plant Proposed Plan
14 FOUR CORNERS POWER PLANT PROPOSED PLAN Our proposal represents a balanced solution to new environmental regulations. Economic, environmental and social benefits Acquire Southern California Edison’s 739 MW interest in Units 4 & 5 and shut down 560 MW Units 1 – 3 • Purchase price: $294 million (sub
Slide 15: Transmission Investment Essential
15 TRANSMISSION INVESTMENT ESSENTIAL Strategic transmission is necessary to maintain reliability and deliver diversified resources to our customers. NAVAJO FOUR • 10-Year Transmission Plan NORTH CORNERS 100 MW (115-kV and above) 970 MW • $550 million of new BAGDAD YOUNGS CHOLLA transmission investme
Slide 16: Pinnacle West: Our Value Proposition
16 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 17: 2012 Retail Rate Case Settlement Key Benefits
2012 RETAIL RATE CASE SETTLEMENT 17 KEY BENEFITS The settlement contains a number of benefits for shareholders and customers. Shareholder Benefits • Regulatory certainty • Base rate stay-out until at least mid-2016 • Rate gradualism through adjustment mechanisms • Financial support APS needs to achi
Slide 18: 2012 Rate Case Settlement: Base Rates & Timing
2012 RETAIL RATE CASE SETTLEMENT 18 KEY FINANCIAL PROVISIONS – BASE RATES & TIMING The provisions of the settlement became effective July 1, 2012, as originally requested by APS. Annual Revenue Change Annualized Base Rate Revenue Changes ($ millions) Non-fuel base rate increase $ 116.3 Fuel-related
Slide 19: 2012 Rate Case Settlement: Other Provisions
2012 RETAIL RATE CASE SETTLEMENT 19 KEY PROVISIONS – OTHER THAN BASE RATES Other key provisions continue constructive regulatory treatment and limit regulatory lag. • Post test-year plant additions – 15 months’ additions included in rate base • Constructive new or modified adjustment mechanisms • Lo
Slide 20: Pinnacle West: Our Value Proposition
20 PINNACLE WEST: OUR VALUE PROPOSITION
Slide 21: ROE Improvement: A Multi-Pronged Approach
21 ROE IMPROVEMENT: A MULTI-PRONGED APPROACH Improving our earned return on equity is one of our top priorities. Earned ROEs Key Initiatives 10% • Supportive electric utility rates • Regulatory framework 9% improvements • Cost management initiatives 8% • Efficiency and effectiveness throughout organ
Slide 22: Strong Cost Management Focus
22 STRONG COST MANAGEMENT FOCUS Our goal is to keep O&M growth in line with retail sales growth. APS O&M Expense Trends $ Millions 800 • Solid achievements to date • Initiatives 600 • Company-wide benchmarking and evaluations 400 • Workforce attrition opportunities • Knowledge transfer 200 • Process
Slide 23: Consolidated Financial Outlook
23 CONSOLIDATED FINANCIAL OUTLOOK Our on-going earnings have improved. On-Going EPS Consolidated Earned ROE Goal $4.00 10% $3.35 – $3.50 8.8% Average 9.5% $3.50 $2.99 8% $3.00 $2.50 6% $2.00 4% $1.50 $1.00 2% $0.50 $0.00 0% 2011 2012 Guidance 2011 2012 2013 2014 2015 As of August 2, 2012. Projected
Slide 24: Attractive Dividend Yield
24 ATTRACTIVE DIVIDEND YIELD Pinnacle West’s annual dividend is $2.10 per share — providing a solid yield. Dividend Yield 7% 6% PNW 5% 4% 3% Industry Averages 2% 1% 0% 30% 40% 50% 60% 70% 80% 90% 100% Yield as of September 17, 2012 Dividend Payout Payout 12 Months Ended June 30, 2012 STRENGTHENING O
Slide 25: Superior Shareholder Returns
25 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 100% 80% 77.3% 60% 40% 48.6% 45.6% 32.3% 20% 26.7% 25.7% 21.8% 21.4% 17.5% 19.0% 2.1% 0% (1.2)% (20.0)% 1 Ye
Slide 26: Pinnacle West: Our Value Proposition
26 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors… Delivering Superior Shareholder Returns
Slide 27: Appendix
APPENDIX wee PINNACLE WEST CAPITAL CORPORATION
Slide 28: A Respected, Veteran Leadership Team
28 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 Jim Jim Don Mark Randy Jeff Hatfield Hatfield Robinson Schiavoni Edington Guldner SVP APS EVP EVP & SVP SVP & CFO & CFO Preside
Slide 29: 2012 On-Going EPS Guidance
29 2012 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of August 2, 2012 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) about $2.13 billion to $2.18 billion • Retail customer growth about 1% • Weather-normalized retail electricity sales volume slight
Slide 30: 2012–2015 Financial Outlook
30 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of August 2, 2012 • 2012 retail rate settlement effective July 1, 2012 • Revenue provisions • Retail base rate changes effective July 1, 2012 • Adjustment mechanisms • Four Corners acquisition • AZ Sun additions to flow through RES unti
Slide 31: 2012–2015 Financial Outlook (continued)
31 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of August 2, 2012 (continued) • Modestly improving Arizona and U.S. economic conditions • Retail customer growth to average 2% annually • Weather-normalized retail electricity sales volume growth: • Relatively flat after customer conser
Slide 32: Non-GAAP EPS Reconciliation
32 NON-GAAP EPS RECONCILIATION Consolidated On-Going EPS Guidance Year 2011 Year 2012 Actual Guidance* Net income attributable to common shareholders $ 3.09 Less income (loss) from discontinued operations: Real estate (0.01) Energy services business 0.11 On-going EPS $ 2.99 $ 3.35 - $ 3.50 * As of A
Slide 33: Ample Financing Access
33 AMPLE FINANCING ACCESS Investment-grade credit ratings, capitalization and liquidity should provide adequate access to bank and capital markets. Capitalization & Liquidity 2011 - 2012 Major Financing Activities December 31, 2011 $ Billions 2011 $1B APS revolver refinancing* 8 2011 $200M PNW revol
Slide 34: Credit Ratings
34 CREDIT RATINGS We have investment-grade credit ratings. APS Parent Corporate Credit Ratings Moody’s Baa1 Baa2 S&P BBB BBB Fitch BBB BBB Senior Unsecured Moody’s Baa1 - S&P BBB - Fitch BBB+ - Outlook Moody’s Stable Stable S&P Positive Positive Fitch Stable Stable We are disclosing these ratings to
Slide 35: S&P Credit Metrics
35 S&P CREDIT METRICS Our key credit metrics have been improving. 2007 2008 2009 2010 2011 APS FFO / Debt 17.2% 22.1% 22.8% 22.3% 20.8% FFO / Interest 4.1x 5.1x 4.8x 4.6x 4.6X Debt / Capitalization 55.2% 57.4% 56.8% 53.0% 53.0% Pinnacle West FFO / Debt 15.7% 18.0% 18.4% 22.5% 20.3% FFO / Interest 3.
Slide 36: Environmental, Sustainability and Governance Leadership
36 ENVIRONMENTAL, SUSTAINABILITY AND GOVERNANCE LEADERSHIP We are recognized internationally for our achievements. Ranked on Dow Jones Ranked 6 of 196 energy Sustainability Index since 2005 Top 10 Utility Solar Ranking and utility companies 1st utility in world to endorse U.S. DOE/EPA Best practices
Slide 37: Customer Satisfaction: A Key Priority
37 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 700 120 APS 675 100 650 Industry Average 80 625 600 60 575 40 550 20 525 0 500 2007 2008
Slide 38: Superior Power Plant Performance
38 SUPERIOR POWER PLANT PERFORMANCE Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Performance Metrics APS 91% 100% 100% APS Commercial Availability 91% APS Capacity Factor 90% 90% Industry Capacity Factor 80% 80% 80% 63% 70% Industry 91% 70% 60% 60% 2003 20
Slide 39: 2011 Retail Customer, Sales and Revenue Mixes
39 2011 RETAIL CUSTOMER, SALES AND REVENUE MIXES Our business mix is attractive due to favorable climate and other conditions in our market area. 11% 11% 8% 6% 8% 47% 47% 50% 51% 45% 45% 42% 43% 89% 89% Customers Retail Sales Operating Revenues Year-End 28,210 GWh $3.0 Billion 1.1 Million Residentia
Slide 40: 2011 APS Generation and Energy Fuel Mixes
40 2011 APS GENERATION AND ENERGY FUEL MIXES Our balanced resource mix provides our customers reliability and manages price volatility. 1% 18% 21% 19% 21% 18% 27% 26% 22% 34% 32% 54% 17% 53% 17% 28% 28% 37% 45%4 6 % 36% Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 33,407 GWh 27,055 GW
Slide 41: Arizona Corporation Commissioners
41 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 42: 2012 Rate Case Settlement Key Financial Assumptions
2012 RETAIL RATE CASE SETTLEMENT 42 KEY FINANCIAL ASSUMPTIONS Updated rate base, cost of capital and fuel prices underpin the settlement amounts. Rate base $5.7 billion Allowed return on equity 10% Capital structure Long-term debt 46.1% Common equity 53.9% Base fuel rate (¢/kWh) 3.21¢ Projected fuel
Slide 43: 2009 Regulatory Settlement Positioned APS Well Through 2012
43 2009 REGULATORY SETTLEMENT POSITIONED APS WELL THROUGH 2012 APS’s 2009 regulatory settlement contained a number of investor benefits. • Strengthened APS’s earned ROE and financial condition • Supported common dividend • Demonstrated increased cooperation among APS, ACC Staff, residential consumer
Slide 44: 2009 Regulatory Settlement Summary
44 2009 REGULATORY SETTLEMENT SUMMARY The settlement provisions included 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 Pen
Slide 45: Our Regulatory Mix and Solid Growth
45 OUR REGULATORY MIX AND SOLID GROWTH The bulk of APS’s revenues comes from a regulated retail rate base and a meaningful transmission business. $6.9 Billion Total Approved Rate Base APS Rate Base Growth $ Billions Year-End 10 Generation & Distribution (83%) 8 Transmission (17%) 6 Most Recent Rate
Slide 46: Constructive Transmission Rate Regulation
46 CONSTRUCTIVE TRANSMISSION 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 47: Significant Regulatory Progress
47 SIGNIFICANT REGULATORY PROGRESS We have achieved a more supportive regulatory structure and improvements in cost recovery timing. Adopted/ Mechanism Last Adjusted Description Power Supply April 2005 / • Recovers variance between actual fuel and purchased power costs and base fuel rate Adjustor (“
Slide 48: A Well-Balanced Generation Portfolio
48 A WELL-BALANCED GENERATION PORTFOLIO Ownership Net Capacity Fuel / Plant Location Units Dispatch Commercial Ops. Date Interest1 (MW) Nuclear Palo Verde Wintersburg, AZ 1-3 Base 1986 - 1989 29.1% 1,146 Total Nuclear 1,146 Coal Cholla Joseph City, AZ 1-3 Base 1962 - 1980 100 647 Four Corners Farmin
Slide 49: Resource Planning for Reliability and Sustainability
49 RESOURCE PLANNING FOR RELIABILITY AND SUSTAINABILITY Through a balanced resource mix including renewable resources and energy efficiency programs, we will meet future load growth. MW 14,000 Load Requirement 3% Four Corners Transactions, Net Including Reserves 12,000 21% Future Energy Efficiency 2
Slide 50: Four Corners Power Plant Facts & Figures
50 FOUR CORNERS POWER PLANT FACTS & FIGURES Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercial Operation Date 1963 1963 1964 1969 1970 Original Cost ($M) $41 $382 $164 Net Book Value at 6/30/12 ($M) $27 $0 $130 Current Depreciation Ends 2038 Mid-2012 2038 2038 Current Expiration Dates Site Lease J
Slide 51: Arizona's Renewable Resource and Energy Efficiency Standards
51 ARIZONA’S RENEWABLE RESOURCE 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 52: AZ Sun Program Summary
52 AZ SUN PROGRAM SUMMARY APS is investing in up to 200 MW of solar generation. Actual or Name Location Capacity Developer Target COD* Paloma Gila Bend, AZ 17 MW First Solar Sept. 2011 Cotton Center Gila Bend, AZ 17 MW Solon Oct. 2011 Hyder I Phase 1 Hyder, AZ 11 MW SunEdison Oct. 2011 Hyder I Phase
Slide 53: Renewable Purchase Power Contracts
53 RENEWABLE PURCHASE POWER CONTRACTS Commercial Owner/ PPA Operation Term Capacity 1 Fuel / Contract Location Developer Status Signed Date (years) Net (MW) Solar Solana Gila Bend, AZ Abengoa UC Feb-2008 2013 30 250 Ajo Ajo, AZ Duke Energy Gen Svcs IO Jan-2010 2011 25 5 Prescott Prescott, AZ SunEdis
Slide 54: Solana: A "Sunny Place"
54 SOLANA: A “SUNNY PLACE” Solana will provide more than one-quarter of APS’s renewable energy target by 2015. • 250-MW 30-year PPA for all output (~900 GWh/year) • Concentrating solar trough facility 70 miles southwest of Phoenix • On target for 2013 commercial operation • 90%+ on-peak capacity fac
Slide 55: APS Energy Efficiency Initiatives
55 APS ENERGY EFFICIENCY INITIATIVES APS plans to continue increasing customers’ energy efficiency savings. Cumulative Annual Energy Savings Associated with EE/DSM Programs GWh • Portion of lost revenue to be 2,750 recovered through retail rate 2,500 adjustor beginning July 1, 2012 2,250 • Program c
Pinnacle West Capital — Non-Deal Roadshow (October 2012) on 6ix