Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Conferences September 16 and 17, 2014
37 slides from Pinnacle West Capital's conference presentation, Sep 16, 2014
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Conferences | September 16 and 17, 2014 Delivering Superior Shareholder Value
Slide 2: Forward Looking Statements
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: Value Proposition
VALUE PROPOSITION • Maintaining focus on core electric utility business Experienced Management • Delivering long-term value Team Driving Focused • Creating a sustainable energy future for Arizona and the communities we serve Strategy • Driving cost management discipline through increased transparenc
Slide 4: Pinnacle West: Who We Are
PINNACLE WEST: We are a vertically integrated, regulated electric utility in the WHO WE ARE growing southwest U.S. NYSE Ticker PNW Market Cap* $6.3 Billion Enterprise Value* $9.9 Billion Dividend Yield* 4% Consolidated Assets $13.7 Billion Principal Subsidiary • Arizona’s largest and longest-serving
Slide 5: 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 6: 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 7: 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 8: Arizona's Renewable Resource and Energy Efficiency Standards
ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Renewable Energy (RES) Requirements Energy Efficiency Requirements • Portion of retail sales to be supplied by • Cumulative savings from energy renewable resources efficiency programs must be equivalent – 5% by 2015* to 22% of annual retai
Slide 9: Operational Excellence
OPERATIONAL EXCELLENCE Customer Satisfaction Palo Verde Ranked 5th highest nationally among 54 large investor-owned Palo Verde has exceeded 30 million megawatt-hours annual electric utilities in 2014 J.D. Power residential customer survey. production 9 times – the only U.S. plant to ever do so. APS
Slide 10: 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 11: Environmental
Regional Haze compliance is the ENVIRONMENTAL biggest driver of environmental spend over the next 3-4 years Mercury and Other Cooling Regional Haze / BART Hazardous Air Coal Combustion Water (SCR) Pollutants Residuals Intake – (ACI + Baghouse) 316(b) MATS compliance by April Decision from EPA on Ann
Slide 12: 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 13: 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 14: 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 15: PNW Transmission
PNW TRANSMISSION BRIGHT CANYON ENERGY Pinnacle West subsidiary formed to pursue new growth opportunities TRANSCANYON A 50/50 Joint Venture formed with MidAmerican Transmission, to pursue transmission opportunities in the western United States DELANEY COLORADO RIVER TRANSMISSION LINE New 500kV line b
Slide 16: Delaney Colorado River Transmission Line
DELANEY COLORADO RIVER TRANSMISSION LINE CAISO Transmission Planning Process Bid Window Close November 19, 2014 Post List of Sufficient Applications (i.e. January 13, 2015 list of bidders) Shifts out 50 days if Post List of Qualified Sponsors March 5, 2015 sponsors elect to collaborate (Collaboratio
Slide 17: 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 • 150 MW in commercial operation to date
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 • Estimated cost of $57-70 million • Benefits: − Provides an alternative for those who cannot afford solar or do n
Slide 19: 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 20: Key Dates for Rate Design
KEY DATES FOR RATE DESIGN • Residential demand rates started • Time of Use rates initiated - due to central air conditioning load Early Nearly half of our residential (currently about 10% of customers 1980’s customers are on TOU rates have a rate with a demand charge) • APS proposed stakeholder • Sp
Slide 21: 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 22: Arizona Corporation Commission
ARIZONA November 2014 elections will CORPORATION determine two seats; elected to serve four-year term COMMISSION Terms to January 2017 Terms to January 2015 Susan Bob Bob Stump (R)* Brenda Gary Bitter Smith (R) Burns (R) Chairman Burns (R) Pierce (R)* Election Slate (Two seats) – November 4, 2014 Re
Slide 23: Appendix
APPENDIX Delivering Superior Shareholder Value
Slide 24: 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 25: Credit Ratings
CREDIT RATINGS Investment Grade Credit Ratings APS Parent Corporate Credit Ratings Moody’s A3 Baa1 S&P A- A- Fitch BBB+ BBB+ Senior Unsecured Moody’s A3 - S&P A- - Fitch A- - Outlook Moody’s Stable Stable S&P Stable Stable Fitch Positive Positive We are disclosing credit ratings to enhance understan
Slide 26: Leadership Team
Our top executives have more than 100 combined years of LEADERSHIP TEAM creating shareholder value in the energy industry Don Brandt Chairman & CEO Mark Randy Jeff Jim Schiavoni Edington Guldner Hatfield EVP & Chief EVP & SVP EVP Operating Chief Nuclear Customers & & CFO Officer Officer Regulation 2
Slide 27: Sustainable Cost Management Initiative (SCMI)
SUSTAINABLE COST MANAGEMENT INITIATIVE (“SCMI”) Motivation for Change Sustainable Changes Tiered Metrics • Capitalize on changes driven by aging workforce Linked to incentives to drive accountability across all levels Business Planning Enterprise • Improve organizational efficiencies To increase tra
Slide 28: 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 PPA 174 MW • 3rd of all U.S. utilities for solar energy 310 MW installed in 2013 (410 MW) DG • 4th for new solar installed in 2013 374 MW (368 watts/customer) • 4th
Slide 29: Net Metering
Rooftop solar customers still NET METERING use the grid 24 hours a day TYPICAL GRID INTERACTION FOR ROOFTOP SOLAR • Customers with rooftop solar systems do not pay for all of the electric services they use (i.e. rooftop customers still need support from the grid 24 hours a day) • These unpaid costs
Slide 30: Residential PV Applications
RESIDENTIAL PV APPLICATIONS 2013 Applications* 2013 Canceled Apps 2014 Applications* 2014 Canceled Apps 1000 75 114 124 52 107 800 36 136 109 46 116 43 36 116 600 70 151 37 883 400 831 800 33 793 83 758 787 732 749 733 647 654 673 93 569 26 513 432 458 200 369 353 257 251 0 13-Jan 14-Jan 13-Feb2 14-
Slide 31: Emerging Technologies Rely on the Grid
EMERGING All of these technologies are TECHNOLOGIES dependent on the grid RELY ON THE GRID Rooftop Solar Home Energy Management Battery Storage Electrical System Fuel Cells Electric Vehicles Microgrids 31 Delivering Superior Shareholder Value
Slide 32: Operational Challenges
OPERATIONAL CHALLENGES The grid provides real-time voltage • Steep ramp rate of backup generation and power needed to start air • Instant variability conditioners and other motors loads • Voltage control at distribution level 32 Delivering Superior Shareholder Value
Slide 33: Reliability Services Require Technology Advancements on the Utility Side
RELIABILITY SERVICES REQUIRE TECHNOLOGY ADVANCEMENTS ON THE UTILITY SIDE Advanced Distribution Energy Management Synchrophasors (WISP) Integrated Volt/VAR Management System System (EMS) Upgrades Control (IVVC) Communicating Fault Smart Meters Strategic Indicators (CFI) Fiber Supervisory Controlled S
Slide 34: Regulatory Mechanisms
We have achieved a more REGULATORY supportive regulatory structure MECHANISMS and improvements in cost recovery timing Adopted / Mechanism Description Last Adjusted Power Supply Adjustor April 2005 / • Recovers variance between actual fuel and purchased power costs and (“PSA”) February 2014 base fue
Slide 35: 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 36: Generation Portfolio
GENERATION PORTFOLIO* Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 1,146 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 647 COAL Four Corners Farmington, NM 4, 5 Base 1969-1970 63 970 1,932 MW Navajo
Slide 37: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Fuel/Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (MW) Solana Gila Bend, AZ Abengoa IO Feb-2008 2013 30 250 RE Ajo Ajo, AZ Duke Energy Gen Svcs IO Jan-2010 2011 25 5 Sun E AZ 1 Prescott, AZ SunEdison IO Feb-2010 2011 30 10 SOLAR 310 MW
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