Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Day (September 2010)
45 slides from Pinnacle West Capital's investor day presentation, September 2010
Slide 1: A Powerful Tomorrow Starts Today
A Powerful Tomorrow Starts Today Analyst Meetings September 2010
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation contains forward-looking statements based on our current expectations, and neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by applicable law law. These forward-look
Slide 3: Non-GAAP Financial Measures
Non-GAAP Financial Measures In this presentation, we refer to “on-going earnings,” which is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We view on-going earnings as an important performance measure of the core profitability of our operations. We believe on-going earnings
Slide 4: PNW: Our Value Proposition
PNW: Our Value Proposition Capitalizing on Strengthening Financial Attractive Fundamentals and Risk Profiles Vertically integrated Investment-grade credit ratings electric l t i utility tilit and d adequate d t liquidity li idit High-growth service territory Risk reduction Diversified ener
Slide 5: Who We Are
Who We Are At our core, we are Arizona’s largest and longest-serving electric utility. NYSE Ticker: PNW M k tC Market Cap: $4 Billion Billi Enterprise Value: $8 Billion Assets APS Service Territory y December 31, 2009 1.1 million customers Vertically Integrated over 35,000 square miles $12 Billion E
Slide 6: Positive Long-Term Demographics
Positive Long-Term Demographics Arizona has ranked in the top five for population growth over the last 20 years. APS expects strong future customer growth, in spite of current economic slowdown. Superior Historical Growth APS Customer Growth Annual Growth Millions 6% 20 2.0 17 1.7 5% 52% 1.5 4% 1.1
Slide 7: Customer Satisfaction … A Key Priority
Customer Satisfaction … A Key Priority Our employees take pride in providing top-tier customer service. Lowering Average Annual Outage Time Outstanding Residential Per Customer C C t Customer S Satisfaction ti f ti R Rating ti Outage Rating Minutes/Year 700 125 APS 675 Industry 100 Average 650 625 7
Slide 8: Superior Power Plant Performance
Superior Power Plant Performance Our nuclear and coal plants are strong baseload resources. Nuclear Capacity Factors Coal Capacity Factors 100% 100% Industry 90% 89% 90% APS 80% 88% 80% 82% APS Industry 70% 70% 65% 60% 60% ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 Returned to superio
Slide 9: A Balanced and Strategic Resource Plan
A Balanced and Strategic Resource Plan We have competitive advantages to capitalize on renewable and nuclear resources to provide a diversified energy mix. E Energy Mix Mi (MWh) 100% Renewables & EE Renewables Abundant solar resources in Arizona & Energy High customer interest and incentives Nat
Slide 10: World-Class Solar Potential
World-Class Solar Potential We intend to make Arizona the “Solar Capital of the World.” S l Insolation Solar I l ti C Comparison i (kWh/ (kWh/year)) Germany - among countries with highest installed capacities despite Seattle-like weather conditions Japan’s solar Germany insolation comparable to Flor
Slide 11: APS Renewables Projects
APS Renewables Projects APS is committed to delivering renewable energy to Arizona. December D b 2009 retail t il regulatory l t settlement ttl t provisions i i 1.7 million MWh additional renewable generation in service by end of 2015 Photovoltaic solar projects Arizona wind projects Rate re
Slide 12: AZ Sun Program
AZ Sun Program APS plans to add 100 megawatts of owned solar photovoltaic generation by the end of 2014. 100 MW photovoltaic solar plants to be owned by APS Up to $500 million capital investment To be in service in 2011 - 2014 Projects 15 MW at Luke Air Force Base (mid-2011) Additional p
Slide 13: Further Transmission Investment is Key
Further Transmission Investment is Key Strategic investment is needed to maintain reliability and bring diversified resources to our customers. NAVAJO 10-Year Transmission Plan FOUR NORTH CORNERS 100 MW (115kV and above): 970 MW $520 million of new transmission investment BAGDAD FLAGSTAFF (APS)
Slide 14: Multi-Pronged Approach to ROE Improvement
Multi-Pronged Approach to ROE Improvement We are actively working to improve our return on equity. Electricity Rate Increases Regulatory Framework Improvements ROE Goal Improvement Cost Savings Initiatives Efficiency and Effectiveness Throughout Organization 13
Slide 15: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement APS’ regulatory settlement has a number of benefits for investors. I Increased d retail t il b base rates t effective ff ti January J 1 1, 2010 Strengthens APS’ earned ROE and financial condition and supports common dividend P Provides id greater t llevel
Slide 16: Constructive Transmission Rate Regulation
Constructive Transmission Rate Regulation We have achieved constructive transmission rate treatment. • 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 Adjustor (TCA) • R
Slide 17: Major Pending ACC Issues
Major j Pending g ACC Issues Generic dockets • Decoupling and other financial mechanisms to promote energy efficiency • Line extensions • Feed-in tariffs • Renewable transmission • Energy efficiency rules • Resource planning rules November 2, 2010 general election • Two seats on ballot • Candidates
Slide 18: Opportunities to Continue Improving Regulatory Dialogue
Opportunities to Continue Improving Regulatory Dialogue Regulatory framework Customers and processes State economic vitality APS Federal F d l and d state t t energy policy Creating a ACC Sustainable Long-term resource plan Energy gy Future Communities Environmental stewardship for Arizona Governor
Slide 19: Cost Savings To Support Future Results
Cost Savings To Support Future Results Our cost management efforts will help improve financial results beyond those achievable through proposed regulatory decisions. Enterprise-wide emphasis Better leverage technology Optimize assets Cost and resources Savings Effective, efficient execution Engaged,
Slide 20: APS CapEx Drives Strong Rate Base Growth
APS CapEx Drives Strong Rate Base Growth We have reduced capex based on current economic conditions– yet still expect strong rate base growth. APS C Capital it l E Expenditures dit APS R Rate t BBase $ Millions $ Billions 1,200 10 1,000 8 Generation 800 Transmission 6 600 Distribution 4 400 Other 2
Slide 21: Adequate Liquidity and Financing Access
Adequate Liquidity and Financing Access Our credit metrics have improved significantly over the last 5 years. Credit Facilities* Ratings Capacity PNW APS Borrower ($ Millions) Matures Senior Unsecured APS $ 489 Sep ’11 Sep. 11 Moody’s Baa3 Baa2 APS 500 Feb. ’13 S&P BB+ BBB- PNW 200 Feb. ’13 Fitch -
Slide 22: Consolidated On-Going EPS
Consolidated On-Going EPS EPS 2009 A Actual: t l $2$2.33 33 per share h $3.10 $2.95 Guidance as of August 3, 2010 $2 33 $2.33 2010 $2.95 - $3.10 per share 2011 Estimated to be within guidance range provided for 2010, with some opportunity for modestly exceeding the range 2009 2010 2011 Projected
Slide 23: Top-Tier Dividend Yield
Top-Tier Dividend Yield Pinnacle West’s annual dividend is $2.10 per share. 8% 6% 5.3% 4.7% 4% 2% 2.0% 0% Aug. 31, Nov. 30, Feb. 28, May 31, Aug. 31, 2009 2009 2010 2010 2010 PNW Electric Utility Average S&P 500 Index 22
Slide 24: PNW: Our Value Proposition
PNW: Our Value Proposition Capitalizing on Strengthening Attractive Financial Fundamentals and Risk Profiles Delivering Superior Shareholder Returns Improving Focusing on Regulatory Green Resources Environment Compelling Capital Investment Opportunities 23
Slide 25: Appendix
ore PINNACLE WEST CAPITAL CORPORATION Appendix 24
Slide 26: A Leadership Team of Industry Veterans
A Leadership Team of Industry Veterans Our top executives have more than 130 combined years of creating shareholder value in the energy industry. Don Brandt Chairman & CEO Jim Don Mark Randy Dave Hatfield Robinson Schiavoni Edington Falck SVP & APS SVP EVP & EVP, CFO President Fossil Chief Nuclear G
Slide 27: Arizona's Largest and Longest-Serving Electric Utility
Arizona’s Largest and Longest-Serving Electric Utility Serving Arizona customers since 1887 – 15 years before statehood. Service Territory 1.1 million customer accounts 34,646 square miles Customer Growth 0.6% in 2009 1% average annual growth expected through 2011 3 3-4% 4% historical aver
Slide 28: 2009 Retail Customer, Sales And Revenue Mixes
2009 Retail Customer, Sales And Revenue Mixes Customers Retail Operating Year-End Sales Revenues 1.1 Million 28,173 GWh $3.0 Billion 89% 47% 45% 50% 43% 11% 8% 6% Residential Commercial Industrial Other 27
Slide 29: 2009 APS Generation and Energy Fuel Mixes
2009 APS Generation and Energy Fuel Mixes Energy Generation Generation Fuel Mix Fuel Mix Capacity Mix 34,514 GWh 27,374 GWh 6,288 MW 36% 28% 17% 26% 54% 21% 18% Nuclear Coal Gas & Oil Purchased Power 28
Slide 30: Arizona Corporation Commissioners
Arizona Corporation Commissioners Terms Through January 2011 Kristin Mayes Gary Pierce (Rep) Chairman (Rep) El t d N Elected November b 2008 2008, T Terms Th Through hJJanuary 2013 Sandra Kennedy (Dem) Paul Newman (Dem) Bob Stump (Rep) 29
Slide 31: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement The regulatory settlement has a number of benefits from investors’ perspective. Increased retail base rates effective January 1, 2010 Strengthens APS’ APS earned ROE and financial condition and supports common dividend Provides greater level of cost recov
Slide 32: Progressive 2009 Regulatory Settlement
Progressive g 2009 Regulatory g y Settlement Settlement provisions include earnings support until next rate case. Estimated Pretax Earnings Benefits ($ Milli Millions)) 2010 2011 2012 Settlement agreement terms B Base rate t iincrease $ 207 $ 207 $ 207 Line extensions treated as revenue 23 25 49 Pen
Slide 33: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement The retail revenue increases total $230 million in 2010 and will improve APS’ financial condition. Rates effective January 1, 2010 Annualized base rate revenue increases ($ millions): Non-fuel $ 196 Net fuel-related 11 Net increase $ 207 Allowed ROE (%) 11 q y
Slide 34: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement Other key provisions add financial value for APS and benefits for other stakeholders. Key non-revenue financial provisions: • $30 million annual cost reduction in 2010 to be sustained through 2014 • Pension P i andd OPEB costt iincreases tto b be d deferred f d
Slide 35: Progressive 2009 Regulatory Settlement
Progressive 2009 Regulatory Settlement An expedited process has been agreed upon for future rate cases to reduce processing regulatory lag. • Settling parties intend to process future cases within 12 months of sufficiency findings • APS may file general base rate cases on or after June 1, 2011 and J
Slide 36: Significant Regulatory Progress Since 2005
Significant Regulatory Progress Since 2005 We have made progress toward a supportive regulatory structure and improvement in the timing of cost recovery. Adopted / Mechanism Last Adjusted Description Power Supply Adjustor April 2005 / Recovers 90% of variance between actual fuel and purchased powe
Slide 37: Our Regulatory Mix
Our Regulatory Mix The bulk of APS’ revenues come from our regulated retail rate base; we also have a meaningful transmission business. Most Recent Rate Decisions ACC FERC Transmission Effective Date 1/1/2010 6/1/2010 16% Test Year Ending 12/31/2007 12/31/2009 Generation & Distribution Rate Base $5.
Slide 38: APS Revenues by Recovery Mechanisms
APS Revenues by Recovery Mechanisms We have received supportive regulatory decisions providing more timely recovery. Regulated Electricity Revenue Test Year by Recovery Mechanism Historical Forecasted $ Millions 3,500 3,000 PSA 2,500 TCA RES 2,000 DSM* 1,500 Base Rates 1,000 , Other** 500 0 2004 200
Slide 39: Arizona Renewable Energy and Energy Efficiency Standard
Arizona Renewable Energy and Energy c e cy Standard Efficiency Sta da d Renewable Energy (RES) Minimum Requirements • Portion of retail sales to be supplied by renewable resources 5% by 2015 15% by 2025 • Distributed energy component 30% of total requirement by 2012 Energy Efficiency ff Requir
Slide 40: Solana: A "Sunny Place"
Solana: A “Sunny Place” Solana will generate enough clean, renewable electricity to meet the needs of about 70,000 Arizona homes. • 280-MW concentrating solar trough • 30-year PPA for all output ( 900 GWh/ (~900 GWh/year)) • Planned commercial operation in 2013 • N Near existing i ti ttransmission i
Slide 41: Community Power Project – Flagstaff, Arizona
Community Power Project – Flagstaff, Arizona APS’ innovative pilot project encourages distributed renewable resources, integrated with smart grid technology. 200 to 300 rooftop solar photovoltaic systems on single feeder 1.5 1 5 to 2 MW of distributed generation APS-owned 4 weather stations in
Slide 42: A Well-Balanced Generation Portfolio
A Well-Balanced Generation Portfolio` Commercial Ownership / Net Capacity Fuel / Plant Location Units Dispatch Ops. Date Operator Interest 1 (MW) Nuclear Palo Verde Wintersburg, AZ 1,2,3 Base 1986 - 1989 APS 29.1 1,146 Total Nuclear 1 146 1,146 Coal Cholla Joseph City, AZ 1,2,3 Base 1962 - 1980 APS
Slide 43: Renewable Contracts Provide Bridge
Renewable Contracts Provide Bridge COD/ Developer/ Expected Term Capacity * Fuel / Contract Location Operator Status PPA Signed COD (years) (MW) Solar Solana (CSP Trough) Gila Bend, AZ Abengoa AD Feb-2008 2013 30 280 Total Solar 280 Wind Aragonne Mesa Santa Rosa, Rosa NM Bluearc Mgmt. Mgmt Group IO
Slide 44: Recognized as One of America's Greenest Companies
Recognized as One of America’s Greenest Companies Newsweek ranked Pinnacle West 13th best among U.S. utilities. 43
Slide 45: Environmental, Sustainability and Technology Leadership
Environmental, Sustainability and Technology Leadership We have been recognized internationally for our achievements. Edison Electric Institute’s Dow Jones 2008 Top Industry Award Global 100 Most Sustainable Sustainability Index (Technical Innovation) Corporations in World Social Responsibility Repo
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