Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Day (November 2012)
32 slides from Pinnacle West Capital's investor day presentation, Nov 9, 2012
Slide 1: Delivering Superior Shareholder Value: Financial Overview
DELIVERING SUPERIOR SHAREHOLDER VALUE FINANCIAL OVERVIEW Jim Hatfield
Slide 2: Financial Overview Agenda
2 FINANCIAL OVERVIEW AGENDA • Third quarter earnings • Financial objectives • 2012 – 2015 outlook • Capital expenditures • O&M cost management initiatives • Earnings guidance and dividend outlook • Debt and liquidity profile • Value proposition
Slide 3: Consolidated EPS Comparisons
3 CONSOLIDATED EPS COMPARISONS 3rd Quarter 2012 versus 3rd Quarter 2011 Net Income On-Going Earnings Per Share Per Share $3.00 $3.00 $2.50 $2.32 $2.50 $2.21 $2.21 $2.24 $2.00 $2.00 $1.50 $1.50 $1.00 $1.00 $0.50 $0.50 $0.00 $0.00 2012 2011 2012 2011 See non-GAAP reconciliation in appendix
Slide 4: On-Going EPS Variances
4 ON-GOING EPS VARIANCES 3rd Quarter 2012 versus 3rd Quarter 2011 Lower infrastructure- related costs Higher O&M* $0.04 $(0.10) Higher gross margin* $0.16 Lower prior-year effective tax rate $(0.09) Net Other, net Decrease $(0.04) $(0.03) = * Excludes costs, and offsetting operating revenues, associ
Slide 5: Gross Margin EPS Drivers
5 GROSS MARGIN EPS DRIVERS 3rd Quarter 2012 versus 3rd Quarter 2011 Other, net Weather effects $0.05 $(0.17) Retail transmission revenue increase $0.09 2012 regulatory settlement $0.21 Lower retail kWh sales Net $(0.02) Increase $0.16 = See non-GAAP reconciliation in appendix
Slide 6: Long-Term Financial Objectives
6 LONG-TERM FINANCIAL OBJECTIVES Our long-term goal is to provide continued superior returns to our shareholders. • Deliver strong consistent total return • Capitalize on dynamic service territory growth • Emphasize capital and O&M budgeting disciplines • Maintain solid investment-grade credit ratin
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%* 3% 1.1 1 2% 1% 0% 1990 1995 2000 2005 2010 2016 0 Projected 2011 2030 APS Customer Growth Arizona Population Gro
Slide 8: Positive Near-Term Trends
8 POSITIVE NEAR-TERM TRENDS Arizona’s economy is reflecting more sustained growth and activity. Non-Farm Job Growth Metro Phoenix Vacant Housing Year-Over- APS Service Territory Year Change 10.0% 40,000 8.0% 35,000 6.0% 30,000 4.0% 25,000 2.0% 0.0% 20,000 (2.0)% 15,000 (4.0)% 10,000 (6.0)% 5,000 (8.
Slide 9: Foreclosure Headwinds Winding Down
9 FORECLOSURE HEADWINDS WINDING DOWN Metro Phoenix home foreclosure sales are the lowest since 2007. Existing Single Family Home Sales Key Trends 120,000 45% 40% • Existing home sales activity 100,000 remains robust 35% • Investor interest peaked in Q1 80,000 30% 2012 25% • 20% of market Q1 60,000 2
Slide 10: New Home Market Breathing Again
10 NEW HOME MARKET BREATHING AGAIN Metro Phoenix new home construction beginning to see benefits from lower vacancies and higher prices in existing housing. New Home Sales & Single Family Permits Key Trends 30,000 • After three very weak sales 25,000 years, Metro Phoenix new home construction is tur
Slide 11: Positive Near-Term Trends
11 POSITIVE NEAR-TERM TRENDS Housing and non-residential sectors are showing steady improvement. Home Prices Nonresidential Building Vacancy 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 '05 '06 '07 '08 '09
Slide 12: Long-Term Growth Drives Cap Ex
12 LONG-TERM GROWTH DRIVES CAP EX Investment is required throughout the business to meet expected demand growth. APS Capital Expenditures by Function $ Millions 1,400 1,200 Other 1,000 Distribution 800 Transmission 600 Renewables 400 Environmental 200 Traditional Generation 0 2011 2012 2013 2014 201
Slide 13: Solid Capital Recovery and Strong Rate Base Growth
SOLID CAPITAL RECOVERY AND 13 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 Rate Base Growth by Recovery Mechanism $ Millions $ Billions Year-End 1,400 10 1,200 8 1,000 Other C
Slide 14: Rate Adjustors Complement Base Rate Increases
RATE ADJUSTORS COMPLEMENT 14 BASE RATE INCREASES Regulatory structure provides support for gross margin growth throughout base rate stay-out period. 2012 2013 2014 2015 Base Rate Increase 55% 45% — — Four Corners — 55% 45% — Transmission Cost Adjustor X X X X AZ Sun X X X X Lost Fixed Cost Recovery
Slide 15: Strong Cost Management Focus
15 STRONG COST MANAGEMENT FOCUS Our goal is to keep O&M growth in line with retail sales growth. APS O&M Expense Trends $ Millions 800 600 400 200 0 2006 2007 2008 2009 2010 2011 2012E 2013E Excludes RES and demand-side management costs. 2011 also excludes $28 million related to prior-period transmi
Slide 16: Sustainable Cost Management Initiative (SCMI)
SUSTAINABLE COST MANAGEMENT 16 INITIATIVE (“SCMI”) Continued success requires a more rigorous, standardized approach to running the business. Motivation Sustainable Changes • Recognize combined challenges Tiered Metrics • Costs • Capital Business Planning • Sales growth • Stayout Corporate Resources
Slide 17: Consolidated Financial Outlook
17 CONSOLIDATED FINANCIAL OUTLOOK Our strategies and financial performance are producing earnings growth. On-Going EPS Outlook Through 2015 $4.00 $3.35 – $3.50 $3.45 – $3.60 • 6% rate base growth,* but $3.50 regulatory recovery not perfect $2.99 $3.00 • Adjustment mechanisms provide substantial reco
Slide 18: Consolidated Financial Outlook
18 CONSOLIDATED FINANCIAL OUTLOOK Our financial results facilitate growing cash returns to our shareholders. Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $4.00 $3.50 $3.00 $2.50 $2.10 $2.18* $2.00 $1.50 $1.00 $0.50 $0.00 2011 2012 2013 2014 2015 Projected * Increase effective 4th
Slide 19: Consolidated Financial Outlook
19 CONSOLIDATED FINANCIAL OUTLOOK Our goal is to consistently earn a competitive return on average common equity. Consolidated Earned ROE Goal* 10% 8.8% At Least 9.5% Per Year 8% 6% 4% 2% 0% 2011 2012 2013 2014 2015 Projected * As of November 9, 2012
Slide 20: Superior Shareholder Returns
20 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 21: Ready Access to Capital
21 READY ACCESS TO CAPITAL Strong access to capital resources is supported by solid credit ratings, manageable debt maturities and ample liquidity. 2012 Major Financing Activities APS Long-Term Debt Maturities • $375M APS senior notes refinancing* $ Millions $450 • Remarketing of $32MM Maricopa $400
Slide 22: Solid Credit Ratings
22 SOLID CREDIT RATINGS Available liquidity remains substantial and our credit ratings have improved. Credit Facilities and Liquidity* APS Parent Corporate Credit Capacity Ratings Borrower ($ Millions) Maturities Moody’s Baa1 Baa2 APS $ 500 Feb. ’15 S&P BBB BBB APS 500 Nov. ’16 Fitch BBB BBB PNW 200
Slide 23: Pinnacle West: Our Value Proposition
23 PINNACLE WEST: OUR VALUE PROPOSITION Our commitment to investors…
Slide 24: Financial Overview Appendix
Financial Overview Appendix
Slide 25: 2012 On-Going EPS Guidance
25 2012 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of November 9, 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 slig
Slide 26: 2013 On-Going EPS Guidance
26 2013 ON-GOING EPS GUIDANCE Key Factors and Assumptions as of November 9, 2012 • Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) about $2.20 billion to $2.25 billion • Retail customer growth about 1.5% • Weather-normalized retail electricity sales volume ab
Slide 27: 2012 – 2015 Financial Outlook
27 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of November 9, 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 28: 2012 – 2015 Financial Outlook
28 2012 – 2015 FINANCIAL OUTLOOK Key Drivers and Assumptions as of November 9, 2012 (continued) • Modestly improving Arizona and U.S. economic conditions; specifically, no major disruptions to the on-going national economic recovery [resulting from political action or inaction] • Retail customer gro
Slide 29: Non-GAAP EPS Reconciliation
29 NON-GAAP EPS RECONCILIATION Consolidated On-Going EPS Guidance Year 2011 Year 2012 Year 2013 Actual Guidance* 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 $ 3.3
Slide 30: S&P Credit Metrics
30 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 31: Non-GAAP EPS Reconciliation
31 NON-GAAP EPS RECONCILIATION 3rd Quarter 2012 vs. 3rd Quarter 2011 3rd Qtr 3rd Qtr 2012 2011 Change EPS as reported $ 2.21 $ 2.32 $ (0.11) Less income from discontinued operations - (0.08) 0.08 On-going EPS $ 2.21 $ 2.24 $ (0.03)
Slide 32: Non-GAAP Measure Reconciliation
32 NON-GAAP MEASURE RECONCILIATION 3rd Quarter 2012 vs. 3rd Quarter 2011 Gross Margin Three Months Ended September 30, EPS $ millions pretax, except per share amounts 2012 2011 Change Operating revenues* $ 1,110 $ 1,125 Fuel and purchased power expenses* (303) (338) Gross margin 807 787 $ 0.11 Less: