Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Credit Suisse Energy Summit 2014
27 slides from Pinnacle West Capital's conference presentation, Feb 12, 2014
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Credit Suisse Energy Summit | February 10-12, 2014
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: 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 Billion Enterprise Value* ~$9 Billion Dividend Yield* 4.3% Consolidated Assets Over $13 Billion Principal Subsidiary • Arizona’s largest and longest-serv
Slide 4: Value Proposition
VALUE PROPOSITION Experienced Management Team Driving Focused Strategy Leverage to Arizona Economic Recovery Executing on Operational Excellence Delivering on Achievable Long-Term Targets through Stay Out 4 Delivering Superior Shareholder Value
Slide 5: 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 6: 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 7: 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 YTD-Nov '05 '06 '07 '08 '09 '10 '11 '12 '13 Job Grow
Slide 8: 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 2013 J.D. Power residential customer survey. production 8 times – the only U.S. plant to ever do so. APS
Slide 9: Dividend Growth
Pinnacle West’s annual dividend is DIVIDEND GROWTH $2.27 per share; targeting ~4% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End Dividend Yield 6% PNW 5% 4% $2.27 $2.18 3% Industry Averages $2.10 2% 1% 0% 30% 50% 70% 90% Dividend Payout Yield as of January 31,
Slide 10: Credit Ratings and Financing
CREDIT RATINGS AND FINANCING Investment Grade Credit Ratings Major Financing Activities APS Parent Corporate Credit Ratings • $250 million 30-year 4.70% APS Moody’s A3 Baa1 senior unsecured notes issued in S&P A- A- January 2014 Fitch BBB+ BBB+ Senior Unsecured • Currently expect about $550 Moody’s
Slide 11: Resource Planning
RESOURCE PLANNING MW Composition of Energy Mix by Resource 14,000 Load Requirement Including Reserves 2012 12,000 28.8% 4.9% 10,000 Resource Planning 9.6% Gas 38.0% Requirement 23.7% 4.7% Coal 8,000 Existing Nuclear Contracts 6,000 Four Corners 4-5 RE + DE 2027 4,000 EE 15.4% Existing Owned Resource
Slide 12: Ocotillo Power Plant
OCOTILLO POWER PLANT • Ocotillo modernization project will maintain valley grid reliability and increase APS’s generating capacity by 290 MW • Located in Tempe, AZ • Expected project completion summer 2018 • Estimated project cost of $600M - $700M in 2016-2018 Current Future State (2) Westinghouse P
Slide 13: Regulatory Calendar
REGULATORY CALENDAR LIST OF SELECTED DOCKETS Description Docket # 2012 Retail Rate Settlement E-01345A-11-0224 (including Four Corners rate recovery and LFCR) Energy Efficiency and Integrated Resource Planning* E-00000XX-13-0214 2014 Renewable Energy Standard Implementation Plan E-01345A-13-0140 Net
Slide 14: Appendix
CAPITAL CORPORATION aX PINNACLE WEST
Slide 15: Cost Management
A variety of initiatives have been COST MANAGEMENT helping control operating and capital costs Results Ongoing effort to Sustainable Cost instill culture of cost Management Initiative management and efficiency Fleet operating Fossil Generation model to streamline Realignment workforce and reduce cos
Slide 16: Arizona Corporation Commission
ARIZONA Three seats of four-year terms through January 2017 were CORPORATION addressed in the November 2012 COMMISSION election Terms To January 2017 Terms To January 2015 New Commissioners Incumbents Susan Bob Bob Stump (R)* Brenda Gary Bitter Smith (R) Burns (R) Chairman Burns (R) Pierce (R)* * Te
Slide 17: Renewable Energy Rises with the Sun
RENEWABLE ENERGY We are helping Arizona become RISES WITH THE SUN the “Solar Capital of America” Arizona Germany and Japan are among countries with highest installed solar capacity, yet have solar conditions far inferior to Arizona Arizona ranks 1st in the U.S. for solar energy development* * Enviro
Slide 18: AZ Sun Program
Owning solar resources makes sense for our customers and the AZ SUN PROGRAM environment and provides earnings growth potential • Utility-scale photovoltaic solar plants to be owned by APS • Constructive rate recovery through RES until included in base rates • 118 MW in commercial operation to date;
Slide 19: Net Metering
Rooftop solar customers still use NET METERING 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 20: 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 retail
Slide 21: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) • Weather-normalized retail sales growth less than 1% for 2013-2015 after impacts of energy efficiency, customer conservation and distributed renewable generation initiatives • 85% of retail sales growth driven by customer growth, excluding customer programs
Slide 22: Transmission
Strategic transmission investment is essential to maintain reliability 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 (HA
Slide 23: Transmission
We have achieved constructive TRANSMISSION 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 Adjustor Rate Rate Rate
Slide 24: 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 25: Regulatory Mechanisms
REGULATORY Lost Fixed Cost Recovery MECHANISMS • Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2012 2015 Revenue settlement 2014 Revenue – Estimated to offset 30-40% of 2013 Revenue revenues lost due to ACC- 2012 Revenue mandated energy efficiency (EE) Rate Recovery and distrib
Slide 26: 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 P
Slide 27: 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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