Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2013 Earnings Presentation
23 slides from Pinnacle West Capital's earnings presentation, Oct 31, 2013
Slide 1: 3rd Quarter 2013 Results
3RD QUARTER 2013 RESULTS October 31, 2013
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES 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
Slide 3: CEO Agenda
CEO AGENDA • Four Corners Transaction • Operational Performance • Regulatory Update 3 Third Quarter 2013
Slide 4: CFO Agenda
CFO AGENDA • 3rd Quarter Results • Arizona Economic Outlook • Earnings Guidance and Financial Outlook 4 Third Quarter 2013
Slide 5: Consolidated EPS Comparison
CONSOLIDATED EPS COMPARISON 2013 VS. 2012 3rd Quarter YTD On-Going Earnings On-Going Earnings $2.21 $3.44 $2.04 $3.26 2013 2012 2013 2012 3rd Quarter YTD GAAP Net Income GAAP Net Income $2.04 $2.21 $3.44 $3.25 5 Third Quarter 2013
Slide 6: On-Going EPS Variances
ON-GOING EPS VARIANCES 3RD QUARTER 2013 VS. 3RD QUARTER 2012 Lower Net Gross Margin* Decrease $(0.06) $(0.17) Higher O&M* $(0.04) Higher Infrastructure $(0.07) = * Excludes costs, and offsetting operating revenues, associated with renewable energy (excluding AZ Sun), energy efficiency and similar re
Slide 7: Gross Margin EPS Drivers
GROSS MARGIN EPS DRIVERS 3RD QUARTER 2013 VS. 3RD QUARTER 2012 Other Items, Lower Retail Net kWh Sales $0.02 $(0.09) Weather Effects $0.02 Net Decrease $(0.06) Retail Transmission Revenue $(0.01) = 7 Third Quarter 2013
Slide 8: 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 '05 '06 '07 '08 '09 '10 '11 '12 '13 YTD Job Grow
Slide 9: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Annual Growth 5% 85% of retail sales growth driven by customer growth, excluding impacts of customer conservation, energy 4% efficiency and distributed renewable generation initiatives 3% Retail customer growth to average 2% annually 2013-2015 2% – Weather-normalized reta
Slide 10: On-Going EPS Guidance
ON-GOING EPS GUIDANCE AS OF OCTOBER 31, 2013 Affirming 2013 Guidance and Introducing 2014 Guidance $3.60 - $3.75 $3.55 - $3.70 2013 Guidance 2014 Guidance See key factor and assumptions in appendix. 10 Third Quarter 2013
Slide 11: Appendix
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Slide 12: 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 13: APS Proposed Net Metering Options
Either option ensures rooftop APS PROPOSED NET solar customers get fair credit for METERING OPTIONS their solar energy and pay their fair share of the grid Net Metering Option or Bill Credit Option Net metering would be replaced by a bill Future solar customers would be credit, where future solar cu
Slide 14: Four Corners Power Plant
• Our proposal represents a balanced solution to new FOUR CORNERS POWER PLANT environmental regulations. Acquire Southern California Edison’s 739 MW interest in Units 4 & 5 and shut down Units 1-3 (560 MW) • Purchase price: $294 million, subject to adjustments, including reduction of $7.5 million pe
Slide 15: Regulatory Calendar
REGULATORY CALENDAR LIST OF SELECTED DOCKETS Docket # 2012 Retail Rate Settlement E-01345A-11-0224 (including Four Corners rate recovery) Energy Efficiency and Integrated Resource Planning* E-00000XX-13-0214 2014 Renewable Energy Standard Implementation Plan E-01345A-13-0140 Net Metering E-01345A-13
Slide 16: 2013 On-Going EPS Guidance
2013 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE October 31, 2013 2013 Electricity gross margin* (operating revenues, net of fuel and $2.22 - $2.24 billion purchased power expenses) • Retail customer growth about 1.5% • Weather-normalized retail electricity sales volume about flat to prior
Slide 17: 2014 On-Going EPS Guidance
2014 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE October 31, 2013 2014 Electricity gross margin* (operating revenues, net of fuel and $2.22 – $2.27 billion purchased power expenses) • Retail customer growth about 2.0% • Weather-normalized retail electricity sales volume about +0.5% to prio
Slide 18: Financial Outlook
2013 – 2015 Key Factors & Assumptions as of FINANCIAL OUTLOOK October 31, 2013 Gross Margin – Customer Growth and Weather Assumption Impact Retail customer growth • Expected to average 2% annually (2013-2015) • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail electri
Slide 19: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions $30 25 21 $20 16 10 $10 6 3 $0 (1) (3) $(10) (7) (11) $(20) (22) $(30) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 2013 $8 Million $10 Million $19 Million All periods recalculated to confirm to current 10-year rolling average. 19 Th
Slide 20: Quarterly Mark-to-Market on Hedge Contracts
QUARTERLY MARK-TO-MARKET ON HEDGE CONTRACTS* Pretax Millions $10 5 $5 0 0 0 0 0 0 $0 (2) (2) (2) (2) $(5) $(10) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 2013 * Related to APS 10% share under Power Supply Adjustor (PSA), net of related deferrals, effective through June 30, 2012. 20 Third Quarter 20
Slide 21: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Renewable Energy Demand Side Management $50 $40 23 25 $30 18 16 13 24 20 $20 19 17 16 15 $10 23 19 19 19 20 14 16 10 12 12 10 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 2013 $150 Million $124 Million $106 Million * O&M expenses related to Rene
Slide 22: Non-GAAP EPS Reconciliation
NON-GAAP EPS RECONCILIATION YTD 2013 VS. YTD 2012 Nine Months Ended September 30, EPS 2013 2012 Change EPS as reported $ 3.44 $ 3.25 $ 0.19 Adjustments: Loss from discontinued operations - 0.01 (0.01) On-going EPS $ 3.44 $ 3.26 $ 0.18 22 Third Quarter 2013
Slide 23: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended September 30, EPS $ millions pretax, except per share amounts 2013 2012 Change Operating revenues* $ 1,152 $ 1,109 Fuel and purchased power expenses* (351) (303) Gross margin 801 806 $ (0.03) Less Renewable energy (excluding AZ Sun), en
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