Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q3 2014 Earnings Presentation
27 slides from Pinnacle West Capital's earnings presentation, Oct 31, 2014
Slide 1: Third Quarter 2014 Results
THIRD QUARTER 2014 RESULTS October 31, 2014
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 • Regulatory Update • Resource Planning • Operational Excellence 3 Third Quarter 2014
Slide 4: CFO Agenda
CFO AGENDA • 3rd Quarter 2014 Results • Arizona Economic Outlook • Earnings Guidance and Financial Outlook 4 Third Quarter 2014
Slide 5: Consolidated EPS Comparison
CONSOLIDATED EPS COMPARISON 2014 VS. 2013 3rd Quarter YTD On-Going Earnings On-Going Earnings $3.53 $3.44 $2.20 $2.04 2014 2013 2014 2013 3rd Quarter YTD GAAP Net Income GAAP Net Income $2.20 $2.04 $3.53 $3.44 5 Third Quarter 2014
Slide 6: On-Going EPS Variances
ON-GOING EPS VARIANCES 3RD QUARTER 2014 VS. 3RD QUARTER 2013 Net Other, Net Increase $0.03 $0.16 Effective = Tax Rate Interest, Net $0.02 of AFUDC $0.04 Other Taxes $0.02 D&A $0.02 O&M(1) $0.02 Gross Margin(1) $0.01 (1) Excludes costs, and offsetting operating revenues, associated with renewable ene
Slide 7: Gross Margin EPS Drivers
GROSS MARGIN EPS DRIVERS 3RD QUARTER 2014 VS. 3RD QUARTER 2013 AZ Sun Weather $0.03 $(0.03) Retail Transmission Revenue Other, Net Lost Fixed $0.01 $(0.02) Cost Recovery Mechanism $0.02 Net Increase $0.01 = See non-GAAP reconciliation for gross margin in appendix. 7 Third Quarter 2014
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 '14 Aug '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Q3 S
Slide 9: On-Going EPS Guidance
ON-GOING EPS GUIDANCE AS OF OCTOBER 31, 2014 Affirming 2014 Guidance range…introducing 2015 Guidance $3.75 - $3.95 Outlook through 2016 • Goal of earning more than 9.5% $3.60 - $3.75 Return on Equity • Adjustment mechanisms (Lost Fixed Cost Recovery, Transmission Cost Adjustor, AZ Sun, etc.) providi
Slide 10: Appendix
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Slide 11: 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 11-0224 May 15 Renewable Energy Surcharge 14-0250 Jul 1 10-Year Transmission Plan (Annual) 13-0002 Jan 31 2014 Integrated Resource Plan (Biennial) 13-0070 Apr 1 Net Metering
Slide 12: 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 13: 2014 On-Going EPS Guidance
2014 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE October 31, 2014 2014 Electricity gross margin* (operating revenues, net of fuel and $2.20 – $2.22 billion purchased power expenses) • Retail customer growth about 1.5% • Weather-normalized retail electricity sales volume about flat to prior
Slide 14: 2015 On-Going EPS Guidance
2015 ON-GOING Key Factors & Assumptions as of EPS GUIDANCE October 31, 2014 2015 Electricity gross margin* (operating revenues, net of fuel and $2.30 – $2.35 billion purchased power expenses) • Retail customer growth about 1.5-2.5% • Weather-normalized retail electricity sales volume about 0-1.0% to
Slide 15: Financial Outlook
2015 – 2017 Key Factors & Assumptions as of FINANCIAL OUTLOOK October 31, 2014 Gross Margin – Customer Growth and Weather Assumption Impact Retail customer growth • Expected to average about 2-3% annually (2015-2017) • Modestly improving Arizona and U.S. economic conditions Weather-normalized retail
Slide 16: Operations & Maintenance
OPERATIONS & Our goal is to keep consolidated O&M growth at or below retail MAINTENANCE sales growth levels ($ Millions) $137 $103 $106 $150 $124 $121 $790 - $795 - $754 $761 $788 $800 $815 $749 2010 2011 2012 2013 2014E 2015E Consolidated RES/DSM* *Renewable energy and demand side management expens
Slide 17: Dividend Growth
Pinnacle West’s annual dividend is DIVIDEND GROWTH $2.38 per share; targeting ~5% annual dividend growth Dividend Growth Goal Indicated Annual Dividend Rate at Year-End $2.38 $2.27 $2.18 $2.10 2011 2012 2013 2014 2015 2016 Projected Future dividends subject to declaration at Board of Directors’ disc
Slide 18: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) • Weather-normalized retail sales growth on average about 0.5-1.5% for 2015-2017 after impacts of energy efficiency, customer conservation and distributed renewable generation initiatives (excluding Lost Fixed Cost Recovery) Distributed Generation (DG) Impact
Slide 19: Capital Expenditures
80% of capital expenditures are CAPITAL recovered through rate adjustors EXPENDITURES (40%) and depreciation cash flow (40%) ($ Millions) $1,248 $83 Other $1,091 $986 $85 $335 Distribution $44 $864 $234 $81 $328 Transmission $144 $223 $1 $132 $159 Renewable $216 Generation $166 $170 $60 $20 $37 $73
Slide 20: Financing
FINANCING 2014 Major Financing Activities Debt Maturity Schedule • $250 million 30-year 4.70% APS senior ($Millions) unsecured notes issued in January 2014 with $600 proceeds used primarily to fund acquisition of Four Corners $500 • $250 million 10-year 3.35% APS senior unsecured notes issued June 2
Slide 21: Regulatory Mechanisms (LFCR)
REGULATORY Lost Fixed Cost Recovery MECHANISMS (LFCR) • 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
Slide 22: 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 23: Regulatory Mechanisms (TCA)
REGULATORY We have achieved constructive transmission rate treatment with MECHANISMS (TCA) annual adjustments 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2013 Rates 2014 Rates (Including True-Up) (Including True-Up) 2013 Revenue 2014 Reve
Slide 24: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax As Previously Reported Millions Adjusted for current 10-year Rolling $20 Average (2003-2012) 12 $10 11 16 6 10 6 $0 1 (4) (7) (4) (10) (13) $(10) (13) (13) $(20) Q1 Q2 Q3 Q4 Q1 Q2 Q3 2013 2014 $9 Million, as previously reported $(11) Millio
Slide 25: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* Pretax Millions Renewable Energy Demand Side Management $50 $40 25 $30 24 20 17 17 $20 19 17 16 15 16 14 $10 20 14 16 14 15 10 12 12 10 10 8 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 $124 Million $137 Million $80 Million * O&M expenses r
Slide 26: Non-GAAP Measure Reconciliation: Gross Margin
NON-GAAP MEASURE RECONCILIATION GROSS MARGIN Three Months Ended September 30, EPS $ millions pretax, except per share amounts 2014 2013 Impact Operating revenues* $ 1,173 $ 1,152 Fuel and purchased power expenses* (383) (351) Gross margin 790 801 (0.06) Adjustments: Renewable energy (excluding AZ Su
Slide 27: Non-GAAP Measure Reconciliation: Other
NON-GAAP MEASURE RECONCILIATION OTHER NON-GAAP Three Months Ended September 30, Four Palo Verde Corners Lease 2014 EPS $ millions pretax, except per share amounts 2014 Deferral Extensions Adjusted 2013** Impact Operations and maintenance* $ 223 $ (6) $ - $ 217 $ 233 Renewable energy (excluding AZ Su
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