Pinnacle West Capital Corporation · NYSE:PNW

Pinnacle West Capital — Lehman Brothers CEO Energy/Power Conference 2004

37 slides from Pinnacle West Capital's conference presentation, Sep 8, 2004

  1. Slide 1: Lehman Brothers CEO Energy/Power Conference

    Lehman Brothers CEO Energy/Power Conference Donald E. Brandt September 8, 2004

  2. Slide 2: Forward-Looking Statements

    Forward-Looking Statements This This document document contains contains forward-looking forward-looking statements statements based based on on current current expectations, expectations, and and we we assume assume no no obligation obligation to to update update thesethese statements statements or

  3. Slide 3: Presentation Agenda

    Presentation Agenda ƒ Corporate overview ƒ Proposed retail rate settlement ƒ Market growth ƒ Operational performance ƒ Financial objectives

  4. Slide 4: Corporate Objectives

    Corporate Objectives ƒ Capture benefits of exceptional market growth ƒ Sustain solid customer service and operational performance ƒ Pursue constructive regulatory outcomes ƒ Manage market risks and commodity exposures

  5. Slide 5: APS Regulatory Strategy

    APS Regulatory Strategy ƒ Relationships built on consistency, accountability, performance and trust ƒ Focus on customer service ƒ Manage growth and reliability

  6. Slide 6: Proposed Retail Rate Settlement

    Proposed Retail Rate Settlement Benefits ƒ Unifies generation assets built to serve APS customers ƒ Mitigates risk of purchased power and fuel price volatility ƒ Provides moderate rate increase to cover higher costs ƒ Positions APS to meet customer growth reliably at reasonable cost ƒ Resolves signi

  7. Slide 7: Proposed Retail Rate Settlement

    Proposed Retail Rate Settlement Key Financial Provisions ƒ 4.21% rate increase ($75.5 million) ƒ PWEC Arizona power plants transfer to APS ƒ $148 million pretax rate base disallowance ƒ Purchased power and fuel adjustor ƒ No recovery of 1999 $234 million write-off ƒ Bridge purchased power agreement

  8. Slide 8: Proposed Retail Rate Settlement

    Proposed Retail Rate Settlement Major Changes in Revenue Requirements ($ Millions) Original APS request $ 175 ROE to 10.25% versus 11.50% (36) No recovery of $234 million write-off (32) Lengthen asset depreciable lives (26) $148 million rate base disallowance (22) Miscellaneous – net 17 Proposed set

  9. Slide 9: Proposed Retail Rate Settlement

    Proposed Retail Rate Settlement Target Procedural Schedule ƒ Direct testimony due September 27 ƒ Responsive testimony due October 25 ƒ Hearing begins November 8 ƒ ACC approval around year-end 2004 ƒ Rate increase effective following ACC approval ƒ FERC application for PWEC asset transfer to be filed

  10. Slide 10: Exceptional Market Growth and Operational Performance

    Exceptional Market Growth and Operational Performance

  11. Slide 11: Second Fastest Customer Growth in West

    Second Fastest Customer Growth in West 6% 5% APS 4% 3% Average Average 2% 1% 0% WECC utilities’ average annual growth rates for 1999-2003

  12. Slide 12: Phoenix Metropolitan Single-Family Building Permits

    Phoenix Metropolitan Single-Family Building Permits 1999 - 2003 average annual growth 3.2% 50,000 40,000 30,000 20,000 10,000 0 1999 2000 2001 2002 2003 TME May 2004

  13. Slide 13: Population of Phoenix metropolitan area expected to increase by 1 million each decade

    Population of Phoenix metropolitan area expected to increase by 1 million each decade Source: Maricopa Association of Governments

  14. Slide 14: APS Peak Load Growth

    APS Peak Load Growth MW 1999 - 2003 average annual growth 4.6% 8,000 6,000 4,000 2,000 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 Forecast

  15. Slide 15: APS Generating Capacity Resources

    APS Generating Capacity Resources* MW 8,000 6,000 4,000 2,000 0 2004 2005 2006 2007 APS PWEC AZ Assets Sundance Purchase APS Short Position * Reflects current regulatory filings

  16. Slide 16: Managing Market Price Risk

    Managing Market Price Risk Electricity & Gas Hedge Position 80% 60% 40% 20% 0% Balance 2004 2005 2006 Native Load Targets Targets

  17. Slide 17: Solid Operational Performance

    Solid Operational Performance Generation ƒ Palo Verde – top U.S. power producer past 12 years ƒ Top-tier baseload performance ƒ 2,218 MW of new gas generation since 2001 Customer Service & Delivery ƒ J.D. Power & Associates ranks APS customer satisfaction 6th th nationally among IOU’s ƒ Capital inve

  18. Slide 18: Financial Objectives

    Financial Objectives ƒ Sustain financial strength with constructive conclusion of rate case ƒ Improve investment grade credit ratings ƒ Maintain ample liquidity and capital market access ƒ Build long-term shareholder value

  19. Slide 19: Consolidated Capital Expenditures

    Consolidated Capital Expenditures $ Millions 1,000 750 500 250 0 2003 2004 2005 2006 Forecast APS Delivery APS Generation Pinnacle West Energy Other Excludes SunCor

  20. Slide 20: Strong EBITDA Interest Coverage

    Strong EBITDA Interest Coverage Times Times 8 6 4 2 0 1999 2000 2001 2002* 2003 TME June 2004** Pinnacle West S&P Electrics * Pinnacle West excluding non-recurring items ** S&P Electrics reflect latest available (12 months ended 3/31/04)

  21. Slide 21: Ample Liquidity Resources

    Ample Liquidity Resources APS: ƒ $325 million revolver through May 2007 - Support for $250 million commercial paper facility ƒ Unused long-term debt shelf capability of $200 million Pinnacle West (parent): ƒ $275 million revolver through 2004 - Support for $250 million commercial paper facility - Re

  22. Slide 22: Consistent Dividend Growth Track Record

    Pinnacle West Consistent Dividend Growth Track Record 8.4% compound compound annual annual growth growth rate* rate* #1 #1 among among electric electric utilities utilities $1.80 $0.80 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 * Ten-year 1994 - 2003

  23. Slide 23: Appendix

    Appendix

  24. Slide 24: Current Credit Ratings

    Current Credit Ratings S&P Moody’s Arizona Public Service Co. Senior Unsecured Debt BBB Baa1 Secured Lease Obligation Bonds BBB Baa2 Commercial Paper A2 P2 Outlook Negative Negative Pinnacle West Capital Corp. Senior Unsecured Debt BBB- Baa2 Commercial Paper A2 P2 Outlook Negative Negative

  25. Slide 25: Pinnacle West EBITDA Interest Coverage

    Pinnacle West EBITDA Interest Coverage Reconciliation To Income From Continuing Operations* ($ millions) TME 1999 2000 2001 2002 2003 6/2004 Income from continuing operations $ 270 $ 302 $ 327 $ 206 $ 231 $ 256 Income taxes 142 194 214 132 106 117 Interest expense, net of capitalized interest 145 14

  26. Slide 26: Generation Capacity Factors

    Generation Capacity Factors Palo Verde Site Average* Coal Average 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% ‘99 ‘00 ‘01 ‘02 ‘03 TME ‘99 ‘00 ‘01 ‘02 ‘03 TME 6/04 6/04 Palo Verde Industry Coal Industry * Reflects Unit 2 steam generator replacement outage in 2003

  27. Slide 27: Top-Tier Generation Performance

    Top-Tier Generation Performance 2000 – 2004 Baseload Averages Strong Operating Competitive Performance Production Costs $/MWh $/MWh Net Net Capacity Capacity Factor Factor Equivalent Equivalent Availability Availability Factor Factor Equivalent Equivalent Forced Forced Outage Outage Rate Rate 0% 25%

  28. Slide 28: Pinnacle West Fuel Mix

    Pinnacle West Fuel Mix* Nuclear Coal 32% 44% Gas 24% 2003 * Based on MWh of generation

  29. Slide 29: Pinnacle West Energy Power Plants

    Pinnacle West Energy Power Plants Commercial Operation New Facilities MWs Location June 2001 West Phoenix 4 120 Phoenix, AZ July 2002 Saguaro CT 3 80 Red Rock, AZ July 2002 Redhawk 1 and 2 1,060 Arlington, AZ July 2003 West Phoenix 5 530 Phoenix, AZ Arizona Total 1,790 May 2004 Silverhawk 428 * Las

  30. Slide 30: Arizona Transmission System

    Arizona Transmission System UTAH UTAH UTAH COLORADO NAVAJO SHIPROCK MEAD/ GLEN SAN JUAN MARKETPLACE/ CANYON LAS VEGAS TRIBAL FOUR LAND CORNERS MOENKOPI FLAGSTAFF MCKINLEY CHOLLA CALIFORNIA CORONADO SPRINGER- VILLE BOUSE PINNACLE PEAK CALIFORNIA WEST WING PERKINS PALO VERDE LIBERTY GREENLEE KYRENE (A

  31. Slide 31: WECC Available Transmission Capability

    WECC Available Transmission Capability* 3,007 4,119 2,368 340 301 1,672 3,913 * Summer 2006 estimate (MW)

  32. Slide 32: Arizona Corporation Commissioners

    Arizona Corporation Commissioners Party Commissioner Current Term Commissioner Affiliation Since Expires Marc Spitzer, Chairman Republican Jan. 2001 Jan. 2007 Michael Gleason Republican Jan. 2003 Jan. 2005 Jeff Hatch-Miller Republican Jan. 2003 Jan. 2005 Kristin Mayes Republican Oct. 2003 Jan. 2005

  33. Slide 33: APS Track B Procurement Contracts

    APS Track B Procurement Contracts Awarded May 2003 MW 2,000 1,500 1,000 500 0 2003 2004 2005 2006 PWEC PPL EnergyPlus, LLC Panda Gila River, LP

  34. Slide 34: Average Residential Retail Price Ranking

    Average Residential Retail Price Ranking* Southwestern U.S. ¢/kWh 15 12 Average Average 9 6 3 0 PacifiCorp Salt PNM APS Nevada Tucson SD El Paso PG&E SCE Utah River Power Electric G&E Electric Project * As of December 31, 2003

  35. Slide 35: Average Commercial Retail Price Ranking

    Average Commercial Retail Price Ranking* Southwestern U.S. ¢/kWh 15 12 9 Average Average 6 3 0 PacifiCorp Salt APS PNM El Paso Nevada Tucson SD SCE PG&E Utah River Electric Power Electric G&E Project * As of December 31, 2003

  36. Slide 36: Average Industrial Retail Price Ranking

    Average Industrial Retail Price Ranking* Southwestern U.S. ¢/kWh 15 12 9 Average Average 6 3 0 PacifiCorp Salt PNM El Paso APS Tucson SD Nevada PG&E SCE Utah River Electric Electric G&E Power Project * As of December 31, 2003

  37. Slide 37: Non-Energy Subsidiaries Overview

    Non-Energy Subsidiaries Overview • Objectives Assets – Cash flow and profit potential $486 Million to parent • Current activities $57M – SunCor accelerated El Dorado asset sales program – Sale of Phoenix Suns Partnership by El Dorado $429M – Harvesting venture capital SunCor portfolio as it matures

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