Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Investor Conferences September 16 and 17, 2014
37 slides from Pinnacle West Capital's conference presentation, Sep 15, 2014
Slide 1: Delivering Superior Shareholder Value
DELIVERING SUPERIOR SHAREHOLDER VALUE Investor Conferences | September 16 and 17, 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: Value Proposition
VALUE PROPOSITION Experienced Management Team Driving Focused Strategy • Maintaining focus on core electric utility business • Delivering long-term value • Creating a sustainable energy future for Arizona and the communities we serve • Driving cost management discipline through increased transparenc
Slide 4: Pinnacle West: Who We Are
PINNACLE WEST: WHO WE ARE We are a vertically integrated, regulated electric utility in the growing southwest U.S. NYSE Ticker PNW Market Cap* $6.3 Billion Enterprise Value* $9.9 Billion Dividend Yield* 4% Consolidated Assets $13.7 Billion Principal Subsidiary Arizona’s largest and longest-serving e
Slide 5: Arizona Economic Indicators
ARIZONA ECONOMIC INDICATORS Nonresidential Building Vacancy – Metro Phoenix Single Family & Multifamily Housing Permits Maricopa County Home Prices – Metro Phoenix Value Relative to Jan ‘05 Vacancy Rate Office Retail Job Growth (Total Nonfarm) - Arizona YoY Change E Q2 Q2 Apr
Slide 6: Arizona Economy – Homebuilders Agree Phoenix Has Solid Long-Term Outlook
ARIZONA ECONOMY – HOMEBUILDERS AGREE PHOENIX HAS SOLID LONG-TERM OUTLOOK “I am bullish on Phoenix over the long termI believe that going into 2015 we're going to experience a more normal market in Arizona after things get more in balance.” “We remain confident in the long-term growth of the opportun
Slide 7: Retail Sales Growth (Weather-Normalized)
RETAIL SALES GROWTH (WEATHER-NORMALIZED) YoY Retail Sales Before Customer Programs Energy Efficiency & Customer Conservation Distributed Generation Weather-normalized retail sales growth about 1% for 2014-2016 after impacts of energy efficiency, customer conservation and distributed renewable genera
Slide 8: Arizona's Renewable Resource and Energy Efficiency Standards
Cumulative savings from energy efficiency programs must be equivalent to 22% of annual retail sales by 2020 Annual milestones in place to measure progress toward cumulative 2020 goal 9.5% by 2015 22% by 2020 ARIZONA’S RENEWABLE RESOURCE AND ENERGY EFFICIENCY STANDARDS Portion of retail sales to be s
Slide 9: Operational Excellence
OPERATIONAL EXCELLENCE Palo Verde Palo Verde has exceeded 30 million megawatt-hours annual production 9 times – the only U.S. plant to ever do so. Safety 2013 lowest number of recordable injuries in company history. Customer Satisfaction Ranked 5th highest nationally among 54 large investor-owned el
Slide 10: Resource Planning
RESOURCE PLANNING* Existing Owned Resources Existing Contracts Resource Planning Requirement Load Requirement Including Reserves MW Coal Nuclear RE + DE EE Composition of Energy Mix by Resource Note: RE = Renewable Energy; DE = Distributed Energy; EE = Energy Efficiency *Data shown is based on 2014
Slide 11: Environmental Regulations and Coal Plant Compliance
Regional Haze / BART (SCR) Mercury and Other Hazardous Air Pollutants (ACI + Baghouse) Coal Combustion Residuals Cooling Water Intake – 316(b) EPA Ruling Announced in 1999, with site-specific requirements announced more recently MATS compliance by April 2015, with potential for one-year extension De
Slide 12: 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 million, primarily in 2016-2017 A
Slide 13: Ocotillo Power Plant (Tempe, AZ)
OCOTILLO POWER PLANT (TEMPE, AZ) Ocotillo modernization project will maintain valley grid reliability and increase APS’s generating capacity by 290 MW Maintains system reliability through retirement of aging steam units Replacement units meet need for increased portfolio responsiveness Aids integrat
Slide 14: APS Transmission
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 (HANG2) ~110 miles; 500 kV Construction started March 2013 Estimated in-service mid 2015 Projects to deliver renewable energy approved by ACC
Slide 15: PNW Transmission
PNW TRANSMISSION Pinnacle West subsidiary formed to pursue new growth opportunities TRANSCANYON A 50/50 Joint Venture formed with MidAmerican Transmission, to pursue transmission opportunities in the western United States DELANEY COLORADO RIVER TRANSMISSION LINE New 500kV line between the planned De
Slide 16: Delaney Colorado River Transmission Line
DELANEY COLORADO RIVER TRANSMISSION LINE CAISO Transmission Planning Process Bid Window Close November 19, 2014 Post List of Sufficient Applications (i.e. list of bidders) January 13, 2015 Post List of Qualified Sponsors March 5, 2015 Post Approved Sponsor & Report June 12, 2015 Permitting, construc
Slide 17: AZ Sun Program
Community-scale photovoltaic solar plants to be owned by APS Constructive rate recovery through RES until included in base rates 150 MW in commercial operation to date Commitments to date: 170 MW; $690 million capital investment (average of $4,060/kw) AZ SUN PROGRAM Owning solar resources makes sens
Slide 18: APS-Owned Rooftop Solar Proposal
APS-OWNED ROOFTOP SOLAR PROPOSAL APS proposed an option to the ACC to convert 20 MW of AZ Sun into APS-owned residential rooftop solar, equates to approximately 3,000 customers Estimated cost of $57-70 million Benefits: Provides an alternative for those who cannot afford solar or do not want a lease
Slide 19: 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 May 15 Renewable Energy Surcharge Jul 1 10-Year Transmission Plan (Annual) 13-0002 Jan 31 2014 Integrated Resource Plan (Biennial) 13-0070 Apr 1 Net Metering (Decision No. 74
Slide 20: Key Dates for Rate Design
KEY DATES FOR RATE DESIGN 2012 2013 2014 2015 - 2017 APS proposed stakeholder conference to explore net metering Spring: Conducted series of Technical Workshops on Net Metering July: 2014 RES filing November: ACC decision on net metering; recognized cost shift and implemented $0.70 per watt charge e
Slide 21: Key Rate Design Principles
KEY RATE DESIGN PRINCIPLES Smarter rates for smarter grid 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 Meaningful options Meet lifes
Slide 22: Arizona Corporation Commission
ARIZONA CORPORATION COMMISSION November 2014 elections will determine two seats; elected to serve four-year term Bob Stump (R)* Chairman Brenda Burns (R) Gary Pierce (R)* Terms to January 2015 Terms to January 2017 Susan Bitter Smith (R) Bob Burns (R) * Term limited
Slide 23: Appendix
APPENDIX OMe PINACLEWEST
Slide 24: Consolidated Financial Outlook
PNW Consolidated goal to earn at least 9.5% annually CONSOLIDATED FINANCIAL OUTLOOK Earned ROE * Continuing operations Projected Future dividends subject to declaration at Board of Director’s discretion Annual Dividend Growth Approx. 4% Goal
Slide 25: Credit Ratings
CREDIT RATINGS APS Parent Corporate Credit Ratings Moody’s A3 Baa1 S&P A- A- Fitch BBB+ BBB+ Senior Unsecured Moody’s A3 - S&P A- - Fitch A- - Outlook Moody’s Stable Stable S&P Stable Stable Fitch Positive Positive We are disclosing credit ratings to enhance understanding of our sources of liquidity
Slide 26: Leadership Team
LEADERSHIP TEAM Our top executives have more than 100 combined years of creating shareholder value in the energy industry Don Brandt Chairman & CEO Mark Schiavoni EVP & Chief Operating Officer Jeff Guldner SVP Customers & Regulation Randy Edington EVP & Chief Nuclear Officer
Slide 27: Sustainable Cost Management Initiative
Motivation for Change SUSTAINABLE COST MANAGEMENT INITIATIVE (“SCMI”) Capitalize on changes driven by aging workforce Improve organizational efficiencies Strengthen governance and clarify accountability Refine understanding of cost structure to better identify opportunities Manage costs during regul
Slide 28: APS Is a Leader in Solar
APS IS A LEADER IN SOLAR We are committed to making Arizona the solar capital of America 3rd of all U.S. utilities for solar energy installed in 2013 (410 MW) 4th for new solar installed in 2013 (368 watts/customer) 4th for overall solar capacity (740 MW) 5th for overall solar capacity per customer
Slide 29: Net Metering
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 are then paid, through higher rates, by non-rooftop solar customers The issue will get bigger over time as application
Slide 30: Residential PV Applications
As of August 31, 2014, over 27,500 residential grid-tied solar photovoltaic (PV) systems have been installed in APS’s service territory APS anticipates that it will be in compliance with the Renewable Energy Standard (RES) residential DG requirements through mid-2017 and with RES non-residential thr
Slide 31: Emerging Technologies Rely on the Grid
EMERGING TECHNOLOGIES RELY ON THE GRID All of these technologies are dependent on the grid Electric Vehicles Battery Storage Fuel Cells Home Energy Management Microgrids Rooftop Solar Electrical System
Slide 32: Operational Challenges
OPERATIONAL CHALLENGES The grid provides real-time voltage and power needed to start air conditioners and other motors loads Steep ramp rate of backup generation Instant variability Voltage control at distribution level
Slide 33: Reliability Services Require Technology Advancements on the Utility Side
RELIABILITY SERVICES REQUIRE TECHNOLOGY ADVANCEMENTS ON THE UTILITY SIDE Substation Health Monitoring Integrated Volt/VAR Control (IVVC) Communicating Fault Indicators (CFI) Synchrophasors (WISP) Supervisory Controlled Switches Advanced Distribution Management System Smart Meters Energy Management S
Slide 34: Regulatory Mechanisms
Mechanism Adopted / Last Adjusted Description Power Supply Adjustor (“PSA”) April 2005 / February 2014 Recovers variance between actual fuel and purchased power costs and base fuel rate Includes forward-looking, historical and transition components Renewable Energy Surcharge (“RES”) May 2008 / Janua
Slide 35: Regulatory Mechanisms (TCA)
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 projected revenue requirement to actual, with variance incorporated into next annual update Retail portion flows through ACC T
Slide 36: Generation Portfolio
GENERATION PORTFOLIO* Fuel/Plant Location Units Dispatch COD Ownership Interest1 Net Capacity (MW) NUCLEAR 1,146 MW Palo Verde Wintersburg, AZ 1-3 Base 1986-1989 29.1% 1,146 COAL 1,932 MW Cholla Joseph City, AZ 1-3 Base 1962-1980 100 647 Four Corners Farmington, NM 4, 5 Base 1969-1970 63 970 Navajo
Slide 37: Purchased Power Contracts
PURCHASED POWER CONTRACTS* Fuel/Contract Location Owner/Developer Status1 PPA Signed COD Term (Years) Net Capacity (MW) SOLAR 310 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
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