Pinnacle West Capital Corporation · NYSE:PNW

Pinnacle West Capital — Credit Suisse First Boston Energy Summit 2004

45 slides from Pinnacle West Capital's conference presentation, Feb 3, 2004

  1. Slide 1: Maintaining Strategic Focus

    Pinnacle West Capital Corporation Maintaining Strategic Focus

  2. Slide 2: Forward-Looking Statements

    Forward-Looking Statements This This presentation presentation contains contains forward -looking statements forward-looking statements based based on on current current expectations, expectations, and and we we assume assume no no obligation obligation to to update update these these statements sta

  3. Slide 3: Pinnacle West Capital Corporation

    Pinnacle West Capital Corporation Largest Headquartered in Consolidated investor-owned 6th largest city assets utility in Arizona Phoenix, Arizona of $9 billion

  4. Slide 4: Pinnacle West Core Strengths

    Pinnacle West Core Strengths Solid customer service and operational performance Integrated Exceptional growth resource strategy Commitment Focus on to constructive long-term regulatory shareholder relationships value

  5. Slide 5: Continuing Economic Gains in Arizona

    Continuing Economic Gains in Arizona Population Personal Income Arizona second leading Arizona more than 1.5 times state in growth the national growth Millions $ Billions 6.0 165 6.6% 2.8% 160 2.7% 2.8% 155 5.5% 5.5 150 4.0% 145 5.0 140 2002 2003 2004 2002 2003 2004 Projected Projected

  6. Slide 6: Exceptional Customer Growth

    Exceptional Customer Growth 4% • Vertically integrated utility in high growth market 3% • More than three times 2% national average in customer growth Industry Industry 1% Average Average 0% 2002 2003 2004 Projected

  7. Slide 7: APS' Growing Peak Load

    APS’ Growing Peak Load 1999 - 2003 Annual Growth of 4.6% MW 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1999 2000 2001 2002 2003 2004 2005 Projected Projected

  8. Slide 8: Solid Operational Performance

    Solid Operational Performance Generation • Palo Verde – top U.S. power producer • Top -tier baseload performance Top-tier • Silverhawk construction on target Delivery • High customer growth and satisfaction • Superior reliability • Transmission and distribution expansion to meet growth and sustain r

  9. Slide 9: Top-Tier Generation Performance

    Top-Tier Generation Performance 1999 – 2003 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%

  10. Slide 10: Sustaining Customer Satisfaction

    Sustaining Customer Satisfaction APS ranked 3rd best among 56 electric utilities 2003 Electric Utility Residential Customer Satisfaction Survey (56 Companies)

  11. Slide 11: Planning for Growth and Reliability: APS System Load and Resources

    Planning for Growth and Reliability APS System Load and Resources MW MW 12,000 Peak System Requirement + 10,000 15% Reserves 8,000 Resource Deficit 6,000 PWEC Assets & Track B 4,000 Existing APS Capacity 2,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

  12. Slide 12: APS Request for Proposals

    APS Request for Proposals Purpose To cover a portion of APS’ resource deficit Parameters At least 500 MW total beginning June 2007 Resource Preferences Generation assets or long -term long-term asset -backed power contracts asset-backed Timing RFP announced December 2003. Bids submitted January 21,

  13. Slide 13: Summary of Proposals Received

    Summary of Proposals Received

  14. Slide 14: APS Regulatory Strategy

    APS Regulatory Strategy • Relationships built on consistency, accountability, performance and trust • Strong and straightforward presentation of APS position • Focus on reliability issue • Settlement opportunities

  15. Slide 15: APS Rate Case Key Provisions

    APS Rate Case Key Provisions 9.8% ($175 million) Rate base treatment annual rate increase of 1,800 MW of PWEC Arizona assets Recovery of previous Recovery of fuel 11.5% $234 million write-off and purchased return on equity power costs

  16. Slide 16: APS Prices Remain Low Relative to Consumer Price Index

    APS Prices Remain Low Relative to Consumer Price Index Cumulative Change 40 CPI 38% 30 20 10 0 APS 6% (10) (20) '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04

  17. Slide 17: ACC Procurement Process

    ACC Procurement Process Demonstrated the Need for PWEC Assets MW MW 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 2006 ACC ACC Bid Bid Amount Amount Deliverable Deliverable Non-PWEC Non-PWEC Bids Bids Undeliverable Undeliverable Non-PWEC Non-PWEC Bids Bids

  18. Slide 18: Milestones of Arizona Public Service General Rate Case

    Milestones of Arizona Public Service General Rate Case Increase requested effective July 1 Hearing Begins April 26 Testimony Discovery Filings Filed Ongoing June 27 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 2003 2003 2003 2003 2003 2003 2003 2004 2004 2004 2004 2004 2004 2004

  19. Slide 19: Financial Highlights

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  20. Slide 20: 2003 Consolidated EPS Summary

    2003 Consolidated EPS Summary 2003 2002 Diluted Diluted EPS* EPS* Change Net income as reported $ 2.63 $ 1.76 $ 0.87 Cumulative effect of accounting change - 0.77 (0.77) Non-recurring items - 1.03 (1.03) Tax credits relating to prior years (0.19) - (0.19) On-going earnings $ 2.44 $ 3.56 $ (1.12) * D

  21. Slide 21: Summary of Major Variances In On-Going Earnings

    Summary of Major Variances In On-Going Earnings 2003 versus 2002 $0.38 SunCor asset sales $0.32 Retail customer growth $0.19 Regulatory asset amortization $0.12 AFUDC accounting $0.09 Hot weather ($0.56) Lower marketing & trading contributions ($0.39) Higher hedged gas & purchased power costs ($0.33

  22. Slide 22: 2004 Earnings Outlook

    2004 Earnings Outlook Base level earnings = $2.50 per share Key assumptions: • Rate increase not reflected • No trading contributions • Combined SunCor and APS Energy Services earnings of $0.44 per share Sensitivities: • Rate increase + $ 0.00 - $ 0.76 • Weather variations +/ +/-- $ 0.11 • KWH sales

  23. Slide 23: Earnings Outlook

    Earnings Outlook Beyond 2004 and Rate Case Resolution At least $3.40 per share, assuming: • ACC grants APS’ rate request • Trading contributions of $0.07 per share • Combined SunCor and APS Energy Services earnings of $0.33 per share in 2005 and $0.11 per share after 2005

  24. Slide 24: Strong EBITDA Interest Coverage

    Strong EBITDA Interest Coverage Times Times 8 6 4 2 0 1999 2000 2001 2002* 2003** Pinnacle West S&P Electrics * Pinnacle West excluding non-recurring items ** S&P Electrics reflect latest available (12 months ended 9/30/03)

  25. Slide 25: Balancing Growth & Financial Strength

    Balancing Growth & Financial Strength Capital Expenditures Consolidated Debt Ratio* Excluding Excluding SunCor SunCor $$ Millions Millions 1,200 Percent Percent 60 2005 2005 Target Target of of 50% 50% 900 50 600 40 300 0 30 2001 2002 2003 2004 2005 2001 2002 2003** 2005 Projected Other * Includes P

  26. Slide 26: Creating Long-term Shareholder Value

    Creating Long-term Shareholder Value Superior Dividend Growth 1993 - 2003 10% PNW 8.4% 0% (10)% (20)%

  27. Slide 27: Maintaining Strategic Focus

    Maintaining Strategic Focus • A vertically integrated utility in a high-growth market area high-growth • Focusing on strong operational and financial performance • Pursuing constructive regulatory outcomes • Managing risks in changing energy markets • Creating long-term value for shareholders long-t

  28. Slide 28: r om

    n r om 2% PIMNACLE WEST CAPITAL 6 ORR OR ATT ON

  29. Slide 29: Appendix

    Appendix

  30. Slide 30: Current Credit Ratings

    Current Credit Ratings S&P Moody’s Arizona Public Service Co. First Mortgage Bonds/ Senior Secured Debt A- A3 Senior Unsecured Debt BBB Baa1 Secured Lease Obligation Bonds BBB Baa2 Commercial Paper A2 P2 Pinnacle West Capital Corp. Senior Unsecured Debt BBB- Baa2 Commercial Paper A2 P2

  31. Slide 31: Liquidity Resources

    Liquidity Resources APS: • $250 million commercial paper facility – Backed by a $250 million revolver expiring May 2004 • Unused long-term debt shelf capability of $500 million Pinnacle West (parent): • $250 million commercial paper facility – Backed by a $275 million revolver expiring late 2004 • U

  32. Slide 32: Reconciliation of Consolidated Net Income To On-Going Earnings (Quarter)

    Pinnacle West Reconciliation of Consolidated Net Income To On-Going Earnings* Three Months Ended December 31, 2003 2002 $ Millions Diluted $ Millions Diluted After Tax EPS After Tax EPS Consolidated net income $ 49.1 $ 0.54 $ (80.6) $ (0.95) Cumulative effect of accounting change - - 65.7 0.77 Non-r

  33. Slide 33: Reconciliation of Consolidated Net Income To On-going Earnings (Year)

    Pinnacle West Reconciliation of Consolidated Net Income To On-going Earnings* Years Ended December 31, 2003 2002 $ Millions Diluted $ Millions Diluted After Tax EPS After Tax EPS Consolidated net income $ 240.6 $ 2.63 $ 149.4 $ 1.76 Cumulative effect of accounting change - - 65.7 0.77 Non-recurring

  34. Slide 34: Pinnacle West EBITDA Interest Coverage

    Pinnacle West EBITDA Interest Coverage Reconciliation To Income From Continuing Operations* ($ millions) 1999 2000 2001 2002 2003 Income from continuing operations $ 270 $ 302 $ 327 $ 206 $ 231 Income taxes 142 194 214 132 106 Interest expense, net of capitalized interest 145 145 128 144 175 Depreci

  35. Slide 35: APS Capacity Factors

    APS Capacity Factors Palo Verde Site Average* Coal Average 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% '98 '99 '00 '01 '02 '03 '98 '99 '00 '01 '02 '03 Palo Verde Industry Coal Industry * 2003 reflects steam generator replacement outage at Unit 2

  36. Slide 36: Pinnacle West Energy Plants

    Pinnacle West Energy 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 June 2004 * Silverhawk 570 ** Las Ve

  37. Slide 37: Arizona Transmission System

    Arizona Transmission System UTAH UTAH UTAH COLORADO NAVAJO SHIPROCK MEAD/ GLEN SAN JUAN MRKTPLACE/ 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 (AEP

  38. Slide 38: Reliability Remains Essential: WECC Available Transmission Capability

    Reliability Remains Essential WECC Available Transmission Capability* 3,007 4,119 2,368 340 301 1,672 3,913 * Summer 2006 estimate

  39. Slide 39: 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

  40. Slide 40: APS Track B Procurement Contracts Awarded May 2003

    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

  41. Slide 41: Average Residential Retail Price Ranking, Southwestern U.S.

    Average Residential Retail Price Ranking* Southwestern U.S. ¢/kWh 16 14 12 10 Average Average 8 6 4 2 0 PPW SRP PNM APS TEP NPC EE PG&E SCE SDG&E * As of December 31, 2002

  42. Slide 42: Average Commercial Retail Price Ranking, Southwestern U.S.

    Average Commercial Retail Price Ranking* Southwestern U.S. ¢/kWh 16 14 12 10 Average Average 8 6 4 2 0 PPW SRP APS PNM EE NPC TEP SCE PG&E SDG&E * As of December 31, 2002

  43. Slide 43: Average Industrial Retail Price Ranking, Southwestern U.S.

    Average Industrial Retail Price Ranking* Southwestern U.S. ¢/kWh 14 12 10 8 Average Average 6 4 2 0 PPW SRP PNM APS EE TEP NPC SCE PG&E SDG&E * As of December 31, 2002

  44. Slide 44: APS Energy Services Overview

    APS Energy Services Overview 2003 2002 2001 • Pretax Earnings $23 M $28 M $(10) M • Future Drivers – Seize opportunities to grow existing business at reasonable margin levels – Renew existing contracts in California (estimated at declining margins) – Realize steady growth of ESCO and district coolin

  45. Slide 45: Non-Energy Subsidiaries Overview

    Non-Energy Subsidiaries Overview Assets • Objectives $455 Million – Cash flow and profit potential to parent $30M • Current activities El Dorado – SunCor accelerated asset sales program – Harvesting venture capital $425M portfolio as it matures SunCor • Growth opportunities – Select real estate oppo

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