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| 8-K - 8-K - PINNACLE WEST CAPITAL CORP | form8-kjanuary11x122018inv.htm |
Powering Growth, Delivering Value
Investor Meetings l January 11-12, 2018
POWERING GROWTH
DELIVERING VALUE
Powering Growth, Delivering Value 2
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,” “believe,” “plan,” “expect,” “require,” “intend,” “assume,” “project” and similar words. Because actual results may
differ materially from expectations, we caution you not to place undue reliance on these statements. A number of factors could cause
future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS.
These factors include, but are not limited to: our ability to manage capital expenditures and operations and maintenance costs while
maintaining high reliability and customer service levels; variations in demand for electricity, including those due to weather
seasonality, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures and
distributed generation; power plant and transmission system performance and outages; competition in retail and wholesale power
markets; regulatory and judicial decisions, developments and proceedings; new legislation, ballet initiatives and regulation, including
those relating to environmental requirements, regulatory policy, nuclear plant operations and potential deregulation of retail electric
markets; fuel and water supply availability; our ability to achieve timely and adequate rate recovery of our costs, including returns on
and of debt and equity capital investments; our ability to meet renewable energy and energy efficiency mandates and recover related
costs; risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty; current and future economic
conditions in Arizona, including in real estate markets; the development of new technologies which may affect electric sales or
delivery; the cost of debt and equity capital and the ability to access capital markets when required; environmental, economic and
other concerns surrounding coal-fired generation, including regulation of greenhouse gas emissions; volatile fuel and purchased
power costs; the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement
benefit plans and the resulting impact on future funding requirements; the liquidity of wholesale power markets and the use of
derivative contracts in our business; potential shortfalls in insurance coverage; new accounting requirements or new interpretations
of existing requirements; generation, transmission and distribution facility and system conditions and operating costs; the ability to
meet the anticipated future need for additional generation and associated transmission facilities in our region; the willingness or
ability of our counterparties, power plant participants and power plant land owners to meet contractual or other obligations or extend
the rights for continued power plant operations; and restrictions on dividends or other provisions in our credit agreements and ACC
orders. These and other factors are discussed in Risk Factors described in Part I, Item 1A of the Pinnacle West/APS Annual Report on
Form 10-K for the fiscal year ended December 31, 2016 and in Part II, Item 1A of the Pinnacle West/APS Quarterly Report on Form
10-Q for the quarter ended June 30, 2017, which you should review carefully before placing any reliance on our financial statements,
disclosures or earnings outlook. Neither Pinnacle West nor APS assumes any obligation to update these statements, even if our
internal estimates change, except as required by law.
Powering Growth, Delivering Value 3
PINNACLE WEST:
WHO WE ARE
We are a vertically integrated,
regulated electric utility in the
growing southwest United States
Pinnacle West (NYSE: PNW)
- Market Capitalization*: $9.5 billion
- Enterprise Value*: $14.5 billion
- Consolidated Assets: $17.0 billion
- Indicated Annual Dividend*: $2.78
- Dividend Yield*: 3.3%
Principal subsidiary:
- Arizona Public Service Company, Arizona’s largest
and longest-serving electric utility
Customers: 1.2 million (89% residential)
2017 Peak Demand: 7,367 MW
- Previous all time high of 7,236 in July 2006
Generation Capacity: About 6,200 MW of owned or
leased capacity (~8,600 MW with long-term contracts)
- Including 29.1% interest in Palo Verde Generating
Station, the largest nuclear plant in the U.S.
- Regulated utility provides stable, regulated
earnings and cash flow base for Pinnacle West
* As of December 31, 2017
Powering Growth, Delivering Value 4
VALUE PROPOSITION
We are executing on our financial and operational objectives …
Operational Excellence
Top decile safety performance
among peers
APS operates the Palo Verde
Generating Station
Disciplined cost management
Financial Strength
Annual dividend growth target of
6%, subject to declaration at
Board of Directors’ discretion
Strong credit ratings and balance
sheet
Rate base growth of 6-7%
(2015-2019)
Leverage
Economic Growth
Arizona’s long-term growth
fundamentals remain largely
intact, including population
growth, job growth and economic
development
By 2032 we expect to add
550,000 new customers1
… while also advocating to ensure Pinnacle West and
Arizona have a sustainable energy future
Integrating Technology to
Modernize the Grid
At the forefront of utilities
studying and deploying advanced
infrastructure to enable reliable
and cost-efficient integration of
emerging technologies into the
grid and with customers
Taking Steps to Address
Rate Design
Worked with Arizona Corporation
Commission and key stakeholders
to modernize rates
Comprehensive rate review
agreement approved in August
2017, enabling investment in
smarter, cleaner energy
infrastructure
Pinnacle West combines
a solid foundation and a
clear strategy to build
shareholder value through
our core utility business
1 Based on the 2017 Integrated Resource Plan filed April 10, 2017.
Powering Growth, Delivering Value 5
THE GRID IS EVOLVING – DRIVING NEW
INVESTMENTS IN TECHNOLOGY
Drivers for
Change
– Traditional grid built for
one-way flow
– Technology advancements
(storage, home energy
management)
– Changing customer needs and
demands
– Proliferation of distributed
solar energy, which does not
align with peak
The Modern
Grid
– New technologies to enable
two-way flow
– Proactive vs. reactive
operations and maintenance
– Modern rate structure
– New ways to interact with
customer
– Mobility for our field personnel
– Smarter, more flexible real-
time system operations
– Support consumer products
and services
– Addresses cybersecurity
APS Laying
Foundation for
the Future
– Solar R&D initiatives
• Solar Partner Program
• Solar Innovation Study
– Smart meters fully deployed
– Investing in peaking capacity upgrades
(Ocotillo)
– Evaluating storage/customer-cited
technology
• Battery pilot investments
• Microgrids
– Software upgrades for distribution
operations and customer service
– Ensuring our people have the relevant
skill sets
Grid stability, power quality and reliability remain the core of a sustainable electrical system.
APS is at the forefront of utilities designing and planning for the next generation electric grid.
New technology advances and changing customer needs are transforming the way we use the grid.
Powering Growth, Delivering Value 6
GRID INVESTMENTS
Modernizing the distribution grid
with advanced technology
investments – resulting in
improved reliability for customers
and more efficient operations
Integrated Volt/VAR Control (IVVC)
Smart Meters
Advanced Distribution Management System
Strategic Fiber
Supervisory Controlled Switches
Substation Health Monitoring
Controls regulators and
capacity banks to manage
power quality such as power
factor and voltage.
New technologies such as
APS’s Transformer Oil
Analysis & Notification
(TOAN) system leverage
advances in
communications and
sensing to remotely monitor
heath of transformers,
enabling proactive
maintenance actions to
prevent critical failures.
Automated switches that
can be controlled from
Distribution Operations
Center (DOC). Allows
operations to manage
load without sending
field personnel to
manually operate the
switch.
Integrated operational
platform. Increases
efficiency and life of
distribution system;
improves safety and
communication; increases
ability to manage overall
reliability; and enables
Distributed Energy
Resources (DER).
Grid Operations & Investment
$1.3 Billion from 2017-2019
Powering Growth, Delivering Value 7
APS MICROGRID PROJECTS COMPLETED
Data Center – North Phoenix
• Phase 1=11MW Tier 4 diesel generation
• In service December 2016
• 17 Autonomous Frequency Response events since
April 2017; 1 ECC call for power event (7/19/2017)
• 50% cost share
• Customer has requested to begin Phase 2 planning
• Add 22MW; full build out will be ~60MW
Military Base – Arizona
• 22MW Tier 4 Final diesel generation
• In service December 2016
• 26 Autonomous Frequency Response events since
February 2017
• One ECC call for power event (7/19/2017)
• 80% APS funded; 20% in kind consideration from
customer
• Capable of adding energy storage and solar PV in
future
Powering Growth, Delivering Value 8
RENEWABLE
RESOURCES
APS is a leader in solar
Aragonne Mesa
Wind
90 MW
Snowflake
Biomass
14 MW
Glendale Landfill
Biogas
2.8 MW
Salton Sea
Geothermal
10 MW
• Solar* 1,230 MW
• Wind 289 MW
• Biomass 14 MW
• Geothermal 10 MW
• Biogas 6 MW
Owned solar includes 170 MW AZ Sun Program, 4 MW of other APS
owned utility scale solar and 40 MW Red Rock Solar Plant;
Distributed Generation (DG) includes 25 MW of APS owned;
PPA is primarily 250 MW Solana Concentrated Solar Facility.
PPA
310 MW
DG
706 MW
Owned
214 MW
APS Solar Portfolio*
Yuma Foothills
Solar
35 MW
* As of Third Quarter 2017 Form 10-Q – with additional 96 MW under development
APS currently has 1,549 MW
of renewable resources:
Powering Growth, Delivering Value 9
BATTERY STORAGE
Energy storage is important but
will only be cost effective in niche
circumstances for the next several
years
APS Projects
– Punkin Center, Arizona: 2 X 4MWh Li-ion battery storage systems in place of
rebuilding 20 miles of transmission lines
– Solar Innovation Study: Residential battery installations for purpose of
studying ability of solar-coupled systems to lower peak energy demand
– Solar Partner Program: 2 X 2MWh Li-ion battery storage systems – 1 at
substation, 1 mid-feeder, for purposes of researching battery effects on grid
and learning most efficient manner to operate
APS Solar Partner battery system
Distribution
Substation
Substation
Storage (Feeder 1)
Feeder-level
Storage (Feeder 2)
Powering Growth, Delivering Value 10
RESIDENTIAL SOLAR
VS. APS CUSTOMER
LOAD
Performance at system peak
304
100
5
6,136
7,367
6,918
0
2,000
4,000
6,000
8,000
0
100
200
300
400
500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
M
W
Hour Ending
Residential Rooftop
APS Customer Load
1-2 PM: Customer demand still increasing; rooftop solar peaks and begins to decline
5-6 PM: Between 5-6 pm, when customer demand reaches peak, rooftop solar producing at
approximately 30% of total capacity
8 PM: Rooftop output near zero, but customer demand still above 6,900 MW of power
On June 20th, APS customers hit “peak demand” for 2017 using more than 7,300 MW of electricity
Powering Growth, Delivering Value 11
249 357 339
442 610
710 641
783
871
939
523
836
484
680 832 715
1,157 1,158
1,349
1,141 1,002
1,189
1,077
1,168
1,154
759
1,267
1,002
1,291 1,413 1,364
2,033
1,605
1,447
1,287
1,440 1,468
1,591
1,860 1,988
2,522
3,865
2,254
3,749
415
675 786
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 Applications 2015 Applications 2016 Applications 2017 Applications
* Monthly data equals applications received minus cancelled applications. As of November 30, 2017, approximately 70,000
residential grid-tied solar photovoltaic (PV) systems have been installed in APS’s service territory, totaling approximately
548 MWdc of installed capacity. Excludes APS Solar Partner Program residential PV systems.
Note: www.arizonagoessolar.org logs total residential application volume, including cancellations. Solar water heaters can also be found
on the site, but are not included in the chart above.
RESIDENTIAL PV
APPLICATIONS* 10 18 22 44 51
57
74
133 135
2009 2011 2013 2015 2017
Residential DG (MWdc) Annual Additions
YTD -Nov
Powering Growth, Delivering Value 12
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1 3 5 7 9 11 13 15 17 19 21 23
Over-
Generation
Generation
Minimum Output
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1 3 5 7 9 11 13 15 17 19 21 23
Generation Minimum
Output
Over-
Generation
THE “DUCK CURVE” Distributed generation is changing the load shape of the grid
Excess renewables creates over-generation
challenges …
Hour Hour
… and potentially for nuclear generation in
the future
Current Spring Day Spring Day 2022
Nuclear Output Nuclear Output
Powering Growth, Delivering Value 13
School Bus Electrification
– Pilot program to electrify school buses that can charge in the middle of the day
Managed EV Charging Program
– Fleet, workplace and multifamily charging infrastructure
– Utility controlled providing additional demand response
Reverse Demand Response Pilot
– Customers take advantage of negative pricing events
Energy Storage Initiative Expansion
– Focus on C&I energy storage and control
DEMAND SIDE
MANAGEMENT (DSM)
2018 DSM Plan shifts the focus to
align with APS’s changing
resource needs
2018 DSM Plan introduces new high value pilot programs to utilize the mid-day
overproduction of energy
Powering Growth, Delivering Value 14
Other Eligible
Participants
Secondary
Customer
Target
Primary
Customer
Target
Limited-Income Residential Customers
and Multi-Family Dwellings
Moderate-Income Residential Customers
Commercial Customers Serving Limited
& Moderate-Income Customers
Title 1
Schools Non-Profits
Rural
Government
APS Solar Partner Program (Installations Complete)
– Installed 10 MW of APS-owned residential PV systems with advanced controllable
inverters that can vary power output
– 4 MWh of grid-tied battery storage on 2 of the participating feeders
APS Solar Communities (Construction begins in early 2018)
– Deploy utility owned photovoltaic
solar generation connected
directly to the distribution system
– All installations will include advanced
inverters, as well as full
communications and control
– Program spend of $10-$15 million in
direct capital costs each year for the
three-year program period
– Program costs recovered annually through
the Renewable Energy Surcharge
APS SOLAR Providing more renewable energy and technology to all customers
Powering Growth, Delivering Value 15
Peak** 8,405 MW 9,835 MW 11,410 MW
Resource Reductions
(Retirements, Expirations)
2017-2022
-487 MW
Ocotillo steam unit retirements and
Navajo contract expiration
-509 MW
PPA expirations
2017-2027
-872 MW
Ocotillo steam unit retirements,
Navajo contract expiration and
Cholla coal retirement
-1,120 MW
PPA expirations
2017-2032
-872 MW
Ocotillo steam unit retirements,
Navajo contract expiration and
Cholla coal retirement
-1,133 MW
PPA expirations
Resource Additions
2017-2022
2,704 MW
Natural gas generating units, short-term
market purchases, DSM, microgrids,
rooftop solar and storage
2017-2027
5,206 MW
Natural gas generating units, short-term
market purchases, DSM, microgrids,
rooftop solar and storage
2017-2032
6,923 MW
Natural gas generating units, short-term
market purchases, DSM, microgrids,
rooftop solar, storage and wind
Peak Load Growth 2022
3.4%
2017-2022
20%
2027
3.1%
2017-2027
40%
2032
3.0%
2017-2032
62%
RESOURCE PLANNING*
**Normal weather peak, includes planning reserves
2022
Nuclear Coal Natural Gas DSM Utility-Scale Renewable Energy Rooftop Solar
Short-Term Market
Purchases Storage
* Data shown is based on the 2017 Integrated Resource Plan filed
April 10, 2017.
2027 2032 Reference Year 2017**
Peak**
7,023 MW
Powering Growth, Delivering Value 16
$221 $211 $273 $227
$79
$245 $121
$8
$220
$199
$90
$22
$102
$3
$16
$16
$127
$182
$178
$175
$388
$420
$421
$437
$87
$77
$82
$124
2016 2017 2018 2019
APS CAPITAL
EXPENDITURES
Capital expenditures are funded
primarily through internally
generated cash flow
($ Millions)
$1,224
$1,337
Other
Distribution
Transmission
Renewable
Generation
Environmental(1)
Traditional
Generation
Projected
$1,181
New Gas
Generation(2)
• The table does not include capital expenditures related to 4CA’s 7% interest in the Four Corners Power Plant Units 4 and 5 of
$30 million in 2016, $27 million in 2017, $15 million in 2018 and $6 million in 2019.
• 2017 – 2019 as disclosed in Third Quarter 2017 Form 10-Q.
(1) Includes Selective Catalytic Reduction controls at Four Corners with in-service dates of Q4 2017 (Unit 5) and Q1 2018 (Unit 4)
(2) Ocotillo Modernization Project: 2 units scheduled for completion in Q4 2018, 3 units scheduled for completion in Q1 2019
$1,009
Powering Growth, Delivering Value 17
OPERATIONS &
MAINTENANCE
Goal is to keep O&M per kWh flat,
adjusted for planned outages
751 753 734 756
775 - 785 785 - 795
37 52 38
72 55 - 65
75 - 85 $788 $805 $772
$828 $830 - $850
$860 - $880
2013 2014 2015 2016 2017E 2018E*
PNW Consolidated ex RES/DSM** Planned Fleet Outages
* 2018 excludes impacts related to the adoption of the new accounting standard regarding the presentation of pension and postretirement
benefit costs. See Notes 4 and 12 in the Third Quarter 2017 Form 10-Q for additional information.
** Excludes RES/DSM of $137 million in 2013, $103 million in 2014, $96 million in 2015, $83 million in 2016, $80 million in 2017E and
$90 million in 2018E.
($ Millions)
Powering Growth, Delivering Value 18
Palo Verde Generating Station
− Palo Verde will continue to have two refueling outages each year (18 months cycles
for each of the three units)
− APS’s share of the annual planned outage expense at Palo Verde has been between
$18 - $22 million per year since 2013
− Equipment testing, inspections, and plant modifications are performed during the
outages that cannot be done while the unit is online
−Outage duration and cost are driven by scope of planned work as well as emergent
work identified during the outage
Gas/Oil Plants
−No planned cycles; major maintenance outages are based on run hours and/or the
number of starts and overall plant condition
− Increasing levels of solar generation, participation in Energy Imbalance Market,
and low gas prices have resulted in increased starts
Coal Plants
−Major maintenance outage cycles are typically between 6 to 8 years
PLANNED OUTAGE
CYCLES
The length of time between
outages varies from plant to plant
Powering Growth, Delivering Value 19
SUSTAINABILITY
APS’s vision is to create a
sustainable energy future for
Arizona
Pinnacle West and APS have
adopted a strategic framework that
supports our operating foundation
Five critical areas of our sustainability efforts
• 50% of our diverse energy mix is carbon-free
• 4.9M metric tons of CO2 avoided in 2016 vs. goal of 3.5M
• More than 1,000 MW of installed solar capacity
• $20M saved as a result of Advanced Metering Infrastructure
• Lowest OSHA recordable injuries on Company record in 2016
• $8.7M invested in security at substations to ensure reliability
• 28% reduction in groundwater use in 2016
• 20B gallons of water recycled each year to cool Palo Verde
• Avg. employee tenure of 13 yrs due to strong talent strategy
• Almost $370M spent with diverse suppliers in 2016
Carbon Management
Energy Innovation
Safety & Security
Water Resources
People
Powering Growth, Delivering Value 20
Excess Deferred Taxes
− Approximately $1.1B in excess deferred taxes passed through to ratepayers over remaining life of
plant
Interest Deductibility Limitation
− Majority of Pinnacle West and APS debt is likely allocable to regulated operations and excluded from
any limitation
Rate Base Impacts
− Higher incremental rate base growth beginning in 2018
Exclusion of Regulated Utility Property from New Expensing Rules
− Some uncertainty around applicability of bonus depreciation for property under construction as of
September 27, 2017
Regulatory
− Lower tax rate benefits flow through to customers via the Tax Expense Adjustor Mechanism likely
beginning in Q1 2018
− FERC guidance on the rate reduction and return of excess deferred taxes to transmission customers
expected in early 2018
Cash Taxes
– Minimal cash tax payments through 2019 due to existing Pinnacle West Investment Tax Credit
carryforwards of approximately $100M (as of September 30, 2017)
TAX REFORM
Tax Cuts and Jobs Act provides
benefits to both our customers
and shareholders
Powering Growth, Delivering Value
APPENDIX
Powering Growth, Delivering Value 22
Jim Hatfield
Executive Vice President and
Chief Financial Officer, Pinnacle West & APS
• Joined as SVP and CFO in
2008 from OGE Energy
Corp.
• Responsible for corporate
functions including finance,
investor relations, and risk
management
• 37+ years of financial
experience in the utility and
energy business
SENIOR
MANAGEMENT
TEAM
Our management team has more
than 100 combined years of
creating shareholder value in the
energy industry
Mark Schiavoni
Executive Vice President and
Chief Operating Officer, APS
• Joined APS in 2009 from
Exelon Corp.
• Appointed COO in 2014
• Oversees operations for non-
nuclear activities
• Significant leadership
experience in the energy
industry
Bob Bement
Executive Vice President and
Chief Nuclear Officer, APS
• Joined APS in 2007 from
Arkansas Nuclear One
• Promoted from SVP of Site
Operations to EVP and Chief
Nuclear Officer in 2016
• Responsible for all nuclear-
related activities associated
with Palo Verde
• Seasoned nuclear industry
expert serving on several
industry committees
Jeff Guldner
Executive Vice President, Public Policy &
General Counsel, Pinnacle West & APS
• Joined APS in 2004 from
Snell & Wilmer
• Appointed EVP and GC, April
2017
• Responsible for overseeing
regulatory and government
affairs and legal activities
• Significant experience in
public utility and energy law
and regulation
Don Brandt
Chairman of the Board, President and
Chief Executive Officer, Pinnacle West & APS
• Joined Pinnacle West in 2002
• Elected to Pinnacle West
Board and named Chairman,
CEO in 2009
• Recognized industry leader
with 30+ years in the nuclear
and energy industries
• Vice Chairman of the
Institute of Nuclear Power
Operations and Chairman of
the Nuclear Energy Institute
We maintain a robust
pipeline of talent to serve
our complex operations
and facilitate effective
succession planning in a
highly competitive talent
environment
Bob Bement succeeded
Randy Edington as Chief Nuclear
Officer in October 2016
Powering Growth, Delivering Value 23
ECONOMIC
INDICATORS
Arizona and Metro Phoenix remain
attractive places to live and do
business
E
0%
5%
10%
15%
20%
25%
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Nonresidential Building Vacancy – Metro Phoenix
Vacancy Rate
Office
Retail
Industrial
Q3
Above-average job growth in tourism,
health care, manufacturing, financial
services, and construction
Maricopa County ranked #1 in U.S. for population growth in 2016
- U.S. Census Bureau March 2017
Scottsdale ranked best place in the U.S. to find a new job in 2017;
4 other valley cities ranked in Top 20
- WalletHub January 2017
Housing construction on pace to have its best year since 2007
Vacancy rates in office and retail space have fallen to pre-recessionary levels
0
10,000
20,000
30,000
40,000
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Single Family Multifamily
Single Family & Multifamily Housing Permits
Maricopa County
Powering Growth, Delivering Value 24
RATE BASE
APS’s revenues come from a
regulated retail rate base and
meaningful transmission business
$6.5 $6.8
$8.2
$1.4 $1.4
$1.8
2015 2016 2017 2018 2019
APS Rate Base Growth
Year-End
ACC FERC
Total Approved Rate Base
Projected
ACC FERC
Rate Effective Date 8/19/2017 6/1/2017
Test Year Ended 12/31/20151 12/31/2016
Rate Base $6.8B $1.4B
Equity Layer 55.8% 55%
Allowed ROE 10.0% 10.75%
1 Adjusted to include post test-year plant in service through 12/31/2016
83%
17%
Generation & Distribution Transmission
Rate base $ in billions, rounded
Powering Growth, Delivering Value 25
Credit Ratings
• A- or equivalent ratings or better at S&P, Moody’s
and Fitch
2017 Major Financing Activities
• $300 million 10-year 2.95% APS senior unsecured
notes issued September 2017
• $250 million re-opening in March of APS’s
outstanding 4.35% senior unsecured notes due
November 2045
• $300 million 3-year 2.25% PNW senior unsecured
notes issued November 2017
2018 Major Financing Activities
• Currently expect up to $400 million of long-term
debt issuance at APS
We are disclosing credit ratings to enhance understanding of
our sources of liquidity and the effects of our ratings on our
costs of funds.
BALANCE SHEET STRENGTH
$50
$600
$250
$125
$-
$100
$200
$300
$400
$500
$600
2017 2018 2019 2020
APS PNW
($Millions)
Debt Maturity Schedule
Powering Growth, Delivering Value 26
2017 RATE REVIEW ORDER*
EFFECTIVE AUGUST 19, 2017
Key Financial Proposals – Base Rate Changes
Annualized Base Rate Revenue Changes ($ millions)
Non-fuel, Non-depreciation Base Rate Increase $ 87.2
Decrease fuel and Purchased Power over Base Rates (53.6)
Increase due to Changes in Depreciation Schedules 61.0
Total Base Rate Increase $ 94.6
Key Financial Assumptions
Allowed Return on Equity 10.0%
Capital Structure
Long-term debt 44.2%
Common equity 55.8%
Base Fuel Rate (¢/kWh) 3.0168
Post-test year plant period 12 months
*The ACC’s decision is subject to appeals.
Powering Growth, Delivering Value 27
Key Proposals – Revenue Requirement
Four Corners • Cost deferral order from in-service dates to incorporation of SCRs in rates using a step-increase no later than January 1, 2019
Ocotillo Modernization
Project • Cost deferral order from in-service dates to effective date in next rate case
Power Supply Adjustor (PSA) • Modified to include certain environmental chemical costs and third-party battery storage
Property Tax Deferral • Defer for future recovery the Arizona property tax expense above or below the test year rate
Key Proposals – Rate Design
Lost Fixed Cost Recovery
(LFCR)
• Modified to be applied as a capacity (demand) charge per kW for customer with a demand rate and
as a kWh charge for customers with a two-part rate without demand
Environmental Improvement
Surcharge (EIS)
• Increased cumulative per kWh cap rate from $0.00016 to a new rate of $0.00050 and include a
balancing account
Time-of-Use Rates (TOU)
• Modified on-peak period for residential, and extra small through large general service to
3:00 pm – 8:00 pm weekdays
• After September 1, 2018, a new TOU rate will be the standard rate for all new customers (except
small use)
Distributed Generation
• New DG customers eligible for TOU rate with Grid Access Charge or Demand rates
• Resource Comparison Proxy (RCP) for exported energy of $0.129/kWh in year one
APS Solar Communities
• New program for utility-owned solar distributed generation, recoverable through the Renewable
Energy Adjustment Clause (RES), to be no less than $10 million per year, and not more than $15
million per year
Other Considerations
Rate Case Moratorium • No new general rate case application before June 1, 2019 (3-year stay-out)
Self-Build Moratorium
• APS will not pursue any new self-build generation (with exceptions) having an in-service date prior
to January 1, 2022 (extended to December 31, 2027 for combined-cycle generating units) unless
expressly authorized by the ACC
2017 RATE REVIEW ORDER*
EFFECTIVE AUGUST 19, 2017
*The ACC’s decision is subject to appeals.
Powering Growth, Delivering Value 28
OCOTILLO MODERNIZATION PROJECT AND
FOUR CORNERS SCRs
Ocotillo Modernization Project Four Corners SCRs
In-Service Dates
Units 6, 7 – Fall 2018
Units 3, 4 and 5 – Spring 2019
Unit 5 – December 2017
Unit 4 – Spring 2018
Total Cost (APS) $500 million $400 million
Estimated Cost Deferral $45 million (through 2019) $30 million (through 2018)
Accounting Deferral
− Cost deferral from date of commercial
operation to the effective date of rates
in next rate case
− Includes depreciation, O&M, property
taxes, and capital carrying charge1
− Cost deferral from time of installation
to incorporation of the SCR costs in
rates using a step increase beginning
in 2019
− Includes depreciation, O&M, property
taxes, and capital carrying charge1
• Included in the 2017 Rate Review Order, APS has been granted Accounting Deferral Orders for two
large generation-related capital investments
– Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and
replacing with 5 new, fast-ramping, combustion turbine units
– Four Corners Power Plant: Installing Selective Catalytic Reduction (SCR) equipment to comply
with Federal environmental standards
1 APS will calculate the capital carrying charge using the 5.13% embedded cost of debt established in the 2017 Rate Review Order.
*The ACC’s decision is subject to appeals.
Powering Growth, Delivering Value 29
Term to January 2019
Other State Officials
ARIZONA CORPORATION COMMISSION
* Term limited - elected to four-year terms (limited to two consecutive)
**Governor Doug Ducey appointed Justin Olson to fill the remainder of former Commissioner Doug Little’s term.
ACC Executive Director – Ted Vogt
RUCO Director – David Tenney
Terms to January 2020
Justin
Olson (R)**
Bob
Burns (R)*
Andy
Tobin (R)
Tom
Forese (R)
Chairman
Boyd
Dunn (R)
Powering Growth, Delivering Value 30
• 10-Year Transmission Plan filed January
2017 (115 kV and above)
– 52 miles of new lines
– 5 bulk transformer additions
• Also includes:
– Sun Valley-Morgan 500kV (2018)
– North Gila-Orchard 230kV (2021)
• 2 of 3 Projects to deliver renewable energy
approved by ACC have been completed
• Transmission investment diversifies
regulatory risk
– Constructive regulatory treatment
– FERC formula rates and retail adjustor
APS TRANSMISSION
Strategic transmission investment
is essential to maintain reliability
and deliver diversified resources
to customers
Legend
Planned lines
Existing lines
Solar potential area
Wind potential area
Phoenix
Flagstaff
Tucson
Powering Growth, Delivering Value 31
GENERATION PORTFOLIO*
Plant Location No. of Units Dispatch COD Ownership Interest1 Net Capacity (MW)
NUCLEAR
1,146 MW Palo Verde Wintersburg, AZ 3 Base 1986-1989 29.1% 1,146
COAL
1,672 MW
Cholla Joseph City, AZ 2 Base 1962-1980 100 387
Four Corners Farmington, NM 2 Base 1969-1970 63 970
Navajo Page, AZ 3 Base 1974-1976 14 315
GAS - COMBINED CYCLE
1,871 MW
Redhawk Arlington, AZ 2 Intermediate 2002 100 984
West Phoenix Phoenix, AZ 5 Intermediate 1976-2003 100 887
GAS - STEAM TURBINE
220 MW Ocotillo Tempe, AZ 2 Peaking 1960 100 220
GAS / OIL
COMBUSTION TURBINE
1,088 MW
Sundance Casa Grande, AZ 10 Peaking 2002 100 420
Yucca Yuma, AZ 6 Peaking 1971-2008 100 243
Saguaro Red Rock, AZ 3 Peaking 1972-2002 100 189
West Phoenix Phoenix, AZ 2 Peaking 1972-1973 100 110
Ocotillo Tempe, AZ 2 Peaking 1972-1973 100 110
Douglas Douglas, AZ 1 Peaking 1972 100 16
SOLAR
239 MW
Hyder & Hyder II Hyder, AZ - As Available 2011-2013 100 30
Paloma Gila Bend, AZ - As Available 2011 100 17
Cotton Center Gila Bend, AZ - As Available 2011 100 17
Chino Valley Chino Valley, AZ - As Available 2012 100 19
Foothills Yuma, AZ - As Available 2013 100 35
Distributed Energy Multiple AZ Facilities - As Available Various 100 25
Gila Bend Gila Bend, AZ - As Available 2015 100 32
Luke Air Force Base Glendale, AZ - As Available 2015 100 10
Desert Star Buckeye, AZ - As Available 2015 100 10
Red Rock Red Rock, AZ - As Available 2016 100 40
Various Multiple AZ Facilities - As Available 1996-2006 100 4
Total Generation Capacity 6,236 MW
1 Includes leased generation plants * As disclosed in 2016 Form 10-K.
Powering Growth, Delivering Value 32
PURCHASED POWER CONTRACTS*
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
Saddle Mountain Tonopah, AZ SunEdison IO Jan - 2011 2012 30 15
Badger Tonopah, AZ PSEG IO Jan-2012 2013 30 15
Gillespie Maricopa County, AZ Recurrent Energy IO Jan-2012 2013 30 15
WIND
289 MW
Aragonne Mesa Santa Rosa, NM Ingifen Asset Mgmt IO Dec-2005 2006 20 90
High Lonesome Mountainair, NM Foresight / EME IO Feb-2008 2009 30 100
Perrin Ranch Wind Williams, AZ NextEra Energy IO Jul-2010 2012 25 99
GEOTHERMAL
10 MW Salton Sea Imperial County, CA Cal Energy IO Jan-2006 2006 23 10
BIOMASS
14 MW Snowflake Snowflake, AZ Novo Power IO Sep-2005 2008 15 14
BIOGAS
6 MW
Glendale Landfill Glendale, AZ Glendale Energy LLC IO Jul-2008 2010 20 3
NW Regional Landfill Surprise, AZ Waste Management IO Dec-2010 2012 20 3
INTER-UTILITY
540 MW
PacifiCorp Seasonal
Power Exchange - PacifiCorp IO Sep-1990 1991 30 480
Not Disclosed Not Disclosed Not Disclosed IO May-2009 2010 10 60
CONVENTIONAL
TOLLING
1,639 MW
CC Tolling Not Disclosed Not Disclosed IO Mar-2006 2007 10 514
CC Tolling Not Disclosed Not Disclosed IO Aug-2007 2010 10 560
CC Tolling Arlington, AZ Arlington Valley IO Dec-2016 2020 6 565
DEMAND RESPONSE
25 MW Demand Response Not Disclosed Not Disclosed IO Sep-2008 2010 15 25
Total Contracted Capacity 2,833 MW
1 UD = Under Development; UC = Under Construction; IO = In Operation * As disclosed in 2016 Form 10-K.
Powering Growth, Delivering Value 33
INVESTOR RELATIONS CONTACTS
Stefanie Layton
Director, Investor Relations
(602) 250-4541
stefanie.layton@pinnaclewest.com
Chalese Haraldsen
(602) 250-5643
chalese.haraldsen@pinnaclewest.com
Michelle Clemente
(602) 250-3752
michelle.clemente@pinnaclewest.com
Pinnacle West Capital Corporation
P.O. Box 53999, Mail Station 9998
Phoenix, Arizona 85072-3999
Visit us online at: www.pinnaclewest.com