Pinnacle West's Management Present At 2012 Barclays Capital CEO Energy-Power Conference (Transcript)

Pinnacle West Capital Corporation (PNW)

2012 Barclays Capital CEO Energy-Power Conference Transcript

September 5, 2012 4:25 PM ET

Executives

James Hatfield - Senior Vice President and CFO

Analysts

Dan Ford - Barclays Capital

Presentation

Dan Ford - Barclays Capital

All right. We are going to move on to our last presentation of the day, which will be Pinnacle West Capital Corp. We’ve got James Hatfield, who is Senior Vice President and CFO to talk to us about a real stable story now, so Jim.

James Hatfield

Thank you, Dan. And thank you to you and your team for including us in the conference. This year we are delighted to be here. We welcome the opportunity to discuss our company’s progress and outlook, and we think we have a good story for you.

So I just want to start with the required forward-looking statements and also our non-GAAP measures which we refer to as ongoing earnings as we go into the presentation.

So starting off on who we are? Pinnacle West is a holding company, market capital near $6 billion and price value $9 billion and consolidated assets of about $13 billion. We have over last three years of substantially divested all of our non-utility subsidiaries to streamline strategic focus during that three year period.

Therefore today’s focus will be on our principal subsidiary, Arizona Public Service, which now represents essentially all of our business. Arizona is largest and oldest electric utility. We serve more than 1.1 million customers and Arizona has been one of the fastest growing states in the U.S. historically. Arizona Public Service provides stable earnings and cash flow to support Pinnacle West.

Just looking at our value proportion, we really talk about our five key pillars to make this happen. First is capitalizing on the intrinsic growth that’s inherent in the Arizona population, maintaining operational excellence throughout the company, take advantage of compelling capital investment opportunities across the spectrum, continue improvement in our regulatory environment and then further strengthening our financial profile -- financial and risk profiles.

Our ultimate goal is to deliver superior long-term returns to shareholders to price depreciation, dividend growth and further multiple expansion.

So I want start first on one of our biggest advantages we have and that is ability to capitalize on the Arizona’s intrinsic growth. In Arizona we have very positive long-term demographics. On this slide on the left you see the APS customer growth in the orange, the population growth in Arizona in the blue and then you see the U.S. population growth in the green.

Overtime, the state growth is outpaced to rest of the U.S. and it’s also historically rebounded after recessionary periods.

Regarding the current economic recovery, economic growth in Arizona continues to improve albeit at a modest pace. Over the long-term the fundamentals that are been important to Arizona’s growth are still intact and APS’ customer growth rate will return to more typical levels. In the next four years that’s 2012 to 2015 we expect annual customer growth to average 2% with some acceleration from the 1% growth expected in 2012.

Although, hampered by the current recession over the long-term between now and 2030 we will expect APS’ customer base to grow significantly. Compound annual growth rate of about 2.6% over the timeframe which is more than twice the industry average.

We project strong rate base growth averaging about 6% per year over the next several years. The capital expenditure program underpins this rate base growth and we expect capital to been to average about $1.1 billion per year through 2015 and the left graph displays the traditional categories of capital expenditures, such as generation, transmission and distribution. I’ll discuses the major capital expenditure programs in a minute.

So we have constructive recovery in place for much of APS’ CapEx, minimal annual spend is expose to regulatory lags, the right graph depict CapEx by major recovery mechanism.

We expect about 80% of our cash flow over this or CapEx over this timeframe will be recovered either through mechanisms currently in this last rate case of 45% or 35% by depreciation cash flow. And so we’ll talk more about the recovery mechanisms and the projects more detail in the minute.

So I want to the second pillar, maintaining operational excellence. We believe the superior operating performance represents stable stakes for meeting our customers needs, achieving constructive regulatory outcomes and creating value for investors and so on the next slide I have some recent performance highlights.

We focus on maintaining top-tier performance companywide. So we’ve achieve that in the number of areas, customer satisfaction, APS continues in top decile among U.S. utilities. This summer APS ranked 3rd highest nationally among 55 large investor-owned utilities in 2013 J.D. Power Residential Survey.

Strong Nuclear and Coal Base Resources, we operate above or near industry averages and in terms of Palo Verde the largest U.S. nuclear power plant in the U.S. which we operate 29.1% we sold the NRC provide license extension in April 2011 shortly after the year Japanese disaster.

Customer to the plants performance and management relationship with the NRC, we have top U.S. quartile and average time for customers for the past several years, and we had a very strong safety year in 2011 achieving our best safety year in the history of the company.

I only mentioned that because when you have a strong safety record it shows that you are paying attentions to the detail in your operations. We’re going to continue to pursue goal of zero recordable injuries.

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