Form 8-K PINNACLE WEST CAPITAL For: Aug 02 Filed by: ARIZONA PUBLIC SERVICE CO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 2, 2016
Commission File Number | Exact Name of Registrant as Specified in Charter; State of Incorporation; Address and Telephone Number | IRS Employer Identification Number |
1-8962 | Pinnacle West Capital Corporation (an Arizona corporation) 400 North Fifth Street, P.O. Box 53999 Phoenix, AZ 85072-3999 (602) 250-1000 | 86-0512431 |
1-4473 | Arizona Public Service Company (an Arizona corporation) 400 North Fifth Street, P.O. Box 53999 Phoenix, AZ 85072-3999 (602) 250-1000 | 86-0011170 |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
This combined Form 8-K is separately filed or furnished by Pinnacle West Capital Corporation and Arizona Public Service Company. Each registrant is filing or furnishing on its own behalf all of the information contained in this Form 8-K that relates to such registrant and, where required, its subsidiaries. Except as stated in the preceding sentence, neither registrant is filing or furnishing any information that does not relate to such registrant, and therefore makes no representation as to any such information.
Item 2.02. Results of Operations and Financial Condition.
The following information is furnished pursuant to Item 2.02.
On August 2, 2016, Pinnacle West Capital Corporation (the “Company” or “Pinnacle West”) issued a press release regarding its financial results for the fiscal quarter ended June 30, 2016 and its earnings outlook for 2016. A copy of the press release is attached hereto as Exhibit 99.1.
Item 7.01. Regulation FD Disclosure.
The following information is furnished pursuant to Item 7.01.
The Company is providing a quarterly consolidated statistical summary and a copy of the slide presentation made in connection with the quarterly earnings conference call on August 2, 2016. This information contains Company operating results for the fiscal quarter ended June 30, 2016 and is attached hereto as Exhibits 99.2 and 99.3. The statistical summary and slide presentation are concurrently being posted to the Company’s website at www.pinnaclewest.com, which also contains a glossary of relevant terms.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. | Registrant(s) | Description |
99.1 | Pinnacle West APS | Earnings News Release issued on August 2, 2016. |
99.2 | Pinnacle West APS | Pinnacle West Capital Corporation quarterly consolidated statistical summary for the three-month and six-month periods ended June 30, 2016 and 2015. |
99.3 | Pinnacle West APS | Pinnacle West Capital Corporation Second Quarter 2016 Results slide presentation accompanying August 2, 2016 conference call. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PINNACLE WEST CAPITAL CORPORATION | ||
(Registrant) | ||
Dated: August 2, 2016 | By: /s/ James R. Hatfield | |
James R. Hatfield | ||
Executive Vice President and | ||
Chief Financial Officer | ||
ARIZONA PUBLIC SERVICE COMPANY | ||
(Registrant) | ||
Dated: August 2, 2016 | By: /s/ James R. Hatfield | |
James R. Hatfield | ||
Executive Vice President and | ||
Chief Financial Officer | ||
Exhibit Index
Exhibit No. | Registrant(s) | Description |
99.1 | Pinnacle West APS | Earnings News Release issued on August 2, 2016. |
99.2 | Pinnacle West APS | Pinnacle West Capital Corporation quarterly consolidated statistical summary for the three-month and six-month periods ended June 30, 2016 and 2015. |
99.3 | Pinnacle West APS | Pinnacle West Capital Corporation Second Quarter 2016 Results slide presentation accompanying August 2, 2016 conference call. |
FOR IMMEDIATE RELEASE | August 2, 2016 | |
Media Contact: Analyst Contact: | Alan Bunnell, (602) 250-3376 Ted Geisler, (602) 250-3200 Chalese Haraldsen, (602) 250-5643 | |
Website: | pinnaclewest.com | |
PINNACLE WEST REPORTS 2016 SECOND-QUARTER RESULTS
• | Hotter-than-normal weather positively impacted quarterly results |
• | Residential sales and customer growth improved as Arizona’s economy keeps expanding |
• | Investments in planned fossil power plant maintenance and higher benefit costs contributed to increased O&M expenses versus a year ago |
• | Full-year 2016 earnings guidance maintained |
PHOENIX - Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders of $121.3 million, or $1.08 per diluted share of common stock, for the quarter ended June 30, 2016. This result compares with earnings of $122.9 million, or $1.10 per share, in the same 2015 period.
“Hotter-than-normal weather - led by the warmest June on record - positively impacted our earnings compared to the year-ago period,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt. “The favorable weather helped partially offset an increase in operations and maintenance expenses at a time when we are investing significant resources in planned fossil power plant overhauls and maintenance, as well as new customer information and outage management systems that will improve operational efficiencies, enhance reliability, and create a modernized energy system for all our customers.”
In total, O&M expenses during the 2016 second quarter decreased results by $0.19 per share compared with the prior-year-period. Quarter-over-quarter impacts primarily included the previously mentioned increase in planned fossil plant maintenance and higher employee benefit costs.
The favorable weather contributed $0.09 per share to the company’s bottom line compared to the year-ago period. Highlighted by record June heat, which helped offset a relatively mild April and May, the average high temperature in the 2016 second quarter was 94.5 degrees, while the average high temperature in the same period a year ago was 94.2 degrees. As a result, residential cooling degree-days (a measure of the effects of weather) were 4 percent higher than last year’s second quarter, which was impacted by mild weather and one of the coolest Mays on record. Cooling degree-days also were more than 2 percent better than normal 10-year historical averages.
In addition to the effects of weather, the 2016 second-quarter results comparison was positively influenced by the following major factors:
• | Higher retail electricity sales - excluding the effects of weather variations, but including the effects of customer conservation, energy efficiency programs and distributed renewable generation - improved results $0.04 per share. Underlining an improving Arizona economy, total customer growth was 1.4 percent quarter-over-quarter, and mirrors recent census population data that indicates Phoenix is one of the five fastest-growing cities in the U.S. |
• | Adjustment mechanisms improved earnings by $0.04 per share compared to the 2015 second quarter. These adjustors included an increase in transmission revenues; revenue from the Company’s AZ Sun Program; and higher lost fixed cost recovery (LFCR) revenue. |
Financial Outlook
For 2016, the Company continues to expect its on-going consolidated earnings will be within a range of $3.90 to $4.10 per diluted share, on a weather-normalized basis, and to achieve a consolidated earned return on average common equity of more than 9.5 percent.
Key factors and assumptions underlying the 2016 outlook can be found in the second-quarter 2016 earnings presentation slides on the Company’s website at pinnaclewest.com/investors.
Conference Call and Webcast
Pinnacle West invites interested parties to listen to the live webcast of management’s conference call to discuss the Company’s 2016 second-quarter results, as well as recent developments, at 12 noon ET (9 a.m. AZ time) today, August 2. The webcast can be accessed at pinnaclewest.com/presentations and will be available for replay on the website for 30 days. To access the live conference call by telephone, dial (877) 407-8035 or (201) 689-8035 for international callers. A replay of the call also will be available until 11:59 p.m. (ET), Tuesday, August 9, 2016, by calling (877) 660-6853 in the U.S. and Canada or (201) 612-7415 internationally and entering conference ID number 13639544.
Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of more than $15 billion, about 6,200 megawatts of generating capacity and 6,400 employees in Arizona and New Mexico. Through its principal subsidiary, Arizona Public Service, the Company provides retail electricity service to nearly 1.2 million Arizona homes and businesses. For more information about Pinnacle West, visit the Company’s website at pinnaclewest.com.
Dollar amounts in this news release are after income taxes. Earnings per share amounts are based on average diluted common shares outstanding. For more information on Pinnacle West’s operating statistics and earnings, please visit pinnaclewest.com/investors.
NON-GAAP FINANCIAL INFORMATION
In this press release, we refer to “on-going earnings.” On-going earnings is a “non-GAAP financial measure,” as defined in accordance with SEC rules. We believe on-going earnings provide investors with useful indicators of our results that are comparable among periods because they exclude the effects of unusual items that may occur on an irregular basis. Investors should note that these non-GAAP financial measures involve judgments by management, including whether an item is classified as an unusual item. We use on-going earnings, or similar concepts, to measure our performance internally in reports for management.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements based on our 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” and similar words. Because actual results may differ materially from expectations, we caution readers 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, ballot 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 investment; |
• | 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 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 Arizona Corporation Commission orders. |
These and other factors are discussed in Risk Factors described in Part 1, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which readers should review carefully before placing any reliance on our financial statements or
disclosures. Neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by law.
# # #
PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)
THREE MONTHS ENDED | SIX MONTHS ENDED | |||||||
JUNE 30, | JUNE 30, | |||||||
2016 | 2015 | 2016 | 2015 | |||||
Operating Revenues | $ 915,394 | $ 890,648 | $ 1,592,561 | $ 1,561,867 | ||||
Operating Expenses | ||||||||
Fuel and purchased power | 274,848 | 281,477 | 496,133 | 504,714 | ||||
Operations and maintenance | 242,279 | 210,965 | 485,474 | 425,909 | ||||
Depreciation and amortization | 123,073 | 122,739 | 242,549 | 243,688 | ||||
Taxes other than income taxes | 42,117 | 43,032 | 84,618 | 86,248 | ||||
Other expenses | 1,329 | 462 | 1,877 | 1,651 | ||||
Total | 683,646 | 658,675 | 1,310,651 | 1,262,210 | ||||
Operating Income | 231,748 | 231,973 | 281,910 | 299,657 | ||||
Other Income (Deductions) | ||||||||
Allowance for equity funds used during construction | 10,369 | 9,345 | 20,885 | 18,569 | ||||
Other income | 197 | 175 | 314 | 410 | ||||
Other expense | (2,842) | (2,609) | (6,880) | (6,895) | ||||
Total | 7,724 | 6,911 | 14,319 | 12,084 | ||||
Interest Expense | ||||||||
Interest charges | 52,849 | 48,328 | 103,593 | 96,727 | ||||
Allowance for borrowed funds used during construction | (5,301) | (4,322) | (10,528) | (8,538) | ||||
Total | 47,548 | 44,006 | 93,065 | 88,189 | ||||
Income Before Income Taxes | 191,924 | 194,878 | 203,164 | 223,552 | ||||
Income Taxes | 65,742 | 67,371 | 67,656 | 75,318 | ||||
Net Income | 126,182 | 127,507 | 135,508 | 148,234 | ||||
Less: Net income attributable to noncontrolling interests | 4,874 | 4,605 | 9,747 | 9,210 | ||||
Net Income Attributable To Common Shareholders | $ 121,308 | $ 122,902 | $ 125,761 | $ 139,024 | ||||
Weighted-Average Common Shares Outstanding - Basic | 111,368 | 110,986 | 111,336 | 110,958 | ||||
Weighted-Average Common Shares Outstanding - Diluted | 112,004 | 111,460 | 111,930 | 111,426 | ||||
Earnings Per Weighted-Average Common Share Outstanding | ||||||||
Net income attributable to common shareholders - basic | $ 1.09 | $ 1.11 | $ 1.13 | $ 1.25 | ||||
Net income attributable to common shareholders - diluted | $ 1.08 | $ 1.10 | $ 1.12 | $ 1.25 | ||||
Last Updated 8/2/2016
Line 2016 2015 Incr (Decr) 2016 2015 Incr (Decr)
EARNINGS CONTRIBUTION BY SUBSIDIARY
(Dollars in Millions)
1 Arizona Public Service 132$ 130$ 2$ 144$ 154$ (10)$
2 El Dorado - - - - - -
3 Parent Company (6) (2) (4) (8) (6) (2)
4 Net Income 126 128 (2) 136 148 (12)
5 Less: Net Income Attributable
to Noncontrolling Interests 5 5 - 10 9 1
6 Net Income Attributable
to Common Shareholders 121$ 123$ (2)$ 126$ 139$ (13)$
EARNINGS PER SHARE BY SUBSIDIARY - DILUTED
7 Arizona Public Service 1.18$ 1.17$ 0.01$ 1.29$ 1.39$ (0.10)$
8 El Dorado - - - - - -
9 Parent Company (0.06) (0.03) (0.03) (0.08) (0.06) (0.02)
10 Net Income 1.12 1.14 (0.02) 1.21 1.33 (0.12)
11 Less: Net Income Attributable
to Noncontrolling Interests 0.04 0.04 - 0.09 0.08 0.01
12 Net Income Attributable
to Common Shareholders 1.08$ 1.10$ (0.02)$ 1.12$ 1.25$ (0.13)$
13 BOOK VALUE PER SHARE 41.24$ 39.63$ 1.61$ 41.24$ 39.63$ 1.61$
COMMON SHARES OUTSTANDING
(Thousands)
14 Average - Diluted 112,004 111,460 544 111,930 111,426 504
15 End of Period - Basic 111,368 110,986 382 111,336 110,958 378
6 Months Ended June 30,
Pinnacle West Capital Corporation
Quarterly Consolidated Statistical Summary
Periods Ended June 30, 2016 and 2015
3 Months Ended June 30,
Page 1 of 4
Last Updated 8/2/2016
Line 2016 2015 Incr (Decr) 2016 2015 Incr (Decr)
ELECTRIC OPERATING REVENUES
(Dollars in Millions)
Retail
16 Residential 453$ 423$ 30$ 751$ 717$ 34$
17 Business 422 413 9 763 749 14
18 Total retail 875 836 39 1,514 1,466 48
Wholesale revenue on delivered electricity
19 Traditional contracts 2 4 (2) 4 6 (2)
20 Off-system sales 18 34 (16) 36 57 (21)
21 Native load hedge liquidation - - - - - -
22 Total wholesale 20 38 (18) 40 63 (23)
23 Transmission for others 5 7 (2) 14 15 (1)
24 Other miscellaneous services 10 9 1 18 16 2
25 Total electric operating revenues 910$ 890$ 20$ 1,586$ 1,560$ 26$
ELECTRIC SALES (GWH)
Retail sales
26 Residential 3,313 3,143 170 5,821 5,560 261
27 Business 3,756 3,721 35 7,069 6,981 88
28 Total retail 7,069 6,864 205 12,890 12,541 349
Wholesale electricity delivered
29 Traditional contracts 12 71 (59) 29 111 (82)
30 Off-system sales 931 1,361 (430) 1,909 2,371 (462)
31 Retail load hedge management - - - - - -
32 Total wholesale 943 1,432 (489) 1,938 2,482 (544)
33 Total electric sales 8,012 8,296 (284) 14,828 15,023 (195)
3 Months Ended June 30, 6 Months Ended June 30,
Pinnacle West Capital Corporation
Quarterly Consolidated Statistical Summary
Periods Ended June 30, 2016 and 2015
Page 2 of 4
Last Updated 8/2/2016
Line 2016 2015 Incr (Decr) 2016 2015 Incr (Decr)
AVERAGE ELECTRIC CUSTOMERS
Retail customers
34 Residential 1,057,620 1,042,275 15,345 1,060,686 1,045,615 15,071
35 Business 131,573 130,396 1,177 131,368 130,274 1,094
36 Total retail 1,189,193 1,172,671 16,522 1,192,054 1,175,889 16,165
37 Wholesale customers 46 49 (3) 45 47 (2)
38 Total customers 1,189,239 1,172,720 16,519 1,192,099 1,175,936 16,163
39 Total customer growth (% over prior year) 1.4% 1.2% 0.2% 1.4% 1.2% 0.2%
RETAIL SALES (GWH) - WEATHER NORMALIZED
40 Residential 3,223 3,166 57 5,801 5,759 42
41 Business 3,704 3,762 (58) 6,997 6,963 34
42 Total 6,927 6,928 (1) 12,798 12,722 76
43 Retail sales (GWH) (% over prior year) - 0.7% (0.7)% 0.6% - 0.6%
RETAIL USAGE
(KWh/Average Customer)
44 Residential 3,132 3,015 117 5,488 5,318 170
45 Business 28,551 28,538 13 53,809 53,586 223
RETAIL USAGE - WEATHER NORMALIZED
(KWh/Average Customer)
46 Residential 3,047 3,038 9 5,469 5,508 (39)
47 Business 28,152 28,849 (697) 53,265 53,445 (180)
ELECTRICITY DEMAND (MW)
48 Native load peak demand 7,025 6,622 403 7,025 6,622 403
WEATHER INDICATORS - RESIDENTIAL
Actual
49 Cooling degree-days 503 484 19 503 484 19
50 Heating degree-days 1 1 - 397 254 143
51 Average humidity 20% 24% (4)% 20% 24% (4)%
10-Year Averages
52 Cooling degree-days 491 491 - 491 491 -
53 Heating degree-days 9 9 - 489 489 -
54 Average humidity 15% 15% - 15% 15% -
3 Months Ended June 30, 6 Months Ended June 30,
Pinnacle West Capital Corporation
Quarterly Consolidated Statistical Summary
Periods Ended June 30, 2016 and 2015
Page 3 of 4
Last Updated 8/2/2016
Line 2016 2015 Incr (Decr) 2016 2015 Incr (Decr)
ENERGY SOURCES (GWH)
Generation production
55 Nuclear 2,147 2,217 (70) 4,692 4,727 (35)
56 Coal 1,329 2,862 (1,533) 2,631 5,136 (2,505)
57 Gas, oil and other 2,432 1,428 1,004 4,300 2,459 1,841
58 Total generation production 5,908 6,533 (625) 11,623 12,322 (699)
Purchased power
59 Firm load 2,219 2,002 217 3,546 3,258 288
60 Marketing and trading 265 105 160 343 189 154
61 Total purchased power 2,484 2,107 377 3,889 3,447 442
62 Total energy sources 8,392 8,640 (248) 15,512 15,769 (257)
POWER PLANT PERFORMANCE
Capacity Factors
63 Nuclear 86% 89% (3)% 94% 95% (1)%
64 Coal 36% 68% (32)% 36% 61% (25)%
65 Gas, oil and other 33% 24% 9% 29% 20% 9%
66 System average 43% 45% (2)% 43% 41% 2%
ECONOMIC INDICATORS
Building Permits (a)
67 Metro Phoenix 8,215 6,117 2,098 13,500 10,580 2,920
Arizona Job Growth (b)
68 Payroll job growth (% over prior year) 2.9% 2.2% 0.7% 2.2% 2.3% (0.1)%
69 Unemployment rate (%, seasonally adjusted) 5.6% 6.1% (0.5)% 6.1% 6.2% (0.1)%
Sources:
(a) U.S. Census Bureau
(b) Arizona Department of Economic Security
6 Months Ended June 30,
Pinnacle West Capital Corporation
Quarterly Consolidated Statistical Summary
Periods Ended June 30, 2016 and 2015
3 Months Ended June 30,
Page 4 of 4
Second Quarter 2016
SECOND QUARTER 2016 RESULTS
August 2, 2016
Second Quarter 20162
FORWARD LOOKING STATEMENTS AND
NON-GAAP FINANCIAL MEASURES
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”
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 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, 2015, 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.
In this presentation, references to net income and earnings per share (EPS) refer to amounts attributable to common shareholders.
We present “gross margin” per diluted share of common stock. Gross margin refers to operating revenues less fuel and purchased power expenses. Gross margin is a
“non-GAAP financial measure,” as defined in accordance with SEC rules. The appendix contains a reconciliation of this non-GAAP financial measure to the referenced
revenue and expense line items on our Consolidated Statements of Income, which are the most directly comparable financial measures calculated and presented in
accordance with generally accepted accounting principles in the United States of America (GAAP). We view gross margin as an important performance measure of the
core profitability of our operations.
We refer to “on-going earnings” in this presentation, which is also a non-GAAP financial measure. We also provide a reconciliation to show the impacts associated with
certain regulatory adjustments. We believe on-going earnings and these adjustments included in the reconciliation provide investors with a useful indicator of our
results that is comparable among periods because it excludes the effects of unusual items that may occur on an irregular basis.
Investors should note that these non-GAAP financial measures may involve judgments by management, including whether an item is classified as an unusual item.
These measures are key components of our internal financial reporting and are used by our management in analyzing the operations of our business. We believe that
investors benefit from having access to the same financial measures that management uses.
Second Quarter 20163
CONSOLIDATED EPS COMPARISON
2016 VS. 2015
$1.08 $1.10
2016 2015
2nd Quarter
GAAP Net Income
$1.08 $1.10
2nd Quarter
On-Going Earnings
$1.12
$1.25
2016 2015
Year-to-Date
GAAP Net Income
$1.12 $1.25
Year-to-Date
On-Going Earnings
Second Quarter 20164
Gross
Margin(1),(2)
$0.21
ON-GOING EPS VARIANCES
2ND QUARTER 2016 VS. 2ND QUARTER 2015
Other, net
$(0.01)
Interest, net
of AFUDC
$(0.01)
(1) Excludes costs and offsetting operating revenues, associated with renewable energy (excluding AZ Sun) and demand side management
programs.
(2) Adjusted to exclude Palo Verde system benefits charge.
See non-GAAP reconciliation.
O&M(1)
$(0.19)
2Q 2015 2Q 2016
Gross Margin
Weather $0.09
Sales $0.04
Transmission Line Sale $0.03
Transmission $0.02
LFCR $0.01
AZ Sun $0.01
Other, net $0.01
$1.10 $1.08
D&A(2)
$(0.02)
Second Quarter 20165
ECONOMIC
INDICATORS
Arizona and Metro Phoenix remain
attractive places to live and do
business
Single Family & Multifamily Housing Permits
Maricopa County
Job Growth (Total Nonfarm) – Metro Phoenix
0.0%
2.5%
5.0%
'11 '12 '13 '14 '15 '16
Metro Phoenix
U.S.
YoY Change Construction, business services,
financial services and healthcare
adding jobs at a rate above 4%
Phoenix ranked 1st in tech industry job
growth over last 2 years (tied with San
Francisco)
- CBRE September 2015
Arizona ranked 1st for projected job
growth
- Forbes September 2015
E
0
10,000
20,000
30,000
40,000
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Single Family Multifamily
May
Metro Phoenix growth rate 3rd fastest
among top 15 metro areas
- U.S. Census Bureau March 2016
Housing construction on pace to have
its best year since 2007
Second Quarter 20166
2016 ON-GOING
EPS GUIDANCE
Key Factors & Assumptions as of
August 2, 2016
2016
Electricity gross margin* (operating revenues, net of fuel and
purchased power expenses) $2.34 – $2.39 billion
• Retail customer growth about 1.5-2.5%
• Weather-normalized retail electricity sales volume about 0-1.0% to prior
year taking into account effects of customer conservation, energy efficiency
and distributed renewable generation initiatives
• Assumes normal weather
Operating and maintenance* $825 - $845 million
Other operating expenses (depreciation and amortization including impacts
related to Palo Verde sale leaseback, and taxes other than income taxes) $645 - $665 million
Interest expense, net of allowance for borrowed and equity funds used
during construction (Total AFUDC $50 million) $155 - $165 million
Net income attributable to noncontrolling interests ~$20 million
Effective tax rate 34-35%
Average diluted common shares outstanding ~112.0 million
On-Going EPS Guidance $3.90 - $4.10
* Excludes O&M of $82 million, and offsetting revenues, associated with renewable energy and demand side management programs.
Second Quarter 2016
APPENDIX
Second Quarter 20168
2016 KEY DATES
ACC Key Dates Docket # Q1 Q2 Q3 Q4
Key Recurring Regulatory Filings
Lost Fixed Cost Recovery E-01345A-11-0224 Jan 15
Transmission Cost Adjustor E-01345A-11-0224 May 15
Renewable Energy Adjustor E-01345A-16-0238 Jul 1
APS Rate Case E-01345A-16-0036
Jan 29: Notice of
Intent Filing Jun 1: Initial filing
Dec 21:
Direct
testimony
Resource Planning and Procurement E-00000V-15-0094
Feb 9: Stakeholder
meeting
Mar 1: Preliminary
IRP filed
Jul 18:
Prelim IRP
workshop
Oct 1: File
updates to
preliminary
IRP*
Reducing System Peak Demand Costs E-00000J-16-0257
Aug 4: Initial
workshop
Value and Cost of Distributed
Generation
E-00000J-
14-0023
Feb 25: DG
Methodologies &
supporting testimony
filed
Apr 7: Rebuttal testimony and
alternate proposals due
Apr 15: Pre-hearing
Apr 18: Hearing; Jun 8-9 Hearing
Jun 13: Responses Due
Jul 11: Initial briefs
Aug 5: Reply
briefs
TBD: ALJ
Order
ACC Open Meetings - ACC Open Meetings Held Monthly
* April 2017: Final IRP due
Other Key Dates Docket # Q1 Q2 Q3 Q4
Arizona State Legislature n/a In session Jan 11- May 7 (Adjourned)
Elections n/a Aug 30: Primary Nov 8: General
All Source Request for Proposal (RFP) n/a Mar 11: RFP Issued Jun 9: Responses Due TBD
Second Quarter 20169
ARIZONA ELECTRIC UTILITIES
GENERAL RATE CASES
UNS Electric (93,000 customers)
Docket # E-04204A-15-0142
Application filed May 5, 2015
Direct testimony - ex rate design, cost of service (Nov 6, 2015)
Direct testimony - rate design, cost of service (Dec 9, 2015)
Rebuttal testimony (Jan 19, 2016)
Surrebuttal testimony (Feb 23, 2016)
Rejoinder testimony (Feb 29, 2016)
Prehearing (Feb 26, 2016)
Hearing (Mar 1, 2016)
Post hearing initial briefs (April 25, 2016)
Reply briefs (May 11, 2016)
ALJ recommended order and opinion (ROO) filed Jul 20, 2016
Exceptions to ROO due Jul 29, 2016
Tucson Electric Power Company (415,000 customers)
Docket # E-01933A-15-0322
Application filed Nov 5, 2015
Direct testimony – ex rate design and cost of service (Jun 3, 2016)
Direct testimony – rate design and cost of service (Jun 24, 2016)
Rebuttal testimony (Jul 25, 2016)
Surrebuttal testimony (Aug 18, 2016)
Rejoinder testimony (Aug 25, 2016)
Prehearing (Aug 25, 2016)
Hearing (Aug 31, 2016)
Sulphur Springs Valley Electric Cooperative (58,000 customers)
Docket # E-01575A-15-0312
Application filed Aug 31, 2015
Direct testimony - ex rate design, cost of service (Mar 18, 2016)
Direct testimony - rate design, cost of service (Apr 1, 2016)
Rebuttal testimony (Apr 15, 2016)
Surrebuttal testimony (May 4, 2016)
Rejoinder (May 11, 2016)
Prehearing (May 13, 2016)
Hearing (May 17, 2016) – Concluded May 27
Trico Electric Cooperative (38,000 customers)
Docket # E-01461A-15-0363
Application filed Oct 23, 2015
Direct testimony - ex rate design, cost of service (May 4, 2016)
Direct testimony - rate design, cost of service (May 25, 2016)
Rebuttal testimony (Jun 22, 2016)
Surrebuttal testimony (Jul 8, 2016)
Rejoinder (Jul 15, 2016)
Prehearing (Jul 18, 2016)
Direct settlement testimony (Jul 29, 2016)
Reply settlement testimony (Aug 12, 2016)
Hearing (Aug 17, 2016)
Second Quarter 201610
2016 APS RATE CASE APPLICATION
• Filed June 1, 2016
• Propose new rates go into effect on July 1, 2017
• Docket Number: E-01345A-16-0036
• Additional details, including filing, can be found at
http://www.azenergyfuture.com/rate-review/
Procedural Schedule
Staff and Intervenor Direct Testimony (ex rate design)
Staff and Intervenor Direct Testimony (rate design)
APS Rebuttal Testimony
Staff and Intervenor Surrebuttal Testimony
APS Rejoinder Testimony
Prehearing Conference
Proposed Hearing Commencement Date
December 21, 2016
January 27, 2017
February 17, 2017
March 10, 2017
March 17, 2017
March 20, 2017
March 22, 2017
Second Quarter 201611
2016 RATE CASE
KEY FINANCIALS
APS has requested a rate
increase to become effective
July 1, 2017
Test year ended December 31, 2015
Total Rate Base - Adjusted $8.01 Billion
ACC Rate Base - Adjusted $6.77 Billion
Allowed Return on Equity 10.5%
Capital Structure
Long-term debt 44.2%
Common equity 55.8%
Base Fuel Rate (¢/kWh) 2.9882
Post-test year plant period 18 months
Overview of Rate Increase ($ in Millions)
Total stated base rate increase (inclusive of existing adjustor transfers) $ 433.4 15.00%
Less: Transfer to base rates of various adjustors already in effect (267.5) (9.26)
Net Customer Bill Impact $ 165.9 5.74%
Second Quarter 201612
2016 RATE CASE
KEY FINANCIALS
APS has requested a rate
increase to become effective
July 1, 2017
Overview of Rate Increase ($ in Millions) – Key Components
Post-Test Year Plant Additions $ 98.1
Fair Value Increment 51.9
ROE Increase from 10.0% to 10.5% 29.3
Increase due to Changes in Depreciation Schedules 81.4
Decrease Fuel and Purchased Power over Base Rates (61.7)
Decrease in Other Costs (33.1)
Total Base Rate Increase $ 165.9
Second Quarter 201613
Focus Area Current State Rate Case Objective
Time-of-Use
Rates (TOU)
• > 50% of residential customers are on a
TOU rate
• On-peak hours from 12-7 PM (M-F)
• TOU difference in on-peak prices that are 4
times the off-peak prices
• Most residential customers on a TOU rate
• On-peak hours from 3-8 PM (M-F) to better
align with system peak
• TOU difference in on-peak prices that are 2
times the off-peak prices
Demand
Rates
• 11% of residential customers are on demand
rates, more than any other electric utility
• Most residential customers on demand rates
• Calculated on the highest demand averaged
over a one-hour period during the on-peak
period each month
Basic Service
(Fixed)
Charge
• Customers pay basic service charge ranging
from $8.67 - $16.91 per month
• Set basic service charge for all rate classes
ranging from $14 - $24 per month
Net Metering • Excess power compensated at full retail price • Excess power compensated at export price
aligned with avoided cost
• Recovery of cost to purchase through existing
PSA mechanism
• Grandfather qualified rooftop solar customers
Lost Fixed
Cost
Recovery
(LFCR)
• 1% year-over-year adjustment cap based on
total revenues
• Recovers portion of costs reduced by energy
efficiency (EE) and distributed generation
(DG) programs
• Similar construct, but increase year-over-year
adjustment cap to 2% based on total
revenues
• Increased portion of lost fixed costs eligible for
recovery
RATE DESIGN
MODERNIZATION
Rate design that better aligns
pricing with cost to serve and
leverages existing platform
Second Quarter 201614
RATE DESIGN
MODERNIZATION
Key residential rate proposals
designed to reduce cost shift
among customers
• Streamlined rate choices for residential
customers including combinations of the
following:
– Reduced kWh charges for variable portion
(energy rate)
– Increased fixed charge component (basic
service charge)
– Variations of new demand (kW) charge
applied to on-peak hours
• Measured using a customer’s peak
demand during on-peak hours
(3-8 pm, Monday-Friday)
• Peak demand then multiplied by a
demand rate
• Example:
– 5kW demand during on-peak*
– $6.60/kW demand rate (R-1 rate plan)
– 5kW x $6.60 = $33.00 demand charge
Variable Variable
(energy rate per kWh)
Fixed
Fixed
(basic service charge)
Demand
(demand rate per kW)
Current
Customer Bill
Proposed
Customer Bill
* Peak demand is calculated on the highest demand averaged over a one-hour period during the on-peak period each month.
Second Quarter 201615
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 – Late 2017
Unit 4 – Spring 2018
Total Cost (APS) $500 million $400 million
Estimated Cost Deferral $45 million (through 2019) $30 million (through 2018)
Rate Request
Requesting cost deferral from date of
commercial operation to the effective
date of rates in next rate case
Requesting cost deferral order from
time of installation to incorporation of
the SCR costs in rates using a step
increase beginning in 2019
• Included in the 2016 rate case application, APS is requesting 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
Second Quarter 201616
FINANCIAL OUTLOOK Key Factors & Assumptions as of August 2, 2016
Assumption Impact
Retail customer growth • Expected to average about 2-3% annually
• Modestly improving Arizona and U.S. economic conditions
Weather-normalized retail electricity
sales volume growth
• About 0.5-1.5% after customer conservation and energy efficiency and
distributed renewable generation initiatives
Assumption Impact
AZ Sun Program • Additions to flow through RES until next base rate case
• First 50 MW of AZ Sun is recovered through base rates
Lost Fixed Cost Recovery (LFCR) • Offsets 30-40% of revenues lost due to ACC-mandated energy efficiency and
distributed renewable generation initiatives
Environmental Improvement
Surcharge (EIS)
• Assumed to recover up to $5 million annually of carrying costs for government-
mandated environmental capital expenditures
Power Supply Adjustor (PSA) • 100% recovery as of July 1, 2012
Transmission Cost Adjustor (TCA) • TCA is filed each May and automatically goes into rates effective June 1
• Beginning July 1, 2012 following conclusion of the regulatory settlement,
transmission revenue is accrued each month as it is earned.
Four Corners Acquisition • Four Corners rate increase effective January 1, 2015
Potential Property Tax Deferrals (2012 retail rate settlement): Assume 60% of property tax increases relate to tax
rates, therefore, will be eligible for deferrals (Deferral rates: 50% in 2013; 75% in 2014 and thereafter)
Gross Margin – Customer Growth and Weather (2016-2018)
Gross Margin – Related to 2012 Retail Rate Settlement
Outlook Through 2016: Goal of earning more than 9.5% Return on Equity (earned Return on Equity based on average
Total Shareholder’s Equity for PNW consolidated, weather-normalized)
Second Quarter 201617
Credit Ratings
• A- rating or better at S&P, Moody’s and Fitch
2016 Major Financing Activities
• Repaid, at maturity, $250 million of 6.25% senior
unsecured notes due August 1
• $350 million 30-year 3.75% APS senior unsecured
notes issued May 2016
• $100 million term loan closed April 2016
• Currently expect up to an additional $350 million
of long-term debt
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
Second Quarter 201618
OPERATIONS &
MAINTENANCE
OUTLOOK
Goal is to keep O&M per kWh flat,
adjusted for planned outages
$754 $761 $788
$805 $772
$150 $124
$137 $103
$96
$82
2011 2012 2013 2014 2015 2016E
PNW Consolidated RES/DSM*
*Renewable energy and demand side management expenses are offset by adjustment mechanisms.
($ Millions)
$825 -
$845
Second Quarter 201619
$263 $220 $224
$288
$66 $77
$235 $114 $44
$227
$201
$103
$58
$107
$1
$1 $201
$122
$217
$139
$340
$359
$346
$398
$85
$93
$83
$81
2015 2016 2017 2018
CAPITAL
EXPENDITURES
Capital expenditures are funded
primarily through internally
generated cash flow
($ Millions) $1,205
$1,307
Other
Distribution
Transmission
Renewable
Generation
Environmental(1)
Traditional
Generation
Projected
$1,124
New Gas
Generation(2)
$1,057
• The table does not include capital expenditures related to 4CA’s 7% interest in Four Corners Units 4 and 5 of
$3 million in 2015, $30 million in 2016 and $25 million in 2017.
• 2016 – 2018 as disclosed in Second Quarter 2016 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 schedule for completion in Q1 2019
Second Quarter 201620
249
357 339
442
610
710
641
785
871
939
523
837
489 688
835
721
1163 1163
1358
1150
1011
1201
1093
11841187
782
1315
1055
1460
1680
0
250
500
750
1000
1250
1500
1750
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 Applications 2015 Applications 2016 Applications
* As of June 30, 2016, over 45,000 residential grid-tied solar photovoltaic (PV) systems have been installed in APS’s service
territory. 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* 15 19 23
44 51
57
74
2009 2011 2013 2015
Residential DG (MW) Annual Additions
Second Quarter 201621
(8)
(4)
2
5
(5)
13
$(10)
$(5)
$0
$5
$10
$15
Q1 Q2 Q3 Q4 Q1 Q2
GROSS MARGIN EFFECTS OF WEATHER
VARIANCES VS. NORMAL
Pretax
Millions
All periods recalculated to current 10-year rolling average (2005-2014)
2015
$(5) Million
2016
$8 Million
Second Quarter 201622
12
7
11 11
8
4
11
14
18
12
12
15
$0
$10
$20
$30
$40
Q1 Q2 Q3 Q4 Q1 Q2
Renewable Energy Demand Side Management
RENEWABLE ENERGY AND
DEMAND SIDE MANAGEMENT EXPENSES*
* O&M expenses related to renewable energy and demand side management programs are partially offset by comparable revenue amounts
Pretax
Millions
2015
$96 Million
2016
$39 Million
Second Quarter 201623
NON-GAAP MEASURE RECONCILIATION
$ millions pretax, except per share amounts 2016 2015
Operating revenues* 915$ 891$
Fuel and purchased power expenses* (275) (282)
Gross margin 640 609 0.17$
Adjustments:
Renewable energy (excluding AZ Sun) and
demand side management programs (13) (17) 0.02
Palo Verde system benefits charge 4 - 0.02
Adjusted gross margin 631$ 592$ 0.21$
Depreciation and amortization* (123)$ (123)$ -$
Adjustments:
Palo Verde system benefits charge (4) - (0.02)
Adjusted depreciation and amortization (127)$ (123)$ (0.02)$
* Line items from Consolidated Statements of Income
Three Months Ended
June 30, EPS
Impact