Form 8-K PINNACLE WEST CAPITAL For: Oct 31
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):����October 31, 2014
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.
Item�7.01. Regulation�FD Disclosure.
The following information is furnished pursuant to both Item 2.02 and 7.01.
On October 31, 2014, Pinnacle West Capital Corporation (the Company or Pinnacle West ) issued a press release regarding its financial results for the fiscal quarter ended September 30, 2014 and its earnings outlook for 2014 and 2015. A copy of the press release is attached hereto as Exhibit 99.1.
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 October 31, 2014. This information contains Company operating results for the fiscal quarter ended September 30, 2014 and is attached hereto as Exhibits 99.2 and 99.3. The summary and slide presentation are concurrently being posted to the Companys website at www.pinnaclewest.com, which also contains a glossary of relevant terms.
Exhibit No. | Registrant(s) | Description |
99.1 | Pinnacle West APS | Earnings News Release issued on October 31, 2014. |
99.2 | Pinnacle West APS | Pinnacle West Capital Corporation quarterly consolidated statistical summary for the three-month and nine-month periods ended September�30, 2014 and 2013. |
99.3 | Pinnacle West APS | Pinnacle West Capital Corporation 3rd Quarter 2014 Results slide presentation accompanying October 31, 2014 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: October 31, 2014 | By: /s/ James R. Hatfield������������ | |
James R. Hatfield | ||
Executive Vice President and | ||
Chief Financial Officer | ||
ARIZONA PUBLIC SERVICE COMPANY | ||
(Registrant) | ||
Dated: October 31, 2014 | 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 October 31, 2014. |
99.2 | Pinnacle West APS | Pinnacle West Capital Corporation quarterly consolidated statistical summary for the three-month and nine-month periods ended September�30, 2014 and 2013. |
99.3 | Pinnacle West APS | Pinnacle West Capital Corporation 3rd Quarter 2014 Results slide presentation accompanying October 31, 2014 conference call. |
FOR IMMEDIATE RELEASE | October 31, 2014 | |
Media Contact: Analyst Contact: | Alan Bunnell, (602) 250-3376 Paul Mountain, (602) 250-4952 | Page 1 of 5 |
Website: | pinnaclewest.com | |
PINNACLE WEST REPORTS HIGHER THIRD-QUARTER EARNINGS
" | Disciplined cost management and strong operational performance more than offset milder-than-normal weather |
" | Company affirms 2014 guidance, introduces 2015 guidance |
PHOENIX Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders for the 2014 third quarter of $244.0 million, or $2.20 per diluted share. This result compares with net income of $226.2 million, or $2.04 per share, for the same period a year ago.
By focusing on operational excellence, disciplined cost management and sound capital investments, our financial performance in the third-quarter was solid despite weather that, for the third summer in a row, was less favorable than normal, said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt, noting that this was the fourth consecutive quarter that operations and maintenance costs have been a positive earnings driver. As a result, we continue to expect our full-year on-going earnings to fall within our projected range of $3.60 to $3.75 per diluted share.
Comparison of 2014 third-quarter financial results to the 2013 period was positively affected by the following factors (a non-GAAP reconciliation table is provided at the end of this release):
" | Lower operating expenses increased earnings by $0.06 per share compared with the prior-year quarter. The decrease in expenses largely was the result of lower employee benefit costs, lower depreciation and amortization, as well as lower property tax rates. These benefits were partially offset by higher fossil maintenance costs. |
The operating expense variance excludes costs associated with renewable energy, energy efficiency and similar regulatory programs, which are largely offset by comparable amounts of operating revenues.
" | Decreased interest expense, net of AFUDC, contributed $0.04 per share. |
PINNACLE WEST 2014 THIRD-QUARTER RESULTS | October 31, 2014 | |
Page 2 of 5 | ||
" | Regulatory adjustment mechanisms, specifically comprised of the Lost Fixed Cost Recovery (LFCR) mechanism and the retail Transmission Cost Adjustor, contributed a combined $0.03 per share. |
" | The Companys AZ Sun Program, currently comprised of 150 megawatts of community-scale photovoltaic plants, increased earnings by $0.03 per share compared to the prior year. |
" | A lower effective tax rate improved results by $0.02 per share. |
" | And, other miscellaneous items contributed $0.01 per share to the bottom line. |
These factors were partially offset by the effects of weather variations which negatively impacted the Companys earnings by $0.03 per share compared to the prior quarter. This years quarter was slightly cooler than the same period last year, highlighted by the mildest August weather recorded in 20 years. As a result, residential cooling degree-days (a proxy for the effects of weather) were 5.5 percent lower than last years third quarter, and 7.6 percent below normal based on a rolling 10-year average.
The Company also experienced positive retail customer growth of 1.4 percent during the quarter, reflecting a steady improvement in Arizonas economy. However, weather-normalized retail electricity sales in the 2014 third-quarter were flat compared to last years comparable period largely due to the effects of energy efficiency, customer conservation and distributed generation.
Financial Outlook
Looking ahead to 2015, the Company estimates its on-going consolidated earnings will be within a range of $3.75 to $3.95 per diluted share. Longer-term, the Companys goal is to achieve a consolidated earned return on average common equity of more than 9.5 percent annually through 2016.
Key factors and assumptions underlying both the 2014 and 2015 outlooks can be found in the third-quarter 2014 earnings presentation slides on the Companys website at pinnaclewest.com/investors.
Conference Call and Webcast
Pinnacle West invites interested parties to listen to the live webcast of managements conference call to discuss the Companys 2014 third-quarter results, as well as recent developments, at 12 noon ET (9 a.m. AZ time) today, October 31. 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), Friday, Nov. 7, 2014, by calling (877) 660-6853 in the U.S. and Canada or (201) 612-7415 internationally and entering conference ID number 13591441.
PINNACLE WEST 2014 THIRD-QUARTER RESULTS | October 31, 2014 | |
Page 3 of 5 | ||
General Information
Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of about $14 billion, nearly 6,400 megawatts of generating capacity and about 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 Companys 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 Wests operating statistics and earnings, please visit pinnaclewest.com/investors.
PINNACLE WEST CAPITAL CORPORATION
NON-GAAP FINANCIAL MEASURE RECONCILIATION
Three Months Ended September 30, | |||||||||||||
$ millions pretax, except per share amounts | 2014 | Four Corners Deferral | Palo Verde Lease Extensions | 2014 Adjusted | 2013** | EPS Impact | |||||||
Operations and maintenance* | $ | 223 | $ | (6) | $ | - | $ | 217 | 233 | ||||
Renewable energy (excluding AZ Sun), demand side management and similar regulatory programs | 32 | - | - | 32 | 44 | ||||||||
Net O&M | 191 | (6) | - | 185 | 189 | $ | 0.02 | ||||||
Depreciation and amortization* | 104 | 7 | (5) | 106 | 107 | $ | 0.02 | ||||||
Taxes other than income taxes* | 41 | (1) | - | 40 | 43 | $ | 0.02 | ||||||
Allowance for equity funds used during construction* | (7) | - | - | (7) | (6) | ||||||||
Interest charges* | 47 | (2) | - | 45 | 51 | ||||||||
Allowance for borrowed funds used during construction* | (3) | - | - | (3) | (3) | ||||||||
Interest expense, net AFUDC | 37 | (2) | 35 | 42 | $ | 0.04 | |||||||
Other expenses (operating)* | 1 | - | - | 1 | 2 | ||||||||
Other income* | (2) | 2 | - | - | - | ||||||||
Other expense* | 4 | - | - | 4 | 7 | ||||||||
Other | 3 | 2 | - | 5 | 9 | $ | 0.02 | ||||||
Net income attributable to non-controlling interests* | 4 | - | 5 | 9 | 9 | - | |||||||
* Line items from Consolidated Statements of Income ** No impact to 2013 Consolidated Statements of Income related to Four Corners deferral or Palo Verde lease extensions Totals may not sum due to rounding | |||||||||||||
PINNACLE WEST 2014 THIRD-QUARTER RESULTS | October 31, 2014 | |
Page 4 of 5 | ||
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. In this release we also provide a reconciliation to show various deferral impacts of our Four Corners transaction and impacts to our non-controlling interests for the Palo Verde lease extensions. We believe on-going earnings and the information provided in the reconciliation 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 reliability and customer service levels; |
" | variations in demand for electricity, including those due to weather, 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 or regulation including those relating to environmental requirements, 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 debt and equity capital; |
" | 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, particularly in real estate markets; |
" | the cost of debt and equity capital and the ability to access capital markets when required; |
" | environmental and other concerns surrounding coal-fired generation; |
" | 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 baseload generation and associated transmission facilities in our region; |
PINNACLE WEST 2014 THIRD-QUARTER RESULTS | October 31, 2014 | |
Page 5 of 5 | ||
" | 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; |
" | technological developments affecting the electric industry; 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 1, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and in Part II, Item 1A of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, 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.
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PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)
�THREE MONTHS ENDED | �NINE MONTHS ENDED | |||||||
�SEPTEMBER 30, | �SEPTEMBER 30, | |||||||
�2014 | �2013 | �2014 | �2013 | |||||
Operating Revenues | �$ 1,172,667 | �$ 1,152,392 | �$ 2,765,182 | �$ 2,754,866 | ||||
Operating Expenses | ||||||||
Fuel and purchased power | ���������382,361 | ���������350,953 | ���������923,001 | ���������859,216 | ||||
Operations and maintenance | ���������223,418 | ���������233,323 | ���������647,522 | ���������685,873 | ||||
Depreciation and amortization | ���������103,660 | ���������107,388 | ���������310,582 | ���������317,410 | ||||
Taxes other than income taxes | �����������40,850 | �����������43,256 | ���������130,699 | ���������124,091 | ||||
Other expenses | ����������������603 | �������������1,784 | �������������2,320 | �������������5,853 | ||||
����Total | ���������750,892 | ���������736,704 | ������2,014,124 | ������1,992,443 | ||||
Operating Income | ���������421,775 | ���������415,688 | ���������751,058 | ���������762,423 | ||||
Other Income (Deductions) | ||||||||
Allowance for equity funds used during construction | �������������7,038 | �������������5,569 | �����������21,979 | �����������18,698 | ||||
Other income | �������������2,366 | ����������������160 | �������������7,514 | �������������1,387 | ||||
Other expense | �����������(4,193) | �����������(7,435) | �����������(9,385) | ���������(13,421) | ||||
���Total | �������������5,211 | �����������(1,706) | �����������20,108 | �������������6,664 | ||||
Interest Expense | ||||||||
Interest charges | �����������47,626 | �����������50,587 | ���������152,346 | ���������151,372 | ||||
Allowance for borrowed funds used during construction | �����������(3,479) | �����������(3,235) | ���������(11,039) | ���������(10,861) | ||||
���Total | �����������44,147 | �����������47,352 | ���������141,307 | ���������140,511 | ||||
Income Before Income Taxes | ���������382,839 | ���������366,630 | ���������629,859 | ���������628,576 | ||||
Income Taxes | ���������134,753 | ���������131,912 | ���������215,698 | ���������221,424 | ||||
Net Income | ���������248,086 | ���������234,718 | ���������414,161 | ���������407,152 | ||||
Less: Net income attributable to noncontrolling interests | �������������4,125 | �������������8,555 | �����������21,976 | �����������25,338 | ||||
Net Income Attributable To Common Shareholders | �$ 243,961 | �$ 226,163 | �$ 392,185 | �$ 381,814 | ||||
Weighted-Average Common Shares Outstanding - Basic | ���������110,686 | ���������110,009 | ���������110,579 | ���������109,935 | ||||
Weighted-Average Common Shares Outstanding - Diluted | ���������111,103 | ���������111,053 | ���������110,962 | ���������110,913 | ||||
Earnings Per Weighted-Average Common Share Outstanding | ||||||||
Net income attributable to common shareholders - basic | �$ 2.20 | �$ 2.06 | �$ 3.55 | �$ 3.47 | ||||
Net income attributable to common shareholders - diluted | �$ 2.20 | �$ 2.04 | �$ 3.53 | �$ 3.44 | ||||
Last Updated 10/31/2014 Line 2014 2013 Incr (Decr) 2014 2013 Incr (Decr) EARNINGS CONTRIBUTION BY SUBSIDIARY (Dollars in Millions) 1 Arizona Public Service 255$ 244$ 11$ 427$ 420$ 7$ 2 El Dorado - (4) 4 (1) (4) 3 3 Parent Company (7) (5) (2) (12) (9) (3) 4 Net income 248 235 13 414 407 7 5 Less: Net Income Attributable to Noncontrolling Interests 4 9 (5) 22 25 (3) 6 Net Income Attributable to Common Shareholders 244$ 226$ 18$ 392$ 382$ 10$ EARNINGS PER SHARE BY SUBSIDIARY - DILUTED 7 Arizona Public Service 2.30$ 2.19$ 0.11$ 3.85$ 3.79$ 0.06$ 8 El Dorado - (0.03) 0.03 (0.01) (0.04) 0.03 9 Parent Company (0.06) (0.04) (0.02) (0.11) (0.08) (0.03) 10 Net income 2.24 2.12 0.12 3.73 3.67 0.06 11 Less: Net Income Attributable to Noncontrolling Interests 0.04 0.08 (0.04) 0.20 0.23 (0.03) 12 Net Income Attributable to Common Shareholders 2.20$ 2.04$ 0.16$ 3.53$ 3.44$ 0.09$ 13 BOOK VALUE PER SHARE 40.67$ 38.86$ 1.81$ 40.67$ 38.86$ 1.81$ COMMON SHARES OUTSTANDING (Thousands) 14 Average - Diluted 111,103 111,053 50 110,962 110,913 49 15 End of Period 110,447 110,037 410 110,447 110,037 410 Quarterly Consolidated Statistical Summary Periods Ended September 30, 2014 and 2013 3 Months Ended September 30, 9 Months Ended September 30, See Glossary of Terms Page 1 of 4
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Last Updated 10/31/2014 Line 2014 2013 Incr (Decr) 2014 2013 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail 16 Residential 619$ 626$ (7)$ 1,329$ 1,377$ (48)$ 17 Business 460 457 3 1,205 1,205 - 18 Total retail 1,079 1,083 (4) 2,534 2,582 (48) Wholesale revenue on delivered electricity 19 Traditional contracts 16 18 (2) 40 44 (4) 20 Off-system sales 61 28 33 140 68 72 21 Native load hedge liquidation - 4 (4) - 8 (8) 22 Total wholesale 77 50 27 180 120 60 23 Transmission for others 7 10 (3) 23 25 (2) 24 Other miscellaneous services 9 9 - 26 25 1 25 Total electric operating revenues 1,172$ 1,152$ 20$ 2,763$ 2,752$ 11$ ELECTRIC SALES (GWH) Retail sales 26 Residential 4,665 4,752 (87) 10,252 10,826 (574) 27 Business 4,234 4,239 (5) 11,260 11,387 (127) 28 Total retail 8,899 8,991 (92) 21,512 22,213 (701) Wholesale electricity delivered 29 Traditional contracts 186 242 (56) 560 585 (25) 30 Off-system sales 1,552 927 625 2,844 2,281 563 31 Retail load hedge management - 85 (85) - 200 (200) 32 Total wholesale 1,738 1,254 484 3,404 3,066 338 33 Total electric sales 10,637 10,245 392 24,916 25,279 (363) Quarterly Consolidated Statistical Summary Periods Ended September 30, 2014 and 2013 3 Months Ended September 30, 9 Months Ended September 30, Pinnacle West Capital Corporation See Glossary of Terms Page 2 of 4
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Last Updated 10/31/2014 Line 2014 2013 Incr (Decr) 2014 2013 Incr (Decr) AVERAGE ELECTRIC CUSTOMERS Retail customers 34 Residential 1,030,055 1,015,082 14,973 1,031,996 1,017,516 14,480 35 Business 129,558 128,245 1,313 129,196 128,044 1,152 36 Total retail 1,159,613 1,143,327 16,286 1,161,192 1,145,560 15,632 37 Wholesale customers 56 53 3 56 52 4 38 Total customers 1,159,669 1,143,380 16,289 1,161,248 1,145,612 15,636 39 Total customer growth (% over prior year) 1.4% 1.3% 1.4% 1.3% RETAIL SALES (GWH) - WEATHER NORMALIZED 40 Residential 4,736 4,748 (12) 10,513 10,548 (35) 41 Business 4,222 4,231 (9) 11,200 11,289 (89) 42 Total 8,958 8,979 (21) 21,713 21,837 (124) 43 Retail sales (GWH) (% over prior year) (0.2)% (1.4)% (0.6)% (0.1)% RETAIL USAGE (KWh/Average Customer) 44 Residential 4,529 4,682 (153) 9,934 10,640 (706) 45 Business 32,680 33,057 (377) 87,157 88,931 (1,774) RETAIL USAGE - WEATHER NORMALIZED (KWh/Average Customer) 46 Residential 4,598 4,678 (80) 10,187 10,366 (179) 47 Business 32,586 32,990 (404) 86,692 88,163 (1,471) ELECTRICITY DEMAND (MW) 48 Native load peak demand 7,007 6,927 80 7,007 6,927 80 WEATHER INDICATORS - RESIDENTIAL Actual 49 Cooling degree-days 1,145 1,212 (67) 1,675 1,792 (117) 50 Heating degree-days - - - 245 614 (369) 51 Average humidity 34% 31% 3% 26% 24% 2% 10-Year Averages 52 Cooling degree-days 1,239 1,239 - 1,722 1,722 - 53 Heating degree-days - - - 499 499 - 54 Average humidity 29% 29% - 23% 23% - Quarterly Consolidated Statistical Summary Pinnacle West Capital Corporation Periods Ended September 30, 2014 and 2013 3 Months Ended September 30, 9 Months Ended September 30, See Glossary of Terms Page 3 of 4
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Last Updated 10/31/2014 Line 2014 2013 Incr (Decr) 2014 2013 Incr (Decr) ENERGY SOURCES (GWH) Generation production 55 Nuclear 2,523 2,522 1 7,232 7,223 9 56 Coal 3,450 2,759 691 8,985 8,416 569 57 Gas, oil and other 2,253 2,310 (57) 4,713 4,820 (107) 58 Total generation production 8,226 7,591 635 20,930 20,459 471 Purchased power 59 Firm load 2,717 2,969 (252) 5,601 5,564 37 60 Marketing and trading 140 180 (40) 351 408 (57) 61 Total purchased power 2,857 3,149 (292) 5,952 5,973 (21) 62 Total energy sources 11,083 10,740 343 26,882 26,432 450 POWER PLANT PERFORMANCE Capacity Factors 63 Nuclear 100% 100% 0% 96% 96% 0% 64 Coal 81% 71% 10% 71% 73% (2)% 65 Gas, oil and other 30% 32% (2)% 21% 22% (1)% 66 System average 58% 56% 2% 49% 49% 0% ECONOMIC INDICATORS Building Permits (a) 67 Metro Phoenix 3,962 3,460 502 14,387 11,446 2,941 Arizona Job Growth (b) 68 Payroll job growth (% over prior year) 2.2% 2.2% 0.0% 1.9% 2.2% (0.3)% 69 Unemployment rate (%, seasonally adjusted) 7.0% 8.1% (1.1)% 7.1% 8.0% (0.9)% Sources: (a) U.S. Census Bureau (b) Arizona Department of Economic Security 3 Months Ended September 30, 9 Months Ended September 30, Pinnacle West Capital Corporation Quarterly Consolidated Statistical Summary Periods Ended September 30, 2014 and 2013 See Glossary of Terms Page 4 of 4
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THIRD QUARTER 2014 RESULTS October 31, 2014
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2 Third Quarter 2014 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 reliability and customer service levels; variations in demand for electricity, including those due to weather, 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 or regulation, including those relating to environmental requirements, 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 debt and equity capital; 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, particularly in real estate markets; the cost of debt and equity capital and the ability to access capital markets when required; environmental and other concerns surrounding coal-fired generation; 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 baseload 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; technological developments affecting the electric industry; 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, 2013 and in Part II, Item 1A of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, 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 various deferral impacts of our Four Corners transaction and impacts to our noncontrolling interests for the Palo Verde lease extensions. We believe on-going earnings and the information provided in the reconciliation 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 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.
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3 Third Quarter 2014 " Regulatory Update " Resource Planning " Operational Excellence CEO AGENDA
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4 Third Quarter 2014 " 3rd Quarter 2014 Results " Arizona Economic Outlook " Earnings Guidance and Financial Outlook CFO AGENDA
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5 Third Quarter 2014 CONSOLIDATED EPS COMPARISON 2014 VS. 2013 $2.20 $2.04 2014 2013 3rd Quarter GAAP Net Income $2.20 $2.04 3rd Quarter On-Going Earnings $3.53 $3.44 2014 2013 YTD GAAP Net Income $3.53 $3.44 YTD On-Going Earnings
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6 Third Quarter 2014 Interest, Net of AFUDC $0.04 Other, Net $0.03 D&A $0.02 Gross Margin(1) $0.01 = Net Increase $0.16 ON-GOING EPS VARIANCES 3RD QUARTER 2014 VS. 3RD QUARTER 2013 (1) Excludes costs, and offsetting operating revenues, associated with renewable energy (excluding AZ Sun), demand side management and similar regulatory programs. Note: Drivers adjusted for the deferral impacts of the Four Corners transaction and impacts to our noncontrolling interests for the Palo Verde lease extensions. See non-GAAP reconciliation in appendix. O&M(1) $0.02 Other Taxes $0.02 Effective Tax Rate $0.02
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7 Third Quarter 2014 GROSS MARGIN EPS DRIVERS 3RD QUARTER 2014 VS. 3RD QUARTER 2013 Lost Fixed Cost Recovery Mechanism $0.02 Retail Transmission Revenue $0.01 = Net Increase $0.01 Weather $(0.03) See non-GAAP reconciliation for gross margin in appendix. AZ Sun $0.03 Other, Net $(0.02)
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8 Third Quarter 2014 0% 5% 10% 15% 20% 25% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Industrial ARIZONA ECONOMIC INDICATORS Nonresidential Building Vacancy Metro Phoenix Single Family & Multifamily Housing Permits Maricopa County Home Prices Metro Phoenix Value Relative to Jan 05 50 75 100 125 150 175 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Vacancy Rate Office Retail Job Growth (Total Nonfarm) - Arizona (10.0)% (5.0)% 0.0% 5.0% 10.0% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 YoY Change E Q3Aug 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 '07 '08 '09 '10 '11 '12 '13 '14 Single Family Multifamily Sep
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9 Third Quarter 2014 ON-GOING EPS GUIDANCE AS OF OCTOBER 31, 2014 2014 Guidance 2015 Guidance Note: Earned Return on Equity goal based on average Total Shareholders Equity for PNW Consolidated. See key factor and assumptions in appendix. Affirming 2014 Guidance range&introducing 2015 Guidance $3.60 - $3.75 $3.75 - $3.95 Outlook through 2016 " Goal of earning more than 9.5% Return on Equity " Adjustment mechanisms (Lost Fixed Cost Recovery, Transmission Cost Adjustor, AZ Sun, etc.) providing increasing contribution " Modest load growth " Continued focus on sustainable cost management
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APPENDIX
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11 Third Quarter 2014 2014 KEY DATES Docket # Q1 Q2 Q3 Q4 Key Regulatory Filings Lost Fixed Cost Recovery 11-0224 Jan 15 Transmission Cost Adjustor 11-0224 May 15 Renewable Energy Surcharge 14-0250 Jul 1 10-Year Transmission Plan (Annual) 13-0002 Jan 31 2014 Integrated Resource Plan (Biennial) 13-0070 Apr 1 Net Metering (Decision No. 74202) 13-0248 Quarterly Installation Filings 13-0248 Apr 15 Jul 15 Oct 15 Value and Cost of Distributed Generation 14-0023 May 7Jun 20 Innovations and Technology Development Docket Workshops Substantive (a), Response (b) 13-0375 Mar 20 (1a) Apr 25 (1b) May 28 (2a) Jun 25 (2b) Jul 28 (3a) Aug 18 (3b) Four Corners Rate Rider 11-0224 Testimony: Jun Jul; Hearings: Aug ACC Open Meeting Energy Efficiency workshops (a) Cost effectiveness, (b) Cost recovery and (c) EE standards/rulemaking 13-0214 Mar 18 (a)Mar 31 (b) Apr 17 (c) ACC Open Meetings (Held Monthly) - (a) ACC voted to remove requirement that APS file its next rate case in June 2015 - Aug 12 (a) Optional Rate Design Process 14-0329 TBD Elections - May 28: Nominations Aug 26: Primary Nov 4: General Arizona State Legislature - In Session Jan 13 Apr 24 (Adjourned)
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12 Third Quarter 2014 KEY RATE DESIGN PRINCIPLES Smarter rates for smarter grid Arizona Public Service, Tucson Electric Power, Residential Utility Consumer Office and Arizona solar developers filed a joint letter with the ACC agreeing on the following rate design principles: Customer-focused " Meaningful options " Meet lifestyle needs " Allow customers to choose among technologies Forward-thinking " Maintain reliable service " Enable technology innovation " Put all technologies on a level playing field Affordable & Fair " For all of our 1.2 million customers " Transparent " Accurately reflect services and products customers use Fixed Costs 69% Variable Costs 31% Costs APS Residential Classes (2010) Fixed Charge Revenue 10% Variable Charge Revenue 90% Revenue APS Residential Classes (2010) Rate design changes needed to align fixed costs and revenue
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13 Third Quarter 2014 2014 ON-GOING EPS GUIDANCE Key Factors & Assumptions as of October 31, 2014 2014 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.20 $2.22 billion " Retail customer growth about 1.5% " Weather-normalized retail electricity sales volume about flat to prior year taking into account effects of customer conservation, energy efficiency and distributed renewable generation initiatives " Actual weather through September - YTD impact $(0.06) per share; normal weather patterns remainder of the year Operating and maintenance* $790 $800 million Other operating expenses (depreciation and amortization, Four Corners deferrals, and taxes other than income taxes) $595 - $605 million Interest expense, net of allowance for borrowed and equity funds used during construction (Total AFUDC $40 million) ~$160 million Net income attributable to noncontrolling interests ~$25 million Effective tax rate 34% Average diluted common shares outstanding ~111.0 million On-Going EPS Guidance $3.60 - $3.75 * Excludes O&M of $103 million, and offsetting revenues, associated with renewable energy and demand side management programs.
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14 Third Quarter 2014 2015 ON-GOING EPS GUIDANCE Key Factors & Assumptions as of October 31, 2014 2015 Electricity gross margin* (operating revenues, net of fuel and purchased power expenses) $2.30 $2.35 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 " Normal weather patterns Operating and maintenance* $795 - $815 million Other operating expenses (depreciation and amortization, and taxes other than income taxes) $650 - $670 million Interest expense, net of allowance for borrowed and equity funds used during construction (Total AFUDC $40 million) $175 - $185 million Net income attributable to noncontrolling interests ~$20 million Effective tax rate 35% Average diluted common shares outstanding ~111.0 million On-Going EPS Guidance $3.75 - $3.95 * Excludes O&M of $106 million, and offsetting revenues, associated with renewable energy and demand side management programs.
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15 Third Quarter 2014 2015 2017 FINANCIAL OUTLOOK Key Factors & Assumptions as of October 31, 2014 Assumption Impact Retail customer growth " Expected to average about 2-3% annually (2015-2017) " 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 Weather " Normal weather patterns 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 " Pending final ACC approval 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 Gross Margin Related to 2012 Retail Rate Settlement
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16 Third Quarter 2014 OPERATIONS & MAINTENANCE Our goal is to keep consolidated O&M growth at or below retail sales growth levels $749 $754 $761 $788 $121 $150 $124 $137 $103 $106 2010 2011 2012 2013 2014E 2015E Consolidated RES/DSM* *Renewable energy and demand side management expenses are offset by revenue adjustors. $795 - $815 ($ Millions) $790 - $800
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17 Third Quarter 2014 $2.10 $2.18 $2.27 $2.38 2011 2012 2013 2014 2015 2016 Dividend Growth Goal Indicated Annual Dividend Rate at Year-End DIVIDEND GROWTH Pinnacle Wests annual dividend is $2.38 per share; targeting ~5% annual dividend growth Projected Future dividends subject to declaration at Board of Directors discretion.
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18 Third Quarter 2014 2015 2016 2017 RETAIL SALES GROWTH (WEATHER-NORMALIZED) YoY Retail Sales Before Customer Programs Energy Efficiency & Customer Conservation Distributed Generation " Weather-normalized retail sales growth on average about 0.5-1.5% for 2015-2017 after impacts of energy efficiency, customer conservation and distributed renewable generation initiatives (excluding Lost Fixed Cost Recovery) Distributed Generation (DG) Impact " DG makes up 0.5% (or less) of the negative impact to retail sales growth as shown in the chart; equates to approximately 60 GWh out of our total retail sales of over 28,000 GWh " Average residential rooftop solar system produces 10,000 12,000 KWh per year (average metro-Phoenix customers usage is nearly 15,000 KWh)
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19 Third Quarter 2014 $390 $292 $365 $526 $20 $25 $37 $159 $166 $73 $60 $1 $132 $170 $216 $144 $234 $223 $328 $335 $44 $81 $85 $83 2013 2014 2015 2016 CAPITAL EXPENDITURES 80% of capital expenditures are recovered through rate adjustors (40%) and depreciation cash flow (40%) ($ Millions) $986 $864 $1,091 2014 2016 as disclosed in Third Quarter 2014 Form 10-Q Other Distribution Transmission Renewable Generation Environmental Traditional Generation Projected $1,248
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20 Third Quarter 2014 FINANCING $300 $300 $250 $500 $125 $- $100 $200 $300 $400 $500 $600 2014 2015 2016 2017 2018 2019 APS PNW ($Millions) Debt Maturity Schedule 2014 Major Financing Activities " $250 million 30-year 4.70% APS senior unsecured notes issued in January 2014 with proceeds used primarily to fund acquisition of Four Corners " $250 million 10-year 3.35% APS senior unsecured notes issued June 2014 with proceeds used with other funds to pay the $300 million maturity on June 30, 2014 " Currently expect up to $350 million additional long-term debt issuance in Q4 2014 " In addition, there will be tax-exempt series remarketed or refinanced 2015 Major Financing Activities " Currently expect about $400 million of new long-term debt in 2015, in addition to refinancing maturing debt
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21 Third Quarter 2014 " Lost Fixed Cost Recovery (LFCR) was implemented as part of the July 2012 settlement Estimated to offset 30-40% of revenues lost due to ACC- mandated energy efficiency (EE) and distributed renewable generation (DG) initiatives " Annual filing by January 15th each year with new rates in effect March 1st, based on the EE and DG savings from the preceding calendar year Subject to annual cap of 1% of companys total revenues " Revenue accrued each month as it is earned, creating a regulatory asset since the rates lag REGULATORY MECHANISMS (LFCR) Lost Fixed Cost Recovery 2013 ACC Order 2014 ACC Order Rates Effective March 1, 2013 March 1, 2014 LFCR Rate 0.2% 0.95% Residential rate per lost kWh $0.031 $0.031 Non-residential rate per lost kWh $0.023 $0.023 LFCR Adjustment (Annualized) $5.1 Million $25.4 Million LFCR Revenue (Accrued in prior year) $7.3 Million (1) $22.6 Million 2012 2013 2014 2015 2015 Revenue 2014 Revenue 2013 Revenue 2012 Revenue Rate Recovery (1) Represents six months in 2012.
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22 Third Quarter 2014 " FERC Formula Rates adopted in 2008 " Adjusted annually with 10.75% allowed ROE " Based on FERC Form 1 and projected closings Update filed each April Annual rate true-up compares projected revenue requirement to actual, with variance incorporated into next annual update " Retail portion flows through ACC Transmission Cost Adjustor (TCA) REGULATORY MECHANISMS (TCA) We have achieved constructive transmission rate treatment with annual adjustments As Filed 2014 2013 2012 Annual Rate Increase Rate Effective Date Annual Rate Increase Rate Effective Date Annual Rate Increase Rate Effective Date Retail Portion (TCA) $5 M 6/1/2014 $21 M 6/1/2013 $18 M 8/1/2012 Wholesale Portion $1 M 6/1/2014 $5 M 6/1/2013 $(2) M 6/1/2012 Total Increase (Decrease) $6 M $26 M $16 M Equity Ratio 58% 57% 55% Rate Base (Year-End) $1.3 B $1.2 B $1.2 B Test Year 2013 2012 2011
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23 Third Quarter 2014 6/1 Rate Goes Into Effect REGULATORY MECHANISMS (TCA) We have achieved constructive transmission rate treatment with annual adjustments 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 6/1 Rate Goes Into Effect ~5/15 File/Post FERC Rate ~4/15 File FERC Form 1 ~5/15 File/Post FERC Rate ~4/15 File FERC Form 1 " New accounting treatment began July 1, 2012, effective with 2012 Settlement Agreement " Quarterly true-ups can occur throughout the year (2013 included adjustments of 2012 revenue) " Although transmission rate base is growing, 2014 transmission revenue is in line with 2013 because of the 2012 true-ups in 2013, and the large capex projects (e.g. HANG2) that are in progress, but do not come online until 2015 or later 2013 Revenue 2013 Rates (Including True-Up) 2014 Rates (Including True-Up) 2014 Revenue Quarterly True-Ups Quarterly True-Ups
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24 Third Quarter 2014 10 16 (7) (10) (13) 6 (4) $(20) $(10) $0 $10 $20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 GROSS MARGIN EFFECTS OF WEATHER VARIANCES VS. NORMAL Pretax Millions 2013 $9 Million, as previously reported $11 Million, adjusted for current normals 2014 $(11) Million 11 As Previously Reported Adjusted for current 10-year Rolling Average (2003-2012) (4) 12 1 (13) (13) 6
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25 Third Quarter 2014 10 12 14 12 10 16 20 14 10 8 15 16 19 24 17 15 20 25 17 16 14 17 $0 $10 $20 $30 $40 $50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Renewable Energy Demand Side Management RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES* * O&M expenses related to renewable energy, demand side management and similar regulatory programs are offset by comparable revenue amounts. Pretax Millions 2012 $124 Million 2013 $137 Million 2014 $80 Million
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26 Third Quarter 2014 NON-GAAP MEASURE RECONCILIATION GROSS MARGIN $ millions pretax, except per share amounts 2014 2013 Operating revenues* 1,173$ 1,152$ Fuel and purchased power expenses* (383) (351) Gross margin 790 801 (0.06) Adjustments: Renewable energy (excluding AZ Sun), demand side management and similar regulatory programs (26) (39) 0.07 Gross margin - adjusted 764$ 762$ 0.01$ * Line items from Consolidated Statements of Income Three Months Ended September 30, EPS Impact
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27 Third Quarter 2014 NON-GAAP MEASURE RECONCILIATION OTHER NON-GAAP $ millions pretax, except per share amounts 2014 Four Corners Deferral Palo Verde Lease Extensions 2014 Adjusted 2013** Operations and maintenance* 223$ (6)$ -$ 217$ 233$ Renewable energy (excluding AZ Sun), demand side management and similar regulatory programs 32 - - 32 44 Net O&M 191 (6) - 185 189 0.02$ Depreciation and amortization* 104 7 (5) 106 107 0.02$ Taxes other than income taxes* 41 (1) - 40 43 0.02$ Allowance for equity funds used during construction* (7) - - (7) (6) Interest charges* 47 (2) - 45 51 Allowance for borrowed funds used during construction* (3) - (3) (3) Interest expense, net of AFUDC 37 (2) - 35 42 0.04$ Other expenses (operating)* 1 - - 1 2 Other income* (2) 2 - - - Other expense* 4 - - 4 7 Other 3 2 - 5 9 0.02$ Net income attributable to noncontrolling interests* 4 - 5 9 9 - * Line items from Consolidated Statements of Income ** No impact to 2013 Consolidated Statement of Income related to Four Corners deferral or Palo Verde lease extensions Totals may not sum due to rounding EPS Impact Three Months Ended September 30,
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