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): September 30, 2011
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.
Exact Name of Registrant as Specified in Charter; State of Incorporation;
IRS Employer Commission File Number
Address and Telephone Number 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
Item 7.01 Regulation FD Disclosure. Investor and Analyst Meetings
Pinnacle West Capital Corporation (“Pinnacle West”) will be participating in various investor meetings from October 3, 2011 through October 6, 2011 and will be utilizing handouts during those meetings. Copies of the handouts are attached hereto as Exhibit 99.1. Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No.
Registrant(s) Description
99.1
Pinnacle West
Arizona Public Service Company
Pinnacle West handouts for use at various investor meetings from October 3, 2011 through October 6, 2011.
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.
2
PINNACLE WEST CAPITAL CORPORATION
(Registrant)
Dated: September 30, 2011 By: /s/ James R. Hatfield
James R. Hatfield
Senior Vice President and Chief Financial
Officer
ARIZONA PUBLIC SERVICE COMPANY
(Registrant) Dated: September 30, 2011 By: /s/ James R. Hatfield
James R. Hatfield
Senior Vice President and Chief Financial
Officer
Exhibit 99.1
DELIVERING S UP ER IOR SHAREHOLDER VALUE Investor Mee tings Oc tober 3-6, 2011
FOR WARD-LOOKING STATEMENTS 2 Thi s presentati on contains forward-looking sta tements based on current expect ations, inc ludi ng statements regarding our 2011 earnings out look. These forward -looking sta tements are often identif ied by words such as “estima te, ” “ predic t,” “may,” “be lieve , ” “pl an, ” “expec t, ” “require, ” “ intend,” “assume” and simila r words. Because act ua l results may dif fer ma ter ia lly from expec tat ions, we cauti on you not to place undue re liance on these statements. A number of factors could caus e future results to dif fe r ma ter ial ly from his torical results , or from outcomes currently expected or sought by Pinnacle W est or AP S. These fact ors incl ude , but are not limited to: our abilit y t o achieve timely and adequate ra te recovery of our costs, including re turns on debt and equit y capit al; our ability to manage capit al expendi tures and other costs whi le ma intaining re liabili ty and customer service level s; var iations in demand for electr icit y, inc luding thos e due to weather, the general economy, customer and sal es grow th (or decli ne ), and t he effect s of energy conservation measures and distri buted generat ion; power pl ant performance and outages; vola tile fue l and purchased power costs; fuel and wa ter supply ava ilability; regulat ory and judicia l dec isions, developments and proceedings; new l egisla tion or regulat ion including those rela ting to greenhouse gas emi ssions, renewable energy mandates, nuc lea r plant opera tions and energy effic iency s tandards; our ability to meet renewabl e energy requirements and recover rela ted costs; r isks inherent in the opera tion of nuclear faci lities, including spent fuel disposal uncertainty; competit ion i n reta il and wholesale power markets; the dura tion and severit y of the economic decli ne in Arizona and current rea l est ate marke t conditions; the cost of debt and equity capital and the abil ity to access capita l markets when required; changes t o our credit ra tings; the invest ment pe rformance of the assets of our nuc lea r decommissioning trust , pension, and other postre tirement benef it plans and t he resulting impact on future funding requirements; the l iqui dity of wholes ale power markets and t he use of de riva tive contracts in our business; potentia l shortfa lls in insurance coverage; new account ing requirements or new interpre tations of existing requirements; genera tion, transmission and distr ibut ion facilit y and syst em conditions and opera ting costs; t he abil ity to meet t he antic ipat ed future need for additional baseload generation and associa ted transmission facili ties in our regi on; t he wi llingness or ability of our counte rpa rt ies, power pl ant partic ipants and power pl ant land owners to meet contractua l or othe r obliga tions or extend the r ight s for continued power plant opera tions; technological deve lopments affecting the e lec tr ic industry; and restri ctions on dividends or ot he r provisions in our credit agreements and Arizona Corporation Commission orde rs. These and other fact ors are di scussed in Ris k F ac tors descr ibed in I tem 1A of the Pinnac le West/APS Annual Report on F orm 10-K for the fiscal year ended December 31, 2010, and in Part I I , Item 1A of the Pinnacle West/ AP S Quart er ly Report on F orm 10-Q for the quarte r ended June 30, 2011, which you should review carefully before plac ing any re liance on our f inancia l statements, disc losures or earnings out look. Nei ther Pinnac le West nor APS assumes any obl igation to update these statements, even if our internal estima tes change, except as required by law.
3 NYSE Ticker PNW Market Cap $5 Billion Enterpri se Value $8 Bi llion Principa l Subsidiary • Ar izona ’s l argest e lec tric utility • $12 bill ion assets S ervice Terr itory • 1.1 mill ion customer account s • 34,646 square miles Customer Growth • 1.3% average annual grow th expected 2011-2013 • 3-4% histori cal average — we ll above industry average 2010 Peak Demand – 6,936 MW CONTINENTAL UNITED STATES STATE OF ARIZONA PINNACLE WEST: WHO WE ARE We are a ve rt ica lly integrated, regula ted e lec tri c ut ility.
PINNACLE WEST: OUR VALUE PROPOSITION 4 Our commitment t o i nvestors: De liver superior shareholder returns through
POS ITIVE LONG-TERM DEMOGRAPHIC S 5 CAP ITALIZING ON INTR INSIC GR OW TH Superior Growth APS ’s customer grow th generally outpaces U .S. and Arizona popula tion grow th. Annual G row th 1990 1995 2000 2005 2010 2015 Projec ted APS Customer Growth A ri zona Popul ation Grow th US Popul ation Grow th 2.5% * Mi llions AP S Customer G row th *C ompound Annual Growth Rate
6 W e expect our ra te base wi ll grow a t a 6% average ra te. APS RATE BASE GROWTH STRONG CAP ITALIZING ON INTR INSIC GR OW TH $ B illions Projec ted APS Capital Expenditures $ Mill ions Projected Other D istr ibution Transmission Renewable Environmental Traditi ona l Genera tion APS Ra te Base
OPERATIONAL HIGHLIGHTS 7 Customer Sati sfaction Ranked 4th hi ghest nationa lly among investor-owned e lec tric utiliti es in 2011 J.D . Power residentia l customer survey St rong Nuc lea r and C oa l Base load Res ources 2010 capac ity factors above or a t industry averages Nuc lea r – APS 91% vs. 91% indus try ave rage Coa l – APS 81% vs. 68% indust ry ave rage Pa lo Verde 20 -year license extension approved by U .S. Nuc lea r Regulat ory Commission Average Annual Outage Ti me Per Customer Top quartile in industry over past several years Southwest Power Outage (S eptember 8, 2011) W e focus on mai nt aining top-tier pe rformance companyw ide.
ENVIRONMENTAL, SUS TAINABILITY AND GOVERNANCE LEADER SHIP 8 H ighest R ating (AAA) and Ranked #2 Elec tric Ut ility Dow Jones Susta inability Index G loba l 100 Most Susta inable Corporations in World Socia l Responsibility Index “Best in Class ” Disti nc tion Soc ial Responsibility Reporti ng H ighest Overal l Score of U.S . Util ities U.S. DOE/EPA Susta ined Excellence Award Top 10 Uti lity Solar Ranking MAINTAINING OPERATIONAL EXCELLENCE W e a re recognized i nt ernational ly for our achievement s. Ranked 294 of 1,000 Companies Worl dwide Ranked 15th Overa ll H ighest for Any Ut ility
9 MAKING COMPELLING CAP ITAL INVESTMENTS RES OURCE PLANNING FOR RELIAB ILITY AND SUS TAINABILITY Additional Resources by 2025 • 2012 Four Corners transactions • Renewabl es (pr imarily sola r and wind) • Energy effi ciency • Na tura l gas Through a bal anced resource mix including renewable resources and energy effic iency programs, we will meet future load growth. MW Projected 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 3% Four Corners Transactions, Net 4% Ot her F uture Purchases 22% Future Renewable Resources 22% Future Energy Effic iency 50% Future Natural Gas Genera tion
RENEWABLE ENER GY RISES WITH THE SUN 10 We are he lping Arizona become the “Solar Capit al of the World.” Germany and Japan are among countries wi th hi ghest insta lled sol ar capacity, ye t have sola r conditions fa r infer ior to A rizona MAKING C OMPELLING CAP ITAL INVESTMENTS Arizona
APS AZ SUN PROGRAM 11 MAKING C OMPELLING CAP ITAL INVESTMENTS Phase II - Proposed Additional 100 MW Up to $475 mill ion capit al invest ment In se rvice 2013 through 2015 Rate recovery through RES until incl uded in base rates Requested in 2012 RES Implementa tion Plan f iled with ACC July 1, 2011 Dec ision expec ted by end of 2011 Phase I – Underway 100 MW Up to $500 milli on capita l investment In service 2011 through 2014 Const ruc tive rate recovery Commi tments to dat e: 83 MW $384 milli on capita l investment Additiona l procurement initiat ives underway Owning sol ar resources makes s ense for our customers, communiti es, environment , and provides re turns to our sha rehol de rs. Util ity-scal e solar photovol taic pl ants to be owned by AP S
SOLANA: A “SUNNY P LACE ” 12 • 250 -MW 30-year PPA for all output (~900 GWh/year) • Concentrat ing sola r t rough facilit y 70 miles southwest of Phoenix • Expec ted to be first ma jor st ored-heat plant in U.S . on ta rge ted 2013 commercia l opera tion date • Near existing transmission lines • Therma l storage capabilit y w ith summer on -peak capac ity factor +90% • To be built , owned and operat ed by Abengoa S ol ar • DOE l oan guarantee financing fi na lized MAKING C OMPELLING CAP ITAL INVESTMENTS Solana will provide about one-third of APS ’s renewable energy target of 10% by 2015.
13 APS ENERGY EFFICIENCY IN ITIATIVES INC REASING • Program cost s current ly recovered through reta il rate adjustor • Under 2009 reta il regula tory se ttlement, APS to achieve addit ional reta il sal es savings of 3.75% in 2010-2012 • Ar izona energy e ffic iency rules require cumulative savings of 22% of reta il sal es by 2020 • Decoupling mechanism proposed in 2011 APS reta il base ra te case Cumul ative Annual Energy Savings Associa ted w ith EE/DSM Programs APS plans to double customers’ energy effic iency savings from 2010 through 2012. GWh MAKING COMP ELLING CAP ITAL INVESTMENTS
14 MAKING COMPELLING CAP ITAL INVESTMENTS FOUR CORNERS POWER PLANT TRANSACTIONS Our proposal represent s a balanced sol ut ion t o new envi ronmenta l regula tions. Acquire Southern California Edi son’s 739 MW interest in Units 4 & 5 and shut down 560 MW Units 1 – 3 Purchase pr ice: $294 mi llion Acquis ition target da te: la te 2012 Esti mated environmenta l compliance invest ment: $300 mi llion Finance w ith mix of debt and equity A rizona, Cal ifornia and other regula tory approvals required Economic , environment al and soc ial benef its
2011 RETAIL R ATE CASE FILING KEY FINANCIAL COMP ONENTS 15 AP S has requested a base rate increase to become e ffective Jul y 1, 2012. IMPR OVING OUR REGULATOR Y ENVIRONMENT Annual Revenue Change Non-fuel base ra te inc rease $ 194.1 6.6% Amounts transferring from adjustment mechani sm revenues Renewabl e Energy S urcharge revenues rela ted to AZ S un and ot he r sola r projec ts 44.9 P ower Suppl y Adjustor revenues (refunds) (143.5) Ne t base rat e increase $ 95.5 3.3%
2011 RETAIL R ATE CASE FILING DETAILS OF REQUES T 16 Post t est -year pl ant additi ons through rat e effective da te $259 million AZ Sun projec ts $161 mi llion other projec ts Revenue-per-customer decoupling mechanism Infrastruc ture tracke r New generation addi tions and generation e ff ici ency proj ect s Environmental compliance investments 100% P ower S upply Adjustor Rema ining portions of AZ Sun project to be recovered through RES until incl uded in base rates (consistent w ith treatment for first 50 MW) IMPR OVING OUR REGULATOR Y ENVIRONMENT O ther key provisions continue construc tive regula tory trea tment and limit regula tory lag.
2011 RETAIL R ATE CASE FILING ACC PROCEDURAL SCHEDULE 17 IMP ROVING OUR REGULATORY ENVIRONMENT The procedural schedule provides a process whi ch could allow a f inal decision by July 1, 2012, consistent wit h APS ’s 2009 regulatory sett lement . Nov. 18, 2011 ACC Staff and intervenors' direct testimony due, except cost of servi ce and ra te design Nov. 30, 2011 Se ttlement di scussions may begin (or ear lier if pa rt ies desi re ) Dec . 2, 2011 AC C Staff and intervenors' direct testimony due on cost of service and ra te design Dec . 23, 2011 Sett lement agreement to be fi led, if reached Dec. 23, 2011 APS rebutt al testimony due , if no settlement reached Jan. 11, 2012 ACC S taff and intervenors' surrebutta l testi mony due, if no settlement reached Jan. 11, 2012 Testimony supporting or opposing settlement due, if set tlement reached Jan. 17, 2012 APS re joinder t estimony due, if no settlement reached Jan. 19, 2012 Hearing t o begin
CONSOLIDATED ON-GOING EP S OUTLOOK 18 Our on-going earni ngs improved since 2009. STRENGTHENING OUR FINANCIAL P ROF ILE Per Share $2.75 - $2.90* *See key factors and assumptions in Appendix. As of 8/2/11
Dividend Y ie ld TOP -TIER DIVIDEND Y IELD 19 D ividend Payout Industry Averages PNW Industry Y ie ld as of S eptember 15, 2011 Industry P ayout 12 Months Ended June 30, 2011 PNW Payout based on weather-normali zed 2011 EP S Guidance Pinnac le West’s annual dividend is $2.10 per share — providing a top-tier yield w ith a near -average payout . S TRENGTHENING OUR FINANCIAL PROFILE
SUP ERIOR SHAREHOLDER RETURNS 20 Our total return to sha reholders has outperformed our industry and the broad marke t over the past f ive years. STRENGTHENING OUR FINANCIAL P ROF ILE Pinnac le West S &P 500 S&P 1500 Electr ic Util ities 1 Year 2 Years 3 Years 5 Years P eriods ended December 31, 2010
PINNACLE WEST: OUR VALUE PROPOSITION 21 Our commitment t o i nvestors: De liver superior shareholder returns through...
APP ENDIX 22
A RESP EC TED, VETER AN LEADERSHIP TEAM 23 Our top execut ives have more t han 130 combined years of c reating shareholder value i n the energy industry. Jim Hatf ield S VP & CFO Mark S chiavoni S VP Fossil Genera tion Dave F alck EVP, Genera l Counsel & S ec re tary Randy Edington EVP & Chief Nucl ear O ff ice r Don Brandt Chairman & CEO Don Robinson APS President & COO
2011 On-Going EPS Guidance 24 Electr icit y gross margin (operati ng revenues,* net of fuel and purchased power expenses) about $2.01 billi on to $2.06 bi llion, which was previously expec ted to be $2.05 billion to $2.10 billion Re tail customer growt h about 1% Weather-normali zed reta il e lec tric ity sal es volume grow th about 1% taking into account ef fects of Company’s energy effic iency initiat ives Actua l weathe r for first 7 mont hs of yea r and normal weather patt erns for rema inder of year Opera ting expenses (operati ons and ma intenance ,* deprecia tion and amortization, and taxes ot he r t han income taxes) about $1.33 bi llion to $1.36 billion, which was previously expected to be $1.32 bi llion to $1.35 billi on Interest expense, ne t of a llowances for borrowed and equity funds used during construction, about $195 mi llion to $205 mill ion, which was previously expected to be $200 milli on to $210 million Net income a ttr ibut able t o noncontrolling inte rests about $25 milli on to $30 million, which was previously expected to be $20 milli on to $25 million Effecti ve tax rate about 34% Full-year effect of 2010 equi ty issuance AP S earnings to contri bute substantia lly al l of consolidated ea rnings Key Fac tors and Assumptions as of August 2, 2011. * Excludes O&M, and offse tting operating revenues, assoc iat ed wi th renewable energy, demand-side management and simila r regula tory programs, as we ll as $28 milli on pretax re lated to settlement of prior-pe ri od F our Corners transmission r ights-of-way. S TR ENGTHENING OUR FINANCIAL P ROF ILE
CREDIT R ATINGS 25 We have investment -grade credit rati ngs. STRENGTHENING OUR FINANCIAL P ROF ILE We a re di sclosing these ra tings to enhance understanding of our sources of liquidit y and t he effects of our ra tings on our costs of funds. APS P arent Corporat e Credit Rat ings Moody’s B aa2 Baa3 S &P BBB B BB Fit ch BBB- BBB- Senior Unsecured Moody’s B aa2 - S&P BBB - Fitch B BB - Outlook Moody ’s Stable Stable S&P Positive Positive F itch S table Stabl e
S&P CREDIT METR ICS 26 APS FFO / Debt FF O / Interest Debt / Capita lization Pinnacle West F FO / Debt FFO / Int erest Debt / Capita lization Our key credit met rics have been improving. STRENGTHENING OUR FINANCIAL PROFILE 2006 2007 2008 2009 2010 17.5% 17.2% 22.1% 22.8% 22.3% 4.2x 4.1x 5.1x 4.8x 4.6x 56.6% 55.2% 57.4% 56.8% 53.0% 16.3% 15.7% 18.0% 18.4% 22.5% 3.8x 3.7x 4.3x 4.0x 4.6x 57.0% 57.0% 59.4% 59.8% 55.1%
AMPLE FINANCING ACCES S 27 Investment -grade credit rati ngs, capit alization and li qui di ty should provide adequate access t o bank and capi tal marke ts. 2011 $500M APS revolver re financ ing* 2011 $175M PNW seni or notes re financ ing* 2011 $400M APS senior notes re financing* 2012 $375M APS seni or notes re financ ing 2012 APS new debt issuance 2012 P NW equity issuance (a t ea rli est) 2011 - 2012 Ma jor F inanc ing Act ivities STRENGTHENING OUR FINANCIAL P ROF ILE Capita liza tion & Liquidity *C omple ted. $ Bil lions Consol idated C apita liza tion AP S ACC C apita liza tion Consolidated Liquidity December 31, 2010 50.7% 53.9%
28 Improving our earned re turn on equi ty is one of our t op pr ior ities. Earned ROEs Key Initia tives • Supportive e lectr ic ut ility rates • Regulat ory framework i mprovement s • Cost management initia tives • Effi ciency and effect iveness throughout organization STRENGTHENING OUR FINANCIAL P ROF ILE ROE IMPR OVEMENT: A MULTI-PRONGED APPR OACH * On-going earni ngs APS PNW*
29 Our goal is to keep O&M growt h i n l ine w ith re tail sales growt h. $ Mill ions Excl udes RES and demand-side management costs STRENGTHENING OUR FINANCIAL P ROF ILE AP S OPERATIONS & MAINTENANCE EXPENS E TRENDS
2010 RETAIL C US TOMER, SALES AND REVENUE MIXES 30 R esidenti al Commercia l Industr ial O ther Customers Year-End 1.1 Million Reta il Sa les 27,709 GWh Operat ing R evenues $2.9 Bil lion 8% 45% 47% 50% 43% 11% 89% Our bus iness mix is attrac tive due t o favorable clima te and othe r condit ions i n our market a rea. MA INTA IN ING OPERATIONAL EXCELLENCE
CUS TOMER SATISF ACTION A KEY PRIORITY 31 Our employees provide top-tier customer service . MA INTA IN ING OPERATIONAL EXCELLENCE Lowering Outage Time Per C ust omer Average Outage Minutes /Year Outstanding R esident ial Customer Sati sfaction Ra ting Rating 2011 J.D. Power Resident ial Cust omer S urvey APS Industry Average
32 2010 AP S GENERATION AND ENER GY FUEL MIXES Energy Fuel Mi x 33,781 GW h Genera tion Fue l Mix 26,828 GWh Genera tion Capacity Mix 6,293 MW Nuclear Coal Gas & Oil P urchased P ower Our ba lanced resource mix provi des our customers reliability and manages pr ice volati lity. MA INTA IN ING OPERATIONAL EXCELLENCE 46% 32% 22% 36% 26% 17% 21% 54% 28% 18%
Coal Performance Metr ics Nucl ear Capaci ty F ac tors SUP ERIOR POWER PLANT PERFORMANCE 33 Our nuc lea r and coal plants are strong baseload resources. MA INTA IN ING OPERATIONAL EXCELLENCE APS Commercia l Ava ilabili ty AP S Capac ity Factor Industry Capac ity Factor Industry 91% APS 91% 68% 81% 92% • Returned to superior pe rformance • 3,938 MW tota l managed capacity • 1,146 MW total APS share • 2014 goals: • Consi stent sit e capac ity factor grea ter than 90% • Operat ing costs exc luding fuel l ess than $0.02/kWh • Top -quarti le safety • 20 -year license extension approved by U .S. Nuc lea r Regulat ory Commission • Consi stent solid pe rformance • 2,747 MW tota l managed capacity • 1,753 MW APS share • Flee t operating strat egy • New commerc ial avail ability me tr ic measures plant rel iabilit y dur ing high-demand periods and marke t responsiveness
ARIZONA C ORP OR ATION COMMISSIONERS 34 IMPR OVING OUR REGULATOR Y ENVIRONMENT S andra Kennedy (Dem) Paul Newman (Dem) Bob Stump (Rep) Brenda Burns (Rep) Gary Pi erce (Rep)* Chairman Terms Through January 2013 The new composition provides opportunities for additional re lationships and process effic ienc ies. Terms Through January 2015 * Term limited
2011 RETAIL R ATE CASE FILING BENEF ITS 35 Provi des financ ial support AP S needs to achieve A rizona ’s energy goa ls Encourages progress toward sust ainabl e energy fut ure S upports renewable energy and energy effic iency C ont inues constructive regula tory framework establis hed in 2009 regulatory sett lement Promotes ra te gradual ism for customers IMP ROVING OUR REGULATOR Y ENVIRONMENT The rat e case provisions conta in a number of benef its for customers and shareholders.
2011 RETAIL R ATE CASE FILING KEY FINANCIAL ASS UMP TIONS 36 IMPR OVING OUR REGULATOR Y ENVIRONMENT R ate base $5.7 bi llion Return on equity 11% Capita l struc ture Long -term debt 46.1% Common equi ty 53.9% Base fuel ra te (¢/kW h) 3.24 Projected fue l-pr ice year for base fuel ra te 2012 Test yea r ended December 31, 2010 Updated ra te base, cos t of capita l and fue l pr ices underpin t he ra te request amounts.
OUR REGULATORY MIX 37 Most R ecent Rat e Dec isions $6.8 Billion Total Approved Ra te Base ACC F ERC Rat es Effec tive Da te 1/1/2010 6/ 1/2011 Test Year Ended 12/31/2007* 12/31/2010 Rat e Base $5.6 B $1.2 B Equity Layer 54% 54% Allowed ROE 11.00% 10.75% IMPR OVING OUR REGULATOR Y ENVIRONMENT The bulk of APS ’s revenues comes from a regula ted reta il rate base and a meaningful transmission business. * Adjusted to i nclude post t est-year plant in se rvice through June 30, 2009 Transmission 18% Genera tion & Distr ibution 82%
• Strengthens APS ’s earned ROE and financia l condition • Supports common dividend • Demonstrat es inc reased cooperation among APS, ACC Staff , res identia l consumer advocat e (RUC O) and other intervenors • Allows opportunity to he lp shape A rizona ’s energy future outside continual rate cases • Provides earnings support unti l next base ra te case • Esti mated pretax ea rnings benef its: $165 million, 2010; $180 milli on, 2011; and $254 mi llion, 2012 • Establishes expedited process for future base ra te cases 38 PR OGRESSIVE REGULATOR Y SETTLEMENT POS ITIONS APS W ELL THROUGH 2012 IMP ROVING OUR REGULATORY ENVIRONMENT APS ’s 2009 regula tory se ttlement conta ins a number of i nvestor benef its.
2009 REGULATORY SETTLEMENT S UMMARY 39 IMPR OVING OUR REGULATOR Y ENVIRONMENT The se ttlement provisions include earnings support until AP S ’s next ra te case decisi on. Estima ted Pret ax Earnings Benef its $ Millions 2010 2011 2012 S ettl ement agreement terms Base ra te inc rease $ 207 $ 207 $ 207 Line extensions treated as revenue 23 25 49 Pension and OPEB deferrals – 13 29 P alo Verde deprec iation reduc tion _ _ 34 Subtota ls 230 245 319 Less inte ri m base rate surcharge that ended upon genera l ra te case implementa tion (65) (65) (65) Tota l $ 165 $ 180 $ 254
40 • FERC Formul a Ra tes adopted in 2008 • Adjusted annually w ith 10.75% allowed ROE • Based on FERC F orm 1 and ce rta in projections • Reta il portion fl ows through ACC Transmission Cost Adjustor (TCA) • Recent transmission revenue changes CONSTRUCTIVE TRANSMIS SION RATE REGULATION Annual Revenue Rate Effect ive Dates Annual Revenue Rate Effec tive Dates Annual Revenue R ate Effecti ve Da tes Re tail Porti on (TCA) $ 38 M 7/1/2011 $(10) M 8/ 1/ 2010 $ 21 M 8/1/2009 W holesa le Porti on $ 6 M 6/1/2011 $ (2) M 6/ 1/ 2010 $ 2 M 6/ 1/ 2009 Total Increase (Decrease) $ 44 M $(12) M $ 23 M Equit y R atio 54% 51% 55% Rat e Base $1.2 B $1.1 B $1.1 B Test Year 2010 2009 2008 IMP ROVING OUR REGULATOR Y ENVIRONMENT W e have achieved transmission rate treatment wit h annua l adjustments.
41 S IGNIFICANT REGULATOR Y PR OGRESS SINCE 2005 IMPROVING OUR REGULATOR Y ENVIRONMENT W e have achieved a more supporti ve regula tory struct ure and improvements in cost recovery timing. Mechanism Adopted/ Last Adjusted Description Power Suppl y Adjustor (“PSA” ) April 2005 / February 2011 Recovers 90% of var iance be tween actual fuel and purchased power costs and base fuel rat e Inc ludes forward- looking, histor ica l and transition components Renewabl e Energy S urcharge (“RES ”) May 2008 / January 2011 Recovers costs rela ted to renewable init iati ves Collects projec ted dolla rs to meet RES targets Provides incentives to customers to instal l distri but ed renewable energy Demand-Side Management Adj ust ment Clause (“DSMAC” ) April 2005 / March 2011 Recovers costs rela ted to energy effic iency and DS M programs above $10 million in base rates Provi des performance incenti ve to AP S for net benef its achieved Provides rebat es and ot he r i ncentives to partici pa ting customers Environmenta l Improvement Surcharge (“EIS” ) Jul y 2007 / July 2007 Recovers re troactive ly costs rela ted to environment al upgrades not ful ly recovered through base ra tes Allows for cost recovery of ACC -approved projec ts Ret ail Line Extension Fees February 2008 /January 2010 “Pay as you go ” mechanism collects dolla rs spent for new distr ibut ion construc tion at beginni ng of projec t Be tter protects existing customers by allocating cost of expansion to deve lopers Transmission Cost Adjustor (“TCA” ) April 2005 / July 2011 Recovers F ER C-approved transmission costs rela ted to re tail customers Rese ts annual ly as result of F ERC Formul a Ra te process (see bel ow) FERC Formula Rates 2008 / June 2011 Recovers transmi ssion costs based on histori ca l costs per FERC Form 1 and certa in projec ted da ta Resets annua lly
TRANSMIS SION INVESTMENT ESSENTIAL 42 • 10 -Year Transmissi on P lan (115-kV and above) • $450 mi llion of new transmission investment • 258 miles of new lines • Increases import capability by 6% to met ro Phoenix and 39% to Yuma • Projects t o de liver renewable energy approved by ACC • Transmission investment di ve rsi fies regulatory risk • Const ruc tive regulat ory treatment • FERC formula rates and re tail adjustor S tra tegi c transmission is necessary to ma inta in re liabili ty and delive r di ve rsi fied resources to our customers. 100 MW 970 MW 1032 MW 350 MW 4300 MW 1005 MW Legend NORTH SAGUARO N . G ILA PALO VERDE - HASSAYAMPA YUCCA GILA BEND REDHAW K KYR ENE WEST WING BAGDAD 2016 PINNACLE PEAK CHOLLA NAVAJO . 2014 CORONADO FLAGSTAF F ( AP S ) 2013 2010 SUNDANCE 2014 F OUR CORNERS DESERT BAS IN Line Relocation 2014 Planned lines Existing lines S olar potential area W ind potentia l area 2012 DELANY 2012 MAZATZAL 2013 MORGAN 2010 2014 MAKING COMP ELLING CAP ITAL INVESTMENTS
43 Renewable Energy (RES ) Mi ni mum R equirements P ortion of re tail sa les t o be suppli ed by renewable resources 5% by 2015 15% by 2025 Di stri buted energy component 30% of t ot al requirement by 2012 APS committed t o approxima tely double 2015 requirement P ursuant to 2009 regulatory sett lement Energy Eff iciency Requi rements Increasing annuall y 2011-2020 Cumul ative energy savings as a pe rcent of re tail sales 3% by 2012 9.5% by 2015 22% by 2020 ARIZONA ’S RENEWABLE RES OURCE AND ENERGY EF FIC IENCY S TANDARDS We are committ ed to aggressive renewable and energy effic iency standards. MAKING COMP ELLING CAP ITAL INVESTMENTS
AZ SUN P ROGRAM SUMMARY PHAS E I 44 MAKING C OMPELLING CAP ITAL INVESTMENTS APS is investi ng up to $500 mi llion to own 100 MW of sola r generation by year-end 2014. Name Locat ion C apac ity Deve loper Ta rge t COD* Pa loma Gila Bend, AZ 17 MW F irst Solar 2011 Cott on C enter G ila Bend, AZ 17 MW Solon 2011 Hyder Phase 1 Hyder, AZ 11 MW SunEdi son 2011 Hyder Phase 2 Hyder, AZ 5 MW SunEdison 2012 Chino Va lley Chino Val ley, AZ 19 MW SunEdison 2012 Luke A ir Force Base Glenda le , AZ 14 MW SunPower 2013 Tot al Announced To Da te 83 MW To Be Announced 17 MW Program Tota l 100 MW As of June 30, 2011 * Commercia l Opera tion Da te
RENEWABLE P URC HASE POW ER CONTRACTS 45 MAKING C OMPELLING CAP ITAL INVESTMENTS Fuel / Contrac t Locat ion Original Deve loper Sta tus 1 P PA Signed Commercia l Opera tion Da te Term (years) Capacity Net (MW) Solar Solana Gi la Bend, AZ Abengoa UC F eb-2008 2013 30 250 A jo Ajo, AZ Recurrent UC Jan-2010 2011 25 5 Prescott Prescott, AZ SunEdi son UC Feb-2010 2011 30 10 Sola r 1 Tonopah, AZ Not Di sclosed AD Jan-2011 2012 30 15 Tot al Sola r 280 Wi nd A ragonne Mesa Santa Rosa, NM B abcock & B rown IO Dec-2005 Dec-2006 20 90 H igh Lonesome Mounta inair , NM Foresight / EME IO F eb-2008 Jul -2009 30 100 P errin Ranch Wind Willi ams, AZ NextEra Energy UC Jul-2010 2011 25 99 Tota l Wind 289 Geot hermal CE Turbo Imperial Count y, CA CalEnergy IO Jan-2006 Jan -2006 23 10 Total Geothe rma l 10 Biomass Snowfl ake S now flake, AZ Snowflake White Mtn. Power IO Aug-2006 Jun-2008 15 10 S nowflake S now flake , AZ IO Aug-2010 Jun-2008 1 10 Tota l Biomass 20 Biogas G lenda le Landf ill G lenda le, AZ Glendale Energy LLC IO Jul-2008 Jan-2010 20 3 Landf ill 1 S urpri se, AZ Not D isc losed AD Dec-2010 2012 20 3 Tota l Biogas 6 Total Renewabl e Contract ed Capacit y 605 As of June 30, 2011 1 AD = Advanced Development ; UC = Under Construc tion; IO = In Operat ion S nowflake White Mt n. Power
A WELL-BALANCED GENERATION POR TF OLIO 46 Fuel / P lant Loca tion Units Dispa tch Commerci al Ops. Da te Operat or Ownership Interest1 Ne t Capacity (MW) Nucl ear Pa lo Verde W intersburg, AZ 1 -3 B ase 1986 - 1989 APS 29.1% 1,146 Tota l Nuc lea r 1,146 Coal Choll a Joseph City, AZ 1-3 B ase 1962 - 1980 APS 100 647 F our Corners Farmington, NM 1-3 B ase 1963 - 1964 APS 100 560 F our Corners Farmington, NM 4,5 Base 1969 - 1970 APS 15 231 Nava jo Page , AZ 1-3 B ase 1974 - 1976 SRP 14 315 Total C oa l 1,753 Gas/ Oil - Combi ned Cycle Redhawk Arlington, AZ 1,2 Inte rmedi ate 2002 APS 100 984 W est P hoenix Phoenix, AZ 1-5 Intermedia te 1976 - 2003 APS 100 887 Tota l Gas/Oi l - Combi ned Cycle 1,871 Gas/Oi l - Steam Turbines Ocot illo Tempe, AZ 1,2 Peaking 1960 APS 100 220 S aguaro Red Rock, AZ 1,2 Peaking 1954 - 1955 APS 100 210 Tota l Gas/O il - Steam Turbines 430 Gas/O il – Combusti on Turbi nes Sundance Casa Grande, AZ 10 P eaking 2002 APS 100 420 Yucca Yuma, AZ 6 Peaking 1971 - 2008 APS 100 243 Saguaro Red Rock, AZ 1-3 P eaki ng 1972 - 2002 APS 100 189 West Phoenix Phoenix, AZ 1,2 P eaking 1972 - 1973 APS 100 110 Ocotillo Tempe, AZ 1,2 Peaking 1972 - 1973 APS 100 110 Dougl as Douglas, AZ 1 Peaking 1972 APS 100 16 Tota l Gas/Oi l - Combusti on Turbi nes 1,088 Sola r S ol ar -- As Available APS 100 5 1996 - 2006 Total Solar Tot al Genera tion Capac ity 6,293 As of December 31, 2010 1Includes leased genera ting pl ants. Multiple Stat e-wide Fac ilities 5 MAKING COMP ELLING CAP ITAL INVESTMENTS
47 F OUR CORNERS POWER PLANT F AC TS & FIGURES MAKING C OMPELLING CAP ITAL INVESTMENTS Common Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Commercia l Operat ion Da te 1963 1963 1964 1969 1970 Original Cost ($M) $37 $369 $166 Net Book Value at 12/31/10 ($M) $20 $125 $63 Current Deprec iation Ends 2031 Mi d-2016 Mid -2016 Mid -2016 2031 2031 C urrent Expira tion Da tes Si te Lease July 6, 2016 BHP Coal Agreement J ul y 6, 2016 Certa in Rela ted R ight s-of-Way July 6, 2016 Total Employees (549) 48 Common (75% Nati ve Ameri cans) + 75 Matr ix 193 233 Capacity (MW) 170 170 220 770 770 Ownership Percentages A rizona P ublic Service 100% 100% 100% 15% 15% Southern Cali forni a Edison - - - 48% 48% Public Service Company of New Mexico - - - 13% 13% Sa lt River Projec t - - - 10% 10% El Paso Electr ic - - - 7% 7% Tucson Elec tri c Power - - - 7% 7% Hea t Rate (B tu/kWh) 10,816 11,051 10,614 9,443 10,035
