Pinnacle West Reports 2021 Third-Quarter Results, Shares Long-Term Financial Outlook

Rhea-AI Summary

Pinnacle West Capital Corp. (NYSE: PNW) reported Q3 2021 net income of $339.8 million ($3.00 per share), down from $346.4 million ($3.07 per share) in Q3 2020. Revenue decline was influenced by milder weather compared to last year's heatwave. Despite challenges, customer growth increased by 2.3%, aiding operational performance. The Arizona Corporation Commission's unfavorable rate case decision led to a cut in return on equity from 10% to 8.7%, prompting the company to consider legal challenges. The financial outlook for 2021 expects earnings of $5.25 to $5.35 per diluted share.

Positive

• Increased customer growth of 2.3%.
• Operational performance remained strong despite weather challenges.
• Higher transmission revenue and pension credits contributed positively.

Negative

• Q3 2021 net income declined to $339.8 million from $346.4 million YoY.
• Arizona Corporation Commission cut return on equity from 10% to 8.7%.
• Total bill decrease of $4.8 million due to rate case decision.

•  Lower quarterly revenue driven by the effects of milder weather
• Strong operational performance, increased sales and customer growth help offset weather impacts
• Company to pursue legal challenges following recent rate case decision

PHOENIX--(BUSINESS WIRE)-- Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders for the 2021 third quarter of $339.8 million, or $3.00 per diluted share. This result compares with net income of $346.4 million, or $3.07 per share, for the same period a year ago.

The lower third-quarter 2021 results were largely impacted by weather that was less intense than the same period a year ago, when a historic heatwave and record temperatures helped push revenues upward. Other factors affecting the recent quarter include higher depreciation expense, partially offset by higher customer usage, 2.3% customer growth, increased transmission revenue, higher pension and other post-retirement non-service credits, and lower operations and maintenance expense.

“Our most important accomplishment – especially during the hot Arizona summer months – is maintaining the high quality of service and reliability our customers count on and expect of us,” said Pinnacle West Chairman, President and Chief Executive Officer Jeff Guldner. “Our diverse generation fleet – including critical baseload generating stations like Palo Verde and Four Corners – performed well, ensuring we met increased customer demand, while helping avoid reliability challenges faced in other states. At the same time, disciplined cost management remained a central theme for our employees.”

Guldner said the 2021 summer season presented several operational challenges, including more than 1,400 statewide wildfires that burned about 300,000 acres across Arizona Public Service Co.’s (APS) service territory; an active monsoon season that necessitated the replacement of 273 poles damaged by storms; and intense triple-digit heat that routinely characterizes Arizona summers.

According to the National Weather Service, Phoenix experienced 22 days of 110-plus degree temperatures (compared to 53 last year) with the hottest day this summer hitting 118 degrees on June 17. That day was the high mark of a record string of six consecutive days of 115-plus degree temperatures (June 15-20). Even with the fast start to summer, this year’s third-quarter cooled off, and temperatures were milder than the same period a year ago, when an extraordinary run of excessive heat contributed to Arizona’s hottest summer on record. Residential cooling degree-days (a utility’s measure of the effects of weather) in the 2021 third quarter decreased 27.5% compared to the same timeframe a year ago and were 10.6% lower than historical 10-year averages. Additionally, the Phoenix metropolitan’s summer monsoon proved to be the third wettest over the last 41 years, helping lower overall temperatures.

“The past quarter saw the APS Promise of a renewed commitment to our customers in action, both in the field and behind the scenes,” Guldner added. “By focusing on operational excellence and keeping customers’ experience front of mind, our employees continued to deliver value to our customers and shareholders – all while serving one of the fastest-growing service territories in the U.S. and still dealing with the ongoing pandemic.”

Rate Case Outcome and Next Steps

Earlier this week, the Arizona Corporation Commission (ACC) voted on the APS 2019 rate case following multiple days of contentious deliberation. The distinctly unfavorable decision contains numerous elements that are problematic, including:

- A total bill decrease of $4.8 million, including the effect of adjustors, but excluding temporary Coal Community Transition impacts;

- Disallowance of a portion of the Four Corners Power Plant emission control assets of $216 million in a wrongful application of the state’s well-established standard of prudence; and

- A cut in the company’s return on equity from 10 percent to 8.7 percent – the lowest for any mid- to large-sized vertically integrated, investor-owned utility in the U.S. with 2020-2021 rate case results.

"Our most important responsibility is to our customers, who depend on APS for the energy infrastructure that will power Arizona’s prosperity far into the future. The ACC’s decision ignores that crucial responsibility,” Guldner emphasized. “While customers will see some benefits from this decision – including greater bill assistance for those in need – the Commission failed to recognize that we are among the fastest-growing states in the nation and need to attract capital to fund the growth and economic development that our state is experiencing. Their overall decision ultimately will raise costs for customers and makes it more difficult for APS to support growth in Arizona.”

Guldner reiterated that the ACC’s decision leaves the company with no choice but to pursue legal challenges.

Financial Outlook

Following the recent conclusion of APS’s rate case, the company expects its 2021 full-year ongoing consolidated earnings will be within a range of $5.25 to $5.35 per diluted share on a weather-normalized basis. Looking ahead to 2022, the Company estimates its ongoing consolidated earnings will be within a range of $3.80 to $4.00 per diluted share.

Key factors and assumptions underlying both the 2021 and 2022 outlook can be found in the third-quarter 2021 earnings presentation slides 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 financial results and recent developments, and to provide an update on the company’s long-term financial outlook, at noon ET (9 a.m. Arizona time) today, Nov. 5. 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 (888) 506-0062 or (973) 528-0011 for international callers and enter participant access code 360712. A replay of the call also will be available at pinnaclewest.com/presentations or by telephone until 11:59 p.m. ET, Friday, Nov. 12, 2021, by calling (877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally and entering passcode 37822.

General Information

Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of approximately $22 billion, about 6,300 megawatts of generating capacity and more than 6,000 employees in Arizona and New Mexico. Through its principal subsidiary, Arizona Public Service, the company provides retail electricity service to more than 1.3 million Arizona homes and businesses. For more information about Pinnacle West, visit the company’s website at pinnaclewest.com.

Earnings per share amounts in this news release are based on average diluted common shares outstanding. For more information on Pinnacle West’s operating statistics and earnings, please visit pinnaclewest.com/investors.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements based on current expectations. These forward-looking statements are often identified by words such as "estimate," "predict," "may," "believe," "plan," "expect," "require," "intend," "assume," "project," "anticipate," "goal," "seek," "strategy," "likely," "should," "will," "could," and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. Several 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:

• the potential effects of the continued COVID-19 pandemic, including, but not limited to, demand for energy, economic growth, our employees and contractors, supply chain, expenses, capital markets, capital projects, operations and maintenance activities, uncollectable accounts, liquidity, cash flows or other unpredictable events;
• 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, seasonality (including large increases in ambient temperatures), the general economy or social conditions, customer and sales growth (or decline), the effects of energy conservation measures and distributed generation, and technological advancements;
• the potential effects of climate change on our electric system, including as a result of weather extremes such as prolonged drought and high temperature variations in the area where APS conducts its business;
• 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 and energy 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 through our rates and adjustor recovery mechanisms, including returns on and of debt and equity capital investment;
• our ability to meet renewable energy and energy efficiency mandates and recover related costs;
• the ability of APS to achieve its clean energy goals (including a goal by 2050 of 100% clean, carbon-free electricity) and, if these goals are achieved, the impact of such achievement on APS, its customers, and its business, financial condition and results of operations;
• 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 direct or indirect effect on our facilities or business from cybersecurity threats or intrusions, data security breaches, terrorist attack, physical attack, severe storms, or other catastrophic events, such as fires, explosions, pandemic health events, or similar occurrences;
• the development of new technologies which may affect electric sales or delivery;
• the cost of debt and equity capital and the ability to access capital markets when required;
• environmental, economic and other concerns surrounding coal-fired generation, including regulation of greenhouse gas emissions;
• volatile fuel and purchased power costs;
• the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement benefit plans and the resulting impact on future funding requirements;
• the liquidity of wholesale power markets and the use of derivative contracts in our business;
• potential shortfalls in insurance coverage;
• new accounting requirements or new interpretations of existing requirements;
• generation, transmission and distribution facility and system conditions and operating costs;
• the ability to meet the anticipated future need for additional generation and associated transmission facilities in our region;
• the willingness or ability of our counterparties, power plant participants and power plant landowners 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, 2020, and in Part II, Item 1A of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, 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								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
			2021				2020				2021				2020
Operating Revenues		$	1,308,254			$	1,254,501			$	3,004,978			$	2,846,021
Operating Expenses
Fuel and purchased power			427,452				353,171				895,514				780,074
Operations and maintenance			232,386				236,971				692,131				677,681
Depreciation and amortization			163,523				152,696				480,093				459,257
Taxes other than income taxes			57,608				54,978				176,586				168,514
Other expenses - net			(2,088	)			1,677				5,361				3,191
Total			878,881				799,493				2,249,685				2,088,717
Operating Income			429,373				455,008				755,293				757,304
Other Income (Deductions)
Allowance for equity funds used during construction			11,352				8,144				30,549				24,652
Pension and other postretirement non-service credits - net			28,135				14,118				84,101				42,171
Other income			12,083				13,881				36,719				42,888
Other expense			(6,182	)			(5,838	)			(15,219	)			(14,426	)
Total			45,388				30,305				136,150				95,285
Interest Expense
Interest charges			64,067				61,497				188,782				183,421
Allowance for borrowed funds used during construction			(5,273	)			(4,663	)			(15,466	)			(13,488	)
Total			58,794				56,834				173,316				169,933
Income Before Income Taxes			415,967				428,479				718,127				682,656
Income Taxes			71,863				77,234				114,073				98,086
Net Income			344,104				351,245				604,054				584,570
Less: Net income attributable to noncontrolling interests			4,306				4,873				12,918				14,620
Net Income Attributable To Common Shareholders		$	339,798			$	346,372			$	591,136			$	569,950
Weighted-Average Common Shares Outstanding - Basic			112,923				112,679				112,878				112,639
Weighted-Average Common Shares Outstanding - Diluted			113,217				112,987				113,178				112,912
Earnings Per Weighted-Average Common Share Outstanding
Net income attributable to common shareholders - basic		$	3.01			$	3.07			$	5.24			$	5.06
Net income attributable to common shareholders - diluted		$	3.00			$	3.07			$	5.22			$	5.05

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20211105005219/en/

Media Contact: Alan Bunnell (602) 250-3376

Analyst Contact: Amanda Ho (602) 250-3334

Website: pinnaclewest.com

Source: Pinnacle West Capital Corp.

FAQ

What were the Q3 2021 earnings for Pinnacle West Capital Corp. (PNW)?

Pinnacle West reported Q3 2021 net income of $339.8 million, or $3.00 per diluted share.

How did weather impact Pinnacle West's Q3 2021 financial results?

Milder weather in Q3 2021 compared to last year's historic heatwave led to a decline in revenue.

What customer growth did Pinnacle West experience in the third quarter of 2021?

Pinnacle West saw a customer growth of 2.3% in Q3 2021.

What was the return on equity after the recent Arizona rate case decision for PNW?

The return on equity was cut from 10% to 8.7% following the Arizona Corporation Commission's decision.

What is the financial outlook for Pinnacle West in 2021?

Pinnacle West expects its 2021 earnings to be within a range of $5.25 to $5.35 per diluted share.