Pinnacle West Reports Lower 2022 Full-Year and Fourth-Quarter Results

Rhea-AI Summary

Pinnacle West Capital Corp. (PNW) reported a 2022 net income of $483.6 million ($4.26 per diluted share), down from $618.7 million ($5.47 per diluted share) in 2021. The fourth quarter saw a net loss of $24 million ($0.21 per share), compared to a profit of $27.6 million ($0.24 per share) the previous year. Key challenges included lower revenue due to the prior rate case outcome and increased operational costs. Conversely, the company experienced a 2.1% customer growth and aims for 1.5% to 2.5% growth until 2025. PNW's Clean Energy Commitment focuses on providing 100% clean electricity by 2050. For 2023, earnings are projected at $3.95 to $4.15 per share.

Positive

• Customer growth of 2.1% in 2022, with an expectation of 1.5% to 2.5% through 2025.
• Annual retail electricity sales increased by 2.4% in 2022 and are expected to average 4.5% to 6.5% annually through 2025.
• APS ranked among the most improved utilities for customer satisfaction, achieving above industry benchmarks.
• Continued progress on Clean Energy Commitment, aiming for 100% clean electricity by 2050.

Negative

• Net income decreased by 22% year-over-year due to the unfavorable rate case outcome.
• Reported a net loss of $24 million in Q4 2022, compared to a profit in Q4 2021.
• Higher operational costs, including depreciation and an impairment charge from a non-utility equity investment.

• Results reflect negative impact of company’s prior rate case
• Full-year financial results buoyed by higher customer usage, robust customer growth and strong operational performance
• APS ends year among most improved utilities for residential and business customer satisfaction
• Company continues progress on Clean Energy Commitment

PHOENIX--(BUSINESS WIRE)-- Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders of $483.6 million, or $4.26 per diluted share, for full-year 2022. This result compares with net income of $618.7 million, or $5.47 per diluted share, in 2021.

For the quarter ended Dec. 31, 2022, Pinnacle West reported a consolidated net loss attributable to common shareholders of $24.0 million, or a loss of $0.21 per diluted share compared with net income of $27.6 million, or $0.24 per share, for the same period in 2021.

The lower 2022 full-year results reflect the unfavorable outcome of the company’s prior rate case, which was implemented on Dec. 1, 2021. As a result of that rate decision, the Company is no longer deferring costs related to the Four Corners selective catalytic reduction (SCR) and Ocotillo modernization projects to a regulatory asset. These costs are now reflected in the income statement and result in a reduction in net income.

Other factors negatively affecting 2022 results included lower revenue driven by the inability to continue using alternative revenue accounting treatment for the lost fixed cost recovery (LFCR) mechanism; higher depreciation and amortization expense due to increased plant assets and updated depreciation rates; higher operations and maintenance expense; and an impairment charge related to a non-utility equity investment held by subsidiary Bright Canyon Energy. These negative factors were partially offset by higher revenue driven by the effects of weather; strong customer growth; higher retail sales; increased transmission revenue and lower income taxes.

“The past year was one of our most challenging years in recent memory as we faced major financial headwinds resulting from the outcome of our last rate case,” said Pinnacle West Chairman, President and CEO Jeff Guldner. “The effect of that decision by the Arizona Corporation Commission (ACC) required a financial reset and resulted in a 22% decline in year-over-year profitability.”

Even so, Guldner said the full-year 2022 financial results came in above budgeted expectations as a direct outcome of favorable weather, robust customer growth, higher-than-expected sales growth and a resolute workforce. “Our employees effectively responded to the challenges thrown their way. We met or exceeded nearly every target we set for ourselves – including delivering strong service reliability to our customers,” he added. “By executing on our comprehensive operational and financial strategies, we enter 2023 in a solid position to provide top-level service for our customers and energize Arizona’s economic expansion.”

Arizona’s Economy: Opportunity Amidst Challenges

As the nation faces a weakening economic climate, the Arizona economy is more diverse than ever. With a record number of people, businesses and advanced manufacturing giants moving to the state, the company’s service territory remains among the fastest growing in the nation.

Arizona Public Service Co. (APS), the company’s principal subsidiary, experienced customer growth of 2.1% in 2022 and anticipates additional growth in the range of 1.5% to 2.5% through 2025.

Annual retail electricity sales increased 2.4% in 2022 compared with the prior year and are expected to average an incredible 4.5% to 6.5% annually through 2025 after already averaging a solid 2.5% for the past three years.

Making Customers Our Priority

Employees remain committed to putting customers first and achieving an industry-leading best-in-class customer experience. As a result, extraordinary progress was made on that front in 2022. APS earned customer ratings making it one of the most improved utilities in the nation for both residential and business customer satisfaction as rated by J.D. Power (JDP).

Compared to 2021, APS achieved quartile gains in every single driver of residential customer satisfaction, firmly lifting the company into the second quartile nationally. Consequently, overall residential satisfaction is now above industry benchmarks when compared to the company’s large investor-owned peers. APS’s strongest performing drivers for the year were Customer Care (phone and digital), Power Quality & Reliability, Corporate Citizenship, and Billing & Payment.

Additionally, JDP’s Business 2022 full-year results place the company in the top – or first – quartile of utilities nationally for business customers.

Advancing Arizona’s Clean Energy Future

Following the third anniversary of its Clean Energy Commitment, the company continues to advance its goal of providing customers with 100% clean, carbon-free electricity by 2050 – while taking the necessary steps to maintain reliability and affordable prices for customers over the long term.

Since 2020, the company has procured 2,115 megawatts of energy resources, consisting primarily of carbon-free solar and energy storage facilities across our system. This year alone, the company expects to add 210 MWs of utility-scale solar energy, 238 MWs of wind energy, and 341 MWs of energy storage.

According to Guldner, a balanced energy portfolio, including continued reliance on Palo Verde Generating Station; natural gas-fired generation as a transitional resource; a gradual, well-planned departure from coal; and expanded energy efficiency and demand-side management programs “will help us maintain affordability and reliability for our customers during the clean energy transition.”

“This approach, combined with ongoing investments in the grid, provides a modernized, resilient and hardened system,” he stated.

Financial Outlook

For 2023, the company estimates its consolidated earnings guidance will be in the range of $3.95 to $4.15 per diluted share on a weather-normalized basis. Key factors and assumptions underlying the 2023 outlook can be found in the year-end/fourth-quarter 2022 earnings presentation slides at pinnaclewest.com/investors.

Conference Call and Webcast

Pinnacle West management will host a live webcast and conference call to discuss financial results and recent developments at 11 a.m. ET (9 a.m. Arizona time) today, February 27. 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 732504. A replay of the call also will be available until 11:59 p.m. ET, Monday, March 6, 2023, by calling (877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally and entering replay passcode 47401.

General Information

Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of approximately $23 billion, about 6,300 megawatts of generating capacity and nearly 5,900 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. 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:

• the current economic environment and its effects, such as lower economic growth, a tight labor market, inflation, supply chain delays, increased expenses, volatile capital markets, or other unpredictable effects;
• 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 or interpretations of existing legislation or regulations, 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;
• 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, including as a result of delays in the development and application of new technologies;
• the cost of debt, including increased cost as a result of rising interest rates, and equity capital and the ability to access capital markets when required;
• environmental, economic, and other concerns surrounding coal-fired generation, including regulation of GHG 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 Dec. 31, 2022, 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								TWELVE MONTHS ENDED
		DECEMBER 30,								DECEMBER 30,
		2022				2021				2022				2021
Operating Revenues		$	1,009,314			$	798,857			$	4,324,385			$	3,803,835
Operating Expenses
Fuel and purchased power			455,316				257,037				1,629,343				1,152,551
Operations and maintenance			271,680				261,936				987,072				954,067
Depreciation and amortization			189,704				170,782				753,195				650,875
Taxes other than income taxes			54,779				58,053				220,370				234,639
Other expenses			1,084				1,032				2,494				6,393
Total			972,563				748,840				3,592,474				2,998,525
Operating Income			36,751				50,017				731,911				805,310
Other Income (Deductions)
Allowance for equity funds used during construction			14,297				11,188				45,263				41,737
Pension and other postretirement non-service credits - net			24,748				28,440				98,487				112,541
Other income			2,311				8,492				7,916				45,100
Other expense			(37,634	)			(10,288	)			(52,385	)			(25,396	)
Total			3,722				37,832				99,281				173,982
Interest Expense
Interest charges			77,892				65,532				283,569				254,314
Allowance for borrowed funds used during construction			(8,983	)			(5,586	)			(28,030	)			(21,052	)
Total			68,909				59,946				255,539				233,262
Income Before Income Taxes			(28,436	)			27,903				575,653				746,030
Income Taxes			(8,750	)			(3,987	)			74,827				110,086
Net Income			(19,686	)			31,890				500,826				635,944
Less: Net income attributable to noncontrolling interests			4,306				4,306				17,224				17,224
Net Income Attributable To Common Shareholders		$	(23,992	)		$	27,584			$	483,602			$	618,720
Weighted-Average Common Shares Outstanding - Basic			113,298				113,005				113,196				112,910
Weighted-Average Common Shares Outstanding - Diluted			113,535				113,232				113,416				113,192
Earnings Per Weighted-Average Common Share Outstanding
Net income attributable to common shareholders - basic		$	(0.21	)		$	0.24			$	4.27			$	5.48
Net income attributable to common shareholders - diluted		$	(0.21	)		$	0.24			$	4.26			$	5.47

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230227005034/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 Pinnacle West's earnings results for 2022?

Pinnacle West reported a net income of $483.6 million, or $4.26 per diluted share for full-year 2022.

What is the earnings guidance for Pinnacle West in 2023?

The earnings guidance for 2023 is estimated between $3.95 and $4.15 per diluted share on a weather-normalized basis.

How did customer satisfaction change for Pinnacle West in 2022?

Pinnacle West's subsidiary APS was recognized as one of the most improved utilities for customer satisfaction, ranking above industry benchmarks.

What factors contributed to the decline in Pinnacle West's net income?

The decline was primarily due to the unfavorable outcome of a prior rate case, increased operational costs, and lower revenue.

What is Pinnacle West's Clean Energy Commitment?

Pinnacle West aims to provide 100% clean, carbon-free electricity by 2050, with ongoing investments in renewable energy sources.