Pinnacle West Reports Lower 2019 Second-Quarter Results

  • Cooler-than-normal weather drives quarter-over-quarter earnings decrease
  • Operations and maintenance expenses lower versus a year ago
  • Customer growth of 1.8 percent continues to underscore an expanding Arizona economy

PHOENIX--()--Pinnacle West Capital Corp. (NYSE: PNW) today reported consolidated net income attributable to common shareholders of $144.1 million, or $1.28 per diluted share of common stock, for the quarter ended June 30, 2019. This result compares with earnings of $166.7 million, or $1.48 per share, in the same 2018 period.

Our second quarter was marked by unusually mild temperatures. And, since weather variations have a direct impact on how much energy customers use to cool their homes and businesses, our retail sales and financial results were lower than a year ago,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt, noting that the opposite was true in this year’s first quarter, when colder winter weather drove an increase in energy revenues as customers used more electricity for heating.

Led by the mildest month of May since 1980, the effects of weather in the second quarter negatively impacted results by $0.31 per share compared to the year-ago period. For perspective, the moderate weather decreased the number of residential cooling degree-days (a measure of the effects of weather) 18 percent versus the same 2018 period, and 11 percent below average.

In addition to the effects of weather, customer refunds resulting from federal corporate tax cuts; lower market returns for pension and other post-retirement non-service benefits; and other miscellaneous items negatively affected the quarterly results.

Decreased operations and maintenance expenses (due in part to lower planned fossil plant outages and lower parent company costs) partially offset these negative factors. A lower effective income tax rate and higher transmission revenues also positively impacted quarterly results. In addition, the company continued to experience solid customer growth of 1.8 percent, as well as a steady improvement in economic conditions.

Through the first two quarters of this year, the company’s consolidated net income attributable to common shareholders was $162.1 million, or $1.44 per diluted share of common stock. The result compares with $170.0 million, or $1.51 per share, in earnings for the first six months of 2018.

Pursuing Responsible Energy Policies

Looking to the future, Brandt said the company “will remain actively engaged in pursuing responsible energy policies that make sense – and provide value – for our customers and Arizona.”

APS, for example, continues to advance Arizona’s solar and clean-energy leadership. With last week’s Request for Proposal (RFP) announcement seeking additional solar and wind resources, the company continues to build upon one of the nation’s most extensive renewable energy portfolios. These new RFPs will provide needed resources in the early 2020s, and the solar generation will be designed with the flexibility to add energy storage as a future option. By 2021, the company expects to have about 2,500 MW of renewable energy – enough to power more than half a million Arizona homes.

The company also is aligned with state regulators in exploring the opportunities electric vehicles present in advancing the company’s clean energy objectives. To support the expected rapid growth of electric vehicles in Arizona, APS has implemented a program – Take Charge AZ – to increase charging infrastructure for fleets, workplaces and multifamily housing communities. The program provides charging equipment, as well as installation and maintenance. In turn, participants pay for any electricity costs and are encouraged to use the equipment when solar energy is abundant and energy prices are lower.

Financial Outlook

The company expects its 2019 consolidated earnings will be at the lower end of the previously disclosed range of $4.75 to $4.95 per diluted share, and expects to achieve a consolidated earned return on average common equity of more than 9.5 percent.

Key factors and assumptions underlying the 2019 outlook can be found in the second-quarter 2019 earnings presentation slides on the Company’s website at pinnaclewest.com/investors.

Conference Call and Webcast

Pinnacle West invites interested parties to listen to the live webcast of management’s conference call to discuss the Company’s 2019 second-quarter results, as well as recent developments, at noon ET (9 a.m. Arizona time) today, Aug. 8. 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, Thursday, Aug. 15, 2019, by calling (877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally and entering passcode 49598.

General Information

Pinnacle West Capital Corp., an energy holding company based in Phoenix, has consolidated assets of about $18 billion, about 6,000 megawatts of generating capacity and 6,300 employees in Arizona and New Mexico. Through its principal subsidiary, Arizona Public Service, the company provides retail electricity service to nearly 1.2 million Arizona homes and businesses. For more information about Pinnacle West, visit the company’s website at pinnaclewest.com.

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

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,” “project” and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. These factors include, but are not limited to:

  • our ability to manage capital expenditures and operations and maintenance costs while maintaining high reliability and customer service levels;
  • variations in demand for electricity, including those due to weather, seasonality, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures and distributed generation;
  • power plant and transmission system performance and outages;
  • competition in retail and wholesale power markets;
  • regulatory and judicial decisions, developments and proceedings;
  • new legislation, ballot initiatives and regulation, including those relating to environmental requirements, regulatory policy, nuclear plant operations and potential deregulation of retail electric markets;
  • fuel and water supply availability;
  • our ability to achieve timely and adequate rate recovery of our costs, including returns on and of debt and equity capital investment;
  • our ability to meet renewable energy and energy efficiency mandates and recover related costs;
  • risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty;
  • current and future economic conditions in Arizona, including in real estate markets;
  • the direct or indirect effect on our facilities or business from cybersecurity threats or intrusions, data security breaches, terrorist attack, physical attack, severe storms, droughts, 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 post-retirement benefit plans and the resulting impact on future funding requirements;
  • the liquidity of wholesale power markets and the use of derivative contracts in our business;
  • potential shortfalls in insurance coverage;
  • new accounting requirements or new interpretations of existing requirements;
  • generation, transmission and distribution facility and system conditions and operating costs;
  • the ability to meet the anticipated future need for additional generation and associated transmission facilities in our region;
  • the willingness or ability of our counterparties, power plant participants and power plant land owners to meet contractual or other obligations or extend the rights for continued power plant operations; and
  • restrictions on dividends or other provisions in our credit agreements and Arizona Corporation Commission orders.

These and other factors are discussed in Risk Factors described in Part 1, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which readers should review carefully before placing any reliance on our financial statements or disclosures. Neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by law.

PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)
 
 
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,

2019

 

2018

 

2019

 

2018

 
Operating Revenues

$

869,501

 

$

974,123

 

$

1,610,031

 

$

1,666,837

 

 
Operating Expenses
Fuel and purchased power

 

242,222

 

 

257,087

 

 

472,810

 

 

454,197

 

Operations and maintenance

 

227,543

 

 

268,397

 

 

473,177

 

 

534,079

 

Depreciation and amortization

 

147,374

 

 

145,436

 

 

296,081

 

 

290,261

 

Taxes other than income taxes

 

55,090

 

 

53,607

 

 

110,180

 

 

107,207

 

Other expenses

 

683

 

 

7,434

 

 

1,110

 

 

7,597

 

Total

 

672,912

 

 

731,961

 

 

1,353,358

 

 

1,393,341

 

 
Operating Income

 

196,589

 

 

242,162

 

 

256,673

 

 

273,496

 

 
Other Income (Deductions)
Allowance for equity funds used during construction

 

7,572

 

 

13,073

 

 

18,760

 

 

27,152

 

Pension and other postretirement non-service credits - net

 

6,374

 

 

12,006

 

 

11,488

 

 

24,865

 

Other income

 

12,885

 

 

6,598

 

 

20,054

 

 

10,583

 

Other expense

 

(4,350

)

 

(3,771

)

 

(8,708

)

 

(7,000

)

Total

 

22,481

 

 

27,906

 

 

41,594

 

 

55,600

 

 
Interest Expense
Interest charges

 

57,465

 

 

60,708

 

 

118,118

 

 

119,662

 

Allowance for borrowed funds used during construction

 

(4,494

)

 

(6,291

)

 

(11,159

)

 

(13,046

)

Total

 

52,971

 

 

54,417

 

 

106,959

 

 

106,616

 

 
Income Before Income Taxes

 

166,099

 

 

215,651

 

 

191,308

 

 

222,480

 

 
Income Taxes

 

17,080

 

 

44,039

 

 

19,498

 

 

42,774

 

 
Net Income

 

149,019

 

 

171,612

 

 

171,810

 

 

179,706

 

 
Less: Net income attributable to noncontrolling interests

 

4,874

 

 

4,874

 

 

9,747

 

 

9,747

 

 
Net Income Attributable To Common Shareholders

$

144,145

 

$

166,738

 

$

162,063

 

$

169,959

 

 
 
Weighted-Average Common Shares Outstanding - Basic

 

112,337

 

 

112,115

 

 

112,381

 

 

112,067

 

 
Weighted-Average Common Shares Outstanding - Diluted

 

112,651

 

 

112,471

 

 

112,734

 

 

112,482

 

 
Earnings Per Weighted-Average Common Share Outstanding
Net income attributable to common shareholders - basic

$

1.28

 

$

1.49

 

$

1.44

 

$

1.52

 

Net income attributable to common shareholders - diluted

$

1.28

 

$

1.48

 

$

1.44

 

$

1.51

 

 

Contacts

Media Contact: Alan Bunnell (602) 250-3376
Analyst Contact: Stefanie Layton (602) 250-4541
Website: pinnaclewest.com

Release Summary

Pinnacle West Capital Corp. reports lower 2019 second-quarter results due largely to unusually mild temperatures in the quarter.

Contacts

Media Contact: Alan Bunnell (602) 250-3376
Analyst Contact: Stefanie Layton (602) 250-4541
Website: pinnaclewest.com