Pinnacle West Reports 2024 First-quarter Financial Results
Pinnacle West Capital Corp. (NYSE: PNW) reported consolidated net income of $16.9 million for the first quarter of 2024, compared to a loss in the same period in 2023. The positive results were driven by increased customer growth, higher revenue, new rates, and the sale of a former subsidiary. The company reaffirmed its full-year 2024 guidance amidst a thriving service territory and preparations for summer reliability and safety.
Consolidated net income of $16.9 million for Q1 2024, up from a loss in Q1 2023.
1.8% year-over-year customer growth and 5.9% sales growth.
Increased revenue due to new retail base rates, APS LFCR adjustor mechanism, and higher other income from a subsidiary sale.
Arizona's growing population and manufacturing growth contribute to a thriving service territory.
Focused on summer reliability and safety preparations to meet peak demand.
Higher depreciation and amortization expense due to increased plant assets.
Higher interest charges and operations and maintenance expenses.
Effects of weather impacting operations.
Implementing a new Public Safety Power Shutoffs program during extreme conditions.
Insights
The first-quarter financial results for Pinnacle West Capital Corp. indicate a significant reversal from a net loss in the prior year to a net income in the current year. One contributing factor is clear: new retail base rates, which have a direct impact on the company's revenue stream. Additionally, increased customer growth and usage are critical factors that reflect both the health of the business and the attractiveness of Arizona as a growth market.
On the expense side, there's a noted increase in depreciation and amortization, likely linked to capital investments, which may signal a company positioning for future growth albeit at the cost of current earnings. Higher interest charges indicate additional leverage, which requires careful monitoring as it could affect the company's financial flexibility. However, this is counterbalanced by the asset growth showing a company that is expanding and potentially increasing its revenue base.
Investors should view these results with a balanced perspective. The positive income shift signifies potential value creation and financial health, while the increased expenses could be seen as strategic investments. Over the long term, if customer growth and sales continue to trend upwards and are managed efficiently, shareholders could see sustained benefits. Yet, investors must consider the implications of rising costs and whether these are indeed investments for future stability and growth or just short-term impacts.
Investors must take into account the implications of Pinnacle West's operational announcements related to the summer preparedness, which speaks to the reliability and resilience of their service. Investments in infrastructure, such as advanced risk modeling tools and weather-tracking technology, are vital for a utility company, especially in a region with extreme weather conditions like Arizona.
Furthermore, the scheduled maintenance and refueling outage at Palo Verde Generating Station Unit 3 should be considered. As a large producer of carbon-free energy, its operational status is essential to meeting peak summer demand. The maintenance ensures reliability, which is important during periods of high energy demand, potentially affecting both customer satisfaction and operational costs.
Investors should note the proactive measures for wildfire mitigation. Such practices are not only becoming industry standards but also reduce the risk of costly damages and outages. The PSPS program, while a last-resort measure, shows a responsible approach to safety and risk management which could also serve to mitigate possible regulatory repercussions and enhance public perception.
The regional analysis provided in the financial statement underscores the importance of geographical factors on utility companies like Pinnacle West. Maricopa and Pinal counties are highlighted for their population increases and net domestic migration, which are likely drivers for the reported customer growth and increased electrical consumption. The connection between a thriving service territory and the company's financial performance cannot be overstressed.
Additionally, the reference to Arizona as a top market for manufacturing growth aligns with increased electricity demand, which could lead to higher future revenues. The cost-of-living data suggesting Arizona's affordability may continue to attract more residents and businesses and in turn, may catalyze sustained growth for the utility provider.
From an investment standpoint, continued population growth and industrial development in the service areas could create a favorable environment for stable, long-term demand for energy, which is fundamental for Pinnacle West's continued growth and profitability.
- Improved quarterly results impacted by customer growth, increased sales and new rates
- APS employees focus on summer preparedness, reliability and resilience
- Company reaffirms full-year 2024 guidance
The improved first-quarter results reflect the impact of new retail base rates which took effect March 8, 2024; increased customer growth and usage; higher revenue resulting from Arizona Public Service Co.’s (APS) Lost Fixed Cost Recovery (LFCR) adjustor mechanism and a surcharge resulting from the outcome of the utility’s 2019 Rate Case appeal; and higher other income largely due to the sale of a former subsidiary. These positive factors were partially offset by higher depreciation and amortization expense primarily due to increased plant in service and intangible assets; higher interest charges, net of AFUDC; the effects of weather; and higher operations and maintenance expense.
“The first quarter proved to be a strong start to our year and continued to build on the momentum of a growing and diverse customer base,” said Pinnacle West Chairman, President and Chief Executive Officer Jeff Guldner, citing
A Thriving, Growing Service Territory
According to recent data from the
Metro
Further, the research team at
Summer Reliability and Safety Preparations Underway
With Arizona’s temperatures already heating up, Guldner said, “Employees are focused on critical preparations to deliver safe and reliable power over our peak summer season – when our nearly 1.4 million customers need it most to cool their homes and businesses.”
Across a sprawling network of more than 38,000 miles of power lines, APS crews are on the front lines year-round conducting patrols – on foot, by vehicle and in the air – to protect and maintain a strong and resilient energy system. Key elements of the company’s summer readiness include operational preparedness, resource planning, sufficient reserve margins, customer partnerships to manage peak demand and fire mitigation. In addition, APS employees are nearing completion of a scheduled maintenance and refueling outage at Palo Verde Generating Station Unit 3. One of the largest producers of carbon-free energy in the
With Arizona’s hot summers, low rainfall and dry vegetation, the company is taking further action to support wildfire-prone communities by employing advanced risk modeling tools; installing innovative fire- and weather-tracking technology on the grid; using new advanced cameras on electrical equipment to monitor potential signs of a fire from a command center; and enhancing the company’s already robust wildfire mitigation program.
“We’ve employed industry-leading best practices over the past decade to help safeguard the communities we serve and our infrastructure from Arizona’s changing climate,” said Guldner. “As a hometown energy provider, we have a responsibility to do what we can to prevent wildfires, and we are thoughtfully investing in resources to ensure greater protection for the public, firefighters, our employees and the electric grid.”
Under extreme weather conditions and in a limited approach, APS also has implemented a new Public Safety Power Shutoffs (PSPS) program to maintain the safety of people, communities and firefighters. During extremely high-fire risk conditions, APS may shut off power to a specific area to prevent the electric system from starting or contributing to a wildfire through a downed wire or inadvertent spark. It’s a tool the company plans to use only when necessary.
The company’s focus on summer readiness extends to its work to deliver an industry-leading customer experience. Customer touchpoints – including an interactive outage map and email and text alerts – are being enhanced ahead of Arizona’s summer season. In conjunction with APS’s 24/7 Customer Care Center, these tools will help customers stay better informed during any outages.
Financial Outlook
For 2024, the company continues to estimate its consolidated earnings guidance will be in the range of
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 2024 first-quarter results, as well as recent developments, at 10 a.m. ET (7 a.m.
General Information
Pinnacle West Capital Corp., an energy holding company based in
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 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:
- uncertainties associated with the current and future economic environment, including economic growth, labor market conditions, 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 the most recent Pinnacle West/APS Form 10-K and 10-Q along with other public filings with the Securities and Exchange Commission, 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 | |||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||
| (unaudited) | |||||||
| (dollars and shares in thousands, except per share amounts) | |||||||
| THREE MONTHS ENDED | |||||||
| MARCH 31, | |||||||
|
2024 |
|
|
2023 |
|
||
| Operating Revenues | $ |
951,712 |
|
$ |
944,955 |
|
|
| Operating Expenses | |||||||
| Fuel and purchased power |
|
357,864 |
|
|
394,504 |
|
|
| Operations and maintenance |
|
257,578 |
|
|
250,080 |
|
|
| Depreciation and amortization |
|
210,294 |
|
|
191,906 |
|
|
| Taxes other than income taxes |
|
59,164 |
|
|
57,138 |
|
|
| Other expense |
|
20 |
|
|
610 |
|
|
| Total |
|
884,920 |
|
|
894,238 |
|
|
| Operating Income |
|
66,792 |
|
|
50,717 |
|
|
| Other Income (Deductions) | |||||||
| Allowance for equity funds used during construction |
|
10,292 |
|
|
15,061 |
|
|
| Pension and other postretirement non-service credits - net |
|
11,568 |
|
|
9,865 |
|
|
| Other income |
|
30,607 |
|
|
6,077 |
|
|
| Other expense |
|
(7,567 |
) |
|
(4,131 |
) |
|
| Total |
|
44,900 |
|
|
26,872 |
|
|
| Interest Expense | |||||||
| Interest charges |
|
99,774 |
|
|
88,119 |
|
|
| Allowance for borrowed funds used during construction |
|
(13,141 |
) |
|
(12,722 |
) |
|
| Total |
|
86,633 |
|
|
75,397 |
|
|
| Income Before Income Taxes |
|
25,059 |
|
|
2,192 |
|
|
| Income Taxes |
|
3,891 |
|
|
1,183 |
|
|
| Net Income |
|
21,168 |
|
|
1,009 |
|
|
| Less: Net income attributable to noncontrolling interests |
|
4,306 |
|
|
4,306 |
|
|
| Net Income (Loss) Attributable To Common Shareholders | $ |
16,862 |
|
$ |
(3,297 |
) |
|
| Weighted-Average Common Shares Outstanding - Basic |
|
113,621 |
|
|
113,358 |
|
|
| Weighted-Average Common Shares Outstanding - Diluted |
|
114,227 |
|
|
113,358 |
|
|
| Earnings Per Weighted-Average Common Share Outstanding | |||||||
| Net income (loss) attributable to common shareholders - basic | $ |
0.15 |
|
$ |
(0.03 |
) |
|
| Net income (loss) attributable to common shareholders - diluted | $ |
0.15 |
|
$ |
(0.03 |
) |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20240502257063/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 was Pinnacle West's net income for the first quarter of 2024?
Pinnacle West reported a consolidated net income of $16.9 million for the first quarter of 2024.
What factors contributed to the improved first-quarter results for Pinnacle West?
The positive results were driven by increased customer growth, new retail base rates, higher revenue, and the sale of a former subsidiary.
What is Pinnacle West's full-year 2024 earnings guidance range?
Pinnacle West reaffirmed its full-year 2024 guidance to be in the range of $4.60 to $4.80 per diluted share on a weather-normalized basis.
How is Pinnacle West preparing for summer reliability and safety?
Pinnacle West is focused on critical preparations to deliver safe and reliable power during peak summer seasons, including operational readiness, resource planning, and wildfire mitigation measures.
What is the purpose of APS's Public Safety Power Shutoffs program?
APS implemented the Public Safety Power Shutoffs program to maintain safety during extremely high-fire risk conditions and prevent the electric system from contributing to wildfires.
