PNW - Earnings call transcript Q4 2017 | Pinnacle West Capital Corporation

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Operator

Greetings and welcome to the Pinnacle West Capital Corporation Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stefanie Layton, Director of Investor Relations. Thank you, Ms. Layton.

begin. may You

Stefanie Layton

and I in Doug. our to everyone recent thank quarter Thank conference would call participating developments earnings, XXXX this full review performance. and for and you, year like operating webcast fourth to

here and Schiavoni, Our and Don Officer APS's Guldner, Executive Chief our our Public of also Jeff Brandt; Vice Hatfield. Operating CEO, President speakers with Jim Policy; be today APS's will us. Chairman CFO, and are Mark

Company that earnings slides will few Relations that details related of actual First, comments are financial these reconciliations slides information. with and on on assumes be to may information. based results contain certain obligation I contain need our on reliance undue to cover not materially available The using to these caution website, a statements. you you. along release Note we statements statements. we our update from and place expectations, Because Investor non-GAAP slides Today's with the forward-looking no our differ the current and expectations

in turn will shortly also contained be I by over call and on disclosures. actual Form filed available materially next X. this our MD&A for well days. that call this available document refer that language, to those cautionary identify now will It A statements, cause differ through forward-looking to the was XXXX our will risks be which Risk could Factors as the XX-K will sections, of results replay XX website morning. for the and telephone to Please Our Don. uncertainties March from as

Donald Brandt

financially, hours year we safety financial the My the public October in Xth strong Jim was XXXX well Our discuss straight us generating carbon-free joining of station will will exceeding year, fall completed fleet the the outstanding the expectations. another policy. were of perform notable of highlights year comments After areas for focus It's in results. outages days. production, Verde in our Palo when scheduled ahead XXXX. that team and year to of refuelings in also continued Palo completed XXXX megawatt Verde energy. both on for plant's electricity of million earnings time with the This all XXXX spring and completed XX.X you thank generating each in XX in and history for company our and the Stephanie, a is XXXX operationally XX dividend days. first outages increasing the Thanks, in completed and maintenance today. the

in by systems on continues storage storage. of for megawatts Our This the country. resources XX The focusing generation by XXXX agreement purchase demand. evolve will megawatts battery of of fleet with request solar peak meeting a additional for our to largest concluded XX and energy proposal one for clean integrating capacity power be with battery heating the

facility is national as our sun Although when the our solar on step peaks. leader with power expected the in power solar into a ensure for APS toward recognized in The more system, electricity begin early next demand customers storage is will energy of battery homes customer XXXX. evening than a Arizona serving helps to gigawatt this

focused are both necessary investments resources. clean the and energy support to Our technology these on additional resources

respond of implementation robust our investments most further of increase our that operations system, significant experience. electric and technology ability increased and control ADMS the a benefited has XXXX system improvements information were customer ability Among efficiency improved a information the the while has our our grid Our the customers. to from system. distribution strengthen new increased operations, customer or customers ADMS our advanced to were management system to remotely,

APS despite XXXX other have tangible years in safety electric top our demanding the the metrics we has decile reliability to best customer benefits. as safety quartile compared system pure weather. in our top improvements and performance utilities. and operational also ever. our distribution summer investment transmission people remains its for Our year achieved workplace. safest to in our In also hot excellence. of but truly not had to five men continued injury and of for resulted commitment only to reliability organization women reflects and our priority. free We'll commitment is distribution strive it zero, The The continue It's a indicative a top

demonstrates needs and Turning in to milestone the of XXXX. regulatory utility review was The outcome electric decision rate in a Arizona on of customers. of Commission's the the capitalizing our industry accomplishment meeting changing the front, clearly collaborative evolving the Arizona's positive interest Corporation dynamics our and

this transition continue new rates. progress customers' We as in to the our XXXX will

federal through the from to approved customers. We are the the on based reduction Although request April for the bill XXXX in $XXX directly mechanism items expense customers mechanism. rate tax there file control with to intend increase new environmental will to reductions to XXXX. for and be a our through reform tax year Commission will A Four passed Commission SCR reductions. be that in this The the tax savings public policy on XXXX of additional number decided tax adjustor at step adjustor of the included rate was review. a corporate is vote later subsequent savings yesterday the filed Commission review is project plan site our million Corners The expected and complete, to management federal application to be from the pass customers the in demand

without to economically magnifying state-wide over middle or more In the integrate on sources continue discussions addition generation the clean in challenges energy the jeopardizing reliability ways of day.

resources, consumer employees around center flexible priorities strategic our innovation. and XXXX For engagement,

on new deliver our our the dedicated programs our develop depend and The the to integrate employees commitments mission delivering enhance reliability we sustainable our priorities changing on their support In of to trust new to customers. who us technologies as to that experience adopt overall investment. us. align we communities These shareholders our plan energy and performance of that capabilities, and of the core people of with services leverage programs we another our our and and year we efficiently the customers. customers delivering meet serve, needs initiatives consumer focus who summary, safely Specifically, driven with performance outstanding on achieved

have we Jim. execute senior the and on priorities. alignment to collectively now XXXX leadership call these over clear amongst turn to For I'll priorities the

James Hatfield

thank Thank everyone you Don. morning us year the you for fourth full of and joining financial And for again our results today. reported XXXX. This quarter we

of As we on you year. three a had material can slide see solid the

XXXX briefly the Before quarter. results, factors the our some details I the review touch of me on from key let of

$X.XX share Slide For quarterly decrease the fourth quarter the which to compared per for the fourth drove the our outlines of earned $X.XX variances of per XXXX. earnings. in share we four XXXX quarter

Looking sales the positive and transmission related adjusted revenue rate margin at gross all increase were contributions. higher revenue

and SCR Corners operations the to XXXX in installation XXXX As decreased maintenance Four we cost expense the fourth related earnings largely at due to anticipated outage compared plant adjusted of unit higher the to higher the X.

five with delivered and to effective that that There effect in in share was your $X.XX. than highlights to incremental driven key to margin revenue to also Note growth to per strong projected benefit of $X.XX by XXXX. due part higher continue offset XXXX in expenses and guidance Higher earnings August $X.XX margin. $X.XX in add components. revenues there in gross and were results LFCR effected attention in sales to to and of related were contributed revenues. a the results some growth into range XX, contributed margin higher went that share turning Gross average our exceeded margin XXXX Now customer management driver of increase I’ll combined on XXXX Actual added year our $X.XX results. increases prices. share. slide review We related cost operating rate higher however, core that the our key partially full per gross were XXXX Transmission $X.XX compared $X.XX per gross

expense properties and costs compared D&A The to to amortization to decreased partially relative was tax of the of primarily approved lower were XXXX Higher operations Looking due part earnings slightly rate deferral XXXX the of related the higher per largest part and XXXX to XXXX fossil review cost in XXXX review that by the was high cost. taxes XXXX. to reflect benefit rate next operating order. related other to technology impacts increase earnings property in higher to impacts to rates taxes XXXX resulted as order as plant Verde employee were increase review up operating expense to at value by and of million amortization XXXX XX and was Palo the the the and in offset order. XXXX rate in XXXX property expenses, generating information in in Other reflecting higher Primarily includes offset depreciation compared annual fall XXXX property additions amortization lower and share. $X.XX higher maintenance related values

charges of net to higher XXXX AFUDC. AFUDC in expense, compared progress earnings included to interest to work partially reduced XXXX. interest contributed in due higher construction offset higher is Lastly by balance balances This

bring strength community one Arizona's and Phoenix slide of headquarters market. broad-based related economy. million finance we Arizona’s this growth Metro in move This continues This the estate construction The its local also to by As to market. as area growth some XX.X% to healthcare, expansion support the Company and in of with on West the job Recently, of This The expected the manufacturing, I’ll Phoenix and in the the reflects average is job X.X% for economy largely Phoenix. had year. economic the Through seeing in upper above was set plant to trends the integral rate average job is growth continue know Motor XXXX build residential of part driven unemployment of to a in six. seen Phoenix construction. job the U.S. employment leaders X% the growth Phoenix would increased national December investment begin area also panel new continues be Metro Nikola and thesis. $X example entire Metro cover of above to tourism, it ongoing our business move market. we to our an are announced Phoenix Metro show manufacturing and Metro real political development. and jobs

allow growth economic base low conditions grew should XXXX. since market in rates to over Metro the six, the for new upward We X.X% the You Reflecting more expand XXXX. last that single-family is pace in the Permits generally were growth have this level improvement is seen to the returned The rate to the years. steady highest post-recession the believe to highest job which the activity the in meaningful at solid can slide in lower in and of see home trend. levels panel in continue customer housing to Phoenix support also affected is providing prices and XXXX next of XXXX retail housing XXXX. early couple homes market mortgage the economy APS’s continue the which since construction

response to expected We that in trends rate discussed. growth continue just gradually this growth I to economic will accelerate

short-term the long-term place. supporting November of purposes. status on to Importantly In XXXX, growth funded net the population, pension our million term million the to fundamentals debt our XX% million West XX no were strong to three senior the outstanding debt year-end XXX million Pinnacle the borrowings pension unsecured repay Arizona is of West for in of healthier XXX economic development as largely at on appear due to activities year The short-term liability future continued outstanding. loan fourth we liquidity in Switching note This of our remain quarter to Pinnacle proceeds to APS XX investment expect West issued long-term topics up and success be has Pinnacle A APS. strategy. financing corporate had the at of $XXX notes. of Overall and issue in and at job X.XX% used general XXXX. remains end quick driven

outlook trends Turning X $X.XX guidance as coupled shown management with by $X.XX to is Pinnacle gross continuation per financial a increase cost for from solid favorable slide to in our of of This $X.XX forecast. in $X.XX the we our range expect cost earnings earnings West margin on per guidance now consolidated supported and to be our $X.XX, XXXX will up share. and share share per

tax the and last earnings incorporates tax plant property which This lower rate margin gross more reform adjustor approved will our rate was outlook be expense by expect to Our rate. important the that and which remain and including impacts higher fossil mechanism and growth we offset related outage sales service mechanism adjustor cost taxes. effective the increase partially higher including also operating financial drivers higher other from plant D&A tax year’s review expense to

the fossil higher Unit outages a Four including appendix Redhawk. Corners slides. and half spending installation will plants we and billion base We that XXXX. X in have rate level year's our to assumptions around rate X.X at and we outage updated of As and SCR grow list in revised vary. And XXXX forecast have in of outlook as individual underlying such spend a XXXX billion our to continue extended for at base be capital to material reminder, capital this expenditures increased With the plant we average although X% included annual you gas expect factors planned expenditures our of to may our X.XX cost capital XXXX APS’s we to an to the our included key to forecast today's X% anticipate in see of is our first XX-day Also rate XXXX.

a some of XX% walk closing mix we APS. will after tax to in results reduction Jobs Before on Though the these of and regulated and required rate various are effects up XXXX rate we in relieve for tax also regulatory rate the Under for pressure. of provisions. excess $X.X excess run deferred provision, billion Cuts normalization the impact million gained corporate reform. growth taxes majority notably $X.X tax utility. few the of package the through liability to view take deferred most favorable to balance reform new subject the and IRS preservation of the The tax tax deductions impacts Act minutes are is I’ll interest The property the of Tax the a

a expect our federal During our and level million approximately related perspective, XXXX preliminary operator year which state the material earnings turn questions. changes impact depreciation. over regulators tax estimates given don’t and we This show the tax base parent to prepared a XXX excess and the period XXXX base, return over the these the XXXX be back both increased working to tax remarks. lower per deferred now for the a rate From call of with will customers. PNWs incremental reform as minimal determine from package to debt. to rate cash in to result our concludes legislative especially rate I'll We

Operator

[Operator Instructions] with first comes Gordon proceed line question question. Our the with of Evercore. Greg your from Please

Greg Gordon

and us only that equal is AFUDC for meaningful in So so XXXX, it looking can the move that at in is that financial the brief you the is explains the as explanation - things the appears up drivers near-term outlook to for change that why? the just that all higher a if give by range correct. And

Donald Brandt

in But Yes, so think masked But being in expect although gross that O&M range seeing finished estimate we the did have the really also we over customer of more XXXX. margin expect show change continued the that’s was year by O&M in where one work due as we we’re in well. the we driver improvement so downward progress higher there the an fact to and driven We for not I X.X% economy also is lower XXXX reform. construction that X.X tax XXXX. growth year retail big revenue electric what’s to at it's and

Greg Gordon

So before? ranges in you’re electric O&M all better though were didn’t you’re so the then for ranges margin within those change things even you inside equal them sort gross of -

Donald Brandt

controls. the see cost right. effective of That’s We continuation

Greg Gordon

improvement that? due growth think customer sort you rate you’ve in in between to sort or historically its obviously net to that's revenue you of improvement that the design margin gross us spread great that have that seen gross of would given are - growth I some design a the allowing And revenue and expect the you gross what changes -

Donald Brandt

I to realized and think XXXX. to expect higher XXXX X% in we of due to in half X.X% we are X.X% seeing sales last higher it’s prices the

Greg Gordon

XXXX. on has then And especially of structurally investors your how think sort there been about power amongst through earnings some how when gets you to know it grows debate time

in which through be give numbers that help. and us we or X.X% on guidance, about targeting given sort models when so that to rate obsessing model and still clear but parent or rate not equity parent consistent XXXX assume can a that be you’re should of base the better layer utility be should notional here equity now that to we believe is You’ve drivers right? the whether of base your business But X.X% value you the that and your you return capital earn equity the given structure number, we or on better these equity

Donald Brandt

changed in thesis. investment Nothing That’s correct. our

Operator

next the comes America. of Our question your from with question. proceed Julien Dumoulin-Smith Please of Bank line with

Julien Dumoulin-Smith

of quick So questions. couple

as on pieces elaborate baked First fully modernization what potential you obviously clear of you medium How emerged maybe that the attention. know whether a - in potential bit otherwise numbers something opportunities here. those the amount on acquire here about has in as just that that? incremental grid the to Can some out that term relative them presenting future want little any well the here whether been got update the CapEx or I of constructive solar be you are? are the to may RFP have precise

Donald Brandt

the the then grid So drivers that’s big growth. side really of a really the by and on modernization reliability driven really distribution and

substations over future for year a growth of new as We next that’s sign well. have the preparing so three XX planned

are those big the So drivers.

Julien Dumoulin-Smith

stands. relatively But in fully it's reflected numbers the it as

Donald Brandt

because for projects. micro-grid none continue customer to but the we that’s not talk specific did we Yes, of nature at City of here the Phoenix with like airport have thanks with that a been

I maybe now. think thinking a best of it little as but incrementally upside So our reflects

Julien Dumoulin-Smith

on kind about latest Should of latest that XXXX further earned expect turning case a or just as given wean articulated. XXXX doing onwards from cost that away the you far. the the rate you think you thus to efforts we’re how earned obviously pressure ROEs, management bit to well looking we then expectations? beyond ROE here back little And comment you Can

James Hatfield

question earned I’ll X.X between answered control. to take X.X the - the and based continue somewhere last which we take revenue cost Don question on

a Four step in Corners have XXXX. We increase

So nothing regard. changed in that

Julien Dumoulin-Smith

Right ability level the same you at earn to is XXXX point? but at your specifically think or fair consistently XXXX ROE the even statement a this

James Hatfield

Yes.

Operator

next question Humphrey. from Agha with line SunTrust Please with of the your comes proceed question. Ali Our Robinson

Ali Agha

to in one going XXXX coming quarter original big of even said the back for coming guidance First both - up expectations. fourth and than drivers stronger the you

just X.X% cost I even numbers better things reported On fourth you customer about sales - normalized retail whether wanted was but negative for well the the revenue you side strong. with that to came as reconcile growth though us quarter pointed

So do strong negative customer reconcile we Can expected link than but retail those? revenues. you growth how actual but sales, higher just

Donald Brandt

price realized use electricity. the space when just their It’s on customer

Ali Agha

But the retail in usage the caught sales shouldn’t number? that normalized be growth weather

Donald Brandt

of number really a No, per unit. is revenue sold realized impact sales the the prices of of units

Ali Agha

So usage time words? in of other

Donald Brandt

Yes.

Ali Agha

this And longer it, XXXX then about plans financing tax XXXX reform any triggered financing term secondly on change of medium any as through think over all changes plans? front, that tax reform cycle would you at the your has your call that

Donald Brandt

this and Not in We're balance we A we’re so have sheet, equity on at strong minus debt a or FFO pristine this to time. at time. very planning an not looking

Ali Agha

at XXXX And looking the sort of is period? through are we period XXXX this

Donald Brandt

Yes.

Operator

with Fishman from your line next with question of Please Our comes question. the Charles proceed Morningstar.

Charles Fishman

on third XXXX, prospective have to all? that question, would I in for the would expect go at bullet - point on down customers or left for that guidance be Slide can transmission backwards on XX they you rate had only reduction one

Donald Brandt

They be would they would be 'XX forward. retrospective, not

Operator

There in I’d like are comments. hand the to call closing to for questions management over back the no queue. further

Stefanie Layton

concludes joining our for today. call. you That Thank us

Operator

teleconference. for Ladies participation. and you conclude today's gentlemen, Thank your does this

have your wonderful And You lines a may disconnect day. time. this at

Pinnacle West Capital (PNW) 23 Feb 182017 Q4 Earnings call transcript