PNW - Earnings call transcript Q1 2018 | Pinnacle West Capital Corporation

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Operator

Greetings. And welcome to the Pinnacle West Capital Corporation 2018 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure Relations. your my Director Stefanie now Investor of is to host, introduce Layton, It you. Thank

may You begin.

Stefanie Layton

webcast first Thank thank operating in and everyone Christine. performance. for review you, I participating this would conference developments earnings, recent quarter like to to and our call

CFO, with President Executive Our our here of are and Froetscher, be APS’s Public President Brandt; will Guldner, of also Jeff today Chairman and Policy; Hatfield. speakers Don APS's Vice operations CEO, us. our and Jim Executive Vice Daniel

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

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

Donald Brandt

well In and all quarter for Thanks, executed XXXX for solid first Stephanie, the year. remain a on of our and joining us we you today. priorities positioned thank

the time increase increase, installation provide the request was after The Power a at would emission Jim April on nitrogen increase customer benefits, likely increase in an few provides completed result customer bills This under filed offset the reduction selective rate improvements. of XXth On our substantial updates customers. recent reduction the XX% immediately investment January to requested that last calculated in effective the Four emissions a operational rate is and step full of I'll step of effective results, oxide other increase the review $XX.X Corners provides commission XXXX. a approve a Plant we installation. tool our budget. step recover X% details for review We’ve eliminates plant. that the SCR the X mechanism environmental SDR control approved and these our file our bill to previously conclusion on in million in discusses use be a the equipment need of regulatory developments. XXth, of step We've rate quarter for rate gradualism approximately adjustor a our the by commission from decreases. The project which and reduction increase catalytic at for The will including a first Before or on April

another operating April on our X to and A quarter outage station proceeding at Turning Xth refueling Verde is capacity. unit began Palo operations, had very planned Palo Verde for generating successful well. full

power substations, me, XXXX for and to for monitoring of an XXXX from meet come online storm the track hard the lines, Modernization on new role XXXX units of nation airspace. the to role, spring and excuse to is of efficiency inspecting our the at the in The Technology needs. damage savings to XXXX use has lines, activity play construction areas XX Ocotillo expected significant Federal Aviation the an summer drones became customers. for fly our produced drones of Additionally one important citing our then to in to capacity and of are APS inspecting operations. our first shared Ocotillo building approval Administration important in the Since solar continues Project. utilities reach In accessing fields, receive fall

the is mix designed anchored sustainable electric future, largest to the plan Palo energy to resource achieve Looking cleaner, carbon our United the by is a free in resource Verde, that States.

of already XX% over was in carbon At significant free. mix In milestone we've effort. fact, a our XXXX energy reached this of the end

progresses. this to integrated plan scheduled our updates a possible support incorporate resource and to a of resource date XXXX announced June capacity XXXX. sustainable clear between we XXX] multiple recently and energy from pm is period The X megawatts discussion modernization pm. achieving next September for the Our of filing [RFP April for around an energy goal we’ll as plan and issued continue peaking X RFPs within plan We peak to in-service XX will mix commission's issue year. the April On of

Arizona for These beginning provide bioenergy solicitations opportunities and released be in comprehensive forest retrofit these We a weeks. that meet owned needs to are competitive of resource seek utilize that the our will More early solar XXXXs. about APS also solutions information battery part plan effort the to in facilities. coming RFPs proposals specific

of Tom oversight inaccurate from electricity chambers greater with This Commerce irresponsible. to an including bill Chamber As ballot years. November that energy initiative XXXX by customer initiative. XXXX. of XX The commerce It some this you Xth average the has is an of require its economic by the reliable obtain seeks and and XXXX. cleanest would sponsors it's sources to state must July constitution may energy sponsor’s the have ballot. in ballot numerous in of information which Commerce, approximately the organizations campaign and the bad to regulatory and some of by signatures customers energy, At group the doubling one overly renewable local contains voiced utilities primarily actively XX% is Steyer opposition their ballot. is proposal informed other enshrine addition on state opposing ballot Arizona on in the safest, potentially accurate important Phoenix least, the The believe customers, the to regulation information We decision of the if funded Arizona clean to make for has Arizona a and be the - impair Chamber November most XXX,XXX organization filed customers. valid the hundred impacts aware, to proposal for initiative prescriptive place affordable would to over West about to country by state cost gather have this proposal. mandate that residents billionaire The out utilities Pinnacle California is of initiative and provided to Arizona's a

to that's maintaining improving a providing we only company time the but continue electricity, As dedicated will affordable we to and serve oppose reliable and not actively this safe, communities proposal. also

a that Puerto by Maria. Lastly, as part Electric workers XX crews from you restoration Rico Service following with said line of assist XX our effort on I would coordinated with in January Public Rico share Arizona mutual the We Edison Hurricane as Throughout returned this power vehicles to in and well the crews their to were staff, nationwide assistance when like mid up the island own and rebuilding clean Institute immerse to Puerto household essentials had need. more members just did power special off. helping themselves on their than restore storm helped. and reached to restoration days They deployment to took have time families community XX assignment who they Crew on are providing to proud damage, March XX%. their in homes support

each that call child bought members crew our in bicycle even our I'm Jim. so Arizona. every and these children. neighborhood company other a the of of of a to of how individuals he the proud for turn over state one now ride with One could I'll represented extremely

James Hatfield

line And everyone we you with first financial XXXX today. This which for of Thank results thank were for Don. again our expectations. you, us quarter reported our the joining morning in

Deposit few first mechanism, three As of per the and for by unfavorable change transmission the higher the share quarterly in share. per sales drivers. tax per compared our a changes period, first partially quarter drove were the the estimate and tax gross weather. wholesale the first reductions and rate customer maintenance the materials rates. $X.XX in Slide change TEAM first rates gross also revenues $X.XX quarter higher prior by per per or highlight revenues. offset through three margin quarter financial $X.XX related factors was key XXXX. Specific tax reform, XXXX, including Adjusted rate quarter margin that was decreased a by increase, a tax passed to share adjustor of always of effect the expense shown of with federal slide in transmission we of earned earnings our of impact our to reduction $X.XX year up supported share in I’ll XXXX ongoing variances in the on compared outlines share the

rate To hour lower credit for our pattern. were initiative seasonal more You will per rate is and pattern. of income impact notice the the based generally pre-tax through federal follow and our with customers on hour there kilowatt kilowatt earnings aligned tax sales earnings is based not The effective tax driver refund quarterly a will quarter. TEAM sales on their is the offsetting closely pre-tax

the As timing there a result year. difference throughout will be

expenses Corners to were Looking share, resolving to at costs by income. on maintenance the decreased reducing related slide the per Unit post-retirement and planned primarily the rates by the the of expenses, The component XXXX, additions. credit. is and credit related planned earnings per related operations share. pension XXXX review other rate primarily and earnings operating to higher of January presentation in now in Depreciation installation higher standard benefits the quarterly and approved non-service quarter the and to accounting of three, compared $X.XX orders X. quarter We in new adopted DNA due first Also higher to increase other Four pension to amortization new adjusted higher expense non-service XXXX outage in $X.XX driver first SCR

a income increased first addition portion by approximately the In capitalizing change longer In returns the the pre-tax $X of with increased combined are XXXX, capitalization, million we the non-service changing no credit. quarter. in

review the Corners granted Corners from was were we to installation drivers as Project. SCR's order, SCRs reminder, discussed a the I capital The no XXXX there the associated impact the accounting related quarter and As Four with on Modernization deferral net Four first deferral XXXX results. Ocotillo a reg

the an the Maricopa Arizona's two be Metro Arizona as story. in Arizona been county million integral ranked to reflects population the The the nation compared Phoenix fastest an attractive to markets. Phoenix average. continues continues of part Phoenix now The and X.X% job and the Metro residential increased past solid show to rate do national Turning economy, surpassed areas, XXXX the Metro job at for X.X% for business positive area in be continues and also This Metro growth to X.X% Phoenix US. live Metro have on estate growth growing to strength real has above to our in job continues place years. County of Phoenix employment February, to entire the X The it effect commercial business. a as market. employment

panel in to four, slide levels As last vacancy in are upper and seen of in or rates at markets fall earlier. commercial continue XXXX the the seen

X the As increase of in low about at QX. of space feet million square industrial a new and result activity under the construction end vacancy was rates

Additionally under as new the of well. retail end quarter the about X feet at space office construction square million and of was

Phoenix in a has market. and growth turn job growth market expect expansion in We which in support Metro will of real the related estate Phoenix residential commercial continued also the had continuation development. business

construction continue by of are about permits. base retail XXXX As income trend. the family first expected In [lower in quarter to single you the steady expected upward conditions. XXXX in compared has To by ABPs improvement housing reduce customer slide is see to post-recession permits to four X.X% - parts] the reflecting housing can driven increase XXXX, XXXX. to in

this that will review in growth In rate accelerate our financial closing, growth discussed. to just I continue response trends gradually earnings to expect We and will outlook. economic I guidance

for adjustment consolidated in mechanisms expect by The and offset DNA of Pinnacle the planned will to and partly earnings to sales other will which be entire and share. expect growth costs increase, tax. more the related $X.XX will XXXX important profitable we service property outage plant gross be per higher our operating and drivers, remain expenses range rate continue margin $X.XX higher We West for and to

adoption postretirement and the been focused outage in a the half is the a reminder, higher key appendix planned our we factors has reflect first list disused changes have other XXXX. the our earlier. cost benefits to I As and pension guidance revised of guidance complete to to of new underlying in accounting in slides, of assumptions related which included standard

of year to continue issue debt to overall strong. We up APS remain million at very expect liquidity and this long-term $XXX to

remains to an XXXX. call The of earnings X% base growth on at remarks. X.X% continues expect through equity XXXX. for I’ll the to average to achieve common rate the our company outlook prepared percent Our concludes X% on average through more over consolidated than operator back also return annual questions. now turn This

Operator

Instructions] [Operator Julien Dumoulin-Smith of line of first Bank comes you. America. from Thank Our question with

Julien Dumoulin-Smith

morning, good good afternoon. Hi,

Donald Brandt

Julein. Hey,

Julien Dumoulin-Smith

Hey.

to about the little just I situation. more So wanted understand a bit O&M

cadence the As perhaps you this and preview on a bit and about will? of of talked this, a forward going you know you're off you on. in roll normalizing figure how bit and the some because higher upgrades a are little I you've thinking if that the ‘XX just ‘XX O&M of outages Can the little elaborate before other give about that

Donald Brandt

it. for Go

James Hatfield

done gone through the increased know, outages the and two three well SCRs, major we've So as here we'll Four in we've to cycle. where be you preparing work as really years with Corners had for combined

run As on we to XXXX, normalized that beyond going that the thing outage prior you're we coal be would more and $XX million, to normal closing we rate range, in more for O&M with million next see what one XX XXXX. Navajo expect year had just units, get

Julien Dumoulin-Smith

Got right. it,

than level normalized said. XX, being XX more XX than the range rather XX So you as to XX,

James Hatfield

right. Yes,

Julien Dumoulin-Smith

seems on but that like brought there some and Got or happen? you Navajo there, obviously megawatts and detail elaborate dynamic maintaining were was on to a a any in it. any contracted proceeds keep media if you recent would otherwise you, to some is open, it were to And but interest actually there that actually basis can hope you another small up or receive this potential indications there

Jeffrey Guldner

Jeff. Julien. Yes, Its

on by operator so situation think the But current obviously a led and the has changed. SRP being power of the year there's that. the of Navajo been activity I So over don't lot they're is since plant situation last the

there's to have going other the SRP think watching continue plant they continue left. to effort an It's really after I hands. see develop. in to could if that operate But just that owners

Julien Dumoulin-Smith

there. I'll Thank much. you leave very it

Operator

your Lapides line Michael with comes question Please question. the next Our Sachs. from of with Goldman proceed

Michael Lapides

guys. Hey,

the to I'm your the of Just curious the system some that to - could going you want about or go go over few you as how going that folks of incremental I really to which you - now. of do customers either bid don't if is into ballot renewables on initiative. ballot comments think using out? that PPA, are years, view give really the kind the right the then raising of think in on about where initiative, lowering the into to plays see costs addition economics think is renewables you this all-in cost And your n

Donald Brandt

the one good integrate the one XX% obviously that's good and by In towards relatively and commission and have ridiculous the costs environment approaches it is our one and if case company renewables fashion of well. would Michael, the working depended for it the does extreme goal quite rest company's - impact it with dramatically customers Well impact a for it are how impact a on this the dramatic negative it XXXX in constructive, cost. and deliberate does on the on operations can and a

Michael Lapides

and conventional us you supplier. talk aspects and also last for both kept you you. self were actually be that that it. to of Public of And about thinking you pieces and needs Got I'm Can rate for supply able there Service Thank upcoming generation? could a then renewables can being case and the where other from remind supply Arizona settlement RFPs some

Jeffrey Guldner

Michael, Jeff. this is

RFPs language can - in to we've you we the - that. last provisions last the and get out So got There in exceptions the settlement. are

a when RFPs So RFPs do so some things agnostic that and cases, you we're these we point, and resource To know, peaking the is XXXX timing of we continue we we to when people have actually saw know, with timeframe. resource in and most combination need that fill. that XXXX, we do for for And was for to out capacity We RFP came the renewables a move trying forward last of the don't RFP Don's that, that a and in. bid in batteries. you go back the that our it in came in economic resource is the specify were we as bid one the of

and in to way. in point renewables, to a in build constructively can way develop a the So use continue you but do these better portfolio RFPs it's thoughtful that to to it to

Michael Lapides

the does then to some is And is like that base revenues it. the looks that that transmission and it Jim, rate line increase transmission factor? the it - to drop year-over-year other And one in higher bottom or or just does. Got for just

James Hatfield

wins. really formula - our when third-party as credit is come a that next or So off These winning contract rate. revenue we do

So it when of has bottom year it benefit happened, but it a impact. line a is the

Michael Lapides

guys. Thank you, it. Much appreciated. Got

Operator

Insoo comes line your proceed Kim Our from next question. of RBC. Please with question the with

: Insoo Kim

RFP. My Hey, contemplating especially plan plan, you The first guys in on have the generation thank were guys current that you you. incorporates I replacement, guess, in CapEx previous the question XXXX. the place, I that is assume,

the Given all cleaner resources, next equal, changes make could regards number, the the revision? renewables with else and that you trend that more potential to being up may in

James Hatfield

can we but really the Don chart it and anything then which in mean, the I XXXX. finishing in out as turns of we for on we up to alluded generation - - have it have could is several quarter you don't gas first as see reasons, new Ocotillo, 'XX,

contemplated. So but other battery have with changed currently things and obviously things, nothing storage

: Insoo Kim

year-over-year appendix retail normalized the to meaningful pretty back increase. it down tables regards I percent, you I guys drivers whether normalized the… looking at and weather reading – wrong, was on in sales like think then in were a just something the unless seems it the XX% I'm And was it. Got had what’s growth, sales

James Hatfield

dynamic really slightly, power, is year, had which is benefiting. do when you the though quantity using even people same pricing, have What we the the in you down have is quarter last fourth are

So quantity together put not driven. revenue those you price based But have [growth more it's driven, its do sales]. on

: Insoo Kim

Got it.

driven, was price the benefit so okay. Okay, more

James Hatfield

Yeah.

James Hatfield

much. you Thank very

Operator

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

Ali Agha

Thank you.

also target First growth raised rate the X% growth base know, have question, you around Recently pointed as to you X%. is dividend you X% your you out percent. to

from So O&M and when et going you about dividend looking to is your with know, pretty you with XXXX normalizing at base in cetera, rate as think the growth earnings forward? base be we fair mentioned how will it much going you're that with line growth forward, EPS outlook say

James Hatfield

don’t but October, obviously growth we earnings over board the by Yeah, give of about targets, growth when dividend the raised earnings talked base so… rate they earnings being always bracketed long-term in the and looked sort we've growth the at

Ali Agha

Jim also Yeah, also you earned okay. ‘XX And ROD basis. as the is ‘XX on through talk then you're one consolidated you a things about about know, other of thinking

good the ROE, is of think earned floor? se basis than on the in or being per proxy there's that cetera, are to if on be is I how but think of going as about favor on about X.X% we really You you in consolidated higher. consolidated your no a X.X% theoretically think ceiling more et things plan the earn target earn terms sort a or realistically? about to that know know should we Can XX%

James Hatfield

APS relies its Pinnacle and APS at of for in earnings. locked most we’re on Well,

on XX% but going So we APS you let's we exactly there. could, likely know, was not how so say Pinnacle's get above probably I because you be the else know than consolidated that ROE, less could to – go don't level, that's

Ali Agha

– that to and And the it. is delta between, of consolidated be say, good think EPS rule about? would thumb Got

James Hatfield

Ali? sorry, What? I'm

Ali Agha

Or is to we thumb think about good delta what on think APS ROE, about that consolidated the and a when of rule is?

James Hatfield

to Well, debt you and you're some have other have going company and APS things. holding

a at a is from starting that. point and then think to going there construct I yes, So as fairly looking way good APS

Ali Agha

customers just you should so reconfirming, on will given to know, that about tax were is but differences merit just right, you right? lastly, itself how back And it out on timing neutral, to be an the the basis is, impact, impact clear, annual talking annual the still reform be

James Hatfield

earnings we expected between timing slide spread eight, in and that the pre-tax shows it's appendix quarters have across a slide Yeah, sales spread expected actually on the and the quarter.

sort good mismatch. a So look that of the gives at

Ali Agha

Got it. you. Thank

Operator

the Our with Weinstein Michael proceed from line Suisse. with next comes of your Credit Please question. question

Michael Weinstein

still and Hi, to guys. pending lag ramping reductions Can ease you is energy and you understanding reduce My peak customer the growth experienced DSM efficiency attack and filings between program energy trying growth? were of curve efficiency you that talk at more are duck that looking the to the load that about I think that might some approval. load

Jeffrey Guldner

curve middle situations the reflecting and but is Michael. really Its encourage The you to day. consumption got it, part you've idea Yeah, Jeff. of It's want in change. the it's where that duck the load the

And so we're at the time the effective traditional in that programs like as light aren't environment lightbulbs that difference in. don't really look

the And more more towards out peak, you where really grab can so haven't attacking to is we've the in of programs. at value - we which shift trying looked that

So you to the being that level you its to know, so. adoption out, the going. Not to but that's that's customer assume probably some way have for commission. assume work going by still that's the reviewed when trend of they’re sure by And happen,

Michael Weinstein

indicated And where a this it you or quarters then need started - long-term quarter. And how before to flow guidance? electric normalize you'd in do went right. you row started that improving you know, many into All to sales think you

Jeffrey Guldner

do with had point, I this X.X%. that near X%, or we know growth half fairly much of don't sales modest we would At guidance.

upside little a be know, you good. would So

But will later that guidance we'd now. You are, it really update that - go happening know, we take to this year - on I based if we I don't see where right happens.

Michael Weinstein

like see the number a is sure Is to shaping quarters you'd of trend make to certain there up?

Jeffrey Guldner

No.

Michael Weinstein

Thank it. got No, you.

Operator

your question. the line question next Paul Please comes proceed from Ridzon Our of with with KeyBanc.

Paul Ridzon

that's think basis timing an $XX basically that the on million? way rate to this first quarter In reform right about about by and offset annual tax the was on impacts, relief

James Hatfield

There income because… should tax from impact be no

Paul Ridzon

tax that about income part is actually though is we offsetting million? of the rate increase delta $XX But and

James Hatfield

rate had increase million the the than bottom the reduction rate a XXX really course of doesn't is the impact the $XX over for tax we Well, line and XXX, of but less slightly impact year.

So…

Paul Ridzon

right…. All

James Hatfield

Yeah.

Paul Ridzon

relative to weather was normal? What

James Hatfield

$XX So relates heating and days way to is side off really whether it relative to million the degree down or $X.XX that normal about residential was year-over-year.

Paul Ridzon

You also year-over-year down so normal that… was last have is year $X.XX, essentially

James Hatfield

Yes, that's correct.

Paul Ridzon

Thank Okay. you much. very

Operator

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

Charles Fishman

Hi.

is Jim, I $XX think this I understand for you’ve pension? this to I I and If new that question for me, primarily just added $XX want to this. under slide the make excuse at million accounting line six, income, sure look that's million

James Hatfield

Correct.

Charles Fishman

O&M, on go then And ahead. Okay.

James Hatfield

It embedded O&M previously. was in

Charles Fishman

in included It was O&M?

James Hatfield

Yes.

Charles Fishman

Got it.

okay. Okay. that to That’s sort leads But another question. of

Now but included was treated the this line O&M manage it no is you other to although accounting different. have

Is that have have manage X.X% which now you're to to as to ROE, hit to to manage other you do fund? you going be a part know, you people your that way commitment So of the that pension other and this manage. going the of that I respect change lot line

James Hatfield

had before. actually about overfunded. XX% GAAP We good basis. we pension feel No, it on funded OPEB manage is and funding, a to our

did. line that's OPEB So separate your good is did the costs, - treatment non-service it all all from feel - pension the we take about accounting service

So the no difference approach would business. how in we

Charles Fishman

you. I had. Okay, got That's it. all Thank

Operator

with Please proceed Associates. Our of the Patterson next Glenrock question. question your comes with from line Paul

Paul Patterson

are Good How you? morning.

Donald Brandt

Good.

Paul Patterson

think guys of thoughts have a think initiative, turn down we might sort the just on out here. always, any know any that But local do of apologize few The upcoming broader that ones how in upcoming terms any just Steyer how some I that. of you you should I of stuff election? just And have we other impact away, there the should we in the might - it's thoughts election? that just So the about for sort about quick things about, you see about? thoughts that

Donald Brandt

most ballot step then. between this a for talk, happen And is or away, it at now initiative Paul, The qualifies November if, time. is, can So so light take a in and not. on one a a critical big that aspect we'll political whether the ballot year

Going all universally for it pretty customers the negative are much business people our the basically across for forward understand the Arizona, implications opposing residents and all are we of that Arizona. and actively community

Paul Patterson

there, And Fair watching we've enough. M&A I'm then seen as you been out well. have just this sure and some Okay. activity guys

Just that some seeing these there? are don't I - terms guys And be? seeing respect in leverage, balance attractive of have - thoughts if might know, in so insights any is might - terms how in what any thoughts and I of Any excuse any you're you me, might we there - your or about sheet? you have sort you're what going out with sort have companies that? And any guys How some of you thoughts what for? case, know, the own just of of - don't deployed to

Donald Brandt

you I’ll out – transaction particular at – And every on and what's those companies stay involved just of it as is just unique transactions do, Well, that we going in there. abreast leave that. that to

Paul Patterson

Okay. Thanks so much.

Donald Brandt

Okay.

Operator

you. Thank

Layton to reached for the turn floor comments. closing This management question answer would now end the our you of and Stefanie joining concludes to back over like call. Thank today. us have We I session. the for

Operator

conclude teleconference. Ladies and today's gentlemen, this does

You may your day. time. disconnect you your participation. lines a wonderful at this Thank have And for

Pinnacle West Capital (PNW) 2 May 182018 Q1 Earnings call transcript