PNW - Earnings call transcript Q2 2018 | Pinnacle West Capital Corporation

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Operator

Greetings and welcome to the Pinnacle West Capital Corporation 2018 Second 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. It is now my pleasure to introduce your host, Stefanie Layton, Director of Investor Relations. you. Thank

begin. may You

Stefanie Layton

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

be speakers Jim Public CFO, Guldner, Policy, our Our also Jeff will Chairman CEO, with and Hatfield. President Don Vice Executive here and APS' is our Brandt, of today us.

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

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

Donald E. Brandt

meet line we us be you this Stefanie, XXXX and joining with remain our continues expectations year. commitments in thank you, our Thank financial and today. well-positioned to for to all

the the on and second the end Commission few Selective expect is details Catalytic I'll at recent equipment for Xth step of the of Corners around operational power continue the and begin to we regulatory Before our Corporation results, year. scheduled is increase Arizona a quarter September The to request The Jim decision plant Reduction hearing discusses Four our progressing. provide developments. on updates the

XXXX the months. new customers, by we short X solar residential a in residential few required Review to rates nearly successfully migrated million customers new transitioned Rate customers all rates, Order, to grandfathered As except were

Turning to Station Generating team's resulted The maintenance X completed Palo refueling on scheduled hours. performance a XX of May outages XX X, outage operations, ever. the our Verde days in our best spring its in one plant record and and collective Unit

to commissioned. innovative three XX XXX system, permitting Notably, capital known our is Implementing loop these conditions. vegetation in national our in should and the no reduce throughout reliability commissioned enhanced Company XXX-kV health of and dry teams lower to to import strategies and project substations intense year as through opportunities, states. risk, work and development fire part of transmission activities, wildfire valley heat. training, reliability, since added XXX projects performed our surprise investment XXXX, the economic thing with lines and customers, northern clearance of have and Bureau Valley wildfire supporting has Sun increasingly Arizona's collaborative around Sun right as management been our poles to the our for design was go transmission completion Morgan risk the garnered implemented to loop, do season. provide the and neighboring environment, prevention summer to program. its to each increased To the of Management. we this planning for maintain attention years. new expand added during preparation continued Looking [indiscernible] Morgan of Land during past program, miles the export May, and fire process It four the including The new a In of here the the additional capacity This around we capabilities nearly XXX-kV and last to extensive with come year, section expanding strengthening that addition strategies Valley the mile

needs, capacity RFP for the of recently regarding XX and issued resource in proposals were solutions. the we by XX. request for Proposals bio-energy peaking For August forest for deadline the forest solicitation due The proposals. and are we peaking future those evaluating July process capacity bio-energy submission is

date megawatts we In XXXX. intend than June to up storage on XXX RFP. any with storage an the addition, part a solar selected project located RFP own We for battery to in-service issued facilities no APS as of battery later

of for make quarter expect fourth of We each selections XXXX. to these the during solicitations final

industry grid the As continues landscape. does the utility technology to evolve, so

part ongoing communication we technology an XG for XG. the are to of cellular the from meters grid, upgrading process our As to modernize

Over response about operators. system, Devices outage that system customers. make next XG will XX devices replace the information real-time advanced our our more been roughly customers. X,XXX investment old months, and outage added of are to more reliability installed means one more reliable X,XXX aim for XG just quickly that and we the transmitting than grid improved providing for devices, information to many with already efficiently which quicker and is the This have

judge, brunt statement action Turning is ballot. the or announcing this July early attempt Tom is the retirement make election campaign by XXth, value the our whether for the State August. existing trial initiative our and a to a energy official other XXXX. recovery an the to mandate will APS July costs we by Arizona On X,XXX impacts on and This Arizona decision majority and lawsuit in of would renewable would beyond systemic could and add resource integrated for on other above XXXX. Plant with will costs billion customers place capital the estimate The bad collected. $XX be be a possible as XX early initiative was the with $X.X the clear, and time to Corners as of book signatures are well would State early anticipate At Steyer-funded arguing on require November. for ballot We of initiative Steyer-funded August will the the XXXX Secretary judge over new Generating $X.X of Arizona. facilities. the the customers disqualifies investment turned California ballot retirement, the resources equate Arizona megawatts plan of incremental remaining initiative, an August Further, in Verde and the that Steyer-funded by billion September to the a XXXX begin on fraud forced estimates associated Power by bear billion of to respectively. X, errors the late from Palo the the in of ballot that a Four early Station associated signatures by the shutdown set Barring issue over XX% for It our of filed the the Steyer-funded ballot that constitutional in

While increase likely initiative would today's be the we in double estimates, XXXX expect Steyer-funded bills. base our would ballot rate significantly customer bills

this We to energy. initiative ballot cleaner are opposed renewable because are we not opposing

XX% diverse Company. is set We our it will are At customers. opposing our and an over it's to mix of our policy was amendment clean to important know is energy customers harm We because carbon-free. irresponsible to of end the our XXXX, important energy energy the it and constitutional way

of tier resources, XX,XXX of total. both that and with about all top provide clean renewable advancing rooftop a XX% APS proven track other clean long solar record across of in installations, we nine fleet utilities power sources, our nationwide. Our renewable including state energy. the in large is Paired nuclear solar farms of the solar and have terms and

to continue state. leader resources, clean a about further As renewables discussion in amount technologies our in long-term of integrating clean we the other invite that support sustainable increasing and thoughtful energy energy

we letter encouraging Corporation Modernization the to In fact, forward. move Commission to Energy Plan Arizona continue this the a week filed

XXXX achieve As first we energy the future. have vision as places clean the to for proposal since concept a APS bold stated XX% introduced, by was

this the designing proud for While We way we forward accomplishments, Plan we Arizona to call future. a over to energy Corporation and stakeholders energy to the of implement future look and recognize I'll turn more believe Jim. do right are important working for continue Modernization Commission further that vision. develop is the with in Energy is need Arizona to that the to we now to We the state. best our to achieve our

James R. Hatfield

Thank again you, joining of us for second the and This results financial everyone our you for thank quarter reported Don, today. morning XXXX. we

federal Slide shown quarterly earnings the share X $X.XX variances on $X.XX XXXX. X earned outlines also materials, second in the XXXX per As of Slide for supported $X.XX a tax second was key per lower by change highlight we the to the Adjusted retail drove I'll the our rate that drivers. XXXX, primarily per change, of the in few quarter second the compared quarter per share share margin quarter weather, share. increase offset unfavorable gross the sales. up compared and with by rate the of in

by share due decreased quarter lower with up in in the were key lower offset to was customers in versus prior generation the were corporate of per a income. lower tax gross to tax quarter, moment. more by net in efficiency to impact retail the Although $X.XX were sales rate year of share excluding the $X.XX positively reform margin effective quarter The refund but I net sales rate. benefit impacts a trends gross per detail the distributed federal quarter. tax sales discuss the X.X% and income energy our will a this Continuing weather-adjusted drivers,

customers a As is sales a Mechanism follow to hour on refund reform. rate on the kilowatt will for through our credit closely with or Please earnings the tax generally pre-tax seasonal pre-tax income X per our to reminder, Expense information The related impact more tax hour is kilowatt based impacts TEAM pattern. quarterly see based timing and on Adjustor Tax more earnings of and the federal lower the pattern. will sales align Slide

cost earnings installed to to operations higher higher the due share, Now, per by operating to looking and Select expense Catalytic planned at equipment $X.XX Four Reduction outage decreased now expense, the related maintenance primarily Corners. adjusted

As which guidance XXXX first half concentrated of you XXXX our second compared may the of was in schedule concentrated the year was year. as to spend outage the the for half the in recall, outage

XXXX. Also rates associated the by market to in additions. of operations Rate maintenance expenses initiative. Additional returns for at and per higher The and $X.XX XXXX, expense the Depreciation costs and non-service ballot benefits and and in was the costs Review income drivers per credits at Steyer-funded higher the OPEB amortization in to pension compared The primarily service primarily approved company APS, and accounting of quarter and transmission, Order $X and XXXX the by were reducing share. increase $X.XX with earnings pre-tax higher pension distribution approximately customers' public primarily XXXX D&A quarter second the million second related or parent plant were level, outreach higher a new quarter. adoption increase on Slide share increased X, second to to postretirement related other of guidance the

Four Rate the Modernization in as granted deferral Review Corners were and As related associated a the account XXXX the on reminder, results. there drivers The with deferrals I above accounting was to no the Selective Catalytic XXXX second quarter Corners discussed Reduction we Ocotillo net equipment the installations for Order, SCRs Project. Four impact

real the The Turning growth, Phoenix commercial above a national sales States. in to now Metro Metro Through May, the entire to job the residential growth show X.X% continued X% effect area's for United Arizona's positive increased on Phoenix job average. continues economy, Phoenix and markets. the compared area to have to growth growth, employment and estate customer solid the Metro

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

expected base economic job continue expected of growth is permits. you allow believe the that APS' to rates XXXX, Slide X, panel steady trend. second solid housing economy mortgage see XXXX, customer more in to As housing the low improvement by and generally, construction increase and about can upward X,XXX single-family Metro quarter X.X% to retail permits of driven grew the are to conditions, In by post-recession in housing lower compared We continue income expand. in and Phoenix XXXX. the should the to market, Reflecting

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

population, future economic the fundamentals Arizona, in job to and the be in Importantly, development appear growth, place. supporting long-term

in in excluding efficiency by X.X% of solid sales weather-adjusted As sector distributed earlier, growth of were growth about the and growth gross and with our mixed impact This was up sales, flat the mentioned generation, sector. energy the residential quarter. led in commercial the healthy industrial I X.X%

have with likely regards disappointing In results be trends industrial of seen, growth, divergence economic terms will we and growth in commercial but we the the this were short-lived. sales positive somewhat believe

headwinds Notably, points in residential sales systems generation growth to installation declining other well quarter. away] magnitude. metering as [ph] this grandfathered expect rate net to distributed out [took the for of full of percentage also We the X see growth

the half Corporation from demand of plan, Arizona expect and to this As programs' deadline the is now earnings Commission, passed, system align from I'll currently this In than closing, rate. be has new awaiting sales the off-peak noting customers our less side approval It going also XXXX worth forward reductions better that for energy focuses grandfathering the benefits guidance installations with realized benefits. review we financial outlook. management reduction efficiency will demand quarter's

outage more plant mechanism assumptions list related our the of which expect included of operating expect including guidance D&A underlying to fossil be $X.XX We per slides. to A important by range and gross earnings XXXX to margin drivers, partly adjustment will our property than and higher The higher continue consolidated higher the tax. to to plant Pinnacle in appendix expenses our $X.XX factors be is we offset service share. and increase cost other West remain complete rate for and in

expect remain of million up debt at year, this but APS to $XXX to to overall, liquidity continue We issue strong.

rate needs. XXXX, capital through X% outlook by remains investment average supported X% robust Our to base growth on at

continue also through of consolidated to annual on We XXXX. more than expect achieve prepared This our an average concludes return equity remarks. common to X.X%

questions. to the Now, for turn the I'll call over operator

Operator

Credit line Suisse. Instructions] question with proceed of with Weinstein comes [Operator from question. the Please your Our Michael first

Michael Weinstein

much even So, the you why are But through say it Plan you XXXX initiative base there the this is win to profile do of that be opposing decade, the doesn't possible $XX pass the would those incremental It indicated goals. let's think capital to goes more a Tobin's of incremental of measured would part for Energy absorb over method next billion investment substantial increase lead and can and initiative you growth rate that wondering, that of customer decade? how passes kinds as require of expansion next bills. and you pace getting by Commissioner is I'm if that to the renewable you for to if for capital in or

James R. Hatfield

a question, That's great Michael.

we're over going in to gigawatts of additional We really to haven't of it at gas We looked have terms to add rate addition growth. base X know in renewable.

what outlook Commissioner base XX% So, XXXX currently our Tobin's we rate to have today. by would incremental have

U.S. would largest as that [ph] But [it'd be So clean positive. Palo] keep in of source running well, which the the energy is

Michael Weinstein

Okay. noticed did the period of be benefits not And I with forecast just you to next growth confirm, three-year year. expired mean, customer higher the starting grandfathering that growth seeing maybe I I now the change. guess should

James R. Hatfield

September of We're the end Probably. the the getting installations the deadline. toward from applications X of grandfather

we the to in Arizona, some been away the the have they past, second half national You the than that installations are but slower passed, of had from remember in year. sellers see should pulled deadline so once of the that the

Michael Weinstein

your what the on election last the of case terms latest one next rate filing around also thoughts timing question, next in and cycle? is And

James R. Hatfield

We are still looking that. at

be desire a our said, so file rate XXXX. year, I've and out we effective would in XXXX, the As is pushing

So, so. we'll a decision get as next on the make that or month through we

we sure really and to are rate new design and patterns on to rates looking understand make we need based We profile. migration at sales the that

Michael Weinstein

Okay, great. you. Thank

Operator

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

Julien Dumoulin-Smith

basically we moot or So, and any his Secretary the And ballot initiative? recourse, perhaps the stringent on the can here? the does us more it the have just even I move be especially forward, Can proposal question for comment that come of appeals extent you you quickly follow Tobin if initiative, more. proposals the to two the timeline going clarify and basically you apply, a State success implementation? that, just importantly, terms get of So forward, going little reconcile to basically if within between more what how on process ballot then were And succeed on would both of to then the else? the two? would mean, actually out to bit separately the would wanted is last of up given in

Donald E. Brandt

Julien, well would to Guldner I'm walk with kind ask the Secretary through key and the going to Jeff happen the of dates to litigation State. what up of

You focused that's litigation the might on want won't what we now that, your at rather clarify are we'll take a in to pending Jeff? time. question, lot and courts go of about not, Right but I ifs. a one With into step the it detail

Jeffrey B. Guldner

all the end the go appeals would conference will after expect the that's XXth a would is would and when on some And up month. that to the August Court, the Secretary a practice come XXth, so then to normal is pre-hearing, likely through the the There likely appeals wrapped Julien, court there. is elections that Court, court from of some its motion so superior has it State practice, in that. including The process the of review. that would through before to There begins. now kind was been likely that begin to special in secretary It's pretty out week pre-trial actual doing decided on expedited to are then The August county review ruling signature that of for quickly parallel certify. though be and and their lawsuit is that, that with right expedited on a motion with trial counties. issues normally is go Supreme filed the out the Supreme proceeding judge the procedure and under cases, by the superior trial sent involves

Julien Dumoulin-Smith

pass the just terms would competing back this? to trying just forward, just both much if all to I here, ultimately were implementing it, mean the it have night, proposals then in mean And to how I of Commission input coming here, how parallel does excellent. understand? the Got in move work

Donald E. Brandt

characterize proposals. Julien, aspects. One is as a amendment. constitutional competing two them I different wouldn't There are

monitor Arizona year-by-year program The a and constitutional to something a to into forevermore. amendment other the lock accordingly that whatever plan would opposed as implement adjust on is a Commission they Arizona that could the or and wanted frequency Constitution do

Julien Dumoulin-Smith

I something to Actually derisk to could that mean, in maybe you to place is there kind just whole there see cost stranded put of mechanism it. is Got effort? any address here else? the

Donald E. Brandt

Again, right the with observing have signatures filed. on in what's litigation now we that focused been are happening courts the the on

Julien Dumoulin-Smith

Understood. there. All very right, much. we'll leave you it Thank

Operator

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

Ali Agha

I could to clear. there if just your be wanted plants. initiative two remarks, First, your clarify mentioned, be with as just this from opening premature wanted retirement happening, to is you of I

set is right I now those a is there mechanism So, there mechanism plants a a be companies presumably Arizona, for mean to already there would in in retire recover if mechanism early place? costs,

Jeffrey B. Guldner

Jeff. is This

So, that would the Commission. at to have be addressed

various We've before. is stranded issues there had cost ways. So,

the And so, those would time. be addressed at Commission the at

Ali Agha

to it's a So proceeding? go would you not through have formulaic,

Jeffrey B. Guldner

right. That's

Ali Agha

I see.

I least at at customer showing between had Jim, weather-normalized we've to weather-normalized the the three growth trends. then, sales your and negative And sort point, consecutive data, that delta is your which Okay. of growth wanted getting we are clarify looking sales growth from that

are weather-normalized sales seen want clear, I to Should and turn causing I to consecutive just energy And to demand three see positive to negative suggesting so, or again we that are numbers understand be start the here? have be now we much declines the trend. clear efficiency should larger the having mitigate? which a impact those what's response just you start

James R. Hatfield

September they pulling We metering grandfathering of X. You June, as August, the saw July, skyrocket applications were had forward. things net

less is so are through now to we impact installations customers. believe see as those now, add continue move an we being and of installed of backlog we'll we as us forward and residential All the

Ali Agha

look I this other of O&M mean the would schedule, that from higher a i.e., outage thinking that have see, I talked and imply next to high next my given dynamics coming SCR to rates Corners Four come a in last then would at way all this more your year unusually fair that costs so year am okay. ROE year, investment, already at least that – have Is there? me I that level And the missing about I that up to normalized the be this year. then you dynamic the earned down if question, should be they some some or the step should are imply you about, than

James R. Hatfield

I are We'll impacts mean, in this There is much come later isolation. well. those two XXXX with out other year. financials the as guidance to impacts

Ali Agha

both are ROE accurate, in terms of earned your right, year? But helping next of those

James R. Hatfield

In isolation, yes.

Ali Agha

you. Thank

Operator

of your with the next Levi Andrew ExodusPoint. Our comes from Please question. with question line proceed

Andrew Levi

then this back so relative investor the it don't would know, a Just on a the is there that confusion process, several-year ballot feel to of a has if there hasn't come there was Is the got on legal on And some to follow I obviously be this kind it of go on initiative, were since like rate it? approved, through well, right, just correct? effects out would up. the and I basis have it because ballot, and be the some understand thing actually stock I if whole I challenge has type done

Donald E. Brandt

Andy. I think your have we missed question,

Andrew Levi

okay. I'm sorry, didn't hear me, you

like to if first it and that, actually pass, legal So got would That's several that basically, it passed? challenge to if correct, it is a question. the ballot be year were my on

Donald E. Brandt

point not are We yet. that to

We the in I are, pending we the observing said Arizona are courts. as earlier, litigation

of take So one step it ballot the gets not. the question is kind or at We'll whether it time. a on

Andrew Levi

challenges, Company guess kind costs pass that though outlook, and Okay. base kind of renewable as the But was my legal by far it to isn't various several your earnings your long-term process is year be as able that, replaced rate even were base that you the surrounding would with potential that outlined would even a kind I as stranded basically of to if point over be of unchanged correct? because is, longer-term, and survive rate and

Donald E. Brandt

clarity there isolation there really are the in situation. it's many results to – so start Until this still use hard that's around this but is litigation, correct, variables it's far things I'll to that predicting Jim's of out. Again, words,

Andrew Levi

fair. Okay, it. get I that's

basis stock much. there your on bit thank is very kind of I But because you that up has been initiative again a result, has misperception going relative of group been Just has just a since feel suffered this but the a end quite initiated.

Operator

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

Paul Patterson

Could fine you just revisit, passed if us was initiative, regarding as happen I no something a a on legislature that with recall, would little elaborate could that the you bit compliance remind what there that the again or just was?

Jeffrey B. Guldner

There situation was amendment what moving as a compliance forward, you to initiative. was also in do address a that Commission passed that but the statute like would challenged. would likely get there to statute Steyer probably of That's that's consider a something the out

Paul Patterson

But I the quite non-compliance would be recall, fine scheme mean is correct? I things? in with associated low, that of considered, old Okay. was that associated cost the as nominal with pretty the

Jeffrey B. Guldner

correct. That's

Paul Patterson

going cause Am know in saying, mean if words to I wrong? of payers perspective, correct? is I to cetera, I'm what From considerably lower. non-compliance you mean, initiative a et the be money, bunch other rate was of seem cost I that would this [indiscernible] whole a

Jeffrey B. Guldner

the on of reading the that, on exactly legislation. correct of Based you're reading that

Paul Patterson

of bunch that do? just or happen, basically what we the and may you're to courts today what happen? that get these guess what pursuing as or not actually the I may [indiscernible]. to questions how before what see happens we about suggesting all in may that should about message hypotheticals was Is Is you'd rather I think not a Okay. it opposed of down may

Donald E. Brandt

exactly. Yes,

courts We comes. have respond a strategy. time we'll closely are tied and in when up and now watching right the It's that we the very

Paul Patterson

of and so answered your questions won't other My much. Okay. Thanks any more I were time. take

Operator

reached to to We question of would end back for management comments. the the now like answer I closing session. the have floor and turn over

Stefanie Layton

call. and our this you Thank concludes

Operator

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

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

Pinnacle West Capital (PNW) 3 Aug 182018 Q2 Earnings call transcript