PNW - Earnings call transcript Q3 2018 | Pinnacle West Capital Corporation

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Operator

Greetings, and welcome to the Pinnacle West Capital Corporation Third Quarter 2018 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.

You may begin.

Stefanie Layton

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

Brandt; be APS' us. Froetscher, Vice here President President Barbara and Our of Hatfield. and Executive our Operations; APS’ today CFO, Jim will CEO, speakers with Don Lockwood, and of Regulation our Daniel also Chairman Vice are

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

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

Don Brandt

cost XXXX this to growth all by December approving today. support you thank customer us outlook dividend commitments. effective management confidence X.X% company’s Stefanie, disciplined payment. Pinnacle the meet The Board financial continue increase, positive our ability West also to in Throughout Thank a you, the our and with year, joining displayed and for

and recent several the regulatory elections. I’ll discusses the quarter results guidance, and and certain on third Jim updates ballot Before initiative our operational provide developments, detail of including

and Our an again operations did this summer. team excellent fleet maintaining the electrical grid generating job,

service combined We’ve To issued toppled Verde Our XXXX customer well, and as our energy storms several received for station restored summers a capacity. The X with Palo many also at combined this meet workforce we poles, proposals and peaking quickly solutions, clean year. forest, our increase is all to on operating request performed XXX XX.X% after demand bids almost as combined. the mix, for generating X bioenergy and which customers XXXX energy request a units storage. capacity

customers after because RFP energy particularly noteworthy sun our during the to facilities storage Our will the from peak it existing is sets. period Sun allow use AZ energy solar

making timeframe. process the evaluating bids selection XXXX for or each late and our the of in early in the XXXX We’re anticipate

resources to be Approximately program energy customers. driven clean investment our Our supporting continues maintaining capital investments of from XX% investment safe service through be robust, XXXX and and XXXX reliable will growth. customer by capital in our for distribution

completed at generating of in Ocotillo track plant the power For on the X be new investments, quarter installation is units to flexible generation-related second XXXX. fast-start the

million our Turning staff Commission Four $XX.X increase. Arizona the which step recommended filed XX, its to hearing request brief, to September request regulatory a Corners in filed On September worth on The the up increase updates. concluded Corporation compared for revenue our closing X. step million $XX.X

decision. and achieving opinion request equipment selective this of reduction second Corporation Plant APS’ customers Four We earlier will an the second Corners in will layer request at step controls an year issue approved, the future. savings be are for now in part the when order. Commission of cleaner additional nitrous If in Next, the scheduled installation January million of return reform catalytic continued the our is investment Power first beginning oxide an energy to a in the Four to reduction with XXXX. Arizona commissioned then ACC savings will increase with law emissions. XX% $XX.X issue The $XXX.X judge The tax a reduction X, a total pollution APS the from savings their In meeting combined be filed in and would recommended administrative open tax March tax requested the million. XXXX, increase. offset implemented Corners for customers, step August, will

below XX inflation. Over price the the rate last been increases our years, have of

reductions reform at year. at were be and tax the lower the rates rate will other of from price reductions, beginning XXXX end the they With the than customer of

required proxy received to the closer to they previous by excess per customers. determine the rooftop resource each cost or generation move receive solar than customers a reduction solar further which the export non-solar for kilowatt October back $X.XXX kilowatt the new amount of recalculated grid. review the the This generation hour, of rate Corporation between will cost our decision, As year, and XX% comparison mitigates rate the the continues to Beginning less to is shift XXXX, $X.XXX XXXX amount and Arizona hour. X, the avoided approved rate solar Commission by must per be customers

residential order. Lastly, on the Commission XXXX average the bill from alleging increases review customer a rate October concluded complaint, X, the hearing the its Corporation approved higher Arizona regarding average than

XXXX. is matter law briefs consistent that Final appropriately in order order. and opinion was matter rate this a with on by confident will be in review will We the that anticipate subsequently issued the and We’re XX, November implemented administrative recommended the judge. in issue a are rate commissioners increase in this due decision

its you aware, November As on held Arizona midterm X. are elections

this been XXXX. through Commissioner Dunn, continue Commission Rodney Commissioners Democratic declared, are morning, not and Republican and Glassman ending candidates. of their Corporation ahead terms, of in the Burns the of race as the will January Olson Tobin remainder officially has While serving

increasingly manner. we clean. thoughtful policies an Proposition to Importantly, Arizona will number towards the energy now mix insuring mix. installed, nationally XXX, is establish With XX% constructive of already Arizona behind in and to energy to clean move defeat APS policy solar that three in and our us, voted the Arizona evolve is stakeholders residents energy energy in with Proposition energy work overwhelmingly XXX forward-thinking continue a can

cutting-edge in We’re resource, achieve Arizona is generator energy the on the technologies with generating solar to mix nation. advanced leadership storage uniquely our largest positioned abundant cleaner a advanced clean and of technology. battery the energy Palo station, Verde in

County energy We that necessary will XXX,XXX in fastest support are increase energy will investments that energy over expected investments last infrastructure to the the generation new grid growth. Additional and row. in than growing to resources, into United XXXX, customers will was they period. XX% X economy. be clean States needs not technologies estimate support robust focus, including only our are infrastructure, our Maricopa a by customer customers' Arizona’s to the more support also by territory service and APS the years same Significant required move power growing new our cleaner advanced in

proud We delivering Let commitment not Arizonians, supported by that remained saying to only but team’s me on to conclude we and operational the of also protect our our I’m our effort focused community. performance and commitments. our our customers on

the our to on cost to opportunities shareholders. capital over now create for value continue call emphasis and investment I’ll Jim. turn management Our

Jim Hatfield

again, we economy results, and provide for our the financial everyone you, XXXX. reported Don, discuss update XXXX Arizona quarter of joining the details third results an on This the financial for introduce our you, I’ll and Thank us guidance. thank today. morning, of

in and quarterly the resulting per seasonality shift review, federal in earnings materials, include per refunds share. rate X third were of net I’ll strong a of positive on few driven rate up area. change review. outlines and the increase customers compared the quarter of and compared that $X.XX for in we the shown share with trends to design the rate the customer quarter highlight energy in price commercial variances XXXX drove and transformation the growth. third the have commercial residential Adjusted sales in sales sales reflects Slide supported strong revenue quarter from third in $X.XX $X.XX generation X Phoenix favorable revenue, of drivers. XXXX, drivers earned share Metro key X.X% approved As the to the XXXX. per higher XXXX was the our XXXX, sales the the a the by we of margin per up tax seen share efficiency growth Offsetting the from quarter, the gross Slide from reform, order residential economic of by changes robust in the resulting growth The distributed weather,

rate portion of previously As aligning for cost with months, previously revenue rate The collected summer rate to the discussed, order the a non-summer customers. shifted revenue serve. to during established review new the better the XXXX new collection options

or to per review customer quarter due Prop credits, cost and rates approved related earnings by income service nonservice primarily by at XXX. XXXX pretax The to increased guidance higher primarily adjusted higher level, operating The of public in and at returns a share new adoption third for the primarily the the our and OPEB for increase expense in related XXXX million expenses XXXX. higher quarter. information outreach transmission, APS for postretirement the and distribution, third order increase cost Pension with the depreciation $X.XX to per was Depreciation expenses, per And amortization out $X.XX quarter additions. technology. decreased accounting higher rate $X.XX a reducing share in market and the Looking by to pension approximately operating higher and third share. plant other earnings benefits, compared $X of was of were to XXXX, company parent associated maintenance in

impact the the positively share lower in effective net net The income. tax federal tax to customers of resulting was tax of a by from rate. corporate $X.XX pivotal Lastly, per offset cuts refunded benefit quarter was reform

commercial Metro the XX.X% growth as increased sector. to growth sign growth now and panel average, markets. customer job X.X% August, the X.X% to consistently and show strong strength in area the economy, has top the in and Phoenix versus of been U.S. of Arizona’s continues Slide entire the in Phoenix XXXX. particularly compared has areas Through X. above construction estate real strong employment the is growth. of Construction Metro to the in A shown sales by national Turning increased employment residential Job

job base retail and relatively steady grew quarter XXXX, economy faster the average. X.X% of to allow Phoenix should in its Metro national In of continue expect a driven and panel shown commercial to expansion real compared increase in The expect also the as X. XX,XXX development. to of trend residential lower continued total the business We an believe job permits, We growth this Reflecting more market a economic single-family XXXX. growth income rates X,XXX APS' postrecession conditions, mortgage expand third upward of and Slide about Metro the estate support customer housing we the continue XXXX, market that housing than permits. by improvement to solid related of continuation has in low and to Phoenix generally

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

long-term Importantly, economic the to growth we fundamentals Arizona remain Phoenix the believe supporting in of development job in large population, areas. should country’s metropolitan fastest-growing one place, and future and be appear

up quarter of and third As increased were I seen net the have XXXX, mentioned trends economic the reflecting X.X% quarter. earlier, X.X% growth region. industrial we sales sales the in positive Commercial over in the

Finally, equity $XXX our issued West APS the financial $XXX expect short-term XX-year earnings financing of our and Later had senior end West Overall, XXXX, approximately unsecured On to outstanding. I At guidance quarter, activity, borrowings. of infuse strong. remained commercial we $XXX balance Pinnacle liquidity will debt outlook. used paper Pinnacle capital the The up APS. sheet to year, X.XX% million of proceeds million review repay into to were this from of million and notes. August X,

range earnings Turning $XXX to XXXX $XXX per consolidated West expect to of on we be guidance, to share. million X, the as for in will Slide continue Pinnacle shown

also While very from September, mild hot we a benefited October. we had a

XXXX will weather updates negatively to by appendix Offsetting to October on our can $X.XX $X.XX full the the XXXX our be per year found guidance expect We approximately slides. share. earnings impact to

like request Before that guidance, I in would XXXX. a not review do confirm XXXX file we I rate introduce to to intend

keep continued normalized we for XXXX reviewing rate After $X.XX increase, guidance, anticipated rate sales, Four we’re Positive review. mid-XXXX to weather order Corners' review In our guidance in filing general level structure review from As primarily interest a with financial and for similar maintenance reminder, rate expectations, flat our drivers capital outages lower $X.XX determined to prohibited the filing, the we before SCR transmission of in new meet to our that revenue, management. filling expense share. last introducing this preparation to per XXXX have due in review include our revenue June cost lower and X, the to operating planned higher lower higher rate our expenses, XXXX will Continuing XXXX. expect financial our approved a objectives. APS

We associated plant partially estimated in amortization by rate taxes to million effective second higher team $XX rate tax of proposed for effective team the which D&A property the service, offset related second to expect by part excess filing. tax drivers deferred filing. the in reflects We higher $XX.X also the lower million be XX% these with taxes XXXX refund to AFUDC. of the and is more of decrease The customers, of offset is

Our XXXX at capital forecast expenditure billion. $X.XX remains

will CapEx We A and factors provide complete the in forecast key to of XXXX our and fourth guidance base call. underlying is slides. assumptions on updates our appendix our rate and list quarter our XXXX to

average achieve on at a common the same to of growth annual outlook XXXX. remains period. more over expect and X.X% base than X% equity consolidated we X% through return Our weather-normalized to And rate still

have will fluctuate As linear year-to-year. not from we are and earnings said, our

long the to turn over Arizona questions. record success. the lead to call energy operator over term, This the the remarks. us a to of our to prepared continue positions However, future track opportunity I’ll now for concludes cleaner our well

Operator

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

Michael Weinstein

start good defeated. that can of terms process now going expect stakeholder and guys. and a I’m kind Hi XXX just this year of later forward some maybe kind Prop review Hi options see morning forward? maybe year is process the collaborative a in about of What could going bit of we going next into of then to talk we

Don Brandt

I Well, exactly remains looks Michael, what process like. to think, seen be that it

been know, you lot docket. and open to A docket we’ve Commissioner attached has talked a As about also the by claim things XX% Tobin XXXX. on are of

docket so forward wait where our And and factors. to be is intent timing that unknown of those way outcome But and goes perspective. have participate exact sort and in to all It at of a moment. it would ultimately we’ll the from see the

Michael Weinstein

guess, you file Do you expect something, IRP? your time to I by the next draft solidified have

Jim Hatfield

in IRP April. is Draft

go So through to fully at a not sure we would process able point. be that

I to a seen go RFP is think we reviewing – on the by one exactly unfolds. remains sections XX IRP. XX how our of That’s be how in the forward the

to remains it seen. again, So be

Daniel Froetscher

it’s Daniel. Yes,

the it a make that with think the therefore, we I relates to of is on flanging up bit docket the energy preliminary modernization And the timing as little informal can’t IRP, plan ambiguous. call.

post-XXX out release put shape going to a XXX, for I future trying of indicating to think here like that bill the energy Don ago, that what build in we’re couple and terms a Prop a days coalition press Arizona. cleaner on of formulate works looks on

to that So in space. we’ll engage continue

Michael Weinstein

Great.

Just range. XXXX sales get weather-normalized guidance X that one still electric final people is retail other for volume X% let I’ll to The on. you’re assuming the question,

roll point little Now for just a kind higher it’s forecast one-year the three-year I’m than period, of at three-year what wondering that. into that does forecasts? those

Jim Hatfield

quarter And be economy. this in think continual I into overall remains economy, higher West the period to the the a when a lot and of Well, sort of seen. a that I saw we to Phoenix improvement will But seeing continue improved well, a is projects what exactly of three-year which have we pipeline we’re to of build rolls think site as example momentum. gradual in our a

Michael Weinstein

you. Thank winning Prop job and Okay lot nice guidance and argument XXX. on against your thanks congratulations a

Jim Hatfield

Thanks Michael.

Operator

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

Insoo Kim

Hai good morning guys.

early fuller your also option for year? stock case, at in in is the sale half whether potentially have the to as was an XXXX any of rate equity the be prepare equity the current trading you boost And considered given layer a moment? where done likely As you would issuance potential XXXX sometime the

Jim Hatfield

from last injected So Pinnacle million into APS. we year, $XXX

draft lot more We raise certainly or a need expect be And dividend to a need some at moment. XXXX. through of do that won’t contemplating equity It we’ll won’t sale equity, can here reinvestment. we’ll a fuller to – be in Any additional program. additional we’re through a handled not of the type

Insoo Kim

Understood. to forward. turning renewable going And the discussions

take the in you the Or benefits? see meaningful you the tick the Given Do investments RPF in amounts some at tax until when renewable maybe final of XXXX, some advantage especially to could earliest? any will uncertain not to IRP XXXX take place. or standards timelines meaningful see

Jim Hatfield

Well, the cognizant look, and there. of timetable we’re ITC obviously the

renewable able think the planned. discussions to IRP, right would nothing we of the be peaking the – a pricing in and day. now, prices be the be to provide from power have our I attached the referred Don solar, should utility tick battery later when – It how out, to on now. able to which batteries, peak negative we’re

see I and term about think the time, before large-scale renewable we customers unfolds how as talk continues to that we obviously have to to this near this things. conversation any other At over change we think bill.

Insoo Kim

lot. Thanks a

Operator

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

Paul Ridzon

Tobin’s on we it look that do pressures under But touched that You plan? get you cost earlier. proposal as into XX is Or by workable? XX, of at

Jim Hatfield

well, – was XXX rigid. Well, that Prop irrespective a of And I – there’s the a amendment constitutional cost. – was just it a was

I think about you about a the is, think of reliability, think value but you think you about also claim, affordability. processes commission-driven

think a mindful gauging And that. afford. move of that be be very we’re can very other and much so of – things. as is customers It’s this will what to cost that how cognizant And about factor a from customers always CapEx forward as we we going and will key we’re

Paul Ridzon

So this off proposal ramps? some has

Jim Hatfield

a that’s forward, of that a do, so is of up is, process. today about what this thing more bill go to of we’re it sort a they The a come going value with and as commission-driven says, plan you yes. prescriptive Well, as and you

Paul Ridzon

year? net the will tax items inter-quarter be calendar from the And just clarification neutral Jim, that a

Jim Hatfield

in that’s over sort how But shows laid appendix, the year. of the haven’t of been applied Correct. the it we course out

Paul Ridzon

Great thank you.

Jim Hatfield

Paul. Thanks

Operator

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

Unidentified Analyst

Just billion the incremental? should just far your two level CapEx guidance that. This any that post-XXXX. of spot on like be anything would would been as $X.X That’s renewable haven’t sweet on yet averaging, on we just and side assume questions. the that initiatives level, given One, kind type new as you – of of kind occur CapEx you’ve then

Jim Hatfield

And we example, Well, for look megawatts, base our over XXXX CapEx forecast. CapEx comment X our can’t. be in supplemented certainly, I storage know But look be that as about we to get on I renewables could things, plan, the won’t specifically at don’t from our will that as so could commission. incremental. four filed out beyond. infrastructure battery be and waiting out. we’re takes plan? be could how that in That XXXX electric incremental, DSM incremental, the We vehicle pilots

to So how when, we grow customers. of keep it But and TBD. good our feel base fundamental plays it’s cost sort continue affordable ability out it to about and rate to

Unidentified Analyst

sounds when get good. a And That then we CapEx? the refresh do on

Jim Hatfield

our base do XXXX call, CapEx XX-K. in they’ll in CapEx We’ll rate and will the – be year-end in be

Unidentified Analyst

it. there one But confusion. the question was on think I you guidance a last I was I just little heard offset. an then if XXXX because And Got think correctly, there

lower So is credit? customer the Is a were that you saying? by tax offset rate what

Jim Hatfield

Yes.

Unidentified Analyst

you right? Okay. rate, have a tax lower I And guess, that’s why

Jim Hatfield

Right. Correct.

Unidentified Analyst

Okay perfect thank you guys.

Jim Hatfield

Thank you.

Operator

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

Julien Dumoulin-Smith

Hi good morning guys.

the the – start the you of why magnitude gen? little downtick of talk here, just the to bucket. suppose quarter-over-quarter. why, and what’s composition traditional why that gen around? a shifting the to Can bit in the I And a So two gen? little the bit Roughly here just on buckets? CapEx with shifting The clean about perhaps capital traditional I the same follow-up around wanted but

Jim Hatfield

Well – ahead. go

Daniel Froetscher

Excuse me, Daniel. Julien, it’s

we SCR and reflective Jim and and the is plan of that of technologies in to the we investment the of certainly so a a if solar forth. low Station make our community and determined, And XXXX mentioned, in on The in the until decision downtick solar, basing in out anticipate we’ve level installing battery moderate the you for that with segment minors and got the that rate traditional within That’s be customer majors generation fuel, rooftops. three rooftop base, we a are multi-year program. reflection gen and our uptick residential Generating outage different won’t some gen relative number program RFPs income residential so there. going settle of clean Verde forward on a of terms called So projects, will, But which are customer that clean completion is distributed of Palo space. a

Julien Dumoulin-Smith

clarify cetera? transient for the new maybe number, the And Or consistent probably it. XXXX gen, on et that a based a level type this this to The basis? and $XXX just outages, lower XXXX is – traditional on Got probably that. a million-ish is

Daniel Froetscher

is six X No. in our cyclical It’s every a years. every plants work years. is X – major Certain power outages eight at Certain to to are nature. work

of So normal and this reflection just our minor outs. major a the cyclical if nature, is of will, you

Julien Dumoulin-Smith

Got that it. clean case? capital in is the Excellent. of next uptick, And just recovery to gen context clarify the that or the fairly piece the on straightforward

Jim Hatfield

residential through just included the next res surcharge be on Well, currently. rest our case. recovery rate for The will we’re recovering the

Julien Dumoulin-Smith

much you Thank all the very best.

Operator

further back no questions would this to over comments. have time. I floor for now like closing management turn at to the We

Stefanie Layton

call. for This all you us concludes today. Thank joining our

Operator

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

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

Pinnacle West Capital (PNW) 10 Nov 182018 Q3 Earnings call transcript