PNW - Earnings call transcript Q4 2018 | Pinnacle West Capital Corporation

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Operator

Good day ladies and gentlemen, and welcome to the Pinnacle West Capital Corporation 2018 Fourth Quarter and Full Year Conference Call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host to Ms. Stefanie Layton. Ma'am, the floor is yours.

Stefanie Layton

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

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

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

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

Don Brandt

the XXXX strongest our Pinnacle results. our policy with My and range. will today. on XXXX balance joining of Constructive and discuss highlights remains solid the public comments year financial Jim in thank earnings a one sheet our the Stephanie you top and industry. will Thanks ahead. for delivered guidance us focus the all near outcomes of the West

the free carbon XX XXXX completed is generating XX well energy. hours, of outstanding and million Palo spring shortest megawatt hours completed team history. XX.X in Palo XXXX. of in Verde another Palo the maintenance year electricity Verde performed in notable production outage days Verde at fleet It that station and generating Our the refueling also scheduled

be surplus adding generation XXX customers the This after a our and energy Increases existing Xth to proposal phase sites. evaluation Based in AZ of to during a be battery the in XXXX. to energy further issued Sun goals. savings fuel clean on our by deployment request sets. responses, sun to X use investment AZ the to solar XXX for XXXX, expected initial will the for Turning of megawatts we of battery we mid allow expanded by AZ portfolio megawatts Sun period needs, is customers located RFP our peak up our site to which approximately Sun our upon of facilities advances for from storage

of battery In our addition, the a we resources include seasonal capacity natural XXX purchase XXXX. XXXX summer gas storage into capacity agreements megawatt peaking are and XXX peaking RFP of megawatts megawatts power contracts These for entered in result over have agreement. beginning and of XXX power purchase

by XXX and forward, standalone with solar XXXX. needs accomplish to storage customer the To to this, Looking our will of owned technologies. at install battery storage we meet continue summer plus we clean efforts least plan of future battery megawatts systems APS

by clean megawatts current procure added expect first When the XXX megawatts to XXXX. a commitments, XXX of invest XXXX. technology in to in total of we expect to We our

customers. capital our In other addition needed resources investment two generation to to of investments to support customer growth, in highlight like I'd benefiting examples

placing from Corners to cost was invested We services. XXXX total The Four rising additional for installed increasing received after increased service meet an $XX services. will wheeling transformer revenue transmission a to we in ability million from our XXXX. our as rates offer additional the in result ability First, benefit going of million through Customers transformer project demand XXXX. near forward these lower in $XX

the Valley. West located second The is investment in

see to continue the that west support construct this to on Valley Phoenix. new service new million building XXXX. of companies $XXX growth, we in invest side be to To West a out We expected is to center plan completed

rate Arizona order properly records earned Turning records more in whether regulatory the complete to diligence than rate constructive for to APS with commission the the appropriately complete increase review. due and books commitment We XXXX we'll commission understanding our APS' as outcome of staff and is a gain XXXX the allowed determine be its the In last reviewing APS' front, the conduct confidence the review the our a opinion voted review commission's the whether and consistent to books in facts the of return. implemented rate XXXX confident review was and information providing We're appreciate January implemented Corporation the of and review to they X the order. has its the was to rate to deadline. Commission the rate May need with way by

numerous also logistical XXXX will was evaluate and return retail retail XX% consumer opened In implementing on a equity with our Arizona, Jim authorized challenges competition. the Arizona challenges, X.X%, on issues The return less than legal there equity. jurisdictional commission competition. docket As which are discuss is has to

For would require to the amendment constitution. example, implementation an Arizona

retail in we the things be difficult today. as implement competition stand it believe Arizona Given challenges would to very

has order residential and important request retail staff's always states. possible in Two increase. the [Technical is request of four Difficulty] law front other had options other and in negative an understanding a in XX, and of the in the different there We with return commission opinion recommended items issued million consistent additional the the corners administrative $XX.XX to step the are commission SCR However, proposed increase opportunities. November revenue a spectrum XXXX appreciate exploring customers judge impacts interest the on Commission's value competition understanding

request step a and tax the expect decision refund early XXXX. SCR We on the in increase request

look in XXXX with will believe reliability. energy, Putting we productive a people prioritizing the clean year of deep the presented our strategic I company initiatives APS. our and Public positioned commitments Executive company, and of with closely success that been delivered promotion achieving industry. the company long-term. will Jeff positioned recognize are thoughtful a our and corporate our strategic for to understanding of be strong will happen our highlight summary, on centered our in new that recent priorities the Jeff previously well complex position I'm facing at is around For through We issues only Vice leader we people. of President And his working XXXX his has In by our the I with and well under President leadership lead our know Arizona. our XXXX challenges a Policy forward to growing development Jeff to be a pleased meet forward. Guldner first to as forefront. and to the affordability

We on commitments. call have clear value priorities the while achieve in core creating -- and I'll to goals. a over Jim. financial business remain team strong focused place now delivering our our We operational and turn to our leadership on

Jim Hatfield

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

see materials, of on had Slide successful can a the we year. X you As

on the briefly the on touch I X. quarter key factors review be from found can Before let some of of results, Slide which details me our the XXXX

of the and compared compared unfavorable the earned refund related per were sales quarter fourth down quarter Higher XXXX. the fourth rate from the quarter $X.XX and Tax change revenue customers the margin $X.XX was Reform. and XXXX. weather Adjusted share to design the rates seasonal share of offset $X.XX in For than we to by resulting residential fourth Federal more to XXXX, per of in gross share per

cost adjusted to other the summer lower, reminder, aligning serve. benefits credits, the other review margin customers. order post were collection decrease to with of previously rates lower operating retirement options rate collected As revenue expenses, pension shifted XXXX during and the a non-service rate non-summer a better month's new the in income adjusted established revenue maintenance expense. gross new portion The tax and for income the higher and Offsetting

end $X.XX share For the delivered jurisdictional XXXX, of rate XX% ROE these When with XXXX. in ROE Reflected the earning solid year our an $X.XX full calculated to in X.X. jurisdictional upper revenue of at share earnings approximately we authorized and range, is per of an compared per results of excluded we we results related represents ACC has ROE, the ACC base jurisdiction. guidance FERC FERC XX.XX%. to

results. some XX, of a per highlights your Slide year driver full key XXXX margin components our year that X, share. on went $X.XX with during Turning into was increase Gross the effect rate the few a I'll core to August contributed review attention

new margin. to gross gross in operating Transmission to share added expenses long-term The part a offset addition $X.XX added However, and related and share the our LCR at per the increases of weaving $X.XX growth portion weather. incremental a XXXX to prices. to customers benefit of refund agreements. per due share. gross revenue margin customer revenue average Higher added $X.XX from drivers unfavorable growth resulting Tax sales margin higher Offsetting to included by driven in effective Federal per Reform in

to of were compared reflecting share maintenance transmission XXXX approximately to customer technology and and and to costs increased costs, compared depreciation D&A $X.XX Higher in pre-tax at market The information values operating expense XXXX to and XXXX the XXXX higher by earnings and tax part higher due million rate returns for increase decreased XXXX the as retirement share the increase benefits non-service and in higher planned up as per relative expense related share and $XX expense, distribution $X.XX adoption in of primarily deferral compared The primarily amortization level property XXXX OPB credits to was and XXXX. pension outages, taxes annual to post to in other our million $X.XX order. public XXXX parent and of accounting the new rate increase next income Looking XXXX. APS decreasing related impact to was property Other operations XXXX to higher higher service rates in the by the and approved primarily earnings Pension XXXX $XX per order. per costs. XXXX. amortization plant in or guidance in additions was related average in

detail on customers other refund the including tax non-deductible benefits was Federal illustrated to offset corporate by Slide net XX. adjusted costs by in effect earnings cuts as Tax more and the share. Lastly, income lower net tax a effective items decreased The of from per offset of $X.XX rate Reform resulting

Arizona's know we're local economy will economy. seeing our an part some of you in As continues I of thesis. cover integral our investment be the to trends

a to X, employment average. X.X% national Phoenix Now the sectors, XX.X% Metro the to manufacturing of to and above been construction the X.X% consistently employment Construction for job show Slide strength the economy. increased X.X%. in strong increased In in has Phoenix continues Metro and and sign in by strong walking by XXXX, remains manufacturing growth Job XXXX growth U.S. in entire regional compared increased employment

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

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

fastest In entered XX, growing fundamentals continued economic loan in to December $XXX XXXX, Switching a we remain Pinnacle XXXX. success issue The long-term has West in place one risk into West Phoenix APS to term XXXX. on had APS. appear end at remains end on largely were short quick funded the status. to Importantly, helped our that of development and expect the be plan remains to funded due large in year purposes. Arizona Overall, million and activities benefit of liquidity proceeds metropolitan liability used we had supporting short-term of our which healthy up matures X% believe investment December debt Pinnacle the at $XXX borrowings facility corporate for future of status as the our strategy strong of areas. and in This growth our term no financing million million country's outstanding. pension general to of population, long-term debt should quarter. to A fourth at mitigate pension the is driven outstanding $XX the note

to the earnings of to we on $X.XX Turning share. A range shown slide. assumptions financial to our in as key factors Slide guidance per for West complete expect consolidated the outlook guidance our XXXX and be Pinnacle XXXX in $X.XX list to earnings of appendix underlying slides. is our X,

growth the was around Pinnacle grid seventh XXXX for XXXX our straight investments of and XXXX to range clean investment APS's dividend capital clean through announcement megawatts X, a infrastructure for forecast on another increased guidance of West Valley. customer to and in XXXX the We year In top extended of at is and and year. expenditures by in billion XXX X. earnings base great growth support the our varying We We start with additional great closing, the rate capital have delivered our modernization. off be energy, West. Slides technology our anticipate to $X.X in

energy rate turn concludes to clean our call of questions. are X% in This remarks. now couple the a growth of over for I'll examples long-term our outlook growth just investments to Our prepared back operator the supporting X%. base

Operator

The floor go Ali first [Operator open Thank Agha SunTrust. with Instructions] now you. We'll to questions. for is

And go open. Ali, Please Your ahead. line line open. is is your

Ali Agha

hear Good. morning. me? you Good Good morning. Can hello. Yes,

in on actually impact question your happened that in the the on does the thought Any that Four place? guidance have was -- Corner when increase, step take to by 'XX year. for the originally I beginning any this First that of that depending reason and way delay does

Jeff Guldner

is this Jeff. Ali, Yes.

out commission audit. that It on So is the further not SCR gone the rate push yet. increase. has they're possible into in It's order that out when recommended opinion to that could the to

And so impact right an that it the and have is now doesn't just guidance. under way

Don Brandt

We're guidance. very with comfortable the

Ali Agha

should with this happens period that assuming the still So be around time May guidance? fine

Don Brandt

Yes.

Ali Agha

Okay.

Secondly on the CAGR. base rate

if So, that X%. closer gave as just numbers XX you're us the took XX to that it I showing to

running the with X% to at So on next than Fair that at a reconcile just say the or we're pace to that. wanted for that X% years least faster that you chart. the same to three have four

Don Brandt

go at correct, that X is would I and time That with more beyond XXXX add X. math X only past that your point in but you're comfortable you or as looking the

Ali Agha

there's CapEx and I see. in And a then, lastly, just up on a step robust pretty XX, XX XX pretty funding obviously well. in note are big as

that fund just and where us required needs much when purposes. equity external we be the how thinking should -- would can So how you in show equity of be to modeling that remind about for and roughly

Don Brandt

point capital amount. it if any it equity it a at isn't So form would some we at equity to in off need but year. this related necessarily to structure not top more the be issue And for of the XX would modest be APS. we will CapEx, be that would And

Ali Agha

I see.

So about this later year? sometime think that

Don Brandt

be we did If later it anything this would year.

Ali Agha

you. Thank it. Got

Operator

Moving next Merrill Dumoulin-Smith to with America Julien Lynch. of Bank

Julien Dumoulin-Smith

you Can morning. me? Good hear

Don Brandt

Julian. Yes,

Julien Dumoulin-Smith

Hey.

perhaps first, obviously on up year where of bit me CapEx. questions a Ali's is So elaborate he you XX let off the little higher just Can on the little on the a bit, CapEx left first front. start

of address the I storage years. in amount RFP thinking on and the I piece play parameters projects a that yet. again, you just number the et XXX could XXXX the ownership And haven't we megawatts. full You bit early are little this kilowatt hours in In understand acknowledge RFP talk the cadence little per XX? assumption seen the this. reflected own How could that many we're right, if the the of it, dollar And costs utility too about under as capital will? if you about you other subsequent of that out how to Is want here, cetera i.e.

Don Brandt

I of a been ownership. what announced combination So we terms PPA of and in it's have to-date think

as forward, forward. what moving more As as [indiscernible] inclined we cost well they ownership but we're do at we to move are

Julien Dumoulin-Smith

Got you.

But that's is your that And is in you is fully into some enough. Fair I that bleeds then, you've XXXX I XXX presume Okay. got assuming that you're the of XX. baked there itself mean some that haircutting got outlook you've there into the separately that XXX that? or

Don Brandt

We is Yes. have in the what outlook incur XXXX. expected by to

Julien Dumoulin-Smith

Got it.

on Is Obviously, some Okay. Actually, give anything back here real that to equation oriented Corners would then summer. quickly. side towards just kind ACC sales to in the to come need vote the of of terms the the of that further or Four there requirement are thing? timeline

Jim Hatfield

requirement Julian, now go right audit is Xrd. May scheduled a not it's Now, rate the through yes, but, to

Julien Dumoulin-Smith

Got link here. other, versus one it. Is separate in obviously, there any distinct I reason mean the and efforts to they're

Jim Hatfield

for to in is going looking of And was think they'll separate the informed one reason tell their running They commissioners hand right, no at to There's that XXXX. have are that. they're wait over whether once an make but information we in the things there decision. they're

Julien Dumoulin-Smith

Got leave much. very you I'll it. Excellent. it All Thank there. right.

Operator

We'll Kim with move next Sachs. Goldman Insoo to

Insoo Kim

Thank you.

the with on the growth effects you usage. have you the growth of distributed that's Regarding generation weather customer the in to upside off-peak on upsized energy less of more EU It some impacts know behavior -- like especially hours. the growth their from use XX, seeing is low more to line my education normalized that at think the coming depends impact growth low side. understanding that the been on maybe the of efficiency seems and -- customer off investments Have changes seen I you assumption XX should power

Don Brandt

not concerned. asset realized was the just really [indiscernible] and impact say would I prices

quarter in see about come talking economic are the years first in we're a we've sets growth is which begin was what I meter fourth what beginning and West time will the we a with strong for to in activity X.X% budget Valley a for saw January couple think very a fruition. leading to I to the which exceeded indicator time. say long been

Jim Hatfield

seeing this So realization activity now of the happening. we're economic

Insoo Kim

the changes or look assume in the expected growth down at pick upset, customer to average when whether customer or So that but kind you retail per low annually, outlook residential growth that is on of would the commercial moderated X.X% it's about up. usage

Don Brandt

That's correct.

Insoo Kim

that through potential Got a to on it. go recovery be the the storage, would to contemplations rate costs are energy mechanisms then in or clean during And construction? case need there in regards including for to cover the investments return a

Don Brandt

construct PPA get the in So What time. PSA. into we normal will course be would through it procedure to over go a recovered rate the base

Insoo Kim

rate case, Through right? a

Don Brandt

Yes.

Insoo Kim

Thank Understood. much. very you

Don Brandt

Thank you, Insoo.

Operator

next with go Fishman Charles Research. to We'll Morningstar

Charles Fishman

the The questions that the the are little have XXXX. Is increase between capital less new expansion of a I X, $XXX generation, concerning, and the Is XX the and that specifically program? in clean XX. is expenditure battery bar Slide than million

Don Brandt

Yes. as solar. That as well utility would batteries be scale and

Charles Fishman

Okay. distribution Phoenix And that you bars. on the in that then What West at? enter mentioned year new where that center we're does in

Don Brandt

is in occur Activity will 'XX the 'XX, and infrastructure West and and 'XX be for occurred will Valley it XX in some the ongoing. for

Charles Fishman

that Roughly as a that envision mean people how I am picturing your and for distribution I correctly? trucks involved, I much. facility

Daniel Froetscher

that million to on Yes, acre about multi-year for Valley, total sits be Yes, Daniel predominantly roughly a Charles. This build facility transmission $XX parcel, Froetscher. million. to an that teams. is a XX used the It's and West in distribution located $XX our is is will

Charles Fishman

it. Got

Okay. That's you. Thank have. I all

Operator

Moving next Weinstein to Suisse. Credit Michael with

Michael Weinstein

Hi, guys.

Don Brandt

Michael. Hey,

Michael Weinstein

do how an The expect a coming -- the up IRP more up? of as CapEx we CapEx to years point? indication out to more will is how much in that XXXX of going more how get of shaping that see, of filing think early at IRP to much is view spring, how can you the how much in that's many -- And that bump this be

Daniel Froetscher

IRP beyond. forecasted this CapEx a Daniel this XXXX We which Michael, Froetscher. haven't beyond necessarily preliminary year little our I due and obviously is wouldn't our correlate later to XXXX. is

additional look a serve forward our I resource to mechanism energy. capacity for in think and IRP the as requirements will choices our resource foundationally shaping desired relative

Michael Weinstein

of the commissioners? her about renewables -- desire talks And this is for from indication point, had you. with what are as to you've Kennedy any new Got Commissioner you kind I'm curious kind getting at she of

Jeff Guldner

Michael, this Jeff. is

or that Kennedy, renewable the when standard she Commissioner propose So XX% energy about came bench going was on a was she indicated by talking to XXXX.

her. we've as what And can heard a standard. recall proposal has an for XX% so Commissioner Tobin that's you from clean

there proposals. expect will we the commission those various around dialogue be so And some at

IRP. draft think You that'll the be entering to

Don Brandt

Well, the some intersect certainly that point. IRP going to at is

unfold. IRP it's those So going if to tell how all having ultimately little intersect potential some they're discussion exactly around and a you're file to you obviously But that's an hard going standards to

Michael Weinstein

you. Got

you. Okay. Thank

Operator

with Glenrock go next Associates. to We'll Patterson Paul

Paul Patterson

morning. Good

Don Brandt

Good morning.

Paul Patterson

-- a Was you this. to wondering When's guys retail this increase I've expect next apology in sales with four and time if go week. I the missed into

Don Brandt

Right now.

file to X, is expectation XXXX. Our June

Paul Patterson

enough And hear but -- around up. is arguments do this season? causing on this old think sort respect driving what came the is to then, driving that. guys this to think you of really most what work when do this you new I What I inner -- discussion for you with I'm competition, first mean new remember doesn't it ratepayers, how is

Jim Hatfield

in Arizona been there. kind while. a country of think I periodically. I has the It Nevada for topic saw there's certainly a think discussions there in occur hoping There's still was around a you push on that

mentioned We comments legal as continue framework that Arizona's the in Don grounded. is see challenges in constitutionally his to here the

of And being customers are other states. makes the what in the more we challenging Those terms so states challenges in confronted will okay. have it again are But good to what and viewpoints that other something conversations implement on here. share all our that realizing conversations to are in

Paul Patterson

such about that be any we should plant. gas things. me serve can in to quantitative should of that -- that? we have you If number kind flexibility cost Do what and of made of comparison or respect of think that sort you these of sort what about the Okay. think solar With there's capacity terms combination if around value sort we a can -- follow with compares how combination, battery the of to how and a

Daniel Froetscher

This for capacity Paul. to proposals were general. the would for as gas Daniel. cost of some of is XXXX coming competitiveness then our batteries we that a as simply say request decisions by surprised I Obviously a the storage, by standpoint late time hour early early ramp Xto that customers for is battery viable late evening at solution afternoon charged system generation day ramp from experienced that our timeframe solar that evening alternative off and afternoon an have made in we for pleasantly system. a in X windows peaking our

Paul Patterson

by environmental higher viable, what without would I what And it's gas a it, have say Okay. mean you say the you -- you benefits we'd you sort you plant and if would than if it's had see of any of of is with or how I'm I'm just to me. trying what means if you thing picture mean sort I follow what that as working to saying. follow get kind solar that you there

Don Brandt

simply would cost competitive. I be say quite to Yes. we it found

Paul Patterson

Okay.

in customer are really bit a of to Is larger customers are should that about think how just what coming customer that going about electricity just onboard the actually that you your which using or elaborate be that really the uses. of question have of Is has that. on how on really are growth that out sort because there just lot seemed to that more growth exactly that terms customers little a we without Impressive. finally forecast size customer just we the then, changing. And back economic just further mentioned bumped could sales Okay. the that

Don Brandt

is center. you're a lot distribution the of large Valley what think West in commercial data seeing I warehousing

you're of So different and that as customer a mix well. customer getting growth

Paul Patterson

guys. Have weekend. Awesome. a good so Okay Thanks much

Operator

There remarks. speakers closing was no turn conference the questions. for to other I'll back the

Stefanie Layton

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

Operator

gentlemen, and you thank your we Ladies participation. for

have your disconnect phone You and day. a this great time may at lines

Pinnacle West Capital (PNW) 22 Feb 192018 Q4 Earnings call transcript