PNW - Earnings call transcript Q3 2019 | Pinnacle West Capital Corporation

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Operator

Greetings, and welcome to the Pinnacle West Capital Corporation Third Quarter 2019 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

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

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

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

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

to call I will now turn Don. over the

Don Brandt

for Thank today. you, us joining all you thank Stefanie, and

year. in performance our and for with the operating management remain line Our financial expectations

in second significantly in provided weather revenue know, the you quarter. quarter mild and was third average the As below

our and results, on for XXXX of third few current provide regulatory discusses our a developments. Jim details the impacts operational on updates weather quarter and Before I'll expectations of

from completed planning degrees. energy. the rain season the California with August summer generation core September. summer focusing the while imports XXX successfully the in between It for meant was mild began July of XXXX reliable days over resource one years, and affordable June with June was during and watching of driest for end and inch priorities, temperatures, over safe, which XX hours, midday heavy delivering on less clean, than had renewables our XX and last relatively by The

lack XXXX XXXX, demand, The peak. impact XXX of can peak was which megawatts humidity of short X,XXX the in megawatts following

Our the is forensic containing Michigan shipped was equipment to evaluation the rack substation series and where in ongoing. battery of disassembled storage undergoing The The that McMicken fire modules. lab occurred a on battery of it's facility been failure rack experienced one fire XX has tests. a

remain move While forward it's investments our storage, we in that we imperative energy safely. committed to

forward or more We expect a like XXXX. end shouldn't of be the early safer looks by specifics available this on what year that path

our behalf filing project the on effect $XX participation go million X, separate $XXX October is We western regulatory imbalance catalytic increase filed equity XX.XX% our equity, on The to subject a return an This year requested posttest Turning on We've for December XX.X% pursuing case proceeding. a of the and a increment, XXXX. our selective energy XXXX. of a updates. of rates rate into on includes customers, that return Key the the we're annual in reduction rate ACC plant. million. XX, on four market. components of We new technology-driven fair in value proposed corners that case programs, months already include revenue the XX of layer X% filing highlights including

of the our service increasing provides territory, market and to participation only resources in Our manage energy. this also access provides greater the negative-priced intermittent availability ability grid not to our it in

customers, annually, our of of realized savings EIM. EPS funding the member three increasing our most three a propose million Our contains during years, to benefit support over for $XXX have gross In filing We program vulnerable. in the of program discount $X.X customers allowing Assistance proposals further for $X.XX to million deferring the growth. expanding our income, from ways discount and bill expanded Crisis which program, program costs in for customers our bill Bill million our may limited enroll

We're and that offer also to month cell responding an customers' to same subscription proposing flat to our this to customer option customers phone bill commitment lifestyles. unlimited pilot demonstrate This be fit like amount program. by our use Programs provide each rate the options a increase plan. will choice similar customers billed an

retail we formula have December reduction in open commission's commission frequent we and We in including early basis. a for request concept the XXXX in complexities more for adjustor a of The addition of gradualism the include other an choice. to status to dockets, a the calibration, have consideration. annual the The transparency the approval, rate competition addition, heard be in disconnection, may for annual a customers. workshop and or another number In continue retail ACC need benefits mechanisms has alternative evaluating annual scheduled rules rate and proposed choice. for on response, anticipate formula In accountability in transparency earnings our commission's financial retail of final rate

We million third October has the to another continue us end investing allowing timing our or mechanism this commission filing, draft in adjustor XX, to Tax bills refunding, the total to million XXXX, $XXX the $XXX this will our in third Reform Including system, expense steps keeping docket, customers retail to of by rules tax Federal On the do customers. docket. approved refunds staff while from disconnection rules affordable. filing not know for In the next commission proposed consider. commissioners the

date I November retirement year, this announced XX. of my Earlier

to our can't of pride of no the immense leadership. this The our ahead, have continue forward and over I I people strength about have success I I will the doubt say in our performance tenure. Jeff's what's team look dedication enough the While my and company success, that drive under of

the over turn I'll best, I to now Jim. and call wish you all the

Jim Hatfield

to morning, again, of today. be XXXX for found results XXXX. the quarter Thank $X.XX joining third third earnings financial reconciliation share in our materials. compared the quarter thank we X of the you, you Don, per share Slide on per can of $X.XX and We everyone, A drivers earned reported of quarter This XXXX. the the us for third of in

normal would Given from below to not guidance the weather, hit expect range. end to year-to-date XXXX we $X.XX $X.XX, impact the the lower of

per a As part, illustrated the or sales expectations weather. weather end decreased October XX, to the also of below XXXX, of share. million gross due, of mild on quarter $XX Slide total in through $X.XX third month are another of margin,

by and the we X weather O&M approval negative year XXXX, a partially the TEAM impact of For the full expect offset refund. will be lower

to will look enhance our cost ahead we continue As through shareholder our value XXXX, discipline. we to customer and management

costs and daily unnecessary improvement. effort long have of are work employees affordability find We The our customer challenged better which managing of bureaucracy track a in on to and challenges efficiently continuous more our to ways operations, eliminate our record and based work principles. all lean

working there. us different get savings harder to and Just must rates get the cost done We not will will job general find result.

as that $XX affordability XXXX. early of Although savings in we the customer are O&M identified potential of initiative, million serve positive driver a we have in will stages the

share. We guidance to $X.XX XXXX are introducing $X.XX per of

case no incorporated regarding earnings. rate guidance outcome There case assumptions outcome rate the a is are the to range. Given impact materially into unlikely XXXX

higher and Positive O&M, drivers the for XXXX deferral. transmission growth, revenue include Ocotillo sales lower

approximately main XXXX. decrease for We include million customer Navajo O&M to the lower drivers affordability $XX of reductions the our will from The planned Generating from expect initiative and expense. XXXX Station, lower O&M our closure outage

expense with lower revised and expense associated drivers partially by an offset these disconnect property will be depreciation in higher increase expect We higher higher and interest amortization, taxes, policies, AFUDC.

estimate XXXX, assumptions, associated of benefits could approximately estimated million excess with tax are customer of depending for of as a pretax the XXXX refunds upon certain X X million $XX disconnection currently provided including result team behavior. the substantially TEAM by to that in effective reflects The and revised and part taxes filings. the the customers million filings. associated $XX These benefits TEAM tax moratorium the with rate in to $XX We income amortization offset deferred of policies effective decrease rate in XX% of

Going strong will layer. of growth to a energy customers investments the equity our modest forward, equity need clean want, our in supporting we amount support while

our form any plans capital timing We expenditure and issuance our of evaluate equity the will needs, including to progress. as continue

expect of to at funding APS a of portion X.X% for issue the senior in include may long-term This million debt refinancing $XXX our XXXX. We of notes, mature during January the $XXX remainder needs million, of XXXX. which APS the

debt $X be We complete X Overall, to at APS at up during issue found factors also million strong. our term through guidance XXXX Slides A $XXX and and Pinnacle X. XXXX. underlying and assumptions XXXX remains list of liquidity billion of West can on expect to

organic growth from stand addition quarterly Arizona rate overall. consistently According result as above than Technology faster Arizona's our tech cost and we the area strong Phoenix our the at has sector to a is the management, XX% economic average. U.S. to growth The national of territory benefit report, development. to impact been In continues job service to in Council's show Metro a growing

conditions, permits. compared employment a in as an upward total residential housing by X,XXX about XXXX. of also Metro trend. and expect real compared by of in driven Metro economic base U.S. Phoenix estate Construction X%. increased quarter we Reflecting In its in in XXXX, APS' of Through X.X% X.X% increased retail steady employment grew customer the has Phoenix single-family manufacturing to Metro August XX,XXX employment improvement permits, the increased XX.X% of XXXX, for continued increase XXXX, to third Phoenix entire X% the by market The

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

we achieve annual more In outlook base equity on closing, X%, to X.X% common a XXXX. growth through to of average at return and earned our consolidated weather-normalized long-term than X% remains rate expect

fluctuate can on illustrated When case end the rate earnings not regulatory are growth. earnings our our will as and will Slide XXXX , we cycle slow linear of in year-to-year. from our lag X, reach As we

to record to over partner of success. a However, opportunity cleaner the to continue well track with us our positions long build future the stakeholders across energy term, Arizona

for to call concludes remarks. And this the prepared our questions. turn back I'll the over operator

Operator

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

Michael Weinstein

morning. Good

Don Brandt

Michael. Good morning,

Michael Weinstein

restored Four When and about from of probably a slide be would case like Corners. those perhaps I look in $X.XX would there's XXXX fair – be two SCRs, that, XXXX. I Four be impact at full that Is is things on say about that in It rate reduction to on that XXXX I'll think in slides hit. year combined looks EPS Corners the continue a the $X.XX of $X.XX here the the shows – finished once it would

Jim Hatfield

two. of components the are rate math those the be but obviously, case, predict We would ask. two rate the combined our optimal can't That big the of

Michael Weinstein

kinds a what it you on do And might XXXX might equity that might thoughts modest of kind you. timing Got you now need equity of what have the XXXX a said the issue And Is forward? or be? that for issuances any issue? you you right of do going

Jim Hatfield

I any currently, don’t have thoughts Michael.

Michael Weinstein

you All much. right. Thank very

Operator

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

Insoo Kim

little you’re trends your in for be the customer the seems guys data starting prior continues economic talk XXXX to various the usage a basis a side. you that is there various Maybe with in now seeing you. of Despite than you you’re load that forecast? – – forecasting bit the in weather-normalized Could points out, like XX growth pointing growth commercial/industrial Thank about to that, classes? lot you just it were industries lower the be about

Jim Hatfield

Yes.

if So sectors. economy overall, look to virtually at is residential all The be the very I doing well – continues strong.

in growth logistics. base national still appear malls trends. being stores is stronger Currently, retail weak, with dominated to and is warehousing line C&I be which and customer in For the by

a energy-use average area, rapid from sector growth So be and we an showing use perspective, little per than in warehousing to still the expected. but in weaker reducing logistics customer growth the appears C&I

Insoo Kim

Understood. maybe rate the to switching then And case.

familiar in fair just of couple about the not of think is past base. treatment I I that terms not? there’s that – – the of Or as that an with something value rate the statute, that been I’m legislative And conversations increment the a months, the ACC to increment that whether just approve is has a discretion on is PSC in item? or of

Jeff Guldner

Arizona the in Hey, the of fair requirement. is state a constitution XXXX, value and in adopted Insoo, it’s part so Jeff. That’s actually the constitution

to to Arizona. the over different a ours. years, all of not been a them, in or case it years of have variety of five probably it’s somewhat And cases, unique six of started rate really more addressed context. it’s ago, lot a So And rate role,

was fair ago. the to And time. and has so a few since applying the weeks This commission that apply workshop on it value discussing a been standard how it

know play there’s so parts how it. And on going don’t that’s some out. to exactly I moving

Insoo Kim

But fair that value PSC sort would apply rates? increment the some the constitution to state Okay. would of

Jeff Guldner

Yes.

Insoo Kim

you very Thank Okay. much.

Operator

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

Julien Dumoulin-Smith

team. morning, good Hey,

So in fair that other here. I Insoo’s just you brief. could piece gap, in costs how the and cut post And versus narrowing delta in obviously, at you value authorized? some especially and trying sort just given think in follow-up bit continue And cases change you about the of on narrowing question XXXX think the Can of to how returns focus of any you in outcome, talk about on staff? a little earned then ask about if eventuality XXXX. How maybe commentary to I’m versus on continuing to between in returns authorized rate really the think the get gap here case a about the do

Jim Hatfield

at So Julien, we need on think faster we rate perspective. would which will would from of the have terms terms an FERC, we’d a formula look much at of we proposed of as be be two we just things value. the mechanisms in fair those sort narrow in like Obviously, gradualism alternative work rates And getting lag, terms in case, regulatory the that now annual filing, the of I in recovery do well adjusters. some an

Don Brandt

the Yes. different. a each fair little Obviously, Julian, on bit is case value,

staff had testimony that’s Electric you a again, fair But requested fall case. a other context if to – X.X% company increment. in right before at cases increment less specific little of fair the the now than didn’t value was going So and watch they There’ve where been company that be X.XX% Tucson value the the a in increment. case, get water

evolving being part so area the Arizona is a But policy is it’s framework. of that’s discussed. it the at an regulatory least – And just or

Julien Dumoulin-Smith

I I earned return All the to that enough. mean, better. that framework, have obviously, ability is right. to going even I future, coming respect But range? O&M no suppose, Fair in you guys with is X.X% broad still think narrow sticking mantra, down. earned the about talked a to there kind returns, historically mean or broadly, to about I of

Jim Hatfield

Well, say outcome, the outcome. we mean where or can’t I what that on case now, is because can’t are obviously, beyond – the focus don’t based really we we predict we right really

Jeff Guldner

between going disallowances, and delta right? But we do structural to the authorized you do – so have always try try to some get narrow the And you’re delta to the earned between return. the

continue us. to And will that for so be a obviously focus

Julien Dumoulin-Smith

shift. obviously, And Got small XXXX. But do suppose in earlier here, know that made it. Excellent. potential more around, about bump to CapEx think was any you how you wise. I I a shift it then meaningful it’s a

shouldn’t Given rather? that be the pendency of case, resolution, the of we meaningful expecting more the anything right? until Or termination case,

Jim Hatfield

I and we’re as a think XXXX, I almost XXXX have Yes, and big for changes currently. plan that’s XXXX, expect now wouldn’t – good on we any

Julien Dumoulin-Smith

right. I enough, guys. leave you. Thank Fair there. it All

Operator

line from with of comes question. Please your the Greg ISI. proceed Gordon question Evercore with next Our

Greg Gordon

the First, hey Thanks, retirement. congratulations Don, on

You’ve utility served over your shareholders, returns well so also your for well tenure and very, Arizona deserved. the up put of in customers very good

Don Brandt

Thanks, appreciate coming especially Greg. from I it, you.

Greg Gordon

I’ve – multitasking The been here.

target lot and the for come adjusted but where you XXXX, a to thought obviously, margin in, down when missed So the XXXX for margin XXXX. gross targets I they this, is were came apologize gross below looking XXXX initially appreciate if XXXX you in adjusted and I going at and actually

issue you’ve end initial there’s And you the where lower just for sales electric weather-normalized for recalibrated year, next uncertainty you some whether retail Can versus through but it’s or same XXXX there? just around a also for think volume what in this XXXX? year. you’ll expectations XXXX Your expectations go are in

Jim Hatfield

going of the response And earlier huge forward, around data exact and in other we question, are really the with have warehousing which slide now we’re terms and a highly other in – talked a things, amounts. centers to seeing customer in of that’s per an customer, sector historically, timing to logistics. mix less we the Well, we how some about have uncertain that versus due C&I we’re

we’re So marketplace. actually we’re I seeing in recalibrating what think to just the

Greg Gordon

then back And Okay. question. on Weinstein’s Michael

a thank in not getting year the of putting – impact appendix slide increase. did this on you You the for the step

it at you at before annualize it worked annualized I rate think a right? out that that $X.XX. number will – is in in XXXX Is all the gets larger it case,

Jim Hatfield

equity There’s a and you’re rule rates out return return. that, an just for No, to it really having delta deferred. concurrent – the will be debt not – versus change. The a impact to earning ALJ it’s there will – and that as non-cash between that’s return. that’s project they’re be And going continue in a

not minimal frame. one-year time – cash So you’re over it’s fairly but always getting you’re a your return,

Greg Gordon

afternoon. Okay. guys. Thank Have you, a great

Operator

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

Ali Agha

you, Thank good morning.

I you can for going end us how just question, below of about think we your you’re should lower just about give this First mentioned of as to thinking year we year, off? be low you the to this think guidance be much some calibration that finishing clarify,

Jim Hatfield

We’ll at as million. I about moment. finest can That’s put a on below be the point $XXX

Ali Agha

for can – higher or manage or range target earned the mean dust return. Okay, should settles? know your towards Any Jim. I XXXX, we numbers X.X% when all think you about the I you

Jim Hatfield

No.

Ali Agha

I in that I million in about confirm well? One, disconnect Then that mentioned in as does $XX years will your revised think continue impact Okay. million. by future my second you two, comments, $XX heard XXXX, to right? And these policies wanted question, you hurt to I

Jim Hatfield

we this going is reality have various based don’t it at you heard forward. The policy Well, point correctly, impact the on assumptions. a

point reflected be ultimately this be guess the beyond will the future, of those would at And at number in a pure point. anything whenever some assumption up. rates we end in So the

Ali Agha

I see.

case is there some this currently So that up truing in happen will that’s rate pending?

Jim Hatfield

of did to try to in a pro we’re increase case seeing now. our the We the increase uncollectible couple formas do based on expense

Jeff Guldner

longer Ali, on are. term, rules final the depend what it’ll

in And rules process on disconnect a ultimately, in So and participating they’re that. the out be in we’re those now rule-making with. come policy, it’ll reflected what

Ali Agha

guess, – issue view, would be just expect from would point an there big would rules this forward? the Or be headwinds picture that some I this? theoretically, we But such would of from, see. I be going mean I that not a

Jim Hatfield

ask until in headwinds have There’ll the what or based don’t rates, rules, reflected be we which ultimately case the down we this road get that’s for whether you it in on yet. final

Ali Agha

I got wanted there I small to mentioned that XX.X%, to that’s – your you does right? you this structure? the capital equity don’t some is to case, equity you. just on And then But as lastly, going Jim, or equity well? forward. for need based need that Or confirm, some actual level That calibrate rate for needed

Jim Hatfield

No.

of as XX.X% is June structure XX, filed what that’s in capital Our the case. we

Ali Agha

Right.

Okay. Thank you.

Operator

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

Charles Fishman

Don, you. certainly West years the over sort of and Board of Louis. or first ago XX a Pinnacle I around Thank decision followed St. made you at the – out and took when they you think met you I great

Don Brandt

Charles. Thanks,

Charles Fishman

you only forward go The as I tax I mean, for that more – will assume key rise next your is you’re XX% likely decade. in – factors that, year. color question that Jim? Or on here and Can in effective rate, using the have I a what will little we give next

Jim Hatfield

the of in a flowback years, the really But the future. deferred it’s tax it for fact giving that reflected is will back based reflection through be tax is, really rate X, over foreseeable it we’re which on roughly. effective TEAM XX.X what Well,

Charles Fishman

Okay.

next it few will can level – stay around we at the this years? So over

Jim Hatfield

things All equal.

Charles Fishman

Thank the Got had. you. only That’s Okay. I thing it.

Operator

you. Thank

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

Stefanie Layton

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

Operator

Ladies and this gentlemen, concludes today’s teleconference.

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

Pinnacle West Capital (PNW) 7 Nov 192019 Q3 Earnings call transcript