Earnings call transcript Q4 2022

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Operator

Good day, everyone, and welcome to the Pinnacle West Capital Corporation 2022 Fourth Quarter Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be opened for questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma'am, the floor is yours.

Amanda Ho

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

here our Vice Our speakers our Andrew Policy, President Operations; Executive of Ted Cooper; and and Tetlow, also Jeff APS Jacob President Guldner; Public CFO, President; Chairman with Geisler, Vice today and CEO, Jose us. be will of Esparza, are Senior

that release slides are few website details information. First, available with our using I need cover on The are to along a you. with and we Investor Relations our earnings related

comments actual forward-looking results contain statements our materially and differ expectations expectations. from current Today's may and based slides on

for forward-looking cautionary well XXXX factors MD&A differ the cause as Form and in statements, risk was those as to results disclosures. annual could which materially uncertainties morning. that XX-K from and document contained identify Please actual risks sections, this language, Our that filed refer to our

this XXXX. available will also of will It by through telephone replay be available days. our X, March shortly website the XX be call A for next on

Now, I the will Jeff. over to turn call

Jeffrey Guldner

provide of Thanks, it last our and major no on we were morning. back In one updates thank our I'm XXXX, and a and is several headwinds to today. able financial today from for met We in progress you not plan outcome reliability looking continuing rate challenges us done delivering we're for resulting Amanda, look target laid to case, to joining plan. of and the recent years the ourselves, every last our but most Good service including and Coming in rate to we our faced we we share challenging exceeded doubt the memory was all nearly achieve, we year of going a reset we out successes significant financial we customers. execute faced. or and set despite forward made the comprehensive last strong strategy out to case.

improving examine now the relationships, Meyers regulatory We the commission new last out and joined commissioners of we've actions elected of bench, creation XXXX, items progress we conversations January bench to seen for Commissioner received lag. the to of reduce Commissioner regulatory previous in solutions. new to and our our area. to application committed the in including last result decisions the Chair, financing fully by We decisions December. believe and new constructive regulatory, Thompson look and Commissioner to and O'Connor key the We've all important that We that bench focus a working and including XXXX already ways thoughtful seen served by Chairman. Turning forward a with during came our with these rate started case as was docket a constructive two we on are

For rate in procedural schedule. a judge the our pending case, order issued December, the law administrative outlining

through early the to commission additional round process clarity. The with forward the and May gaining rate hearing testimony in in due case We set is first staff regulatory look and parties with to in commence working intervenor of August. the and the

more Our prosperity commission Arizona, of number to be one goal doing includes working for collaboratively building what's with continues the people which and right be a and relationship. the constructive

of And especially number replaced XXX one had where average of most Turning ending safety exceptional proud summer. team's to low-energy injuries. year than to We record. prioritizing with context and more about hazardous storm summer and on poles we which XXX SIPs an a in number of lower employee is injuries the and for our damaged. our poles, want execution the saw lowest OSHA we seasons operation field for history, side, in over Three recognizing damaging our by record the recordable employees start I significantly recent of I'm XXXX,

In planning us resource XXXX, long-term our addition, capacity careful reliably. experienced again region in allowed the of to adequacy southwest serve and shortages, parts while our customers

we to off-system create APS to which and us in make Additionally, western savings for the allowed sales wholesale remain market customers. engaged

sales Generating our benefit off-system APS and directly performed capacity of customers equivalent factor our those at our finally, stability. Palo regional overall Importantly, grid factor, XXX.X% maintain while XX%, recording generation a costs, lowering of a summertime achieved we Station. by availability units well the with extremely Verde And EAF fleet, helping nonnuclear

of customer We focused value and on improving customer experience. creating importance remain recognize our the

experience. an to are achieving first committed employees best-in-class our customer of goal industry-leading Our putting customers towards and working

of on from ratings nation result it in J.D. XXXX the improved this in among for both satisfaction, utilities making progress with As business and made commitment, most that by its measured Power. customers earning front customer residential extraordinary we a APS the

first overall investor-owned XXXX, Consequently, the firmly lifting customers, APS into now every large well compared quartile business to for in gains and Company's above quartile when satisfaction, Compared company of second driver residential satisfaction the business industry achieved the single peers. quartile customers. nationally nationally residential customer for benchmarks is in to the

on and also announcing reach carbon-free energy clean to clean years resource make over We XXX% procured XXXX, ago. by progress and megawatts of affordable goal continue our procurement our We to energy X,XXX three clean since energy resources. commitment

XXXX, be RFP to resources XXXX finalizing to essential procurement the through discussed, year X,XXX pace all-source At help designed with investments the decisions for previously continue tremendous from capacity we are across Arizona's that substantial last X,XXX us as service we markets megawatts an from to growth. West. in of are to tightening and time, keep electricity same to These Additionally, resources work RFP. entire new another issued

our the our will service growth the by of and rate our XXXX want near-term territory. outcome make once challenging. recognize Looking headwinds continue serving case are And in how outcome reliably a that again I XXXX pending unfavorable case; communication to previous rate tremendous created it to improving and our goals and constructive our customer through include, continuously engagement; customers the for forward, achieving in

to believe backdrop our both extraordinary all expansion. we long-term executing we look economic However, ability and and shareholders efforts to Arizona's provide cost proven our and forward of continuing in customers our plan against value to management the

thank So going Andrew? I'm our over you our the for financial about to quarter earnings talk expectations. I to time Andrew, forward-looking today call and your and and to fourth full-year who turn will want XXXX

Andrew Cooper

Thank additional for beyond. you, XXXX. financial cover Jeff, and everyone will us guidance thanks again quarter outlook to for we and and for morning for around full-year fourth joining results XXXX our introduced results the I reported our provide details This financial and today. and XXXX

and As rate during while the well to by But strong last I we in want navigating negative right challenges over Jeff and in near-term. upfront been reset brought are we on period financial of through create discussed, clear the that we remain the we our executing remain to confident outcome have returns. renewed plan growth case, on ability shareholder deliver our our make

$X.XX XXXX. the XXXX, $X.XX fourth per For down share, compared quarter quarter to lost we of fourth

a Bright the Bright The unfavorable farm. relating and This deferring million case year also a a investment have rate modernization investment. results been in net Canyon to $XX.X case the primary income by project and longer lower reduction Four of a for energy in decision a Corners Canyon stake included quarter. the for driver wind was minority from The and equity to impairment SCR legacy remain charge no related Ocotillo quarter fourth the the costs that all

and in ongoing on customer of impairment interest the cost a to and probable included fourth Favorable of In weather was sales disputes investment lower were partial due determined Other we the expense. appropriate that transmission quarter, drivers and favorable O&M allocation negative a LFCR higher negative quarter. revenues, the outcome. offsets higher impacts to lack and fourth the growth

our with year per year in our earned updated year full $X.XX For guidance. XXXX, from XXXX. down line results share ended share, We full in the we for per $X.XX

earlier, charge, drove a the outcome reset the lower primary lower were Bright negative higher O&M other interest drivers driver Canyon higher expense results. noted As the and and rate financial negative year-over-year impairment results. is for year-over-year The for case

The O&M results. other higher year-over-year drivers lower were Bright interest Canyon impairment expense for and negative higher charge,

drivers. growth beneficial offset well customer the year, saw sales For we and partially as the weather that negative as

show employment, quarter for in-line manufacturing data Bureau. Census and has recent fifth U.S. be full-year. growth continues U.S. population to XXXX, with customer including with XXXX Arizona guidance X.X% the the which growing for the popular to fourth Arizona destination highest growth, of was relocation to employment X.X%, an growth Turning the diversification at from our strong in continued also a example, to rate remained customer according of to rate have growth for economic X.X%. areas a at compared to emerging as

range. This as X.X% increased growth with We realized. the weather of to economy full anchored strong and weather-normalized of strong also sales our by diversified health was X.X% prior over year increasingly growth our Arizona XXXX, XXXX, in fourth to continue the line growth. guidance for year X.X% relative revised experience upwardly in quarter the Sales benefits C&I was the is

In fact, demand three Phoenix JLL markets. to named XXXX study a XX recently tenant that a according industrial market evaluated to was watch Metro top U.S. in

financial Moving on to our outlook.

$X.XX $X.XX per guidance to Our earnings range share. is XXXX

customer growth is a include forecast per growth is sales actual interest to D&A. robust higher decline ahead this $X.XX results, Although XXXX steady $X.XX XXXX range and expense, expense and our guidance We from plant XXXX. for XXXX share. comparable Headwinds in range the weather-normalized of benefit to

this management initiatives track record target us will hour lean our per navigate O&M proven through We help continue period. inflationary megawatt to successfully declining believe cost and of and

We costs and have customers. on our and efficiencies, a continue keep look to risk rates to maintain strong opportunities low O&M create for for focus our reduce to affordable

to to we in for in range as such distribution. strength we hubs, guidance remain X.X% at forecasted maintaining particularly Looking X.X% the and sales semiconductor diversification large it our hold as growth, other segments economic takes XXXX. are expect expect and the continued On areas customer manufacturing strong C&I growth

TSMC North investment and of $XX increasing employ billion billion. X,XXX. fab $XX will announced build X,XXX jobs to estimates permanent to of from recently the fact, projection plans its earlier the a Phoenix site increase second original TSMC In location

creating addition, by plans examples like jobs. these, for be manufacturing & XXXX. In million are for new growth our range sales Procter to to X.X% the also in facility, XXX weather-normalized investments $XXX Gamble, X.X% expecting we Anchored announced

Turning pension. to

by XXXX expense Higher expecting As the primarily for driven net offset returns by benefit We XXXX on investment liability the XXXX be are is of headwind investment our is Nevertheless, benefits needed to $X.XX XXXX. effect in also a expense our of expected higher XXXX, and compared impact in contributions partially to XXXX. rates. strategy the as All-in weighted reminder, returns expectation discount has the with funded in for higher expect near-term. no volatility pension reduced a benefit resulting from headwind of portfolio. we long-term fixed-income impacted negative committed assets in and we a remain XXX% of to the

expense. to continue of for we However, evaluate benefit regulatory options recovery higher

to continues to combat interest Reserve Federal the as expense raise rates, interest to Turning inflation. try

We $X.X updated year-over-year. any X%. we capital X% I are with closely we needs. average interest highlight our rate growth not We've would that do financing billion our to growth mid-XXXX, base plan expect also to that do monitoring annual an until expense have XXXX rate of at from to XXXX maturities higher

CapEx outcome customers. This to update directly simply Importantly, the need is any are to increase keep reliably investments in needed growth more the we is of and loan with is and serve to infrastructure. case making that related growth in and up independent rate resilient

also updated capital have demands to our plan meet updated We of our the financing plan.

our and the of constructive financial case focused equity on continuing any remains rate a and so consistent. to regulatory defer achieving issuance current are outlook resolution The outcome. of remain rest We

includes outlook range. growth our of of XXXX guidance weather-normalized the to earnings of Our midpoint X% X% long-term

track a raised $X.XXX growth have our Board to the and recently record dividend dividend share. per We of quarterly

us dividend higher that long-term we allow dividends are achieve future While approval our is XX% target, our will in than payout our believe subject to our to future, by Board. recognizing our XX% current to ratio ratio payout the of all plan

accomplish long-term is is executing to rate great discipline look-forward XXXX. that in on our track-record a of taking we in growth, constructive able and forward were and path the case We a outcomes, sheet and management plan territory a have XXXX strength team action. robust We around work this to service on continued that cost building balance focused centered

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

Operator

first question Certainly. be Your America. from time Dumoulin-Smith from At coming question-and-answer Instructions] this conducting we'll a Bank is Julien [Operator session. of

is line Your live.

Dariusz Lozny

on This good for Hi, is Julian. Dariusz morning.

capital future case. on maybe need plan the help plan? about, won't in rate wanted think at Can won't you looking higher us XXXX XXXX? in the context I the need In until beyond to equity a rate bit, the off, touch recognizing be little just financing equity of how case that equity the issuing after or and starting pendency particular, you current you're of the Just

Andrew Cooper

Dariusz. Sure, It's Andrew.

need million equity of that appropriately the the some plan As will XXXX. debt for be really in near that plan the $XXX equity there, rate do make that's of up Any on And future of coming that out sure developed $XXX you term. concludes. the set weren't dependent we layer rate we given equity to to really APS after that million is APS case noted, an the capital the in needs the have capitalized equity case in

I As we've the it load serving on plan is mentioned the earlier, and that here expands. dependent into capital territories added the growth service really

assets. we area outcome as case example, for and a rate ratio get the spend, PPA with will through constructive consider our be self-build a an about, Once that capital think different versus clean of where we

figure of is XXXX. the determination. at for feedback the million conclusion that credit the the capital need be out the financing of rate to look intact. agencies We'll a the the the will years at We from also on as to $XXX rating post make XXXX, that our But case for point plan right for to rate $XXX case looking now, metrics million at plan beyond

Dariusz Lozny

also context allow period? be the you how maintain maybe your discuss I X% little the TSMC project forecast is robust the can could And any of discuss growth? coming you online Excellent. much bit on there growth this EPS your that you forecast loan a X% just on maybe a delays you period. couple what still lower to Thank TSMC out the over X% touch this you. CAGR, customers about can said to than X% within within you and Can you if to visibility large maybe And to level other update I and of if that that contribution this of Other know to largest morning. would mentioned absorbed guys then

Andrew Cooper

Sure, Dariusz.

macroeconomic group economic some story So factors the center it's C&I here. data in manufacturing, on the different as as growth contributing of territory. forecast in depending and far a is driven seeing not we're by the It's We're to that overall a the customers service really diversified the pretty than large of part which there that past growth of a other to broader been much and The as the customers, center TSMC story that. of manufacturing well. to there is a X.X%, as data is TSMC, identified as from and X% X.X% include of part X% specifically is the customers, considerable but it's customers considerable the that,

X% and period. similar coterminous. So earnings XXXX, it's pretty diversified growth through on long-term we that front. is rate is pretty that much through that forecast but X% rate here trends growth growth The have to the sale roughly XXXX, that's The sales rate -- through

macroeconomic work we're us and customers seen environment as period. and as the to both the those you've to even well the keep inflation that a continue As levers pressure through go certainly specific on close growth forecast the XXXX, helping mitigate sales cost some in is of eye we that And O&M and we'll seeing. the

Dariusz Lozny

you detail. Okay. for that thank Great. Well,

week. Looking-forward to later in the catching-up

Jeffrey Guldner

Thanks, Dariusz.

Operator

you. Thank

Shar Your next question Pourreza is coming from from Guggenheim.

live. is line Your

Shar Pourreza

Hey, guys.

Jeffrey Guldner

Hey, Shar.

Shar Pourreza

Good Jeff. morning,

guys you're just how But the of you you've the Let I'm in this you up in your sort the said a if together? maybe me think bumped APS in it level $XXX have and per mean, two do roughly we just take the system, what I CapEx million $XXX curious, you year. historically with increase to of have said, you base Jeff, agnostic is ask sort of under-invested layered spending. to Is about under-investing $XXX kind remarks, million, that like from APS obviously, in you, case? still sounds million prepared so that, by

Jeffrey Guldner

the know, set-up. with range we've for more I actually framework for opportunity on owned, in utility the the of to the for now XX% would And in opportunities us the opportunities wouldn't credit tax Yeah. there of been keeping as it load doing that system, that where are in wouldn't I invest think we under-invested you Obviously, mean, what Shar, so we're we've we to say is the it, up what particularly side be has a and more generation need around are with where There tax IRA optimized mix could being credits benefit the able customers. to the where be the XXX% if in but XX% do do those maximize probably self-build. I rational, we're utility range growth

on of investments. of the us to tracker how goes. the case charge outcome lot clean a So got again those to and We've depend some really opportunity is energy going our that proposal would flow clean allow through this renewable take adjustment rate

And get expect lot mix you're growth. would versus primarily see. more what that of can the is to we then is seeing storage, solar you optimized utility-owned load for think and a have But if PPA, I we do a of just that, to investments what to we make

And that mix looking so need in the and and the I But getting optimize you're there wires case generation. customers. think is serve invest rate an ability that to further after what invest of that going we're at infrastructure poles is the to and we to to at

Shar Pourreza

there does rate in million, more range? the million Got $XXX on million? just I increase the just was CapEx puts to it. curious on you quoted X% around have to how correlates The growth X% now? today. then past that They that And Yeah, $XXX with that the out base sort CapEx you've before increase, and of what $XXX that

Andrew Cooper

Yeah.

more with don't we base much about with result. just a there, the range, an update. of think opportunity. really upper-end the broader a saw is range of rate range is have can you growth up think you I more with prior uncertainty base the there rate CapEx forecast, And -- that's growth it the of narrow is And that that There So of in number our come Shar. extended

talking You've in move spend. seen capital, some about the our timing our was just clean around of Jeff,

of from buckets of the XXXX XXXX move forecast. XXXX some seen those into You've the addition with

there's really the the CapEx been, the to So investments of timing some need higher main is of decisions around driven we forecast. the the our some that's and capital range, by make. But in thing some increase

Shar Pourreza

Got it.

Appeals the would Four rule in would regarding only EPS like, EPS XXXX, just and you in report an be would SCR forward then incremental Ocotillo What results? what retroactive? projects. from Corners if where that the look Thanks. going guess of And be since Court the favor obviously I it lastly, Okay. standpoint GAAP to And

Jeffrey Guldner

Sure.

Appeals, any of the would really So the All commission were for decision anything done wouldn't thumb. I There decision rule Court remanded you sort at if retroactively. be can really give it be of the positive of further to actions.

on You're and if and to disallowance that XX-XX to of ROE $XXX impact outcome. dependent that's that recover there The positive range, gives applying EPS the a kind future action on in timing the were beginning talking million of the about that. roughly that, would of be rough of you structure capital ACC

Andrew Cooper

Yeah, Court remember issue they be that Club, favor. up may ruling, that a Supreme goes review. further Appeals too, -- of so see there seeking if taken it can I you Sierra it's a and appeal, I'm sure Court the the in our

it's could Andrew at going But some commission. So ultimately, additional on. up that to-end said, the back add time as

Shar Pourreza

Okay. soon. you Perfect. fantastic. Appreciate That's See it. guys

Jeffrey Guldner

Yeah. Thanks, Shar.

Andrew Cooper

Shar. Thanks,

Operator

Thank you.

Anthony Your from next Mizuho. coming question Crowdell is from

live. is line Your

Anthony Crowdell

much so Hey, taking Thanks my for questions. good morning.

of couple them. a Just

volatility could the to mitigate management do anything First-off, pension the in help expense?

Andrew Cooper

Sure, Andrew. it's Anthony,

the all regulatory look at to I around options, we're recovery. mentioned, including As of going

various think and look strategy Our only And not into the of got the priority rate outcome not we'll when the remodel that pension looks we've in in a deal it's is we what we but cost one go like, only constructive it's lever to constructive levers about need the and with. to that case a outcome. at

any options. So rate split we pension O&M, one on but other at. certainly that is regulatory where test as interest That's that's that we split we focus. we continue case, what there around path the now expense, to to expense average test consider there all that And sure forecast. our a make from then things year that levers we'll year of In surrounding is historical we remains really last do other have is of the those can costs, course, precedent meet period. there two one look at to But years recovery our our a the something look

pension As strategy. I committed said earlier, we're to the

and XXXX, losses the asset classes know face rates precipitously. went all for part, most You discount

So we're mitigating of the that, can. --we're reality just best living we it with as

Anthony Crowdell

do it was asked. Great. for clean more case jump potentially the rate investors may Is what to And it Shar comes on on see About a if generation should clean that the spending. generation focused looking track I more approval? spend? clean where -- believe if proposal you see could clarity I Shar's, question from we to down needs just you're think of be more Is get I

Jeffrey Guldner

utility is No. makes the case how we'll the a that. the I Anthony, and us we framework a right, little think and overall bit the contemporary little in But both results more a mean, it's a more a resources. -- to do, it's as of I customers lot manner. the clean at optimize figure tax that the mean, getting to going sense to owned at it's more that credit. what optimize PPA be look than generation certainly of the out then generation to storage looking utility-owned really The and we potential the I drives of way vehicle a like it tracker, as mix. the mix give particularly in really -- more

not we're that like I have probably can't we to case, Then really optimized customers. utility-owned just we for able flag now the and so a assets mix that level the at is because think think we looks more And of last are do get to opportunity, seeing what rate optimal. but here,

Anthony Crowdell

also whereas that on the you with if operating an was be get CapEx Appeal lastly, the do does currently coal that, disallowed? recovery and I'm earnings? that, a the the of in just that And appeal, recover Court, you the it's from Great. additional the associated capitals could tailwind what running Do capital in disallowances these prevail expenses there's expenses company the associated potential sure SCRs. with

Andrew Cooper

impacted Yeah, Anderw, the cost revenues. by we coming statement without income and costs of year-over-year those kind do get results into recovery our on the offsetting

on you positive be a were really the what outcome alongside the see, in So investment if would there cost. there the recovery

Anthony Crowdell

my it. I appreciate question, taking for Thanks Great.

Jeffrey Guldner

Anthony. Yup. Thanks,

Operator

Your Thank coming is Instructions] Credit Campanella question you. from Nick next [Operator from Suisse.

Your is line live.

Nicholas Campanella

Good morning, Hey. everyone.

Jeffrey Guldner

Hey, Nick

Nicholas Campanella

Hey.

So, the drivers, I guess, what the starting on it's was lower I can XX% update to year just versus driver it XX%, closer you think just of was XXXX last tax-rate? that? us on

Jeffrey Guldner

lower hasn't rate. the you has and a effective -- the think in in takes factors there overall I tax-rate lower of -- puts like. variety combination kind know, a around is there of is tax the credits And of tax and there

Nicholas Campanella

Okay.

moving So Where possibly before whether has mentioned And the negative driven. related? it did -- to the is in for are is here just XX% agency you defend And kind credit of to. BaX and willingness from deck, I And then numbers end outlook the credit the on GRC the looking terms outlook, your if you rating you what's year? have think your range. the they XX% just of been on tax the what's feedback in related, to then

Andrew Cooper

Nick. Yeah,

the don't sized XX% I'll The put us at think they agencies year is to would out XX% where the around today. FFO-to-debt will how like So to be view number calculate, I the agencies end.

a but to they thresholds. outcome at make the exogenous as ratings Moody's some positions, case rate outlook. as downgrade to negative You could the the well ratings Fitch any to the both see ultimately absent take you their they're outlook, And reaffirm determination factor, saw about their the really and look month looking current and make changes this future current

our part of current your in to your that's last that's XX% in to what us committed We're that us the keeps question, our keeps XX%, what -- category.

downgrade, You've our the with targets lower have after what a Moody's return case and keep with see, rating downgrade. are XX% to now. current stable to to to S&P rate XX% all XX% we XX% rating at current a they at that We'll us to as so, use that right one-notch said, for keep agencies threshold to XX% I ratings. readjusted of then target and got the And are now right for the the

Nicholas Campanella

then kind trying regulatory Okay. the your you remarks what And just for exploring, maybe this if lag on that us mentioned that? docket. could in the to update you're for mechanisms here What's of solve are you last one upfront, outcome stakeholders some me, prepared of one and are

Jeffrey Guldner

I of was an indication more new coming just Nick, the think of commissioners it in.

both that which don't lowest-rated of RA. think, U.S. being from I in of one they like indicated if commission had the not like lowest the the

test to like this other was so an talk discussed to see begin about effort that other things jurisdictions. And the in and forward years things typically you

So it. early to little it's come will a what see exactly from

and some think clear case the let's of recognition way that's I it's what talk of customers the that out an we think again after come There benefit I stakeholder I are. good in think public because last rate a is a a loud is those indication. tone and to outcome. from having good And about driven saw utility mechanisms performing

now. think that's I it's So but process pretty the in early right positive a sign,

Nicholas Campanella

my answering Alright. questions. for Well, much so thanks

Jeffrey Guldner

Yeah.

Nick. bet, You

Operator

Thank That event. today's session. Q&A Everyone that our you. concludes concludes

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

Pinnacle West Capital (PNW) 27 Feb 232022 Q4 Earnings call transcript