• Weather positively impacts quarterly results


  • Retail sales and customer growth deliver bottom-line results


  • Federal tax reform benefits both customers and the company


  • Arizona voters reject ill-conceived Proposition 127 that would have
    amended Arizona’s State Constitution


PHOENIX--(BUSINESS WIRE)--Pinnacle

West Capital Corp. (NYSE: PNW) today reported consolidated net

income attributable to common shareholders for the 2018 third quarter of

$315.0 million, or $2.80 per diluted share. This result compares with

net income of $276.1 million, or $2.46 per share, for the same period a

year ago.

“Driven by the second hottest September on record, Arizona’s summer heat

and the resulting increase in retail sales contributed to a solid

quarter and sound financial results,” said Pinnacle West Chairman,

President and Chief Executive Officer Don

Brandt. “In addition, our employees continued to do what they do

best: maintain reliable electric service for our 1.2 million customers.

Our power plants operated well, and our workforce quickly restored

service to customers after several volatile summer storms toppled a

combined 451 poles – almost as many as in the 2016 and 2017 summers

combined.”

Brandt added that delivering value to APS customers went beyond just

keeping the lights on. The company’s regulatory settlement, which was

approved and implemented in August 2017, is enabling the company to

invest in a smarter, cleaner energy infrastructure, while also keeping

electricity rates competitive. This fall, APS filed a second request

with the Arizona Corporation Commission (ACC) to return federal tax

savings to customers. If approved, this second tax cut will provide

retail customers with total tax savings of $205.5 million or almost $8

per month, on average, when combined with the first reduction

implemented in March.

“So far this year, we’ve reduced customer bills by about 2 percent to

continue keeping electricity affordable and clean,” said Brandt. “Over

the last 20 years, our price increases have been below the rate of

inflation. With the refunds from tax reform and other price reductions,

customer rates will be lower at the end of 2018 than they were at the

beginning of the year.”

In addition to strong operational performance, the 2018 third-quarter

financial results were positively impacted by the following factors

compared to the same period a year ago:



  • The effects of weather variations, which are an unpredictable
    driver, impacted results by $0.23 per share compared to the
    year-ago period. The average high temperature for this year’s third
    quarter was 105.3 degrees – 1.6 percent higher than last year’s
    quarter and 1.2 percent greater than normal based on a rolling 10-year
    average. The resulting impact in the 2018 third quarter was that
    residential cooling degree-days (a measure of the effects of weather)
    were 13 percent higher than in the same 2017 period and 5.4 percent
    above 10-year historical averages.


  • The impact of federal corporate tax cuts improved results by
    $0.14 per share, driven by the timing difference between income
    tax expense and the passing of savings directly back to customers.


  • Greater retail electricity sales – excluding the effects
    of weather variations – increased results $0.07 per share due to
    customer growth of 1.6 percent, partially offset by energy efficiency
    and distributed generation. Weather-normalized sales were 1.2
    percent higher in the third quarter compared to 2017’s third quarter,
    while year-to-date sales were 0.1 percent higher than the first nine
    months in 2017.


  • Higher transmission revenues, excluding the effects of
    corporate income tax rate changes, improved results $0.05 per share
    compared to 2017.


  • Adoption of new accounting guidance and higher market returns for
    pension and other post-retirement benefits positively impacted results
    by $0.04 per share.


  • The net impacts of the company’s 2017 regulatory settlement improved
    earnings $0.02 per share. This increase included a retail base rate
    increase, largely offset by the impact of changes in residential rate
    design and seasonal rates. Effective Aug. 19, 2017, the comprehensive
    and broadly supported settlement was APS’s first base rate increase in
    five years.


  • The net effect of miscellaneous items increased earnings $0.03
    per share.

These positive factors were offset in part by the following items:



  • Higher operations and maintenance expenses reduced results by
    $0.12 per share compared with the prior-year period. The increased
    costs were largely the result of an increase in public outreach costs
    at the parent company primarily associated with the Prop 127 ballot
    initiative.


  • Other operating expenses, including higher depreciation and
    amortization and increased taxes other than income taxes, reduced
    results by $0.12 per share compared with the prior-year period,
    largely because of increased plant in service, changes in rates and
    higher property values.

Proposition 127 Ballot Initiative Outcome

Prop 127, a ballot measure that would have amended Arizona’s State

Constitution and required Arizona’s regulated utilities to obtain 50

percent of their energy from renewable sources by 2030, was rejected by

voters on Tuesday.

“Arizona voters made it clear that Prop 127 was a bad idea,” said

Brandt. “With the election now behind us, it’s time for Arizonans who

are serious about clean energy to come together and work on a

forward-thinking plan that is right for Arizona.

“Arizona is number three nationally in solar energy installed, and our

APS energy mix is already 50 percent clean, with more improvements to

come. We also are on the cutting edge of advanced battery storage

technology, which has the potential to be a game-changer in clean

energy. And, other initiatives like increased support for electric

vehicles are on the way.”

Financial Outlook

For 2018, the Company continues to expect its consolidated earnings

guidance will be in the range of $4.35 to $4.55 per diluted share on a

weather-normalized basis.

Looking ahead to 2019, the Company estimates its consolidated earnings

will be within a range of $4.75 to $4.95 per diluted share, and expects

to achieve a consolidated earned return on average common equity of more

than 9.5 percent.

Key factors and assumptions underlying the 2018 and 2019 outlook can be

found in the third-quarter 2018 earnings presentation slides on the

Company’s website at pinnaclewest.com/investors.

Conference Call and Webcast

Pinnacle West invites interested parties to listen to the live webcast

of management’s conference call to discuss the Company’s 2018

third-quarter results, as well as recent developments, 11 a.m. ET (9

a.m. Arizona time) today, November 8. The webcast can be accessed at pinnaclewest.com/presentations

and will be available for replay on the website for 30 days. To access

the live conference call by telephone, dial (877) 407-8035 or (201)

689-8035 for international callers. A replay of the call also will be

available until 11:59 p.m. (ET), Thursday, Nov. 15, 2018, by calling

(877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally

and entering conference ID number 37662.

General Information

West Capital Corp., an energy holding company based in Phoenix, has

consolidated assets of almost $18 billion, about 6,200 megawatts of

generating capacity and 6,300 employees in Arizona and New Mexico.

Through its principal subsidiary, Arizona

Public Service, the Company provides retail electricity service to

nearly 1.2 million Arizona homes and businesses. For more information

about Pinnacle West, visit the Company’s website at pinnaclewest.com.

Dollar amounts in this news release are after income taxes. Earnings per

share amounts are based on average diluted common shares outstanding.

For more information on Pinnacle West’s operating statistics and

earnings, please visit pinnaclewest.com/investors.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements based on our

current expectations, including statements regarding our earnings

guidance and financial outlook and goals. These forward-looking

statements are often identified by words such as “estimate,” “predict,”

“may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume,”

“project” and similar words. Because actual results may differ

materially from expectations, we caution readers not to place undue

reliance on these statements. A number of factors could cause future

results to differ materially from historical results, or from outcomes

currently expected or sought by Pinnacle West or APS. These factors

include, but are not limited to:



  • our ability to manage capital expenditures and operations and
    maintenance costs while maintaining high reliability and customer
    service levels;


  • variations in demand for electricity, including those due to weather,
    seasonality, the general economy, customer and sales growth (or
    decline), and the effects of energy conservation measures and
    distributed generation;


  • power plant and transmission system performance and outages;


  • competition in retail and wholesale power markets;


  • regulatory and judicial decisions, developments and proceedings;


  • new legislation, ballot initiatives and regulation, including those
    relating to environmental requirements, regulatory policy, nuclear
    plant operations and potential deregulation of retail electric markets;


  • fuel and water supply availability;


  • our ability to achieve timely and adequate rate recovery of our costs,
    including returns on and of debt and equity capital investment;


  • our ability to meet renewable energy and energy efficiency mandates
    and recover related costs;


  • risks inherent in the operation of nuclear facilities, including spent
    fuel disposal uncertainty;


  • current and future economic conditions in Arizona, including in real
    estate markets;


  • the development of new technologies which may affect electric sales or
    delivery;


  • the cost of debt and equity capital and the ability to access capital
    markets when required;


  • environmental, economic and other concerns surrounding coal-fired
    generation, including regulation of greenhouse gas emissions;


  • volatile fuel and purchased power costs;


  • the investment performance of the assets of our nuclear
    decommissioning trust, pension, and other post-retirement benefit
    plans and the resulting impact on future funding requirements;


  • the liquidity of wholesale power markets and the use of derivative
    contracts in our business;


  • potential shortfalls in insurance coverage;


  • new accounting requirements or new interpretations of existing
    requirements;


  • generation, transmission and distribution facility and system
    conditions and operating costs;


  • the ability to meet the anticipated future need for additional
    generation and associated transmission facilities in our region;


  • the willingness or ability of our counterparties, power plant
    participants and power plant land owners to meet contractual or other
    obligations or extend the rights for continued power plant operations;
    and


  • restrictions on dividends or other provisions in our credit agreements
    and Arizona Corporation Commission orders.

These and other factors are discussed in Risk Factors described in Part

1, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the

fiscal year ended December 31, 2017, which readers should review

carefully before placing any reliance on our financial statements or

disclosures. Neither Pinnacle West nor APS assumes any obligation to

update these statements, even if our internal estimates change, except

as required by law.


PINNACLE WEST CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

(dollars and shares in thousands, except per share amounts)

 


 

 

 



 

 

 



 

 

 



 

 

 
























 






THREE MONTHS ENDED


NINE MONTHS ENDED






SEPTEMBER 30,




SEPTEMBER 30,






2018

 

 

 

2017




2018

 

 

 

2017






















 

Operating Revenues




$

1,268,034





$

1,183,322





$

2,934,871





$

2,805,637























 

Operating Expenses






















Fuel and purchased power





389,936






310,469






844,133






777,475



Operations and maintenance





246,545






230,839






780,624






677,895



Depreciation and amortization





145,971






133,912






436,232






387,278



Taxes other than income taxes





51,375






45,169






158,582






133,294



Other expenses




 

900

 




 

3,385

 




 

8,497

 




 

5,479

 


Total




 

834,727

 




 

723,774

 




 

2,228,068

 




 

1,981,421

 






















 

Operating Income




 

433,307

 




 

459,548

 




 

706,803

 




 

824,216

 






















 

Other Income (Deductions)






















Allowance for equity funds used during construction





12,259






12,728






39,411






32,666



Pension and other postretirement non-service credits - net





12,449






6,534






37,314






19,601



Other income





6,958






1,091






17,541






2,055



Other expense




 

(5,063

)




 

(4,993

)




 

(12,063

)




 

(12,495

)


Total




 

26,603

 




 

15,360

 




 

82,203

 




 

41,827

 






















 

Interest Expense






















Interest charges





61,605






55,644






181,267






162,477



Allowance for borrowed funds used during construction




 

(5,913

)




 

(6,000

)




 

(18,959

)




 

(15,378

)


Total




 

55,692

 




 

49,644

 




 

162,308

 




 

147,099

 






















 

Income Before Income Taxes





404,218






425,264






626,698






718,944























 

Income Taxes




 

84,333

 




 

144,319

 




 

127,107

 




 

237,497

 






















 

Net Income





319,885






280,945






499,591






481,447




 

























Less: Net income attributable to noncontrolling interests







4,873








4,873








14,620








14,620





 






 


 



 




 


 



 




 


 



 




 


 



 

Net Income Attributable To Common Shareholders




$

315,012

 




$

276,072

 




$

484,971

 




$

466,827

 






















 






















 

Weighted-Average Common Shares Outstanding - Basic





112,148






111,835






112,094






111,787























 

Weighted-Average Common Shares Outstanding - Diluted





112,533






112,401






112,499






112,314























 

Earnings Per Weighted-Average Common Share Outstanding






















Net income attributable to common shareholders - basic




$

2.81





$

2.47





$

4.33





$

4.18



Net income attributable to common shareholders - diluted




$

2.80





$

2.46





$

4.31





$

4.16

Contacts

Pinnacle West Capital Corp.

Media Contact:

Alan Bunnell (602)

250-3376

or

Analyst Contact:

Stefanie Layton (602)

250-4541

Website: