Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pinnacle West Capital Corp (PNW, Financial) experienced a significant increase in earnings per share (EPS) to $1.76, up by $0.82 compared to the same quarter last year.
- The company saw robust sales growth, with total weather-normalized sales increasing by 5.5% year-over-year.
- Pinnacle West Capital Corp (PNW) has made substantial progress in customer service, achieving first quartile rankings in the 2024 J.D. Power residential and business survey results.
- The company has successfully executed agreements on multiple projects from its 2023 all-source RFP, adding over 400 megawatts of APS-owned resources to its capital plan.
- Positive economic indicators in Arizona, such as a 2.1% customer growth rate and a record-low unemployment rate of 3.3%, support continued growth in Pinnacle West Capital Corp (PNW)'s service territory.
Negative Points
- Higher interest expenses and increased depreciation and amortization costs were primary negative drivers for the quarter.
- The company is facing regulatory uncertainties, particularly around the regulatory lag docket, which could impact future rate case filings and financial planning.
- Despite strong sales growth, there are concerns about the variability in ramp rates for large high-load factor customers, which could affect future sales guidance.
- Pinnacle West Capital Corp (PNW) has significant planned outages in the second half of the year, which could impact operational and financial performance.
- The company is managing increased financing costs due to higher debt balances and interest rates, which could affect profitability.
Q & A Highlights
Highlights from Pinnacle West Capital Corp (PNW) Q2 2024 Earnings Call
Q: Can you elaborate on the stickiness of the weather-normalized sales growth for the C&I backdrop and its implications for 2024 and 2025?
A: Andrew Cooper, CFO: The 5.5% growth for the quarter was largely driven by large C&I customers, including manufacturing and data centers. We expect this trend to continue, supported by a substantial backlog of committed customers extending beyond 2026. We will provide updates around the third quarter, particularly at EEI, to reflect these trends in our long-term outlook.
Q: Could you provide an update on the regulatory lag docket and its timeline?
A: Jeff Guldner, CEO: The next workshop is scheduled for October 3. The focus will be on formula rates and future test years. The Commission is working to understand the broader context and support the growth in Arizona. We expect continued progress and will provide updates as the process evolves.
Q: With the strong start to 2024, what are some potential negatives that could keep you within the guidance range?
A: Andrew Cooper, CFO: We are monitoring sales growth and customer behavior, especially residential sales. O&M savings have been positive, but we have significant plant outages planned for the second half of the year. We are also considering derisking our multi-year O&M plan to ensure flexibility and agility.
Q: What are your updated thoughts on the timing and type of equity or alternatives for your financing plan?
A: Andrew Cooper, CFO: No updates at this point. We have derisked our maturities and are targeting $400 million in external financing, with an ATM program as the base case. We will provide updates as we move through the year and look at our financing needs for 2025-2027.
Q: How do you plan for system resiliency and equipment during extreme heat?
A: Jeff Guldner, CEO: We manage personnel workflow, ensure access to air-conditioned trucks, and monitor equipment for heat sensitivity. Ted Geisler, APS President, added that the temperatures are within design criteria, and we have resiliency plans in place. We continue to monitor and adapt as needed.
Q: What is the impact of the regulatory lag docket on your rate case filing timeline?
A: Jeff Guldner, CEO: We are still working through the docket and trying to understand the direction. The next workshop in October will provide more clarity. It typically takes about six months to prepare a filing and a year to work through it. We will keep stakeholders updated as the process evolves.
Q: How does the SRB program impact your generation needs and regulatory lag?
A: Jeff Guldner, CEO: The SRB program allows for concurrent recovery of capital invested in solar plants and other resources. It helps address regulatory lag and supports contemporary recovery of capital investments to serve growth in Arizona.
Q: What are the potential impacts of the ACC election on the regulatory lag docket?
A: Jeff Guldner, CEO: The election is still early, and most attention is on top-of-the-ticket races. We are engaging with candidates on both sides and will continue to dialogue to support growth in the state. The regulatory lag docket is moving forward on its schedule.
Q: How do customer bill assistance programs impact working capital and cash flow?
A: Andrew Cooper, CFO: We plan our financing to accommodate the normal pace of customer payments throughout the year. Our assistance programs help reduce bill pressures on customers, particularly after the summer season.
Q: What are your thoughts on the timing of a rate case filing in relation to the regulatory lag docket?
A: Jeff Guldner, CEO: We are still working through the docket and will see how the dialogue progresses in October. The timing of a rate case filing will depend on the direction and outcomes of the regulatory lag docket.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
