Pinnacle West Capital Corporation (PNW) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Financial Performance: The company reported a significant increase in earnings, with $1.76 per share this quarter, up $0.82 per share compared to the same period last year. This improvement was driven by new customer rates, favorable weather conditions, and robust sales growth.

• Operational Excellence: Despite experiencing the hottest June on record in Phoenix, the company successfully delivered reliable service, thanks to its robust planning, resource procurement efforts, and the dedication of its team.

• Customer Growth and Economic Conditions: Arizona saw a 2.1% customer growth in the second quarter, supported by strong economic indicators such as a declining national inflation rate and a record low unemployment rate of 3.3% in June.

• Community Support and Assistance Programs: The company has partnered with local organizations to support vulnerable populations through heat relief programs and offers various assistance programs for customers struggling with their bills.

• Regulatory Progress: The Commission is actively progressing in the regulatory lag docket, with additional workshops scheduled, indicating a commitment to addressing regulatory lag issues in Arizona.

Pessimistic Highlights

• Increased Expenses: Higher interest expense and depreciation and amortization expense were the primary negative drivers compared to last year, impacting the financial results.

Company Outlook

• Positive Sales Growth and Weather Trends: The company expects to be towards the higher end of its EPS range if the sales growth and weather trends experienced during the second quarter continue. However, it is closely monitoring these factors for the remainder of the year.

• Regulatory Developments: The company is engaged in the regulatory lag docket, with a focus on formula rates and future test years, and anticipates further progress through additional workshops.

Q & A Highlights

• Q: Can you elaborate on the stickiness of the C&I sales growth and its impact on the long-term capital program and earnings guidance? (Shar Pourreza, Guggenheim Partners)

  A: The large C&I sales growth is driven by manufacturing customers and data centers, with a substantial backlog extending beyond 2026. This growth is critical and expected to continue, supported by strong economic conditions in the service territory. The company plans to provide updates on sales growth and capital in the third quarter. (Andrew Cooper)

• Q: What are your thoughts on the regulatory lag docket timeline and any incremental details from the recent meeting? (Shar Pourreza, Guggenheim Partners)

  A: The docket is moving forward with a focus on understanding systemic approaches used in other jurisdictions. The next workshop is scheduled for October, and the company is engaged in dialogues to address regulatory lag issues. (Jeffrey Guldner)

• Q: Could you provide more details on the timing and type of equity or alternatives for financing plans? (Michael Lonegan, Evercore ISI)

  A: The company has completed significant financing activities and is targeting $400 million in external financing at the parent level, with an ATM program as the base case for matching capital needs. Updates will be provided as the company rolls forward its financing plan. (Andrew Cooper)

• Q: How does the regulatory lag docket's progress affect the timing of a potential rate case filing? (Michael Lonegan, Evercore ISI)

  A: The company is monitoring the docket's progress and will determine the path forward based on the commission's guidance and the outcome of the workshops. (Jeffrey Guldner)

• Q: What contingencies are in place for system resiliency in extreme heat, and how does it impact equipment planning? (Travis Miller, Morningstar)

  A: The company has resiliency plans and designs equipment to withstand extreme temperatures, with the recent heat within design criteria. The focus is on ensuring reliable service and adapting plans based on temperature impacts. (Jeffrey Guldner, Ted Geisler)

• Q: Can you clarify expectations around the regulatory lag proceeding's timeline and the potential for a rate case filing? (Paul Patterson, Glenrock Associates)

  A: The company is awaiting further guidance from the commission following the October workshop and will adjust its plans based on the outcome of the regulatory lag docket. (Jeffrey Guldner)