The leaders of Pinnacle West Capital Corp., the parent of Arizona Public Service Co., are focused on not having the strong growth in their Arizona service territories turn into a negative while they deal with the consequences of a rate case decision they say has left them looking at 2022 as “a financial reset year” with lower results than last year.
Speaking to analysts and investors late last week after reporting fourth-quarter results – net income of nearly $32 million on operating revenues of $799 million, improvements from a loss of $14.5 million on sales of $741 million in the last three months of 2021 – CEO Jeff Guldner and CFO Ted Geisler discussed the “disconnect” they see between the demand growth they are servicing and a November decision by the Arizona Corporation Commission to, among other things, lower APS’ allowed return on equity in its 2019 rate case.
The 2021 recovery from COVID 19’s economic shocks produced weather-normalized retail sales growth of 4.2% in 2021 and further customer additions in the range of 1.5% to 2.5% are expected to fuel sales growth of between 3.5% and 4.5% over the next three years.
“We're investing more than we've ever done in the history of the company. And yet in the last rate case, we received the lowest return on equity [for] basically any utility in the country,” Guldner said. “Those two just don't – they don't gel together […] That's the disconnect that we have to work with.”
Guldner and his team appealed the Arizona Corporation Commission’s ruling in December to both the Arizona Court of Appeals and the Arizona Supreme Court. The latter in early February declined to take up the case; opening briefs in the former case are due in mid-April. In the meantime, APS also is preparing to file its next rate case, which will focus on recovering the cost of some of its renewables investments.
Pinnacle West spent $1.5 billion on capital projects in 2021 and its leaders expect that number to stay level this year and next – with transmission and distribution investments accounting for about half of those dollars – before climbing to $1.65 billion in 2024 thanks to a rise in clean energy generation projects.
Putting the “financial reset” into perspective, Pinnacle West’s executives are forecasting 2022 earnings per share of $3.90 to $4.10, down from $5.47 last year. The rate case decision is set to account for about 60% of that drop.
Shares of Pinnacle West (Ticker: PNW) were down nearly 2% midday Feb. 28. They are down nearly 10% over the past six months.
