The year 2022 is going to expectations so far for Pinnacle West Capital Corp. – and that’s not necessarily a good thing.
Pinnacle West, the parent of Arizona Public Service, posted a net profit of $164 million in the second quarter (versus $216 million in the prior-year period) as revenues rose 6% to $1.06 billion. Operating income fell 20% to $223 million as fuel and operations and maintenance costs climbed 20% to nearly $600 million. Another factor in the drop were the repercussions of an Arizona Corporation Commission ruling to lower APS’ allowed return on equity in its 2019 rate case, which has among other things limited the utility’s ability to recover some of its expansion investments.
Executives with Pinnacle West said Aug. 3 the rate case decision hurt their operating revenue (excluding fuel and purchased power) by about $27 million in the three months ended June 30. However, Arizona’s strong growth is helping Pinnacle West’s bottom line a little: The second-quarter’s customer count was up 2% year over year and sales grew 3.2%.
“Results were in line with our expectations, and we remain well-positioned to meet our financial commitments for the full year,” Chairman, President and CEO Jeff Guldner said in a statement.
On a conference call with analysts, Pinnacle West executives said weather-normalized residential growth has tailed off a bit of late as more people who had been working from have returned to their offices. On the flip side, business sales during the second quarter rose 5.6% and the APS team are looking for more strong numbers in coming years. Passage of the CHIPS Act, they said, will provide a tailwind to the region’s semiconductor manufacturing ecosystem and the electronic vehicle sector also is set to deliver more growth.
On the regulatory front, Guldner and his team in June filed a notice of intent for a new rate case and the CEO said the application will focus on “a return to balanced rate-making” that will enable APS to make needed investments in capacity. The filing will incorporate the first half of this year, he added, and thus give APS a chance to recover some of the investments it has made while under its lower rate structure.
APS executives recently also issued a request for proposals to help them realize their goal of exiting from coal-fired generation by 2031. The RFP seeks between 1,000 and 1,500 MW of resources to be put into service in the middle of this decade. That total includes up to 600 to 800 MW of renewable assets.
Shares of Pinnacle West (Ticker: PNW) rose about 2% Aug. 3 to roughly $75.30. Over the past six months, they have risen about 7%, growing the company’s market capitalization to $8.5 billion.