Utility Business

‘Pretty Different Economic Story’ Leads Pinnacle West to Bump Capex Plan

Feb. 28, 2023

With big industrial projects in the works, the parent of Arizona Public Service has taken up its rate base growth forecast.

Geert De Lombaerde

The leaders of Pinnacle West Capital Corp., the parent of Arizona Public Service Co., have beefed up their capital spending plan in response to their expectation that sales growth will grow significantly through at least 2025.

Pinnacle West Chairman, President and CEO Jeff Guldner and his team last fall were forecasting that the Phoenix-based company would this year spend a little more than $1.5 billion this year on generation, transmission, distribution and other projects before growing that number to $1.65 billion in 2024. Speaking to analysts on the heels of reporting fourth-quarter results, Guldner and CFO Andrew Cooper now are forecasting a 2023 capex plan of $1.67 billion, a 2024 forecast of $1.8 billion and a new 2025 target of $1.85 billion.

Compared to Pinnacle West’s 2022-2024 capital plan that $4.7 billion, the new 2023-2025 outlook stands at slightly more than $5.3 billion. That increase is being underpinned by a higher expected pace of rate base growth: That range for the coming years is now expected to be 5% to 7%, up from 5% to 6% in November. Key to that uptick, Cooper said on a Feb. 27 conference call, is a big bump from large technology and manufacturing investments in Arizona, most notably from Taiwan Semiconductor Manufacturing Co. and Procter & Gamble (which are building plans that will employ 4,500 and 500 people, respectively) but also including data center projects.

“It’s a pretty different economic story than it’s been in the past as far as the factors contributing to growth here,” Cooper said. “We’re not really depending on the broader macroeconomic story as much as specifically identified customers, which include TSMC […] That sales growth is certainly helping us to mitigate the inflation and some of the O&M pressure that we’re seeing and we'll continue to work both those cost levers and keep a close eye on the macroeconomic environment.”

Of the $5.3 billion of capital being allocated from this year through 2025, nearly $1.6 billion is slated to go to distribution projects—that’s essentially unchanged from the 2022-24 window—while transmission work will get $860 million in capital, up significantly from the previous rolling three-year cadence of $630 million.

Pinnacle West reported a fourth-quarter loss of about $24 million, versus a net profit of $27.6 million in the last three months of 2021, on operating revenues of a little more than $1.0 billion. Operating profits slipped to $36.8 million and were hurt by a 2021 Arizona Corporation Commission rate case decision that lowered APS’ allowed return on equity and required the company to no longer defer some project costs. A year ago, Guldner said the decision meant 2022 would be “a financial reset year.”

Shares of Pinnacle West (Ticker: PNW) were up slightly Feb. 28 to $74.17 after rising about 1% the day before. They are essentially flat over the past six months.

About the Author

Geert De Lombaerde | Senior Editor

A native of Belgium, Geert De Lombaerde has more than two decades of business journalism experience and writes about markets and economic trends for Endeavor Business Media publications T&D World, Healthcare Innovation, IndustryWeek, FleetOwner and Oil & Gas Journal. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati and later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector as well as many of its publicly traded companies.