10-Q: Pinnacle West Reports Q1 2025 Results: Earnings Impacted by Higher Expenses, Partially Offset by New Rates

Pinnacle West's Q1 2025 earnings were negatively impacted by increased expenses and lower other income, despite revenue growth and benefits from new rates.

Summary

• Pinnacle West Capital Corporation reported a net loss attributable to common shareholders of $4.6 million for the first quarter of 2025, compared to a net income of $16.9 million in the same period of 2024.
• The decrease in earnings was primarily due to higher operations and maintenance expenses, increased depreciation and amortization, lower pension credits, reduced other income due to the absence of a gain on the sale of Bright Canyon Energy (BCE) that occurred in the prior year, and higher interest charges.
• These negative impacts were partially offset by the favorable effects of new customer rates, a gain from a non-utility equity investment by El Dorado, lower income taxes, and increased transmission and Lost Fixed Cost Recovery Mechanism (LFCR) revenue.
• Operating revenues increased to $1.03 billion from $951.7 million in the prior year, driven by new rates and customer growth.
• APS, the primary subsidiary, also experienced a decrease in net income attributable to the common shareholder, reporting $0.3 million compared to $15.1 million in the prior year.
• APS's retail customers increased 2.3% and weather-adjusted retail electricity sales increased 2.1% compared to the prior-year period.
• The company projects annual customer growth to be 1.5% to 2.5% for 2025 and the average annual growth to be in the range of 1.5% to 2.5% through 2027.
• The company projects that annual retail electricity sales in kWh will increase in the range of 4.0% to 6.0% for 2025 and that average annual growth will be in the range of 4.0% to 6.0% through 2027, excluding the effects of weather variations.
• Capital expenditures are estimated at $2.4 billion for 2025, $2.55 billion for 2026, and $2.65 billion for 2027.
• APS expects to file an application with the ACC for its next general rate case mid-year 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While revenue increased, earnings decreased due to higher expenses. The company is navigating a complex environment with both opportunities and challenges.

Positives

• Operating revenues increased to $1.03 billion from $951.7 million in the prior year, driven by new rates and customer growth.
• APS retail customers increased 2.3% and weather-adjusted retail electricity sales increased 2.1% compared to the prior-year period.
• The company projects annual customer growth to be 1.5% to 2.5% for 2025 and the average annual growth to be in the range of 1.5% to 2.5% through 2027.
• The company projects that annual retail electricity sales in kWh will increase in the range of 4.0% to 6.0% for 2025 and that average annual growth will be in the range of 4.0% to 6.0% through 2027, excluding the effects of weather variations.
• Lower income taxes due to lower pretax income and higher tax benefits related to employee benefits.
• Higher transmission and Lost Fixed Cost Recovery Mechanism (LFCR) revenue.

Negatives

• Pinnacle West reported a net loss attributable to common shareholders of $4.6 million in Q1 2025, a decrease from the $16.9 million net income in Q1 2024.
• Operations and maintenance expenses increased by $42 million year-over-year.
• Depreciation and amortization expenses were $25 million higher for the three months ended March 31, 2025, compared to the prior-year period primarily due to increased plant in service and intangible assets.
• Pension and other postretirement non-service credits, net were $9 million lower for the three months ended March 31, 2025, compared to the prior-year period primarily due to prior-service credits becoming fully amortized as of January 31, 2025.
• Other income and expenses, net were $9 million lower for the three months ended March 31, 2025, compared to the prior-year period, primarily due to the gain on the sale of BCE recognized during the first quarter of 2024 and lower PSA interest income.

Risks

• The company's ability to successfully execute its clean energy commitment depends upon a number of important external factors, including a supportive regulatory environment, sales and customer growth, development of clean energy technologies, and continued access to capital markets.
• The company is monitoring the status of environmental matters, which, depending on their final outcome, could require modification to our planned environmental expenditures.
• The company is monitoring the executive orders and related regulatory actions related to coal.
• The company is exploring available options for securing sufficient electric generation and transmission to meet projections of future customer needs.
• The potential for enactment of federal tax reform legislation, including modification or repeal of some or all of the IRA tax provisions, has increased.
• The company is subject to risks related to market fluctuations in the commodity price and transportation costs of electricity and natural gas.

Future Outlook

The company projects annual customer growth to be 1.5% to 2.5% for 2025 and the average annual growth to be in the range of 1.5% to 2.5% through 2027. The company projects that annual retail electricity sales in kWh will increase in the range of 4.0% to 6.0% for 2025 and that average annual growth will be in the range of 4.0% to 6.0% through 2027, excluding the effects of weather variations.

Industry Context

The report reflects the ongoing challenges and opportunities in the utility sector, including balancing clean energy goals with reliability and affordability, managing regulatory relationships, and adapting to changing customer demands and economic conditions. The company's focus on renewable energy, energy storage, and grid modernization aligns with broader industry trends.

Comparison to Industry Standards

• The report does not provide enough information to make a detailed comparison to industry standards.
• A full comparison would require a peer group analysis including companies such as Edison International, Sempra Energy, and NextEra Energy, assessing metrics like ROE, debt-to-equity ratios, and operating margins.
• Additionally, benchmarking against specific renewable energy targets and grid modernization investments would provide further context.

Stakeholder Impact

• Customers may see changes in their electricity bills due to rate adjustments and surcharges.
• Shareholders are impacted by the company's financial performance and dividend payouts.
• Employees are affected by the company's strategic decisions and investments in clean energy and technology.
• Communities are impacted by the company's environmental practices and community engagement initiatives.

Next Steps

• APS expects to file an application with the ACC for its next general rate case mid-year 2025.
• APS is evaluating its compliance options for Four Corners based on the ELG regulations finalized in April 2024 and is assessing what impacts the new standards will have on our financial condition, results of operations, or cash flows.
• APS is currently evaluating the impacts of this final regulation on its business, with initial CCRMU site surveys due to be completed by February 2026 and final site investigation reports to be finalized by February 2027.

Key Dates

Keywords

Pinnacle West, Arizona Public Service, APS, Earnings, Financial Results, Net Loss, Revenue, Expenses, Customer Growth, Electricity Sales, Capital Expenditures, Regulatory Matters, Clean Energy, Renewable Energy, Energy Storage, Rate Case, Power Supply Adjustor, Lost Fixed Cost Recovery Mechanism, Coal Community Transition, Wildfire Mitigation