8-K: Pinnacle West Reports Solid 2023 Results and Shares Optimistic 2024 Outlook

Pinnacle West Capital Corporation announced its 2023 full-year financial results, showing increased net income and provided a positive earnings outlook for 2024, driven by weather, customer growth, and operational performance.

Summary

• Pinnacle West reported a full-year 2023 net income of $501.6 million, or $4.41 per diluted share, compared to $483.6 million, or $4.26 per diluted share, in 2022.
• The fourth quarter of 2023 saw a net loss of $23,000, or $0.00 per diluted share, compared to a net loss of $24.0 million, or a loss of $0.21 per share, in the same period of 2022.
• The company's full-year results were positively impacted by weather, the Lost Fixed Cost Recovery mechanism, a surcharge from the 2019 Rate Case appeal, higher transmission revenue, and increased sales and usage.
• These positive factors were partially offset by higher interest charges, operations and maintenance expenses, lower pension credits, and increased depreciation and amortization.
• Arizona Public Service (APS) experienced 2% customer growth in 2023 and anticipates average annual growth between 1.5% and 2.5% through 2026.
• Weather-normalized retail electricity sales grew by 1.5% in 2023, with future sales expected to increase between 4% and 6% annually through 2026.
• APS spent $361 million on transmission capital expenditures in 2023, up from $217 million in 2022, with projected spending of nearly $1.2 billion from 2024 through 2026.
• The company estimates its 2024 earnings guidance to be in the range of $4.60 to $4.80 per diluted share on a weather-normalized basis.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the solid 2023 financial results, constructive regulatory outcomes, and optimistic 2024 outlook. The company's focus on growth, customer experience, and clean energy initiatives further supports this positive sentiment.

Positives

• The company's full-year 2023 financial results were positively impacted by weather, customer growth, and operational performance.
• A constructive regulatory outcome was achieved in the 2022 rate case.
• APS experienced significant customer growth and anticipates continued growth through 2026.
• The company is making progress towards its clean energy commitment.
• APS is focused on improving customer experience and has seen a significant improvement in J.D. Power rankings.
• The company has a solid balance sheet and well-managed financing plan.
• Pinnacle West has a proven track record of efficient operations and a focus on customer affordability.
• The company has a long-term EPS growth target of 5%-7% off the 2024 midpoint.

Negatives

• The company reported a net loss for the fourth quarter of 2023.
• Higher interest charges, operations and maintenance expenses, and increased depreciation and amortization partially offset positive factors.
• The company faces potential risks from economic conditions, climate change, and regulatory decisions.
• There are potential shortfalls in insurance coverage.

Risks

• Uncertainties associated with the current and future economic environment, including economic growth, inflation, and supply chain delays.
• Variations in demand for electricity due to weather, seasonality, and economic conditions.
• The potential effects of climate change on the electric system, including extreme weather events.
• Regulatory and judicial decisions, developments, and proceedings.
• Fuel and water supply availability.
• The ability to achieve timely and adequate rate recovery of costs.
• Risks inherent in the operation of nuclear facilities.
• Cybersecurity threats, data security breaches, and other catastrophic events.
• The development of new technologies that may affect electric sales or delivery.
• Volatile fuel and purchased power costs.
• Potential shortfalls in insurance coverage.

Future Outlook

The company anticipates a positive financial outlook for 2024, with earnings per share expected to be between $4.60 and $4.80, driven by customer growth, sales increases, and the implementation of new rates. Long-term EPS growth is targeted at 5%-7% off the 2024 midpoint.

Management Comments

• We made significant progress on that plan, adapting and reaching our revised targets, said Pinnacle West Chairman, President and CEO Jeff Guldner.
• That progress is reflected in our solid 2023 financial results and a constructive outcome in our 2022 rate case that was decided late last week.
• Our diverse generation fleet delivered high-level performance when our customers were in critical need of reliable and resilient power.
• By executing on comprehensive operational and financial strategies, we enter 2024 in a solid position to provide top-level service for our customers and further energize Arizonas economic expansion.

Industry Context

This announcement reflects the ongoing growth in the utility sector, particularly in regions experiencing population and economic expansion. The focus on transmission infrastructure and renewable energy aligns with broader industry trends towards grid modernization and clean energy transitions. The company's focus on customer experience and affordability is also a key theme in the industry.

Comparison to Industry Standards

• Pinnacle West's customer growth of 2% in 2023 is above the national average for residential customer growth.
• The company's planned capital expenditure of $1.2 billion on transmission projects from 2024-2026 is significant and comparable to other utilities investing in grid modernization.
• The company's focus on renewable energy and clean energy goals aligns with industry trends and targets set by other utilities.
• The improvement in J.D. Power customer satisfaction rankings from the fourth quartile in 2021 to the second quartile in 2023 is a notable achievement compared to industry peers.
• The company's long-term EPS growth target of 5%-7% is competitive with other utilities in the sector.

Stakeholder Impact

• Shareholders will benefit from the company's improved financial performance and positive outlook.
• Customers will benefit from improved service reliability and customer experience.
• Employees will benefit from the company's growth and commitment to sustainability.
• The community will benefit from the company's investments in infrastructure and clean energy.

Next Steps

• The company will implement new rates effective March 8, 2024.
• The company will file a Transmission Cost Adjustor on May 15, 2024.
• The company will file a 2025 DSM/EE Implementation Plan on May 31, 2024.
• The company will file a 2025 RES Implementation Plan on July 1, 2024.
• The company will file a 2024 LFCR on July 31, 2024.
• The company will implement a Resource Comparison Proxy effective September 1, 2024 (if approved).
• The company will implement a 2024 LFCR effective November 1, 2024 (if approved).

Key Dates

Keywords

Pinnacle West, Arizona Public Service, APS, Utilities, Energy, Rate Case, Transmission, Renewable Energy, Financial Results, Earnings, Customer Growth, Regulatory, Power Generation