• Earnings Per Share (EPS): $3.37 for Q3 2024, a decrease of $0.13 compared to Q3 2023.
• Weather Normalized Sales Growth: 5.9% for Q3 2024.
• Commercial and Industrial (C&I) Growth: 10.3% for Q3 2024.
• Retail Customer Growth: 2.3% for Q3 2024.
• 2024 Earnings Guidance: Updated to $5.00 to $5.20 per share.
• 2024 Sales Growth Expectations: Adjusted to 4% to 6%.
• 2024 O&M Forecast: Increased to $1.01 billion to $1.03 billion.
• 2024 Capital Expenditure Plan: Increased from $1.95 billion to $2.05 billion.
• 2025 Earnings Per Share (EPS) Guidance: Expected range of $4.40 to $4.60.
• Long-term EPS Growth Guidance: 5% to 7% based on the midpoint of original 2024 guidance.
• Capital Plan Through 2027: $9.65 billion of investments, a 24% increase from earlier plans.
• Rate Base Growth Expectation: 6% to 8% driven by capital investments.
• Equity Issuance Plan: Annual equity run rate increased to $250 million to $300 million.

• Warning! GuruFocus has detected 13 Warning Signs with PNW.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Pinnacle West Capital Corp (NYSE:PNW) successfully managed operations during a record-breaking summer, maintaining reliable service despite extreme heat conditions.
• The company updated its 2024 earnings guidance due to strong sales growth and favorable weather conditions, now expecting earnings in the range of $5 to $5.20 per share.
• Pinnacle West Capital Corp (NYSE:PNW) reported strong customer growth, with a 2.3% increase in retail customers and a 10.3% growth in commercial and industrial sectors.
• The company is making significant investments in infrastructure, with a capital plan through 2027 that includes $9.65 billion in investments, focusing on reliability and meeting growing demand.
• Pinnacle West Capital Corp (NYSE:PNW) has a robust long-term financial strategy, reaffirming a 5% to 7% EPS growth guidance based on strong fundamentals and strategic investments.

Negative Points

• Pinnacle West Capital Corp (NYSE:PNW) experienced a decrease in earnings per share this quarter compared to the previous year, driven by higher O&M, depreciation expenses, and financing costs.
• The company faces challenges with regulatory lag, impacting financial performance and necessitating focus on reducing this lag to improve cost recovery.
• There are concerns about the impact of additional costs associated with regulatory lag, including debt and equity financing costs, which are expected to affect 2025 earnings.
• Pinnacle West Capital Corp (NYSE:PNW) is dealing with inflationary pressures, which have increased operational costs and are not fully reflected in current rates.
• The company anticipates a decrease in earnings per share for 2025 due to structural issues such as the end of a positive OPEB amortization and one-time gains from previous periods.

Q & A Highlights

Q: With the potential election of three more Republicans to the commission, how might this affect the regulatory landscape, particularly regarding the regulatory lag docket? A: Jeffrey Guldner, CEO, noted that the Republican candidates have shown alignment with current commissioners on issues like regulatory lag. If the election results hold, it is likely that constructive progress on the regulatory lag docket will continue.

Q: Can you discuss the stickiness of your 4% to 6% load growth assumption for 2024 and 2025, and are there opportunities for further increases from large customers? A: Jeffrey Guldner, CEO, emphasized the state's successful pivot to advanced manufacturing, making Arizona attractive for growth. The state continues to draw manufacturing and data centers, contributing to robust load growth. Andrew Cooper, CFO, added that growth is diversified across customer classes, with strong contributions from both residential and commercial sectors.

Q: How is Pinnacle West addressing regulatory lag, and what is the timeline for potential improvements in ROE? A: Andrew Cooper, CFO, explained that the company is focused on increasing CapEx in tracked items and is considering filing a rate case by mid-2025. This would potentially bring relief from regulatory lag by mid-2026, allowing for adjustments in the rate structure to better reflect current costs.

Q: What is the current demand from data centers, and how is it impacting your system and CapEx needs? A: Theodore Geisler, President of Arizona Public Service Co., reported over 4,000 megawatts of committed demand from data centers, with an additional 10,000 megawatts in planning. This demand is relatively distributed, with some large requests in early planning stages, impacting CapEx and infrastructure planning.

Q: How does the 5% to 7% EPS growth guidance account for regulatory lag, and what assumptions are made regarding its resolution? A: Andrew Cooper, CFO, stated that the guidance aims for smoother, more predictable growth, with or without regulatory lag resolution. The focus is on reducing dependence on rate cases and achieving consistent earnings closer to authorized returns through potential regulatory improvements.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.