Earnings Per Share (EPS): Loss of $0.04 per share for Q1 2025 compared to earnings of $0.15 per share for Q1 2024. Customer Growth: Strong customer growth at 2.3% for the quarter. Weather-Normalized Sales Growth: 2.1% for the quarter, driven by strong C&I growth of 5.3%. O&M Expenses: Higher due to major outage costs at the Four Corners Power Plant and increased IT project expenses. New Rates Impact: Provided a $0.29 year-over-year benefit this quarter. Transmission Sales: Higher transmission sales contributed positively. Guidance for Sales Growth: Expected to meet 4% to 6% for the year. Credit Ratings: No changes to current ratings and stable outlooks from credit rating agencies.

Warning! GuruFocus has detected 14 Warning Signs with PNW.

Release Date: May 01, 2025

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

Positive Points

Pinnacle West Capital Corp (NYSE:PNW) is benefiting from significant investments in Arizona, including a $100 billion expansion by Taiwan Semiconductor Manufacturing Company (TSMC), which is expected to drive economic growth and job creation. The company is making substantial investments in grid reliability and resilience, including high-voltage lines and substations, to support customer growth and ensure reliable service. Pinnacle West Capital Corp (NYSE:PNW) has implemented advanced fire mitigation technologies, such as AI-driven fire sensing cameras, to enhance safety and operational decision-making. The company is experiencing strong customer growth, with a 2.3% increase in the first quarter, driven by the influx of high load factor customers like manufacturing and data centers. Pinnacle West Capital Corp (NYSE:PNW) has maintained stable credit ratings and a positive outlook from credit rating agencies, supporting its financial stability and capital structure.

Negative Points

Pinnacle West Capital Corp (NYSE:PNW) reported a loss of $0.04 per share for the first quarter of 2025, compared to earnings of $0.15 per share in the same period last year, primarily due to the sale of Bright Canyon Energy. Higher operating and maintenance expenses, interest expenses, and depreciation and amortization negatively impacted financial performance. The company faces regulatory lag challenges, which it aims to address through a new rate case filing and formula rate proposal, but the outcome and timing remain uncertain. Weather-normalized sales growth was offset by a one-time adjustment in January, impacting year-to-date sales growth by 1.9%. Pinnacle West Capital Corp (NYSE:PNW) is dealing with increased expenses related to IT projects and planned outages, which contributed to higher operating costs in the first quarter.

Story Continues

Q & A Highlights

Q: Can you provide details on the impact of TSMC's new fabs on your long-term outlook? A: Andrew Cooper, CFO, explained that fab 1 is already in full production and included in the forecast. Recent announcements about fabs 2 and 3 suggest an acceleration, potentially impacting infrastructure build-out and sales forecasts. The commitment to six fabs and related facilities indicates robust large C&I sales growth, supported by the semiconductor supply chain and other manufacturing and data center growth.

Q: How does the new CWIP balance disclosure affect your financials and rate base growth outlook? A: Andrew Cooper, CFO, stated that the CWIP balance of $3 billion to $3.5 billion highlights ongoing projects beyond the three-year plan. These projects, including strategic transmission and generation investments, are not fully captured in the current rate base disclosure. The formula rate plan aims to minimize regulatory lag and align capital allocation with long-term growth needs.

Q: What is the expected regulatory lag during the pending rate case, and how will the formula rate plan address it? A: Theodore Geisler, CEO, emphasized the focus on minimizing regulatory lag through the formula rate plan, which aims to allow earnings close to the allowed ROE. The plan includes a dead band for adjustments, and the details will be refined during the rate case process to ensure competitive ROE and capital attraction.

Q: Can you update us on the pipeline of high load factor customers and their impact on your plans? A: Theodore Geisler, CEO, confirmed that the 4 gigawatts of committed infrastructure is being built out, with additional interest from over 10 gigawatts of potential projects. The focus is on assessing timing and capacity needs, with most infrastructure likely beyond the current guidance period.

Q: How are you planning for future resource procurement, considering the potential acceleration of TSMC's fabs and other developments? A: Theodore Geisler, CEO, mentioned that they are currently evaluating proposals from an RFP for at least 2,000 megawatts to be in service between 2028 and 2030. The evaluation considers TSMC's plans and other economic developments to determine the necessary volume for resource adequacy.

Q: How will the upcoming rate case filing be structured, and what are its objectives? A: Theodore Geisler, CEO, explained that the filing will include a traditional rate case based on a 2024 test year and a proposal for a formula rate plan to minimize regulatory lag. The goal is to recover revenue deficiencies and ensure rates remain current and trued up in future years.

Q: What is the status of the coal plant closure and any potential legislative impacts? A: Theodore Geisler, CEO, confirmed that the coal plant, Toa, has been retired in accordance with federal law and state plans. There are no plans to restart it, and the focus is on repurposing the site for new generation technologies, such as nuclear or gas, to stimulate economic growth.

Q: Can you clarify the impact of the accounting change on residential sales growth? A: Andrew Cooper, CFO, noted that the adjustment in accounting for unbilled revenues affected reported sales growth. However, underlying trends remain strong, with residential growth offset by energy efficiency. The adjustment was a one-time change, and overall sales growth expectations of 4% to 6% for the year remain intact.

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

This article first appeared on GuruFocus.

View Comments