Pinnacle West Reports 2018 Full-Year and Fourth-Quarter Results

  • Full-year 2018 results benefit from strong operational performance
    and prior year’s collaborative rate agreement
  • An expanding Arizona economy and customer growth drive increase in
    retail revenue

PHOENIX–(BUSINESS WIRE)–Pinnacle West Capital Corporation (NYSE: PNW) today reported
consolidated net income attributable to common shareholders of $511.0
million, or $4.54 per diluted share, for full-year 2018. This result
compares with net income of $488.5 million, or $4.35 per share, in 2017.

Strong operational performance and a robust Arizona economy helped us
achieve solid 2018 results at the top of our earnings guidance,” said
Pinnacle West Chairman, President and Chief Executive Officer Don
Brandt
. “And, by operating efficiently and safely, our employees
provided our 1.2 million customers with clean, reliable and affordable
electricity.”

Whether it’s operating Palo
Verde Generating Station
, the nation’s largest producer of
clean-energy; quickly restoring electric service after a violent monsoon
storm; or holding the line on operational costs,” Brandt said, “our
employees’ commitment to our customers defines who we are as a company.”

As an example of the company’s commitment to keep rates affordable, APS
was among the first energy companies in the nation to return the
benefits of federal tax reform to customers. Disciplined operational
cost management has enabled the company to limit price increases to less
than the rate of inflation over the last 25 years. In fact, earlier this
month, APS lowered monthly bills more than $3 on average for residential
customers. Added to the $119 million in savings passed along to
customers from federal tax reform, the average APS customer’s monthly
bill is $9.59 less than it was on March 1, 2018.

Brandt cited several additional examples of the company’s 2018
achievements:

  • For the seventh straight year, Pinnacle West increased
    its common dividend
    , raising it by 6.1 percent. In addition,
    Pinnacle West’s total shareholder value increased $341 million and
    total return to shareholders was 3.6 percent in 2018.
  • Palo
    Verde Generating Station
    achieved its 27th consecutive
    year as the nation’s largest power producer – generating 31.1 million
    megawatt-hours of carbon-free electricity. The plant achieved a 90
    percent capacity factor and completed its spring planned refueling
    outage in 28 days and 13 hours – the shortest in plant history.
  • APS ranked fifth nationally for solar energy and is an industry leader
    in battery storage. Combining Palo Verde, solar and other renewables,
    and energy efficiency, APS serves its customers with an energy mix
    that is 50 percent clean.
  • And, for the benefit of customers in 2019, APS expanded its crisis
    bill support to customers in need by $1.5 million for a total of $2.75
    million, $500,000 of which was designated for Arizonans affected by
    the federal government shutdown.

Looking forward, Brandt said the company will keep working in
partnership with customers and policy makers “to support Arizona’s
sustained growth and continue to advance a clean-energy vision.”

The 2018 full-year financial results comparison was positively impacted
by the following major factors:

  • The company’s 2017 multi-party rate agreement, including new
    residential rate designs and seasonal rates
    , increased
    results by $0.73 per share. The agreement, which included APS’s first
    retail base rate increase in five years, took effect Aug. 19, 2017.
  • Higher transmission revenues improved results $0.18 per share
    compared to 2017.
  • Adoption of new accounting guidance and higher market returns for
    pension and other post-retirement benefits positively impacted results
    by $0.17 per share.
  • Greater retail sales revenue excluding the effects of
    weather variations – increased earnings $0.16 per share due to
    customer growth of 1.7 percent and changes in customer usage patterns,
    partially offset by energy efficiency and distributed generation.
  • The net effect of miscellaneous items increased results $0.11
    per share.

The above positive factors were offset in part by the following factors:

  • Operating expenses, including higher depreciation and
    amortization and increased taxes other than income taxes, reduced
    results by $0.52 per share compared with the prior year, primarily due
    to increased plant in service.
  • Higher operations and maintenance expenses reduced results by
    $0.50 per share. The increased costs were largely the result of higher
    planned outage and operating costs, including at the Four Corners
    Power Plant to install added emission controls; higher corporate
    support expenses related to information technology and implementation
    of new customer systems; an increase in transmission, distribution and
    customer service costs at APS; and an increase in public outreach
    costs at the parent company primarily associated with the Proposition
    127 ballot initiative. These costs were partially offset by a decrease
    in employee benefit costs and the absence of capital projects at the
    Navajo Generating Station, a coal power plant slated to close at
    year-end 2019.
  • The net effect of adjusted income taxes, including the benefits
    of federal corporate tax cuts, offset by non-deductible costs and
    other items, decreased earnings by $0.08 per share.
  • The effects of weather variations negatively impacted
    results by $0.06 per share compared to a year ago.

For the quarter ended December 31, 2018, Pinnacle West reported higher
consolidated net income attributable to common shareholders of $26.1
million, or $0.23 per diluted share. This result compares with net
income of $21.6 million, or $0.19 per share, for the same period a year
ago.

The 2018 fourth-quarter results comparison versus 2017 was positively
impacted by higher retail sales revenue, including residential rate
design and seasonal rates; recovery of lost revenue resulting from
customer energy efficiency and distributed generation programs; adoption
of new accounting guidance and higher market returns for pension and
other post-retirement benefits; and lower operations and maintenance
expenses. These factors were partially offset by income taxes, net of
tax refunds, and the effects of weather.

Financial Outlook

The company reaffirmed its 2019 consolidated earnings will be within a
range of $4.75 to $4.95 per diluted share, and expects to achieve a
consolidated earned return on average common equity of more than 9.5
percent.

Key factors and assumptions underlying the 2019 outlook can be found in
the year-end/fourth-quarter 2018 earnings presentation slides on the
company’s website at pinnaclewest.com/investors.

Conference Call and Webcast

Pinnacle West invites interested parties to listen to the live webcast
of management’s conference call to discuss the Company’s 2018 year-end
and fourth-quarter results, as well as recent developments, at 11 a.m.
ET (9 a.m. Arizona time) today, February 22. The webcast can be accessed
at pinnaclewest.com/presentations.
To access the live conference call by telephone, dial (866) 682-6100 or
(862) 298-0702 for international callers. A replay of the call also will
be available until 11:59 p.m. (ET), Friday, March 1, 2019, by calling
(877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally
and entering passcode 41840.

General Information

Pinnacle
West Capital Corp
., an energy holding company based in Phoenix, has
consolidated assets of almost $18 billion, about 6,000 megawatts of
generating capacity and 6,300 employees in Arizona and New Mexico.
Through its principal subsidiary, Arizona
Public Service
, the company provides retail electricity service to
nearly 1.2 million Arizona homes and businesses. For more information
about Pinnacle West, visit the company’s website at pinnaclewest.com.

Dollar amounts in this news release are after income taxes. Earnings per
share amounts are based on average diluted common shares outstanding.
For more information on Pinnacle West’s operating statistics and
earnings, please visit pinnaclewest.com/investors.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements based on our
current expectations, including statements regarding our earnings
guidance and financial outlook and goals. These forward-looking
statements are often identified by words such as “estimate,” “predict,”
“may,” “believe,” “plan,” “expect,” “require,” “intend,” “assume,”
“project” and similar words. Because actual results may differ
materially from expectations, we caution readers not to place undue
reliance on these statements. A number of factors could cause future
results to differ materially from historical results, or from outcomes
currently expected or sought by Pinnacle West or APS. These factors
include, but are not limited to:

  • our ability to manage capital expenditures and operations and
    maintenance costs while maintaining high reliability and customer
    service levels;
  • variations in demand for electricity, including those due to weather,
    seasonality, the general economy, customer and sales growth (or
    decline), and the effects of energy conservation measures and
    distributed generation;
  • power plant and transmission system performance and outages;
  • competition in retail and wholesale power markets;
  • regulatory and judicial decisions, developments and proceedings;
  • new legislation, ballot initiatives and regulation, including those
    relating to environmental requirements, regulatory policy, nuclear
    plant operations and potential deregulation of retail electric markets;
  • fuel and water supply availability;
  • our ability to achieve timely and adequate rate recovery of our costs,
    including returns on and of debt and equity capital investment;
  • our ability to meet renewable energy and energy efficiency mandates
    and recover related costs;
  • risks inherent in the operation of nuclear facilities, including spent
    fuel disposal uncertainty;
  • current and future economic conditions in Arizona, including in real
    estate markets;
  • the development of new technologies which may affect electric sales or
    delivery;
  • the cost of debt and equity capital and the ability to access capital
    markets when required;
  • environmental, economic and other concerns surrounding coal-fired
    generation, including regulation of greenhouse gas emissions;
  • volatile fuel and purchased power costs;
  • the investment performance of the assets of our nuclear
    decommissioning trust, pension, and other post-retirement benefit
    plans and the resulting impact on future funding requirements;
  • the liquidity of wholesale power markets and the use of derivative
    contracts in our business;
  • potential shortfalls in insurance coverage;
  • new accounting requirements or new interpretations of existing
    requirements;
  • generation, transmission and distribution facility and system
    conditions and operating costs;
  • the ability to meet the anticipated future need for additional
    generation and associated transmission facilities in our region;
  • the willingness or ability of our counterparties, power plant
    participants and power plant land owners to meet contractual or other
    obligations or extend the rights for continued power plant operations;
    and
  • restrictions on dividends or other provisions in our credit agreements
    and Arizona Corporation Commission orders.

These and other factors are discussed in Risk Factors described in Part
1, Item 1A of the Pinnacle West/APS Annual Report on Form 10-K for the
fiscal year ended December 31, 2018, which readers should review
carefully before placing any reliance on our financial statements or
disclosures. Neither Pinnacle West nor APS assumes any obligation to
update these statements, even if our internal estimates change, except
as required by law.

PINNACLE WEST CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars and shares in thousands, except per share amounts)
       
 
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
  2018       2017     2018       2017  
 
Operating Revenues $ 756,376 $ 759,659 $ 3,691,247 $ 3,565,296
 
Operating Expenses
Fuel and purchased power 231,983 203,826 1,076,116 981,301
Operations and maintenance 256,120 271,212 1,036,744 949,107
Depreciation and amortization 146,122 146,840 582,354 534,118
Taxes other than income taxes 54,267 51,053 212,849 184,347

Other expenses

  1,000     1,181     9,497     6,660  
Total   689,492     674,112     2,917,560     2,655,533  
 
Operating Income   66,884     85,547     773,687     909,763  
 
Other Income (Deductions)
Allowance for equity funds used during construction 12,908 14,345 52,319 47,011
Pension and other postretirement non-service credits – net 12,477 5,063 49,791 24,664
Other income 7,355 1,951 24,896 4,006
Other expense   (5,903 )   (9,044 )   (17,966 )   (21,539 )
Total   26,837     12,315     109,040     54,142  
 
Interest Expense
Interest charges 62,198 57,319 243,465 219,796
Allowance for borrowed funds used during construction   (6,221 )   (6,734 )   (25,180 )   (22,112 )
Total   55,977     50,585     218,285     197,684  
 
Income Before Income Taxes 37,744 47,277 664,442 766,221
 
Income Taxes   6,795     20,775     133,902     258,272  
 
Net Income 30,949 26,502 530,540 507,949
 
Less: Net income attributable to noncontrolling interests 4,873 4,873 19,493 19,493
       
Net Income Attributable To Common Shareholders $ 26,076   $ 21,629   $ 511,047   $ 488,456  
 
 
Weighted-Average Common Shares Outstanding – Basic 112,233 111,943 112,129 111,839
 
Weighted-Average Common Shares Outstanding – Diluted 112,700 112,472 112,550 112,367
 
Earnings Per Weighted-Average Common Share Outstanding
Net income attributable to common shareholders – basic $ 0.23 $ 0.19 $ 4.56 $ 4.37
Net income attributable to common shareholders – diluted $ 0.23 $ 0.19 $ 4.54 $ 4.35

Contacts

Media Contact: Alan Bunnell (602) 250-3376
Analyst Contact:
Stefanie Layton (602) 250-4541
Website: pinnaclewest.com

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