Mizuho recently hosted meetings with Arizona (AZ) regulators following the Tuscon Electric Power (TEP) rate case decision earlier this month.

The analyst believes AZ regulation will likely be increasingly constructive in the coming years with the implementation of improvements suggested by new members of the commission, such as forward/hybrid test years and an improved suite of riders.

In its 'final form,' Crowdell expects to eventually see a regulatory construct that includes some traits of the California regulatory environment, with 3-5 year cycles with annual true-ups.

The analyst expects improved regulation and load growth to push PNW's earnings and P/E premium upward going forward.

The analyst notes that PNW presently experiences a significant regulatory lag, with the company's FY23 EPS guidance of $4.20 (at the midpoint) representing around 150bps of lag. 

Considering the implementation of mechanisms leading to a decrease in lag, the analyst revised EPS estimates to $5.07 (from $4.95) for FY24 and $5.37 (from $5.25, vs. consensus $5.12) for FY25, reflecting around 100bps of lag (down from the prior estimate of 125bps). 

The company raised FY23 EPS guidance to $4.10-$4.30 from $3.95-$4.15 vs. $4.19 estimate.

Price Action: PNW shares are trading higher by 1.35% at $78.73 on the last check Tuesday.