Market Overview

Pinnacle West Reports 2017 First-Quarter Earnings

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Pinnacle West Capital Corp. (NYSE:PNW) today reported consolidated net
income attributable to common shareholders of $23.3 million, or $0.21
per diluted share of common stock, for the quarter ended March 31, 2017.
This result compares with $4.5 million, or $0.04 per diluted share, for
the same period in 2016.

"The first quarter proved to be a strong start to our year and continued
to build on the momentum of a growing customer base," said Pinnacle West
Chairman, President and Chief Executive Officer Don
Brandt
. "According to the U.S. Census Bureau, Maricopa County – home
to 70 percent of our customers – was the nation's fastest growing county
in 2016. With Arizona's population expected to grow 21 percent through
2025, it's clear that people view Arizona as an attractive place to live
and do business.

"And, if approved by the Arizona Corporation Commission, our regulatory
settlement will position us to manage this growth through innovation and
reliability and help ensure a sustainable energy future benefiting our
customers, shareholders and the communities we serve."

The 2017 first-quarter results comparison was positively impacted by the
following factors:

  • Lower operations and maintenance expenses increased results by
    $0.11 per share compared with the prior-year period. The lower
    expenses were largely the result of fewer planned fossil plant
    maintenance in the 2017 first quarter compared to a year ago, as well
    as lower employee benefit costs. These positive attributes were
    partially offset by higher corporate support expenses related to
    information technology and implementation of new customer systems. As
    previously indicated, we expect further planned outages at the Four
    Corners Power Plant later this year to install added emission controls.
  • A lower effective income tax rate positively impacted earnings
    by $0.05 per share.
  • Higher lost fixed cost recovery revenue improved earnings by
    $0.04 per share.
  • The effects of weather variations improved results by $0.03 per
    share compared to the year-ago period. First-quarter 2017 residential
    heating degree-days (a measure of the effects of weather) were 10
    percent greater than in the 2016 first quarter, albeit 10 percent
    below 10-year historical averages. Commercial cooling degree-days were
    26 percent higher in the quarter versus the year-ago period and 88
    percent greater than normal.

These positive factors were offset in part by the following items:

  • Lower retail electricity sales – excluding the effects of
    weather variations, but including the effects of customer
    conservation, energy efficiency programs and distributed renewable
    generation – decreased earnings $0.04 per share. Compared to the same
    quarter a year ago, weather-normalized sales decreased 3.3 percent due
    to changes in customer usage patterns and related pricing, and the
    result of an additional day of sales in February 2016 from the leap
    year.
  • Higher depreciation and amortization expenses related to
    additional plant in service reduced earnings by $0.04 per share.

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 2017
first-quarter results, as well as recent developments, at 12 noon ET (9
a.m. AZ time) today, May 2. A replay of the webcast can be accessed at pinnaclewest.com/presentations.
To access the live conference call by telephone, dial (877) 407-8035 or
(201) 689-8035 for international callers. A replay of the call also will
be available until 11:59 p.m. (ET), Tuesday, May 9, 2017, by calling
(877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally
and entering conference ID number 10311.

General Information

Pinnacle
West Capital Corp
., an energy holding company based in Phoenix, has
consolidated assets of more than $16 billion, about 6,200 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.

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 postretirement 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, 2016, 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
MARCH 31,
2017   2016
 
Operating Revenues $ 677,728 $ 677,167
 
Operating Expenses
Fuel and purchased power 212,395 221,285
Operations and maintenance 219,976 243,195
Depreciation and amortization 127,627 119,476
Taxes other than income taxes 43,836 42,501
Other expenses   388     548  
Total   604,222     627,005  
 
Operating Income   73,506     50,162  
 
Other Income (Deductions)
Allowance for equity funds used during construction 9,482 10,516
Other income 480 117
Other expense   (3,680 )   (4,038 )
Total   6,282     6,595  
 
Interest Expense
Interest charges 51,864 50,744
Allowance for borrowed funds used during construction   (4,472 )   (5,227 )
Total   47,392     45,517  
 
Income Before Income Taxes 32,396 11,240
 
Income Taxes   4,211     1,914  
 
Net Income 28,185 9,326
 
Less: Net income attributable to noncontrolling interests 4,873 4,873
   
Net Income Attributable To Common Shareholders $ 23,312   $ 4,453  
 
 
Weighted-Average Common Shares Outstanding - Basic 111,728 111,296
 
Weighted-Average Common Shares Outstanding - Diluted 112,195 111,847
 
Earnings Per Weighted-Average Common Share Outstanding
Net income attributable to common shareholders - basic $ 0.21 $ 0.04
Net income attributable to common shareholders - diluted $ 0.21 $ 0.04

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