Market Overview

Pinnacle West Reports 2017 Second-Quarter Results

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  • Higher electricity usage and hotter-than-normal weather positively
    impact quarterly results
  • Operations and maintenance expenses lower versus a year ago due to
    fewer planned fossil plant outages

Pinnacle West Capital Corp. (NYSE:PNW) today reported consolidated net
income attributable to common shareholders of $167.4 million, or $1.49
per diluted share of common stock, for the quarter ended June 30, 2017.
This result compares with earnings of $121.3 million, or $1.08 per
share, in the same 2016 period.

"Higher electricity usage as a result of hotter weather and continuing
solid operational performance helped improve our quarterly earnings
compared to the same period a year ago," said Pinnacle West Chairman,
President and Chief Executive Officer Don
Brandt
, adding that the Phoenix
metropolitan area experienced 26 days of 100 degrees or higher
temperatures – and 11 days above 110 degrees – during the month of June
alone.

Arizona Public Service Co.'s customers also set an all-time record peak
demand of 7,367 megawatts on June 20, eclipsing the previous record of
7,236 MW set in 2006.

Earlier this year, the U.S. Census Bureau announced that Phoenix had
surpassed Philadelphia as America's fifth-largest city and that Maricopa
County was the nation's fastest-growing county. Arizona's housing
construction is also on pace for its best year in a decade. Nonetheless,
the company still projects 2017 full-year sales growth to be between 0
and 1 percent.

"Building permits are up, vacancy rates are down, and companies and
workers are relocating to Arizona," Brandt said. "We are supporting that
growth with continued investments in a reliable, cleaner and smarter
energy infrastructure."

The 2017 second-quarter results comparison was positively influenced by
the following major factors:

  • Lower operations and maintenance expenses increased results by
    $0.14 per share compared with the prior-year period. The lower
    expenses were largely the result of less planned fossil maintenance in
    the 2017 second quarter compared to a year ago. As previously
    indicated, the company anticipates further planned outages at the Four
    Corners Power Plant later this year to install added emission controls.
  • Higher retail electricity usage excluding the
    effects of weather variations, but including the effects of customer
    conservation, energy efficiency programs and distributed renewable
    generation – improved results $0.10 per share. Weather normalized
    sales were 2.9 percent higher in the second quarter compared to 2016's
    second quarter, while year-to-date sales were 0.1 percent higher than
    the first six months in 2016.
  • The absence of a 2016 FERC disallowance recorded in last year's
    second quarter and higher transmission revenues in the 2017 second
    quarter
    helped increase earnings by $0.12 per share
    compared to the year-ago period.
  • The effects of weather variations improved results by $0.02 per
    share compared to the year-ago period. The average high temperature in
    the second quarter was 97.0 degrees – 2.6 percent higher than last
    year's quarter and 1.7 percent higher than normal based on a rolling
    10-year average. The resulting impact was that residential cooling
    degree-days (a measure of the effects of weather) were 14 percent
    greater than in last year's second quarter and 13 percent more than
    normal 10-year averages.
  • The net effect of miscellaneous items increased earnings $0.03
    per share.

Financial Outlook

The company plans to issue 2017 guidance after a final decision by the
Arizona Corporation Commission in Arizona Public Service Co.'s pending
rate review, which is expected later this summer.

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
second-quarter results, as well as recent developments, at noon ET (9
a.m. AZ time) today, Aug. 3. The webcast can be accessed at pinnaclewest.com/presentations
and will be available for replay on the website for 30 days. 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), Thursday, Aug. 10, 2017, by calling
(877) 481-4010 in the U.S. and Canada or (919) 882-2331 internationally
and entering conference ID number 15960.

General Information

Pinnacle
West Capital Corp
., an energy holding company based in Phoenix, has
consolidated assets of nearly $17 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.

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, 2016, and in Part II, Item 1A in of the
Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2017 2016 2017 2016
 
Operating Revenues $ 944,587 $ 915,394 $ 1,622,315 $ 1,592,561
 
Operating Expenses
Fuel and purchased power 254,611 274,848 467,006 496,133
Operations and maintenance 214,013 242,279 433,989 485,474
Depreciation and amortization 125,739 123,073 253,366 242,549
Taxes other than income taxes 44,289 42,117 88,125 84,618
Other expenses   1,706     1,329     2,094     1,877  
Total   640,358     683,646     1,244,580     1,310,651  
 
Operating Income   304,229     231,748     377,735     281,910  
 
Other Income (Deductions)
Allowance for equity funds used during construction 10,456 10,369 19,938 20,885
Other income 484 197 964 314
Other expense   (3,822 )   (2,842 )   (7,502 )   (6,880 )
Total   7,118     7,724     13,400     14,319  
 
Interest Expense
Interest charges 54,969 52,849 106,833 103,593
Allowance for borrowed funds used during construction   (4,906 )   (5,301 )   (9,378 )   (10,528 )
Total   50,063     47,548     97,455     93,065  
 
Income Before Income Taxes 261,284 191,924 293,680 203,164
 
Income Taxes   88,967     65,742     93,178     67,656  
 
Net Income 172,317 126,182 200,502 135,508
 
Less: Net income attributable to noncontrolling interests 4,874 4,874 9,747 9,747
       
Net Income Attributable To Common Shareholders $ 167,443   $ 121,308   $ 190,755   $ 125,761  
 
 
Weighted-Average Common Shares Outstanding - Basic 111,797 111,368 111,763 111,336
 
Weighted-Average Common Shares Outstanding - Diluted 112,345 112,004 112,270 111,930
 
Earnings Per Weighted-Average Common Share Outstanding
Net income attributable to common shareholders - basic $ 1.50 $ 1.09 $ 1.71 $ 1.13
Net income attributable to common shareholders - diluted $ 1.49 $ 1.08 $ 1.70 $ 1.12

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