Market Overview

Pinnacle West Reports 2018 Second-Quarter Results

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  • Quarterly results in line with Company expectations
  • Operations and maintenance expenses increased versus a year ago due
    to higher planned fossil plant outages and other operating costs
  • Company maintains focus on deploying innovative technologies that
    benefit customers

Pinnacle West Capital Corp. (NYSE:PNW) today reported consolidated net
income attributable to common shareholders of $166.7 million, or $1.48
per diluted share of common stock, for the quarter ended June 30, 2018.
This result compares with earnings of $167.4 million, or $1.49 per
share, in the same 2017 period.

"Second-quarter results were in line with our expectations, and we
remain well positioned to meet our financial commitments for the full
year," said Pinnacle West Chairman, President and Chief Executive
Officer Don
Brandt
. "We will continue investing in and deploying advanced grid
technologies, like battery storage and microgrids, to provide our
customers with more clean energy options while maintaining reliability
and managing costs.

"Our recent RFP to equip existing APS solar plants with battery storage,
and our APS Solar Communities program, which offers rooftop solar to
limited- and moderate-income customers, both underscore our ongoing
commitment to Arizona."

The 2018 second-quarter results comparison was adversely impacted by the
following major factors:

  • Higher operations and maintenance expenses decreased earnings
    by $0.23 per share compared with the prior-year period. The increased
    costs were primarily due to higher planned outage and operating costs,
    including at the Four Corners Power Plant to install added emission
    controls; an increase in transmission, distribution and customer
    service costs at APS; and an increase in public outreach costs at the
    parent company level primarily associated with the Company's position
    on the Steyer-funded ballot initiative.
  • Other operating expenses, including higher depreciation and
    amortization and increased taxes other than income taxes, reduced
    results by $0.19 per share compared with the prior-year period,
    largely because of higher property values, changes in rates and
    increased plant in service.
  • The effects of weather variations adversely impacted
    earnings by $0.08 per share compared to the year-ago period.
    Residential cooling degree-days (a measure of the effects of weather)
    were 10 percent less than in last year's second quarter, which was
    marked by one of the hottest June's on record, but still 4.7 percent
    higher than normal 10-year averages.
  • Retail electricity sales contributed to a decrease of $0.03 per
    share compared to a year ago, due in part to the impacts of energy
    efficiency and distributed generation. The sales decrease was
    partially offset by solid customer growth of 1.6 percent.

These factors were almost entirely offset by the following positive
items:

  • The Company's 2017 regulatory settlement, which included APS's
    first retail base rate increase in five years, contributed
    $0.29 per share to quarterly results. The settlement became effective
    Aug. 19, 2017.
  • The effects of federal corporate tax cuts positively impacted
    results by $0.10 per share, driven by the timing difference
    between income tax expense and the passing of savings directly back to
    customers.
  • Higher transmission revenues and recovery of lost revenue
    resulting from customer energy efficiency and distributed generation
    programs (also known as lost fixed cost recovery) improved
    results $0.04 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 $0.03 per share.
  • The net effect of miscellaneous items increased earnings $0.06
    per share.

Financial Outlook

For 2018, the Company continues to expect its consolidated earnings
guidance will be in the range of $4.35 to $4.55 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 2018 outlook can be found in
the second-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
second-quarter results, as well as recent developments, at noon ET (9
a.m. Arizona 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), Friday, Aug. 10, 2018, by calling (877)
481-4010 in the U.S. and Canada or (919) 882-2331 internationally and
entering conference ID number 33622.

General Information

Pinnacle
West Capital Corp.
, an energy holding company based in Phoenix, has
consolidated assets of about $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, 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
JUNE 30,
  SIX MONTHS ENDED
JUNE 30,
2018   2017 2018   2017
   
Operating Revenues $ 974,123 $ 944,587 $ 1,666,837 $ 1,622,315
 
Operating Expenses
Fuel and purchased power 257,087 254,611 454,197 467,006
Operations and maintenance 268,397 220,985 534,079 447,056
Depreciation and amortization 145,436 125,739 290,261 253,366
Taxes other than income taxes 53,607 44,289 107,207 88,125
Other expenses   7,434     1,706     7,597     2,094  
Total   731,961     647,330     1,393,341     1,257,647  
 
Operating Income   242,162     297,257     273,496     364,668  
 
Other Income (Deductions)
Allowance for equity funds used during construction 13,073 10,456 27,152 19,938
Pension and other postretirement non-service credits - net 12,006 6,972 24,865 13,067
Other income 6,598 484 10,583 964
Other expense   (3,771 )   (3,822 )   (7,000 )   (7,502 )
Total   27,906     14,090     55,600     26,467  
 
Interest Expense
Interest charges 60,708 54,969 119,662 106,833
Allowance for borrowed funds used during construction   (6,291 )   (4,906 )   (13,046 )   (9,378 )
Total   54,417     50,063     106,616     97,455  
 
Income Before Income Taxes 215,651 261,284 222,480 293,680
 
Income Taxes   44,039     88,967     42,774     93,178  
 
Net Income 171,612 172,317 179,706 200,502
 
Less: Net income attributable to noncontrolling interests 4,874 4,874 9,747 9,747
       
Net Income Attributable To Common Shareholders $ 166,738   $ 167,443   $ 169,959   $ 190,755  
 
 
Weighted-Average Common Shares Outstanding - Basic 112,115 111,797 112,067 111,763
 
Weighted-Average Common Shares Outstanding - Diluted 112,471 112,345 112,482 112,270
 
Earnings Per Weighted-Average Common Share Outstanding
Net income attributable to common shareholders - basic $ 1.49 $ 1.50 $ 1.52 $ 1.71
Net income attributable to common shareholders - diluted $ 1.48 $ 1.49 $ 1.51 $ 1.70
 

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