Q2 2024 Earnings Summary
- Pinnacle West reported total weather-normalized sales growth of 5.5% in Q2 2024, driven by robust 10% growth in the Commercial & Industrial (C&I) segment, primarily due to the ramping of large manufacturing and data center customers like TSMC.
- The company has a substantial backlog of committed projects extending beyond 2026, including the second and third phases of TSMC and over 4,000 megawatts of data center customers, with more than 10,000 megawatts of additional data center requests, indicating strong future growth prospects.
- Pinnacle West is making progress in addressing regulatory lag issues, with the commission showing a desire to understand policy options to reduce regulatory lag, which is important for supporting Arizona's significant growth and the capital investment required to serve it.
- Regulatory uncertainty may delay rate increases, as the outcome and timing of the regulatory lag proceeding are uncertain. The company is waiting to see how the proceeding unfolds before filing a new rate case. , ,
- Upcoming large planned outages at Four Corners power plant in the second half of the year could increase O&M expenses and impact earnings. The largest of the outages is yet to come, and the company is monitoring this area closely.
- Potential equity dilution risk, as the company plans to issue $400 million in common equity, possibly through an ATM program, to finance capital needs.
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Regulatory Lag Docket & Rate Case Timing
Q: When will regulatory lag docket be resolved and rate case filed?
A: The company expects the next workshop on the regulatory lag docket to occur in October , after which the commission might provide more guidance on timing. They are monitoring the process to determine when to file the next rate case, possibly after gaining clarity from the docket. -
Sales Growth & Outlook
Q: How sticky is the 5.5% sales growth, and outlook for '25?
A: The 5.5% sales growth this quarter is driven by large C&I customers ramping up, including TSMC and data centers. With over 4,000 MW of data center customers committed and more than 10,000 additional requests, the company expects this trend to continue but hasn't provided guidance beyond 2026. -
O&M Savings & 2025 Outlook
Q: Are there opportunities to pull forward O&M to derisk '25 outlook?
A: The company plans a 2% reduction in core O&M to accommodate large outages this year. They are exploring flexibility in their multiyear O&M plan, possibly adjusting projects to offset impacts in 2025. -
Financing Plans & Equity Needs
Q: Any updates on timing and type of equity or alternatives?
A: No updates at this point. The base case remains issuing $400 million via an ATM program to match capital needs, primarily targeting years 2025 through 2027. -
Impact of Heat on Sales & Working Capital
Q: Could hot weather impact working capital or cash flow?
A: The company plans financing to accommodate the normal pace of customer payments, even during hot summers. Assistance programs help reduce billing pressures, especially post-summer. -
Resiliency Planning for Extreme Heat
Q: How is the company planning for extreme heat impacts?
A: Current temperatures are within design criteria. Despite higher sales due to weather, peak demand didn't surpass last year. Resiliency plans are in place, and equipment impacts are as expected. -
ACC Elections & Regulatory Process
Q: Could ACC elections change the direction of the lag docket?
A: The company doesn't anticipate significant changes due to elections. They continue engaging with candidates to support state growth. -
SRB Process & Capital Recovery
Q: Is the SRB an evergreen program for capital recovery?
A: Yes, the SRB allows concurrent recovery of capital invested, including future generation needs through typical procurement processes.
Research analysts covering PINNACLE WEST CAPITAL.