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Pinnacle West Reports 2012 Fourth-Quarter And Full-Year Results

Stocks in this article: PNW

Pinnacle West Capital Corporation (NYSE: PNW) today reported consolidated on-going earnings of $26.9 million, or $0.24 per diluted share of common stock, for the quarter ended December 31, 2012. This result compares with on-going earnings of $12.1 million, or $0.11 per share, in the same 2011 period. The Company’s net income attributable to common shareholders for the 2012 fourth quarter was $22.6 million, or $0.20 per diluted share, compared with net income of $12.6 million, or $0.11 per share, for the same quarter a year ago.

For full-year 2012, Pinnacle West reported consolidated on-going earnings of $387.4 million, or $3.50 per share, as compared to $328.1 million, or $2.99 per share, a year ago. Consolidated net income attributable to common shareholders for 2012 was $381.5 million, or $3.45 per diluted share, compared with 2011 net income of $339.5 million, or $3.09 per diluted share.

On-going earnings exclude results of previously discontinued operations. A reconciliation of reported earnings to on-going earnings is provided at the end of this release.

“Superior operational performance by our dedicated employees – particularly in the areas of customer service, reliability and safety – combined with cost management and economic improvement in our market area produced full-year financial results at the top of our expectations,” said Pinnacle West Chairman, President and Chief Executive Officer Don Brandt.

Looking forward, Brandt said the Company and its employees cannot rest on recent accomplishments. “We must maintain our focus on operational improvement and cost management, while maintaining strong service reliability at fair prices for our customers, and producing solid financial results for shareholders.”

Brandt cited additional examples of the Company’s 2012 achievements:

  • APS provided its 1.1 million customers with record levels of service reliability, maintained superior power plant performance, and continued its top-tier customer satisfaction rating – all of which compare favorably with the best performers in the electric utility industry.
  • The Company experienced its safest year ever as the number of recordable employee injuries decreased for the fifth straight year, besting 2011’s prior record by 20 percent.
  • Pinnacle West’s total return to shareholders in 2012 was 10.3 percent, which compared favorably with a 0.1 percent return for the S&P 1500 Electric Utility Index.
  • For the second time in as many years, Standard & Poor's Corporation (S&P) upgraded its credit ratings for both Pinnacle West and Arizona Public Service (APS) from BBB to BBB+, thus reducing borrowing costs for needed infrastructure investments. The Company believes these upgrades reflect effective management of regulatory risk, an improvement in Arizona’s economy, continued improvement in cash flow measures and decreased leverage in recent years. Earlier in 2012, the other two primary credit rating agencies — Moody's Investors Service and Fitch Ratings — also upgraded Pinnacle West and APS to the BBB+ level.

The fourth-quarter on-going results comparison was positively impacted by the following major items:

  • The Company’s 2012 regulatory settlement, which included a retail non-fuel base rate increase, improved earnings by $0.13 per share. The settlement became effective July 1, 2012.
  • Higher transmission revenues improved earnings by $0.06 per share, primarily because of a retail transmission rate increase implemented in August 2012.
  • Lower infrastructure-related costs increased earnings by $0.06 per share, related to lower depreciation and amortization, primarily attributable to the operating license extensions at the Palo Verde Nuclear Generating Station in 2011; and decreased interest expense due to lower debt balances and interest rates. These lower costs were partially offset by higher property taxes .
  • Higher retail electricity sales – excluding the effects of weather variations, but including effects of customer conservation, energy efficiency programs and distributed renewable generation – improved earnings by $0.06 per share. The increase was primarily related to customer growth of 1.4 percent in the quarter compared to the same period a year ago.

These factors were offset in part by the following factors:

  • Higher operations and maintenance expenses impacted earnings by $0.08 per share compared with the prior-year quarter. The expense increase primarily consisted of the beginning of amortization of pension and other post-retirement benefits in 2012 compared with deferral of such costs in 2011 pursuant to the Company’s retail regulatory settlements; increased employee benefit costs; and higher information technology costs, partially offset by lower fossil generation costs as a result of less planned maintenance being completed in the current-year quarter than in the same quarter a year ago. The O&M variance excludes costs associated with renewable energy, energy efficiency and similar regulatory programs, which are largely offset by comparable amounts of operating revenues.
  • The effects of weather variations decreased the Company’s earnings by $0.03 per share.
  • Higher fuel and purchased power costs, net of higher mark-to-market valuations as a result of changes in commodity prices, reduced earnings by $0.03 per share.
  • The net effect of miscellaneous items decreased earnings $0.04 per share.

APS, the Company’s principal subsidiary, recorded 2012 fourth-quarter net income attributable to common shareholder of $26.8 million versus net income of $14.3 million for the comparable 2011 quarter. For 2012 as a whole, APS net income attributable to common shareholder was $395.5 million compared with $336.2 million for 2011.

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