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Pinnacle West Capital Corporation (



Q4 2011 Earnings Call

February 24, 2012 11:00 a.m. ET


Rebecca Hickman – Director, IR

James Hatfield – SVP, CFO and Treasurer

Donald Brandt – Chairman, President and CEO

Jeff Guldner - VP, Rates & Regulation, Arizona Public Service Company


Shar Pourreza – Citigroup

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Greetings, and welcome to the Pinnacle West Capital Corporation 2011 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Rebecca Hickman, Director of Investor Relations. Thank you, Ms. Hickman, you may begin.

Rebecca Hickman

Thank you, Christine. I’d like to thank everyone for participating in this conference call and webcast to review our fourth quarter and full year 2011 earnings, recent developments and operating performance. Our speakers today will be our Chairman and CEO, Don Brandt; and our CFO, Jim Hatfield. Jeff Guldner, who is APS Vice President of Rates and Regulation is also here with us.

Before I turn the call over to our speakers, I need to cover a few details with you. First, the slides to which we refer are available on our Investor Relations website, along with our earnings release, supplemental information on our earnings variances and operating statistics, the webcast and the Form 8-K filed this morning. Please note that slides contain reconciliations of certain non-GAAP financial information. Also, all of our references to per share amounts will be after income taxes and based on diluted shares outstanding.

It is my responsibility to advise you that this call and our slides contain forward-looking statements based on current expectations, and the company assumes no obligation to update these statements. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements.

Our 2011 Form 10-K was filed this morning. Please refer to that document for forward-looking statements, cautionary language as well as the MD&A section, which identifies risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements. A replay of this call will be available on our website for the next 30 days. It will also be available by telephone through March 2.

At this point, I’ll turn the call over to Jim.

James Hatfield

Thank you, Becky. The topics I will discuss today are outlined on slide four. First, I’ll review the consolidated fourth quarter results and discuss the main variances from last year’s corresponding quarter. Second, I will discuss our 2011 full year results provide. Third, I will provide a brief update on the status and outlook for the Arizona economy. And lastly, I will close with brief comments on our liquidity and financing activities.

Slide five summarizes our reported and ongoing earnings for the quarter. On a GAAP basis, for this year’s fourth quarter, we reported consolidated net income attributable to common shareholders of $13 million, or $0.11 per share, compared with net income of $7 million, or $0.07 per share for the prior year’s fourth quarter.

Our ongoing earnings increased $0.06 per share. For the 2011 fourth quarter, we had consolidated ongoing earnings of $12 million, or $0.11 per share, versus ongoing earnings of $5 million, or $0.05 per share for the comparable quarter a year ago.

Slide six contains a reconciliation of our fourth quarter 2011 and 2010 GAAP earnings per share to our ongoing earnings. The amounts for both quarters exclude the results related to our discontinued operations. The discontinued operations amounts relate primarily to APS Energy Services, part of which were sold in mid-2010 and the remainder of which was sold in mid-2011. My remaining comments on the quarter will focus on ongoing results.

Moving to slide seven, you see the variances that drove the change in quarterly ongoing earnings per share. First, an increase in our regulated electricity segment gross margin added $0.05 per share, compared with the prior year’s fourth quarter. Several pluses and minuses comprise this positive net variance and I will cover those items in more detail on the next slide.

Second, lower operations and maintenance expenses improved earnings by $0.06 per share. The decrease largely reflects lower power plant maintenance costs as a result of more work being completed earlier in the year than in

2010, as well as lower employee benefit costs. This O&M variance excludes expenses related to the Renewable Energy Standard, or RES, energy efficiency, and similar regulatory programs, which are offset by comparable revenue amounts.

Third, the impact of all other items increased earnings by $0.01 per share. These favourable variances were partially offset by the absence of tax benefits of $0.06 per share that were recorded in the fourth quarter of 2010.

Turning to slide eight and the composition of the net increase in our regulated electricity gross margin, total regulated electricity gross margin was up $0.05 per share, compared with the 2010 quarter. The main components of that increase were as follows. The retail transmission cost adjustor rate increase that became effective July 1 of 2011 raised revenue by $0.03 per share. Line extension fees recorded as revenues pursuant to the 2009 retail regulatory settlement improved our results by $0.02 per share. The net effect of other miscellaneous items increased our gross margin by $0.02 per share. Lastly, the non-cash mark-to-market valuation of APS’ fuel and purchase power hedges, net of the related power supply adjustor or PSA deferrals, lowered earnings by $0.02 per share compared with the year ago.

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