Pinnacle West Feels Energy Market Exodus

The company takes down 2003 and 2004 guidance, citing an absence of creditworthy counterparties.
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Spiking natural gas and other power costs led to sharply lower second-quarter earnings at

Pinnacle West

(PNW) - Get Report

, the company that owns Arizona Public Service. Meanwhile, the ongoing exodus of players from wholesale energy trading markets will squeeze its margins in 2003 and 2004, the company said.

Pinnacle earned $56.1 million, or 61 cents a share, in the second quarter compared with $75.4 million, or 89 cents a share, last year. Overall revenue rose to $757.5 million in the latest quarter from $593.5 million last year, but natural gas and purchased power costs rose more rapidly. For example, the company noted, the cost of natural gas to run the company's plants doubled to $30 million during the quarter.

Looking forward, the company lowered 2003 earnings guidance to $2.55 to $2.85 a share, and 2004 guidance to $2.85 to $3.15 a share, citing "a substantial deterioration in the western wholesale power market over the last few months." Specifically, Pinnacle can find fewer creditworthy counterparties in the rapidly shrinking wholesale market to trade with, a trend that squeezes margins, which are sometimes called "spark spreads" in the energy market.

The company said its revised 2003 power marketing and trading income will be down 75% from 2002 levels, and be comparable in 2004.

Analysts surveyed by Thomson First Call were predicting earnings of $2.96 a share in 2003 and $3.18 a share in 2004.