Pinnacle West Capital Corporation ( PNW) Q4 2011 Earnings Call February 24, 2012 11:00 a.m. ET Executives 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 Analysts Shar Pourreza – Citigroup Michael Lapides - Goldman Sachs Scott Senchak - Decade Capital Presentation Operator
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. Read the rest of this transcript for free on seekingalpha.com