Pinnacle West Posts Strong Quarterly Results

Pinnacle West Capital reported 2013 ongoing earnings of $3.66 per share versus $3.50 per share in 2012. The results were $0.03 better than the consensus estimate. Pinnacle West reiterated its 2014 ongoing earnings guidance of $3.60-$3.75 per share.

Pinnacle West pushed its three-year financial outlook forward one year to 2014-16. One notable difference is that annual retail customer growth is expected to average 2.5% versus 2% in the prior three-year period. Weather-normalized retail sales growth net of customer conservation and distributed renewable generation (primarily rooftop solar) is now about 1% versus less than 1% in the prior outlook. The acceleration in sales growth is being driven by an improving Arizona economy.

Pinnacle West’s realized return on equity for 2013 was 9.9%, in line with our estimate. The acceleration of the three-year weather-normalized sales growth outlook increases our confidence that realized ROE will decline to only 9.5% in 2015 before new rates become effective in 2016 when the four-year rate case stay-out period ends.