By Geert De Lombaerde
The leaders of Pinnacle West Capital Corp., the parent of Arizona Public Service Co., have beefed up their capital spending plan in response to their expectation that sales growth will grow significantly through at least 2025.
Pinnacle West Chairman, President and CEO Jeff Guldner and his team last fall were forecasting that the Phoenix-based company would this year spend a little more than US$1.5 billion this year on generation, transmission, distribution and other projects before growing that number to US$1.65 billion in 2024. Speaking to analysts on the heels of reporting fourth-quarter results, Guldner and CFO Andrew Cooper now are forecasting a 2023 capex plan of US$1.67 billion, a 2024 forecast of US$1.8 billion and a new 2025 target of US$1.85 billion.
Compared to Pinnacle West’s 2022-2024 capital plan that US$4.7 billion, the new 2023-2025 outlook stands at slightly more than US$5.3 billion. That increase is being underpinned by a higher expected pace of rate base growth: That range for the coming years is now expected to be 5 per cent to 7 per cent, up from 5 per cent to 6 per cent in November. Key to that uptick, Cooper said on a Feb. 27 conference call, is a big bump from large technology and manufacturing investments in Arizona, most notably from Taiwan Semiconductor Manufacturing Co. and Procter & Gamble (which are building plans that will employ 4,500 and 500 people, respectively) but also including data center projects.
“It’s a pretty different economic story than it’s been in the past as far as the factors contributing to growth here,” Cooper said. “We’re not really depending on the broader macroeconomic story as much as specifically identified customers, which include TSMC […] That sales growth is certainly helping us to mitigate the inflation and some of the O&M pressure that we’re seeing and we’ll continue to work both those cost levers and keep a close eye on the macroeconomic environment.”
Of the US$5.3 billion of capital being allocated from this year through 2025, nearly US$1.6 billion is slated to go to distribution projects—that’s essentially unchanged from the 2022-24 window—while transmission work will get US$860 million in capital, up significantly from the previous rolling three-year cadence of US$630 million.
Pinnacle West reported a fourth-quarter loss of about US$24 million, versus a net profit of US$27.6 million in the last three months of 2021, on operating revenues of a little more than US$1.0 billion. Operating profits slipped to US$36.8 million and were hurt by a 2021 Arizona Corporation Commission rate case decision that lowered APS’ allowed return on equity and required the company to no longer defer some project costs. A year ago, Guldner said the decision meant 2022 would be “a financial reset year.”
Shares of Pinnacle West (Ticker: PNW) were up slightly Feb. 28 to US$74.17 after rising about 1 per cent the day before. They are essentially flat over the past six months.
