Intense summer heat main driver for US utility Pinnacle West's Q3 earnings boost

Extreme summer weather helped to boost Pinnacle West Capital's third-quarter earnings by 22% year on year, executives said during the US-based power utility's Nov. 2 earnings call.

The company's Q3 earnings were positively impacted by weather, Senior Vice President and CFO Andrew Cooper said. Pinnacle West Capital reported earnings of $3.50/diluted share for Q3 2023, an increase of 22% compared to a year ago.

"We experienced record-breaking summer heat, so weather was by far the large driver for the higher year-over-year results," Cooper said. "In fact, the number of residential cooling degree days, which is a utility's measure of the effects of weather, increased more than 28% over the same period a year ago and were 32% higher than historical 10-year averages."

Pinnacle West raised its capital expenditure guidance for 2023 from $1.67 billion to $1.8 billion.

"This increase is due to distribution investments needed to serve our growing service territory and generation investments to support the reliability of our fleet," Cooper said. "This higher capex level also includes increases in transmission spend as we continue to make key investments in our [Federal Energy Regulatory Commission] jurisdictional high-voltage system."

The company now expects 2023 transmission capital within its regulated footprint at a spend level nearly 50% higher than last year.

Summer weather

Pinnacle West's main subsidiary Arizona Public Service set five new peak demand records in July, reaching 8.162 GW on July 15 -- over 500 MW higher than its last peak record set in August 2020, CEO Jeffrey Guldner said.

"We ended the summer with 55 days of 110-plus degrees and 36 days of overnight lows above 90 degrees," Guldner said. "Our careful, long-term planning for resource adequacy, combined with equipment maintenance programs and innovative customer demand side programs proved beneficial throughout the summer."

Residential cooling degree days in July were the highest of any year since data tracking began in 1974, and August recorded the second highest coin degree days for the month behind only August 2020, Cooper added.

The company's baseload fleet performed well in the summer heat, Guldner said, adding its non-nuclear generation fleet's equivalent availability factor, the percentage of time that a generation unit is available and ready to perform when called upon was 93.4% from June through September.

"In addition, we were extremely pleased to have our Agave solar facilities and our AZ Sun batteries online and available to serve customers," Guldner said.

After a month and a half of intense extreme weather and as the weather turned cooler in September, customers started looking at their bills and how to conserve in September, which caused residential usage to trail off, Cooper said.

"There tends to be a psychology around when do I turn off my AC for the year," Cooper said. "And people this year might have done it earlier, just in response to knowing that they were running it so intensely during the summer."

Taking both the mild spring weather of Q2 and extreme hot summer weather of Q3 into consideration, Pinnacle West Capital continues its earnings guidance at a range of $4.10/share to $4.30/share for the year.

Plant maintenance

There were some reliability related needs, Cooper said about the summer weather, adding that a lot of those were anticipated before the summer and the company was spending money to continue to ensure its fleet.

"The peak load we reached was consistent with the types of forecast that we set in advance," Cooper said. "Certainly, coming out of the summer, the wear and tear, both the [capital expenditures] that we've increased this year as well as the [operations and maintenance] are related to that."

The company released its outage schedule for year ahead. Palo Verde-1 will have a 35-day planned outage in Q4, while Palo Verde-3 will have a 35-day planned outages in Q2 2024. In Q4 2024, Palo Verde-2 will have a 35-day planned outage and Four Corners-5 will have a 66-day planned outage -- the beginning of the plant's last major outage in its life, Cooper said. In addition, three natural gas plants will have planned outages in Q1 and Q2 2024.

"So, there is some age-related work to get us through the remainder of decade next year," Cooper said.

Operations and maintenance in Q3 came in slightly lower than last year, he said.

"However, we continue to see pressures in O&M, both from inflation as well as increases in costs incurred to serve the significant growth in our service territory," Cooper said. "We continue to look for opportunities to reduce risk and find efficiencies that keep our costs low and maintain customer rate affordability."