Capital expenditures by Arizona Public Service Co. are expected to increase nearly 19% year on year in 2021 supporting a growing customer base and the utility's transition to a cleaner generation mix, parent company Pinnacle West Capital Corp. said Feb. 24 during its fourth-quarter 2020 earnings call.
Of the $1.5 billion in projected capital investments for 2021, $314 million is for clean generation, up 131% year-on-year as APS continues its clean energy commitment, Jeffrey Guldner, chairman, president and CEO of Pinnacle West and chairman and CEO of APS, said. Capital expenditures in 2022 and 2023 are also projected at $1.5 billion each year.
In 2020, APS' non-nuclear fleet recorded its best reliability performance since 2007 with a summertime equivalent availability factor of 95.3%, Guldner said.
The Palo Verde nuclear plant surpassed the 1 billion gross MWh mark for production over its lifetime, and it achieved a summer reliability capacity factor of 100%, Guldner said, adding the U.S. Department of Energy's Office of Nuclear Energy named Palo Verde the nation's top producer of carbon-free energy for the 25th year in a row. At 4,003 MW, the three-unit plant is the largest by generating capacity in the U.S.
Bills could limit regulators' authority
In January, legislation was introduced that if approved would limit the Arizona Corporation Commission's ability to set energy policy.
The commission passed rules in November 2020 to update the Renewable Energy Standard and Tariff to mandate that utilities to deliver 100% carbon-free electricity by 2050. The move requires final approval from the commission this year.
The legislative measures would remove regulators' authority to make clean-energy rules and give it to the legislature.
"Although we can't predict if these bills will ultimately pass and be signed by the governor, we do know that this will not change our investment plans in clean energy or our commitment to become 100% carbon-free by 2050," Guldner said.
Carbon-free goal
APS has an aspirational goal of 100% clean, carbon-free electricity by 2050, ramping up from 65% clean energy by 2030, of which 45% is to be supplied by renewables. The goal includes ending the use of coal-fired generation by the end of 2031. The next coal retirement is coming in 2025, Guldner said.
APS' 2019 energy mix was 50% clean energy.
Pinnacle celebrated on Jan. 22 the one-year anniversary of when it announced its 100% clean carbon-free goal.
In the year since, the company secured more than 400 MW of clean energy resources, Guldner said, adding APS issued requests for proposals late last year for battery storage and renewables which are expected to add more than 1 GW of clean energy resources to the system.
"In addition to reducing carbon through our generation resources, we also committed to transition 30% of our light-duty vehicles and equipment to electric and ultimately, to operate a 100% clean carbon-free transportation fleet by 2050," Guldner said.
Rate case
Pending the outcome of APS' current rate case, Pinnacle is holding off on providing earnings guidance, Ted Geisler, CFO of both companies, said.
A rate case hearing began Jan. 14 and is expected to conclude by mid-March, Guldner said. After the hearing, parties will file briefs and the administrative law judge will issue a recommended opinion in order.
The commission will schedule the case for an open meeting to vote, and Pinnacle's current expectation is that the case will likely conclude around midyear, Guldner said.
For full-year 2020, Pinnacle earned $4.87 per share, up from $4.77 per share in 2019, Geisler said, adding that without the 17-cents-per-share impact from a settlement with the Arizona Attorney General's Office, the company's 2020 earnings would have been $5.04 per share, near the midpoint of the $4.95 to $5.15 guidance range.
Fourth-quarter earnings fell to negative 17 cents per share, compared to 57 cents per share in 2019. The S&P Capital IQ consensus normalized EPS estimate for the 2020 fourth quarter was 8 cents.
Customer growth
APS experienced 2.3% customer growth and 1.4% weather-normalized sales growth compared to 2019, Geisler said.
"Even with the impacts from COVID, we energized more than 27,000 new customers and five new substations supporting data centers," Geisler said. "For 2021, we expect retail customer growth to be between 1.5% and 2.5%. With that trend continuing through 2023, we expect weather-normalized retail electric sales growth between 0.5% to 1.5% in 2021 and between 1% to 2% on average from 2021 through 2023."
Guidance now includes estimated contributions of several large data centers that have been interconnected, Geisler said.
"Although the total impact from COVID-19 on future sales is still unknown, the 2020 impact for the period from March 13 through Dec. 31 was a 1% increase," Geisler said. "While residential weather-normalized sales increased 5%, the increase was partially offset by a 4% decrease in commercial and industrial sales."
Kassia Micek is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.
