Pinnacle West(US:PNW)2022-08-03 12:33Part I — FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Pinnacle West and APS, including income, balance sheets, cash flows, and equity, with accompanying notes Pinnacle West - Condensed Consolidated Statements of Income (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | OPERATING REVENUES | $1,061,669 | $1,000,249 | $1,845,200 | $1,696,724 | | OPERATING INCOME | $223,095 | $278,386 | $277,587 | $325,920 | | NET INCOME | $168,618 | $219,436 | $189,880 | $259,950 | | NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS | $164,312 | $215,697 | $181,268 | $251,338 | | Diluted EPS | $1.45 | $1.91 | $1.60 | $2.22 | Combined Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures supporting financial statements, covering accounting policies, revenue, debt, liquidity, regulatory matters, and fair value measurements Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and results, covering strategic initiatives, financial drivers, regulatory developments, operating results, liquidity, and market risks Overview This section outlines Pinnacle West's operations as Arizona's largest electric utility, its clean energy strategy, and key regulatory proceedings - APS has established a three-part clean energy goal: - 2050 Goal: Provide 100% clean, carbon-free electricity288 - 2030 Target: Achieve a 65% clean energy resource mix, with 45% from renewables289 - 2031 Goal: End all use of coal-fired generation290 - The Arizona Corporation Commission (ACC) approved the 2019 Rate Case, resulting in a total annual revenue decrease for APS of $4.8 million, effective December 1, 2021, with APS appealing certain aspects including a $215.5 million disallowance of Four Corners SCR project investments91342 - APS projects annual customer growth of 1.5% to 2.5% through 2024 and weather-normalized retail sales growth of 3.5% to 4.5% through 2024, driven by population growth and new large manufacturing and data center customers356359 Results of Operations This section details the decrease in net income attributable to common shareholders for Q2 and H1 2022, primarily due to higher depreciation, lower revenue, and increased O&M costs Q2 2022 vs Q2 2021 Change in Net Income Attributable to Common Shareholders (in millions) | | 2022 | 2021 | Net Change | | :--- | :--- | :--- | :--- | | Operating revenues less fuel and purchased power | $708 | $726 | $(18) | | Operations and maintenance | $(244) | $(228) | $(16) | | Depreciation and amortization | $(186) | $(158) | $(28) | | Taxes other than income taxes | $(54) | $(60) | $6 | | Income taxes | $(27) | $(47) | $20 | | Regulated electricity segment income | $166 | $217 | $(51) | | Net Income Attributable to Common Shareholders | $164 | $216 | $(52) | Six Months 2022 vs 2021 Change in Net Income Attributable to Common Shareholders (in millions) | | 2022 | 2021 | Net Change | | :--- | :--- | :--- | :--- | | Operating revenues less fuel and purchased power | $1,225 | $1,222 | $3 | | Operations and maintenance | $(462) | $(458) | $(4) | | Depreciation and amortization | $(373) | $(317) | $(56) | | Taxes other than income taxes | $(112) | $(118) | $6 | | Income taxes | $(31) | $(42) | $11 | | Regulated electricity segment income | $184 | $253 | $(69) | | Net Income Attributable to Common Shareholders | $181 | $251 | $(70) | Liquidity and Capital Resources The company maintains sufficient liquidity through operating cash flow, credit facilities, and external financing, with capital expenditures focused on clean energy and infrastructure - Net cash provided by operating activities increased by $275 million to $588 million for the six months ended June 30, 2022, compared to the same period in 2021394396 Estimated Capital Expenditures (in millions) | Category | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Generation | | | | | Nuclear Generation | $110 | $120 | $110 | | Renewables and ESS | $230 | $210 | $450 | | Other Generation | $250 | $270 | $190 | | Distribution | $510 | $530 | $500 | | Transmission | $250 | $210 | $210 | | Other | $175 | $185 | $190 | | Total APS | $1,525 | $1,525 | $1,650 | - Pinnacle West and APS are in compliance with their debt covenants, requiring a maximum debt-to-capitalization ratio of 65%, with ratios of approximately 57% for Pinnacle West and 50% for APS as of June 30, 2022411 Quantitative and Qualitative Disclosures About Market Risk This section refers to Item 2 (MD&A) for detailed disclosures on the company's exposure to market risks, including interest rate, commodity, and credit risks - The company is exposed to market risks from changes in interest rates, commodity prices (electricity and natural gas), and the value of investments in its nuclear decommissioning trusts and benefit plan assets420421422 Hypothetical 10% Price Movement Impact on Risk Management Assets/Liabilities (in millions) | Commodity | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | | Gain (Loss) | Gain (Loss) | | | Price Up 10% | Price Down 10% | Price Up 10% | Price Down 10% | | Electricity | $7 | $(7) | $— | $— | | Natural gas | $60 | $(60) | $50 | $(50) | | Total | $67 | $(67) | $50 | $(50) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Both Pinnacle West's and APS's Chief Executive Officer and Chief Financial Officer concluded that the respective company's disclosure controls and procedures were effective as of June 30, 2022430431 - There were no material changes in internal control over financial reporting during the fiscal quarter ended June 30, 2022433 Part II — OTHER INFORMATION Legal Proceedings This section refers to other parts of the report for detailed information on legal proceedings, including regulatory and environmental matters - For details on legal proceedings, the report directs readers to Note 4 (ACC and FERC matters) and Note 8 (environmental, Superfund, and other disputes)437438 Risk Factors This section states no new risk factors are reported and directs readers to the 2021 Form 10-K and Q1 2022 Form 10-Q for comprehensive risk disclosures - The company advises that the risk factors discussed in its 2021 Form 10-K and Q1 2022 Form 10-Q should be carefully considered, as they could materially affect business, financial condition, and future results439 Other Information No information was reported under this item - No information was reported under this item440 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications, XBRL data files, and incorporated corporate governance documents - The exhibits filed include CEO and CFO certifications (Exhibits 31.1-32.2) and XBRL interactive data files (Exhibit 101 series)442