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Pinnacle West’s Unit Aims to Cut Customers’ Bills by $119M


Pinnacle West Capital Corporation’s PNW wholly owned subsidiary, Arizona Public Service Company (“APS”), announced that the company has requested the Arizona Corporation Commission to approve a $119 million bill reduction for customers.

Notably, this request for reduction in customer bills is a result of federal corporate tax cuts, to be effective Feb 1, 2018. Further the subsidiary anticipates additional tax cut savings to be available at a later date once the full impact of the new law has been realized.

What Led to the Request?

The unit’s decision to request for bill reduction is a result of the company anticipation of federal tax savings in future. As such federal tax savings can be attributed to the Tax Cuts and Jobs Act of 2017, a law that was passed on Dec 22, 2017. The law came into effect on Jan 1, 2018. A cut in federal income tax means that the company will be able to realize considerable tax savings.

The company’s decision to share tax reduction benefit will allow customers to enjoy reliable services at a reduced price. Apart from Pinnacle West Capital other utilities like AVANGRID, Inc. AGR and WGL Holdings, Inc. WGL, have shown their intention to pass on the tax savings benefits to their customers.

Outcome Expected

If the rate request is approved, it will result in a decrease of $119 million in customers’ bill. This is expected to offset the $95 million revenue increase witnessed in APS’s last rate review.

Once approved, an amount equal to $0.004258/kWh will be passed directly to customers through a new adjustor mechanism called the Tax Expense Adjustor Mechanism (“TEAM”). However, the amount of savings per customer will vary as per actual energy usage and each of the customers would receive the credit on their monthly bill.

How Will APS Gain?

Pinnacle West derives majority of revenues from its APS unit. Notably, the company’s APS unit has benefited greatly from increase in retail customers by 1.4% in 2016. Further, it expects annual customers’ to grow in the range of 2-3% over the 2017-2019 time period.

Further, the company's steady emphasis in the diversification and expansion of asset base and other modernization initiatives are expected to bolster performance going ahead. Pinnacle West Capitalprojects capital expenditure of $1,181 million and $1,009 million in 2018 and 2019 respectively. The company expects the infrastructure investments to be sufficient to cater to its expanding customer base. Furthermore, its continued savings throughout 2018 will not only reduce cost for customers but also improve the competitiveness of its retail rates.

Price Movement

Shares of Pinnacle West have underperformed the industry in the last three months. The company’s shares lost 7%, wider than the industry’s decline of 5.6%.

Zacks Ranks & Key Picks

Pinnacle West currently carries a Zacks Rank #4 (Sell). A better-ranked stock from the same space is Atlantic Power Corporation AT which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atlantic Power delivered an average surprise of 29.21% in the trailing four quarters. Its 2017 estimates have narrowed to a loss of 22 cents from a loss of 27 cents in the last 90 days.

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