Business Context and Reporting Period
This Form 8-K is a combined current report filed by Pinnacle West Capital Corporation and its subsidiary, Arizona Public Service Company (APS), on January 30, 2007. The filing reports financial results for the fiscal quarter and fiscal year ended December 31, 2006, and provides an earnings outlook for 2007.
Key Financial Metrics
The filing text references detailed financial results in attached exhibits (specifically Exhibit 99.9) but does not explicitly state the specific GAAP revenue, net income, cash flow, or debt figures for the period ended December 31, 2006, within the body of this report. The document notes the use of non-GAAP measures ("on-going earnings") to exclude unusual items.
Material Changes and Outlook
The primary focus of this filing is the 2007 earnings guidance, which supersedes all previous guidance. Key projections include:
- Base Earnings: Estimated consolidated earnings for 2007 are projected at $2.45 per share, excluding potential benefits from a rate increase.
- Rate Case Impact: Assuming APS's retail rate request is granted effective May 1, 2007, consolidated earnings are expected to be $3.00 per share. This includes an estimated $55 million ($0.55 per share) benefit from the rate decision.
- Real Estate Subsidiary: Net income from SunCor Development Company is estimated between $30 million and $35 million for 2007, reflecting a slowdown in western U.S. residential real estate markets.
- APS Contribution: Under the rate increase scenario, APS's earnings contribution is estimated at $2.70 per share, representing an 8% return on average common equity.
Risks and Contingencies
Management highlights several material risks affecting the 2007 outlook:
- Regulatory Uncertainty: A general retail rate case is pending before the Arizona Corporation Commission (ACC), requesting a $434.6 million increase in annual retail revenues. The outcome and timing are uncertain.
- Fuel Costs: Forecasts assume fuel and purchased power costs will be recovered through base rates or the Power Supply Adjustor (PSA), excluding non-recoverable costs under the 90/10 sharing provision.
- Market Conditions: Risks include volatile fuel prices, power plant outages (specifically referencing prudence reviews for Palo Verde outages), weather variations, and the strength of the real estate market.
- Forward-Looking Statements: The company cautions that actual results may differ materially due to regulatory decisions, legislative actions, and economic conditions.
Investor Verification Checklist
- Verify the specific GAAP net income and revenue figures for the year ended December 31, 2006, in the attached Earnings News Release (Exhibit 99.9).
- Monitor the status and decision date of the APS general retail rate case before the Arizona Corporation Commission.
- Review the reconciliation of "on-going earnings" to GAAP net income in Exhibit 99.10 to understand the impact of unusual items.
- Assess the sensitivity of the 2007 earnings guidance to the timing of the rate increase (currently assumed May 1, 2007).
- Track the performance of the SunCor Development Company subsidiary against the $30-$35 million net income estimate given the real estate market slowdown.