Earnings of Pinnacle West Capital Corp. dropped 30 percent in the second quarter from a year ago as milder temperatures reduced demand for electricity from its Arizona Public Service subsidiary and the housing slump hurt its Sun-Cor Development unit.
On Thursday the Phoenix-based holding company reported net income of $79 million, or 78 cents a diluted share, for the quarter ended June 30. That compared with net income of $112.2 million, or $1.13 per diluted share, in the same quarter a year ago.
Revenue for the three months fell to $863.4 million from $925 million a year ago.
The “mild” weather this year was ironic because June was hotter than average. But June 2006 was even hotter, said chief financial officer Don Brandt.
The company also was hit by an $8 million regulatory disallowance during the latest quarter related to unplanned outages at the Palo Verde Nuclear Generating Station west of Phoenix. Those outages in 2005 resulted in added costs for the utility to obtain replacement power from more expensive plants. The Arizona Corporation Commission did not allow the company to recover those costs from ratepayers because commissioners said the outages could have been avoided.
APS Chief Executive Jack Davis said Palo Verde’s performance has improved and its output increased by 54 percent in the second quarter over the same quarter a year ago.
The earnings comparison with the previous year’s quarter also was hurt by the absence of $7 million in income tax credits the company recorded in 2006, the company said.
A 6.8 percent rate increase approved last month by the corporation commission to cover higher fuel costs did not take effect until July 1 and thus did not influence the second quarter results.
Pinnacle West Chairman Bill Post said he is dissatisfied with the company’s return on equity, which he said is inadequate to finance expansions needed to keep pace with Arizona’s rapid growth.
He said the company will make proposals later this year to the ACC on ways to fund growth.
Among the ideas that have been voiced at commission hearings is requiring developers to pay more of the cost of extending power lines to new subdivisions.
Post said the company also is trying to improve its financial results by operating more efficiently.
However, he said increased efficiencies alone will not pay for new infrastructure.
“The exceptional population growth in our service territory drives an ever-increasing demand for electricity,” he said.
“Going forward, we need to continue making substantial investments in infrastructure and long-term resources . . .”
On July 10 APS filed a request with the Federal Energy Regulatory Commission for another $37-million rate increase to cover higher costs for transmission lines.
Seventy percent of any increase approved by the federal regulators would to covered by retail customers and the remainder by wholesale customers.
However, the increase could not go into effect until approved by the state commission, said APS spokesman Alan Bunnell.
That might not happen until late 2009, he said.
Pinnacle West shares dropped 43 cents, or 1 percent, to close at $38.91 Thursday on the New York Stock Exchange.
