Pinnacle West’s regulated segment
Over the past five years, the regulated segment of Pinnacle West Capital Corporation (PNW) has been contributing approximately 93% of the company’s total revenue. The regulated segment offers stable cash flows, and hence, many utilities invest heavily in their regulated transmission and distribution operations.
Pinnacle West’s revenue trends
US utilities have been facing slow demand growth in electricity over the past couple of years. Despite this slow demand, Pinnacle West’s revenues have shown decent growth. This growth in the revenues has been mainly driven by an increase in the number of customers.
Over the past three years, Pinnacle West saw an average increase of 1.3% in retail customers in the service territory of Arizona Public Services. Management is expecting this increase to reach to 2%–3% till 2017, which should further give a boost to the top line of the company. Management also anticipates annual retail electricity sales to increase by an average of 1% from 2015 through 2017, considering the effects of energy efficiency programs and weather.
The largest utility in the United States, Duke Energy Corporation (DUK) derives ~85% of its total revenues from its regulated operations. On the other hand, FirstEnergy Corporation (FE) and Exelon Corporation (EXC) derives their nearly 40% of revenues from unregulated operations.
Bright Canyon Energy and El Dorado, Pinnacle West’s subsidiaries
Bright Canyon Energy, or BCE, is a subsidiary of Pinnacle West that was formed on July 31, 2014. Its main objective is to focus on new growth opportunities that leverage the company’s core expertise in the electric energy industry. BCE’s first initiative was a joint venture with MidAmerican Transmission named as TransCanyon. TransCanyon intends to focus on transmission opportunities within the Western Electricity Coordinating Council.
El Dorado is a subsidiary company formed by Pinnacle West that invests in other companies offering energy-related services. El Dorado’s operations are not expected to have any material impact on financials of Pinnacle West for the next three years.
ETF exposure to utilities
To gain exposure to utility companies like Pinnacle West Capital Corporation (PNW) without investing directly in the company’s stock, check out the Utilities SPDR ETF (XLU), which had 1.3% of its total holdings in Pinnacle West as of December 22, 2015. You might also check out the Vanguard Utilities ETF (VPU).
Now let’s look at Pinnacle West’s capital expenditures.