Pinnacle West's Unit Applies For Utility Bills Reduction

Pinnacle West Capital Corporation’s (NYSE:PNW) wholly-owned subsidiary — Arizona Public Service Company (“APS”) — has requested to the Arizona Corporation Commission to approve a reduction of $108 per year for customers. On receipt of approval, it will lead to a decline of $9 per month for a customer using the average amount of electricity.

Notably, this bill reduction request stems from federal corporate tax cuts passed on Dec. 22, 2017, and is the third adjustment related to the same. The first and second rate revisions were effective from March 2018 and April 2019.

Tax Cuts: A Blessing for Customers

Utility companies are generally regulated in nature. The aging infrastructures require regular investments to continue the flow of service. Regular investments involve large amount of funding to upgrade and strengthen infrastructure. Thus, a company applies for rate hikes which lead to higher bills.

TCJA has provided the opportunity to lower the burden of customers by reducing bills. Utilities are passing on the benefits to their customers through reduction in existing utility service rates.

In 2018, few major electric utilities like NextEra Energy, Inc. (NYSE:NEE) , Duke Energy Corp. (NYSE:DUK) and Exelon Corp. (NYSE:EXC) passed their tax benefits to customers.

How Will APS Gain?

Pinnacle West generates majority of revenues from the APS unit. It is the largest and longest-serving electric utility provider in Arizona. APS witnessed retail customer base growth of 1.7% in 2018. The company expects annual retail customer growth in the range of 1.5-2.5% over the 2019-2021 time frame.

Moreover, the company projects capital expenditure of $3.9 billion for 2019-2021 period, Of the total amount, the company aims to invest $1.5 billion and $0.6 billion to upgrade as well as strengthen distribution and transmission systems, respectively. It is expected that infrastructure investments and bill reduction will further expand its existing customers base. We believe that increase in customer base will positively impact the company’s upcoming results and will aid it to come out with earnings surprise.

Price Movement

Shares of Pinnacle West have outperformed the industry in the past 12 months. The company’s shares have gained 19.9% compared with the industry’s rise of 13.3%.

Zacks Ranks & Key Picks

Pinnacle West currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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