Pinnacle West's Unit Gets Rate Review Approval In Arizona

Pinnacle West Capital Corporation's (NYSE:PNW) unit, Arizona Public Service (APS), announced that Arizona Corporation Commission ("ACC") has approved its first rate review agreement in five years.

The Details of the Agreement

The new rate review agreement which will be effective from Aug 19 will mark a 3.3% increase in the revenue of APS. This will increase the residential bill by approximately 4.5% or about $6 per month. Per the approval, APS is expected to invest $10-$15 million in an AZ Sun II rooftop solar program. Customers will also get monthly credit if they allow the company to install rooftop solar systems on their homes.

What’s in Store?

Arizona Public Service will make significant investments in upgrades and maintenance of energy grids over the next three years, which will enhance the customer experience. The company looks forward to invest about $500 million to reduce emission and water usage by modernizing the Ocotillo Power Plant.

By investing another $400 million, the company is aiming to bring down the level of emissions and comply with more stringent federal environmental standards at the Four Corners Power Plant. Additionally, APS will also continue funding for the development of innovative technologies like battery storage, microgrids and advanced solar research.

Economic Improvement in Arizona

Arizona Public Service is the largest and longest-serving electric utility provider in the state. In recent times, Arizona has witnessed significant development in its economic condition due to the rapidly developing Phoenix Metropolitan Area. The Metro Phoenix region continues to have job growth above the national average, resulting in increasing demand for utility services from commercial and residential sector.

APS witnessed retail customer growth of 1.4% in 2016 and expects annual customer growth in the range of 2-3% over 2017-2019. Robust job growth rates and the opening up of credit to households are expected to drive the Metro Phoenix housing market. It will also help the economy to expand over the next couple of years. APS projects compound annual rate base growth of 6-7% over the 2015-2019 time frame. This will drive top-line growth in the coming years.

The additional investments by the company in the state will elevate the service level and will help it to serve customers better.

Price Movement

Shares of Pinnacle West have gained 13.4%, outperforming the industry’s gain of 6.6% over the last six months.

Pinnacle West’s continuous investments in traditional generation, transmission & distribution lines will help it to serve customers efficiently. Improving economic conditions is also driving demand.

Zacks Rank and Key Picks

Pinnacle West carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Ameren Corporation (NYSE:AEE) , IDACORP, Inc. (NYSE:IDA) and NextEra Energy, Inc. (NYSE:NEE) , each carrying Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Ameren Corporation has delivered a positive earnings surprise of 2.83% in the trailing four quarters. The company's 2017 earnings estimates increased 1.08% to $2.80 in the last 60 days.

IDACORP, Inc. has delivered a positive earnings surprise of 6.14% in the trailing four quarters. The company's 2017 earnings estimates increased 0.25% to $4.00 in the last 60 days.

NextEra Energy has delivered a positive earnings surprise of 4.28% in the trailing four quarters. The company's 2017 earnings estimates increased 0.75% to $6.70 in the last 60 days.

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