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On Thursday, Pinnacle West received bad news regarding its pending rate case with state regulators when the Arizona Corporation Commission (ACC) voted to reduce the potential profits of the state’s largest electric utility.
The ACC moved to decrease Pinnacle’s allowed return on equity (ROE) from 10% to 8.7%. This ruling is worse than what management considered its worst-case scenario and will likely have a more significant impact than what we wrote about last month.
Typically, relationships between state regulators and public utilities are even-keeled, allowing utilities to generate slow and steady returns over time. However, the relationship between Pinnacle and the ACC has deteriorated to a disruptive state.
At this point, despite some legal pathways for Pinnacle to fight this ruling, we don’t expect any major positive developments in the next year or so.
As such, Pinnacle will now need to rely more heavily on outside financing, including issuing more shares, to fund infrastructure improvements and new development.Simply Safe Dividends — Less Excitement, More Stability