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Released August 25, 2021 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--It was not that long ago that Arizona Public Service Company (APS) (Phoenix, Arizona) planned to spend about 40% of its capital outlays on "clean generation." But in its second-quarter earnings presentation, released August 5, the utility company showed a marked move back to traditional transmission & distribution (T&D) infrastructure. Over the 2021-2023 period, APS plans to devote about 50% of its planned capital expenditures (capex) to its T&D network. "Clean generation," by contrast, will receive about 13% of overall capital investment.
For more on APS's planned capex over the 2020-2022 period, see March 26, 2020, article - A Greener Future Means More Spending on Renewable Generation for Arizona.
Over the 2021-2023 period, the company plans to invest about $2.3 billion in its T&D infrastructure, out of total planned capex of $4.5 billion.
Click on the image at right to see APS's planned three-year capex.
APS is not retreating from its aspirational goal, announced at the start of 2020, of becoming fully decarbonized by 2050. In fact, siting new clean generation and battery energy storage systems (BESS) around its system, coupled with higher-than-average customer growth, partly explains the shift to T&D spending over the next three years.
Click on the image at right to see APS' "clean energy pathway."
Industrial Info is tracking more than $1 billion of planned APS capital or maintenance projects.
In its decarbonization journey, APS has a leg up on many other electric utilities due to its 29.1% ownership in the three-unit, 3,951-megawatt (MW) Palo Verde Nuclear Power Station, the largest nuclear plant in the country (until the unit additions at the Vogtle plant are completed). APS expects to invest about $165 million over the next few years digitizing the control system at Palo Verde.
APS, the main subsidiary of Pinnacle West Capital Corporation (NYSE:PNW) (Phoenix, Arizona), is the electric utility serving the largest number of customers in the Grand Canyon State. And as the state's population grows, so too does APS need to invest in its T&D network.
Maricopa County, where about 62% of the state's population lives, grew rapidly over the prior decade, with housing permits growing at a compound annual growth rate (CAGR) of about 20%. More houses mean more electric sales, particularly air conditioning loads, during the Valley of the Sun's six-month-long summers.
Click on the image to see a chart of rising housing permits in Maricopa County, Phoenix.
And while longtime Arizona residents like to say, "But it's a dry heat," the fact is that the early-summer heat this year was brutal. "Strong customer growth and record-setting June temperatures also help drive improved results," Pinnacle West said in announcing second-quarter earnings.
Citing the National Weather Service, the earnings release said the average high temperature in the Phoenix area during second-quarter 2021 was 98.1 degrees -- an increase of 2.6% over 10-year historical averages. Not only was the month of June the warmest on record with an average high temperature of 108.2 degrees Fahrenheit, but the Phoenix area experienced an unprecedented six consecutive days of 115-degree-plus temperatures and three days approaching the company's record peak demand of 7,660 megawatts, set in late-July of last year.
The release continued: "Increased retail sales and strong customer growth of 2.3% were the primary drivers in the quarter-over-quarter improvement, contributing to a $70.7 million, or 7.6%, increase in operating revenues. Record-setting heat during the month of June also contributed to the company's bottom line, helping offset higher operations and maintenance expenses, an increase in depreciation expense and higher income taxes in the second quarter."
Indeed, while overall U.S. employment declined about 1% per year for the last three years, Arizona's employment growth has risen 1% per year for the last three years, the company remarked.
On its pathway to 100% clean energy by 2050, APS told investors its intermediate goal is to have 65% of its electricity coming from clean energy by 2030, with renewable energy accounting for 45% of that sum. Palo Verde's carbon-free generation will account for most of the balance. The company reiterated its pledge to exit coal-fired generation by yearend 2031.
The company has been pursuing its decarbonization goals by issuing an all-source request for proposal (RFP) for between 600 MW and 800 MW of renewable energy, to be in service by 2023 or 2024. It also is contracting to have 201 MW of BESS built at eight APS solar power stations by 2022-2023, as well as a 20-year power-purchase agreement for 200 MW of wind power.
And while these investments will no doubt burnish APS' green credentials, the utility also is responsible for a hefty share of the cost to clean up and demolish the Navajo Generating Station (NGS), a shuttered 2,250-MW coal-fired power station near the Grand Canyon, which was operated by a different Arizona electric utility. The co-owners of that power plant face an estimated cost of $800 million to perform coal ash remediation work, as well as $150 million to dismantle and demolish the station, which closed at the end of 2019. The three-unit plant, which used to be the largest coal-fired generation station west of the Mississippi River, began operating in the mid-1970s.
For more on the closure of NGS as well as the difficulties facing Western coal-fired generation, see the May 17, 2019, article - Western Coal Power Round-Up: Close, Sell or Protect.
APS customers have been enthusiastically installing rooftop solar power systems, cutting into the utility's load growth. As of midyear-2021, APS said 127,040 customers had installed a total of about 1,054 MW of rooftop photovoltaic (PV) systems -- nearly the size of one of Palo Verde's three nuclear generators. Over the 2018-2020 period, customers installed an average of 131 rooftop PV units per year, and they are on track to beat that this year.
Taken as a whole, APS' capex is a reflection of its past and future: paying to clean up legacy coal assets, while investing in clean generation and the utility's core T&D network.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
For more on APS's planned capex over the 2020-2022 period, see March 26, 2020, article - A Greener Future Means More Spending on Renewable Generation for Arizona.
Over the 2021-2023 period, the company plans to invest about $2.3 billion in its T&D infrastructure, out of total planned capex of $4.5 billion.
APS is not retreating from its aspirational goal, announced at the start of 2020, of becoming fully decarbonized by 2050. In fact, siting new clean generation and battery energy storage systems (BESS) around its system, coupled with higher-than-average customer growth, partly explains the shift to T&D spending over the next three years.
Industrial Info is tracking more than $1 billion of planned APS capital or maintenance projects.
In its decarbonization journey, APS has a leg up on many other electric utilities due to its 29.1% ownership in the three-unit, 3,951-megawatt (MW) Palo Verde Nuclear Power Station, the largest nuclear plant in the country (until the unit additions at the Vogtle plant are completed). APS expects to invest about $165 million over the next few years digitizing the control system at Palo Verde.
APS, the main subsidiary of Pinnacle West Capital Corporation (NYSE:PNW) (Phoenix, Arizona), is the electric utility serving the largest number of customers in the Grand Canyon State. And as the state's population grows, so too does APS need to invest in its T&D network.
Maricopa County, where about 62% of the state's population lives, grew rapidly over the prior decade, with housing permits growing at a compound annual growth rate (CAGR) of about 20%. More houses mean more electric sales, particularly air conditioning loads, during the Valley of the Sun's six-month-long summers.
And while longtime Arizona residents like to say, "But it's a dry heat," the fact is that the early-summer heat this year was brutal. "Strong customer growth and record-setting June temperatures also help drive improved results," Pinnacle West said in announcing second-quarter earnings.
Citing the National Weather Service, the earnings release said the average high temperature in the Phoenix area during second-quarter 2021 was 98.1 degrees -- an increase of 2.6% over 10-year historical averages. Not only was the month of June the warmest on record with an average high temperature of 108.2 degrees Fahrenheit, but the Phoenix area experienced an unprecedented six consecutive days of 115-degree-plus temperatures and three days approaching the company's record peak demand of 7,660 megawatts, set in late-July of last year.
The release continued: "Increased retail sales and strong customer growth of 2.3% were the primary drivers in the quarter-over-quarter improvement, contributing to a $70.7 million, or 7.6%, increase in operating revenues. Record-setting heat during the month of June also contributed to the company's bottom line, helping offset higher operations and maintenance expenses, an increase in depreciation expense and higher income taxes in the second quarter."
Indeed, while overall U.S. employment declined about 1% per year for the last three years, Arizona's employment growth has risen 1% per year for the last three years, the company remarked.
On its pathway to 100% clean energy by 2050, APS told investors its intermediate goal is to have 65% of its electricity coming from clean energy by 2030, with renewable energy accounting for 45% of that sum. Palo Verde's carbon-free generation will account for most of the balance. The company reiterated its pledge to exit coal-fired generation by yearend 2031.
The company has been pursuing its decarbonization goals by issuing an all-source request for proposal (RFP) for between 600 MW and 800 MW of renewable energy, to be in service by 2023 or 2024. It also is contracting to have 201 MW of BESS built at eight APS solar power stations by 2022-2023, as well as a 20-year power-purchase agreement for 200 MW of wind power.
And while these investments will no doubt burnish APS' green credentials, the utility also is responsible for a hefty share of the cost to clean up and demolish the Navajo Generating Station (NGS), a shuttered 2,250-MW coal-fired power station near the Grand Canyon, which was operated by a different Arizona electric utility. The co-owners of that power plant face an estimated cost of $800 million to perform coal ash remediation work, as well as $150 million to dismantle and demolish the station, which closed at the end of 2019. The three-unit plant, which used to be the largest coal-fired generation station west of the Mississippi River, began operating in the mid-1970s.
For more on the closure of NGS as well as the difficulties facing Western coal-fired generation, see the May 17, 2019, article - Western Coal Power Round-Up: Close, Sell or Protect.
APS customers have been enthusiastically installing rooftop solar power systems, cutting into the utility's load growth. As of midyear-2021, APS said 127,040 customers had installed a total of about 1,054 MW of rooftop photovoltaic (PV) systems -- nearly the size of one of Palo Verde's three nuclear generators. Over the 2018-2020 period, customers installed an average of 131 rooftop PV units per year, and they are on track to beat that this year.
Taken as a whole, APS' capex is a reflection of its past and future: paying to clean up legacy coal assets, while investing in clean generation and the utility's core T&D network.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
