Andrew D. Cooper
Senior Vice President and Chief Financial Officer at Pinnacle West Capital
Thank you, Jeff, and thanks again to everyone for joining us today. This morning, we reported our fourth quarter and full year financial results for 2022 and introduce guidance for 2023. I will cover our results and provide additional details around the financial outlook for 2023 and beyond. As Jeff discussed, we remain in our period of financial reset during the near-term. But right up front, I want to make clear that while we are navigating through challenges brought on by the negative outcome of the last rate case, we have been executing well on our plan and we remain confident in our ability to create renewed growth and deliver strong shareholder returns.
For the fourth quarter of 2022, we lost $0.21 per share down $0.45 compared to fourth quarter 2021. The unfavorable rate case decision and reduction in net income from no longer deferring the cost related to the four quarters' SCR and Ocotillo modernization project have been the primary driver of lower results all year, and that remained the case for the fourth quarter.
The quarter also included a $17.1 million impairment charge relating to a Bright Canyon Energy equity investment. This was a legacy investment by Bright Canyon for a minority stake in a wind farm in the fourth quarter. We determined that impairment of the investment was appropriate due to ongoing disputes on transmission cost allocation and a lack of a probable favorable outcome. Other negative impacts included lower LFCR revenues, higher O&M and higher interest expense.
Favorable weather and customer and sales growth were partial offsets to the negative drivers in the fourth quarter. For our full year results for 2022, we earned $4.26 per share down from $5.47 per share in 2021. We ended the year in line with our updated full year guidance. As noted earlier, the negative rate case outcome drove a financial reset and is the primary driver for the lower year-over-year results. The Bright Canyon impairment charge, higher O&M and higher interest expense for other negative drivers for lower year-over-year results. For the year, we saw beneficial weather as well as customer and sales growth that partially offset the negative drivers.
Turning to customer growth, the fourth quarter remained in line with our guidance at 2.1%, which was also the customer growth rate for the full year. Arizona continues to be a popular destination for relocation and has the fifth highest population growth in 2022 according to recent data from the U.S. Census Bureau. Arizona has continued to show strong employment growth, including in emerging areas of economic diversification with manufacturing employment, for example, growing at 6.2% in 2022 as compared to a U.S. rate of 3.8%.
We also continue to experience strong weather normalized sales growth. Sales increased 1.2% in the fourth quarter relative to the prior year, and for the full year 2022, our weather normalized sales growth was 2.4%, in line with our upwardly revised guidance range. This was anchored by strong C&I growth of 4.6% over 2021, as the benefits of Arizona's increasingly diversified economy are realized. In fact, Phoenix Metro was recently named a top three industrial market to watch in 2023, according to a JLL Tenant Demand Study that evaluate 60 U.S. markets.
Moving on to our financial outlook, our 2023 earnings guidance range is $3.95 to $4.15 per share. Although this is a decline from 2022 actual results, the range is comparable to our weather normalized 2022 guidance range of $3.90 to $4.10 per share. We forecast steady customer growth and robust sales growth ahead in 2023. Headwinds for 2023 include higher benefit expense, interest expense and plant D&A.
We continue to target declining O&M per megawatt hour and believe our proven track record of cost management and lean initiatives will help us successfully navigate through this inflationary period. We continue to have the strong focus on O&M and look for opportunities to create efficiencies, reduce risk, and keep our costs low to maintain affordable rates for our customers.
Looking at our forecast of customer growth, we expect it to remain strong and are maintaining the 1.5% to 2.5% guidance range for 2023. On sales growth, we expect continued strength, particularly in the C&I segment as economic diversification takes hold in areas such as semiconductor hubs, other large manufacturing and distribution. In fact, TSMC recently announced plans to build a second fab at the North Phoenix location, increasing its original $12 billion investment to $40 billion.
TSMC estimates the site will employ 4,500 permanent jobs and increase from the earlier projection of 2,000. In addition, Procter & Gamble also announced plans for a $500 million investment in a manufacturing facility creating 500 new jobs. Anchored by examples like these, we are expecting our weather normalized sales growth range to be 3.5% to 5.5% for 2023.
Turning to pension, as a reminder, our pension is 106% funded with no expectation for contributions needed in the near-term. We remain committed to the long-term benefits of our liability-driven investment strategy and the reduced volatility of a fixed income weighted portfolio. Nevertheless, we are expecting a headwind in 2023, primarily resulting from the net effect of higher discount rates.
Higher benefit expense in 2023 is also impacted by negative 2022 investment returns and is partially offset by the impact of higher expense returns on assets in 2023. All-in, we expect benefit expense to be $0.33 headwind for 2023 as compared to 2022. However, we continue to evaluate options for regulatory recovery of higher benefit expense.
Turning to interest expense as a federal reserve continues to raise interest rates to try to combat inflation, we are closely monitoring our financing needs. I would highlight that we do not have any maturities until mid-2024 that we do expect higher interest expense year-over-year. We've also updated our capital plan to $5.3 billion from 2023 to 2025 with rate-based growth at an average annual growth rate of 5% to 7%.
Importantly, the increase in capex is independent of any rate case outcome and is directly related to more growth and the needed investments we are making in more resilient infrastructure. This update is needed simply to keep up with that growth and reliably to serve customers. We have also updated our financing plan to meet the demands of our updated capital plan. We are continuing to defer any equity issuance until resolution of the current rate case and remain focused on achieving a constructive regulatory outcome.
The rest of our financial outlook remains consistent. Our outlook includes long-term earnings growth of 5% to 7% off the midpoint of our weather normalized 2022 guidance range. We have a track record of dividend growth and the board recently raised our quarterly dividend to $0.865 per share. While our current payout ratio is higher than our target, we believe our plan will allow us to achieve our long-term dividend payout ratio of 65% to 75% in the future.
Recognizing that all future dividends are subject to approval by our board, we have a path forward that is centered around our long-term track record of constructive rate case outcomes and robust service territory growth, continued balance sheet strength and cost discipline, and a focus management team that is taking action. We look forward to building on the great work we were able to accomplish in 2022 and executing on this plan in 2023.
This concludes our prepared remarks. I'll now turn the call back over to the Operator for questions.
