The Pinnacle West Capital Corporation is holding a conference call to discuss their first quarter earnings. The call will feature speakers such as the Chairman and CEO, CFO, and other executives. The company has filed their first quarter 2024 Form 10-Q and will be sharing forward-looking statements based on current expectations. A replay of the call will be available on their website and by telephone. The CEO will provide updates on operational and regulatory developments before the CFO discusses the first quarter results.

As temperatures rise in Arizona, the company is focused on their summer preparedness program to ensure reliable energy supply. They have a comprehensive fire mitigation strategy, including vegetation management, technology, and risk-informed protocols. They have also implemented a new protocol, PSPS, to prevent wildfires and have worked with local communities and officials to keep customers informed. The company is committed to preventing wildfires and learning from industry experience.

APS is focused on ensuring operational preparedness for the summer, with planned maintenance activities and a planned refueling outage for one of their units. They are also proud of their recent J.D. Power customer satisfaction scores and are committed to continuing to improve customer experience. In terms of regulatory matters, they have successfully implemented a rate case outcome and are participating in a narrow rehearing on the grid access charge. The commission is also looking into the issue of regulatory lag.

In the first quarter of 2024, the company reported a positive financial performance, with earnings of $0.15 per share compared to a loss in the previous year. This was driven by the sale of Bright Canyon Energy, new rates implemented in March, and customer and sales growth. However, milder weather and increased expenses partially offset these gains. The company also expressed its commitment to addressing regulatory lag in Arizona and looks forward to working with stakeholders.

The cold start to 2023 and the coldest March in over three decades caused a drag on sales growth for the quarter, but customer growth remained consistent with expectations. The company expects weather-normalized sales growth to fall within their guidance range for the year. The economy in Arizona is showing growth, with a recent $25 billion investment by Taiwan Semiconductor and continued interest in data center and manufacturing development. Residential growth in the region has also been strong, with Maricopa County being recognized as the fourth largest growing county in the nation in 2023. This highlights the need for investment in infrastructure to meet the demands of the growing population. O&M was a slight drag in the first quarter of 2023.

The impact on the company's financial performance was less than expected due to delays in procuring materials for maintenance work. Despite inflation and costs associated with customer growth, the company remains committed to reducing expenses. Interest expenses were higher due to increased rates and debt, and the company is closely monitoring actions of the Federal Reserve. Depreciation and amortization expenses are higher due to IT projects, but this was already accounted for in the annual guidance. The company completed an equity offering and plans to settle forward sale agreements to maintain a healthy capital structure. The company's ratings have been downgraded by Moody's and Fitch, but all three agencies have resolved the outlook from negative to stable.

The company remains focused on reducing regulatory lag and maintaining strong cash flow metrics in order to maintain investment-grade credit ratings for their customers. They are reaffirming all other guidance provided and are looking forward to executing their strategy and serving customers during the upcoming summer season. In terms of rate case timing, the company is currently working through a competitive RFP process and has a healthy pipeline of projects that could potentially qualify for the SRB. The company's Q4 deck included some potential projects that could meet the criteria for the SRB, and their CapEx for the next three years includes some probability weighted capital for these projects.

The speaker discusses the potential results of the RFPs and how they could contribute to meeting customer growth demand. They also mention the recent equity deal and how it has removed a financing overhang. They are confident in future opportunities and will update on project statuses. The speaker also mentions their remaining clinical capital of $400 million and how their thinking may have changed since the equity deal, as well as the S&P's positive outlook on their credit.

The company has a three-year capital financing plan in place and is looking to maintain a balanced capital structure. They have an unidentified need for an additional $400 million in external financing, which they plan to meet through various markets. They are considering using an ATM and other forms of financing, but want to be cautious about taking on too much parent company debt. They are pleased that all three rating agencies have returned stable ratings and will continue to manage their cash flow to stay within their targeted range. The analyst thanks the company for the information and asks a few questions.

The company has seen a 5.9% sales growth in the quarter, largely driven by a mix of large high load factor C&I customers. This includes the ramp-up of the Taiwan semiconductor ecosystem and existing data center customers. In the near term, the sales growth is more weighted towards data centers, but in the long term, there will be a shift towards manufacturing customers. The ramp-up of Taiwan semiconductor will continue until next year when they reach full production, and their downstream and upstream supply chain will also contribute to the growth. The company is comfortable with the ramps of these customers and expects the manufacturing growth to take over in the out years of the plan.

The speaker discusses the balance between advanced manufacturing and data centers in their infrastructure build-out and the potential for regulatory lag in their rate cases. They mention the upcoming June open meeting as a key milestone for potential updates on the timeline and potential alternative ratemaking approaches.

The speaker discusses the progress of a program and mentions the involvement of experts. They mention a desire to move forward quickly and mention upcoming milestones. They also mention the potential for a policy statement instead of a rule. The speaker then answers a question about financing plans, stating that they will continue to revisit the capital plan and determine how to fund future projects based on various factors.

The company is focused on reducing regulatory lag and maintaining a balanced capital structure at the utility. They plan to use a combination of incremental CapEx, retained earnings, and modest equity to achieve this. They are also looking at various financing options, such as debt markets and low-cost financing programs, to fund their plans. The EPS guidance for the next few years does not account for any changes in regulatory docket, but the company is working to create a smoother and more predictable stream through regulatory initiatives.

The company has a good amount of customer support to invest in their business, but they face challenges with rate relief and regulatory lag. They are currently experiencing a drift in their ability to earn close to their actual ROE due to costs from 2021 and 2022. The company is confident in the impact of the SRB in creating smoother and more predictable recovery. They are focusing on reducing operating costs and utilizing regulatory initiatives and a lean operating culture to control their expenses.

The speaker discusses their company's track record and plans for reducing expenses in 2024. They also mention a decline in rooftop solar installations and its potential impact on residential sales growth and the LFCR mechanism. However, they expect modest sales growth and have factored in the trend of declining residential sales due to energy efficiency and distributed generation.

The paragraph discusses the diversification of the economy and the attraction of more residential customers to service centers, with projected modest increases in residential sales. The speaker also addresses a question about the potential impact of load growth on cost of service and regulatory proceedings, stating that it is a topic of conversation and that attention is being paid to ensure the balance is right.

Jeff Guldner discusses the extensive conversations happening at all levels, including with regulators, stakeholders, and customers, regarding the issue of wildfires. These conversations involve sharing information and lessons learned, as well as exploring technical solutions and potential roles for the federal government in addressing the problem. There is also a focus on preparing customers for potential power shutoffs and improving insurance options.

The speaker discusses the various efforts being made to support wildfire work, and thanks the questioner for their congratulations on a successful quarter. The Q&A session then concludes.

This summary was generated with AI and may contain some inaccuracies.