The paragraph is an introduction to the Pinnacle West Capital Corporation's 2025 First Quarter Earnings Conference Call. The operator, Matthew, welcomes everyone and introduces the host, Amanda Ho, who thanks participants and mentions the speakers: Chairman, President and CEO Ted Geisler, CFO Andrew Cooper, COO Jacob Tetlow, and SVP of Public Policy Jose Esparza. Amanda highlights that the slides and related information are available on their Investor Relations website, and notes that the presentation will include forward-looking statements. She also mentions that their first quarter 2025 Form 10-Q was filed and available for detailed risk and cautionary language. Additionally, a replay of the call will be available on their website and by phone until May 8, 2025. Ted Geisler then begins his update by noting that 2025's performance aligns with their financial guidance, and he plans to discuss recent operational and regulatory developments, emphasizing Arizona's economic growth.

Arizona has emerged as a national leader in semiconductor and advanced manufacturing, attracting significant investments across the supply chain. Key announcements include Taiwan Semiconductor Manufacturing Company's (TSMC) increased investment to $100 billion for new fabrication centers and facilities, and NVIDIA's partnership with TSMC for chip manufacturing and packaging in Arizona. With a nearly 12% rise in international exports in 2024, driven by mining, semiconductors, and aerospace, Arizona's economy is experiencing diverse and robust growth. Additionally, the healthcare sector is expanding, highlighted by a $2 billion investment from Mayo Clinic in Phoenix. The state is committed to maintaining reliable services, investing in a resilient grid, and enhancing customer experience through expanded transmission infrastructure.

The paragraph discusses a comprehensive summer preparedness program that includes securing necessary generation capacity, completing grid inspections, acquiring critical restoration materials, and investing in fire mitigation technology through AI-driven cameras. Maintenance activities for power generation units have been completed, with planned outages at Four Corners Power Plant and upgrades at Red Hawk and Sundance units to enhance efficiency. Palo Verde Unit 1 is undergoing a refueling outage, expected to resume service in early May. The company is advancing its All-Source Request for Proposals to acquire at least 2,000 megawatts of new resources by 2028-2030, with final project selections occurring later this year. Efforts to improve customer experience and reduce costs include investing in advanced digital platforms. The company aims to ensure safe, reliable, and affordable service as they prepare for high summer energy demands.

The paragraph highlights APS's recent achievements, including ranking in the top 10 in the J.D. Power Utility Digital Experience Survey and being named one of America’s Most Trustworthy Companies by Newsweek for 2024. APS is preparing for a midyear rate case filing aimed at recovering costs and investments for a reliable grid and updating rates from 2021 expenses. The filing will include a formula rate proposal. Additionally, Ted gives a birthday shoutout to Andrew and Jacob before handing over to Andrew, who reports a first-quarter loss for 2025 compared to a profit in 2024 due to the previous year's one-time benefit from the sale of Bright Canyon Energy.

The paragraph discusses the financial drivers impacting a company's performance, with higher operational and maintenance costs, interest expenses, and depreciation partly offset by new rates and gains from investments. Customer growth remains strong at 2.3%, driven by significant population increases in Maricopa and Pinal Counties. This growth necessitates ongoing investment in the system for reliable service. Weather-normalized sales growth was 2.1%, supported by strong commercial and industrial growth, especially in manufacturing and data centers. An adjustment to unbilled revenue estimates slightly offset sales growth, but the company expects to meet its annual guidance of 4% to 6% sales growth. Arizona is highlighted as a diverse hub for growth and investment.

TSMC announced a significant increase in its investment in Arizona to $165 billion, with their first facility operational and construction completed on the second. A third facility has begun construction. The expanded investment is expected to create substantial construction and high-tech jobs. These developments exceed the current sales growth forecast through 2027 but highlight future opportunities. Operational and maintenance (O&M) costs were higher due to a major plant outage and increased IT project expenses, but 2025 guidance remains unchanged. Conversations with credit agencies resulted in stable ratings. Financing plans remain consistent, using a mix of debt and equity without relying on tax credit transferability.

In the paragraph, the company confirms its previous guidance from the fourth quarter call and looks forward to executing its strategy and serving customers into the summer season. During the question and answer session, Nicholas Campanella from Barclays inquires about TSMC customer additions and their impact on the company's 3% to 5% long-term load forecast for large commercial and industrial clients. Andrew Cooper responds, noting that Fab 1 is included in the forecast and has reached full production. He mentions the recent announcements of Fabs 2 and 3, expecting an accelerated timeline for these projects, with Fab 2 potentially advancing to 2027 and Fab 3 by the end of the decade. The company will continue assessing infrastructure and sales projections with TSMC as things progress.

The paragraph discusses the company's commitment to developing semiconductor supply chain facilities and other related projects, indicating a strong potential for large commercial and industrial sales growth. Nicholas Campanella asks about the company's new disclosure on their QIP balance, which is between $3 billion to $3.5 billion, and how it impacts their financials and rate-based growth outlook. Ted Geisler explains that the disclosure highlights ongoing project opportunities beyond the current three-year plan, including a strategic transmission plan with multi-year projects extending to the end of the decade. He mentions that some projects, like the Red Hawk gas plant, are not in service until 2028. The paragraph also notes that while there is AFUDC related to these projects, the cash returns are not factored into the current financial plan.

The paragraph discusses efforts to provide clarity on future investments and growth in strategic transmission projects and self-generated initiatives beyond 2027. It highlights plans such as long-term investments in Palo Verde and ongoing developments from the All-Source RFP. These initiatives may extend beyond the current rate-based disclosure. They aim to put additional capital expenditures on equal footing through a formula rate, impacting the disclosed rate-based growth rate. Nicholas Campanella acknowledges the information, and Ted Geisler responds to a question from Michael Lonegan about regulatory lag and the upcoming rate case. Geisler emphasizes the focus on reducing regulatory lag, as it incurs costs and is a key consideration for the formula rate plan.

The paragraph discusses a plan to minimize regulatory lag in a respectable manner by designing a formula with a "dead band" that allows for achieving the allowed Return on Equity (ROE) and filing for adjustments outside this band. The speaker mentions collaboration with the Commission and stakeholders to create a formula rate plan aligning with policy intent. It's too early to specify the workings, but aligning with stakeholders should ensure competitive ROE for attracting capital. Additionally, Michael Lonegan asks about a pipeline of high load factor customers, noting a previous commitment to 4 gigawatts with interest in over 10 more. Andrew Cooper confirms the 4 gigawatts commitment, with infrastructure being built and extending beyond the current guidance range.

The paragraph discusses the company's efforts to manage a substantial and growing pipeline of customer projects totaling at least 10 gigawatts. The team is focused on assessing the needs and infrastructure requirements for these projects, most of which will be addressed beyond the current guidance period. As projects progress into the committed stage, updates on the queue will be provided. Following a question from Julien Dumoulin-Smith from Jefferies, Andrew Cooper mentions that the company is considering offering a longer-term view beyond the current three-year period due to larger projects with extended lead times and a clear customer pipeline. Additionally, clarity on capital allocation decisions will be sought once the formula rate design process is completed.

The paragraph discusses the company's approach to integrating distribution, IT, and strategic transmission projects with a focus on both short-term and long lead time initiatives. It emphasizes the importance of aligning their three-year integrated resource planning cycle with long-term projects, particularly in relation to projects expected around 2030. Ted Geisler addresses a follow-up query from Julien Dumoulin-Smith regarding procurement for Fab 2 and 3 projects and other initiatives like Mayo Clinic. Geisler confirms that the company is currently in the procurement process for projects aimed to be operational between 2028 and 2030, with a request for proposals recently closing for at least 2,000 megawatts of capacity in that timeframe.

The paragraph discusses the ongoing evaluation of proposals from a Request for Proposal (RFP) process, focusing on how much capacity needs to be procured in collaboration with companies like TSMC and Amcor. They are considering the overall resource requirements towards the end of the decade and have room to increase the amount procured if the proposals meet quality and timing criteria. Ted Geisler mentions the potential to expand beyond the initial 2-gigawatt request based on the competitiveness of the projects. Julien Dumoulin-Smith asks about the possibility of upsizing the RFP, and Ted Geisler confirms this potential depends on proposal quality and execution timing. The paragraph closes with Travis Miller inquiring about the technical aspects of an upcoming filing, specifically whether it will solely be a formula rate plan or include a general rate case option.

The paragraph discusses a rate case filing with a 2024 Test Year, which includes a proposal for a formula rate plan to minimize regulatory lag and maintain current rates in the future. Initially, revenues will be recovered based on the 2024 Test Year, and if approved, the formula rate plan will adjust rates in future years. This aims to reduce the frequency of rate cases and ensure gradual rate changes for customers. Additionally, the Operations and Maintenance (O&M) costs are trending as expected, with some first-quarter anomalies due to a planned outage and a major IT project. These costs will normalize over the year, aligning with the O&M guidance range.

The paragraph details a conversation involving Ted Geisler and Sophie Karp regarding the planning and management of Operations and Maintenance (O&M). Ted explains that proactive planning of O&M, including accounting for planned outages and IT project design, was factored into their guidance, allowing them to stay on track for the year. Additionally, Sophie inquires about transmission lines, specifically the potential for a 645kV line. Ted responds that while the transmission engineering team evaluates various voltage levels and technologies, there's currently no need for lines exceeding the 500kV level in their service territory.

The paragraph discusses factors influencing the development of electrical transmission projects, specifically the size of the right-of-way and voltage levels needed. Currently, most transmission projects planned until the end of the decade are at 230kV, with some substation builds and future plans for 500kV expansions being the highest voltage deemed necessary. Sophie Karp inquires about the decline in rooftop solar applications in the service area and its impacts. Ted Geisler explains that while reduced applications might indicate less offset, it's seen as a market stabilization due to high solar penetration, financing costs, and fewer credit-worthy customers. Geisler assures that growth trends are as expected, considering energy efficiency and rooftop solar offsets.

In the conversation, Andrew Cooper from Pinnacle West discusses the El Dorado entity, which holds non-utility, non-APS energy-related investments. Recently, an investment in an electric switchgear company showed increased profitability, prompting the company to recognize a gain this quarter. El Dorado's investments are generally small and legacy in nature. Paul Patterson has no more questions on this. Ryan Levine from Citi then inquires about the status of a coal plant closure following an executive order and commissioner comments. Ted Geisler explains that the comments were about the Cholla plant, which has been retiring its units since last decade, with the last units closing earlier this year as per legal and state requirements.

The paragraph discusses a power plant that's being retired due to economic reasons and the anticipation of this retirement led to securing replacement generation for both the current and future years. The site might be repurposed in the future for new generation technologies, possibly nuclear or gas, which could bring investment and jobs to the area. Legislative proposals are not expected to alter the plant's closure plans. The discussion then shifts to sales growth, particularly noting strong trends in the commercial and industrial sectors and residential customer growth. However, energy efficiency and changes in customer usage have offset some residential sales increases.

In the first quarter, the company made a one-time adjustment to how it accounts for estimates of unbilled revenues due to the increased impact of high load factor customers on overall sales. This procedural change led to an offset in reported sales growth for the quarter. Despite this adjustment, the company remains confident about achieving a 46% sales growth for the year. Residential sales trends continue to show strong growth post-COVID, with slight variations due to energy efficiency. Without the accrual adjustment, the sales impact was around negative 0.2%, which fits within the typical range around zero for their sales growth. Overall, the underlying sales trends remain consistent with previous quarters.

The paragraph discusses the timeline and process for implementing a formula rate adjustment following a rate case. Ted Geisler explains that if the rate case concludes in 2026, the first formula rate adjustment is intended to occur in 2027, given its annual adjustment design. The plan aims to ensure timely adjustment post-case, although specific details depend on the case's outcome. The conversation concludes with thanks from Stephen D'Ambrisi and the operator.

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