Earnings call transcript Q1 2023

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Operator

Good day, everyone, and welcome to the Pinnacle West Capital Corporation 2023 First Quarter Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma’am, the floor is yours.

Amanda Ho

Thank you, Matt. thank to participating XXXX review developments operating to call this earnings, like and webcast and our performance. would everyone in for conference recent I first quarter

Guldner; our APS’ are Geisler, Jacob also Public Esparza, Tetlow, of us. and be Senior Cooper. President President; will Vice here and today CFO, Andrew with speakers CEO, Our Policy, Jeff Operations; and Executive Vice our Ted of Chairman Jose President

be The need are to few slides based information. related cover our our that Statements Relations available using and you. expectations. contain current differ and slides Investor our will I on actual First, earnings with details we Today’s a along results expectations, comments on Forward-Looking with may and from website, release materially

Form refer that XX-Q actual morning. risk statements, contained XXXX differ for forward-looking factors this filed identify our materially to disclosures. uncertainties from could which language sections, document risks quarter as as Please cautionary was and and cause first well the to in that Our results those MD&A

of call call XXXX. will website It available the be by for Jeff. this to turn will shortly XX-days. our be now the through will on May next I available telephone XX, over also replay A

Jeffrey Guldner

And regulatory I XXXX quarter thank recent developments. Andrew for first you on February. Great. a the Thanks Amanda discusses and and off our joining has us the provide of results, in guidance we before all quarter few provided in fourth operational call today. that started details financial with line will updates on the

focus the challenging long congratulate safety to an through you do number first take opportunity First quarter, our one and to in know, sharp especially off, priority, want our keeping period. is for in employees winter I as this safety unseasonably and

we season quite preparedness how winter Arizona. But important serve demand the year. is in extensively, our our summer peak part throughout discussed also and of an reliably customers and preparedness is highest longest that We

of state, with and higher XX and broad to communities XX regions associate much service serves in counties also addition desert an territory, out the the Arizona so APS serving people extremely We diverse altitudes. have at in most that

saw winter seasons the This in year, of recent northern Arizona history. wettest one

set In through record quickly and they XXX-years. most. to crews and second roads, needed were over when Xst slippery Despite freezing total highest March restore conditions in power snowfall the hazardous temperatures, Flagstaff customers fact, the to a our for it able our safely

With winter behind now we preparing have officially moved summer. for quickly us, to the

southwest be a had resource important have preparedness robust tighten. to continues as adequacy always we in supplies While extremely program, the summer energy

each comprehensive responders. maintenance, public mitigation customers serve and to drills, year, reliability preventative controls execute top-tier equipment, center we plan emergency spare To perform our and safety support fire with operations critical a acquire line conduct first

quarter, is a first capacity refueling on to to operated that in service return in our began Xth April Verde a outage Palo Unit currently the May. during XXX% nuclear Also two is factor. facility and planned schedule early on

meet summer of Upon to outage, the entire successful Southwest. Desert around-the-clock poised latest completion the demands clean all are of the three help energy to for units refueling the provide

ensure plan helps progress clean We long-term our commitment. resource energy to process towards In planning do year. adequacy resource addition, integrated our resource this later XXXX and plan file our

of to demand resources our and a serve reliably electricity forecast include will the customers. That XX-year needed

prepare a input with we engaging currently as are plan. feedback of that We wide gather to variety and stakeholders

our additional completion be an completed sites of XXX extremely Arizona batteries with XX of expect also I’m pleased the at by megawatts to that we sun megawatts midyear. APS-owned to announce

service by also the selections PPAs and all-source to And recently service critical plant in our expect finalizing next have RFP, we and XXXX season. peak serve from also months. X project look XXX-megawatt in be XXXX in solar We XXXX. are signed few resources the these during forward we to Agave We having to customers our be summer

in Finally, on XXXX for new midyear, and to all-source APS is that to through be released that RFP XXXX. be resources will be is by actively service working another expected

our Additionally, served hours clean we on reached at by metric percent an exciting peaked XX%. milestone when March clean energy in highest our journey XXth

reached during also that XX% And renewable we energy. hour,

and Our maintaining effort participation in reliability in be the into will energy affordability and expanded energy future. Western imbalance an critical our market continued market to exploring customer the

Residential investor-owned for solid are We year scores with overall second to quartile within satisfaction starting that large firmly Survey the when also the peers. Power J.D. Customer APS place compared Satisfaction its

about both forward for first spoke We frictionless and corporate providing our and reliability citizenship to experience. season customer and in We challenging that quality this quarter, winter power in continuing especially look given customers to a and the made the was improvements earlier. I more gains positive, make

to case we May that turning filed the to design. requirement And will right direct staff for regulatory, Xth rate work and rate intervenor June and through Expect scheduled process. revenue XXnd continue testimony be then for for now

Court in favorable our decision rate the case last of addition, Appeals we a appeal on Arizona In March, of from the decision. received

for Court pleased are the in must investments standard the We be of their clarified the of commission that Appeals recovery evaluation by make. we prudency applied that that

The file reliability now, review for that May to Four investment running Law. Federal to region, Corners Xth the for have required asset in under to SCRs Court. a Power entire Supreme Plant parties plant Southwest petition and Right keep is a the was the critically important until

with petition resolve most can. the that we to forward commission way efficient filed a the -- yet. parties in And this has working in we that other look and matter one to No

our the to solid we much So priorities start, execute look a to we although work have is off still to do, and year. XXXX we to throughout on know forward continuing

call with will Andrew. Andrew. to the I turn over And that,

Andrew Cooper

reported additional guidance. everyone today. review quarter will joining impacts, Jeff, our first results. you, financial provide sales weather for I us to XXXX This again and results thanks on morning, those and and Thank we details

and benefits depreciation offset as along We higher as growth, and last than per $X.XX quarter, XXXX. XXXX sales customer share O&M, expectations. benefit lower the has quarter, than our a interest, with pension line in primary well off lower smaller with quarter While by from $X.XX year, OPEB. first this were started lost Weather, this

winter driven to earnings of Weather since Jeff an in a the this with XXXX, were to earlier. year area being the of than March more the March the provided first season mentioned lengthy start the National benefit quarter, Metropolitan According Phoenix Service, the XX-years. coolest XXXX three-months in year the Weather by coldest primarily

The was compared and than a impact average. XX% in resulting first the frame as sales the XX% were increased time about XX-year heating in degree the year-ago higher an increase days same energy historical residential to quarter

in retail our Turning to customer and of to growth customer the quarter, which is X.X%. range sales experienced X% X.X% line total with first We guidance growth. in

sales the range. within and strong for X.X% Additionally, remained is growth at weather-normalized also quarter our guidance

comprised quarter first growth The sales is C&I growth. weather-normalized X.X% and X.X% growth residential of

is sales XXXX and up driven customers their by several our ramping discussed, large usage. expanding previously As growth

C&I monitor While continue usage large our guidance for sales and of timing coming growth adjust remains to these the year, necessary. as we and online unchanged will customers the

Phoenix X.X% U.S. continues X.X% the compared in entire of to Metro to show manufacturing strong for growth employment

White XXXX. fact, over billion attracted investment the House for manufacturing has that recently Arizona since announced In $XX private of

led in increase we from migration. nation to Maricopa customer to had solid largest Bureau, and in APS along population U.S. the U.S. data the net XXXX with Additionally, population growth, domestic the County in project Census recent growth. the According continue steady

lower-than-normal O&M timing, first On last quarter to quarter with primarily the side, year is to reflecting prior year. O&M significant due This the first expense a driver the levels. is relative

O&M our range remains guidance year Importantly, for unchanged. the

to While megawatt-hour. declining we focus per we company-wide cost maintain inflation, O&M a our the continue of experience management of have strong impacts and on goal

a year due quarter last Interest rate mid-XXXX. higher debt expense portfolio no limited total maturities debt higher on to have we first maintain versus though and was debt interest floating rates of higher until balances,

and our the facilities early credit a from April. successfully XXXX perspective, out of liquidity pleased to to extension Additionally, were very we complete upsizing in

As committed in reminder for no is our on income funded well the to We volatility weighted the of a benefits a pension, quick liability-driven reduced the investment long-term and needed with remain portfolio. fixed near-term. expectation strategy of contributions it

in are which by lower previously this the cost, partially lower have reflected we and non-service we with credits offset expecting stated, a expense. saw is O&M headwind in service year-over-year first XXXX, in quarter As we

We evaluate expenses. to of for will benefit regulatory recovery continue higher options

to Our weather-normalized guidance growth XXXX earnings of XXXX overall our long-term expectations and X% for the of remain midpoint guidance intact. remains off unchanged X%

growing defer execute any the to plan to necessary serve investments Our We the the continue of of reliably though of resolution until continuing and equity independent forward to to rapidly territory, XXXX any we issuance includes service a potential rate resolution look capital outcome our plan rate and to case case. case. current rate the

call This will questions. I concludes now back over the prepared our turn for remarks. operator the to

Operator

Certainly. Lynch. coming from Dumoulin-Smith [Operator Bank is question Julien Your Instructions] from of Merrill America first

Dariusz Lozny

the one, months but of looking in staff of that for Julien. case morning. good your that Dariusz Hi rate on a we one ahead gotten Maybe I maybe first acknowledge This of couple haven’t the is yet, just at just peers you. is testimony

was there proposal been renewable rider. think in mechanism use case that used the water to I a of a utilities staff brand-new by previously lieu had a that consider of in by

looking weeks proposed is in to you have at there. staff your ahead know testimony are think the in few I was all guys you planning. perhaps But in starting the what contingencies is of that if at that in have staff and rate wondering a something you coming case that I a evaluated modification about proposed here?

Jeffrey Guldner

looking cases obviously, different closely, pretty we mean, at always those Yes. to alternatives. Dariusz, I and we open follow are

think that our probably have focused But the are currently in kind is we for path I used and us. case, on of we mechanisms better early. still before have that the we

intervenor and from begin wait see We and testimony there. then will the in, staff will the comes testimony comes in, how we working

Dariusz Lozny

the are Okay. O&M. annual on just the guiding roughly still that on the I year, was Obviously, bit Certainly for a of appreciate - annual see are you adjusted - And flattish a you in quarter. the in your headwind guidance that. still drivers

Or of the for quarters, shaping downs remaining delta three about we or ratable any the think the more less we QX year? from there QX? for the ups and As of to as think remainder to it particular should

Andrew Cooper

Andrew. is the that I say important Dariusz. plan. profile Sure, The we is O&M thing most the would It on for remain about year

the quarter last look look seeing uncharacteristically you is year-over-year you And are in so XXXX, seeing first three you the there of an a the compare at what you four-years. lot comparison, at quarter quarter first O&M are if where you if or the low timing-related, when of first

a to confluence And is year of be that drove average. things lower there than last

also outage and the the things had that, later drive Verde A&G credits the Palo in the last You you schedules quarter inflation that continue that to it that that. see way from of we year. saw and But in this and year in year, we really see didn’t like it first

were we O&M first still thinking rate really up until for we that inflation run lot that transitory, in of year that start ended stickier. with year year didn’t last so was when the later of in it a And quarter the last became

holds And the seasonally trend year, think, that so the see we here O&M. around throughout typically I

a quarter affordability looked a and continue But quarter year on declining that fairly an the to We like shaping for This has first per O&M perspective, our characteristic so a from opportunities O&M O&M side certainly on lean relatively looked this typical initiatives, customer focus from far perspective. megawatt-hour. year.

is the have comparison that Last which an scheme deck chart, and but unusual look in drag, of and certainly from against in year-over-year, driving quarter, year the to our our it in is year. like happened a comparison last to

Dariusz Lozny

Thank will turn over here. great. I much. the appreciate color. I very you it both Okay,

Jeffrey Guldner

Thanks Dariusz.

Operator

you. Thank

Guggenheim Pourreza Partners. Your next coming question from is Shar from

line live. Your is

Jamieson Ward

Ward James are Hi for actually guys. It Shar. is on you? How

Jeffrey Guldner

are you? How Good.

Jamieson Ward

Doing well.

- are Looking not actually, guys forward doing you weeks a or seeing EGA. few in to you

a calls. all these bunch just is a over the covered I -- it habit Sorry, of last

Jeffrey Guldner

worries. No

Jamieson Ward

for question, months. of were That terrific. AVR are We able in you. thinking I a what Alright, and wish make seeing Jeff, glad was That couple it. that we to to the of. very you Shar seeing getting is you is is

some first angle, stock here. this this question out the or it from come to a year, - just with ROE a just up sorry, earlier Earlier of saw sort slightly year, is is O&M mixed the and question we relating our So for was back asked. recommendation different but that

you XXnd how seeing expectations be of be? first what will get that testimony few Recommendation data a and seeing reasonable filed a you and Tucson recommendation of round might have there for get X.X% entrepreneur on ROE on we recently, ballpark thinking points, May been what your for in are are about ROE Electric case. staff I the and Based

Jeffrey Guldner

in last kind industry seen very the say, the I into things will last can an outside cost a has negative go Obviously, X.X Yes. believe I impacts that of was ballpark. that of get want have think happen when don’t of capital in moving. I kind of case to that the couple of much think I are Court Appeals kind the norms. as outlier. One, the case, did that you you that a of come commission a our parties far I And of stepped of know,

XX We by addressed did Appeals, of see by the basis was commission. reversed the in point That disallowance the had the been Court that Court.

are still last up, you but that to appeals go to think case. from whether an we moves the the So up waiting see X.X I

And Verde. lower then points utility other important I Palo utilities. ours cost is what that Tucson of case to Electric continue think recommended is this we like we seeing for from through you at the it for differentiator as because us work historically we to look for to profile been fair the most operate XX will basis capital Probably a XX has emphasize do the than are risk a

Palo higher had of is we benefit And historically case, customers to a a the to therefore, wasn’t a been in that commission. and tried risk point an that creates emphasize. Verde has by that but last so the It equity. was higher profile, immense it And cost recognized

again, while, we staff we here next as to I think move month to that. in forward until little the But want we intervenor is in come here. don’t or we that testimony emphasize for what will see speculate the next And reasonable on so continue and

get. will We we with what work

Jamieson Ward

Totally fair. Understood.

on original Sorry, as I The ask to to had one wanted ask O&M. just that well. I

question Thank as you how assuming to continue despite target you said mentioned, per as actual megawatt-hour questions. pressures. relative inflation been are target of does inflation prior up level comparison and a previously guidance then by to What on those O&M the following declining my are So follow-up, coming inflationary you it? you. when in And that

Andrew Cooper

million. dollars in XXX with relative we million. excluding is you last million Sure. XXX think expense, absolute that number take it targets - DSM if of at about when to O&M flat is which Thanks, And relatively was this you for to And guided James. and our year, have O&M res XXX of from range a midpoint the year, that range, the

of talking -- to on about the simply of to midpoint recognized we that on as operating we and just can come So capital, aim. that year are most as last inflation year, O&M, over We that as environment start was number. is And the that really fuel, inflation a trying saw obviously, basis, you hold that across to into well. our course the flat last

range. been that year have the that And initiatives pull so really efficiency, levers at summer get knows on focused the had to sure of undertake. we look affordability the the make we on all O&M always we certainly we after customer at side, the that have the of And those we the that cost team they end and have that to

on operating has slowdown trend in inflation still slow inflation we So the that activity we we expecting of inflation, any local level still of picked from. the are compared with relatively in but the Fed higher inflation seeing up, seen into people and the down environment as a - are Phoenix inflation territory come have areas and service the in overall further some to low where national our

focused to continue and which So that on is monitoring, last monitor remain relatively but target, that wages is we there things we areas to around at that are other and we midpoint. existing inflation, flattish our year

Jamieson Ward

Thank very much. it. Got you

Operator

Thank you.

from Securities. question next Your Mortimer from coming is Alex Mizuho

line live. is Your

Alexander Mortimer

morning. good Hi

do the EPS couple XXXX, long-term look the as of So of many linearity you through and years, customers coming about we XXXX? CAGR large think XXXX next how online in the

Andrew Cooper

We linearity is us, of earnings. for lot So important rate before a that have a is the have rates do and that so case a on of I given an on we certainly contributor, flat focus critical five-years been the understand relatively contributor. last

that focused to megawatt-hour The to within letting account because of sales we drift territory. why that not territory are per that us customers as factor with that we is we though, want pressures. as O&M an grows, measure the our footprint upward ourselves is growing that certainly service we of of service a be kind - the And zoning O&M keep are growth, inflationary have some helps mitigate on

the up ramping large They ramping But some have several itself does customers up. growth sales years. over next - are is the

X.X% sales long-term the that X.X% those to data large the so And side manufacturing dependent range growth over those on is uptick years. of customers continued on and center

are growth of data frame initial but the of supply number chain, are that sales big phases first our contributing the there of Certainly, in a customers guidance impact, time the over TSMC that are the centers mix, a range. TSMC

Alexander Mortimer

investment then just year on side. so back exposure good is circling the you or of of do this of large is Okay, for given And to those EPS half potentially exposure growth potential XX -- quantifying about a a out, worth load points there where, second to kind your is load economic $X.XX example, along of coming understood. that in and your basis of think that way further kind How sort or something growth then about to the slowdown, lines? on customer of think much of

Jeffrey Guldner

the start I Yes, at Andrew me Alex, the I we seen, very we last look exposed as market have well. growth. on mean, housing let Arizona and residential one the interesting if let in time you frame, will that differences chime of recession, are back construction and XXXX in

on and regions. were It hit two is and manufacturing that that was we in. happened then the manufacturing. hit so of the And recession kind refocus when a since hardest hardest has us change Nevada I really areas The probably are one came of purposeful advanced been think

going on are very near-term, investments of A less little the States. here focused to a TSMC, a these is investment that long term. the lot strategic sort making maybe into United if recession. that see in And of exposed again, we And the companies

can the we you that of timing. prior the for certainly by advanced growth region, that just But less look when going them that, I think is of lot more if to the you I this have at some to So market Obviously, attractiveness - to driven is back a than downturn are be manufacturing. Phoenix a And in going being into of long-term be the resilient, a economic we coming recession. exposure. affect the think is look that near-term,

to you talk Andrew, want do maybe guidance? about specific

Andrew Cooper

yes. we for signs in look at slowdown. Sure, economic monitor of if particular, continue you Alex, this to also, year And

The ramp-up contributed X.X%, first larger quarter customers. the in and line range was certainly showed those for C&I with solid that the year. growth pretty of have that overall we which

quarter. the trend But C&I and in continue usage we being office, work-from-home some the see sizable back small fact, to going but on the really on despite customer residential side people side, this that side, we uptick saw the residential to per in a mature,

of winter was It here. robust season, valley visitors a kind part-time the full tourism to residents,

to strength the types continue meaningful within to of as has given year inflation contributor. a to Those we is assess that see of So the economy. certainly, the the started things And economy. the monitor that in rate health down a we here, are been come

particularly is that, relative a that living well, piece to the another measure where is cost of from, California, that migration which growth, net measure. affordable to of look at cities X% big customer as where economic we growth Customer vitality continuing remains that happening is in is Arizona in areas that the of

to in we of that use around thumb X% margin. come of C&I tend sales customers a rule large lower Remember, a the at growth. is There

$XX X% is of think it you sales, than if less So million. C&I about

X% $XX it of is Residential, of incremental from of residential $XX growth million-plus million range would the the $XX to It is X% be in annually revenue. in C&I. million revenue large in million-plus, $X

Alexander Mortimer

and helpful. Wonderful. It on good the luck quarter the is of with rest very year. the Congrats

Andrew Cooper

Sure. Thanks Alex.

Operator

you. Thank

Miller Your Morningstar. is next question from coming from Travis

line Your is live.

Travis Miller

and good morning you everyone. Thanks

between use You and again, other side electricity customer the are in those question in either thinking touched and about kind rate of or what be, this, growth more, sales seeing to like or customer electricity growth term, rate growth the growth. mentioned that becoming and you Longer have expect but just that? but the rates growth household, my you are somewhat that on to you efficient the residential lot a terms trends match going difference of of something more sales there right, more per of terms changing, each would people was

Jeffrey Guldner

probably penetration. and the see, Travis, of Coop we solar specifics, still but very see robust we talk about still sort can rooftop

have think I we solar the U.S. outside in highest the of rooftop capita per Hawaii.

offset to residential some on And so that the that tends of side.

It That make customers, as C&I still But so is residential support is growth it of in equation. it to it more comes positive. certainly effects typically good. see drives those is a what hard linear that still multiplier you kind a The get also to right net we through. yes, is

Andrew Cooper

offset customer the right, that things given growth to C&I small efficiency, continuing, A growing we I We that X% in it described. as is and up that energy Jeff as certainly subdivisions talked well. the factors range of look something see by the lot around Yes. is new the is about. Jeff

are we on around it, side is don’t electric that time. monitor numbers That per over where is to we this EV, penetration. it pick is vehicle but usage up forecasted customer area one area have residential to the The year, starting

because kind a last penetration of of of we work-from-home year, the is are So an -- the trend as residential part calculus around reached have the EV to saturation. we see point that important starting

In fact, office. I people start had the back going have as we to mentioned,

customer So when a you the take that of quite plus growth. into it bit energy eats efficiency,

things the be you will the EVs, if it So into go impacts future. of like out

Travis Miller

case rate difference will does and customer do between how more growth become of discussion an realm that design? in of regulatory issue that of terms in growth and and And the think the you rate that evolves, sales

Jeffrey Guldner

our of rates. of of country. you we use are where if at highest of of into see and the will kind the Phoenix, - is who in project penetration and you located if us we because half you But it time dig look other we have the Travis, are stuff, No. partly serves

demand have residential We rates.

rate curve of far We on are ahead nationally very design. the

lot that to a what customers of is things. really is so do incenting And

smart incredibly an demand from have We get a program summer that the through help we robust use thermostat to us response perspective.

might lot those a are we areas. that of ahead of the in a well our hit hitting the start the commission, so to and thinking And is be lot of states other in has you commission, going peers stuff

Travis Miller

thoughts. appreciate I perfect. Okay, your

Operator

our Thank this Everyone, completes event. session. you. concludes today’s Q&A That

You may disconnect wonderful this for have at time and you participation. a your day. Thank

Amanda Ho	Director of Investor Relations
Jeffrey Guldner	President and Chief Executive Officer
Andrew Cooper	Senior Vice President and Chief Financial Officer
Ted Geisler	President, Arizona Public Service Company
Jacob Tetlow	Executive Vice President of Operations
Jose Esparza	Senior Vice President of Public Policy
Dariusz Lozny	Bank of America Merrill Lynch
Jamieson Ward	Guggenheim Securities
Alexander Mortimer	Mizuho Securities
Travis Miller	Morningstar

Pinnacle West Capital (PNW) 4 May 232023 Q1 Earnings call transcript