PINNACLE WEST CAPITAL CORP Q3 FY2024 earnings call

• Jeff recognized operations and field teams for maintaining reliable service during a record-breaking summer, including 30 crew members assisting in Florida after Hurricane Milton. The summer had 70 days over 110 degrees and a record peak energy demand of 8,210 megawatts. The Cool Rewards smart thermostat program had over 95,000 enrolled thermostats that helped conserve nearly 160 megawatts. Successfully contracted for the Redhawk power plant expansion expected in 2028. APS increased energy support and crisis bill assistance, maintained summer disconnect moratorium, and partnered with non-profits. Customer care phone center ranked first nationally in J.D. Power study.
• Andrew discussed Q3 earnings of $3.37 per share, down $0.13 from the prior year due to higher O&M, depreciation, financing costs, and income tax timing, offset by new rates and heat impact. Updated 2024 earnings guidance to $5-$5.20 per share, sales growth 4%-6%, O&M $1.01B-$1.03B, CapEx $2.05B. 2025 EPS expected $4.40-$4.60, 5%-7% EPS growth long-term, $9.65B capital plan through 2027, equity needs $250M-$300M annually.

For the third quarter, weather normalized sales growth was 5.9%, with contributions from residential and small and large C&I customer groups. C&I growth was 10.3% for the quarter, marking the third consecutive quarter with over 10% growth in the sector. Retail customer growth was 2.3% for the quarter.

• Updated 2024 earnings guidance: $5 to $5.20 per share, sales growth 4% to 6%, O&M $1.01 billion to $1.03 billion, CapEx increased to $2.05 billion.
• 2025 EPS expected $4.40 to $4.60 per share.
• Reaffirmed 5% to 7% EPS growth guidance based on midpoint of original 2024 guidance range.
• Capital plan through 2027 includes $9.65 billion of investments, a 24% increase from earlier plan, focused on infrastructure, reliability, and growing service territory.
• Equity needs during 2025-2027 planning period are lower than previous target, with expected annual equity run rate $250 million to $300 million.

• Regulatory lag affecting earnings, as further from last rate case leads to more lag.
• Uncertainty in election outcomes potentially impacting policy related to regulatory lag docket.
• Inflationary pressures on O&M and capital expenditure, affecting cost recovery and financial metrics.
• Uncertainty in timing of rate case filing and prosecution, impacting ability to recover costs timely.

Q: Shar Pourreza asked about the elections and load growth.

A: Jeffrey Guldner noted preliminary election results with three Republican candidates, expecting continued alignment on regulatory lag docket. Andrew Cooper added on load growth, noting diversification in service territory with contributions from small business, residential, and large C&I including TSMC.

Q: Nick Campanella inquired about CapEx, ROE, and financing.

A: Andrew Cooper discussed CapEx increase and focus on tracked items, Jeffrey Guldner talked about rate case timing, and Andrew Cooper explained financing plan including unused 2024 equity block and equity matching capital needs.

Q: David Arcaro asked about data center demand pipeline.

A: Ted Geisler stated there's over 4,000 megawatts of extra high load factor customers (largely data centers) in construction/development and over 10,000 megawatts in planning, with focus on protecting existing customers and ensuring cost recovery.

Q: Anthony Crowdell asked about rate design for large loads.

A: Jeffrey Guldner and Ted Geisler discussed protecting existing customers while working with large loads to mutually benefit, focusing on growth pay for growth and preventing cost shift.

Q: Paul Patterson asked about election vote count.

A: Jeffrey Guldner stated around 120,000 votes left to count out of ~2 million total votes, expected to be closer to final by end of day.

Q: Julien Dumoulin-Smith inquired about earned returns, inflation, and tax rates.

A: Andrew Cooper discussed O&M inflation impact, tax rate stability, and focus on derisking and capital allocation.

Q: Sophie Karp asked about All-Source RFP and inflation.

A: Ted Geisler talked about balance between ownership and PPA projects, Andrew Cooper discussed inflation impact on O&M and rate case timing.

Q: Steve Fleishman asked about equity funding and alternative financings.

A: Andrew Cooper explained equity funding related to cash flow, sales growth, and credit metrics, and discussed alternative financings like DOE programs and hybrid securities.

Q: Dylan Lipner asked about O&M pull forward and regulatory docket.

A: Andrew Cooper discussed O&M pull forward in multiyear plan, Jeffrey Guldner talked about rate case filing timing, and Ted Geisler explained policy statement and rate case alignment.