Good day, everyone, welcome to the Pinnacle West Capital Corporation 2023 Q1 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. Thank you, Matt. I would like to thank everyone for participating in this conference call and webcast to review our Q1 2023 earnings, recent developments and operating performance. Our speakers today will be our Chairman and CEO, Jeff Guldner, and our CFO, Andrew Cooper. Ted Geisler, APS President, Jacob Tetlow, Executive Vice President of Operations, and Jose Esparza, Senior Vice President of Public Policy, are also here with us. I need to cover a few details with you. The slides that we will be using are available on our investor relations website, along with our earnings release and related information. Today's comments and our slides contain forward-looking statements based on current expectations and actual results may differ materially from expectations. Our Q1 2023 Form 10-Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language, as well as the risk factors and MD&A sections which identify risks and uncertainties that could cause actual results to differ materially from those contained in our disclosures. A replay of this call will be available shortly on our website for the next 30 days. It will also be available by telephone through May 11, 2023. I will now turn the call over to Jeff. Great. Thanks, Amanda. Thank you all for joining us today. 2023 has started off in line with the financial guidance that we provided on the Q4 call in February. Before Andrew discusses the details of our Q1 results, I'll provide a few updates on recent operational and regulatory developments. First off, as you know, safety is our number one priority, and I do want to take this opportunity to commend and congratulate our employees for keeping safety in sharp focus in the Q1, especially through an unseasonably long and challenging winter period. You know, we discussed summer preparedness quite extensively, that is our longest and highest peak demand season in Arizona. Winter preparedness is also an important part of how we reliably serve our customers throughout the year. We have an extremely diverse and broad service territory serving 11 out of 15 counties in Arizona. In addition to the desert regions that most people associate with the state, APS also serves communities at much higher altitudes. This year, Northern Arizona saw one of the wettest winter seasons in recent history. In fact, Flagstaff set a record for the second highest snowfall total through March 1st in over 100 years. Despite slippery roads, hazardous conditions, and freezing temperatures, our crews were able to restore power safely and quickly to our customers when they needed it the most. With winter now officially behind us, we've quickly moved to preparing for the summer. While we always have had a robust summer preparedness program, resource adequacy continues to be extremely important as energy supplies in the Southwest tighten. To serve our customers with top-tier reliability each year, we perform preventative maintenance, emergency operations center drills, acquire critical spare equipment, conduct fire mitigation line patrols, and execute a comprehensive plan to support public safety and first responders. During the Q1, our Palo Verde Generating Station operated a 100% capacity factor. Unit two is currently in a planned refueling outage that began on April 8th and is on schedule to return to service in early May. Upon successful completion of the latest refueling outage, all three units are poised to provide around-the-clock clean energy to help meet the demands of the summer for the entire desert Southwest. In addition, our resource planning process helps ensure long-term resource adequacy and progress towards our clean energy commitment. We do plan to file our 2023 Integrated Resource Plan later this year. That will include a 15-year forecast of electricity demand and the resources needed to reliably serve our customers. We're currently engaging with a wide variety of stakeholders to gather input and feedback as we prepare that plan. I'm also extremely pleased to announce the completion of 141 megawatts of APS-owned batteries at our Arizona Sun sites with an additional 60 megawatts that we expect to be completed by mid-year. We also expect our 150 megawatt Agave Solar Plant to be in service in the next few months. We look forward to having these critical resources serve customers during the peak summer season. We're also finalizing project selections from our 2022 All-Source RFP, and we've recently signed 4 PPAs to be in service by 2024 and 2025. Finally, APS is actively working on another All-Source RFP that's expected to be released mid-year. Note that will be for new resources to be in service by 2026 through 2028. Additionally, we reached an exciting milestone in our clean energy journey on March 26th when our highest hours served by clean percent metric peaked at 99%. During that hour, we also reached 58% renewable energy. Our participation in the Energy Imbalance Market and our continued effort in exploring an expanded Western energy market will be critical to maintaining customer reliability and affordability into the future. We're also starting the year with solid J.D. Power residential customer satisfaction survey scores that firmly place APS within the second quartile for overall satisfaction when compared to its large investor-owned peers. We made gains in both power quality and reliability and corporate citizenship in the Q1, this was especially positive given the challenging winter season that I spoke about earlier. We look forward to continuing to make improvements for our customers and providing a more frictionless customer experience. Turning to regulatory, we continue to work through the rate case process. Expect that staff and intervener direct testimony will be filed right now, scheduled for May 22nd for revenue requirement and June 5th for rate design. In addition, in March, we received a favorable decision from the Arizona Court of Appeals on our appeal of the last rate case decision. We are pleased the Court of Appeals clarified the prudency standard that must be applied by the commission in their evaluation for recovery of investments that we make. The Four Corners Power Plant is a critically important reliability asset for the entire southwest region. The investment in SCRs was required to keep that plant running under federal law. Right now, parties have until May 8th to file a petition for review to the Supreme Court. No one has filed that petition yet. We look forward to working with the commission and other parties to resolve this in the most efficient way that we can. Although 2023 is off to a solid start, we know we still have much work to do. We look forward to continuing to execute on our priorities throughout the year. With that, I'll turn the call over to Andrew. Andrew. Thank you, Jeff, and thanks again to everyone for joining us today. This morning, we reported our Q1 2023 financial results. I will review those results and provide additional details on weather impacts, sales, and guidance. While lower than last year, 2023 has started off in line with our expectations. We lost $0.03 per share this quarter, $0.18 lower than Q1 2022. Weather, along with sales and customer growth, were the primary benefits this quarter, offset by higher O&M, interest, depreciation, as well as a smaller benefit from pension and OPEB. Weather provided an earnings benefit this quarter, primarily driven by the lengthy winter season Jeff mentioned earlier. According to the National Weather Service, the first three months of the year were the coolest start to a year in the Phoenix metropolitan area since 1979, with March of 2023 being the coldest March in more than 30 years. The resulting impact was an increase in energy sales in the Q1 as residential Heating Degree Days increased about 51% compared to the same timeframe a year ago and were 57% higher than the historical 10-year average. Turning to customer and sales growth, we experienced 2% total retail customer growth in the Q1, which is in line with our guidance range of 1.5%-2.5%. Additionally, weather normalized sales growth remains strong at 3.6% for the quarter and is also within our guidance range. The Q1 weather normalized sales growth is comprised of 2.8% residential growth and 4.3% C&I growth. As previously discussed, our 2023 sales growth is driven by several large customers expanding and ramping up their usage. While our sales growth guidance remains unchanged for the year, we will continue to monitor the timing and usage of these large C&I customers coming online and adjust as necessary. Metro Phoenix continues to show strong growth in manufacturing employment of 4.8% compared to 2.6% for the entire U.S. In fact, the White House recently announced that Arizona has attracted over $58 billion of private investment for manufacturing since 2021. We continue to project steady population growth along with solid APS customer growth. According to recent data from the U.S. Census Bureau, Maricopa County had the largest population increase in the U.S. in 2022 and led the nation in net domestic migration. On the expense side, O&M is a significant driver relative to the Q1 last year. This is primarily due to timing, with the prior year reflecting lower than normal Q1 O&M levels. Importantly, our O&M guidance range for the year remains unchanged. While we continue to experience the impacts of inflation, we have a strong company-wide focus on cost management and maintain our goal of declining O&M per megawatt-hour. Interest expense was higher versus Q1 last year due to higher interest rates on higher total debt balances. We maintain a limited portfolio of floating rate debt and have no debt maturities until May 2024. Additionally, from a liquidity perspective, we were very pleased to successfully complete the upsize and extension of our credit facilities out to 2028 in early April. As a quick reminder on pension, it is well-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. As we have previously stated, we are expecting a headwind in 2023, and we saw this in the Q1 with lower year-over-year non-service credits, partially offset by lower service costs, which is reflected in O&M expense. We will continue to evaluate options for regulatory recovery of higher benefit expenses. Our overall expectations for 2023 remain unchanged, and our guidance of 5%-7% long-term earnings growth off the midpoint of weather normalized 2022 guidance remains intact. Our capital plan includes the investments necessary to reliably serve a rapidly growing service territory independent of any rate case outcome, and we continue to defer any potential equity issuance until resolution of the current rate case. We look forward to continuing to execute our plan through 2023 and to the resolution of the rate case. This concludes our prepared remarks. I will now turn the call back over to the operator for questions. Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question's coming from Julien Dumoulin-Smith from Bank of America Merrill Lynch. Your line is live. Hi. Good morning. This is Darius for Julien. Thank you for taking the question. Maybe just first one, I acknowledge that we haven't gotten the staff testimony in the rate case yet. Maybe, just looking at one of your peers that's a couple of months ahead of you, I think there was a proposal by the staff in that case to consider use of a mechanism that had previously been used by water utilities in lieu of a brand-new renewable rider. I was wondering if that's something that you guys have evaluated at all in your planning. I know you have a proposed modification in there, are you perhaps looking at what the staff proposed in that rate case and starting to think about contingencies ahead of the staff testimony that's coming in a few weeks here? Yeah, Darius, I mean, obviously, we follow those cases pretty closely, and we're always open to looking at different alternatives. I think in our case, still focused on the kind of mechanisms that we currently have and that we've used before is probably the better path for us. You know, we're early. We'll wait and see how the staff testimony comes in, the intervener testimony comes in, and then we'll begin working from there. Okay. Certainly, appreciate that. Just on your annual, the drivers and the annual guidance, for the year, I see you're still guiding roughly flattish on adjusted O&M. Obviously, that was a bit of a headwind in the quarter. As we think about shaping for the remaining three quarters, should we think of the delta there as more or less ratable through Q2 through Q4? Any particular ups and downs to it for the remainder of the year? Sure, Darius. It's Andrew. You know, the most important thing I would say about the O&M profile for the year is that we remain on plan. If you look at the year-over-year comparison, a lot of what you're seeing there in the Q1 is timing related, where, you know, when you compare the Q1 of 2022, you're seeing an uncharacteristically low O&M Q1 if you look at the last three or four years. There's a confluence of things that drove last year to be lower than average. You had, you know, the ANG credits from Palo Verde and outage schedules and things like that drive that. You also really didn't see in the Q1 of last year, inflation in the way that we saw it later in the year and that we continue to see it this year. That run rate of O&M that we ended up with for last year really didn't start until later in the year when we were still thinking in the Q1 of last year that inflation was transitory. It became a lot stickier. You know, the trend that we typically see seasonally throughout the year, I think holds here around O&M. You know, this quarter looked fairly characteristic for a Q1 from an O&M perspective. You know, we certainly continue to focus on our lean initiatives, you know, customer affordability opportunities on the O&M side and that declining O&M per megawatt-hour. You know, from a shaping perspective, this year so far has looked like a, you know, relatively typical year. Last year happened to have and is driving that comparison in our, in our chart, in our deck to look like a, you know, a drag, which, you know, certainly in the scheme of the quarter it is year-over-year, but against an unusual comparison from last year. Okay, great. Thank you both very much. I appreciate the color. I'll turn it over here. Yep. Thanks, Darius. Thank you. Your next question is coming from Shar Pourreza from Guggenheim Partners. Your line is live. Hi, guys. It's actually James Ward on for Shar. How are you? Hey. Good. How are you? Doing well. Looking forward to seeing you guys in a few weeks. Actually you're not doing AGA. I'm sorry. It's a habit of the last. I just covered a bunch of LDC calls. No worries. We wish we were seeing you. Shar is seeing you for. Yeah NBR in a couple of months. That's what I was thinking of. All right, getting to the question. Jeff, he's very glad that you're able to make it. That's terrific. Our first question is, just earlier this year, and it's relating back to O&M, but sort of, from a slightly different angle, the question that was just asked. Earlier this year, we saw the stock come out with a recommendation. Oh, sorry. ROE first. I'm sorry. I'm getting mixed up here. Recommendation of 9.6% ROE for Tucson Electric, and on May 22nd, we'll be seeing the first round of staff and intervener testimony get filed in your case. Based on what you have been seeing recently, and I get that there are a few data points, how are you thinking about ballpark expectations of what a reasonable ROE recommendation might be? Yeah. I don't wanna go into kind of a ballpark. Obviously, I think a couple of things that are moving. One, as you know, the Court of Appeals did come in in our last case. I will say I think that 8.7 in the last case was very much an outlier. I believe that the commission and the parties have kinda seen the negative impacts that can happen when you get a cost of capital that is that far outside of kinda industry norms. We did see in the Court of Appeals the 20 basis point disallowance that had been addressed by the commission. That was reversed by the court. We're still waiting to see whether the appeals go up, but I think that moves you up to an 8.9 from the last case. I do think it is fair to look at what you're seeing recommended for the other utilities. Probably the most important differentiator for us that we'll continue to emphasize as we work through this case is the cost to capital from a risk profile for a utility like Tucson Electric has historically been 25 to 50 basis points lower than ours because we operate Palo Verde. Palo Verde is an immense benefit to customers, but it creates a higher risk profile, therefore a higher cost to equity. That has historically been recognized by the commission. It wasn't in the last case, that was a point that we had tried to emphasize. Again, we'll continue to emphasize that, as we move forward here. You know, until we see the staff and intervener testimony come in, here next month or, you know, the next, in the next little while, I don't wanna speculate on what we think is reasonable for there. We'll work with what we get. Totally fair. understood. Sorry, I just had to ask that one as well. All right, the original one to ask was on O&M. Following up on the prior question as previously mentioned, you continue to target declining O&M per megawatt-hour despite inflationary pressures. What level of inflation are you assuming relative to that guidance target when you set it? As a follow-up, how has an actual inflation been coming in by comparison? Those are my questions. Thank you. Sure. Thanks, James. When you think about our O&M targets in absolute dollars for this year, we've guided to a range of $885 million to $905 million. That is, if you take the midpoint to that range, it's relatively flat with the O&M number from last year, excluding RES and DSM expense, which was at $892 million. Simply on that midpoint basis, you're talking about most of the inflation that we recognized last year trying to hold as flat as we can to that number. That's really the aim. We saw inflation start to come into our operating environment over the course of last year. That was across O&M capital fuel, obviously, as well. You know, on the O&M side, we've really been focused on all of the cost efficiency, customer affordability initiatives that we undertake. We certainly always look at those at the end of the year after we've had the summer and make sure that we pull the levers that the team knows that they have to get to that range. We're expecting that the, you know, any further inflation, and we've seen inflation in Phoenix slow down, you know, on trend with the national slowdown in inflation as the Fed activity is picked up. Still a higher level of inflation in our local operating environment than overall, but still, you know, relatively low inflation compared to some of the areas where we're seeing people coming into the service territory from. We continue to monitor that inflation, and there's areas, you know, around wages and other things that we are monitoring, but we remain focused on our existing target, which is, you know, relatively flatish to last year at that midpoint. Got it. Thank you very much. Thank you. Your next question is coming from Alex Mortimer from Mizuho Securities. Your line is live. Hi. Good morning. Hey, Alex. Morning. Many large customers coming online in the next couple of years. How do you think about the linearity of the long-term EPS CAGR as we look through, 2023, 2024 and 2025? You know, I understand a lot of focus on the, you know, linearity of earnings. We do have a rate case before us, and that is, you know, certainly a critical contributor given, you know, we've been relatively flat on rates for the last five years. That's an important contributor. The sales growth, though, you know, certainly is a factor that helps us mitigate, you know, some of those O&M pressures a nd that's why we are focused on O&M per megawatt-hour as an inflationary measure because we wanna kinda keep ourselves to account as the footprint that we have of customers within our service territory grows, that we're not letting O&M drift upward with that growing service territory. You know, the sales growth itself, you know, does have some large customers ramping up. They are ramping up over, you know, the next several years. That long-term 4.5%-6.5% sales growth range is dependent on, you know, the continued uptick of those large customers on the manufacturing data center side over those years. It's not, you know, certainly the first phases of TSMC are a big, you know, initial impact. There are a number of customers in that mix, the TSMC supply chain, the data centers, that are contributing over the timeframe of our sales growth guidance range. Okay. Understood. Just on the kind of circling back on the large customer side, how do you think about your exposure to a potential economic slowdown, potentially second half this year or farther out, given that so much of that investment is coming in? Is there a good way to think about sort of quantifying your exposure load growth where, for example, 50 basis points of load growth is worth $0.10 of EPS or kind of something along those lines? Yeah, Alex, let me start and I'll let Andrew chime in as well. I mean, one of the interesting differences that we've seen, if you look at the Arizona market back in the last recession, 2007 timeframe, we were very exposed on housing construction and residential growth. We were one of the hardest hit areas when that recession came in. It was kinda us and I think Nevada were probably the two hardest hit regions. The change that's happened since then has been a really purposeful refocus on manufacturing and advanced manufacturing. That maybe a little less exposed to the sort of near term, you know, if we see going into a recession. A lot of these companies are making investments here very focused on the long term. TSMC, again, that's a strategic investment in the United States. I think that we have less exposure. Obviously, a downturn can affect some of the timing, but when you look at the long-term economic growth that's coming into the Phoenix region, a lot of them is just being driven by the attractiveness of this market for advanced manufacturing. I think that we're gonna be more resilient, certainly in the near term than if you look back to a prior recession. Andrew, you want to talk about maybe specific guidance on. Sure. Yeah. You know, Alex, also, if you look at this year in particular, we continue to monitor for signs of economic slowdown. The Q1 certainly showed that ramp-up of those larger customers. You know, C&I growth contributed 4.3%, which was pretty solid and in line with, you know, the range that we have overall for the year. On the residential side and small C&I side, but really on the residential side, we continue to see despite, you know, that work-from-home trend being mature, in fact, some people going back to the office, we saw a sizable uptick in usage per customer this quarter. It was kind of a full, robust winter tourism season, part-time residents, visitors to the Valley here. We continue to see strength in the economy. Those are the types of things that we monitor within a given year to assess the health of the economy. Certainly, as the inflation rate has started to come down here, that's been a meaningful contributor. You know, customer growth is a big piece of that as well. That 2% customer growth, continuing to look at that, where the cost of living in Arizona remains affordable relative to areas where the net migration is happening from, which is, you know, particularly cities in California. That's another, you know, measure of economic vitality that we measure. There is a rule of thumb that we tend to use around, you know, 1% of sales growth. Remember the large C&I customers, come in at a lower margin. If you think about 1% of C&I sales, it's less than $10 million. It's in the $5 million-$10 million range, of revenue from 1% of large C&I. Residential, it's in the $25 million plus 1% growth, annually in residential would be, you know, $25 million plus of incremental revenue. Wonderful. Thanks so much. It's very helpful. Congrats on the quarter and good luck with the rest of the year. Yep. Thanks, Alex. Thanks, Alex. Thank you. Your next question is coming from Travis Miller from Morningstar. Your line is live. Thank you. Good morning, everyone. Hey, Travis. You've just touched on a lot of what my question was gonna be, but in terms of that difference between the electricity sales growth and the customer growth. Longer term, and again, you kind of mentioned this, but thinking about the residential side more, would you expect that customer growth rate and the electricity sales growth rate to somewhat match each other? Or are there trends you're seeing in terms of those growth rates changing, right? Either people becoming more efficient or more use per household, something like that. Yeah. Travis, we still see, and Coop can probably talk about the sort of specifics, but we still see very robust rooftop solar penetration. I think we have the highest per capita rooftop solar in the U.S. outside of Hawaii. That tends to offset some of that on the residential side. The growth is still good. It also drives kind of multiplier effects as you get more C&I that comes in to support those residential customers. It's still certainly a net positive. Yeah, it's hard to make it a linear equation. That's typically what we see, right, Coop? Yeah. No, Jeff's exactly right. The 2% customer growth in that range is something that we see continuing, given the factors that I talked about. A lot of it is offset by energy efficiency, as Jeff described. We certainly look to the small C&I, you know, growing up around the new subdivisions and things as well. The area that we're starting to monitor this year, we don't have numbers around it, but is EV, electric vehicle penetration. That's one area where usage per customer on the residential side, you know, is forecasted to pick up over time. You know, that EV penetration is an important part of the calculus around the residential. As we're starting to see last year, the work-from-home trend reached a point of saturation. In fact, as I mentioned, we've had people start going back to the office. When you take that plus energy efficiency, it eats into quite a bit of the customer growth. It'll be the impacts of things like EVs, if you go out into the future. Okay. Does that difference between the sales growth and customer growth and how that evolves, do you think that'll become more of an issue of discussion in the regulatory realm in terms of rate case and rate design? No. You know, Travis, if you dig into our stuff, you'll see we're and it's kind of partly because of where we're located in the country, but if you look at us and Salt River Project, who serves the other half of Phoenix, we have the highest penetration of Time-of-Use rates. We have residential demand rates. We're very far ahead of the curve nationally on rate design. A lot of that is really what's incenting customers to do things. You know, we have an incredibly robust smart thermostat program that we use to help us get through the summers from a demand response perspective. A lot of the stuff that you might be thinking in other states is gonna start hitting the commission, has hit the commission, and we're well ahead of a lot of our peers in those areas. Okay, perfect. I appreciate the thoughts. Yep. Thank you. That completes our Q&A session. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.