Good day, everyone, and welcome to the Pinnacle West Capital Corporation 2023 second quarter earnings conference call. At this time, all participants have been placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star one on your phone to enter the question queue at any time. It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma'am, the floor is yours. Thank you, Matthew. I would like to thank everyone for participating in this conference call and webcast to review our second quarter 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, Operations, and Jose Esparza, Senior Vice President, Public Policy, are also here with us. First, 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 second quarter 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 August 10th, 2023. I will now turn the call over to Jeff. Great. Thanks, Amanda. Thank you all for joining us today. Although our second quarter financials were negatively impacted by significantly mild weather in June, as well as higher operating expenses, we have updated our full year 2023 guidance to take into account the settlement that was reached between APS and the commission on the SCR matter. Before Andrew goes through the details of our second quarter results and updates to our 2023 full year guidance, I'll just provide a few updates on recent operational and regulatory developments. Starting with operations, as we progress through the summer season, I'm very proud to say that our team continues to excel in delivering reliable service to our customers. The Palo Verde Nuclear Generating Station successfully completed its planned refueling and maintenance outage for Unit 1 on May 13th. Additionally, we commissioned the remaining 60 megawatts of energy storage at our AZ Sun sites, so that's totals now 201 megawatts of APS-owned storage installed this year, and 150 megawatts of APS-owned solar at the Agave Solar Facility. These are all valuable resources to help serve our customers through the summer season. In fact, while that second quarter was marked by extremely mild weather, as I think all of you probably know, July certainly heated up. Our robust planning, resource procurement efforts, and our dedicated team have allowed us to provide exceptional service to our customers throughout this unprecedented heat wave. Phoenix experienced a record number of consecutive days of over 110 degrees, shattering prior records for daytime highs, for evening lows, for days over 110 degrees. The APS team served its customers with top-tier reliability throughout it all. In fact, we broke our previous peak demand record multiple times this July, reaching a new all-time record on July 20th at nearly 8,200 megawatts. That's a 500-megawatt increase compared to our prior record that was set in 2020. I want to recognize our operators and our field teams for doing such an exceptional job in making sure that customers continue to have reliable service through this unrelenting heat. As you know, APS plans years in advance to continue serving customers with reliable and affordable energy. Our resource planners secure a diverse energy mix to meet demand, like solar and wind power, battery energy storage, and our APS-operated Palo Verde Generating Station, which is still the largest nuclear plant in the U.S. and the country's largest producer of clean energy. When temperatures cause demand to increase, APS's strength and resilience comes from using flexible resources like natural gas to keep homes and businesses cool over long stretches of extreme heat. Another important tool that I want to highlight and that we utilize is our Cool Rewards demand response program. It's in its fifth year of operation. That program essentially operates as a virtual power plant, where our customers provide over 110 MW of flexible, clean capacity. The program connects nearly 80,000 APS customers with smart thermostat technology that helps them save money while also playing an integral role in conserving energy when the demand on the electric grid is its highest. This partnership helps us ensure reliable, uninterrupted service to our customers on the hottest Arizona days, while also assisting us on our journey to 100% clean and carbon-free electricity by 2050. You can see we've taken all the above approach to provide the most affordable and reliable service when our customers need us the most. As part of our vigorous planning, we recently issued an all-source RFP for another 1,000 megawatts to be online between 2026 and 2028. We're seeking the best combination of resources to serve our customers reliable or reliably, while not sacrificing affordability and continuing to build towards our clean energy future. Additionally, we continue to remain focused on providing exceptional customer service. Our J.D. Power, JDP Residential rankings for overall customer satisfaction have steadily improved over the past 2 years, and I'm proud to share that the latest JDP Residential 2023 2nd quarter results have placed us back in the 1st quartile compared to our peers. APS's strongest performing drivers in the latest survey were customer care, both phone and digital, power quality and reliability, and corporate citizenship. We've made remarkable progress over the past few years, moving from 4th quartile to 1st, and that progress would not have happened without the dedication and commitment of our hardworking employees across the company. I look forward to continuing to provide exemplary service to our customers in the future. Turning to our regulatory updates, last quarter, I spoke about the appeal of our last rate case and the favorable Court of Appeals decision. The commission directed its legal staff to enter into negotiations with the company, in June, we reached an agreement with the commission legal staff on how to implement that decision. The joint resolution was then approved at the June open meeting, and it created a court resolution surcharge that started on July 1st. We're pleased that we were able to reach an agreement with the commission in a reasonable and expeditious manner to resolve this issue, as I've mentioned previously, the Four Corners Power Plant is a critically important reliability asset for the entire Southwest. The investment in SCRs was required to keep that plant running under federal law. Andrew will address the financial impacts from this decision here in a few minutes. On our rate case, we are almost done with all rounds of written testimony. Our rejoinder testimony is due tomorrow. The hearing is scheduled to begin on August 10th, and we look forward to working through that process and resolving this rate case in a timely and constructive manner. We've made solid progress through the first half of this year, improving our customer experience, enhancing our stakeholder relationships, and executing on our regulatory matters. There's certainly more work to do, but I think this is a good opportunity to acknowledge the team's dedication and early accomplishments here in 2023. With that, I'll turn the call over to Andrew. Thank you, Jeff, thanks again to everyone for joining us today. This morning, we released our second quarter 2023 financial results. I will first review those results, which were negatively impacted by extremely mild weather, and provide some additional details on the various drivers for the quarter. I will also provide an update to full year 2023 guidance. We earned $0.94 per share this quarter, down $0.51 compared to the second quarter last year. Weather, specifically during the month of June, was the primary driver for the lower year-over-year results. June of 2023 was the mildest since 2009, with an average daily temperature slightly below 90 degrees. This resulted in a $0.25 year-over-year drag from weather compared to Q2 last year, which notably included an above-average contribution from June 2022's hot weather. Higher O&M, interest expense and depreciation, amortization, and lower pension and OPEB non-service credits were other negative drivers, partially offset by higher transmission revenues and LFCR revenues. O&M was $0.21 higher year-over-year, or $0.14 excluding RES and VSM. We have experienced year-over-year increases to most of our O&M categories due to inflation and high customer growth. We have seen inflationary impacts in areas including chemicals, materials, insurance, and wage rates. Of the $0.14 Q2 headwind, O&M associated with our generation fleet constitutes $0.10, and for the first half of the year, generation fleet O&M has been a $0.21 drag. Prioritizing the needs of our generation fleet to ensure reliability for customers has been essential to our summer preparedness strategy. The importance of this prioritization was as clear as ever as our team successfully ran our fleet during the month of July. In addition, as Jeff mentioned, July weather was record-breaking. Similar to past years, the weather benefits have allowed us to flex up to de-risk future spending. Based on the O&M trends we are seeing, we are increasing our O&M guidance range for 2023 to $915 million-$935 million. Importantly, even with this update, we anticipate our O&M per megawatt hour to be flat to last year, and we maintain our goal of declining O&M per megawatt hour into the future. We continue to look for opportunities to create efficiencies, reduce risk, and keep our costs low to maintain affordable rates for our customers. Turning now to customer growth, we continue to be in line with expectations. Customer growth remains at 2% for the second quarter. The fundamentals for customer growth remain strong in our service territory, and Arizona continues to be a popular migration destination. Redfin noted in May that Phoenix led the nation in housing markets its users were most interested in moving into. The cost of living in Arizona and the Phoenix metro area still compare favorably to many Western markets, so we continue to project steady population growth and corresponding APS customer growth, largely driven by net migration. However, weather-normalized sales growth for the quarter was 0.1% compared to last year. Although we continue to see steady C&I sales growth, which came in at 2.2% for the second quarter this year versus last year, overall sales growth has been slower than originally anticipated. We continue to monitor our extra high load factor customers as they ramp up, and in fact, Taiwan Semiconductor recently announced a delay in the opening of their first chip factory. With the flat year-over-year sales growth in the quarter and slower ramp-up of these larger customers, we are revising our sales growth guidance range to 2%-4% for 2023. Because sales from these larger customers contribute a lower margin, the change to our sales growth guidance has a disproportionately smaller impact to earnings expectations. Over the longer term, we continue to forecast a strong contribution to sales growth from advanced manufacturing and other large customers, though the variable remains the speed of their ramp-up. Turning to our 2023 guidance for EPS, with the approval by the commission of the joint resolution of the 2019 rate case appeal, on July 1st, we began collecting a corresponding surcharge with an annualized impact of approximately $52.5 million. This surcharge includes both a prospective and historical portion, and is collected through a per kilowatt-hour charge. Taking all financial drivers into account, including this additional revenue, July temperatures that normalized weather thereafter, anticipated lower sales growth, and the higher O&M trends mentioned earlier, we now expect our new EPS guidance range to be $4.10-$4.30 per share for the year. We look forward to continuing to execute on our strategy and on the next phases of our pending rate case process. This concludes our prepared remarks. I will now turn the call back over to the operator for questions. Certainly. Everyone at this time will 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 is coming from Julien Dumoulin-Smith from Bank of America. Your line is live. Hey, guys. Good morning. This is Dariusz on for Julien. Thank you for taking the question. Just wanted to start off on the rate case, if I could. Staff obviously came out with a recent round of testimony, and specifically the generation rider that you've proposed and revised during the course of the rate case. Just wondering if you could comment on staff's latest views there, and in the event that that rider isn't ultimately supported by the commission in this rate case outcome, how that might affect your procurement/capital strategy going forward? Yeah. Hey, Dariusz. This is Jeff. Let me let me start with kind of the context of the rider. You know, it, it came up in the Tucson Electric rate case, ultimately didn't make it into the administrative law judge's recommendation. That case is going to open meeting here pretty quickly. We have filed it, and we're going to continue to advocate for it because we think it's an appropriate way of addressing regulatory lag. You can see with just the growth that we're seeing, the need for that additional generation and need to have that balance between not just PPAs, but some that we can that we can more directly control and really control the deployment of that capital. That as well as the ability to, to find a mechanism that we can flow through the production tax credits is going to be, is going to be important. We, we think there's good reasons to continue to advocate for it. I think what you're seeing that, that, that is still modestly encouraging is that there's an interest from staff in understanding the value and the, and the concept. That's really what the hearing process, I think, is going to give us an opportunity to do, is to advocate and explain why this makes sense in the context of where we are. I'd be more concerned if it was pretty, you know, just a flat, "No, we're not interested." I think you can see from the testimony and from the dialogue in the Tucson case, that there is an interest in understanding it. We're not quite there yet, and I hope that we'll have an opportunity at hearing to really explain why we see significant value in moving forward with this, and not just coming back in, which is, you know, your other alternative, is you come right back in on another rate case pretty quickly if there's not a way to address this, you know, this kind of, the regulatory lag that comes from, getting those plants into service but not into, into rate sufficiently. You want to talk maybe on the capital? Sure, Dariusz. It's Andrew. You know, to date, going back to the last rate case, we, you know, we've been reluctant to bring forward our projects that have been cost competitive with the market, you know, because of the, the, the question around recovery. The SRB, as Jeff talked about, really would be an important tool to help us think about taking what's been less than maybe 20% of the megawatts that we've been procuring over the last couple of years and increase that number. Ultimately, we're going to make the investments that we need to make for reliability, and the 2 projects that are in our post-test year plan that relate to our generation fleet, Jeff talked about, those were commissioned this summer, our Agave Solar project, as well as the batteries at our AZ Sun sites. Those were projects that were commissioned for this summer. Those were really critical. As some of the developers we work with have supply chain delays and some of those challenges, our ability to deliver, to deliver, I think, has been highlighted through those post-test year plans. We'll continue to look at ways to reduce lag and ultimately make the, the decisions that we need to make around capital from our perspective to make sure that we're delivering, you know, each summer as, as we've seen these increasing, peak demand numbers. Great. Thank you for that detail. Appreciate that. One more, if I could. I, I just wanted to come back to the generation-related O&M spending that Andrew highlighted in the opening remarks. Specifically, how do you see that shaping up for the back half of the year, just given the amount that you have to run the generation resources, obviously, during this extremely hot weather? Do you anticipate that there's sort of some additional catch-up O&M, if you will, in the latter part of the year? Related, assuming that weather normalizes in 2024 or thereafter, do you see that as an opportunity to flex down that O&M in future periods? Yeah, Dariusz. Taking the first part of that, the guidance range that we updated today incorporates anticipated O&M kind of across the year. We've seen the first half of the year absolute needs of the generation fleet, and from, you know, this July, you know, there will certainly be continued needs. We've anticipated those, and frankly, have in part used the benefit of July weather to look at the rest of the year and think about, you know, what are the needs we have and where are the pressure points. If weather were to continue to be a factor for the rest of the year, absolutely making sure that we could generate, support the generation fleet, both Palo Verde as well as our traditional fleet. It's definitely part of the calculus. When you think about weather for the rest of the year, at, you know, post-July, which we've incorporated at this point, and has been part of, part of strategically thinking about O&M, every year, at the end of the summer, we look at our O&M opportunity set and risk set for the remainder of the year and into the next calendar year, and think about, you know, where we could flex our muscle around pull forwards, de-risking. We'll do that to the upside and downside as the year goes on. We're, we're comfortable with the new O&M range that we've set out based on where we are, the decisions we've made. Effectively, conversations that we normally have in October, once you've looked at the full, full summer, we're making those earlier. We're comfortable with the range that we're in, and certainly as we have weather, as we have continued wear and tear on our generation fleet, we've accommodated that within, within the current range. Okay, great. Thank you very much for that detail. I'll pass it along here. Thanks, Jeff. Thank you. Your next question is coming from Alex Mortimer from Mizuho. Your line is live. Hi, good morning. Hey, Alex. With the dual tailwind of new rates next year and the load increase that was expected this year materializing more in 2024, how should we think about the linearity of earnings in 2024 and 2025 and beyond? Kind of within the long-term growth rate, should we expect you to be at the higher end of the 5%-7%, or should we think that there could potentially be more of a, a one-time step up in 2024, given coming out of the rate case? Yeah, Alex, we, we are definitely focused on the tools that we have at our, at our disposal to create more linear, predictable earning stream within that 5%-7% growth rate. We're, we're comfortable with the 5%-7% rate. You know, certainly we'll be updating all of the key drivers of our financial performance after the rate case concludes. Inevitably, given the outcome of the 2019 rate case and the financial reset there, rate relief will be a meaningful driver of our growth over the medium term. It's, it's hard to avoid that fact. However, the work we're doing around how do we manage O&M within the context of weather from year to year? How do we push for more capital to be tracked so we can create more rate gradualism for customers, but also more linearity for shareholders? Those, those are the levers within our control that we're trying to deliver within that long-term EPS growth rate range, a little bit more of a predictable track within it. You know, ultimately, doing the things that are within our control and, and managing costs as best we can. Understood. Has there been any discussion internally about how to potentially think of a, a new base year for the long-term growth rate, given the increased clarity and, and potential step up, we'll, we'll see following the resolution of the case later this year? Yeah, Alex, that's all, I think, a conversation that we could have after the rate case. Ultimately, over the long term, we want to be able to, through a linear earning stream, create a long-term earnings growth rate that isn't based on a base year, that is a, you know, continuous, you know, product of more predictable, less regulatory lag. So those are the things that we're focused on to create that, so it becomes less about a specific base year. As, as far as updating from our current 5%-7% off 2022 weather normalized guidance, that's a conversation we can have after the rate case. All right. Thank you so much. I'll leave it there. Thanks, Alex. Thank you. Your next question is coming from Paul Patterson from Glenrock Associates LLC. Your line is live. Hey, good morning. Hey, Paul. Hi, Paul. I apologize. Just, I wanted to sort of just follow up again on the rate case. In the past, you guys were thinking there was potential that there'd be a settlement. I'm just sort of wondering where things maybe stand with respect to that potential, given that we've had so many filings now and what have you. Yeah, we're, as we mentioned, we're just here a day away from filing rejoinder testimony. You got five rounds of testimony, and the hearing scheduled to start in a week or so. The likelihood that a settlement would sort of come up from, from there is, is low. We continue, and we always look for opportunities to narrow issues, or for opportunities to engage in a conversation around that. I think right now, it's, it certainly seems like we're moving towards hearing. I will say, if you've been following the testimony and the interveners and the positions on this case, that this is a much more what I call a traditional rate case. It's a lot more, you know, fewer issues, there's the more traditional things that are coming. I think that is positive in terms of where the case is, has evolved to. Yeah, it's a, it's a notable change from, from the last one. I agree with that. I, I wanted to also just sort of ask you, you know, I've never been to Arizona in the summer, and there's a lot of national media coverage of the recent heat wave. I don't know, you know, whether or not it's being over-dramatized or not, but it sounds like kind of extreme. I'm just wondering, A, sort of your take on it, 'cause you guys are you guys are, are native, so to speak, or at least close to it. Sort of B, I know you mentioned, you know, it, it doesn't seem to have impacted your, your outlook for, for growth, but just, I mean, you know, I don't need to sort of check off the, the, the, the list of sort of horrors that they're describing in terms of people getting burnt by just sitting on the sidewalk or. You know what I'm talking about, like, you know the cactuses dying kind of thing. Could you sort of just give a little more perspective on that? I mean, I, it, it's clearly a concern when you get into prolonged stretches of this. We've had-- I mean, we had a hotter day a number of years ago, that I think the still record high day was actually quite a while ago. It's the persistence of this heat wave that I think has really sort of challenged the policymakers. The important thing to remember is that the heat in the desert in the summer is not new to us. There, there have been certainly cases where you've had multiple days in the north of 115, where you get the same kinda issues about being safe outside, making sure that you don't, you don't make contact with the pavement. The, the most important thing, I think, that the policymakers here are doing a, doing a nice job of, is trying to address the unsheltered population. We've got, for example, Paul, an air conditioner program where we can help support, through the Foundation for Senior Living, people getting air conditioner repairs, because those are where it gets really dangerous. If, if you're just in a home with an air conditioner, people are kinda used to this, I think. It's certainly something that you need to look at from a resilience standpoint in ensuring that as you continue to see longer periods of hot weather, that we've got the resilience to be able to to navigate that. You know, people are still moving here. It's still I think it's still the fastest growing county in the U.S., so I don't think the heat deters them. It's, it's kinda similar to what you deal with in the, in the Northeast and in the Upper Midwest, where you've got the really cold winters. You just gotta know how to adapt to it. Okay. Well, thanks so much. Thank you. Your next question is coming from Shar Pourreza from Guggenheim Partners. Your line is live. Hi, guys. It's Jameson Ward on for Shar. How are you? Hey, good, Jameson. Hey, Jameson. Hey. Just a quick one on the pension front. Just leaving 2023 aside for the moment, and if we were to assume that the final order reflects the pension-related adjustments from your rebuttal testimony, just thinking about the roughly $20 million or so improvement there, what impact would you expect that to have going forward on pension-related EPS drag? Just thinking about the amortization outside of the corridor rule from, you know, last year's impact, really. Yeah, Jameson. Just, just to step back, we, we do have that, that drag now from the end of 2022, when we took into account the, you know, rapid increase in interest rates in 2022, which affect both our fixed income portfolio as well as the interest cost associated with our pensions. We have that drag, you know, which year-over-year is in the $0.30-some odd range, and you see it this quarter as you've seen it in prior quarters. One of the things we did say to the investment community is we wanted to reduce the lag associated with the pension expense and more properly reflect the test year expense, because we didn't know those numbers when we filed our direct case. On rebuttal, as you alluded to, we did file to take better account of what the test year should be, based on averaging the mark-to-market end of 2021, mark-to-market end of 2022. As you said, that's about a $20 million benefit. When it comes to the impact there, that isn't gonna be something that flows through pension accounting. That's something that's gonna flow through the revenue requirement and through customer charges. That'll be. If, if it is approved, then we're gonna continue to advocate for it through the case. Staff did not express support from it in their rebuttal testimony, but it's something we're gonna continue to push for. That would just be reflected in the revenue requirement like everything else. At the same time as we do every year, at the end of the year, we're gonna have to reevaluate our pension expenses, based on expected, you know, market returns, where discount rates are at that point, and what may, as you said, pass through the corridor and be considered material from the perspective of beginning to amortize. The drag from 2022 will remain, and the key is to reduce regulatory lag on the recovery of that, through the adjustments and normalization requests that we made on rebuttal. Got it. Perfect. Thank you, Andrew. Appreciate the color. Sure. Thanks, Jameson. Thank you. Once again, everyone, if you have any questions or comments, please press Star, then One on your phone. Your next question is coming from Julien Dumoulin-Smith from Bank of America. Your line is live. Hey, guys, it's Dariusz back on. Just one quick follow-up, if I could. Just wanted to ask about the change in your guidance relative to the effective tax rate. It looked like it ticked up a little bit, and now there's a band versus previously, it was a point estimate. Just wondering what drove that. Yeah, it, it, it did, Dariusz. Very perceptive. What, what happened is, in the first quarter, when we set guidance that, you know, it was just slightly below 11% effective tax rate, now we're at this 12%-12.5%. If you recall, when we set that lower effective tax rate, it was based on our anticipated in-service date of projects that generate production tax credits, namely the Agave project. The higher tax rate now reflects our better estimate of the in-service date of the project. Okay, great. Thanks so much for clarifying. Yep. Thanks, Dariusz. 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.