Q1 2025 Pinnacle West Capital Corp Earnings Call
Yeah.
Speaker Change: Good day, everyone and welcome to the Pinnacle West Capital Corporation, 2025 first quarter earnings Conference call.
Speaker Change: 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.
Speaker Change: It is now my pleasure to turn the floor over to your host Amanda Ho Ma'am. The floor is yours. Thank you Matthew.
Speaker Change: We'd like to thank everyone for participating in this conference call and webcast to review our first quarter earnings recent developments and operating performance. Our speakers today will be our chairman President and CEO, Ted Geisler, and our CFO, Andrew Cooper, Jacobs Atlas CLO and Jose as far as the SVP of public policy are also here with US first I need to cover a few details with you the slides that we will be.
Speaker Change: 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 first quarter 2025 Form 10-Q was filed this morning. Please refer to that document for forward looking statements cautionary language as.
Speaker Change: 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 eight 2025, I will now turn the call over to Ted.
Ted Geisler: Thanks, Amanda and thank you all for joining US today 2025 has started off in line with financial guidance. We provided on the fourth quarter call in February before Andrew discusses the details of our first quarter results I'll provide a few updates on recent operational and regulatory developments are.
Ted Geisler: Our diverse Arizona economy continues to thrive and grow at a solid pace, Arizona has become a national leader in semiconductor and advanced manufacturing, which has attracted investments spanning the entire supply chain, including robotic manufacturing advanced packaging research and development materials suppliers and workforce development this quarter had.
Ted Geisler: Several notable expansion announcements, including the additional $100 billion investment by the Taiwan semiconductor manufacturing company.
Ted Geisler: Their original $65 billion investment.
Ted Geisler: TSMC now intends to build three additional fabrication centers for a total of six as well as two advanced packaging facilities and our research and development part in fact TSMC you held the groundbreaking for fab three this week as construction progress continues to advance.
Ted Geisler: Also Nvidia announced their manufacturing Blackwell chips at TSMC is facilities, and we will be partnering with advanced packaging and testing operations right here in Arizona.
Speaker Change: In addition to TSMC, Arizona total international exports rose almost 12% in 2020 forward the highest year over year growth rate in the country led by mining semiconductors computer equipment and aerospace products.
Speaker Change: Health care is another rapidly expanding sector highlighted by Mayo clinics announcement of a nearly $2 billion investment in their Phoenix Health care Hospital campus. The clinics largest investment to date. These announcements highlight the diversity of investments and robust growth that will fuel the Arizona economy for years to come.
Speaker Change: Turning to operations, we're focused on continuing to provide top tier reliability for our customers, making year round investments to secure a resilient grid and delivering excellence in customer experience as we build out the grid to serve growth. We continue to increase our transmission investments to construct multiple high voltage lines and substations.
Speaker Change: Through our comprehensive summer preparedness program, we've procured all necessary generation capacity of reserves completed our grid inspections procured critical materials needed frustration efforts and executed robust fire mitigation investments.
Speaker Change: This includes the deployment of fiber sensing cameras that use artificial intelligence to proactively search for early signs of wildfires, enabling critical operation decisions to help keep communities safe.
Speaker Change: We're in the final stages of planned maintenance activities for our generation units. We have successfully completed our major outages for the four corners power plant. In addition, we've invested in chiller upgrades that Red Hawk and Sundance units, reducing ambient day rates during hot summer evenings when customers use the most energy.
Speaker Change: Finally, Palo Verde unit. One is currently in planned refueling outage and expected to return to service in early May.
Speaker Change: Upon the successful completion of the latest Refuelling outage, all three Palo Verde units are poised to provide reliable around the clock power to help meet the summer energy demand.
Speaker Change: We stand ready to safely reliably and affordably serve our customers as we head into summer season, our customers depend on us the most.
Speaker Change: Turning to long term resource procurement, we continue to make progress on our annual all source request for proposals as a reminder, we are seeking at least 2000 megawatts of new resources to be in service between 2028 2030, we're.
We're in the process of evaluating project proposals and plan to have final projects selected later this year, which is expected to include a blend of ownership N PPA projects.
Speaker Change: We continue to build and enhance our customer centric culture and our employees are focused on delivering excellent customer experience investing in advanced digital platforms is an important part of our strategy to deliver a customer experience excellence, while lowering costs over time.
Speaker Change: These efforts are paying off since Aps now ranks in the top 10 nationally in the J D power you totally digital experience survey.
Speaker Change: I'm also proud to share that Aps was recently recognized by Newsweek as one of the most trustworthy companies in America for 2024.
Speaker Change: On the regulatory front, we've been preparing for upcoming rate case filing and remain on track to file mid year.
Speaker Change: The primary objectives of this next rate case will be to recover costs and investments to secure a reliable and resilient grid develop a modernized rate structure to support the unprecedented growth of high load factor customers in our service territory.
Speaker Change: And reduce regulatory lag.
Speaker Change: While maintaining the lowest cost possible for customers.
Speaker Change: Our current rates are based on test your expenses that go back to 2021, and we look forward to working with the commission and stakeholders to update these costs, while keeping rates affordable.
Speaker Change: <unk> will include a formula rate proposal consistent with the commission recently approved policy statements.
Speaker Change: In conclusion, we're excited we're executing our strategy, while remaining focused on creating customer value and shareholder value throughout the year before I hand, it over to Andrew I wanted to give a special birthday shout out to both Andrew and Jacob we're celebrating today, it's truly a president a pleasure working alongside you. Both wishing you both a very happy birthday with that I'll turn the call over to Ed.
Speaker Change: Andrew.
Thank you Ted.
Speaker Change: And thanks again to everyone for joining us today.
Speaker Change: This morning, we reported our first quarter 2025 financial results I will review those results and provide additional details on sales and financial guidance for the first quarter of 2025, we lost <unk> <unk> per share compared to earnings of 15 cents per share for the first quarter of 2020 for.
Speaker Change: The primary driver for this decrease was the sale of bright Canyon energy in 2024, which was a one time benefit of 15 cents in the first quarter of last year. Other negative drivers were higher O&M interest expense and depreciation and amortization along with a positive amortization of an OPEC service credits rolling off.
Speaker Change: Off in January.
Speaker Change: Partially offsetting these items were new rates that went into effect on March eight of last year, providing a 29% year over year benefit this quarter. Other positive drivers were a gain from our El Dorado equity investment and higher transmission sales briefly.
Speaker Change: Briefly touching upon whether we average to normal weather for the quarter with little impact on margin.
Speaker Change: We continue to see consistent ongoing influx of customers into our region as customer growth for the quarter was again strong at two 3% near the high end of our annual customer growth guidance. In fact, according to the latest report by the U S Census Bureau.
Speaker Change: Last year Maricopa County was the third fastest growing county in the U S by numeric number and adjacent Pal County was the fifth fastest growing county by percentage growth.
Speaker Change: This trend of customer growth continues our need for investments in our system to ensure reliable service for all customers.
Speaker Change: Current capital plan is designed to meet these needs and our guidance remains unchanged.
Speaker Change: Our weather normalized sales growth was two 1% for the quarter driven by strong C&I growth of five 3% caused by the continued ramp up of both manufacturing and data center customers as extra high load factor customers have continued to grow as a proportion of our business we have updated our procedures.
Speaker Change: With respect to estimates of Unbilled revenues for our customer classes. As a result, we had an adjustment in January to recalibrate accrued unbilled revenues offsetting the year to date sales growth by one 9%.
Speaker Change: Even with the change we expect our overall weather normalized sales growth to meet our guidance expectations at 4% to 6% for the year.
Speaker Change: Arizona remains a diverse growth and investment hub as Ted mentioned TSMC announced that they will nearly triple our original expected investments in Arizona for a total of $165 billion Tsmc's first fabrication facilities already in full production. They recently stated that they have completed construction on our second facility in our work.
Speaker Change: On accelerating the production start date and fab three has broken ground TSM.
Speaker Change: TSMC has expanded investment is expected to support 40000 construction jobs over the next four years and create tens of thousands of high paying high tech jobs.
Speaker Change: As a reminder, these announcements are beyond our current long term sales growth guidance of 4% to 6% which is through 2027.
Speaker Change: Lights, the ongoing investment and opportunities in our service area.
Speaker Change: O&M was an anticipated drag on our first quarter. The major outage of the four corners power plant drove larger planned outage costs when compared to Q1 of last year. Additionally expenses associated with it projects increased O&M for this quarter versus the prior year.
Speaker Change: Guidance for 2025, O&M remains unchanged as these items were already considered in our guidance and are anticipated to be offset over the balance of the year.
Speaker Change: Turning to the balance sheet, we recently had positive conversations with all three credit rating agencies, resulting in no changes to our current ratings and stable outlooks.
Speaker Change: We are focused on maintaining solid ratings and metrics to the benefit of our customers as we continue to work with the commission and stakeholders on reducing regulatory lag drop coming rate case.
Speaker Change: Our guidance for financing remains unchanged featuring a mix of debt and equity sources intended to maintain a balanced capital structure and as a reminder, we do not currently utilize or rely on the transferability of tax credits for any of the financing need in our plan.
Speaker Change: Finally, we are reaffirming all other guidance provided on our fourth quarter call and look forward to continuing to execute our strategy and reliably serving our customers as we head into the upcoming summer season.
Speaker Change: This concludes our prepared remarks, I will now turn the call back over to the operator for questions.
Speaker Change: Okay.
Speaker Change: Certainly everyone. 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.
Speaker Change: We do ask that will posing your question. Please pickup your handset if you're listening on speaker phone to provide optimal sound quality.
Speaker Change: Once again, if you have any questions or comments. Please press star one on your phone.
Speaker Change: Your first question is coming from Nicholas Campanella from Barclays. Your line is live.
Nicholas Campanella: Hey, good morning, good morning.
Speaker Change: Nick.
Speaker Change: Hey.
Speaker Change: So I just wanted to ask obviously.
Speaker Change: The TSMC customer additions are very notable and you have this 3% to 5% large load C&I forecast in your long term outlook can you just kind of remind us like how many fabs are in that outlook or if you were to kind of be comp that.
Speaker Change: Adding another plant what would that do to to that long term forecast.
Andrew Cooper: Sure. It's Andrew Thanks for the question. So clearly fab one is in our forecast because it is this is actually the first quarter that is at full volume production and so certainly part of that ramp up that we saw in C&I sales. This quarter is a combination of TSMC in some of the data center.
Speaker Change: <unk> ramping up.
Speaker Change: Recent announcements at TSMC on pads, two and three suggests an acceleration and so we'll continue to work with our customer on what that looks like from an infrastructure build out in sales forecast perspective, but certainly the initial expectation was 2028 for fab two.
Speaker Change: And by the end of the decade 2030 ish for.
Speaker Change: <unk> three <unk>.
Speaker Change: Some acceleration of both of those.
Speaker Change: Whether the exploration of fab two will come into 2027 is something that we will just have to continue to evaluate but really the underlying fact is that the commitment to the fixed fabs and all of the other facilities that Ted mentioned really points to at a minimum the ability to have a pipeline that allows us.
Speaker Change: To continue a pretty robust level of large C&I sales growth when you pair that ecosystem semiconductor supply chain upstream and downstream with some of the other diverse manufacturing and data center growth that we're seeing.
Speaker Change: Yeah. Okay. That's helpful. I appreciate it and then.
Speaker Change: Do you have a new disclosure on your balance, which definitely seems material at three to $3 5 billion can.
Speaker Change: Can you just kind of confirm you get retail rate return on that.
Speaker Change: And how exactly that would flow into the financials.
Speaker Change: When you kind of layer that in on top of your current rate base growth outlook. The fact that youre going to have new formula rates.
Speaker Change: What would the offset be that would kind of put you back within that five to seven range.
Speaker Change: Yeah, Nick So we added that disclosure because we wanted to make clear that our pipeline of opportunities.
Speaker Change: Continues beyond the three year plan that we provide and in particular, if you think about like the strategic transmission plan that we filed last year.
Speaker Change: Those are projects that are multi year. If you look in our disclosures that go out through the end of the decade and those are the projects that are already exciting there's a broader strategic transmission planning process that includes incremental projects as well as some of the generation. We're building for example.
Speaker Change: Hawk gas plant.
Speaker Change: In service until 2008 centers outside of that plant. So we wanted to kind of give a sense for the scale relative to any disclosure. You'll also see why that level quick would've been in 2023. The scale of projects that are under construction that may not be captured in the plan. There is <unk> associated with it but from a cash return perspective that fab.
Speaker Change: Something that's in the plan.
Speaker Change: And so ultimately, it's really more a matter of giving clarity around that track record.
Speaker Change: That can extend beyond 2027, which is the period of.
Speaker Change: Current.
Speaker Change: Current rate base disclosure and so you're really between the strategic transmission projects and then the overall investments in our self.
Speaker Change: Self build generation, whether that's the projects coming through are all source RFP investing in Palo Verde for the long term. These are all things that we want to highlight which may not be captured in a narrow window that we that we give and so as we go through not only the rate case and understand how some of our other capex, maybe put on an even footing by having a format.
Speaker Change: Right in place and then as we continue to bring things from our development pipeline, both on the generation and transmission side into the actual rate base disclosure, we will be able to come back to you on what that rate base growth rate looks like but at a minimum we wanted to be able to highlight that we are moving into these larger projects that meet the needs of.
Speaker Change: The growth that we've seen in our service territory for the long term.
Speaker Change: Alright understood. Thanks, a lot thanks.
Speaker Change: Nick.
Speaker Change: Thank you. Your next question is coming from Michael loan again from Evercore. Your line is live.
Michael loan: Alright, thanks for taking my questions. So obviously, you'll be filing a rate case mid year, probably get new rates late 'twenty six just wondering what we could expect in terms of regulatory lag.
Michael loan: On percentage terms in 2006, while the rate cases pending versus the 95 allowed ROE in that jurisdiction.
Michael loan: Yes, Michael this is Ted Thanks for the question, obviously, we're focused on addressing regulatory lag through this case I think the commission is focused on that as well given that they recognize it adds cost to customers.
Michael loan: Over time, and so that's a big focus for the Formula rate plan.
Michael loan: Our intent is to be able to put in a structure going forward. After this case to where.
Michael loan: We can minimize regulatory lag.
Michael loan: On a respectable manner and so that's what the Formula is designed to do is to have a dead band around solving to be able to earn your allowed ROE clearly at this time.
Michael loan: It's difficult to be able to do that so I think the policy statement illustrated that where there is a dead band of being able to earn as close to that allowed ROE as possible and outside of that dead band you would then file for adjustment.
Michael loan: Looking to work with the commission and stakeholders to try to.
Michael loan: <unk> designed the mechanics of the formula rate plan to be able to.
Michael loan: To meet the intent of the policy statement, it's too early to tell how that will work specifically so I think the details through this general rate case will matter, but I think the commission a lot of stakeholders involved in the process of certainly utilities are aligned that that's the intent and then you can work towards ensuring that the allowed.
Michael loan: ROE is measured to be competitive to peers, and what's necessary to attract capital and Uremic and construct is designed to allow you to earn as close to that allowed ROE as possible.
Michael loan: Great. Thanks, and then.
Michael loan: Secondly, I was wondering if you could talk about your current pipeline of high load factor customers I think in your last disclosure you said you were committed to four gigawatts.
Michael loan: And had interest from another 10, plus Gigawatts that you were working through our planning process, where I was wondering what's the latest on these numbers is the four gigawatts, though what's baked into your plan.
Michael loan: Yeah, Michael the four Gigawatts is still what we've committed to are actively building out infrastructure to serve a obviously a large portion of that will be coming online this year and into the coming years, that's within our guidance range, but the full build out of that four gigawatts extends beyond the guidance range.
Michael loan: And then we do have a substantial and growing queue of customers that we're actively working to assess the timing of capacity needs of their projects.
Michael loan: Yes.
Michael loan: At least 10, Gigawatts and that's a continuous focus of our team is identifying their needs identifying the infrastructure required to be able to build it out and what the timing of that infrastructure installation would be most of that infrastructure would likely be in the capital plan beyond the current guidance period, but as we get closer to those projects.
Michael loan: <unk> moving into the committed Q, we'll certainly update what the committed Q number is.
Michael loan: Great. Thanks for taking my questions. Thank.
Michael loan: Thank you.
Speaker Change: Thank you. Your next question is coming from Julien Dumoulin Smith from Jefferies. Your line is live.
Speaker Change: Hey, good afternoon. Good morning team. Thank you very much for the time nicely done.
Speaker Change: Maybe just to follow up a little bit on where you think you left the question off with Nick and maybe to take it a step further how are you thinking about providing a longer term view beyond the three year period. I mean notable the way that you responded quip et cetera, I mean is there a longer dated U coming here into more.
Speaker Change: Comprehensive set as you think about.
Speaker Change: Rolling forward eventually here.
Speaker Change: Yes, Hey, Julien it's Andrew Thanks for that question and it's certainly something that we continue to evaluate in particular, because we're doing larger projects that take that have longer lead time, and we have clarity on our pipeline of customers coming in that extends out further so.
Speaker Change: It's certainly something we'll look at at the same time, though.
Speaker Change: Getting through the Formula rate design and preceding then gives us clarity on the broader capital allocation decisions. Overall. So if you look at how much are we doing in the distribution and <unk>, it and kind of core space, where youre getting projects and service a much shorter timeframes, where it sort of the day in day out blocking and tackling and stuff.
Speaker Change: And then giving clarity of disclosure about the large strategic transmission projects the investment plan at Palo Verde.
Speaker Change: The projects that come out of the all source RFP is all of those types of things that have.
Speaker Change: Take us into the 2030 the other piece you'll see is we're on a three year cycle.
Speaker Change: For our integrated resource planning and so as we worked through that process. The.
Speaker Change: The goal will be to link up some that tends to be an action window thats five years of the 15 that we're talking about is we're trying to link those two I think will be important as we do more of these long lead time projects. So it's a great question and something that we continuously look at.
Speaker Change: Got it sounds like a little bit of a longer fuse, but I'm.
Speaker Change: Getting up the entire organization there and then if I can follow up as well on a related question here you talked about fab two and three potentially I think you even said accelerating themselves.
Speaker Change: I don't think it was entirely clear as to whether that's contemplated within the three to five when would you go out for procurement around a potential resources. There I mean, you know you say, it's longer dated but let's.
Speaker Change: Let's put it as a 2030 and earlier is front and center and would need actions on procurement and in the near term how do you think about that as well as some of these other items like Mayo clinic also playing into the outlook here just coming back to the table for another round of procurement and RFP or something like that.
Speaker Change: Yes, Julian you're absolutely right, we are out to procurement right now for 2028 to 2030, we've got an RFP.
Speaker Change: Recently concluded accepting proposals for a minimum of 2000 megawatts to be in service in the years 2028 to 2030.
Speaker Change: And so we're evaluating those proposals right now and as we look at how much volume, we actually take from the RFP, we're taking into consideration as we work with TSMC Amcor and frankly.
Speaker Change: We have other recent economic development opportunities, even outside the chip and datacenter sector to identify what are the total resource needs at the back end of this decade, and therefore, how much do we need to take from this rfps. So that's that's actively in progress.
Speaker Change: We've been on an annual routine of these rfps and so we'll evaluate the proposals from this year and then likely be back out in the market again for another round of Rfps.
Speaker Change: Alright, so bottom line upsizing, the President RFP, you said, a minimum of two gigs, but there's potentially a real likelihood for a meaningful expansion of that.
Speaker Change: That's definitely the potential similar to the last RFP, where we ended up procuring a meaningful amount more than what we originally requested it just depends on the quality of the proposals and the timing of their ability to execute we're always clear to state the minimum that we need but we've got the ability to be able to take more.
Speaker Change: As necessary to ensure resource adequacy as long as they're competitive projects and we're going through those proposals now.
Speaker Change: Thanks again guys. Thank.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Travis Miller from Morningstar. Your line is live.
Speaker Change: Thank you Hello, everyone.
Speaker Change: Drivers.
Speaker Change: More of a technical question here on the filing coming up.
Speaker Change: Is the filing going to be purely a formula rate plan such that they just get one filing or is there somewhat of a split here where you have to file.
Speaker Change: About formulary plan option and a general rate case traditional option, taking really thinking about that filing.
Speaker Change: Sure.
Speaker Change: Yes, Travis is the way we look at it is we're filing a traditional rate case based on 2020 for test year, but then included in that will be a filing proposal for how you implement a formula rate plan to ensure you're minimizing regulatory lag for future years, and so it'll all be a part of one filing.
Speaker Change: But you first have to recover the revenue deficiency based on the 2020 for test year and then the Formula rate design included in our filing will be how to keep rates current and true it up on a go forward basis. Once this case is processed and concluded. So that's that's how we're thinking about it.
Speaker Change: Okay that makes sense. So there won't be two rate adjustments. So it would be the traditional rate adjustment in the future.
Future years, if approved the formula rate plan rate neutral. So that's correct and that's the intent of the commission is how do we go longer between rate cases, minimize regulatory lag and ensure rate gradualism for our customers and so that's going to be all part of this initial filing.
Speaker Change: Perfect. Okay, that's great and then on the O&M, if you strip out the outages and strip out the Raf's DSM.
How is that trending that core our O&M is that trending.
Speaker Change: Towards your expectations in the first quarter or anything unusual in the first quarter on that side.
Andrew Cooper: Yes, Hi, this is Andrew.
Andrew Cooper: We're trending consistent with our plan for O&M for the year.
Andrew Cooper: The planned outage you referenced.
Andrew Cooper: Is lumpy and timing issue of <unk>.
Andrew Cooper: Doing a large outage at a plant.
Andrew Cooper: Four corners that was the first quarter, a first quarter event.
Andrew Cooper: There's also an O&M project I mentioned earlier in the prepared remarks that is a big backbone project and so right now it's in sort of that O&M phase in over the course of the year and will transition to capital.
Andrew Cooper: And so that shows up and basically it takes what could it could be straight line O&M over the year into a little bit of first quarter Lumpiness, but we expect over the course of the year to be able to.
Andrew Cooper: To meet our O&M guidance range.
Andrew Cooper: We were able to take a lot of.
Andrew Cooper: Proactive action last year coming out of the summer to plan and our multiyear fashion around O&M and so we're seeing some of the benefits of being able to do that as we work through the year. So we expect to be on plan for O&M.
Speaker Change: Okay perfect. Thanks, so much.
Speaker Change: Thanks Travis.
Speaker Change: Thank you. Your next question is coming from Sophie Karp from Keybanc capital markets. Your line is live.
Sophie Karp: Hi, Good morning, Thank you for taking my question.
Speaker Change: <unk>.
Speaker Change: So a little bit more on this O&M.
Speaker Change: Question.
Speaker Change: Do you need I guess outstanding items in the rest of the year.
Speaker Change: To counter the Lumpiness in the first quarter. It was or was this already contemplated when you issued guidance just to clarify.
Speaker Change: Yes, the latter Sophie we contemplated the planned outages as well as the design of the <unk>.
Speaker Change: The it project.
Speaker Change: And that we'd get back to regular way O&M over the course of the year and so we expect that we will.
Speaker Change: We're sort of done with it other than the normal outages at Palo Verde.
Speaker Change: We're out of the plant outages at this point and ready to move forward.
Speaker Change: Got it got it Okay, and then a couple more questions I have on them.
Speaker Change: So first of all that transmission lines right I am wondering if you ever contemplate the 645 kv line maybe in your territory does that makes sense ever because I noticed you don't go like that high voltage and rarely how they built but more.
Speaker Change: Is that a little bit more conversations about these types of lines now so wondering where you stand on that.
Sophie Karp: Yes Sophie.
Sophie Karp: The transmission engineering team evaluates.
Sophie Karp: All aspects of the potential voltage, including even advanced conductors and new technology right.
Sophie Karp: Right now, we don't see a need for that level of voltage. We go currently up to 500 kv has the highest.
Sophie Karp: But it isn't part of the evaluation as we continue to look forward on service territory growth.
Sophie Karp: The limiting factor is often time is what size right away or do you need in that oftentimes informs then what level of voltage you would need to procure but at this point the majority of our transmission projects that are in.
Sophie Karp: Between now and the end of the decade or 230 kv. We've also got a substantial amount of substation build out the <unk>.
Sophie Karp: Ranges and voltage and then longer term, we certainly see more 500 kv expansion or new build but at this point that's the highest level voltage that we think is necessary for the service territory.
Sophie Karp: Got it and lastly for me it seems like you have.
Speaker Change: Those types of applications in your territory, we seem to be trending I think it was against the lower versus historical level.
Sophie Karp: Does.
Sophie Karp: Is that impact you at all.
Sophie Karp: Ludwig.
Sophie Karp: As Glenn.
Sophie Karp: Yes, certainly we track that in terms of what level of offset rooftop solar or energy efficiency may have on organic sales.
Sophie Karp: So.
Sophie Karp: Clearly less rooftop solar applications may show less offset we.
Sophie Karp: We think this is just part of the natural market conditions.
Sophie Karp: Given that there is some level of saturation of rooftop solar already within the service territory. We've got one of the highest levels of penetration of rooftop solar already in.
Sophie Karp: In addition to obviously the financing costs that a lot of our customers would have to absorb for installing rooftop solar.
Sophie Karp: The amount of credit worthy customers that remain that could take on a long term contract. So we think those numbers are probably a leveling off of normalization of the amount that's being installed and we will just continue to track it as potential offset.
Sophie Karp: Right now our growth trends for residential and C&I are in line with what we expect for the year and that includes any offset for energy efficiency of rooftop solar.
Sophie Karp: Okay. Thank you so much.
Sophie Karp: Thank you.
Speaker Change: Thank you. Your next question is coming from Paul Patterson from Glyn <unk> Associates. Your line is live.
Paul Patterson: Good morning.
Speaker Change: Good morning, Paul.
Paul Patterson:
Speaker Change: Almost all of my questions have been answered just one quick one.
Paul Patterson: The El Dorado.
Paul Patterson: That you are highlighted on page on slide three.
Paul Patterson: <unk>.
Paul Patterson: Just could you tell me what triggered that.
Paul Patterson: Sure Paul It's Andrew So just by way of background El Dorado is the entity that pinnacle west has to hold our non utility non Aps energy related investments, it's a long standing entity with a number of long standing investments, including the one that created the gain.
Paul Patterson: This quarter and frankly this was an investment that has shown a higher degree of profitability.
Paul Patterson: Recently.
Paul Patterson: Electric switch gear company, and recognizing that higher profitability, we recognized a gain on the investment this quarter, it's a minority stake.
Certainly not core to the.
Paul Patterson: <unk> Aps investment profile, but among some of the longstanding energy investments we have.
Paul Patterson: It did it has shown favorable.
Paul Patterson: Economic trends recently, and so we did recognize that gain this quarter, but.
Paul Patterson: Quarter to quarter year to year. This is a very small the eldorado business is a very small.
Paul Patterson: Mainly legacy type investments that we've made over time.
Speaker Change: Okay, great. Thanks, a lot.
Speaker Change: Thank you. Your next question is coming from Ryan Levine from Citi. Your line is live.
Speaker Change: Hi, everybody.
Speaker Change: On the coal plant.
Speaker Change: On the coal plant closure can you give us an update post the executive order and commissioner comments.
Speaker Change: If theres any reassessment of a potential restart for for that plant.
Ryan: Yeah Ryan.
Speaker Change: Specifically some of the comments mentioned on the executive order, we're referring to one of our legacy coal plants called Joya, which actually began its retirement process last decade with retiring a couple of units and then the last remaining units were retired.
Speaker Change: Earlier this year in accordance actually to federal law requirement, along with our state implementation plan.
Speaker Change: In addition, it is not an economic plan to continue to run so.
Speaker Change: For those two reasons the plant was on track to retire and we expect it to remain retired we also already procured replacement generation in anticipation of that retirement, both for this year and future years.
Speaker Change: What we are doing though is exploring how that site can be repurposed one day in the future for new generation potentially new nuclear potentially new gas generation. So we think it's got great potential for investment.
Speaker Change: <unk>, an economic stimulus within that area, but as a new technology that allows for decades to come and that's really the right purpose for that site as well as the most economic use of generation for our customers.
Speaker Change: Okay. So the some of the legislative proposals in.
Speaker Change: You don't anticipate changing the course of action for that plant is that correct. That's.
Speaker Change: That's correct.
Speaker Change: Okay I appreciate the time.
Speaker Change: Thank you. Your next question is coming from Steven <unk> from Ladenburg Thalmann. Your line is live.
Speaker Change: Hey, guys. Thanks for taking my questions.
Speaker Change: Just quickly first on the sales growth it sounded like you in the quarter you sounded like you mentioned it in the script briefly but I just wanted a little bit of clarity on the residential side. It looks like usage implied is down a lot and I just was wondering.
Speaker Change: If that's noise or if you could talk a little bit about that it sounds like maybe there was an accounting change that.
Speaker Change: The impact of it.
Speaker Change: Yes, that's right Stephen so the underlying sales growth trends for the quarter were very strong on the C&I side in particular.
Speaker Change: <unk> seen a ramp up of these customers. If you look at the underlying sales transfer residential you had two 3% customer growth which contributed.
Speaker Change: Yeah contributed to increased sales and that was offset as it often is by the continued trends around energy efficiency and just.
Speaker Change: Customer usage, what I think.
Speaker Change: Particularly into the first quarter and keep in mind is a very small quarter. So it kind of has a exacerbated factors that we did make a onetime adjustment to how we.
Speaker Change: Account for.
Speaker Change: Estimates of Unbilled revenues for all of our customer classes for a long time, we looked at all revenue.
Speaker Change: A month that was being accrued.
Speaker Change: Kind of Holistically across customer classes, and we've reached a point, where our extra high load factor customers have become a substantial enough part of our overall sales mix that we need to do estimates for that accrual.
Speaker Change: Separately.
Speaker Change: For each of those customers and so this in January we recognize that that procedural change and that led to a as reported offset to our sales growth for.
Speaker Change: For the quarter.
We feel really comfortable about the 4% to 6% sales growth expectations for the year and the residential trends, which I know is where you were really focused are really on track to what we've seen over.
Last span of quarters kind of post Covid, which is continued strong sales growth with an offset from energy efficiency that takes you to somewhere either north or south of flattish.
Speaker Change: Growth. So this quarter, if you take out the impact of that accrual adjustment.
Speaker Change: You're talking about like negative 2%.
Speaker Change: And some quarters, that's been positive half a percent positive, 1% and so really in that range around zero is how our 4% to 6% sales growth is set and we're seeing underlying trends notwithstanding the offset from that.
Speaker Change: Estimated revenue item that are really consistent with what we've been seeing for the last number of quarters.
Speaker Change: Great. That's very helpful. Thank you and then just a follow up to some of the questions around the rate case in the formula.
Speaker Change: Right plan request.
Speaker Change: You know I guess my question is if you re queue just from a timing perspective, if you have like a 14 612 14 16 months.
Speaker Change: Time clock and you get rates effective on the 24 test your step up sometime at the end of 'twenty six is it possible to turn around and get a formula rate step in 27 for the following year, because presumably you'll be under earning at that point or just like procedurally. How does it work you have to wait until 2008 to get your first formula rates.
Speaker Change: Thanks.
Speaker Change: Yes, it's a good question the intent would be that you should have an opportunity under the scenario that you outlined to be able to have your first formula rate adjustment in 2027. The formula rate plan is designed to be an annual adjustment. So in theory. If you conclude the case in 2006 and 2007 should be your first adjustment obviously the details on the timing will be subject to the outcome of this case.
Speaker Change: What you outlined is the intent of the formulary plan and Thats, what we would pursue is to try to keep that adjustment as timely as possible. Following the conclusion of this case.
Speaker Change: Okay. Thank you very much that's very helpful. I appreciate it thank you.
Speaker Change: 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.