Pinnacle West Capital Corporation Q1 2026 Earnings Call - Record Q1 Earnings and Surging Arizona Load Growth Drive Transmission Expansion and New Subscription Model Contracts

Matthew, Conference Call Operator: Good day, everyone, and welcome to the Pinnacle West Capital Corporation 2026 1st quarter earnings conference call. At this time, all participants are placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we’ll open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Amanda Ho. Ma’am, the floor is yours.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation: Thank you, Matthew. I would 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. Jose Esparza, SVP of Public Policy, is 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 first quarter 2026 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 section, 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, 2026. I will now turn the call over to Ted.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thank you, Amanda, and thank you all for joining us today. We’re off to a solid start in 2026, delivering first quarter earnings that support the financial guidance we provided in February. Before Andrew reviews the quarter in more detail, I’ll highlight several operational, customer, and regulatory developments that underscore the momentum across our business. Arizona’s diverse economy continues to expand at a strong and sustained pace, reinforcing the state’s position as a national leader in semiconductor and advanced manufacturing. We are proud to support TSMC’s accelerated expansion in Arizona and are working closely with the company on the infrastructure needed to power their growth. With its second fab complete, TSMC expects to begin volume production of 3-nanometer chips in the second half of next year.

Construction is underway on the company’s third fabrication facility, and TSMC has also begun construction on its fourth fab and first advanced packaging facility, with those facilities expected to come online by 2029. Importantly, the momentum extends well beyond TSMC. Activity across the semiconductor supply chain continues to intensify throughout the region, with key suppliers rapidly establishing and expanding their local footprints to support accelerated production timelines. United Integrated Services Corp, Sunlit Chemical, and Mornstair have all purchased land in North Phoenix. At the same time, engineering firms, clean room specialists, electromechanical integrators, and equipment suppliers are increasing staffing levels and scaling operations across the valley. These investments demonstrate strong confidence in Arizona’s economy and reinforce the sustained growth we are seeing across our service territory.

Turning to operations, our focus remains on delivering top-tier reliability, strengthening grid resilience, and investing in the infrastructure and technology needed to serve our customers safely and efficiently. Across the company, we’re using automation and advanced analytics to improve decision-making and execution. For example, we’re applying machine learning tools to better anticipate equipment performance, prioritize asset maintenance, identify outage restoration more accurately, and strengthen situational awareness during periods of elevated wildfire or weather risk. These capabilities are helping our teams act faster, target investments more effectively, and continue improving reliability for our customers. We continue making solid progress on our generation and transmission investment plans. Construction is now underway at our Redhawk expansion project, which will add eight combustion turbines and approximately 400 MW of reliable natural gas capacity to the system.

We’re also advancing the Desert Sun project, where we have secured major equipment reservations and continued to progress through early development activities, including siting and permitting. On resource procurement, we recently received proposals in response to the all source RFP issued later last year, which targeted new resources beginning service between 2029 and 2031. We’re evaluating those bids now and working with counterparties to determine the best fit projects for our system and customers. We expect to make final awards later this year. We plan for long-term growth, we’re also focused on near-term summer preparedness. Palo Verde Unit 2 is in the final days of its planned refueling outage and expected to return to service soon. With all 3 units operating, Palo Verde will continue providing round-the-clock, reliable, and affordable energy to help meet our summer demand.

We’re prepared to serve our customers safely, reliably, and affordably during the months ahead when they depend on us the most. We continue to strengthen our customer-centric culture with employees focused on delivering reliable service, minimizing outages, and providing a seamless experience across phone, field, and digital channels. In the first quarter, APS delivered strong results in the Escalent customer relationship model, ranking in the first or second quartile across all core KPIs. APS also ranked in the first quartile through J.D. Power and was highlighted nationally as a top performer in customer awareness and participation in products and services, earning the highest awareness score in the country for available customer programs. Lastly, our rate case remains on track. We have completed multiple rounds of written testimony, and the hearing is scheduled to begin on May 18th.

We look forward to working with the Commission and intervenors in a timely and constructive manner. In summary, we’re executing our plan. Delivering operational excellence to our customers, investing in grid expansion to serve Arizona’s rapid growth, and improving investment recovery to reduce regulatory lag while ensuring affordability for our customers. With that, I’ll turn the call over to Andrew.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Thank you, Ted, and thanks again to everyone for joining us today. This morning, we reported our first quarter 2026 financial results. I will review those results and provide additional details on sales and financial guidance. For the first quarter of 2026, we reported earnings of $0.27 per share compared to a loss of $0.04 per share for the first quarter of 2025. Higher transmission revenue, favorable weather, higher sales and usage, and lower O&M were the primary benefits this quarter. These positives were slightly offset by increased financing costs, a smaller contribution from our El Dorado Investment than last year, and higher depreciation and amortization. Transmission revenues contributed to $0.16 of benefit this quarter. This reflects our continued focus on heightened transmission investments to support our growing customer base.

We expect a strong benefit in this area throughout the year in line with our annual guidance. Weather also provided a meaningful benefit this quarter, primarily driven by the warm weather we experienced later in the quarter. Although we saw less heating load in January and February due to a mild winter, according to the National Weather Service, March was the hottest on record, with 9 days at or above 100 degrees. The resulting impact was a benefit of $0.13 attributable to weather in the first quarter due to an increase in residential and commercial cooling degree days. We continued to see a consistent ongoing influx of customers into our region as customer growth for the quarter was again strong at 2.2%, near the high end of our annual customer growth guidance.

Our weather-normalized sales growth was 9.4% for the quarter, driven by strong C&I growth of 14.6% and residential growth of 1.8%. We had a one-time adjustment to sales growth during last year’s first quarter. If we take that into consideration, we would still have experienced strong weather-normalized sales growth at 7.4% during Q1 of this year. We are not changing our annual sales growth guidance of 4%-6% at this point, but it is a strong start to the year. This trend of customer and sales growth reinforces our need for investments in our system to ensure reliable service for our customers. On the expense side, O&M saw a significant decrease in the first quarter compared to last year.

This was mostly driven by lower planned outage expenses and a reduction to Commission-required energy efficiency programs. We continued to have a strong focus on cost management, and we are maintaining our goal of declining O&M per megawatt-hour. Interest expense was higher this quarter compared to the first quarter of last year, driven by higher debt balances from issuances. Our year-over-year benefit from our El Dorado investment was smaller, driving a slight drag. Finally, our depreciation and amortization expense for the quarter increased slightly as the placement of additional plant in service was partially offset by the retirement of Cholla. Turning to the balance sheet, we recently had positive conversations with all 3 credit rating agencies, resulting in the maintenance of our current ratings and stable outlooks.

We are focused on sustaining solid ratings and metrics to the benefit of our customers as we continue to work with the Commission and stakeholders on reducing regulatory lag through our pending rate case. Our guidance for financing remains unchanged, but we are pleased to announce that all of our equity funding needs for 2026 have been completed, and we are opportunistically working towards future year needs. We now have nearly $850 million of priced equity available to us for future issuance under equity forwards, including more than $350 million priced during the first quarter. We continue to utilize a mix of debt and equity sources to maintain a balanced capital structure. We are reaffirming all other aspects of our financial guidance and look forward to reliably serving our customers as we continue executing our strategy throughout the year.

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

Matthew, Conference Call Operator: Your first question’s coming from Shahriar Pourreza from Wells Fargo. Your line is live.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation1: Hey, good morning, everyone. It’s actually Alex on for Shar. Thanks for taking our questions.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Morning, Alex.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation1: Hey, good morning. Just on the long-term sales growth, that 5-7 you have out there through 2030. Obviously seeing a lot of growth in your service territory and in the pipeline as well. You saw a 7% growth just this past quarter. Can you just talk a little bit about just how sticky this outlook is? Can we sort of see this trend continue going forward? Is there sort of anything that you see that could potentially allow you to revisit this outlook as opportunities continue to materialize? Thanks.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Yeah. Alex, Andrew. It’s Andrew speaking. Good morning. You know, as you noted, we did have sales growth this quarter that even adjusting for the adjustment from the first quarter of last year was almost 7.5%. You know, we’ve got a number of them that are all in different stages of their ramp.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: You know, last year, we were able to increase our long-term sales growth guidance through 2030 up to that 5%-7%. What you saw in the 1st quarter here was a number that looks more like the top end of our range, for the long term, you know, relative to what we expect for this year, which is that 4%-6%. You’re really seeing those long-term trends begin to manifest around the diversity of customers we have. You know, we’re, you know, at this point, about to get rolling on Fab Two at TSMC, as Ted mentioned, and just the sustained customer additions to our service territory, which, for the quarter were, you know, in the top half of our customer growth range.

You know, fundamentally, that long-term runway around the diverse sales growth that we’re seeing in the service territory is something that we see continuing. We’ll continue to revisit because, you know, keep in mind that that sales growth rate is driven by the customers that are committed to today, that, you know, 4,500 megawatts or so of customers that we’ve committed to. There is a large backlog of customers in our queue. As we continue to, you know, work the capital plan and the ability to serve those customers, we’ll continue to look for opportunities to invest, you know, and see sales growth beyond, you know, our base plan. For now, you know, we feel comfortable with the 5%-10% long term and the 4%-6% for this year.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation1: Yeah, that’s very helpful. Just pivoting here, just on the EPS and the rate base CAGR. As you sort of look out sort of, say, 28, 29 beyond, just any updated views on sort of how we should be thinking about the delta between the two? Is that 200 basis points sort of the right figure? Or could you see those two converge over time, just sort of just given all the opportunities and growth that you’re seeing? Thank you.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, Alex, I mean, we’ll have to revisit all of this at the conclusion of the rate case. You know, our capital investment opportunity will be informed by both, you know, the ability to narrow regulatory lag, which in and of itself will help, you know, narrow that gap between what we spend and, you know, how it drops down to the bottom line. As well, some of the potential for bilateral contracting opportunities with some of our large load customers.

Our expectation is to continue to push those customers to, you know, support some of the upfront funding, which, you know, will allow us over the course of the contract to, you know, front-end load some of the funding which, you know, helps support, you know, the need for less external funding, you know, of those needs. You know, we’ll look at all of it, you know, for sure. As we continue to have better and more predictable cash flow conversion, it does give us an opportunity to fund more from retained earnings. We’ll just continue to look at that. Of course, we’ll also be looking at the capital opportunity and continue to reinvest in the system as well.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation1: Great. That’s very helpful. I’ll leave it there. Thanks.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thanks, Alex.

Matthew, Conference Call Operator: Thank you. Your next question’s coming from Julien Dumoulin-Smith from Jefferies. Your line is live.

Julien Dumoulin-Smith, Analyst, Jefferies: Hey, team. Good morning. Nicely done. What a way to start the year, huh?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah. Thanks, Julian. Good morning.

Julien Dumoulin-Smith, Analyst, Jefferies: Hey, good morning. Hey, look, maybe just to kick things off here from a timing perspective, how do you think what we could see on the August 3rd IRP filing here? How do you think about that refresh cycle here? Just what kind of clues could we get here to kick off the summer here and ahead of any broader post rate case update? Then maybe related to that, while we’re talking about timing, how would you think about the gating items here for this subscription model contract effort you guys are trying to get off the ground? When could contracts be signed? Is that something else, you know, that we could see this summer? How do you think about that, you know, materializing, if you will?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, appreciate the question, Julien. The IRP, you know, certainly will be a meaningful update. The team’s working on finalizing the analysis and ultimately the report now. Of course, we’ll make sure that we are working with stakeholders on engaging in the different review components before the official filing here later this summer. The IRP analysis will really include our latest long-term thinking in terms of sales growth within the service territory on all three sectors, residential, small to medium-sized business, as well as the industrial growth. Importantly, it will include all of the extra high load factor growth that we have committed to, it will not include anything that we have not contracted for yet. That’ll continue to remain as upside.

But we’ve done a lot of work over the past 6 to 12 months to really try to analyze over the next 10, 15 years, where do we think residential growth is gonna be given recent trends with distributed generation energy efficiency? How do we think the long-term ramp rates will play out within this forecast period for the committed 4.5 gigawatts of extra high load factor growth? The resources needed to be able to support that. Within the near term action plan window of the IRP, it’ll show some specific projects that have already been announced, but then beyond that, it’ll show buckets of generation and transmission needed.

As we carry forward the capital plan here, getting into the beginning of next year or at the conclusion of this rate case, that capital plan should support then the resource and transmission needs that are outlined in the IRP based on the committed growth that that’ll be included in that analysis. It’ll be a material update in terms of our latest thinking on load growth and the various resource buckets needed to support it. With respect to subscription model, we continue to be in active negotiations with counterparties on various projects. Too early to tell how those may conclude, but as soon as they do, we’d expect to be filing agreements with the commission, and we still are on track to get those filed this year.

Julien Dumoulin-Smith, Analyst, Jefferies: Got it. All right. This year indeed. Excellent. Thank you. Sorry, and if you permit me to go back a little bit here, because as best I can tell, right, APS’s rebuttal here moved several mechanics here closer to what the UNS Gas guys have on their gas template. How should you think about the cadence of that 200 basis points? I know that the gang just asked you that a second ago here, but how do you think about the timing to close that gap given some of those mechanics that you guys just tweaked here in the rebuttal? Is a 50 basis point ROE gap by 2029 still hold, or is there any potential to move that forward?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yes, we still believe that our rebuttal position and where we believe our ability to continue to manage regulatory lag going forward is consistent with our position to this point. Management’s goal is to be able to consistently earn within that 50 basis points, given there’s some element of structural lag that’ll continue to exist. I think the latest thinking on design elements for a formula rate as well as assuming a constructive outcome ultimately in the rate case revenue requirement would allow us to do so by 2029 or going forward.

Julien Dumoulin-Smith, Analyst, Jefferies: Awesome. All right, well, I’ll leave it there. Thank you guys very much. All the best.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thank you.

Matthew, Conference Call Operator: Thank you. Your next question coming from Richard Sunderland from Truist Securities. Your line is live.

Richard Sunderland, Analyst, Truist Securities: Hey, good morning. Thanks for the time today.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thank you.

Richard Sunderland, Analyst, Truist Securities: You know, picking up some of the subscription model commentary, just curious if you can frame, you know, I know you said, I think, early stage around those conversations, but, you know, has the interest shifted at all relative to your expectations, you know, 3, 6 months ago? You know, curious just any flavor you can give around those conversations given, you know, limited insight from the outside.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, I’d say the interest is still robust within the service territory. Our overall queue size remains at a elevated level commensurate with what it was before. You know, we continue to hover just under 20 gigawatts of uncommitted demand. How much of that potentially is duplicative projects or interest versus projects ready to execute, you know, to be determined. The interest in viable projects for us to be able to contract is meeting our original expectations. These contracts are complex.

They involve details around investments and execution of both transmission and generation infrastructure, ensuring that the rates are carefully calculated to make sure growth pays for growth, that the financing needs are met, and that both the utility is protecting its customers for reliability and affordability and that the counterparty gets what they need in terms of timing and resource adequacy. It takes a while for us to work through these negotiations, but they are making progress. We’re pleased with how the subscription model was received by the market and is coming together. We’re not at the point yet of filing them with the commission, but it’s trending in that direction.

Richard Sunderland, Analyst, Truist Securities: Great. Appreciate the commentary there. I think it was about a month ago that the governor’s energy task force delivered a report. I know there was a lot in there, new nuclear and other things. You know, I’m just curious what you have an eye to out of that report. Anything you’d highlight on either the nuclear front or more broadly, you know, anything that’s advanced the conversation out of that report. Thank you.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, sure. We appreciate the opportunity to work with the Governor, several agencies within the state, other stakeholders to really first create awareness on what are the energy needs to be able to power Arizona’s growth, and how should we think about those from a macro level. I think it was a robust set of discussions that culminated in a directional report that identified several key factors. One is, for example, the state has to invest in and support in new gas infrastructure to be able to power growth reliably. It showed widespread support for the gas pipeline infrastructure that is needed. Two, that the state will continue to benefit from a diverse set of resources anchored by around-the-clock dispatchable generation, but also continuing to benefit from the robust solar radiance that we have.

When you look long term, the state has always been a leader in reliable and affordable nuclear generation, and the utilities and the state believe that that’s technology worth paying attention to and be open to support in the future when it makes sense from an affordability standpoint, from a licensing and permitting standpoint. We’ll continue to work with stakeholders on any projects going forward that would make sense for us to be able to explore on behalf of our customers.

We’ve said before, specific of new nuclear, that, we’re not in a position to put the utility balance sheet at risk, but to the extent we’ve got large customers that are interested in seeing new nuclear and are willing to help support the financing for that, as the operator of the largest producing nuclear plant in the country, we’d be very open to those discussions at that time.

Richard Sunderland, Analyst, Truist Securities: Great. Thanks for the time.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thank you.

Matthew, Conference Call Operator: Thank you. Your next question’s coming from Paul Patterson from Glenrock Associates. Your line is live.

Paul Patterson, Analyst, Glenrock Associates: Hey, good morning.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Morning, Paul.

Julien Dumoulin-Smith, Analyst, Jefferies: Just a couple of my questions have already been answered, but just on the prepared remarks you mentioned, you know, how much you’ve taken care of in terms of equity, but you also mentioned, looking for additional opportunities, I believe. If you could just. I apologize if I missed it. What. If you could just elaborate a little bit on what your thinking is on that.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Sure. Paul, it’s Andrew. Yeah, on the equity side, you know, we’ve continued to try to de-risk the equity plan. We’ve got a 3-year equity plan out there through 2028. Admittedly, that is the, you know, base case plan without any of the expectations that can come from, you know, the formula rate or these bilateral subscription-type agreements. It’s sort of the base of what we need with the CapEx plan that we have in place today. You know, at this point, through various equity forward transactions, we’ve accumulated almost $850 million of equity to put to work. You know, our stated need for this year is $650 million in terms of equity.

You know, we’ve got nearly another $200 million that we’ve achieved through just our ATM program to help meet future year needs as well. You know, we’re gonna continue to look at the equity needs at the end of the rate case and what, you know, what our, you know, kinda cash flow situation is at that point. We’ll revisit the financing plan along with our capital plan. In terms of what those base needs are that, you know, $1 billion-$1.2 billion that we put out there for, you know, new money being raised from 2026 through 2028, we’ve already started to, you know, eat into that number by several hundred million. You know, we’re just trying to de-risk and do so opportunistically as we go along.

Matthew, Conference Call Operator: Okay, great. Awesome. Thanks so much. Have a good one.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thanks, Paul. Take care.

Matthew, Conference Call Operator: Thank you. Your next question’s coming from Ryan Levine from Citi. Your line is live.

Ryan Levine, Analyst, Citi: Good morning, or good afternoon. In light of some of Commissioner Myers’ testimony in D.C. recently, what is the thought process around converting retired coal to gas generation and potential for federal permitting reform to impact the company?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, appreciate the question, Ryan. You know, we continuously look at when it makes sense to revisit using some of our retired generation sites. At this point, really, the Cholla site is the only one that would probably fall under that category. The analysis was done all the way back in 2015 on the need to retire that site as a coal facility. Ever since then, we’ve continuously done analysis to determine when it makes sense for our customers to be able to potentially convert it to gas, potentially use the site for new gas generation or even other technology in the future. That analysis is ongoing. As we see demand continue to rise in our service territory, natural gas continues to be an affordable resource for us.

As the cost of new gas generation has increased recently, as a result of the supply chain demands, it makes gas conversion continue to look even more affordable. At some point, if it makes sense for us to be able to convert that on behalf of our customers, then, we’ll make sure that that is made clear, and we’ll begin those investments and put it in our plans for the future.

Ryan Levine, Analyst, Citi: Regarding the potential for federal permitting reform to impact the company, any color there?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: At this point, there’s nothing really specific, Ryan Levine, that I’d say we could directly tie to where reform could benefit. I think, we agree with Commissioner Myers, sorry, Chair Myers, that the broader need for support in terms of streamlining federal permitting has never been more present than now, given the significant infrastructure needs to be able to power some of the growing markets within our country. Arizona is probably among one of the top, whether it be for transmission siting, gas pipeline infrastructure. Any help in terms of driving efficiencies in the process and expediting federal permitting will only allow us to be able to implement infrastructure quicker and therefore serve our customer demand quicker. We support any opportunity to be able to look at those reforms.

At this point, probably too early to tell in terms of any specific opportunities that’ll benefit some of our infrastructure plans. That said, I can tell you we’re not counting on any changes to reform to be able to execute our plan, and we continue to remain on track with those infrastructure investment opportunities.

Ryan Levine, Analyst, Citi: In light of the comments you just made around the ongoing study around converting to a gas plant, is there any timeline that you’re looking at when that study will conclude? Would that be concurrent with the subscription negotiations that you have underway that are targeting the end of this year?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: I’d say probably the best opportunity to continue to look at that is as we conclude our analysis leading up to this IRP filing. That will include a wholesale look at our generation mix as it relates to serving growth. As a part of that is continued renewed analysis on any potential for a gas conversion or new gas generation at the Cholla site.

Ryan Levine, Analyst, Citi: Thanks for the time.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thanks, Ryan.

Matthew, Conference Call Operator: Thank you. Your next question’s coming from Anthony Crowdell from Mizuho. Your line is live.

Anthony Crowdell, Analyst, Mizuho: Hey. Hey, good morning, team. Just quickly, slide 18, you guys give a nice slide of, I guess, committed load and then the uncommitted load. 20 gigawatts is uncommitted. Curious on the factors or, you know, timing of when we can maybe move that 20 gigawatts into the 4.5. Do you see a conversion through 2028 or timing of conversion? I have a follow-up.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah. Thanks, Anthony. The subscription model offering that we came out with last year and the negotiations that are currently underway with counterparties would reflect some element of that 20 gigawatts potentially moving over to the committed customer bucket. I’d say that process is underway now. As we approach opportunity to file special rate agreements with our commission, that’s really the opportunity for us to be able to create more visibility into how much of that 20 gigawatts may be able to shift over based on this initial subscription offering. Then as we continue to work forward in our plan in terms of new transmission and generation infrastructure to be added, that’ll give us visibility into what the next vintage of subscription model could look like to be able to offer back to that queue.

It’s currently in process. Our goal is to be able to submit those contracts to the Commission for review this year, and I think that’ll be the point at which we’ll have greater visibility into it. In addition, our IRP, again, will do the sort of latest analysis on our best thinking in terms of organic load growth, so non-extra high load factor growth, inclusive of residential, small to medium-sized business and that’ll also likely provide some level of visibility into what we’re thinking beyond just the 20 gigawatt queue in terms of the next 10 to 15 years of demand.

Anthony Crowdell, Analyst, Mizuho: Great. If I think for APS, I apologize if I have it incorrect, I believe you guys have a large load tariff that maybe reevaluates the cost to serve these large load customers. I don’t know if it’s an annual basis or a longer tenure. I’m curious, when you talk to some of your potential large load customers that may come onto your system, do they have any comments or feeling, are they agnostic to the different type of large load tariff that exists, either that APS is offering versus maybe other utilities that are offering?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah. We have a existing extra high load factor tariff, as part of this rate case is proposed updating that tariff to ensure that it’s reflecting the current supply-demand environment as well as making sure that that tariff is priced so that growth pays for growth. I think generally speaking, these large customers accept the responsibility of paying for the costs associated with serving their growth. As we look to the future, our customers will have 2 options to be able to take service with us. The standard offering, which is continuing to take service from that XHLF tariff, recognizing that it’ll be priced accordingly on a go-forward basis based on the actual cost of service.

To the extent that they want an accelerated offering through the subscription model where they contribute to financing infrastructure or potentially, helping accelerate providing key equipment, then we can enter into a special contract that gets submitted to the Commission for review and approval. Either way, we’ve been clear all along that the pricing, whether it be through tariff or subscription model, needs to pay for the entire cost of service, and the customers that wanna do business with APS need to accept that because that’s a commitment we’ve made to our Commission and our other customers.

Anthony Crowdell, Analyst, Mizuho: Have they had a bias for it, against it, agnostic? Any color you could provide on that?

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, I think there’s general support. Obviously, we need to defend the pricing, and ensure that our customers have visibility into that. As we engage with counterparties on the incremental infrastructure needed to be able to serve them, this is incremental transmission, incremental generation, they’re truly new build to be able to serve them. There’s no more capacity on the existing system to take advantage of, so it’s all new construction. As a result, the price of that looks different than it did when you were taking benefit from legacy infrastructure that was already installed. So it’s important that we’re transparent with these customers and walking them through the specifics of what it takes to be able to serve them.

I think there’s general acceptance that that’s the reality of the operating environment we’re in today, and that’s what it’s gonna take to be able to reliably connect in the Phoenix market. The market demand remains robust. I think while the price is meaningfully different than may have been years ago when there was excess grid capacity available, it hasn’t changed the demand interest from our visibility at all.

Anthony Crowdell, Analyst, Mizuho: Great. Thanks so much for taking my questions.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thanks, Anthony.

Matthew, Conference Call Operator: Thank you. Your next question is coming from Stephen D’Ambrisi from RBC Capital.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Hey, Steve.

Matthew, Conference Call Operator: Your line is live.

Stephen D’Ambrisi, Analyst, RBC Capital: Hey, thanks very much for taking my question and, congratulations on the strong start to the year.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thanks, Steve.

Stephen D’Ambrisi, Analyst, RBC Capital: You’re welcome. Just quickly following up on Julien and Anthony’s questions. I believe the phase two subscription offering was originally sized or initially sized at 1.2 gigawatts. Or up to 1.2 gigawatts. Can you just talk to what drove that sizing? Is that more reflective of, call it, the near term opportunity within the 20 gigawatts, or is it a function of the sizing of desert, like, available capacity at Desert Sun? Or is it, you know, gas capacity? You know, ’cause clearly, I think everyone sees that there’s a pretty large load opportunity here, and we’re just trying to kind of understand what, you know, the pace of potential incremental additions to that sizing is. Thanks.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, sure. Appreciate the question. You’re correct in that the initial sizing was more driven on the infrastructure that we had identified as being available for subscription offering. That was more of a reflection of the available generation and transmission that we had visibility to in the timeframe that we knew the subscription counterparties were interested in. In large part from Desert Sun as well as the transmission to coincide with it. That’ll be a continuous evaluation.

I would look at it as less a specific amount of capacity, fixed in time and more as we continuously evaluate how much of our organic load growth is gonna require, such as existing customers, residential, small to medium-sized business, and then how much infrastructure we can build to be able to then offer above and beyond that organic load growth to the subscription queue, we’ll then contract for that availability. When we went to the subscription queue, we started out with that 1 gigawatt-1.2 gigawatt offering, and then through that we continue to progress with conversations with counterparties on what their interest is of that, if it’s one counterparty or multiple. That also opens the door for other counterparties that may have access to key equipment to be able to add in addition to.

It’s a continuous process, a continued evaluation, but the premise of the subscription model is we first get access to the opportunity to add incremental infrastructure above and beyond what our organic service territory load requirement is. We offer that to the queue, engage in negotiations, finalize the capacity that’s awarded, and then go back and recreate that process all over again with new infrastructure opportunities that we create for future availability.

Stephen D’Ambrisi, Analyst, RBC Capital: Okay. That’s very helpful. Thanks very much. The rest of my questions were answered. Appreciate the time.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thank you.

Matthew, Conference Call Operator: Thank you. Your next question’s coming from Travis Miller from Morningstar. Your line is live.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Hello, everyone. Thank you.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Hey, Travis.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Question on the transmission side. The revenue and earnings contribution for this quarter, and thinking about for the year and even future years, was there anything in the quarter that made this uniquely large, or is this type of trajectory that we should see again this year and then following along the upward sloping line of transmission investment?

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Travis, you know, as I mentioned, in the prepared remarks, our transmission investment has just continued to increase to serve growing load. If you go back, you know, 5 years ago, we’ve, you know, we’ve doubled and then doubled again the amount we’re spending annually in terms of transmission CapEx. For our system, that starts down at 69 KV. It’s a pretty substantial amount of the infrastructure we’re doing even in the local area. I think what you’re beginning to see, and you saw this in our results last year as well, is this continued step function upwards in the results of the transmission investment that we’ve been making.

You know, it takes time for that investment to start to, you know, show through to the bottom line, and that’s really what you’re beginning to see year-over-year as we engage in, you know, more and larger projects. That will continue upward. It also shows all around the benefit of a formula rate, you know, from having gradual increases. It’s also a rate that allows us to pass back wholesale revenue to our retail customers and has actually kept, you know, some of those transmission rate increases, you know, pretty stable over the years. It’s allowed us to get contemporaneous recovery and reduce lag.

It’s a good, you know, indication of what we hope to be able to replicate for our, you know, the rest of our business, which is, you know, producing the right results for customers as we continue to grow.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Okay. Yeah, that’s great. Then, on those, just real quick, on those transmission earnings, how weather sensitive are those? Or are those completely decoupled through the formula rate?

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Yeah

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Remind me about the rate-making structure there.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Yeah, it’s trued up and, you know, we, you know, are intended to earn our return on those investments.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Okay.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Yep.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Keep in mind that it’s got a balancing account and there’s a meaningful amount of that transmission revenue that’s also paid back by wholesale customers, which offsets the cost to retail customers. It’s got an annual true up as a part of this. The transmission driver is really more a reflection of our growing capital investments within the transmission system to be able to support reliability and growth than it is weather or any other factor.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: Yeah, what you’re seeing right now is the impact of the rates we put into effect the middle of last year. Of course, then there’ll be, you know, new rates that go into effect in the middle of 2026.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Okay

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation: The results for this quarter, they were consistent with the full year guidance that we gave for the year for the transmission segment.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Okay, perfect. Appreciate all those details. Just one high level, the Renewable Energy Standard repeal. Any thoughts on that? Had you anticipated that? Expecting the impact? Wondering your thoughts on that process, what was it? A couple weeks ago maybe? Well, a month ago now. Yeah.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Yeah, Travis, no impact expected. I think the commission really had a very logical and thoughtful approach, which is the utility is already exceeding the original goal set forth in that Renewable Energy Standard. It’s being driven by just the general market interest and demands, as well as the amount of growth that we have, which has spurred a significant amount of investment in utility scale solar battery storage projects across the service territory to date. Having an outdated policy standard that was put in place many years ago that we’re already exceeding probably didn’t make much sense. We anticipated that and don’t expect any impact to the business along those lines. From this point going forward, we really view it to be market driven.

With respect to updates to the Demand Side Management/Energy Efficiency Standard, this was really an opportunity for the Commission to do a wholesale review on which programs had the greatest value and impact to our customers and which had less of an impact. We think they appropriately right-sized those programs to focus on those that are having the greatest value and impact to our customers. And the accumulation of that resulted in continued meaningful support for our customers being able to conserve with energy where it makes the most sense, yet also pass on a roughly 1% rate decrease to all customers in the process. Again, just a, I think, a logical approach that still preserves the value of these programs but also creates an affordability opportunity for all customers.

Andrew Cooper, Chief Financial Officer, Pinnacle West Capital Corporation0: Okay, great. No, appreciate all those thoughts. That’s all I had.

Ted Geisler, Chairman, President, and Chief Executive Officer, Pinnacle West Capital Corporation: Thanks, Travis.

Matthew, Conference Call Operator: 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.