Greetings and welcome to the Pinnacle West Capital Corporation Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stefanie Layton, Director of Investor Relations. Thank you, Ms. Layton. You may begin.

Thank you, Doug. I would like to thank everyone for participating in this conference call and webcast to review our fourth quarter and full year 2017 earnings, recent developments and operating performance. Our speakers today will be our Chairman and CEO, Don Brandt; and our CFO, Jim Hatfield. Jeff Guldner, APS's Executive Vice President of Public Policy; and Mark Schiavoni, APS's Chief Operating Officer 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. Note that the slides contain reconciliations of certain non-GAAP financial information. Today's comments and our slides contain forward-looking statements based on current expectations and the Company assumes no obligation to update these statements. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Our 2017 Form 10-K 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 will 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 March 2. I will now turn the call over to Don.

Thanks, Stephanie, and thank you all for joining us today. 2017 was a strong year for our company financially, operationally and in the areas of safety and public policy. After increasing the dividend in October for the 6th straight year, we completed 2017 with earnings exceeding expectations. Jim will discuss the financial results. My comments will focus on our 2017 highlights in the year ahead Our fleet continued to perform well in 2017. Palo Verde generating station completed another outstanding year of carbon-free electricity production, generating 32.3 million megawatt hours of energy. It's also notable that the team of Palo Verde completed each of the scheduled 2017 spring and fall refuelings and maintenance outages in 30 days. This is the first time in the plant's history when both outages were completed in 30 days. Our generation fleet continues to evolve by integrating additional clean energy and by focusing on meeting our peak demand. The 2017 request for proposal for heating capacity resources concluded with a power purchase agreement for 65 megawatts of solar with 50 megawatts of battery storage. This will be one of the largest battery storage systems in the country. Although APS is recognized as a national leader in solar energy with more than a gigawatt of solar power on our system, this next step toward battery storage will ensure the sun helps power Arizona homes into the early evening when our customer demand for electricity peaks. The facility is expected to begin serving customers in 2021. Our investments are focused both on additional clean energy resources and the technology necessary to support these resources. Our 2017 operations benefited from a robust technology investments that were further strengthen our electric system, increase efficiency of our operations, and improved our customers experience. Among the most significant improvements were the…

Thank you Don. And thank you again everyone for joining us today. This morning we reported our financial results for the fourth quarter and full year of 2017. As you can see on slide three of the material we had a solid year. Before I review the details of our 2017 results, let me briefly touch on some of the key factors from the quarter. For the fourth quarter of 2017 we earned $0.19 per share compared to $0.47 per share for the fourth quarter of 2016. Slide four outlines the variances which drove the decrease in our quarterly earnings. Looking at adjusted gross margin the rate increase higher sales related revenue and transmission revenue were all positive contributions. As we anticipated higher adjusted operations and maintenance expense in the fourth of 2017 compared to the 2016 decreased earnings largely due to the higher plant outage cost related to the SCR installation at Four Corners unit 5. Now turning your attention to slide five I’ll review some highlights of our full year results. We delivered strong results in 2017 that exceeded our guidance range of $4.15 to $4.30 earnings $4.35 per share compared to $3.95 per share in 2016. Actual results were higher than projected due in part to effective cost management and higher revenues. Gross margin was a key driver in 2017 with the key core components. There were rate increase that went into effect on August 19, 2017 contributed $0.30. Note however, that there were related increases in operating expenses that partially offset the benefit of gross margin. Higher sales related revenue added $0.13 to gross margin in 2017 driven by customer growth and higher average effected prices. Transmission and LFCR revenues also continue to add incremental growth to our gross margin and combined contributed $0.31 per share.…

[Operator Instructions] Our first question comes from the line of Greg Gordon with Evercore. Please proceed with your question.

So looking at the drivers for the financial outlook for 2018, it appears that the only meaningful change in the near-term is that AFUDC is higher by and that explains that - all things equal the move up in the range is that correct. And if so can you just give us a brief explanation as to why?

Yes, so that’s one driver and it's really driven by the fact that we expect more of construction work progress in 2018 over 2017. But I think what’s also being masked is an electric gross margin where the big downward estimate was due to tax reform. But also we show higher retail revenue in there as well. We finished the year at 1.9% customer growth 1.8 for the year so we’re seeing continued improvement in that economy and although we did not change the O&M range we expect to have lower O&M in 2018.

So you’re within the ranges for electric gross margin in O&M even though didn’t change them - all things equal so you’re sort of better inside those ranges then you were before?

That’s right. We see continuation of the effective cost controls.

And that gross margin improvement that's due to the changes in the rate design that are allowing you to - you have historically given us sort of a spread between what you would expect the gross revenue or gross customer growth and sort of net revenue growth - its obviously I think that great design you’ve seen some improvement in that?

I think it’s due to higher sales we expect 1.5% to 1% to 1.5% in 2018 and we are seeing higher realized prices in the last half of 2017.

And then there has been some debate amongst investors on how to think about structurally you know how your earnings power grows through time especially when it gets sort of 2020. You’ve now given us rate base numbers which help. But to be clear when you give your guidance, we should assume that you’re still targeting a return on parent equity of 9.5% or better and that be consistent through 2020 and that we should be sort of obsessing about the equity layer in the utility business so the rate base number, the notional equity value but models here your capital structure and model to whether or not we believe that given these drivers you can earn 9.5% or better on parent equity is that right?

That’s correct. Nothing changed in our investment thesis.

Our next question comes from the line of Julien Dumoulin-Smith with Bank of America. Please proceed with your question.

So couple of quick questions. First on the CapEx update obviously constructive here. Can you elaborate a little bit on what the precise maybe pieces are? I know grid modernization has been something that got some amount of attention. How fully baked are those numbers that you presenting here relative to the potential in the medium term here as well as any potential incremental solar opportunities that may have emerged out of the RFP - whether in the future whether you acquire them or otherwise just want to be clear about that?

So the big drivers really on the distribution side and that’s really driven by a modernization of the grid reliability and then really growth. We have 21 new substations planned over the next three year so that’s a sign of preparing for future growth as well. So those are the big drivers.

But it's relatively fully reflected in the numbers as it stands.

Yes, we continue to talk with customer like the City of Phoenix with a micro-grid at the airport thanks for that nature but none of that’s been here because we did not have specific projects. So incrementally maybe a little upside but I think it reflects our best thinking as of now.

And then just turning back to the earned ROEs, looking beyond 2018 here obviously we’re doing well thus far. Can you comment a little bit on 2019 onwards earned ROE expectations? Should we expect further pressure as you kind of wean away from the latest rate case or how you think about that given the latest efforts to cost management that you articulated.

I’ll take the last question Don answered the question which we continue to take - earned somewhere between 9.5 and 9.9 based on revenue cost control. We have a Four Corners step increase in 2019. So nothing changed in that regard.

Right but even specifically 2018 or 2019 you think your ability to consistently earn the ROE at the same level is a fair statement at this point?

Yes.

Our next question comes from the line of Ali Agha with SunTrust Robinson Humphrey. Please proceed with your question.

First coming back to - you said one of the big drivers for both 2018 guidance going up and fourth quarter coming in stronger than even the original expectations. On the revenue side things came about better cost us well but I just wanted to reconcile that with - you reported negative 1.8% whether normalized retail sales numbers for the fourth quarter even though customer growth as you pointed was strong. So how do we reconcile strong customer growth but negative retail sales, but higher than expected actual revenues. Can you just link those?

It’s just the realized price space on when customer use their electricity.

But the usage shouldn’t that be caught in the weather normalized retail sales growth number?

No, sales of a number of units sold the revenue is really the impact of prices realized per unit.

So time of usage in other words?

Yes.

And then secondly on the tax reform front, as you think about your financing plans over this 2018 through 2020 cycle call it, any changes at all that tax reform has triggered that would change any of your medium longer term financing plans?

Not at this time. We're in an A minus we have a very pristine balance sheet, strong FFO to debt and so we’re not looking or planning on equity at this time.

And the period we are looking at is this 2018 through 2020 sort of period?

Yes.

Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.

I only had one question, Slide 11 third bullet point down on the left for guidance on rate reduction for transmission customers expect in 2018, would that be prospective or would you have to - can they go backwards on that at all?

They would not be retrospective, they would be '18 forward.

There are no further questions in the queue. I’d like to hand the call back over to management for closing comments.

Thank you for joining us today. That concludes our call.