Greetings, and welcome to the Pinnacle West Capital Corporation 2021 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. . 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. You may begin.

Thank you, Christine. I would like to thank everyone for participating in this conference call and webcast to review our first quarter 2021 earnings, recent developments and operating performance.

Thanks, Stefanie, and thank all of you for joining us today. 2021 has started off in line with our financial expectations. And so before Ted discusses the details of our first quarter results, I'll provide a few updates on our recent operational and regulatory developments. And I'll also touch on our progress towards achieving our 2021 goals. Spring is an important time of year for our summer preparedness work. And while we've always had a robust summer preparedness program, resource adequacy has recently become a more visible topic, given the events in neighboring states over the past year. To serve our customers with top-tier reliability, each year we perform preventative maintenance, Emergency Operations Center drills, acquire critical spare equipment, conduct fire mitigation line patrols and execute a comprehensive plan to support public safety and first responders. We're also procuring an additional 450 megawatts of seasonal peaking capacity, including hydro power, and we expanded our contract up to 60 megawatts for demand response from our commercial and industrial customers to help ensure that we've got adequate resources through the 2021 summer season. Additional information detailing our summer preparedness work can be found on the Pinnacle West website under the Events & Presentations tab. Our procurement process is another important way that we help ensure long-term resource adequacy. Last year, we announced the addition of 141 megawatts of battery storage to be located on six of our APS owned solar sites. Development has begun and this project is on track to meet the expected 2022 in-service dates.

Thank you.

As Stefanie mentioned, Jacob Tetlow, Senior Vice President of Operations is here today, and he'll be joining our earnings calls going forward. Jacob has a wealth of experience in both transmission and distribution operations and fossil generation here at APS. And Jacob's extensive experience as well as the companies robust succession planning position us well to continue operating with top-tier reliability. And with that, I'll turn the call over to Ted.

Thank you, Jeff. And thanks again to everyone for joining us today. With Jeff having covered our operational and regulatory updates, I'll cover our first quarter 2021 financial results; I'll also provide additional details around our customer and sales growth. As I mentioned on the fourth quarter 2020 call, we'll provide 2021 and forward-looking guidance at an investor briefing to be scheduled after the rate case concludes. 2021 started strong, earning $0.32 per share compared to $0.27 per share in the first quarter of 2020. Higher pension and other post retirement non-service credits, higher transmission revenue and weather all contributed to the increase in earnings, partially offset by higher operations and maintenance expense due to higher planned outage expense compared to the prior-year period. We also experienced 2.1% customer growth and positive weather normalized sales growth, both within our expected guidance for the first quarter compared to the same period in 2020.

Thank you. We will now be conducting a question-and-answer session. . Thank you. Our first question comes from line of Michael Weinstein with Credit Suisse. Please proceed with your question.

Congratulations, Dan. I just wanted to say, I wanted to ask about the rate case, expectations for the third quarter outcome, is that actually in a procedural schedule? I may have missed that in the beginning or is that just like an estimate of when you think they might be able to come up with an outcome?

Michael, that's more of an estimate, just given where we're at right now with filing. We filed the last closing brief on April 30th. So the Judge right now has all the information that she needs to work on recommended opinion in order. So it's a little bit of a question out how long that will take her to prepare it. As I mentioned in my opening comments, they're likely to discuss today whether they want to reopen the evidentiary hearing and have a little bit more testimony taken around adjusters. If that happens, that could add a little bit of time to it. So we just don't have a lot of visibility on to where that's going right now. But our best estimates on what we know right now, is that given how long it usually takes a Judge to prepare a recommended order and opinion that we're in the third quarter.

Got it. In terms of financing needs and equity needs going forward, you're planning on issuing equity after this case is finished, right. But it's not clear what -- how much it will be until we get a final decision; is that accurate?

Yes, Michael, that's accurate. We've previously estimated about $300 million to $400 million sometime before the next rate case. But that'll become more clear on the conclusion of this case. And we'll look forward to updating that further at our investor brief at the conclusion of this rate case.

All right. Would you lean towards doing that this year, though if assuming your third quarter outcome or would that be more spread over time?

It would all depend on the timing and outcome of this case, Michael.

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

Hey, good morning. It's Dariusz on for Julien here. Just wanted to ask a little bit more detail on your 2021 key drivers I know you guys refer to some weather normalized retail sales growth. I was wondering if you could speak to the breakdown of that among residential, commercial and industrial, if you can at all.

Yes, Dariusz, happy too. Residential for the quarter was up 2.2%, commercial and industrial was down 0.8%. Obviously, each uses different load patterns. So the net from what the normalized basis was 0.5%, which is within our guidance range. And then of course, customer growth, new meter sets installed was at the upper end of our range at 2.1%. And this is consistent with what we see from economic growth and economic drivers in terms of large pattern of residential relocations. In fact, just read an article the other day where Phoenix is the number one metropolitan area in the country for Millennials to move to and that's consistent with where we see a lot of the jobs going as well.

Great, thank you. And if I could add one more kind of more high-level question, assuming you don't get your renewable recovery rider in this existing rate case, what would be the strategy then for pursuing some kind of concurrent recovery mechanism in the future? Would you potentially try to file for that or pursue that outside of a rate case process or roll it into subsequent rate case filing?

There's testimony in the case about existing mechanisms and the power, the renewable energy surcharge mechanism has been used in the past to recover capital investment. And so there was some testimony about you've got existing mechanisms that may be able to accommodate some of that. So obviously, we'd look for that possibility. Absent that, to try to implement a new mechanism, you really would go back to the next rate case; there may be options that you could look at with deferrals or other regulatory strategies to try to mitigate the regulatory lag. But we kind of have to take that all into consideration.

Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed with your question.

So back to the rate case. Just a little bit of clarification here. So if I understood correctly, and I was unable to listen to the meeting yesterday, they haven't talked about the adjuster issue yet. They didn't get to that. Is that it? And they're going to be following it up today. Is that right?

That's right, Paul. They're two day open meetings. And so that they -- we were further down on the agenda. So they didn't get to us yesterday, and they're probably doing the energy rules right now.

Okay. And then, with respect to the -- with this adjuster issue, other than Sandra Kennedy's letter, is there any other, anything else that we should be thinking about as to why they're looking at additional testimony or reopening the record with respect to these adjusters potentially?

There's been commentary. I mean, this is a question that has come up, not just with us, but with other utilities. We can get you a copy of the letter that we filed, prior to the open meeting today that that again, tried to lay out the real value that these adjusters create, and the fact that they're very common throughout the country. So a lot of this right now is, let's continue to provide the support for the structure that we have. And as you may know, if you go back to many of the Commission's different policy decisions, we have for example, our LFCR adjuster mechanism, because originally, the state had set a policy for full revenue decoupling. And when there was concern about actually going to full revenue decoupling that was adopted as a mitigation measure. So it's a core piece of the overall energy efficiency structure that was adopted in the state. And so we're, this is the kind of information that is continuing to go to the commissioners, we feel like there's a good record to support that. And they're going to have to decide today whether they want to take additional testimony.

I did read your letter, and I think also the staff was pretty supportive as well.

Yes, yes.

At least I got it out as much. So okay -- so we'll just see what happens there. And we'll take it from there. Any idea well we'll just have to see what they do, I guess. Okay, thanks so much.

Yes, thanks Paul.

Our next question comes from the line of David Peters with Wolfe Research. Please proceed with your question.

Just a follow-up on that. Do you have any sense and how long that could elongate the timeline if they were to reopen it? I know you said you expect it to add sometime?

Yes, it's hard to say because it will depend on how they want to do it and really input from the parties. And I would expect the Judge may weigh in on that today as well. I know some cases where they've gone back and it's been just like a quick one day of additional testimony. And so we've seen that before. In this case, if they say well, we'd like to have some briefs and other things that would obviously make it longer. But it's just hard to tell until we get through the open meeting today.

Okay. Then the next question just on the all-source RFP you have out there, can you remind me is any of that, there's megawatts currently in the CapEx plan or would anything that comes out of that, at least what you show for 2023, would be upside?

Yes, appreciate that question. So our estimates for outcomes are that all-source RFP is already baked into the current capital program that we've got, including the recent addendum of 150 megawatt solar. So that RFP is consistent with the plans in the capital guidance that we've already put forward.

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

Thank you. Good morning. Another utility earlier this week that has a pretty big presence of data centers reported that they're still seeing strong growth, and I know that's been an important load inquisitor in your C&I segment as well. Do you -- are you seeing the same thing? Is it still pretty strong on the data center growth?

Yes, Charles, appreciate the question. We are. We got about 24 megawatts under construction right now. I know a firm JLL Research recently published that they estimate, there's about 250 megawatts planned either in early development or expected to be under construction in the planning horizon. And they estimate our service territory to be ultimately the second largest data center hub in the country. So we continue to think that for a variety of reasons, this is a good location for data centers. We're seeing those in early stages of development. I think the key though is, at what rate do the data centers actually fill up from a server capacity standpoint, and therefore an energy demand standpoint, building the shell of the data center, and therefore interconnecting it as one thing, but it takes time for those data centers to then fill up from a capacity and demand standpoint. So that's what we'll continue to monitor over time.

Yes, Charles the bigger, probably the bigger driver right now, or at least an equally important driver right now in Arizona is the industrial development that's happening. And so I'm sure you're aware that Taiwan Semiconductor is pursuing, I think their largest North American fab in our service territory, and there's additional semiconductors, Intel's announced additional work down in the Salt River Project area. And so Arizona is becoming a semiconductor manufacturing center. We've got a fair amount of electric vehicle manufacturing. So the real pivot is done in 2007 after that recession, we were primarily in construction, residential growth economy, and we're now much more in industrial growth economy and data centers are obviously a piece of that.

Our next question comes from line of Sophie Karp with KeyBanc. Please proceed with your question.

Hi, good morning. Thank you for taking my questions. If I may, on the ALJ timing, right. When would you given a normal progression right, let's say they don't reopen the evidentiary record. When would you expect this ALJ to come up -- come out with a proposed decision in order to still meet the timeline that you outlined for the rate case though, right? Ask differently if it doesn't come out by a certain date, should we expect how should we think about that?

Yes, Sophie, it's a great question. See we're one of the biggest cases that goes through the commission. And so we're certainly different than a small Water Company case. And so the ALJ is typically, it's just a longer process to work to the evidentiary record and to put the recommended opinion together. So I'd say usually, you see in a couple of months range to put that together, but a lot of it is stuff we can't see. So it depends on the Commission's workload, it depends on the other cases that she's got. And so we don't have much visibility into what the timing is, but they work on them expeditiously. But the size of this case, I look at a couple of months, at least.

Got it, got it. Very helpful, thank you. And then maybe if you could comment a little bit on the economic recovery situation in Arizona in the post-COVID world. I think you mentioned that the C&I volumes are still down a little bit on a remote basis. Where do you see that going just based on what's happening on the ground there?

Yes, Sophie, I appreciate the question. Keep in mind that the 0.8% reduction is comparing year-over-year and of course, really, we didn't see the effects of COVID until the very end of Q1 last year. So, from that standpoint, I still see that to be a fairly mild impact compared to what had otherwise could have been. When you look at the vacancy rates for example in commercial leasing, if you look year-over-year pre-COVID, post-COVID they're really only down about 1%. So it went from about 11.5% vacancy to 12.5%. But that's certainly something that we continue to monitor. And when we look at the overall usage trends, you still see a meaningful increase in residential and a meaningful reduction compared to historical patterns of commercial and industrial. And so the key will be is, as businesses get more comfortable with reopening, how do those do normalize. All that said, it doesn't take away from the fact that we've got very high influx of new meter sets being installed, residential and commercial. And so when we net it together, we still expect to see net positive growth.

We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

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

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.