Pinnacle West Capital Corporation

Greetings, and welcome to the Pinnacle West Capital Corporation 2020 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. During the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stephanie 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 2020 earnings, recent developments, and operating performance. Our speakers today will be our Chairman and CEO, Jeff Goldner, and our CFO, Ted Geisler. Jim Hatfield, Chief Administrative Officer, Daniel Fletcher, APS's President and COO, and Barbara Lockwood, Senior Vice President, Public Policy, are also here with us. First, I need to cover a few details with you. The slides that we will be using are available on our investor relations website, along with our earnings release and related information. 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 actual results may differ materially from expectations. Our first quarter 2020 form 10Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language, as well as 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 15th. I will now turn the call over to Jeff.

Thank you, Stephanie, and thank you all for joining us today. Before I get started, let me say I hope everyone is doing well. This is certainly an unexpected way to start our year, but the last several weeks have only reaffirmed to me that our company and our people are resilient, agile, and prepared to handle whatever comes our way. We recognize the realities of COVID-19 and the challenges that people are facing, and we remain committed first and foremost to safely delivering reliable power to Arizona, building shareholder value by ensuring customer value. In March, we made the decision to deploy as much of our workforce as possible to work from home and to change our work practices for those essential workers needed to keep the lights on for our customers and to prepare for the Arizona summer. The transition from normal course of business to social distancing and revised safety procedures was seamless from our reliability standpoint and for our customers. While our processes have changed, our priorities have not. From the financial perspective, our strengths lie in a strong balance sheet, good credit rating, and sufficient liquidity. We can and will weather this storm. We recognize that in order to serve both our customers and our shareholders, it is important to maintain our financial health. Financial stability is a key driver in our decision-making, and it's essential to support our long-term goals. Operationally, the rigor of our preparation and the strength of our team position us well to navigate the challenges presented by COVID-19. Our pandemic plan was established, tested, refined, and rehearsed before any of the COVID-19 impacts began to hit us. As I mentioned earlier, we've transitioned as many employees as possible to working from home. I'll note that includes over 140 call center associates who we moved very quickly to seamlessly continue to provide customer service from their homes, and that includes the oversight folks as well, an incredible job by the IT group there, as well as our field employees who continue to prepare for our peak summer season. All necessary summer preparedness work, including vegetation management and planned outages at our power plants have continued. In an effort to minimize the duration of those outages and the number of people required to be physically present, We prioritized essential work and deferred some discretionary maintenance until later in the year. I'm pleased to share that we completed the Palo Verde Unit 2 refueling outage earlier this week, ensuring that this key resource will be available to serve customers this summer. The refueling outage had a reduced scope to allow the completion of the essential work with 40% less contractors than normal. In addition, we've deferred non-essential transmission and distribution work that would require more than a two-hour planned outage to our residential customers during this time. We are grateful for the support we've received from so many who've helped our employees stay safe, including Armored Outdoor Gear, one of our commercial customers in Flagstaff. I'd like to thank the owner, Tom Monroe, who made the decision to quickly pivot manufacturing operations to produce masks. We were able to quickly secure 3,000 masks for APS, including an expedited quantity of 300 for Palo Verde employees at a time when masks were harder to come by. It was really a win-win situation. We were able to keep our employees safe and at the same time support our local economy. Based on what we've seen so far in energy usage and customer load growth, and Ted will talk more about this, but we know that circumstances will continue to evolve Our resource plans for additional generation remain in place. We expect to announce the results of outstanding wind and solar requests for proposal in the near future. Just as in our pre-COVID-19 world, as we learn more about our customer needs and how we are all recovering from the impacts of our current situation, we'll evaluate our assumptions for future generation resource needs and make any necessary adjustments. To date, we have not experienced any material supply chain disruptions, Our team is actively monitoring for potential disruptions and has conducted a contract review to confirm the adequacy of our summer resource needs. In addition, they've solicited supplier input to identify market risks associated with 800-plus high-volume suppliers, including all of our critical suppliers. As with many other aspects of our operations, mitigation plans are in place to minimize any potential supply chain disruptions. On the regulatory front, the Arizona Corporation Commission has been busy addressing COVID-19 concerns and adjusting their work to accommodate social distancing guidelines. Not surprisingly, as a result, a number of their work streams have been delayed. As you may recall, the original rate case schedule that staff was going to file testimony on May 20th, At the request of the Commission staff, that date's been extended to August 3rd, and the hearing's now scheduled to begin on September 30th. On May 5th and 6th, the Commission held open meetings discussing our rate comparison tool, how to refund overcollected demand-side management funds, and treatment for costs associated with COVID-19. As a result of the discussion, the Commission voted to return $36 million of overcollected demand-side management funds to customers through a one-time bill credit in June. No votes were taken regarding the other matters. However, I'll note that Chairman Burns did indicate that he plans to bring the topic of an accounting order for COVID-related costs before the Commission again at a later date. Our clean energy commitment received some positive validation in March, after the Commission held a workshop to discuss clean energy rules. Following that workshop, Chairman Burns, Commissioner Kennedy, and Commissioner Marquez-Peterson all publicly expressed support for a 100% clean by 2050 standard, and obviously that's aligned with our clean energy commitment, and I think that's a good sign for the future of clean energy in Arizona. A good future for clean energy in Arizona means robust economic development in our state and an opportunity for financial growth for Pinnacle West. We've never experienced anything like COVID-19, but we've been through many challenging times in our 136 years of service to Arizona. We don't know today what the ultimate disruptions or impacts of this pandemic will be, but I have no doubt we'll navigate both through the near term and continue to deliver on our long-term goals. And with that, I'll turn it over to Ted.

Thank you, Jeff. And thank you again, everyone, for joining us today. I want to add to Jeff's appreciation and recognition of our team's accomplishments under these unusual circumstances. I have always been proud of the APS workforce, but seeing our teams lead through this pandemic with such tenacity and strength has truly been inspiring. I would also like to share our appreciation for those in the medical profession and other essential service providers making very real sacrifices to help our communities navigate the COVID-19 impacts. Before I discuss some of the unique aspects of our service territory, and strengths that will serve us well through this current challenge. I want to briefly touch on our first quarter results. 2020 started out strong, earning 27 cents per share compared to 16 cents per share in the first quarter of 19. Lower adjusted O&M and higher pension and OPEB non-service costs contributed to the increase in earnings. We also experienced 2.2% customer growth and 0.8% weather normalized sales growth in the first quarter compared to the same period in 2019. Excluding the last two weeks of March, weather normalized sales for the quarter were within our original 2020 annual guidance range of 1% to 2%. While we started the year strong, we have also begun to experience impacts, including a reduction in load from the COVID-19 social distancing and stay-at-home guidelines. From March 13th, the date when many Arizona schools and businesses closed, to April 30th, we have seen an approximate 14% reduction in weather normalized commercial and industrial load compared to the same period last year, partially offset by an approximate 7% increase in weather normalized residential load. The reduction in CNI load equates to an earnings decrease of around 14 cents per share, while the increase in residential usage contributes about 4 cents per share for a net reduction of approximately 10 cents compared to our original expectations for this period. We cannot predict the ultimate duration or impacts from the social distancing and stay-at-home guidelines resulting from COVID-19 pandemic. However, we are committed to sharing with you today the information we have, scenario sensitivities, and mitigating factors. On April 30th, Governor Ducey extended the Stay Home, Stay Healthy, Stay Connected order through May 15th with some reopenings prior to that date. On May 4th, retail establishments were permitted to reopen while following certain restrictions. Effective today, hair salons may open, and on Monday, restaurants are permitted to reopen. While the process and timing for a full reopening is still uncertain, this is a positive step to restarting the Arizona economy. Despite the fact Arizona has already started to reopen, if we assume the trend we experienced from March 13th through April 30th continues through the end of the second quarter, we would anticipate a net weather normalized sales decrease of approximately 7% compared to the second quarter 2019 and an earnings per share decrease of approximately 20 cents compared to our original second quarter 2020 expectations. The impacts from COVID-19 are not unique to us, but there are a few differentiating factors I'd like to highlight, most notably weather, cost management, and sales growth. As most of you know, in the hot southwest desert, our demand is significantly influenced by weather and air conditioning load. For this reason, our earnings are heavily weighted towards the third quarter. Historically, approximately 56% of our annual earnings comes from Q3, 28% from Q2, and only 6% from the first quarter. While we have already experienced a reduction in load from COVID-19, this reduction has occurred in our milder shoulder season months. As we saw last year, with a weather impact of negative 25 cents per share, weather alone can play a significant factor in our annual earnings. This year, Phoenix reached triple-digit temperatures already in April, setting record highs, and we've maintained above 100 degrees every day this week with excessive heat warnings already in effect. Cost management is another key lever for us to mitigate the potential decrease in sales. We will continue our focus on cost management using Lean Sigma that we introduced throughout the organization in 2019. Our commitment to becoming a lean operating company through continuously eliminating unnecessary costs out of the business contributed to our success in meeting earnings expectations in 2019. The current COVID environment is giving our team another reason to rally in 2020 as we work hard to realize additional efficiencies this year. We've already experienced a number of successes in this space, in addition to natural O&M reductions from adjustments in our processes and scope of work related to COVID. For example, by the end of this year, we'll have deployed 28 bots across the enterprise as part of our digital transformation program. In our fossil fleet, as example, we're now using robotic process automation to complete all work packages. The use of technology to automate this process will save employees about 1,800 hours per year. Just five of the automations planned for the first part of this year are expected to produce an MPV benefit of $1.8 million over the next five years. These examples and our focus on reducing costs will serve us well, not just through the near-term challenges, but also in achieving our long-term goals of providing customers with affordable and reliable service. While total sales will likely continue to lag during the duration of the stay-at-home period, we remain confident in the long-term growth of our service territories. According to the Arizona Technology Council's quarterly impact report, Arizona tech sector is growing at a rate 40% faster than the U.S. overall. Metro Phoenix area showed strong job growth through February of 2020, which has consistently been above the national average. Through February, employment in Metro Phoenix increased 3.2%, compared to 1.5% for the entire U.S. Construction employment in Metro Phoenix increased by 5.4%, and manufacturing employment increased by 2.1%. This data reflects pre-COVID-19 conditions, and we expect to see the 2.2 customer growth rate we experienced in the first quarter to slow in the near term. However, the qualities and fundamentals that I mentioned that have consistently attracted residents to Arizona, including a low cost of living, attractive weather, and robust employment opportunities, remain intact and likely to continue supporting long-term growth after the economy normalizes. In regard to our future capital investments, we remain committed to the 4.7 billion CapEx forecast for the 2020 through 2022 timeframe, largely driven by clean energy investments. Information regarding COVID-19 and the potential impact is fluid and changing rapidly. We will continue to assess our CapEx plans, load forecasts, sales expectations, O&M, and other financial data points as more information becomes available. We recognize there are potential scenarios where COVID-19 impacts could necessitate changes in the timing or scope of our investment plans. However, as of today, we do not believe the limited load reductions experienced thus far require any alterations to our long-term plans. Similarly, we continue to believe 2020 Pinnacle West consolidated earnings of $4.75 to $4.95 per share remain achievable, assuming the impacts for COVID-19 dissipate by the end of the second quarter and customer and sales growth resumes once the economy normalizes. Additional O&M savings are also being assessed by our management team to mitigate the impact from lost revenue. A complete list of key factors and assumptions underlying our 2020 guidance can be found on slides three and four. Another advantage for Pinnacle West is our financial health. We have a strong balance sheet, A-minus credit rating, well-funded pensions, sufficient liquidity, and no equity needs in 2020. We currently have $1.2 billion in revolver capacity with an option increased by another $500 million. As of May 1st, we have drawn down $310 million on our revolvers. In addition, all remaining Pinnacle West long-term debt maturing in 2020 will occur in November and December, and APS's $200 million term loan matures in August. With all the long-term maturities falling late in the year, we have ample flexibility to assess the market conditions and evaluate our options. Further, at year-end 2019, our pension was 97% funded. With our liability-driven investment strategy, our pension was 96.4% funded as of March 31, 2020, highlighting our resilience to the market volatility. Last week, we proudly celebrated 136 years of service to Arizona customers and communities, and we've been through plenty of challenges before. As Jeff mentioned, we were well prepared for this current challenge. We started from a position of financial strength. The seasonality of our jurisdiction and the exceptional skills and sophistication of our team give us confidence that we will effectively navigate the near-term and continue to work towards our long-term commitments. This concludes our prepared remarks. I'll now turn the call back over to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Michael Weinstein with Credit Suisse. Please proceed with your question.

Hi. Good afternoon, guys.

Hey, Michael. Hey, Michael.

So if I understood it correctly, it looks like if the trends persist in April, it's about that the April trends in Cove ID load reduction are about 5 cents a month, something along those lines going forward. That's where your extra 10 cents of impact comes in if it extends out into the second quarter.

Well, Michael, this Ted, it's not that linear. Wish it was that easy. You gotta remember we got seasonality. We've got seasonal rates that start here in May. So what we've tried to do is is just say that if you look at the entire effects of COVID since mid March through the end of April, which is what we think the worst of it, because that's during the four stay at home measure. And if you just say that that four stay at home measure effect were to continue all the way through the end of Q2, then you'd likely have a full 20-cent EPS impact. And that's the way we've been thinking about it. Now, keep in mind, we're starting to reopen, as I mentioned. Retail started earlier this week. Salons started today. In fact, can't wait to go get a haircut myself after this call. And on Monday, we've got restaurants opening. So certainly there's some resumption, and we'd expect to see some positivity from a sales standpoint as a result of this. But what we're saying, just from a scenario standpoint, is if you just saw what we've seen over the last four weeks continue hard through the end of Q2, then that's the impact.

Do you think the offset from higher residential, though, would increase air conditioning load?

Do you think that actually the number of expense offset from residential increases?

It's difficult to predict. A good question and certainly on our minds as well. I'd say it's possible. The other aspect that we're thinking about is I know our workforce is contemplating the success we've had at a remote work environment. We would expect that we'll have many employees embrace more flexible work, remote work on a go-forward basis because we're seeing the benefits of that. And so we think other companies may do the same. Therefore, you may have a long-term persistent change in usage for residential customers as a result of more flexible work environments. So a lot of uncertainties, but I think your point's well taken and certainly something that we're paying attention to as well.

Now, I'm sorry if you covered this before, but are regulators considering some kind of interim relief during the rate case process for COVID?

Hey, Michael, you're breaking up on that question. I'm sorry. Could you say it again?

Sorry if you covered this.

I think we just lost you, Michael.

Oh, sorry about that.

Oh, there you go. There you go. You're back.

I'm not sure what's happening. Okay. Are regulators considering interim relief for COVID?

Yeah, so the discussion, there was a decision made to refund the overcollective DSM balance, so that's going to provide relief for customers with a bill credit in June. The discussion of whether an accounting order would be adopted was raised, and there's been some letters written by commissioners and some discussion in open meeting context around deferral mechanisms, which are obviously being discussed in many states, many jurisdictions. There was conversation on that earlier this week at the commission, but no action taken. And as I indicated, the chairman indicated that he's going to likely bring it back for further discussion. So there hasn't been anything done yet, but they are discussing it.

Got it. Thank you.

Thanks, Michael. Thanks, Michael.

Our next question comes from the line of Shar Pariza with Guggenheim. Please proceed with your question.

Hey, guys.

Hey, Shar. Hey, Shar.

Just a couple of regulatory items. Just on the rate case, in the event sort of the response to this pandemic proves a little bit longer than anticipated, I mean, we've already seen some delays here. Is there any scenario in which the rate case runs into 21, and if so, You know, how does sort of the statutory turnover at the commission affect the case? How should we sort of think about sort of settlement opportunities, especially as we head into the September hearings? You know, I have to imagine that you guys are a little bit more incentivized to settle here. So maybe just if you could just chat top level as we're thinking about the Ray case and how you're going to strategize.

Yeah, sure, sure. You know, I think right now under the current schedule, if you think about a September hearing date start date, And then you start layering on what happens. So you have a month to maybe longer than a month hearing, followed by written briefs, followed by the administrative law judge putting together a recommended opinion in order, followed by exceptions, followed by an open meeting. I think the schedule that we have now does have the case moving into 2021. And so the question then is where in 2021 and what happens over the rest of the summer? How does the pandemic play out? What impacts does that have on the Commission's ability to process cases. And again, Tucson Electric is ahead of us, so there's one indicator that you could watch for there. With respect to settlement, this was a case that the Commission had indicated they wanted to do through a fully litigated rate case. Obviously, there's a lot of uncertainty that's come up now with the pandemic, and Is there an opportunity to do that? You know, that's something that we are open to. I think there's been a little bit of signaling that that might be more palatable than it was six, nine months ago. It's still too early to say, because as you probably know, what generally happens is those discussions really start after you see staff and intervener testimony. So you've kind of got the boundaries staked out. And so we wouldn't expect to see much developments on that front until after testimony gets filed, and a little early to say whether that's going to be something the commission's going to want to do, but it's something that we would certainly entertain.

Got it. So just basically watch the August floor with the staff intervener coming out and the hearings that are now in September. So sometime between August and September should be a signal on whether you guys can form a stipulation or not.

Yeah, I think that's probably fair.

Okay, perfect. And then just one last question on the IRP. Is there sort of any updates? Do you expect any delays there around the COVID situation? Are we still shooting for June?

We're still shooting for June. Again, things are a little fluid right now in terms of what's affecting the workload, but we're still anticipating a filing in June.

Terrific. Thanks, guys. Congrats on these results. Yeah.

Thanks, Shark.

Thanks, Shark.

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

Hey. Good morning, team. Thank you for your time. Hope you all are doing well. Yeah. Hey, Julian. Good. Thanks very much. Appreciate it. So I suppose I could break things down a little bit here. When you look at the impact thus far, it seems like it's principally weighted towards commercial versus the consolidated numbers that you guys talked about here on 1010 versus industrial. And if I can take that a step further, as you think about commercial and you think about reconciling sort of against the full year and your expectations on guidance, that's a What kind of trajectory are you thinking about here on the commercial recovery here? Obviously, you've talked about some of the good points. You're trying to reconcile holding guidance, obviously some very constructive residential trends, to critically having commercial here, and you've talked about some of that. What is sort of embedded in your mind?

Yeah, Julian, it's a fair question, but really it's too difficult to get specific on how we're thinking about those two levers. You know, if this were more similar to the Great Recession where you just had a net decrease in all customer classes, it'd be a bit easier to tie it to GDP and try to assume some level of resumption. But in this case, we're seeing inverse trends where residential is up, C&I is down. It's unclear what the resumption will, the business resumption will do to C&I slowly improving and then what residential does. So, you know, for us, what we thought was most fair is to simply play out the current environment all the way through Q2 and and be able to share that while businesses are reopening, let's just assume that you saw no improvement. Here's what the EPS impact would be, and then more importantly, focus on our levers. And this management team is very focused on our levers to fight hard and do everything we can to make sure that we mitigate the impacts.

Let's talk about mitigating impacts, if you don't mind. You all have talked a little bit here about it, I think you got $13 million here at the midpoint if I've got it right here, but how do you think about the opportunity to pull more leverage here, especially against your guidance with the one to two percent normalized sales growth?

Yeah, so certainly, you know, cost management is at the top of that list, as I mentioned, and specific to cost management, gave you some examples of our lean initiatives, but, you know, we also think about it through the lens of restricting hiring or consulting costs, reduce employee expenses, deferring certain non-essential work activities. Of course, we also anticipate some fundamental growth drivers. So as we stated before, we don't have data center build out baked into our forecast because that remained relatively uncertain at the beginning of the year in terms of timing and volume. But we're seeing data centers continue with their progression. In fact, two large data centers that have been under construction for a while are transitioning in the next two weeks from construction power to full service usage. And that's certainly a driver for us. While we don't count on weather in full year guidance, weather is certainly helping us so far. And then finally, as you saw from Q1, we've got some non-operational drivers relative to, in Q1, pension OPEB that it'll annualize throughout the remaining three quarters. So as an example, those are some levers. And from a cost management standpoint, We've identified what we need to do based on the assumptions that we shared with you today. And, of course, we'll continue to evaluate additional opportunities as more information becomes apparent throughout the remainder of the quarter.

Got it. Excellent. Sorry, if I can just push on this further. In your 20 guidance, you have both retail customer growth 2% at the midpoint and Southern Norm retail sales volume going up 1.5%. Can you talk about how you achieved that today? And again, I don't want to take too much on that sales side because I know you're talking about the cost of it, but just to pivot back there and just clarify this further, how do you think about a line of sight getting there, or are you thinking about today, and I know it's early, about sort of taking, let's say, that $13 million at the midpoint of on-end savings and kind of ratcheting down that initial set of sales numbers and think about the net of that 13. That's the new trophy we're talking about for the year.

Yeah, so you're right in terms of the guidance range for customer growth, sales growth. Keep in mind for Q1, as we stated, we saw weather normalized sales growth of 0.8%. I'll tell you, prior to the effects of COVID, we saw 1% to 2% weather normalized sales growth. And in fact, the first couple weeks in March, it actually jumped up to 2% to 3% weather normalized sales growth. But the way I would look at it is we believe fundamentals in our service territories still remain strong for growth. Wouldn't be able to predict whether they return to the original guidance levels, but we certainly expect that there's going to be help from growth in the balance of the year when the economy normalizes to be able to offset some element of the COVID impacts.

And Julian, just qualitatively, when you look at also beyond 2020, I mean, the state's very focused on looking at how to pivot the economic development strategy. And that's been something that we've been very involved with is helping to recruit commercial customers and helping to recruit additional high load factor consumers into the service territory. And I think as you begin to look at some of the potential changes on supply chain, wanting to bring supply chain closer to you know, closer to home, potential patterns of people who are looking to move from higher population density areas. There is a lot of good, I think, long-term focus that the economic development folks here, both at the state level and within some of the larger companies, are really working to try to capitalize on. So obviously that can affect 2020, but when you look at some of the long-term patterns, I think it's going to still be consistent with what we've seen, which is that we'll see both the customer growth and if we can get the higher load factor manufacturing industrial customers, then we'll see sales growth as well.

Got it. Yeah, understood. Thank you all very much for the time. Best of luck with everything.

Yeah, thanks, Julian. Thanks, Julian.

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

Hey, good morning, guys. Hey, Paul. Good morning. So... Just to follow up on the regulatory stuff, which is numerous, I guess, and not that easy for me to follow. There is this, I think, some sort of proposal associated with a rate freeze. And I was wondering, I assume that's a deferral. Is that correct? I mean, if there was some sort of rate freeze that was enacted that wasn't clear to me whether or not there is sort of like it's a deferral. In other words, be for future collection after COVID or something like that. Am I understanding that correct?

I think all that's been out really on that right now, and I'll ask Barbara to clarify if she wants, has been a conversation about what are different things that could be done. So there isn't a rate freeze in place yet. right now. As you know, typically when that's done, you would put a deferral mechanism in place in lieu of doing that. But that's only been at the conceptual level right now, and it hasn't really gone into that much detail. Anything to add, Barbara?

Yeah, Paul. This is Barbara Lockwood. There was some discussion around that generally. Didn't really get any traction at the recent open meeting. And it was discussed basically in conjunction with any sort of accounting order, as Jeff mentioned earlier. There's been some conversation around different mechanisms. The decision that was made this week was to refund the $36 million that was a part of our DSM fund that was unallocated dollars, and that was the relief that they chose to provide to customers this week.

Okay, great. And then on the sort of the general rate case and sort of this I guess the sort of continuing review of the most economical plan and customer adoption and what have you, is it safe to say that probably there's not going to be a lot of action before the rate case at this point in time? In other words, it would seem to me that due to the fact that you've got a rate case going on, that would be sort of where, if anything, would probably be done in terms of resolving that is Is that an appropriate way of thinking about it?

I think what's happening right now on the most economical plan is we've put into place a bill comparison tool that appears now on every customer's bill that identifies whether they're on the most economical plan and if not, what they would save both on a month and then on an annual basis from that plan. So the intent is to provide its customers as much information as we can about whether they're on the most economical plan or not. We have some experience in this area having had demand and time of use rates for like 40 years. And in many cases, we know customers for whatever reason don't choose to be on the most economical plan. They choose to be on a plan that they want to be on. And so there's been discussion about how do we make sure we're educating and trying to encourage customers to move to that most economical plan. And we've been briefing the commission monthly on progress there that's likely to be discussed in the rate case. But that's really the connection between the most economical rate discussion and the ongoing rate case. Does that help?

Yeah, it does. I mean, I followed your compliance filing recently and some of the discussion around it. I guess all I was wondering is, is it seemed, I mean, I guess there wasn't that much adoption, I guess, or that much change in people on the most economical plan. So I was just wondering if it was to be addressed, though, it would make sense to me that, and I'm just wondering if I'm being logical here, that the commission is probably not going to take action in terms of trying to change that regulatorily. If they do make an effort, it would probably have done a rate case if that were to happen. Does that make sense?

Yeah. Yeah. I think that you would change, in terms of a rate design change or anything, that would have to happen in a rate case. I mean, the conversation of whether you would default people to their most economical plan, which is something Sacramento did, for example, that's not something we had proposed. We wanted to give customers a choice here, but those are likely to be discussed in the rate case.

I'd just add, too, that You know, when we're defining most economic plan, that could mean that if one plan's a dollar more savings than another, it's more economical. And so oftentimes with the information that we're sharing our customers on the bottom of the bill, they may look at it and see the difference between their current plan and the most economic is so de minimis not worth going through a change, and yet they're still classified as potentially not being on their most economic plan. So it's difficult to read too much into the proportion of customers that are or are not.

Okay. Fair enough. Thanks so much. I appreciate it, and hang in there. Yeah, thanks, Paul.

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

Hi. On tax rate, notice the, you know, I had a power failure, but if my memory serves me, 14% or 13% is your guidance for this year, and that didn't change yet. There was some benefit in the CARES Act, correct? Does that not impact the effective tax rate, or is it just something you've elected not to change at this point after only the first quarter?

No, there's no recent change that impacts our guidance for what you said, correct, 14% effective tax rate.

Okay. And then it sounds like on your discussion of CapEx for 2020, you did delay some projects, but you – anticipate catching up on that because you didn't change your CAPEX guidance for 2020?

No plans to change CAPEX, and there's been no material projects that have been changed. We may have shifted some non-essential work activities. Certainly, we're working with home builders, et cetera, to the extent that their timing or volume changes, but we've got other opportunities on the list that the organization would love to be able to get a head start on that could fill in that gap. So we're sticking with our current CapEx plans for the year.

Okay. Last question. The COVID-19 extra expense due to that, you said the commission elected not to vote on it at the last meeting. When do you anticipate it being voted on?

It's just up for further discussion right now. So there isn't a timeline. It's just something that was raised. They didn't vote it out on the last discussion. I can't tell you whether they're going to vote it out on the next discussion, but they're still talking about it.

Okay. That's all I had. Thanks. Stay safe, guys.

Thank you.

We have reached the end of the question and answer session. 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.