Pinnacle West Capital Corporation

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 second quarter 2025 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 August 13, 2025. I will now turn the call over to Ted.

Thank you, Amanda, and thank you all for joining us today. Our second quarter financial results are in line with our annual guidance. Before Andrew discusses the details of these results, I'll provide a few updates on recent operational and regulatory developments. As we progress through the summer season, I'm very proud to share our team continues to excel in delivering reliable service to our customers. For the third consecutive year, we set a new peak energy demand record. Our customers reached a new peak on July 9th at more than 8,500 megawatts when Phoenix reached 118 degrees, more than a 300 megawatt increase from last year's peak. And we may surpass this again tomorrow as temperatures are expected to reach at least 118 again. We take our responsibility to reliably and affordably serve our customers seriously through robust planning, resource procurement efforts, and a dedicated team. I want to recognize our planners, engineers, operators, field teams, everyone that makes up the APS workforce for doing an exceptional job making sure our customers continue to experience reliable service through our summer season. Setting a new peak does not come as a surprise since our state continues experiencing growing customer demand. steady population growth, and economic diversity. The Arizona Commerce Authority just reported a record-breaking year in fiscal 2025, with a projected 24,000 jobs created in the state and businesses committed to investing over $31 billion in Arizona communities. For the second year in a row, Arizona earned the top spot by Site Selection Magazine for attracting business investment in the mountain region. Additionally, CNBC recently ranked Arizona in the top three states for infrastructure, which takes into account how states are delivering on customer power and data demands. We're working diligently with our customers and community leaders to develop the new infrastructure needed to power our state's growth. In fact, PSMC announced earlier this month that it plans to accelerate production timelines for some planned facilities by several quarters, and we're developing accelerated construction schedules now to meet their needs. Our all of the above approach to resource planning is ensuring that we deliver reliable service to our customers every day and in the moments when it matters most, like this week. The cornerstone of our balanced energy portfolio is the Palo Verde Generating Station, which celebrated its 40th anniversary this year. We continue to invest in Palo Verde for the long term. Although we have already secured 20-year license extensions to continue operating into the 2040s, we're taking steps now to prepare for subsequent license renewals into the 2060s. In addition, we recently contracted to exercise a buyout option of 94 megawatts, previously contracted under sale leaseback. This will allow us to continue providing reliable and low-cost baseload energy to our customers for decades to come. In addition to nuclear, natural gas continues to be an important part of our diverse resource portfolio. We are already developing 675 megawatts of additional natural gas generation to support reliability. Earlier today, we announced a project with Transwestern Pipeline Company to support the Desert Southwest Pipeline expansion. The new pipeline will help maintain year-round regional energy reliability by expanding transport capacity of natural gas from the Permian Basin to Arizona, enabling new gas generation infrastructure to be built in support of our customers into the next decade and beyond. This new pipeline was a critical milestone for our team to secure. before proceeding further with procuring new gas generation needed to support Arizona's reliability and growth. We expect the pipeline project to be in service by 2030, and we will be coordinating the development of new gas fire generation to be in service coincident with this timing. In addition to generation, we continue to make progress on our transmission investments and are on track to complete multiple transmission and substation projects for our growing customer base. With the tremendous growth and critical need to build out the grid, We have increased our investment in transmission infrastructure and expect this to continue being a strong component of our capital plan well into the future. We are evaluating additional opportunities to build FERC jurisdictional transmission for the benefit of our customers and look forward to providing additional information on this in the future. As Arizona continues to grow at unprecedented levels, reliable service for our customers is our top priority, which has led us to update our clean energy goal from zero carbon to carbon neutral by 2050. We're also transitioning away from interim targets to better reflect our near-term focus of reliability and affordability for our customers. And instead, we'll report interim progress in our resource plans going forward. We will rely on the integrated resource planning process to forecast the right energy mix and our all source RFP process to support reliability through best fit, least cost resources, including dispatchable resources such as natural gas, plus solar and storage. Turning to our regulatory updates, we filed a rate case on June 13th. Key components of the filing include a 10.7% return on equity, 1% return on the fair value increment, 52.4% equity layer, and 12 months of post-test year plan. We requested an increase of annual revenue of $580 million, with rates to be in effect in the back half of 2026. Since our filing, a procedural schedule has been issued which shows a hearing in May and a final open meeting vote in October of 2026. The rate case supports investments in our energy infrastructure to ensure that all customers continue to receive the reliability they count on and increased resiliency under all weather conditions. We're focused on investments to protect the grid from extreme weather and have invested in programs such as vegetation management, predictive maintenance, and wildfire early detection and mitigation tools. On a related note, HB2201, the state's wildfire mitigation bill, received bipartisan support from the Arizona legislature and was recently signed into law by Governor Hobbs. The bill requires Arizona utilities to submit comprehensive wildfire mitigation plans to the Arizona Department of Forestry and Fire Management for approval and mitigates wildfire liability risk by defining standards for the wildfire mitigation in Arizona with reference to those plans. Lastly, we're laser focused on reducing regulatory lag, controlling costs, and keeping rates as low as possible for our customers. We've proposed a formula rate adjustment mechanism to improve timely recovery of prudent and necessary costs while smoothing out customer bill impacts. In addition, we're proposing adjustments to our existing rate design to ensure new large customers will pay their full cost of service without shifting costs to other customers. We're focused on building out the grid to serve growth, ensuring reliability for our customers at the lowest cost possible, and executing on our regulatory priorities. We look forward to delivering on our commitment to customers for safe, reliable, and affordable service, especially through the summer season, while also delivering on our commitments to shareholders as well. With that, I'll turn the call over to Andrew.

Thank you, Ted, and thanks again to everyone for joining us today. This morning, we released our second quarter 2025 financial results. I will review those results and provide some additional details on key drivers for the quarter. We earned $1.58 per share in the second quarter, a decrease of 18 cents compared to the second quarter of 2024. Weather, O&M, share issuance, and pension and OPAT non-service credits were the primary negative drivers for the quarter-over-quarter comparison, along with income taxes and V&A. These were partially offset by sales growth and transmission revenue and a gain from an Eldorado equity investment. While weather was beneficial for the quarter as compared to normal weather, it was less than half the weather benefit we experienced in the second quarter last year. As a reminder, June 2024 was the hottest June on record, contributing much of the quarter-over-quarter drag. Our sales growth was strong for the quarter, contributing $0.08 of benefit year-over-year, as our weather normalized sales increased 5.2% compared to the second quarter last year, solidly within our guidance range of 4% to 6%, and with significant contributions from both residential and CNI customer classes. CNI once again has shown robust sales growth at 8% for the quarter, with a continued ramping of diverse data center and large manufacturing customers in our service territory. We experienced 2.4% customer growth in the second quarter, and Arizona's economic backdrop remains strong. We continue to see strong in-migration and population growth with Phoenix ranking in the top three among the 50 hottest new home markets for 2025, according to Zonda, a national housing market data firm. In addition, according to recent U.S. Census population estimates, multiple cities within our service territory have seen tremendous growth over the past five years, with Buckeye, Goodyear, Surprise, and Coolidge all exceeding 15% population growth. This customer growth included a surge in new home builds and new meter sets. In fact, meter sets through the first half of the year are on a similar pace to last year, which was the highest number of new meters in over a decade. Also of note, in Phoenix, inflation and unemployment both remain below national averages. This provides us confidence in our current long-term sales growth guidance of 4% to 6% through 2027. We continue to monitor overall economic trends, both locally and nationally, and we'll take them into consideration for future updates. O&M was higher this quarter. And year-to-date, while our O&M costs were higher compared to last year, this is largely due to the timing of the planned major outage at our Four Corners plant. Our cost-saving measures and lean culture remain a central tenet of our operations, and we continue to anticipate balanced spend aligned with our O&M guidance in the second half of the year. We're also maintaining our goal of declining O&M per megawatt hour while our customer footprint continues to grow. are focused on executing our capital investment program and financing strategy our long-term plans remain intact with the passage of the one big beautiful bill act we have already begun construction on our agave and ironwood projects where we anticipate tax credit benefits and these key reliability resources are on track to be in service by 2026. turning to our financing plan we issued 800 million dollars in bonds in the second quarter to pay off our 2025 maturities and support our funding strategy. We continue to be deliberate in our financing plan to support a balanced capital structure and balance sheet strength and find advantageous financing opportunities. We are reiterating all other aspects of guidance and given the strong execution of our plan through the first half of this year, we expect that we will end the year in the top half of our full year EPS range of $4.40 to $4.60 per share. As always, We are closely monitoring sales growth and weather as we move through the summer. We look forward to continuing to execute our strategy throughout the rest of 2025. This concludes our prepared remarks. I will now turn the call back over to the operator for questions.