Pinnacle West Capital Corporation

Thank you, Matthew. I would like to thank everyone for participating in this conference call and webcast to review our third quarter earnings, recent developments, and operating performance. Our speakers today will be our Chairman, President, and CEO, Ted Geisler, and our CFO, Andrew Cooper. Jacob Tetlow, COO, and Jose Esparza, SVP of Public Policy, are also here with us. First, I need to cover a few details. 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 third quarter 2025 form 10Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language, as well as the risk factors and MD&E 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 November 10, 2025. I will now turn the call over to Ted.

Thank you, Amanda, and thank you all for joining us today. In the third quarter, we delivered strong operational and financial performance, underscoring the discipline and focus that define our strategy. Today, I'll share how we plan to continue to meet rising customer demand and how we successfully navigated a dynamic summer season. I'll also highlight our long-term planning efforts and strategic investments that position us for sustainable growth. Then Andrew will walk through how increased sales and transmission revenue have led us to revise our 2025 earnings guidance, along with our forward-looking financial expectations. Importantly, our long-term planning and resource procurement paid off as we reliably served customers over multiple record peak days this quarter. I'm proud of our entire team for stepping up during the summer season to support our customers and communities with industry-leading reliability, a hallmark of our company. Our crews battled storms, flooding, and extreme heat, yet we were prepared to ensure customers were taken care of with rapid response and operational excellence. Additionally, Palo Verde Generating Station operated at 100% capacity factor the entire summer, delivering a solid performance for our customers in the entire Desert Southwest region. Our peak demand record reflects the strong underlying economic growth in our service territory, with weather normalized sales growth of 5.4% and residential sales growth of 4.3% in the third quarter alone. Arizona's population growth remains robust, fueled by major employers expanding their operations and driving demand for skilled labor. The state's ability to attract and retain high-quality talent is truly a key differentiator. and a powerful signal of the long-term economic fatality we're helping support. Semicon West, recognized as North America's largest microelectronic exhibition and conference, was held outside California for the first time in more than 50 years, with Phoenix being selected as the host city. Our region's economic momentum continues to accelerate. Site Selection Magazine recently named Maricopa County the top county in the nation for economic development in 2025. citing its success in attracting high-growth industries like semiconductors, data centers, and logistics. Taiwan Semiconductor reaffirmed its commitment to Arizona, accelerating production of two-nanometer wafers and advanced technologies. They also announced plans to acquire a second location in Phoenix to support their vision for a standalone gigafab cluster. Meanwhile, Amcor Technology broke ground on a $7 billion advanced semiconductor packaging and testing facility. which is an increased investment of $5 billion over their original plans. The first phase is expected to be completed by mid-2027, with production beginning in early 2028. To support this growth, we're executing our plan for long-term investments in both transmission and baseload generation, which are essential to secure a reliable grid for the long term. In Q2, we announced our role as the anchor shipper on the Desert Southwest expansion project. And just days ago, we announced our plans to develop a new generation site near Gila Bend, just southwest of Phoenix, which could add up to 2,000 megawatts of reliable and affordable natural gas generation to our customers. The Desert Sun Power Plant is a two-phase project designed to serve both existing customers and the rising demand from extra large energy users like data centers and manufacturers. Phase one is expected to begin serving committed customers by late 2030. Phase 2 is expected to support new demand from our queue of high load factor customers. Importantly, we're working with customers now to contract for the Phase 2 capacity using our subscription model, a commercial construct designed to ensure growth pays for growth while protecting affordability for all customers. Investment and generation alone will not be enough to support the growth in customer demand. We're making significant investments in transmission as well, with multiple projects underway and more in development. These projects are expected to enhance reliability, resiliency, and integration of new resources. They also expand our access to out-of-state generation and regional markets. Transmission investment benefits from constructive and timely recovery through our FERC formula rate and creates opportunities for additional wheeling revenues that support affordability for our retail customers. Turning to our pending rate case, we remain actively engaged with intervenors in responding to data requests. and remain on track for a hearing in Q2 of next year. As we approach the end of 2025, our priorities remain clear, executing our mission to deliver reliable and affordable service to our customers, investing in baseload generation and transmission to serve growth, and achieving a constructive regulatory outcome that protects customer affordability while reducing regulatory lag. Thank you for your time today. I'll now turn it over to Andrew.

Thank you, Ted, and thanks again to everyone for joining us today. This morning, we released our third quarter 2025 financial results. I'll walk through the key drivers behind our performance, provide context on our updated 2025 guidance, and share our outlook for 2026 and beyond. We reported earnings of $3.39 per share for the quarter, a modest increase of two cents year over year. This result was primarily attributable to higher transmission revenues and higher sales. driven by robust sales growth across customer classes. These gains were partially offset by lower weather-driven sales compared to last year's Q3, higher interest expense, reduced pension and OPAP benefits, and an increase in our outstanding share count. Based on strong sales growth, along with above-normal weather, an increase in transmission revenues, and contributions from Eldorado, we are raising our 2025 VPS guidance from a range of $4.40 to $4.60 per share up to $4.90 to $5.10 per share. With the ability to de-risk future operating expenses, our updated guidance reflects an increase to our forecast O&M for the year to a range of $1.025 billion to $1.045 billion. Sales growth across all customer classes continues to be strong. We experienced 5.4% weather normalized sales growth for the quarter, including 6.6% CNI growth, supported by the continued ramp up of our large load customers and 4.3% residential growth. Year to date, residential sales growth stands at 2%, exceeding our expectations and fueled by continued customer growth at the top end of our range. We are therefore narrowing our customer growth guidance range to the high end of 2% to 2.5% for the year. As we look ahead to 2026, we anticipate earnings per share of $4.55 to $4.75 per share. The expected year-over-year decrease compared to our revised 2025 earnings guidance is due to the projection of normal weather and higher financing and D&A costs as we work through the rate case process. We continue to expect robust customer and sales growth, increased transmission revenues, focused O&M management, and some positive contributions from our Eldorado subsidiary. Customer growth next year is expected at 1.5% to 2.5%, supported by Arizona's ongoing population and business expansion. Last year, we set a post-recession record with nearly 35,000 new meter sets. We're on track to match that figure again in 2025, and our forecast for 2026 customer additions remains strong. For overall sales growth, we expect weather normalized sales to continue to grow at 4% to 6% in 2026. And with the strong residential sales growth trends and continued ramping acceleration plans by our extra high-low factor customers, including in the advanced manufacturing space, we are increasingly confident in our forecasted long-term sales growth range and are raising it up from 4% to 6% to 5% to 7% and extending it through 2030. Our capital and financing strategy remain focused on enabling growth while maintaining affordability in financial disciplines. We've updated our capital plan through 2028 to include critical strategic investments in transmission and generation that support reliability and the demands of our rapidly growing service territory. As highlighted by Ted, we look forward to developing these new resources for the benefit of our customers. These investments are expected to drive rate-based growth of 7% to 9% through 2028, an increase from our prior guidance of 6% to 8% through 2027. To support this plan, we've updated our financing strategy for 26 through 28, maintaining a balanced mix of debt and equity aligned with our balance sheet targets. For 2026, approximately 85% of our equity need has already been priced, with an additional 1 to 1.2 billion of PIN of the West equity forecasted through 2028. On the O&M front, our 2026 outlook reflects our commitment to cost efficiency. We expect a slight year-over-year decrease despite continued customer growth, and we remain focused on reducing O&M per megawatt hour over the long term. Finally, we are affirming our long-term EPS growth guidance range of 5% to 7% based on the midpoint of our original 2024 guidance range. We recognize that regulatory lag will continue to be a factor in 2026. However, we remain confident in our long-term financial strategy. Our service territory offers unique advantages including strong growth across all customer classes and a diversified economic base that includes advanced manufacturing, data centers, and continued population growth. Working closely with the Arizona Corporation Commission and stakeholders, we're committed to addressing regulatory lag, improving recovery timing, and ensuring affordability as we continue serving new and existing customers. This concludes our prepared remarks. I will now turn the call back over to the operator for questions.