Current Assets

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4d3b17cceecf63b1e7aca65deacecdd8c74f1eb5b6d752155febb59479114e10

Pinnacle West Capital Corporation (PNW) is an investor-owned electric utility holding company based in Phoenix, Arizona, with consolidated assets of approximately $26 billion. The company primarily operates through its principal subsidiary, Arizona Public Service (APS), which is the largest and longest-serving electric company in Arizona, providing electricity to approximately 1.4 million retail customers across 11 of Arizona's 15 counties **[0000764622-24-000079_pnw-20240930.htm:85]** **[0000764622-24-000033_pnw-20240404.htm:53]**. PNW's revenue is mainly derived from retail electric services, including residential and non-residential electricity sales, with additional contributions from wholesale energy sales and transmission services for others **[0000764622-24-000079_pnw-20240930.htm:18]**. The company's energy mix is diverse, with 51% of its energy coming from clean, carbon-free resources, aligning with their strategic focus on sustainability and clean energy initiatives **[0000764622-24-000033_pnw-20240404.htm:53]** **[0000764622-24-000081_novemberinvestordeck.htm:5]**.

1. **Retail Electric Services** - Provides electricity to residential and non-residential customers across Arizona, serving as the primary revenue source for the company.
2. **Wholesale Energy Sales** - Engages in the sale of electricity to other utilities and energy providers, contributing to the company's revenue.
3. **Transmission Services for Others** - Offers transmission services to other entities, facilitating the distribution of electricity across the region.

01e5c7299606a996df3ddbc6d2358dc0aa3391e0ff804e4aca26db412f9dabb9

Retail Electric Service

- Residential

- Non-Residential

Wholesale Energy Sales

Transmission Services

Other Sources

Total Operating Revenues

f739ad8cf16cdf833f79add681912838f367ccaaa4367ed61129b6a93eead775

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Net Income [USD, Thousands]

EPS - Basic [USD]

EPS - Diluted [USD]

a2761a3ff1a3c0800544317ff9cf3016fa461428d6f9c1691688f7c4f919427f

Adjustments for Non-Cash Items [USD, Thousands]

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288b8600a1e9641ccc06718bc93488b866a273cd17e2c2985872e268662a8e6f

9d259684b0ae5ff3410aeafc09563ee87e02f9e722b430fb1a75f14b0971ad0a

1. Despite **strong weather-normalized sales growth of 5.9%** in Q3 2024 and **customer growth of 2.3%**  **[PNW_3406097_3]** , you are forecasting an EPS decrease to **$4.40 to $4.60** in 2025 from the updated 2024 guidance of **$5.00 to $5.20**  **[PNW_3406097_3]** ; can you elaborate on the specific factors driving this decline and how you plan to mitigate them?
2. With your **capital plan through 2027 increasing by 24% to $9.65 billion**  **[PNW_3406097_4]** , and updated annual equity needs rising to **$250 million to $300 million**  **[PNW_3406097_4]** , how do you intend to manage the potential dilution to shareholders while maintaining a balanced capital structure?
3. Given the **over 10,000 megawatts of extra high load factor demand** from data centers currently in planning  **[PNW_3406097_9]** , what challenges do you anticipate in securing the necessary resources and infrastructure to meet this significant growth, and how might this impact your capital expenditure plans?
4. Considering the **anticipated additional costs associated with regulatory lag in 2025**, including debt and equity financing costs  **[PNW_3406097_3]** , what specific steps are you taking to reduce regulatory lag, and how confident are you in achieving a more timely cost recovery framework?
5. In light of the recent Arizona Corporation Commission elections potentially resulting in three new commissioners  **[PNW_3406097_5]** , how might changes in the commission's composition affect your strategic priorities, particularly regarding regulatory lag reduction and rate case outcomes?

1a759171713a24cc6324d0057f9c954f08457b9c706f3e39c776a4d17a1002ea

### Q3 2024 Earnings Call
- **Issued Period**: Q3 2024
- **Guided Period**: FY 2024 and FY 2025
- **Guidance**:
  1. **Earnings Per Share (EPS) for 2024**: $5 to $5.20 per share  **[PNW_3406097_3]** .
  2. **Sales Growth for 2024**: 4% to 6%  **[PNW_3406097_3]** .
  3. **Operating and Maintenance (O&M) Expenses for 2024**: $1.01 billion to $1.03 billion  **[PNW_3406097_3]** .
  4. **Capital Expenditure for 2024**: $1.95 billion to $2.05 billion  **[PNW_3406097_3]** .
  5. **Earnings Per Share (EPS) for 2025**: $4.40 to $4.60 per share  **[PNW_3406097_3]** .
  6. **Customer Growth for 2025 and Long Term**: 1.5% to 2.5%  **[PNW_3406097_3]** .
  7. **Weather-Normalized Sales Growth for 2025 and Longer Term through 2027**: 4% to 6%  **[PNW_3406097_3]** .
  8. **Long-Term EPS Growth Guidance**: 5% to 7%  **[PNW_3406097_3]** .

### Q2 2024 Earnings Call
- **Issued Period**: Q2 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Earnings Per Share (EPS)**: Expected towards the higher end of the range if trends continue  **[PNW_3395687_4]** .
  2. **Sales Growth**: Lower range for the year, long-term 4% to 6%  **[PNW_3395687_5]** .
  3. **Weather-Normalized Sales Growth**: 4% to 6%  **[PNW_3395687_3]** .
  4. **Customer Growth**: 2.1% in Q2  **[PNW_3395687_3]** .
  5. **Operating and Maintenance (O&M) Expenses**: 2% reduction in core O&M, 2% overall increase  **[PNW_3395687_9]** .

### Q1 2024 Earnings Call
- **Issued Period**: Q1 2024
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Earnings Per Share (EPS) Guidance**: $4.60 to $4.80 per share  **[PNW_3375205_5]** .
  2. **Customer Growth**: 1.5% to 2.5%  **[PNW_3375205_5]** .
  3. **Sales Growth**: 2% to 4%  **[PNW_3375205_5]** .
  4. **Long-term Sales Growth**: 4% to 6% through 2026  **[PNW_3375205_5]** .

### Q4 2023 Earnings Call
- **Issued Period**: Q4 2023
- **Guided Period**: FY 2024
- **Guidance**:
  1. **Earnings Per Share (EPS) Guidance for 2024**: $4.60 to $4.80 per share  **[PNW_3375205_5]** .
  2. **Customer Growth**: 1.5% to 2.5%  **[PNW_3375205_5]** .
  3. **Sales Growth**: 2% to 4%  **[PNW_3375205_5]** .
  4. **Long-term EPS Growth Guidance**: 5% to 7%  **[PNW_3375205_5]** .
  5. **Rate Base Growth Guidance**: 6% to 8% CAGR  **[PNW_3375205_6]** .
  6. **Capital Investment**: $6 billion through 2026  **[PNW_3375205_6]** .
  7. **FFO to Debt Target Range**: 14% to 16%  **[PNW_3375205_7]** .

1316c7dc6b755f7615ae812eea6fddf1e2a4057080bf5192a67fd84168d7175d

| Name                | Position                                                                 | Start Date             | Short Bio                                                                                                                                                                                                                                                                                                                                                     |
|---------------------|--------------------------------------------------------------------------|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Jeffrey B. Guldner  | Chairman of the Board, President, and CEO                                | November 2019          | Jeffrey B. Guldner has been with PNW since 2004, initially joining as Director of Federal Regulatory Affairs and Compliance. He has held several leadership positions, including Executive Vice President of Public Policy and General Counsel. He will retire from his current roles on March 31, 2025, and remain in a non-executive advisory capacity until March 31, 2026  **[0000764622-24-000033_pnw-20240404.htm:44]** **[0001308179-23-000547_lpnw2023_def14a.htm:43]** **[0000764622-24-000088_ex991.htm:0]** . |
| Theodore N. Geisler | President of APS; Chairman of the Board, President, and CEO (future)     | May 2022; April 1, 2025| Theodore N. Geisler began his career at APS in 2001. He has held various roles, including Senior Vice President and Chief Financial Officer. He will assume the roles of Chairman of the Board, President, and CEO of PNW effective April 1, 2025  **[0000764622-24-000088_ex991.htm:1]** **[0000764622-24-000033_pnw-20240404.htm:53]** **[0000764622-24-000088_pnw-20241211.htm:1]** .                                                                                                  |
| Andrew D. Cooper    | Senior Vice President and Chief Financial Officer                        | May 16, 2022           | Andrew D. Cooper is responsible for the organization’s accounting, corporate treasury, financial planning and budgeting, internal audit, investor relations, pension and trust investments, and tax services. He previously served as Vice President and Treasurer  **[0000764622-24-000033_pnw-20240404.htm:52]** **[0001308179-23-000547_lpnw2023_def14a.htm:52]** **[0001308179-23-000547_lpnw2023_def14a.htm:75]** .                                                                                  |
| Adam C. Heflin      | Executive Vice President and Chief Nuclear Officer                       | June 2022              | Adam C. Heflin is responsible for all nuclear-related activities at the Palo Verde Generating Station. He began his nuclear career in the U.S. Navy and has served as CEO and Chief Nuclear Officer of the Wolf Creek Nuclear Operating Corporation and Chief Nuclear Officer at Ameren's Callaway Energy Center  **[0000764622-24-000033_pnw-20240404.htm:53]** **[0001308179-23-000547_lpnw2023_def14a.htm:53]** .                                         |
| Robert E. Smith     | Executive Vice President, General Counsel, and Chief Development Officer | N/A                    | Robert E. Smith oversees all facets of the company’s legal affairs, corporate secretary function, and growth plans and strategies. He serves as President of Pinnacle West Power and its subsidiaries and is involved with various industry and venture fund/advisory boards. He signed documents on behalf of PNW and APS as of December 12, 2024  **[0000764622-24-000033_pnw-20240404.htm:53]** **[0000764622-24-000033_pnw-20240404.htm:75]** **[0000764622-23-000033_pnw2022glossyannualrepor.htm:5]** **[0000764622-24-000090_pnw-20241210.htm:2]** **[0000764622-24-000088_pnw-20241211.htm:3]** . |

8b3b0eabc7c65333c0d1b111cd10a5f9a8a4a863dc42b6b3c93853e5e75f8866

**Annual guidance for FY 2024:**
- **EPS**: $5 to $5.20  **[PNW_3406097_3]**  (no prior numeric guidance  **[PNW_3395687_4]** )  
- **Sales Growth**: 4% to 6%  **[PNW_3406097_3]**  (no change from prior 4% to 6%  **[PNW_3395687_5]** )  
- **Operating & Maintenance (O&M) Expenses**: $1.01B to $1.03B  **[PNW_3406097_3]**  (no prior numeric guidance  **[PNW_3395687_9]** )  
- **Capital Expenditure**: $1.95B to $2.05B  **[PNW_3406097_3]**  (no prior guidance)  

**Annual guidance for FY 2025 and beyond:**
- **EPS**: $4.40 to $4.60  **[PNW_3406097_3]**  (no prior guidance)  
- **Customer Growth**: 1.5% to 2.5%  **[PNW_3406097_3]**  (no prior guidance)  
- **Weather-Normalized Sales Growth**: 4% to 6%  **[PNW_3406097_3]**  (no change from prior 4% to 6%  **[PNW_3395687_3]** )  
- **Long-Term EPS Growth**: 5% to 7%  **[PNW_3406097_3]**  (no prior guidance)

2d9fea0292f9455fa7a5bf1083e05585f24aadfacf0dfbfcfbe609943fd918bf

1. **Regulatory Lag and ROE Improvement Timing**  
   **Q:** How much are you lagging in 2025 ROE, and when will it improve?  
   **A:** Andrew Cooper explained that due to increased CapEx and operating costs not fully recovered, there is regulatory lag impacting ROE in **2025**. They plan to file a rate case, possibly by mid-2025, with rates effective in the latter half of **2026**, to true up costs and improve ROE. Reducing regulatory lag remains a focus to achieve earnings closer to their authorized return. [Indices 2, 10]

2. **CapEx Increase and Financing Plan**  
   **Q:** How will you fund the increased CapEx, and does the $725 million equity block net against the $700–$900 million figure?  
   **A:** Andrew Cooper confirmed that the **$725 million** equity from the February block hasn't been drawn yet and does not net against the **$700–$900 million** incremental equity needed over **2025–2027**. They plan to fund the increased CapEx with less than **40%** equity, utilizing tools like at-the-market offerings and forward agreements, and exploring alternative financing options like DOE programs and hybrid securities. [Indices 3, 15, 16]

3. **Data Center Load Growth**  
   **Q:** What is the pipeline of data center demand, and are there transformative large data centers?  
   **A:** Theodore Geisler reported over **4,000 megawatts** of committed high-load customers, mainly data centers, in development, and over **10,000 megawatts** in planning stages. While current projects are relatively distributed, there are a couple of larger single requests in early planning that could significantly impact their system. [Indices 4, 5, 6]

4. **Earnings Growth Expectations and Regulatory Lag**  
   **Q:** Is the 5%–7% EPS CAGR dependent on reducing regulatory lag?  
   **A:** Andrew Cooper stated that while reducing regulatory lag would help smooth earnings growth, the **5%–7% EPS CAGR** is not solely dependent on it. They are confident in their rate base growth, focusing on capital allocation to assets with appropriate recovery, and aiming to earn closer to their authorized ROE through effective cost management and upcoming rate cases. [Indices 7, 11]

5. **Inflationary Trends and O&M Costs**  
   **Q:** How are inflation trends impacting O&M and future rate cases?  
   **A:** Andrew Cooper noted that while some inflation persists, costs are stabilizing. They increased O&M in 2024 by pulling forward projects and funding customer assistance programs due to a hot summer. In **2025**, they expect O&M to decrease, focusing on cost management. In future rate cases, they aim to true up costs to reflect the current environment, as the last rate case didn't capture recent inflation impacts. [Indices 12, 14]

6. **Rate Design for Large Loads**  
   **Q:** Are you considering take-or-pay contracts for large customers?  
   **A:** Jeffrey Guldner acknowledged that they are engaging with large-load customers to protect existing customers from potential cost shifts. This includes considering rate design changes like take-or-pay contracts to ensure growth pays for growth and prevent any cost shifts to other customer classes. [Index 8]

7. **Elections and Regulatory Outlook**  
   **Q:** How might the election results affect regulatory proceedings?  
   **A:** Jeffrey Guldner noted that preliminary results suggest three Republican commissioners leading, who generally align with current commissioners on issues like the regulatory lag docket. He anticipates continued constructive work on regulatory matters if these results are confirmed. [Indices 0, 9]

8. **All-Source RFP and Ownership Opportunities**  
   **Q:** How much of the All-Source RFP have you been able to build yourselves, and what's your expected win rate in future rounds?  
   **A:** Theodore Geisler stated they've more than doubled their owned projects since the SRB, with about **800 megawatts** of projects contracted and under development. Although they haven't reached their long-term target of a **40%–50%** ownership mix, they continue to increase owned assets through ongoing and future RFPs. [Index 13]

9. **Alternative Financing and Nuclear PTC**  
   **Q:** Are you considering alternative financing options, and how does the nuclear PTC factor in?  
   **A:** Andrew Cooper mentioned they are open to alternative financing, including DOE programs and hybrid securities, while preferring a straightforward capital structure. Regarding the nuclear PTC, they are awaiting guidance but expect it to benefit customers by deferring capital investment costs, and it is not included in current earnings guidance. [Indices 16, 17]

10. **O&M Pull Forward and Regulatory Lag Docket**  
    **Q:** How much O&M was pulled forward into this year, and could the regulatory lag docket be enacted before filing a rate case?  
    **A:** Andrew Cooper explained they don't break out the exact amount of O&M pulled forward but have derisked projects over a multi-year horizon, including bringing forward projects due to favorable weather. Regarding the regulatory lag docket, Jeffrey Guldner noted it's possible they could file a rate case prior to the issuance of a policy statement and are monitoring the timing closely. [Indices 18, 19]

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6791b94fefc3dbb8f10b39292f96a7f313f3a091c0572c3cd3e0e43db54dd89e

| Name                  | Start Date | End Date | Reason for Change |
|-----------------------|------------|----------|-------------------|
| Deloitte & Touche LLP | 1932  **[0000764622-24-000016_pnw-20231231.htm:106]**    | Present  | Current auditor   |

1fb65b9e13be9c46dc894887179e075a8e8a36ff87b99dbfe3ea639edc45a93e

23794d91c53ae875c8e247d72561e35d9d06ee07c70c9e0dbcc977a6d161504a

- Total Operating Revenue: $1.769 billion (+8% YoY)  **[0000764622-24-000079_pnw-20240930.htm:5]** **[0000764622-23-000103_pnw-20230930.htm:5]** **[0000764622-23-000103_pnw-20230930.htm:11]**   
- Operating Income (EBIT): $547 million (+6% YoY)  **[0000764622-24-000079_pnw-20240930.htm:11]** **[0000764622-24-000079_pnw-20240930.htm:5]** **[0000764622-23-000103_pnw-20230930.htm:5]**   
- SG&A: $308 million (+23% YoY)  **[0000764622-24-000079_pnw-20240930.htm:11]** **[0000764622-24-000079_pnw-20240930.htm:5]** **[0000764622-23-000103_pnw-20230930.htm:5]**   
- Capital Expenditures (CapEx): -$666 million vs. +$2.678 billion in Q3 2023 (>100% change)  **[0000764622-24-000079_pnw-20240930.htm:14]** **[0000764622-24-000079_pnw-20240930.htm:8]** **[0000764622-23-000103_pnw-20230930.htm:8]**   

fa05ac07a737b2536c88390a624a6fc54f087b0b90a09fd7c58f05f376776281

b75da0bb454573fe9b190d5e02b43755ce0f9cc865a8025d24aa616579409521

Number of retail electricity customers (million customers)

Net capacity in operation for APS-owned energy storage (MW)

Net capacity in operation for purchase power agreements energy storage (MW)

Net capacity in operation for customer-sited energy storage (MW)

Total net capacity in operation for energy storage portfolio (MW)

Net capacity planned or under development for APS-owned energy storage (MW)

Net capacity planned or under development for purchase power agreements energy storage (MW)

Net capacity planned or under development for customer-sited energy storage (MW)

Total net capacity planned or under development for energy storage portfolio (MW)

Net capacity in operation for APS-owned solar (MW)

Net capacity planned or under development for APS-owned solar (MW)

Net capacity in operation for purchased power agreements solar (MW)

Net capacity planned or under development for purchased power agreements solar (MW)

Net capacity in operation for purchased power agreements wind (MW)

Net capacity planned or under development for purchased power agreements wind (MW)

Net capacity in operation for purchased power agreements geothermal (MW)

Net capacity planned or under development for purchased power agreements geothermal (MW)

Net capacity in operation for purchased power agreements biomass (MW)

Net capacity planned or under development for purchased power agreements biomass (MW)

Net capacity in operation for purchased power agreements biogas (MW)

Net capacity planned or under development for purchased power agreements biogas (MW)

Total net capacity in operation for purchased power agreements renewables (MW)

Total net capacity planned or under development for purchased power agreements renewables (MW)

Net capacity in operation for total distributed energy solar (MW)

Net capacity planned or under development for total distributed energy solar (MW)

Total net capacity in operation for renewable portfolio (MW)

Total net capacity planned or under development for renewable portfolio (MW)

Annual energy generation from Palo Verde (million MWh per year)

Number of households powered by Palo Verde (million households)

Number of people powered by Palo Verde (million people)

Number of Level 2 EV charging ports (ports)

Number of customer locations with Level 2 EV charging ports (locations)

Coal-fired electric generating capacity retired (MW)

Retail customer growth rate (percentage)

Three-year average annual retail electricity sales growth (percentage)

Retail electricity sales growth (percentage)

6c832b4f4b615acfe8f5685bd6f65bd17512384f9e5e88b48a98ab21776fbc62

- **Significant regulatory lag is causing under-earning**, with uncertainties about when and how the company will recover these costs, potentially impacting earnings growth.  **[PNW_3375205_10]** ,  **[PNW_3375205_12]**
- **Credit metrics have deteriorated**, with the FFO-to-debt ratio falling below previous targets, leading to uncertainty around the company's credit ratings and possible negative outlooks from rating agencies.  **[PNW_3375205_20]** ,  **[PNW_3375205_12]**
- **Substantial equity issuances are planned**, including up to **$500 million** to true up the capital structure and an additional **$400 million** to support future capital expenditures, which could dilute existing shareholders' value.  **[PNW_3375205_19]** ,  **[PNW_3375205_12]** ,  **[PNW_3375205_8]**

a292d5a06f947f60f51547f62a764d6d7f59f841faf741c6d09c4503a595a1bb

- **Pinnacle West reported total weather-normalized sales growth of 5.5% in Q2 2024**, driven by robust **10% growth in the Commercial & Industrial (C&I) segment**, primarily due to the ramping of large manufacturing and data center customers like TSMC.  **[PNW_3395687_5]**
- The company has a **substantial backlog of committed projects extending beyond 2026**, including the **second and third phases of TSMC** and over **4,000 megawatts of data center customers**, with more than **10,000 megawatts of additional data center requests**, indicating strong future growth prospects.  **[PNW_3395687_5]**
- Pinnacle West is making progress in addressing regulatory lag issues, with the commission showing a desire to understand policy options to reduce regulatory lag, which is **important for supporting Arizona's significant growth** and the capital investment required to serve it.  **[PNW_3395687_7]**

6ecf2c7f7c6f6c48bb1472845e6a9de8b26370574234b8865bb07ec31e2deb7c

1. **Financing Plan & Capital Needs**  
   **Q:** How will you finance the remaining $400 million capital need?  
   **A:** Andrew Cooper stated they have an unidentified external financing need of an incremental **$400 million** from the parent over the next couple of years.  **[PNW_3382089_6]** **[PNW_3382089_9]**  They will continue to explore different markets to meet that need, with the base case being something like an ATM because it matches well with deploying capital and investing proceeds into the utility.  **[PNW_3382089_6]** **[PNW_3382089_9]**  They are also considering hybrid securities and are focused on maintaining a balanced capital structure, being judicious about parent company debt, and maintaining their targeted range of **14% to 16% FFO to debt**.  **[PNW_3382089_6]** **[PNW_3382089_9]** 

2. **Sales Growth from Data Centers**  
   **Q:** How is data center load affecting sales growth?  
   **A:** Andrew Cooper explained that they saw **5.9% sales growth** for the quarter, driven by large high-load-factor C&I customers, including data centers and the ramp-up of Taiwan Semiconductor Manufacturing Company (TSMC) and their suppliers.  **[PNW_3382089_7]** **[PNW_3382089_8]**  In the near term, growth is more weighted towards data centers, but in the latter part of their forecast, advanced manufacturing growth from companies like TSMC will take over.  **[PNW_3382089_7]** **[PNW_3382089_8]**  Over the decade, their Integrated Resource Plan (IRP) expects roughly **half of the growth from advanced manufacturing and half from data centers**.  **[PNW_3382089_7]** **[PNW_3382089_8]** 

3. **Regulatory Lag and Earnings Impact**  
   **Q:** How is regulatory lag affecting your earnings guidance?  
   **A:** Andrew Cooper acknowledged that regulatory lag is increasing due to costs based on a historic test year from the middle of 2021, before significant inflation and interest rate increases.  **[PNW_3382089_10]** **[PNW_3382089_11]**  This creates a drift from their ability to earn close to their authorized ROE.  **[PNW_3382089_10]** **[PNW_3382089_11]**  They are focusing on initiatives to reduce regulatory lag, such as the rider mechanisms for generation and transmission investments, which cover about **30% to 40% of their capital**.  **[PNW_3382089_10]** **[PNW_3382089_11]**  For operating costs and distribution capital not covered by sales growth, they are working on regulatory initiatives and cost management to address the lag.  **[PNW_3382089_10]** **[PNW_3382089_11]** 

4. **Load Growth Skewed to C&I**  
   **Q:** Will C&I load growth affect cost of service in rate cases?  
   **A:** Jeffrey Guldner noted that high-load-factor C&I customers can make the system operate more efficiently, but it's important to reflect this in the cost of service to allocate incremental costs appropriately.  **[PNW_3382089_12]**  There is increased attention on ensuring that the cost of service balances the benefits and costs of serving these customers.  **[PNW_3382089_12]** 

5. **SRB Capital Deployment & RFPs**  
   **Q:** What's the status of SRB capital deployment and RFPs?  
   **A:** Andrew Cooper mentioned they are working through a competitive RFP process, negotiating projects from a **1,000-megawatt RFP in 2023**.  **[PNW_3382089_5]**  They have a healthy pipeline across a diverse set of fuels, including renewable gas, and feel good about projects meeting the criteria for the Supply Resource Balancing (SRB) mechanism.  **[PNW_3382089_5]**  The illustrative projects could represent up to **40%+** of the megawatts they need to procure based on their IRP over the next few years.  **[PNW_3382089_5]** 

6. **Wildfire Discussions with Regulators**  
   **Q:** What conversations are you having about wildfire issues?  
   **A:** Jeffrey Guldner stated that extensive conversations are happening at multiple levels regarding wildfire issues.  **[PNW_3382089_13]**  These include technical work, sharing lessons with other utilities, constructive workshops with regulators, and discussions with customers, particularly around Public Safety Power Shutoff (PSPS) programs.  **[PNW_3382089_13]**  They are also engaged in conversations on the insurance side to find better solutions.  **[PNW_3382089_13]** 

7. **Impact of Rooftop Solar Installations**  
   **Q:** How are rooftop solar installations affecting sales growth?  
   **A:** Andrew Cooper explained that they expect fairly modest residential sales growth, with customer growth of **1.5%** being partially offset by energy efficiency and distributed generation adoption.  **[PNW_3382089_11]**  They continue to monitor trends around distributed generation and electric vehicles, but the impact is accounted for in their plan, and they didn't note a significant earnings sensitivity.  **[PNW_3382089_11]** 

29f3da24e0a828fb59a3d2967c571b6efdadd4d7b04c9c406e33ca7604fcf6ff

- **Regulatory uncertainty may delay rate increases**, as the outcome and timing of the regulatory lag proceeding are uncertain. The company is waiting to see how the proceeding unfolds before filing a new rate case.  **[PNW_3395687_17]** ,  **[PNW_3395687_12]** ,  **[PNW_3395687_7]**
- **Upcoming large planned outages at Four Corners** power plant in the second half of the year could increase O&M expenses and impact earnings. The largest of the outages is yet to come, and the company is monitoring this area closely.  **[PNW_3395687_9]**
- **Potential equity dilution risk**, as the company plans to issue **$400 million** in common equity, possibly through an ATM program, to finance capital needs.  **[PNW_3395687_11]**

936f9854bdae5cd947321929076289700e8cb3748043d84c55d09e90677d433a

| Year  | Amount Due (Millions) | Debt Type                  | Interest Rate (%)       | % of Total Debt                     |
|-------|------------------------|----------------------------|-------------------------|--------------------------------------|
| 2024  | 623.5                 | Short-term borrowings      | 4.92 **[0000764622-24-000079_pnw-20240930.htm:22]**            | 6.9 = (623.5 / 9,056.318) * 100 **[0000764622-24-000079_pnw-20240930.htm:7]** **[0000764622-24-000079_pnw-20240930.htm:22]** |
| 2026  | 350                   | Floating Rate Notes        | Compounded SOFR + 0.82 **[0000764622-24-000079_pnw-20240930.htm:22]** | 3.9 = (350 / 9,056.318) * 100 **[0000764622-24-000079_pnw-20240930.htm:7]** **[0000764622-24-000079_pnw-20240930.htm:22]** |
| 2027  | 525                   | Convertible Senior Notes   | 4.75 **[0000764622-24-000079_pnw-20240930.htm:21]**            | 5.8 = (525 / 9,056.318) * 100 **[0000764622-24-000079_pnw-20240930.htm:7]** **[0000764622-24-000079_pnw-20240930.htm:21]** |
| 2034  | 450                   | Senior Unsecured Notes     | 5.7 **[0000764622-24-000079_pnw-20240930.htm:23]**             | 5.0 = (450 / 9,056.318) * 100 **[0000764622-24-000079_pnw-20240930.htm:7]** **[0000764622-24-000079_pnw-20240930.htm:23]** |

34391bed27ee27dc035db8cb37ec6741233125b63a78a0741812a7d9e5fff00d

- **Strong Growth in High Load Factor Customers**: PNW has committed to over **4,000 megawatts of extra high load factor customers**, largely including data centers, that are either in construction or development. Additionally, they are working with over **10,000 megawatts of extra high load factor demand** in the planning process, indicating robust future demand growth.  **[PNW_3406097_10]** ,  **[PNW_3406097_9]**
- **Increased Sales and Customer Growth Expectations**: PNW expects **weather-normalized sales growth of 4% to 6%** for both **2024 and 2025**, with contributions from residential, small business, large business, data centers, and manufacturing sectors. They are forecasting **customer growth of 1.5% to 2.5%**, consistently outperforming the midpoint of that range.  **[PNW_3406097_6]**
- **Efforts to Reduce Regulatory Lag and Improve Financial Performance**: PNW is strategically increasing capital investments in projects eligible for recovery through mechanisms like the **System Reliability Benefit surcharge** and the **FERC formula rates**, covering over **40%** of future capital investments, to improve timeliness of cost recovery and reduce regulatory lag. This approach is expected to smooth out earnings and provide better confidence in their **5% to 7% EPS growth guidance**.  **[PNW_3406097_11]** ,  **[PNW_3406097_7]**

a872f3931ef58e6250910a71850f8982dfc2b256d63e518beb5aeabc1dacc63e

- **PNW's earnings growth is heavily reliant on reducing regulatory lag, but progress is uncertain due to potential changes in the Arizona Corporation Commission's composition and policies.** The company acknowledges that smoother earnings depend on regulatory initiatives that may be delayed or altered with new commissioners.  **[PNW_3406097_11]** **[PNW_3406097_5]** **[PNW_3406097_22]**
- **Inflation has significantly increased PNW's operational costs, which are not yet reflected in current rates, potentially pressuring future earnings if not recovered.** The company needs to file a rate case to "true up" these costs, but faces uncertainty in timing and regulatory approval, which could impact financial performance.  **[PNW_3406097_19]** **[PNW_3406097_15]**
- **PNW may experience increased regulatory lag and earnings pressure due to its growing capital expenditure plan and the need to balance capital allocation without assurance of timely cost recovery.** The company's capital investments could lead to lag in earnings if regulatory mechanisms are not improved.  **[PNW_3406097_15]**

66155d3b955a96102c43466b351e3a6e2d55a96b461331394d8f4e2521737420

- **Modest Residential Sales Growth Due to Energy Efficiency and Distributed Generation Adoption:** Despite a 1.5% customer growth, residential sales growth remains modest due to ongoing energy efficiency trends and increased adoption of distributed generation like rooftop solar.  **[PNW_3382089_11]**
- **Regulatory Lag Affecting Earnings and Cost Recovery:** The company faces challenges from regulatory lag under the historical test year construct, impacting its ability to recover costs and earn close to its allowed Return on Equity (ROE), leading to earnings pressure.  **[PNW_3382089_10]**
- **Wildfire Risks Leading to Increased Costs and Potential Liabilities:** Growing concerns about wildfire risks may result in higher operating costs and potential liabilities, as extensive discussions with regulators and stakeholders indicate the need for significant mitigation efforts.  **[PNW_3382089_13]**

9a0b1d9f93c811d7839b06d5593a4208eba625cb282bcacf30450ed91daad047

- **Strong anticipated sales growth** driven by **large commercial and industrial customers**, including **TSMC's full ramp-up in first half of 2025**, leading to total sales growth of **4% to 6% through 2026**.  **[PNW_3375205_13]**
- The company expects **significant earnings growth** over the long term, with increased capital investments in **transmission and generation**, supported by mechanisms like the **System Reliability Benefit (SRB)**, contributing to anticipated **5% to 7% EPS growth**.  **[PNW_3375205_11]**
- **Active financial management** to maintain **solid investment-grade credit ratings**, with an adjusted **FFO-to-debt target range of 14% to 16%**, and plans for equity issuances to support a **balanced capital structure** and fund growth initiatives.  **[PNW_3375205_20]**

0cccd00256b5c965d0318ad14daa645b3d827bb6e2203b928545e14d4bba8dc2

1. **Regulatory Lag Docket & Rate Case Timing**  
   **Q:** When will regulatory lag docket be resolved and rate case filed?  
   **A:** The company expects the next workshop on the regulatory lag docket to occur in **October**  **[PNW_3395687_7]** , after which the commission might provide more guidance on timing.  **[PNW_3395687_15]**  They are monitoring the process to determine when to file the next rate case, possibly after gaining clarity from the docket.  **[PNW_3395687_12]** 

2. **Sales Growth & Outlook**  
   **Q:** How sticky is the 5.5% sales growth, and outlook for '25?  
   **A:** The **5.5% sales growth** this quarter is driven by large C&I customers ramping up, including **TSMC** and data centers.  **[PNW_3395687_5]**  With over **4,000 MW** of data center customers committed and more than **10,000** additional requests, the company expects this trend to continue but hasn't provided guidance beyond 2026.  **[PNW_3395687_5]** 

3. **O&M Savings & 2025 Outlook**  
   **Q:** Are there opportunities to pull forward O&M to derisk '25 outlook?  
   **A:** The company plans a **2% reduction** in core O&M to accommodate large outages this year.  **[PNW_3395687_9]**  They are exploring flexibility in their multiyear O&M plan, possibly adjusting projects to offset impacts in **2025**.  **[PNW_3395687_9]** 

4. **Financing Plans & Equity Needs**  
   **Q:** Any updates on timing and type of equity or alternatives?  
   **A:** No updates at this point.  **[PNW_3395687_11]**  The base case remains issuing **$400 million** via an ATM program to match capital needs, primarily targeting years **2025 through 2027**.  **[PNW_3395687_11]** 

5. **Impact of Heat on Sales & Working Capital**  
   **Q:** Could hot weather impact working capital or cash flow?  
   **A:** The company plans financing to accommodate the normal pace of customer payments, even during hot summers.  **[PNW_3395687_13]**  Assistance programs help reduce billing pressures, especially post-summer.  **[PNW_3395687_13]** 

6. **Resiliency Planning for Extreme Heat**  
   **Q:** How is the company planning for extreme heat impacts?  
   **A:** Current temperatures are within design criteria.  **[PNW_3395687_14]**  Despite higher sales due to weather, peak demand didn't surpass last year.  **[PNW_3395687_14]**  Resiliency plans are in place, and equipment impacts are as expected.  **[PNW_3395687_14]** 

7. **ACC Elections & Regulatory Process**  
   **Q:** Could ACC elections change the direction of the lag docket?  
   **A:** The company doesn't anticipate significant changes due to elections.  **[PNW_3395687_10]**  They continue engaging with candidates to support state growth.  **[PNW_3395687_10]** 

8. **SRB Process & Capital Recovery**  
   **Q:** Is the SRB an evergreen program for capital recovery?  
   **A:** Yes, the SRB allows concurrent recovery of capital invested, including future generation needs through typical procurement processes.  **[PNW_3395687_15]** 

2e89fa962124f1b50de7d1983492dc02d573712779d2bfbd791944a3bf7befe1

1. **Equity Issuance Plans**  
   **Q:** What is your preference and plan for future equity issuances, including ATMs and hybrids?  
   **A:** We need up to **$500 million** in equity, plus an additional **$100 million to $200 million** to maintain a strong utility equity ratio of **51.9%**.  **[PNW_3375205_8]**  We're flexible and considering options like ATM programs or equity-like securities to align equity issuances with our capital needs over time.  **[PNW_3375205_8]** 

2. **Growth Guidance Including BCE Sale**  
   **Q:** Are you confident in achieving 5% to 7% earnings growth, including the impact of the BCE sale?  
   **A:** Yes, our guidance includes the expected gain of **$0.10** from the sale of Bright Canyon Energy this year.  **[PNW_3375205_19]**  We're confident in achieving **5% to 7%** earnings growth on this rebased level, including that **$0.10**.  **[PNW_3375205_19]** 

3. **Regulatory Lag and Next Rate Case Timing**  
   **Q:** How do you plan to address under-earning due to regulatory lag, and when is the next rate case expected?  
   **A:** We're addressing regulatory lag by engaging in a docket starting on **March 19** to explore mechanisms to mitigate it.  **[PNW_3375205_14]**  We haven't set a timing for our next rate case but may wait to see the outcome of this docket, potentially filing in **2025**.  **[PNW_3375205_14]** **[PNW_3375205_16]** 

4. **Sales Growth from Large Customers**  
   **Q:** How should we think about sales growth in 2025 and 2026 with large customers?  
   **A:** Significant growth is expected from customers like **Taiwan Semiconductor**, which plans full ramp-up in the first half of **2025**.  **[PNW_3375205_13]**  This contributes to forecasted sales growth of **4% to 6%** through **2026**, compared to **2% to 4%** this year.  **[PNW_3375205_13]** 

5. **FFO to Debt Metrics and Credit Ratings**  
   **Q:** Where do you anticipate landing on FFO to debt metrics, and will the recent rate case improve credit ratings?  
   **A:** We've reset our FFO to debt target to **14% to 16%**.  **[PNW_3375205_12]** **[PNW_3375205_20]**  While agencies haven't provided official calculations yet, we're engaging with them and believe the constructive rate case outcome supports maintaining solid investment-grade credit ratings.  **[PNW_3375205_20]** 

6. **SRB Deployment Timing**  
   **Q:** When will we first see Self Reserve Balancing (SRB) deployed?  
   **A:** The earliest SRB projects will be in service before summer **2026**, assuming they clear the RFP.  **[PNW_3375205_17]**  SRB will increase tracked capital and contribute to smoother cost recovery over the medium term.  **[PNW_3375205_17]** 

7. **O&M Management and Inflationary Pressures**  
   **Q:** How are you managing inflationary pressures to keep core O&M declining?  
   **A:** We leveraged favorable weather to pull some O&M from **2024** into **2023**.  **[PNW_3375205_18]**  We're committed to customer affordability and maintaining a lean culture, with savings from closing **Cholla** and shifting to assets with lighter O&M.  **[PNW_3375205_18]** 

8. **Growth Rate Expectations and Regulatory Lag**  
   **Q:** How are you thinking about the 5% to 7% growth rate given regulatory lag?  
   **A:** We have the investment profile to achieve **5% to 7%** growth over the long term.  **[PNW_3375205_11]**  By addressing regulatory lag and increasing tracked capital through SRB, we expect smoother cost recovery and sustained growth.  **[PNW_3375205_11]** 

9. **Equity Ratio Target**  
   **Q:** Are you targeting a 52% equity ratio at APS to match the rate case outcome?  
   **A:** We aim for a balanced capital structure with slightly over **50% equity** at the utility.  **[PNW_3375205_12]**  The recent **51.9%** equity ratio is appropriate, and we're balancing our capital needs to maintain this.  **[PNW_3375205_12]** 

10. **Regulatory Lag Impact on Earnings**  
    **Q:** How would you characterize under-earning this year due to regulatory lag?  
    **A:** Regulatory lag is driven by factors like higher interest costs, with recent debt issuances in the **mid-5% to low-6%** range compared to an embedded cost of debt of **3.85%**.  **[PNW_3375205_10]**  O&M increases and pension impacts also contribute, which we'll address in the next rate case and the regulatory lag docket.  **[PNW_3375205_10]** 

d152b7e2ee5fcd378ebb895dc1fb6c3e3738d24f1a00a811cb6d2d92519344bb

- **Pinnacle West reported strong Q1 2024 sales growth of 5.9%, driven by large high load factor commercial and industrial customers, including significant contributions from data centers and the ramp-up of Taiwan Semiconductor Manufacturing Company (TSMC), which is expected to reach full production next year.**  **[PNW_3382089_7]**
- **The company's Integrated Resource Plan over the decade anticipates substantial growth opportunities, with approximately 50% from advanced manufacturing and 50% from data centers, indicating robust long-term demand in their service area.**  **[PNW_3382089_7]**
- **Pinnacle West is confident about participating in future RFPs to meet substantial customer growth demand, with projects potentially representing up to 40% of the megawatts needed, which can reduce regulatory lag and enhance returns through the SRB mechanism.**  **[PNW_3382089_5]**

033f9e9a36944f1cc660a9c3b9f81b8bfcaa604abac930ca318f21b0fad8e01a

Pinnacle West Capital Corp (PNW)

Financials