PNW - NYSE

Good day, everyone. And welcome to the Pinnacle West Capital Corporation 2025 First Quarter Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions-and-comments after the presentation. It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma’am, the floor is yours.

Thank you, Matthew. I would like to thank everyone for participating in this conference call and webcast to review our first 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 with you. 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 first quarter 2025 Form 10-Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language, as well as the 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 8, 2025. I will now turn the call over to Ted.

Thanks, Amanda, and thank you all for joining us today. 2025 has started off in line with financial guidance we provided on the fourth quarter call in February. Before Andrew discusses the details of our first quarter results, I’ll provide a few updates on recent operational and regulatory developments. Our diverse Arizona economy continues to thrive and grow at solid pace. Arizona has become a national leader in semiconductor and advanced manufacturing, which has attracted investment spanning the entire supply chain, including robotic manufacturing, advanced packaging, research and development, materials suppliers, and workforce development. This quarter had several notable expansion announcements, including the additional $100 billion investment by Taiwan Semiconductor Manufacturing Company, beyond their original $65 billion investment. TSMC now intends to build three additional fabrication centers for a total of six, as well as two advanced packaging facilities and a research and development park. In fact, TSMC held the groundbreaking for Fab 3 this week as construction progress continues to advance. Also, NVIDIA announced they’re manufacturing Blackwell chips at TSMC’s facilities and will be partnering with advanced packaging and testing operations right here in Arizona. In addition to TSMC, Arizona’s total international exports rose almost 12% in 2024, the highest year-over-year growth rate in the country, led by mining, semiconductors, computer equipment and aerospace products. Healthcare is another rapidly expanding sector, highlighted by Mayo Clinic’s announcement of a nearly $2 billion investment in their Phoenix Healthcare Hospital Campus, the clinic’s largest investment to-date. These announcements highlight the diversity of investments and robust growth that will fuel the Arizona economy for years to come. Turning to operations, we’re focused on continuing to provide top-tier reliability for our customers, making year-round investments to secure a resilient grid and delivering excellence in customer experience. As we build out the grid to serve growth, we continue to increase our transmission investments to construct multiple high-voltage lines and substations. Through our comprehensive summer preparedness program, we’ve procured all necessary generation capacity and reserves, completed our grid inspections, procured critical materials needed for restoration efforts, and executed robust fire mitigation investments. This includes the deployment of fire-sensing cameras that use artificial intelligence to proactively search for early signs of wildfires, enabling critical operation decisions to help keep communities safe. We’re in the final stages of planned maintenance activities for our generation units. We have successfully completed our major outages for the Four Corners Power Plant. In addition, we’ve invested in chiller upgrades at Red Hawk and Sundance units, reducing ambient de-rates during hot summer evenings when customers use the most energy. Finally, Palo Verde Unit 1 is currently in planned refueling outage and expected to return to service in early May. Upon the successful completion of the latest refueling outage, all three Palo Verde units are poised to provide reliable around-the-clock power to help meet the summer energy demand. We stand ready to safely, reliably and affordably serve our customers as we head into summer, the season our customers depend on us the most. Turning to long-term resource procurement, we continue to make progress on our annual All-Source Request for Proposals. As a reminder, we’re seeking at least 2,000 megawatts of new resources to be in service between 2028 and 2030. We’re in the process of evaluating project proposals and plan to have final projects selected later this year, which is expected to include a blend of ownership and PPA projects. We continue to build and enhance our customer-centric culture and our employees are focused on delivering excellent customer experience. Investing in advanced digital platforms is an important part of our strategy to deliver customer experience excellence while lowering costs over time. These efforts are paying off since APS now ranks in the top 10 nationally in the J.D. Power Utility Digital Experience Survey. I’m also proud to share that APS was recently recognized by Newsweek as one of the Most Trustworthy Companies in America for 2024. On the regulatory front, we’ve been preparing for upcoming rate case filing and remain on track to file midyear. The primary objectives of this next rate case will be to recover costs and investments to secure a reliable and resilient grid, develop a modernized rate structure to support the unprecedented growth of high load factor customers in our service territory, and reduce regulatory lag while maintaining the lowest costs possible for customers. Our current rates are based on Test Year expenses that go back to 2021, and we look forward to working with the Commission and stakeholders to update these costs while keeping rates affordable. The filing will include a formula rate proposal consistent with the Commission’s recently approved policy statement. In conclusion, we’re excited -- we are executing our strategy while remaining focused on creating customer value and shareholder value throughout the year. Before I hand it over to Andrew, I want to give a special birthday shout out to both Andrew and Jacob, who are celebrating today. It’s truly a pleasure working alongside you both, wishing you both a very happy birthday. 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 reported our first quarter 2025 financial results. I will review those results and provide additional details on sales and financial guidance. For the first quarter of 2025, we lost $0.04 per share, compared to earnings of $0.15 per share for the first quarter of 2024. The primary driver for this decrease was the sale of Bright Canyon Energy in 2024, which was a one-time benefit of $0.15 in the first quarter last year. Other negative drivers were higher O&M, interest expense, and depreciation and amortization, along with the positive amortization of an OPEB service credit rolling off in January. Partially offsetting these items were new rates that went into effect on March 8th of last year, providing a $0.29 year-over-year benefit this quarter. Other positive drivers were a gain from our El Dorado equity investment and higher transmission sales. Briefly touching upon weather, we averaged to normal weather for the quarter with little impact on margin. We continue to see a consistent ongoing influx of customers into our region, as customer growth for the quarter was again strong at 2.3%, near the high end of our annual customer growth guidance. In fact, according to the latest report by the U.S. Census Bureau last year, Maricopa County was the third-fastest-growing county in the U.S. by numeric number, and adjacent Pinal County was the fifth-fastest-growing county by percentage growth. This trend of customer growth continues our need for investment in our system to ensure reliable service for all customers. Our current capital plan is designed to meet these needs and our guidance remains unchanged. Our weather-normalized sales growth was 2.1% for the quarter, driven by strong C&I growth of 5.3%, caused by the continued ramp-up of both manufacturing and data center customers. As extra high-load factor customers have continued to grow as a proportion of our business, we have updated our procedures with respect to estimates of unbilled revenues for our customer classes. As a result, we had an adjustment in January to recalibrate accrued unbilled revenues, offsetting year-to-date sales growth by 1.9%. Even with the change, we expect our overall weather-normalized sales growth to meet our guidance expectations of 4% to 6% for the year. Arizona remains a diverse growth and investment hub. As Ted mentioned, TSMC announced that they will nearly triple their original expected investments in Arizona for a total of $165 billion. TSMC’s first fabrication facility is already in full production. They recently stated that they’ve completed construction on their second facility and are working on accelerating their production start date, and Fab 3 has broken ground. TSMC’s expanded investment is expected to support 40,000 construction jobs over the next four years and create tens of thousands of high-paying, high-tech jobs. As a reminder, these announcements are beyond our current long-term sales growth guidance of 4% to 6%, which is through 2027, but highlights the ongoing investments and opportunities in our service area. O&M was an anticipated drag on the first quarter. The major outage of the Four Corners Tower plant drove larger planned outage costs when compared to Q1 of last year. Additionally, expenses associated with IT projects increased O&M for this quarter versus the prior year. Guidance for 2025 O&M remains unchanged, as these items were already considered in our guidance and are anticipated to be offset over the balance of the year. Turning to the balance sheet, we recently had positive conversations with all three credit rating agencies, resulting in no changes to our current ratings and stable outlooks. We are focused on maintaining solid ratings and metrics to the benefit of our customers as we continue to work with the Commission and stakeholders on reducing regulatory lag through our upcoming rate case. Our guidance for financing remains unchanged, featuring a mix of debt and equity sources intended to maintain a balanced capital structure. And as a reminder, we do not currently utilize or rely on the transferability of tax credits for any of the financing needs in our plan. Finally, we are reaffirming all other guidance provided on our fourth quarter call and look forward to continuing to execute our strategy and reliably serving our customers as we head into the upcoming summer season. This concludes our prepared remarks. I will now turn the call back over to the Operator for questions.

Certainly. [Operator Instructions] Your first question is coming from Nicholas Campanella from Barclays. Your line is live.

Hey. Good morning.

Good morning, Nick.

Hey. So I just wanted to ask, obviously, the TSMC customer additions are very notable, and you have this 3% to 5% large load C&I forecast in your long-term outlook. Can you just kind of remind us how many fabs are in that outlook or if you were to kind of decomp that, adding another plant, what would that do to that long-term forecast?

Sure, Nick. It’s Andrew. Thanks for the question. So, clearly, Fab 1 is in our forecast because this is actually the first quarter that it’s at full volume production, and so certainly part of that ramp up that we saw in C&I sales this quarter is a combination of TSMC and some of the data centers ramping up. Recent announcements at TSMC on Fabs 2 and 3 suggest an acceleration, and so we’ll continue to work with our customer on what that looks like from an infrastructure build-out and sales forecast perspective, but certainly their initial expectation was 2028 for Fab 2 and by the end of the decade, so 2030-ish for Fab 3. Expect some acceleration of both of those. Whether the acceleration of Fab 2 would come into 2027 is something that we’ll just have to continue to evaluate. But, really, the underlying fact is that the commitment to the six fabs and all the other facilities that Ted mentioned really points to, at a minimum, the ability to have a pipeline that allows us to continue a pretty robust level of large C&I sales growth when you pair that ecosystem of semiconductor supply chain upstream and downstream with some of the other diverse manufacturing and data center growth that we’re seeing.

Yeah. Okay. That’s helpful. I appreciate it. And then you have a new disclosure on your QIP balance, which definitely seems material at $3 billion to $3.5 billion. Can you just kind of confirm, can you get retail rate return on that and how exactly that would flow into the financials? When you kind of layer that in on top of your current rate-based growth outlook, the fact that you’re going to have new formula rates, what would the offset be that would kind of put you back within that $5 billion to $7 billion range?

Yeah. Nick, so we added that disclosure because we wanted to make clear that our pipeline of opportunities continues beyond the three-year plan that we provide. And in particular, if you think about the strategic transmission plan that we filed last year, those are projects that are multiyear. If you look in our disclosures, they go out through the end of the decade. And those are the projects that are already inciting. There’s a broader strategic transmission planning process that includes incremental projects, as well as some of the generation we’re building. For example, the Red Hawk gas plant isn’t in service until 2028, so it’s outside that plan. So we wanted to kind of give a sense for the scale relative to and in the disclosure you also see what that level of QIP would have been in 2023, the scale of projects that are under construction that may not be captured in the plan. There is AFUDC associated with it, but from a cash return perspective, that’s not something that’s in the plan. And so, ultimately, it’s really more a matter of giving clarity around that track record that can extend beyond 2027, which is the period of current rate-based disclosure. And so really between the strategic transmission projects and then the overall investments in our self-filled generation, whether that’s the projects coming through our All-Source RFP, investing in Palo Verde for the long-term. These are all things that we want to highlight, which may not be captured in the narrow window that we give. And so as we go through not only the rate case and understand how some of our other CapEx may be put on an even footing by having a formula rate in place, and then as we continue to bring things from our development pipeline, both on the generation and transmission side, into the actual rate-based disclosure, we’ll be able to come back to you on what that rate-based growth rate looks like. But at a minimum, we wanted to be able to highlight that we are moving into these larger projects that meet the needs of the growth that we see in the service territory for the long-term.

All right. Understood. Thanks a lot.

Thanks, Nick.

Thank you. Your next question is coming from Michael Lonegan from Evercore. Your line is live.

Hi. Thanks for taking my question. So obviously, you’ll be filing a rate case midyear, you’ll probably get new rates late 2026. Just wondering what we could expect in terms of regulatory lag on percentage terms in 2026 while the rate case is pending versus the 9.55% allowed ROE in the jurisdiction?

Yeah, Michael. This is Ted. Thanks for the question. Obviously, we’re focused on addressing regulatory lag through this case. I think the Commission is focused on that as well, given that they recognize it adds cost to customers over time and so that’s a big focus for the formula rate plan. Our intent is to be able to put in a structure going forward after this case to where we can minimize regulatory lag in a respectable manner. And so that’s what the formula is designed to do, is to have a dead band around solving to be able to earn your allowed ROE. Clearly, at this time, it’s difficult to be able to do that. So I think the policy statement illustrated that, where there is a dead band of being able to earn as close to that allowed ROE as possible, and outside of that dead band, you would then file for adjustment. We’re looking to work with the Commission stakeholders to try to design the mechanics of the formula rate plan to be able to meet the intent of the policy statement. It’s too early to tell how that will work specifically. So I think the details through this general rate case will matter. But I think the Commission, a lot of the stakeholders involved in the process, and certainly utilities are aligned, that that’s the intent. And then you can work towards ensuring that the allowed ROE is measured to be competitive to peers and what’s necessary to attract capital. And your rent making construct is designed to allow you to earn as close to that allowed ROE as possible.

Great. Thanks. And then, secondly, I was wondering if you could talk about your current pipeline of high load factor customers. I think in your last disclosure, you said you were committed to 4 gigawatts and had interest from another 10 plus gigawatts that you were working through a planning process with. Just wondering, what’s the latest on these numbers and is the 4 gigawatts still what’s baked into your plan?

Yeah, Michael. The 4 gigawatts is still what we’ve committed to, are actively building out infrastructure to serve. Obviously, a large portion of that will be coming online this year and into the coming years that’s within our guidance range. But the full build out of that 4 gigawatts extends beyond the guidance range. And then we do have a substantial and growing queue of customers that we’re actively working to assess the timing and capacity needs of their projects. It’s at least 10 gigawatts. And that’s a continuous focus of our team is identifying their needs, identifying the infrastructure required to be able to build it out, and what the timing of that infrastructure installation would be. Most of that infrastructure would likely be in the capital plan beyond the current guidance period. But as we get closer to those projects, moving into the committed queue, we’ll certainly update what that committed queue number is.

Great. Thanks for taking my question.

Thank you.

Thank you. Your next question is coming from Julien Dumoulin-Smith from Jefferies. Your line is live.

Hey. Good afternoon. Good morning, team. Thank you very much for the time. Nicely done. Maybe just to follow up a little bit on where I think you left the question off with, Nick, and maybe to take it a step further, how are you thinking about providing a longer term view beyond the three-year period? I mean, notable the way that you responded on QIP, et cetera. Is there a longer dated view coming here in a more comprehensive set as you think about rolling forward eventually here?

Yeah. Hey, Julien. It’s Andrew. Thanks for that question. It’s certainly something that we continue to evaluate, in particular because we’re doing larger projects that have longer lead time, and we have clarity on a pipeline of customers coming in that extends out further. So it’s certainly something we’ll look at. At the same time, though, getting through the formula rate design and proceeding then gives us clarity on the broader capital allocation decisions overall. So you can look at how much are we doing in distribution and IT and kind of core space where you’re getting projects in service on much shorter time frames where it’s sort of the day-in, day-out blocking and tackling stuff, and then giving clarity of disclosure about the large strategic transmission projects, the investment plan at Palo Verde, the projects that come out of the All-Source RFPs, all those types of things that have taken since the 2030s. The other piece you’ll see is we’re on a three-year cycle for our integrated resource planning, and so as we work through that process, the goal will be to link up. That tends to be an action window that’s five years of the 15 years that we’re talking about. So trying to link those two I think will be important as we do more of these long lead time projects. So it’s a great question. It’s something that we continuously look at.

Got it. Sounds like a little bit of a longer fuse, but teeing up the entire organization there. And then if I can follow up as well on a related question here, you talk about Fab 2 and 3 potentially, I think you even said accelerating themselves, and I don’t think it was entirely clear as to whether that’s contemplated within the 3 to 5. When would you go out for procurement around potential resources there? I mean, you say it’s longer dated, but let’s put it this way, 2030 and earlier is front and center and would need actions on procurement in the near-term. How do you think about that, as well as some of these other items like Mayo Clinic also playing into the outlook here or just coming back to the table for another round of procurement and RFP or something like that?

Yeah. Julien, you’re absolutely right. We’re out to procurement right now for 2028 to 2030. We’ve got an RFP that recently concluded accepting proposals for a minimum of 2,000 megawatts to be in service in the years 2028 to 2030. And so we’re evaluating those proposals right now. And as we look at how much volume we actually take from the RFP, we’re taking into consideration as we work with TSMC, Amcor, and frankly a myriad of other recent economic development opportunities, even outside the chip and data center sector to identify what are the total resource needs at the back end of this decade and therefore how much do we need to take from this RFP. So that’s actively in progress. We’ve been on an annual routine of these RFPs and so we’ll evaluate the proposals from this year and then likely be back out in the market again for another round of RFPs.

Right. So bottomline, upsizing the present RFP, you said a minimum of 2 gigs, but there’s potentially a real likelihood for a meaningful expansion of that?

That’s definitely the potential. Similar to the last RFP where we ended up procuring a meaningful amount more than what we originally requested, it just depends on the quality of the proposals and the timing of their ability to execute. We’re always clear to state the minimum that we need, but we’ve got the ability to be able to take more as necessary to ensure resource adequacy as long as they’re competitive projects, and we’re going through those proposals now.

Thanks again, guys.

Thank you.

Thank you. Your next question is coming from Travis Miller from Morningstar. Your line is live.

Thank you. Hello, everyone.

Hey, Travis.

More of a technical question here on the filing coming up. Is the filing going to be purely a formula rate plan such that they just get one filing or is there somewhat of a split here where you have to file a formula rate plan option and a general rate case traditional option? Technically thinking about that filing.

Yeah. Travis, the way we look at it is we’re filing a traditional rate case based on a 2024 Test Year, but then included in that will be a filing proposal for how you implement a formula rate plan to ensure you’re minimizing regulatory lag for future years. And so it will all be a part of one filing, but you first have to recover the revenue deficiency based on a 2024 Test Year and then the formula rate design included in our filing will be how to keep rates current and trued up on a go-forward basis once this case is processed and concluded. So that’s how we’re thinking about it.

Okay. That makes sense. So there wouldn’t be two rate adjustments. There would be the traditional rate adjustment and then future years, if approved, the formula rate plan rate adjustment?

That’s correct. And that’s the intent of the commission is how do we go longer between rate cases, minimize regulatory lag and ensure rate gradualism for our customers. And so that’s going to be all part of this initial filing.

Perfect. Okay. That’s great. And then on the O&M, if you strip out the outages, strip out the RES DSM, how is that trending, that core O&M? Is that trending towards your expectations in the first quarter or anything unusual in the first quarter on that side?

Yeah, Travis. It’s Andrew. No. We’re trending consistent with our plan for O&M for the year. The planned outage you referenced is lumpy and is a timing issue of doing a large outage at a plan of Four Corners. That was the first quarter event. There’s also an O&M project I mentioned earlier in the prepared remarks that is a big backbone IT project, and so right now it’s in sort of that O&M phase, and over the course of the year it will transition to capital. So that shows up and basically takes what could be straight line O&M over the year into a little bit of first quarter lumpiness. But we expect over the course of the year to be able to meet our O&M guidance range. We were able to take a lot of proactive action last year, coming out of the summer, to plan in a multiyear fashion around O&M, and so we’re seeing some of the benefits of being able to do that as we work through the year. So we expect to be on plan for O&M.

Okay. Perfect. Thanks so much.

Thanks, Travis.

Thank you. Your next question is coming from Sophie Karp from KeyBanc Capital Markets. Your line is live.

Hi. Good morning. Thank you for taking my question.

Good morning, Sophie.

So a little bit more on this O&M question. Do you need, I guess, upside items in the rest of the year to kind of counter the lumpiness in the first quarter or was this already contemplated when you issued guidance, just to clarify?

Yeah. The latter, Sophie. We contemplated the planned outages, as well as the design of the IT project, knowing that we’d get back to regular way O&M over the course of the year and so we expect that will -- we’re sort of done with it, other than the normal outages at Palo Verde. We’re out of the planned outages at this point and ready to move forward.

Got it. Got it. Okay. And then a couple more questions I have. First on the transmission lines, right? I’m wondering if you ever contemplated the 645kV line, maybe, in your territory. Does that make sense ever? Because I noticed you don’t go, like, that high in voltage and rarely are they built. But more -- is a little bit more conversations about these types of lines now, so wondering where you stand on that?

Yeah. Sophie, the transmission engineering team evaluates all aspects of potential voltage, including even advanced conductors and new technology. Right now we don’t see a need for that level of voltage. We go currently up to 500kV is the highest. But it is a part of the evaluation as we continue to look forward on service territory growth. One of the limiting factors oftentimes is what size right-of-way do you need, and that oftentimes informs then what level of voltage you need to procure. But at this point, the majority of our transmission projects that are between now and the end of the decade are 230kV. We’ve also got a substantial amount of substation buildout that ranges in voltage and then longer term we certainly see more 500kV expansion or new build. But at this point, that’s the highest level of voltage that we think is necessary for the service territory.

Got it. And lastly for me, it seems like you have -- the rooftop solar applications in your territory seem to be trending significantly lower versus the historical, I guess, level. Does that impact you at all in what way at this point?

Yeah. Certainly we track that in terms of what level of offset rooftop solar or energy efficiency may have on organic sales. And so, clearly less rooftop solar applications may show less offset. We think this is just part of the natural market conditions, given that there’s some level of saturation of rooftop solar already within the service territory. We’ve got one of the highest levels of penetration of rooftop solar already. In addition to, obviously, the financing costs that a lot of our customers would have to absorb for installing rooftop solar and then the amount of credit-worthy customers that remain that could take on a long-term contract. So we think these numbers are probably a leveling off or normalization of the amount that’s being installed and we’ll just continue to track it as potential offset. Right now our growth trends for residential and C&I are in line with what we expect for the year, and that includes any offsets for energy efficiency or rooftop solar.

Okay. Thank you so much.

Thank you.

Thank you. Your next question is coming from Paul Patterson from Glenrock Associates. Your line is live.

Hey. Good morning.

Good morning, Paul.

Most of my questions have been answered. Just one quick on the El Dorado item that you highlighted on Page -- on Slide 3. Just could you tell me what triggered that?

Sure, Paul. It’s Andrew. So just by way of background, El Dorado is the entity that Pinnacle West has to hold our non-utility, non-APS energy-related investments. It’s a longstanding entity with a number of longstanding investments, including the one that created the gain this quarter. And frankly, this was an investment that has shown a higher degree of profitability recently. It’s an electric switchgear company. And recognizing that higher profitability, we recognize the gain on the investment this quarter. It’s minority stake and certainly not core to the APS investment profile. But among some of the longstanding energy investments we have, it has shown favorable economic trends recently. And so we did recognize that gain this quarter. But quarter-to-quarter, year-to-year, this is a very small -- the El Dorado business is a very small, mainly legacy-type investments that we’ve made over time.

Okay. Great. Thanks a lot.

Thank you. Your next question is coming from Ryan Levine from Citi. Your line is live.

Hi, everybody. On the coal plant…

Hi, Ryan.

Hi. On the coal plant closure, can you give us an update post the executive order and commissioner comments if there’s any reassessment of the potential restart for that plant?

Yeah. Ryan, specifically some of the comments mentioned on the executive order were referring to one of our legacy coal plants called Cholla, which actually began its retirement process last decade with retiring a couple units. And then the last remaining units were retired earlier this year in accordance actually to federal law and requirement along with our state implementation plan. In addition, it’s not an economic plant to continue to run. So for those two reasons, the plant was on a track to retire, and we expect it to remain retired. We also already procured replacement generation in anticipation of that retirement both for this year and future years. What we are doing, though, is exploring how that site can be repurposed one day in the future for new generation, potentially new nuclear, potentially new gas generation. So we think it’s got great potential for investment, jobs and economic stimulus within that area, but as a new technology that will last for decades to come. And that’s really the right purpose for that site, as well as the most economic use of generation for our customers.

Okay. So the -- some of the legislative proposals, you don’t anticipate changing the course of action for that plant. Is that correct?

That’s correct.

Okay. Appreciate the time.

Thank you. Your next question is coming from Stephen D'Ambrisi from Ladenburg Thalmann. Your line is live.

Hey, guys. Thanks for taking my questions. Just quickly, first on the sales growth, it sounded like you -- in the quarter, you mentioned it in the script briefly, but I just wanted a little bit of clarity. On the residential side, it looks like usage implied is down a lot and I just was wondering if that’s noise or if you could talk a little bit about that. It sounds like maybe there was an accounting change that could have impacted it?

Yeah. That’s right, Stephen. So the underlying sales growth trends for the quarter were very strong. On the C&I side in particular, seeing the ramp up of these customers. If you look at the underlying sales trends for residential, you had 2.3% customer growth, which contributed an increased sale, and that was offset, as it often is, by the continued trends around energy efficiency and just customer usage. What I think particular to the first quarter, and keep in mind, it’s a very small quarter, so it kind of has an exacerbated effect is that we did make a one-time adjustment to how we account for estimates of unbilled revenues for all of our customer classes. For a long time, we looked at all revenues in a month that was being accrued kind of holistically across customer classes and we reached a point where our extra high load factor customers have become a substantial enough part of our overall sales mix that we need to do estimates for that accrual separately for each of those customers. And so this -- in January, we recognized that procedural change and that led to a, as reported, offset to our sales growth for the quarter. We feel really comfortable about the 46% sales growth expectations for the year, and the residential trends, which I know is where you were really focused, are really on trend to what we’ve seen over the last span of quarters kind of post-COVID, which is continued strong sales growth with an offset from energy efficiency that takes you to somewhere either north or south of flattish growth. So this quarter, if you take out the impact of that accrual adjustment, you’re really talking about negative 0.2% and some quarters that’s been positive 0.5%, positive 1%. Really, in that range around zero is how our 46% sales growth is set, and we’re seeing underlying trends notwithstanding the offset from that estimated revenue item that are really consistent with what we’ve been seeing for the last number of quarters.

Okay. That’s very helpful. Thank you. Then, just a follow-up to some of the questions around the rate case and the formula rate plan request. I guess my question is if the rate case, just from a timing perspective, if you have like a 14-month, 16-month -- 12-month, 14-month, 16-month time clock and you get rates effective on the 2024 Test Year, step up sometime at the end of 2026, is it possible to turn around and get a formula rate step in 2027 for the following year? Because presumably, you’ll be under-earning at that point, or just like procedurally, how does it work? Do you have to wait until 2028 to get your first formula rate step? Thanks.

Yeah. It’s a good question. The intent would be that you should have an opportunity under the scenario that you outlined to be able to have your first formula rate adjustment in 2027. The formula rate plan is designed to be an annual adjustment, so in theory, if you conclude the case in 2026, then 2027 should be your first adjustment. Obviously, the details and the timing will be subject to the outcome of this case, but what you outlined is the intent of the formula rate plan and that’s what we would pursue is to try to keep that adjustment as timely as possible following the conclusion of this case.

Okay. Thank you very much. That’s very helpful. Appreciate it.

Thank you.