Pinnacle West Capital Corporation (NYSE:PNW) Q3 2023 Earnings Call Transcript

Andrew Cooper: That’s something that will come out with after the rate case. I’ve mentioned it in this forum before that we said that 5% to 7% on a year that had been a financial reset. So our earnings were in decline in the year we said. So it certainly would be something that we’ll look at. Because ultimately, what we want that 5% to 7% to represent is an evergreen long term growth rate. And so being able to achieve that over the long term regardless of base here is the ultimate aspiration. So it will be something that we’ll look at after the case when we refresh the guidance.

Operator: Your next question is coming from Sophie Karp from KeyBanc.

Sophie Karp: I just — most of my questions have been answered, but I was curious if I could maybe get you to comment a little bit on the impact that the growth in data centers and other similar industrial users is going to have on the margins if that continues. So can you help us understand, I guess, if the impact of adding 1 gigawatt of load of data centers is equivalent to how many residential customers? And over time, how do you think that the rates of different customer classes are paying are going to evolve in areas or not?

Andrew Cooper: And so one of the things we’ve talked a lot about is that with our extra high load factor customers, given the hours that they’re running and you’re going to see a lower overall margin. We tend to give it in a percentage growth rule of thumb that if you have 1% of residential growth, it’s equivalent to $20 million to $25 million of margin. If you have 1% of high load factor growth, it’s more of the equivalent to $5 million to $10 million of margin. And so you do see a lower margin contribution, but an awful lot more megawatt hours. And so from that perspective, that’s why we’re so focused on our O&M continuing to be disciplined from a volumetric basis. We’re going to have higher O&M as we serve more customers.

But given these high load factor customers allow us to spread that O&M and frankly, they’re a single site versus residentially going out to more and more subdivisions that that growth becomes efficient growth for us despite the margin being lower overall. From a customer cost of service perspective, we ensure that customers and our rate design is meant to ensure a fair distribution of costs across our various customer classes, and that’s something that we look at each time we go in for a rate case and in short. But fundamentally, just from an overall perspective, blunting O&M with lots of megawatt hours in a single site is positive despite the lower margin.

Operator: Thank you. That completes our Q&A session. Ladies and gentlemen, this concludes today’s event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.