Pinnacle West Capital Corporation ($PNW)

Good day, everyone, and welcome to the Pinnacle West Capital Corporation 2026 First Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to hand 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; Jose Esparza, SVP of Public Policy is 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 in our slides contain forward-looking statements based on current expectations, and actual results may differ materially from expectations. Our first quarter 2026 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 11, 2026. I will now turn the call over to Ted.

Thank you, Amanda, and thank you all for joining us today. We're off to a solid start in 2026, delivering first quarter earnings that support the financial guidance we provided in February. Before Andrew reviews the quarter in more detail, I'll highlight several operational, customer and regulatory developments that underscore the momentum across our business. Arizona's diverse economy continues to expand at a strong and sustained pace reinforcing the state's position as a national leader in semiconductor and advanced manufacturing. We are proud to support TSMC's accelerated expansion in Arizona and are working closely with the company and the infrastructure needed to power their growth. With the second fab complete, TSMC expects to begin volume production 3-nanometer chips in the second half of next year. Construction is underway on the company's third fabrication facility and TSMC has also begun construction on its fourth fab and first advanced packaging facility with those facilities expected to come online by 2029. Importantly, the momentum extends well beyond TSMC. Activity across the semiconductor supply chain continues to intensify throughout the region, with key suppliers rapidly establishing and expanding their local footprint to support accelerated production time lines. United Integrated Services Corp. [ Sun ] Chemicals and [ Morne Star ] have all purchased land in North Phoenix. At the same time, engineering firms, clean room specialists, electric mechanical integrators and equipment suppliers are increasing staffing levels and scaling operations across the Valley. These investments demonstrate strong confidence in Arizona's economy and reinforce the sustained growth we are seeing across our service territory. Turning to operations. Our focus remains on delivering top-tier reliability, strengthening grid resilience and investing in the infrastructure and technology needed to serve our customers safely and efficiently. Across the company, we're using automation and advanced analytics to improve decision-making and execution. For example, we're applying machine learning tools to better anticipate equipment performance, prioritize asset maintenance, identify outage restoration more accurately and strengthen situation awareness during periods of elevated wildfire or weather risk. These capabilities are helping our teams act faster, target investments more effectively and continue improving reliability for our customers. We continue making solid progress on our generation and transmission investment plans. Construction is now underway at our Red Hawk expansion project, which will add 8 combustion turbines and approximately 400 megawatts of reliable natural gas capacity to the system. We're also advancing the Desert Sun project, where we have secured major equipment reservations and continued to progress through early development activities, including siting and permitting. On research procurement, we recently received proposals in response to the all-source RFP issued later last year, which targeted new resources beginning service between 2029 and 2031. We're evaluating those bids now and working with counterparties to determine the best fit projects for our system end customers. We expect to make final awards later this year. As we plan for long-term growth, we're also focused on near-term summer preparedness. Palo Verde Unit 2 is in the final days of its planned refueling outage and expected to return to service soon. With all 3 units operating, Palo Verde will continue providing round-the-clock reliable and affordable energy to help meet our summer demand. We're prepared to serve our customers safely, reliably and affordably during the months ahead when they depend on us the most. We continue to strengthen our customer-centric culture with employees focused on delivering reliable service, minimizing outages and providing a seamless experience across phone, field and digital channels. In the first quarter, APS delivered strong results in the [ Escalon ] customer relationship model, ranking in the first or second quartile across all core KPIs. APS also ranked in the first quartile through J.D. Power and was highlighted nationally as a top performer in customer awareness and participation in products and services, earning the highest awareness score in the country for available customer programs. Lastly, our rate case remains on track. We have completed multiple rounds of written testimony and the hearing is scheduled to begin on May 18. We look forward to working with the commission and intervenors in a timely and constructive manner. In summary, we're executing our plan. delivering operational excellence to our customers, investing in grid expansion to serve Arizona's rapid growth and improving investment recovery to reduce regulatory lag while ensuring affordability for our customers. 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 2026 financial results. I will review those results and provide additional details on sales and financial guidance. For the first quarter of 2026, we reported earnings of $0.27 per share compared to a loss of $0.04 per share for the first quarter of 2025, higher transmission revenue, favorable weather higher sales and usage and lower O&M were the primary benefits this quarter. These positives were slightly offset by increased financing costs, a smaller contribution from our El Dorado investment than last year and higher depreciation and amortization. Transmission revenues contributed $0.16 of benefit this quarter. This reflects our continued focus on heightened transmission investments to support our growing customer base. We expect a strong benefit in this area throughout the year in line with our annual guidance. Weather also provided a meaningful benefit this quarter, primarily driven by the warm weather we experienced later in the quarter. Although we saw less heating load in January and February due to a mild winter. According to the National Weather Service, March was the hottest on record with 9 days at or above 100 degrees. The resulting impact was a benefit of $0.13 attributable to weather in the first quarter due to an increase in residential and commercial cooling degree days. We continue to see a consistent ongoing influx of customers into our region as customer growth for the quarter was again strong at 2.2% near the high end of our annual customer growth guidance. Our weather-normalized sales growth was 9.4% for the quarter, driven by strong C&I growth of 14.6% and residential growth of 1.8%. We had a onetime adjustment to sales growth during last year's first quarter. And if we take that into consideration, we would still have experienced strong weather-normalized sales growth at 7.4% during Q1 of this year. We are not changing our annual sales growth guidance of 4% to 6% at this point, but it is a strong start to the year. This trend of customer and sales growth reinforces our need for investments in our system to ensure reliable service for our customers. On the expense side, O&M saw a significant decrease in the first quarter compared to last year. This was mostly driven by lower plant outage expenses and a reduction to commission required energy efficiency programs. We continue to have a strong focus on cost management, and we are maintaining our goal of declining O&M per megawatt hour. Interest expense was higher this quarter compared to the first quarter of last year, driven by higher debt balances from issuances. Our year-over-year benefit from our El Dorado investment was smaller, driving a slight drag. Finally, our depreciation and amortization expense for the quarter increased slightly as the placement of additional plant in service was partially offset by the retirement of Cholla. Turning to the balance sheet. We recently had positive conversations with all 3 credit rating agencies, resulting in the maintenance of our current ratings and stable outlooks. We are focused on sustaining 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 pending rate case. Our guidance for financing remains unchanged and but we're pleased to announce that all of our equity funding needs for 2026 have been completed, and we are opportunistically working towards future year needs. We now have nearly $850 million of priced equity available to us for future issuance under equity forwards, including more than $350 million price during the first quarter. We continue to utilize the mix of debt and equity sources to maintain our balanced capital structure. We are reaffirming all other aspects of our financial guidance and look forward to reliably serving our customers as we continue executing our strategy throughout the year. This concludes our prepared remarks. I will now turn the call back over to the operator for questions.

[Operator Instructions] Your first question is coming from Shar Pourreza from Wells Fargo.

It's actually Alex on for Shar. So just on the long-term sales growth to that 5% to 7% you have out there through 2030, you're obviously seeing a lot of growth in your service territory and in the pipeline as well. You saw 7% growth just this past quarter. So can you just talk a little bit about just how sticky this outlook is? And can you sort of see -- can we sort of see this trend continue going forward? Is there sort of anything that you see that could potentially allow you to revisit this outlook as opportunities continue to materialize?

Yes, Alex. It's Andrew speaking. So as you noted, we did have sales growth this quarter that even adjusting for the adjustment from the first quarter of last year was almost 7.5%. And that was driven by just the continued ramp-up of our extra high load factor customers. And we've got a number of them that are all in different stages of their ramp. Last year, we were able to increase our long-term sales growth guidance through 2030, up to that 5% to 7%. And so what you saw in the first quarter here, was a number that looks more like the top end of our range for the long term relative to what we expect for this year, which is that 4% to 6%. So you're really seeing those long-term trends begin to manifest around the diversity of customers we have we're, at this point, about to get rolling on [ Fab 2 ] at TSMC, as Ted mentioned, and just to sustain customer additions to our service territory, which for the quarter were in the top half of our customer growth range. So fundamentally, that long term, runway around the diverse sales growth that we're seeing in the service territory something that we see continuing. We'll continue to revisit because -- keep in mind that, that sales growth rate is driven by the customers that are committed to today that 400 to 500 megawatts or so of customers that we've committed to. There is a large backlog of customers in our queue. And as we continue to work the capital plan and the ability to serve those customers, we'll continue to look for opportunities to invest and see sales growth beyond our base plan. But for now, we still have to go with the 5% to 7% long term in the 4% to 6% for this year.

Got it. That's very helpful. And just pivoting here, just on the EPS and the rate base CAGR. So as you sort of look out, sort of, say, '28, '29 beyond, just any updated views on sort of how we should be thinking about the delta between the two? Is that 200 basis points sort of the right figure? Or could you see those two converge over time, just sort of just given all the opportunities and growth that you're seeing?

Yes, I mean, we'll have to revisit all of this at the conclusion of the rate case. Our capital investment opportunity will be informed by both the ability to narrow regulatory lag, which in of itself will help narrow that gap between what we spend and how it drop downs to the bottom line. But as well some of the potential for bilateral contracting opportunities with some of our large load customers, our expectation is to continue to push the customers to support some of the upfront funding which will allow us over the course of the contract to front-end load some of the funding which helps support the need for less external funding of those needs. And so we'll look at all of it. For sure, as we continue to have a better and more predictable cash flow conversion, it does give us an opportunity to fund more from retained earnings. And so we'll just continue to look at that. But of course, we'll also be looking at the capital opportunity and continue to reinvest in the system as well.

Your next question is coming from Julien Dumoulin-Smith from Jefferies.

Team, nicely done. What a way to start the year.

Yes. Thanks, Julien.

Look, maybe just to kick you off here, from a timing perspective, how do you think what we could see on the August 3 IRP filing here? And how do you think about that refresh cycle here. Just what kind of clues could we get here in -- to kick off the summer here and ahead of any broader post rate case update? And then maybe related to that, while we're talking about timing, how would you think about the gating items here for this subscription model contract effort you guys are trying to get off the ground. When could contracts be signed? Is that something else that we could see the summer? Or how do you think about that materializing, if you will?

Yes, I appreciate the question, Julian. The IRP certainly will be a meaningful update. The team is working on finalizing the analysis and ultimately, the report now. And of course, we'll make sure that we are working with stakeholders on engaging in the different review components before the official filing here later this summer. But the IRP analysis will really include our latest long-term thinking in terms of sales growth within the service territory on all three sectors: residential, small- to medium-sized business, as well as the industrial growth. Importantly, it will include all of the extra load factor growth that we have committed to, but it will not include anything that we have not contracted for yet. So that will continue to remain as upside, but we've done a lot of work over the past 6 to 12 months to really try to analyze over the next 10, 15 years, where do we think residential growth is going to be given recent trends with distributed generation, energy efficiency how do we think the long-term ramp rates will play out within this forecast period for the committed 4.5 gigawatts of extra load factor growth. And then the resources needed to be able to support that. Within the near-term action plan window of the IRP, it will show some specific projects that have already been announced. But then beyond that, it will show a bucket of generation and transmission needed. And as we carry forward the capital plan here getting into the beginning of next year or at the conclusion of this rate case, that capital plan should support then the resource and transmission needs that are outlined in the IRP based on the committed growth that, that will be included in that analysis. So it will be a material update in terms of our latest thinking on the growth and the various resource buckets needed to support it. With respect to subscription model, we continue to be in active negotiations with counterparties on various projects. Too early to tell how those may conclude. But as soon as they do, we'd expect to be filing agreements with the commission, and we still are on track to get those filed this year.

Got it. All right. This year, indeed. Excellent. And if you permit me to go back and needle a little bit here because as best I can tell, right, APS is rebuttal here moves real mechanics here closer to what you -- guys have on their gas complaint. How should you think about the cadence of that 200 basis points? I know that the game just ask you that a second ago here, but how do you think about the timing to close that gap, given some of those mechanics that you guys just tweaked here in the rebuttal? Is a 50 basis point ROE gap by 29% still hold? Or is there any potential to move that forward?

Yes. We still believe that our rebuttal position and where we believe our ability to continue to manage regulatory lag going forward is consistent with our position at this point. Management's goal is to be able to consistently earn within that 50 bps given there's some element of structural lag that will continue to exist. And I think the latest thinking on design elements for formula rate as well as assuming a constructive outcome ultimately in the rate case revenue requirement would allow us to do so by 2029 or going forward.

Your next question is coming from Richard Sunderland from Truist Securities.

Picking up some of the subscription model commentary. Just curious if you can frame -- I know you said, I think, early stage around the conversations. But has the interest shifted at all relative to your expectations 3, 6 months ago? I'm curious, just any flavor you can give around those conversations given limited insight from the outside.

Yes, I'd say that the interest is still robust within the service territory. Our overall Q size remains at an elevated level commensurate with what was we continue to hover just under 20 gigawatts of uncommitted demand. How much of that potentially is duplicative projects or interest versus projects ready to execute to be determined. But the interest in viable projects for us to be able to contract is meeting our original expectations. But these contracts are complex. They involve details around investments and execution of both transmission and generation infrastructure, ensuring that the rates are carefully calculated to make sure growth pays for growth that the financing needs are met, and that both the utility is protecting its customers for reliability and affordability and that the counterparty gets what they need in terms of timing and resource adequacy. So it takes a while for us to work through these negotiations, but they are making progress. We're pleased with how the subscription model was received by the market and is coming together. We're not at the point yet of filing them with the commission, but it's trending in that direction.

Great. I appreciate the commentary there. And then switching gears, I think it was about a month ago that the Governor's Energy Task Force delivered report. I know there was a lot in there. new nuclear and other things. I'm just curious what you have in it out of that report. Anything you'd highlight on either the nuclear front or more broadly, anything that's advanced the conversation out of that report.

Yes, sure. We appreciate the opportunity to work with the Governor, several agencies within the state other stakeholders to really, first, create awareness on what are the energy needs to be able to power Arizona's growth? And how should we think about those from a macro level. And I think it was a robust set of discussions that culminated in a directional report that identified several key factors. One is, for example, the state has to invest in and support in new gas infrastructure to be able to power growth reliably. And so it showed widespread support for the gas pipeline infrastructure that is needed to the state will continue to benefit from a diverse set of resources, anchored by around-the-clock dispatchable generation, but also continuing to benefit from the robust solar [ ratings ] that we have. And then when you look long term, the state has always been a leader in a reliable and affordable nuclear generation and the utilities and the state believe that, that's technology worth paying attention to and be open to support in the future when it makes sense from an affordability standpoint, from a licensing and permitting standpoint. And so we'll continue to work with stakeholders on any projects going forward to would make sense for us to be able to explore on behalf of our customers. We've said before, specific on new nuclear that we're not in a position to put the utility balance sheet at risk. But to the extent we've got large customers that are interested in seeing new nuclear and are willing to help support the financing for that as the operator of the largest producing nuclear plant in the country, we'd be very open to those discussions at that time.

Your next question is coming from Paul Patterson from Glenrock Associates.

So just a couple of questions have already been answered. But just on the prepared remarks, you mentioned how much you've taken care of in terms of equity, but you also mentioned looking for additional opportunities. I believe, if you could just -- I apologize if I missed it, if you could just elaborate a little bit on what your thinking is on that?

Sure. Paul, it's Andrew. Yes, on the equity side, we've continued to try to derisk the equity plan. We've got a 3-year equity plan out there through 2028. Now admittedly, that is base case plan without any of the expectations that could come from either the formula rate or the bilateral subscription-type agreement. It's sort of the base of what we need with the CapEx plan that we have in place today. And so at this point, through various equity forward transactions, we've accumulated almost $850 million of equity to put to work. Our stated need for this year is $650 million in terms of equity. So we've got nearly another $200 million that we've achieved through just our ATM program to help meet future year needs as well. We're going to continue to look at the equity needs to the end of the rate case and what our kind of cash flow situation is at that point. And we'll revisit the financing plan along with our capital plan. But in terms of what those base needs are that $1 billion to $1.2 billion that we put out there for new money being raised from '26 to '28, we've already started to eat into that number by several hundred million. So we're just trying to derisk and do so opportunistically as we go along.

Your next question is coming from Ryan Levine from Citi.

In light of some of the Commissioner Myers testimony in D.C. recently, what is the thought process around converting retired gold to gas generation and potential for federal permitting reform to impact the company?

Yes, appreciate the question, Ryan. We continuously look at when it makes sense to revisit using some of our retired generation sites. At this point, really, the Cholla site is the only one that would probably fall under that category. And the analysis was done all the way back in 2015 on the need to retire that site as a coal facility. But ever since then, we've continuously done analysis to determine when it makes sense for our customers to be able to potentially convert it to gas, potentially use the site for new gas generation or even other technology in the future. And that analysis is ongoing. As we see demand continue to rise in our service territory, natural gas continues to be an affordable resource for us. And as the cost of new gas generation has increased recently as a result of the supply chain demand, it makes gas conversion continue to look even more affordable. So at some point, if it makes sense for us to be able to convert that on behalf of our customers, then we'll make sure that, that has made clear, and we'll begin those investments and put it in our plans for the future.

And then regarding the potential for federal permitting reform to impact the company, any color there?

Yes. At this point, there's nothing really specific, Ryan, that I'd say we could directly tie to where reform could benefit. I think we agree with Commissioner Myers -- sorry, Chair Myers that the broader need for support in terms of streamlining federal permitting has never been more present than now given the significant infrastructure needs to be able to power some of the growing markets within our country. And Arizona is probably among one of the top, whether it be for transmission, siding, gas pipeline infrastructure. Any help in terms of driving efficiencies in the process and expediting federal permitting will only allow us to be able to implement infrastructure quicker and therefore, serve our customer demand quicker. So we support any opportunity to be able to look at those reforms. But at this point, probably too early to tell in terms of any specific opportunities that will benefit some of our infrastructure plans. That said, I can see we're not counting on any changes to reform to be able to execute our plan, and we continue to remain on track with those infrastructure investment opportunities.

And then in light of the comments you just made around the ongoing investigation study around converting to a gas plant. Is there any time line that you're looking at when you -- when that study will conclude? And would that be concurrent with the subscription negotiations that you have underway that are targeting the end of this year?

I'd say probably the best opportunity to continue to look at that as we conclude our analysis leading up to this IRP filing, that will include a wholesale look at our generation mix as it relates to serving growth. And as a part of that is continued renewed analysis on any potential for gas conversion or new gas generation at the Cholla side.

Your next question is coming from Anthony Crowdell from Mizuho.

Just quickly, Slide 18 has given a nice slide of, I guess, committed load and then the uncommitted load. 20 gigawatts, it's uncommitted. Curious on the factors or timing of when we can maybe move that 20 gigawatts into the 4.5. And do you see conversion through 2028 or timing of conversion? And I have a follow-up.

Yes. Thanks, Anthony. So the subscription model offering that came out with last year and the negotiations that are currently underway with counterparties would reflect some elements of that 20 gigawatts potentially moving over to the committed customer bucket. So I'd say that, that process is underway now. And as we approach opportunity to file special rate agreements with our commission, that's really the opportunity for us to be able to create more visibility into how much of that 20 gigawatts may be able to shift over based on this initial subscription offering. And then as we continue to work forward in our plan in terms of new transmission and generation infrastructure to be added, that will give us visibility into what the next vintages of subscription auto could look like to be able to offer back to that use. So it's currently in process. Our goal is to be able to submit those contracts to the commission for review this year. And I think that will be the point at which we'll have greater visibility into it. In addition, our IRP, again, will do the sort of latest analysis on our best thinking in terms of organic load growth. So non-extra high load factor growth inclusive of residential, small- to medium-sized business and that will also likely provide some level of visibility into what we're thinking beyond just the 20 gigawatt Q in terms of the next 10 to 15 years of demand.

Great. And then if I think for APS, and I apologize for having correct, I believe you guys have a large load tariff that maybe reevaluate the cost of serve cost to serve these large load customers. I don't know if it's an annual basis or a longer tenure. I'm curious when you talk to some of your potential large load customers that may come on to your system. Did they have any comments or feeling or are they agnostic to the different type of large low tariff that exists either that APS is offering versus maybe other utilities that are offering?

We have an existing extra high load factor tariff. And as part of this rate case is proposed updating that tariff to ensure that it's reflecting the current supply-demand environment as well as making sure that, that tariff is priced so that growth pays for growth. And I think, generally speaking, these large customers accept the responsibility of paying for the costs associated with serving their growth. And then as we look to the future, our customers will have two options to be able to take service with us. The standard offering, which is continuing to take service from that [ X HLF ] tariff recognizing that it will be priced accordingly on a go-forward basis based on the actual cost of service. But then to the extent that they want an accelerated offering through the subscription model, where they contribute to financing infrastructure or potentially helping accelerate providing key equipment, then we can enter into a special contract that gets submitted to the commission for review and approval. Either way, we've been clear all along that the pricing, whether it -- through tariff or subscription model needs to pay for the entire cost of service and the customers that want to do business with ABS need to accept that because that's a commitment we've made to our commission and our other customers.

And have they had a bias for it against it the diagnostics, any color you could provide on that.

Yes, I think there's general support. Obviously, we need to defend the pricing and ensure that our customers have visibility into that. But as we engage with counterparties on the incremental infrastructure needed to be able to serve them, this is incremental transmission, incremental generation they're truly new build to be able to serve them. There's no more capacity on the existing system to take advantage of. So it's all new construction. And as a result, the price of that looks different than it did when you were taking benefit from legacy structure that was already installed. And so it's important we're transparent with these customers and walking them through the specifics of what it takes to be able to serve them. But I think there's general acceptance that that's the reality of the operating environment we're in today. And that's what it's going to take to be able to reliably kick in the Phoenix market. But the market demand remains robust. And so I think while the price is meaningfully different than may have been years ago and there's excess good capacity available. It hasn't changed the demand interest from our visibility at all.

Your next question is coming from Steve D'Ambrisi from RBC.

Congratulations on the strong start to the year.

Thanks, Steve.

Just quickly following up on Julian and Anthony's question. I believe the Phase 2 subscription offering was originally sized or initially sized at 1.2 gigawatts. And can you just talk or up to 1.2 gigawatts, can you just talk to what drove that sizing? Is that more reflective of, call it, the near-term opportunity within the 20 gigawatts? Or is it a function of sizing of Desert -- available capacity at Desert Sun? Or is it gas capacity or just what -- because clearly, I think everyone sees that there's a pretty large load opportunity here, and we're just trying to kind of understand what the pace of potential incremental additions to that sizing is.

Yes, sure. I appreciate the question. You're correct in that the initial sizing was more driven on the infrastructure that we had identified as being available for subscription offering. And so that was more of a reflection of the available generation and transmission that we had visibility to in the time frame that we knew the subscription counterparties were interested in. And so in large part from Desert Sun as well as the transmission to coincide with it. And that will be a continuous evaluation. So I would look at it as less specific amount of capacity fixed in time and more as we continuously evaluate how much of our organic load growth is going to require such as existing customers, residential, small- to medium-sized business. And then how much infrastructure we can build to be able to then offer above and beyond that organic loan growth to the subscription queue. We'll then contract for that availability. When we went to the subscription queue, we started out with that 1 to 1.2 gigawatt offering. And then through that, we continue to progress with conversations with counterparties on what their interest is of that. If it's one counterparty or multiple. And that also opens the door for other counterparties that may have access to key equipment to be able to add in addition to. So it's a continuous process to continued evaluation. But the premise of the subscription model is we first get access to the opportunity to add incremental infrastructure above and beyond what our organic service territory load requirement is. We offer that to the queue, engage in negotiations finalize the capacity that's awarded and then go back and recreate that process all over again with new infrastructure opportunities that we create for future availability.

Your next question is coming from Travis Miller from Morningstar.

Question on transmission. So the revenue and earnings contribution for this quarter and thinking about for the year and even future years, was there anything in the quarter that made this uniquely large? Or is this type of trajectory that we should see again this year and then following along the upward sloping line of transmission investment.

Yes, Travis. As I mentioned in the prepared remarks, our transmission investment has just continued to increase to serve growing load. If you go back 5 years ago, we've doubled and doubled again the amount we're spending annually in terms of transmission CapEx. And for our system, that starts down at [ 69 kV ]. So it's a pretty substantial amount of the infrastructure. We're drilling even in the local area. And so I think what you're beginning to see, and you saw this in our results last year as well is this continued step function upwards in the results of the transmission investment that we've been making. And so take time for that investment to start to show through to the bottom line, and that's really what you're beginning to see year-over-year as we engage in more and larger projects, and that will continue upward. It also shows all around the benefit of a formula rate from having gradual increases, it's also a rate that allows us to pass back wholesale revenue to our retail customers. And as actually kept some of those transmission rate increases pretty stable over the years, but it's allowed us to get contemporaneous recovery and reduce lag. And so it's a good indication of what we hope to be able to replicate for our -- the rest of our business, which is producing the right results for customers as we continue to grow.

Okay. Yes, that's great. And then on those just real quick -- on those transmission earnings, how other sensitive are those? Are those completely decoupled through the formula rate? Just have to remind me about the rate making structure.

Yes, it's trued up, and we are intended to earn our return on these investments. Yes.

And keep in mind that it's got a balancing account and there's a meaningful amount of that transmission revenue that's also paid back by wholesale customers, which offsets the cost to retail customers. So it's got an annual true-up as a part of this. The transmission driver is really more a reflection of our growing capital investments within the transmission system to be able to support reliability and growth than it is weather or any other factor.

What you're seeing right now is the impact of the rates we put into effect in the middle of last year and of course, there will be new rates to go into effect in the middle of 2026. For this quarter, they were consistent with the full year guidance that we gave for the year for the transmission segment.

Okay. Perfect. I appreciate all those details. And then just one high level the renewable energy standard repeal and thoughts on that? Had you anticipated that, expect any impact? Wondering your thoughts on that process. What was it a couple of weeks ago, maybe? A month ago now here.

Yes, Travis, no impact expected. I think the commission really had a very logical and thoughtful approach, which is the utility is already exceeding the original goal set forth in that renewable energy standard is being driven by just the general market interest and demand as well as the amount of growth that we have, which is spurred a significant amount of investment in utility scale, solar battery storage projects across the service territory to date. And so having an outdated policy standard that was put in place many years ago, that we're already exceeding probably didn't make much sense. So we anticipated that and don't expect any impact to the business along those lines. And from this point going forward, we really view it to be market driven. With respect to updates to the demand side management and efficiency standard. This is really an opportunity for the Commission to do a wholesale review on which programs had the greatest value and impact to our customers and which had less of an impact. And we think they appropriately rightsized those programs to focus on those that are having the greatest value and impact to our customers. And the accumulation of that resulted in continued meaningful support for our customers being able to conserve with energy where it makes the most sense, yet also pass on a roughly 1% rate decrease to all customers in the process. And so again, just, I think, a logical approach that still preserves the value of these programs, but also creates an affordability opportunity for all customers.

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