Pinnacle West Capital Q2 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
August 1, 2024
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Operator

Good morning everyone, and welcome to the Pinnacle West Capital Corporation 2024 Second Quarter Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma'am, the floor is yours.

Amanda Ho
Director of Investor Relations at Pinnacle West Capital

Thank you, Matthew. I would like to thank everyone for participating in this conference call and webcast to review our second quarter 2024 earnings, recent developments and operating performance.

Our speakers today will be our Chairman and CEO, Jeff Guldner; and our CFO Andrew Cooper. Ted Geisler, AP's President; Jacob Tetlow, Executive Vice President of Operations; and Jose Esparza, Senior Vice President, 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 second quarter 2024 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 section, 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 August 8, 2024.

I will now turn the call over to Jeff.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Great. Thanks, Amanda, and thank you all for joining us today. Second quarter financials were positively impacted by a number of things, the implementation of new customers, weather and increased sales growth. Before Andrew discusses the details of our second quarter results, I'll provide a few updates on recent operational and regulatory developments, starting with our operations.

As we progress through the summer season, I'm really proud to say our team continues to excel in delivering reliable service to our customers. In fact, we just experienced the hottest June on record in Phoenix, with an average high temperature over 109 degrees, and an average overnight temperature of 85 degrees. According to the National Weather Service, the average high temperature in Phoenix during the second quarter was 98 degrees Fahrenheit, which is an increase of 2% over the same period last year and 1.4% above the 10-year historical average. The number of residential degree cooling days, sorry, the residential cooling degree days, that's a utility measure of the effects of weather in this year's second quarter increased 53% compared to the same period a year ago. It was 24% higher than historical 19-year averages.

Our robust planning, resource procurement efforts, and our dedicated team have allowed us to provide exceptional service to our customers during this unrelenting summer season, and I really do want to recognize our operators and our field teams for doing an exceptional job, making sure our customers continue to have reliable service through this persistent heat.

With the extreme weather we experience each summer, it remains important as ever that we continue to assist our communities through heat relief support programs. We've partnered with local community organizations to aid the state's most vulnerable populations, and this support includes a collaboration with the foundation for Senior Living, where we offer emergency repair replacement of AC systems during the hot summer months, the Salvation Army's network of cooling and hydration stations across Arizona, and an emergency shelter and eviction protection program in partnership with St. Vincent de Paul.

We also offer a variety of assistance programs for those who are struggling with their bill. These resources include the Energy Support program, which provides limited income customers with up to a 60% discount on their monthly bill, crisis bill assistance that provides up to $1,000 annually to qualified limited income customers who experience unexpected financial hardships, and project share, which is a Salvation Army administered service, providing up to $500 annually in emergency bill assistance.

We plan years in advance to serve customers with reliable and affordable energy. Our resource planners secure a diverse energy mix to meet demand, like things like solar and wind, and rely on the energy provided by our share of the Palo Unit nuclear generating station when temperatures cause demand to increase, APS's strength and resilience comes from using flexible resources like natural gas and energy storage to keep homes and businesses cool over long stretches of extreme heat.

We've taken all of the above approach to provide the most affordable and reliable service when our customers need us the most. And as part of our vigorous planning, we've recently executed agreements on multiple projects resulting from our 2023 All-Source RFP to be online between 2026 and 2028, and that includes over 400 APS owned resources, and those are already reflected in our capital plan. We're still in negotiations on additional projects and we look forward to announcing those in the future. And we are always seeking the best combination of resources to serve our customers reliably, while not sacrificing affordability and continuing to build towards our clean energy future.

Additionally, we remain focused on providing exceptional customer service. I'm proud to share that through the first two quarters of the year, the 2024 J.D. Power Residential and Business survey results have placed us in the first quartile compared to peers. We've made remarkable progress over the past few years moving from fourth quartile to first, and I can absolutely say that progress would not have happened without the dedication and commitment of our hard working employees across the company.

Turning to regulatory update. The commission has continued to progress in the regulatory lag docket. At the July open meeting, the commission unanimously voted to hold additional workshops and the next workshop is scheduled for October 3rd. Commission staff stated that the workshops will be focused on formula rates and future test years with experts sharing their experience with each of these regulatory structures, and we'll continue to work with the commission and stakeholders on this important issue of reducing regulatory lag in Arizona.

We've made solid progress through the first half of this year, improving our customer experience, enhancing our stakeholder relationships, and executing on regulatory priorities, and we look forward to continuing to provide exceptional service for our customers through the balance of the year.

And with that, I'll turn the call over to Andrew.

Andrew D. Cooper
Senior Vice President and Chief Financial Officer at Pinnacle West Capital

Thank you, Jeff, and thanks again to everyone for joining us today. This morning, we released our second quarter 2024 financial results. I will review those results and provide some additional details on key drivers for the quarter.

We earned $1.76 per share this quarter, an increase of $0.82 per share compared to second quarter last year. New customer rates, weather and continued robust sales growth were the main drivers for the quarter over quarter increase. The 2019 rate case appeal outcome, income tax timing and O&M savings were other positive drivers for the quarter. Higher interest expense and depreciation and amortization expense were the primary negative drivers compared to last year.

As Jeff mentioned, we experienced the hottest June on record, which contributed to a $0.29 benefit from weather versus this time last year. And as a reminder, last year we saw the mildest June since 2009. Our sales growth continued to be strong during the second quarter, providing a $0.24 benefit, with total weather normalized sales increasing 5.5% compared to second quarter last year. C&I continued its robust growth at 10% for the quarter. This is primarily due to the ramping of large manufacturing and data center customers in our service territory. Although we are not changing 2024 sales growth guidance at this time, our weather normalized sales growth year-to-date has aligned more closely with our long term sales growth guidance of 4% to 6%, of which 3% to 5% is expected to be attributable to our extra high low factor customers.

Turning to economic conditions in Arizona, we experienced 2.1% customer growth in the second quarter, and the fundamental economic factors supporting customer growth remain strong. National inflation is declining, with the Phoenix Metro area in particular experiencing a year-over-year inflation rate of 2.7% as of June data, below the national average of 3%. Additionally, Arizona's unemployment rate hit an all-time record low of 3.3% in June, which is below the national unemployment rate of 4.1%. These positive economic indicators underscore the strong support for continued growth in our service territory.

Our O&M initiatives have delivered benefits this quarter. We have been successful in our efforts to lower core O&M expense across multiple areas of our operations, including both nuclear and non nuclear generation costs. We are making progress in our planned outages to keep our generation fleet resilient and reliable, and our goal continues to be declining O&M per megawatt hour, while ensuring we meet the critical reliability demands of the summer season.

While interest expense has risen this quarter compared to last year due to higher debt balances and increased interest rates, we are managing our financing costs proactively. Additionally, our depreciation and amortization expense has increased, reflecting our investment in planned IT projects and other grid investments. These strategic projects are expected to yield long-term benefits even as they create additional drag throughout the year.

We've continued the successful execution of our capital investment program and related financing strategies this quarter, as well as managing our debt maturities. This quarter, APS issued a $450 million bond in early May, and in early June we successfully closed on both $525 [Phonetic] million in convertible notes and $350 [Phonetic] million in floating rate notes at Pinnacle West. We're committed to seeking the most advantageous opportunities to strategically finance our capital plan.

Finally, all other aspects of guidance remain unchanged, including 2024 EPS. However, if these sales growth and weather trends we experience during the second quarter continue, we expect to be towards the higher end of our EPS range. We are closely monitoring sales growth and weather for the remainder of the year.

We have had a strong first half of the year and are excited to continue executing our strategy throughout the rest of 2024. We are focused on ensuring our customers have safe and reliable power to navigate the summer heat. This concludes our prepared remarks.

I will now turn the call back over to the operator for questions.

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Operator

Certainly. Everyone, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from Shar Pourreza from Guggenheim Partners. Your line is live.

Shar Pourreza
Analyst at Guggenheim Partners

Hey guys.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Hey, Shar.

Shar Pourreza
Analyst at Guggenheim Partners

Hey, guys. Hey, Jeff. So just on, obviously, that's been thematic. The weather normalized, sales growth 5.5%. It's in line with your longer term 4% to 6%. Can you just maybe elaborate on how sticky this is for the C&I backdrop? And if it's sticky, obviously that sets you up well for '24, but how do we think about '25 as we bridge from '24? And what does this all mean to sort of your longer term capital program and earnings guidance? Thanks.

Andrew D. Cooper
Senior Vice President and Chief Financial Officer at Pinnacle West Capital

Hey, Shar, it's Andrew. Yeah, so as you mentioned, you know, 5.5% sales growth for the quarter, largely driven by those large C&I customers continuing to ramp up. And so, you know, you saw that coming from both the manufacturing customers TSMC ecosystem, as well as from the data centers. And so, you know, we're still guiding to a lower range this year as that ramp starts up in a longer term range of 4% to 6%. And that 4% to 6%, yYou know, we have not provided guidance out past 2026 and don't intend to do so today either. But if you think about the long-term, there is a backlog of these customers that's substantial and extends beyond 2026. You have the second and third phases of the TSMC committed.

We have over 4,000 megawatts of data center customers that are committed as well. And that doesn't even include the backlog of more than 10,000 data center requests that we've gotten beyond that. And so the stickiness of the large C&I sales growth is a pretty critical trend, and we expect it to continue based on what we're seeing in the service territory.

The only other thing I would just add about the sales growth from this quarter is, we saw a nice contribution to that C&I sales growth from small business. So, you know, two thirds to 75% of these -- of the large C&I, that 10% growth in the C&I segment was from the larger customers. But we did see small businesses continue to flourish as well. And I think that speaks to what Jeff and I spent a lot of time talking about, which is the amplification effect of having a strong economy here and a rebuilt manufacturing base, and we're starting to see some of the effects of that.

Shar Pourreza
Analyst at Guggenheim Partners

I mean, the tailwinds are obviously pretty evident, I guess Andrew, what's the podium for you to revisit this and update investors? Is it sort of with the year end update or could we see something closer as we get to EEI?

Andrew D. Cooper
Senior Vice President and Chief Financial Officer at Pinnacle West Capital

You know, we do typically when we're not in a rake case year, provide updates at the third quarter, you know, around EEI, as you suggest. And that's certainly from the perspective of rolling forward our guidance, providing the long-term outlook on the sales growth as well as the capital that goes with it. And I know in your first question you asked about capital as well. So that would be -- the intent would be to look the third quarter there, as well as ensuring that we're continuing to see these ramp trends as we've seen over the last few years with these large, high, low factor customers, the ramps can be a little bit variable. And so we want to ensure that the 10% growth that we saw in the first half of the year continues before we make any change to sales guidance.

Shar Pourreza
Analyst at Guggenheim Partners

Okay, perfect. And just lastly, the red lag docket that's kind of out there. I mean, obviously another workshop. Maybe just provide just a little bit higher level thoughts on kind of where the timeline stands today? Any incremental details you can provide coming out of the recent meeting, and just additional milestones, because it seems like it's gaining fairly good traction, but just want to see if there's anything incremental to add there. Thanks.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yeah, Shar, I'll start, and then anybody else here can chime in. I think, so you are seeing the -- bringing in the experts, having a real dialogue around what are the systemic things that are being done in other places or in other jurisdictions, how does that work? I mean, to me the -- the thing that's encouraging is I think it really does show that there is a desire to understand what this means and particularly important in the context that we're moving into that the amount of capital that's going to have to go into serving the growth in Arizona and to really leverage, like, one of the key strengths of Arizona has been the broad regulatory environment, which has attracted so many of these customers, like Red Bull and TSMC and others into the state. That's got a error with our ability to serve them and to meet the growth that's coming. And so it's really, I think, understanding that broader context that's been helpful for these workshops.

So it's good that we're seeing another one coming up in October. I think there'll be some continued exploration or dialogue around what the different areas are. I think we said in the script here that a lot of the focus is right now on -- on both the forward test years, but also the formulaic approach to rates, which is similar to FERC. And so it's still early in the process. I think they are working to try to move this through and at least get some alignment or direction articulated here throughout the rest of the year. So, I think good progress, and something that we're definitely engaged in, trying to make sure that we can provide the support they're looking for as they sort through some of these policy options.

Shar Pourreza
Analyst at Guggenheim Partners

Perfect. I appreciate it, guys. Congrats on the execution. It's pretty notable. Thanks. Yeah, thanks, Shar.

Operator

Thank you. Your next question is coming from Nick Campanella from Barclays. Your line is live.

Nicholas Campanella
Analyst at Barclays

Hey, thanks for the time. I wanted to just put a finer point. I'm sorry if I missed it, but just. Is October really the date that you're looking towards for this to be taken up? I just know that there should be some open meetings between now and then. But is it October?

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yes, it's October.

Nicholas Campanella
Analyst at Barclays

Okay. And then I guess just, you know, with the strong start to '24, what are some of the negatives that we might not be contemplating here that would keep you within the guidance range? I know you kind of said that you're at the higher end, and then just knowing that the long term CAGR is not linear, obviously it's going to be predicated on rate outcomes. Is there any kind of pull forward opportunity from O&M or otherwise to kind of help derisk your '25 outlook within the range?

Andrew D. Cooper
Senior Vice President and Chief Financial Officer at Pinnacle West Capital

Sure. Hey Nick, it's Andrew. So in terms of things that we're monitoring for the rest of the year, as I mentioned earlier, certainly on the sales side, want to make sure that ramp rate continues with our customers. Residential sales continue to have some customer behavioral elements that we watch as well at the end of a very hot summer, and we saw some of those at the end of the summer last year. But overall the sales growth trends have been a positive tailwind to date.

The spot that we certainly continue to watch, and it'll lead into your second question there is just around O&M. We've been very judicious in the first half of the year to engage some of those O&M savings. If you recall, our guidance for the year for O&M contemplates basically a 2% reduction in core O&M in order to accommodate some of the large planned outages that we have this year, which basically lead to a 2% overall increase in O&M.

And so the largest of the outages is still on the come with four corners in the second half of this year. And certainly so as we watch the O&M picture, we've seen a good story year-to-date. Those savings from exercising our lean muscle into all the operating efficiencies that we look for every year at the company, those have played out according to plan. But certainly as we engage in that outage and all the planning and work that we've done to make sure that it keeps us within our O&M range, that's certainly the area that we'll look to.

There aren't a lot of other things that rise to the top of the list in terms of the potential headwinds other than the normal economic and sales top line related ones. We've derisked our financing plan for the year by doing all the financing we did. So we've kind of got a good handle on what our rate picture is for the year, and the DNA is what it is based on the assets going into service.

So just going to your second part on O&M, because I think certainly the outage picture is the one that we watch for the rest of the year. With that weather benefit, we certainly have activated the internal dialogue around the potential to take a look at our multi-year O&M plan and where we can derisk it. And part of the reason for that is actually that the four quarters outage continues in '25. And so our ability to have some flexibility in when we initiate some of these O&M projects, whether they're on the T&D side, on the technology side, there's a number of things that we look at and how we could toggle and have some agility in terms of how we approach them. So the short answer is yes. We'll look at O&M. As you know, we continue to look at the weather and see what's the outage schedule, how that pans out as well.

Nicholas Campanella
Analyst at Barclays

That's great. I appreciate that color. And one more, if I could just. With the reg lag docket kind of gaining traction, you also kind of have this ACC election in the background as well, and that all kind of culminates around this fall timeline. But how do you kind of see that changing the direction of the lag docket, if at all?

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

I think, I mean the lag docket is moving forward on the schedule that they've got there. I mean, right now the election, it's pretty early. We're just out of the primaries here. And most of the attention right now is at the top of the ticket races. And so you're not -- I don't think there's been a lot of dialogue yet on commission election issues. We continue to engage with the candidates on both sides. So it was an uncontested primary on both. And so we've been in contact with the candidates on both sides. And it's an area where we want to continue the dialogue because, again, it ties back to the growth that we're seeing in the state and the need to support that growth. And that's been consistent. Governor Hobbs has continued to be very supportive of growth in the state and do things that is following up on what her republican predecessor was driving.

Nicholas Campanella
Analyst at Barclays

All right, thanks a lot.

Operator

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

Michael Lonegan
Analyst at Evercore ISI

Hi. Thanks for taking my questions. On the financing plan, just wondering if you have any updated thoughts on the timing and type of equity or alternatives? I know you previously said you were leaning towards an ATM program that could match up well with capital deployment.

Andrew D. Cooper
Senior Vice President and Chief Financial Officer at Pinnacle West Capital

Hey, Michael, it's Andrew. Yeah, so no updates at this point. If you recall, we did the big block equity that we really wanted to use to make sure that we have a robust, balanced capital structure down at APS, and that's under a forward. So we'll draw that over time, with 18 months to do so. We derisked our maturities of both APS and Pinnacle West during the second quarter with a number of debt instruments and that, you know, used up a little bit of the, you know, the debt -- parent debt amount that's in our three-year financing plan. So that really leaves predominantly the incremental external financing that we need to do as a parent, the $400 million number that we have there in the plan. And, you know, ultimately, the base case there still really remains common equity. Certainly, we'll look at other instruments and those alternatives are out there.

And as you said it best, Michael, it's an ATM program as an ability to match up the capital -- capital needs with the external financing. And so that would be our base case as we move through the year and think about when we roll forward our financing plan. You know, an ATM tends to be a three-year program, and so we're kind of done with our '24 equity needs. And so as we look to '25 through '27, we'll provide any updates. But the $400 million is the number that we're targeting at the moment, and ATMs certainly remains the base case.

Michael Lonegan
Analyst at Evercore ISI

Great. Thank you. And then going back to the regulatory lag docket, depending on when it's complete and what comes out of it, do you think you'll start preparing a rate case filing right away and file that when it's, you know, when that's complete, that filings done and, you know, say, four to five months later? And, you know, or could we even see a rate case before that docket is finalized and, you know, in maybe various forms of -- of what the regulatory lag docket could look like?

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yeah, I think right now we're just still working through the docket and trying to understand directionally where that's going, and then that will help inform our path from that point. So let's see what the next workshop looks like, see if they continue to work through the process, and obviously we'll keep people posted.

Michael Lonegan
Analyst at Evercore ISI

Great. Thanks for taking my questions.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yep. Thanks, Michael.

Operator

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

Travis Miller
Analyst at Morningstar

Good morning. Thank you.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Hey, Travis.

Travis Miller
Analyst at Morningstar

You talked a lot at the beginning about the customer bill assistance and the higher bills and stuff. Is there any chance with the weather, if it either stays hot or gets hotter, that -- that could impact working capital for you or the regulatory mechanisms that would offset some of that cash flow issue potentially?

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yeah, you know, certainly, you know, we -- we've been working over the last number of years where there's a, you know, moratorium on disconnects and things during the summer. So our, you know, pace of customer receipts throughout the year, you know, tends to be fairly predictable. And so we plan our financing, both the long term and the availability of short term capital to accommodate the normal pace of customer payments over the course of the year.

And certainly the programs that we participate in and direct funds directly from our bottom line too, as well as the ones that we work with on partners, all provide an opportunity to reduce some of the pressures on customers from a bill perspective over the course of the year, particularly as we come out of our summer season and those bills begin to be more front of mind for customers.

Travis Miller
Analyst at Morningstar

Okay, got it. And then another heat question. If we do see these unusual temperatures, what type of planning in terms of system resiliency or even equipment type planning do you do for the heat? I'm thinking extreme weather, taking out some of the equipment, as we've seen with extreme cold weather in other places. What type of contingencies do you have on your system like that? If that makes sense.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yeah, I'll start. I mean, that's part of the process. And we've obviously been through. You know, if you go back and look historically, the hottest temperature we've had in Phoenix was actually, was it 2018 or -- it was a while ago. And so you always have to -- have to manage through with this, and there's a lot of focus around personnel. So how do you make sure that your crews who are working out in the heat have access to, you know, air conditioned trucks and that we manage the workflow there, and then a fair amount of work just on the equipment every year, making sure that we look for resiliency that we monitor the equipment that does have some heat sensitivity. Ted and Jake, anything?

Ted N. Geisler
President, Arizona Public Service Company at Pinnacle West Capital

Yeah, I think, Jeff, you said it. Well, the only thing I'd add, as well as the temperature we've seen so far as well within our design criteria and what we plan for. You know, it is interesting that while we saw sales higher in Q2, in large part due to weather, we still didn't break our peak demand compared to last year. And so that's really an indication that we saw higher low temperatures at night, and we had more consistent days around 110 degrees or above. But we actually didn't see the top end extreme heat as much as we did the year prior.

So from an equipment standpoint, we take it seriously. We have resiliency plans. We study each summer, and that informs our future design criteria. But we're actually sitting pretty good in terms of having the impact on equipment fall exactly where we would expect it to be. And we'll continue to monitor and adapt along the way.

Jacob Tetlow
Executive Vice President, Operations, Arizona Public Service Company at Pinnacle West Capital

Yeah, just a correction. The highest temp in Phoenix recorded was in 1990, 122 degrees. And so it is just something in a desert environment. You plan -- you plan for hot summers.

Travis Miller
Analyst at Morningstar

So, whenever you want to send that heat to Chicago, I'd appreciate it. I'll even trade you some zero degrees over there if you'd like. I appreciate the thoughts.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yeah. Thanks, Travis.

Operator

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

Julien Dumoulin-Smith
Analyst at Jefferies Financial Group

Hey, guys, can you hear me?

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yeah. How are you doing?

Julien Dumoulin-Smith
Analyst at Jefferies Financial Group

Hey, guys. Pleasure. Thanks for the time. Appreciate the opportunity. Hey, so maybe just coming back to the rate case timing and just the expectations of how this would filter in on the reg lag front, you know, obviously making good progress here on that front. It sounds like it wouldn't be too long, short period of time subsequent to its resolution, say in October, so early '25. Is your expectation here that, you know, ultimately the impacts would be, call it mid '26-ish if you -- if you want to put a tail lead to it in terms of addressing that lag and having a partial year, and then maybe you could be a little bit more specific on how you think the extent of that is going right now on resolving some of that lag? Just if I can press you a little bit further.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yeah, just, Julien, on the process. I mean, there's a workshop scheduled next in October. That's kind of the data point that is out there. So more dialogue, and I think I would expect the commission might give a little more guidance or at least have some dialogue on how they see that process moving forward. You know, once you see visibility into that, I think it's pretty standard. Everybody has about the same schedule. It takes about six months to put together a filing, and then it typically takes about a year to work through it. And you've got factors like settlement possibilities and other things that come into the analysis. And so, you know, we're in -- in August right now, workshop coming in October. We'll see how the dialogue continues to go, and then -- and then look at how that -- how that would affect the schedule and the timing.

One of the things that, you know, you're starting to see, and this goes back to a program that we had in place, and you probably remember it, the Arizona Sun program from a number of years ago. I think we got that approved in 2012-ish timeframe, and that allowed us to move forward with a tracking mechanism to get more concurrent recovery of capital that we were investing in that case with solar plants. And now that's part of the SRB process.

And so there already is some movement that is helping us to address some of those regulatory lag items. The SRB is the one that was activated in the last case and is applied to not just us, but another utility here in the -- in the state. And so those are the kind of things that you just have to continue to work through as the commission addresses the issues so that we can get back to where there's more contemporary recovery of the capital that we're investing to serve the growth we have.

Julien Dumoulin-Smith
Analyst at Jefferies Financial Group

Awesome. And then related to that, if I can push you. The SRB which you just alluded to, I mean, in theory there's no -- it's an evergreen program, right, as in to the extent to which we get subsequent revisions on your generation needs, the extent to which that you're still in negotiation on some of the assets here. As long as it goes through your typical procurement processes, all of that would still be eligible to participate in that SRB, right?

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yes.

Julien Dumoulin-Smith
Analyst at Jefferies Financial Group

Okay. Excellent. Thank you very much.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yep, you bet.

Operator

Thank you. [Operator Instructions] Your next question is coming from Paul Patterson from Glenrock Associates. Your line is live.

Paul Patterson
Analyst at Glenrock Associates

Hey, good morning, guys.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Hey, Paul.

Paul Patterson
Analyst at Glenrock Associates

Just, and I apologize for being slightly unclear, but it sounds to me from just listening to the call that perhaps you guys are expecting this regulatory lag proceeding to move somewhat rapidly from a regulatory, you know, in regulatory time. And I just want to make sure I understand this. So there's a workshop as you mentioned, scheduled on -- in October, but you think that things might move rapidly after that? I just wanted to get some sort of sense on that.

And would it be safe to assume that you guys are not going to be filing a rate case until you -- you get a determination in that proceeding?

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

On the, you know, on the latter, we don't know where the proceedings ultimately going to go. I wouldn't say that. I think, again, we're in August. There's a workshop scheduled for October. I would expect that, that workshop that the commission would have some dialogue on kind of where they feel they are in the process and what they think the timing is going forward. I think to your point, I think they are being pretty deliberate in how they're moving the workshop process forward. But it's kind of hard to sit here and give you expected dates and everything. I think we'll see how the dialogue goes in October, see how comfortable they get with the information that they're hearing, and get a check in at that point on what we expect to see from a process standpoint moving forward.

Paul Patterson
Analyst at Glenrock Associates

Okay. Thanks for clarification. I appreciate it. Have a great one. Stay cool.

Jeffrey B. Guldner
Chairman of the Board, President and Chief Executive Officer at Pinnacle West Capital

Yep. Thanks, Paul.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Amanda Ho
    Director of Investor Relations
  • Jeffrey B. Guldner
    Chairman of the Board, President and Chief Executive Officer
  • Andrew D. Cooper
    Senior Vice President and Chief Financial Officer
  • Ted N. Geisler
    President, Arizona Public Service Company
  • Jacob Tetlow
    Executive Vice President, Operations, Arizona Public Service Company
Analysts

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