Pinnacle West Capital Corp Q2 FY2021 Earnings Call

Greetings, and welcome to the Pinnacle West Capital Corporation 2021 Second Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stefanie Layton, Director of Investor Relations. Thank you. You may begin.

Thank you, Christine. I would like to thank everyone for participating in this conference call and webcast to review our second quarter 2021 earnings, recent developments, and operating performance. Our speakers today will be our Chairman and CEO, Jeff Guldner; and our CFO, Ted Geisler. Jim Hatfield, Chief Administrative Officer; Barbara Lockwood, Senior Vice President, Public Policy; and Jacob Tetlow, Executive Vice President, Operations, 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 2021 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 August 12, 2021. I will now turn the call over to Jeff.

Thank you, Stefanie, and thank you all for joining us today. I know that the release has a recommended opinion in order and our pending case is the most significant development for all of you, and both Ted and I will discuss that shortly. But I do want to cover some operational and customer matters before we go there. So as we progress through the summer season, I'm proud to say our team continues to excel in delivering reliable service to our customers. Arizona experienced several dozen sizable wildfires in June with only mild damage to our infrastructure and minimal customer outages. We have strong vegetation management and fire mitigation programs as well as mandatory line inspections prior to reenergizing in high-risk areas. And all of these contributed to the protection of our infrastructure and reliable service for our customers. We also successfully navigated through an early summer heat wave that resulted in six consecutive days of at least 115 degrees and three days approaching our all-time peak demand. Our resource procurement efforts and reserve margin standards ensure that we were able to meet the needs of our customers through the hot summer last year, through the early heat wave this year, and we expect these efforts will continue through the balance of the summer. Following the heat wave in June, July brought a relentless series of monsoon storms. So it's good to see the monsoon back, but that does present challenges for us. In a five-day period during mid-July, our teams restored power to more than 120,000 customers affected by storm-related outages and we effectively communicated with our customers regarding outage status and expected service restoration times. Our field crews worked in wet, humid, and muddy conditions with no safety events. I'm extremely proud of their exemplary work and the level of service that they've provided. With the weather we've already experienced this summer, it remains as important as ever to continue assisting our communities through our heat relief support programs. APS has partnered with St. Vincent De Paul, the Salvation Army, and Lyft to ensure that Arizonans have access to an emergency shelter and eviction protection programs, to cooling and hydration stations, and have transportation to the nearest cooling shelter as part of heat relief initiatives offered throughout the summer. This is another example of our effort to collaborate for the benefit of our customers, our communities, and our company. That focus on customer experience remains a top priority as we look to improve our J.D. Power customer satisfaction scores. We are pleased to see a measurable increase in our year-to-date residential customer satisfaction, but we recognize there's more work to do. We understand the importance of a high-quality customer experience, and I'm grateful and proud of our teams for employing a continuous improvement mindset to drive change for the benefit of our customers. So now on to the regulatory front. As you all know, the administrative law judge issued the recommended opinion in order for our rate case on August 2. I will say that we are disappointed and concerned by the recommendation, which would not appropriately allow for the recovery of important investments needed to serve customers reliably. Ted will speak to our estimates of the potential financial impacts if the rule were to be adopted by the commission. However, I do want to note that this is a recommendation from the administrative law judge; it's not yet a final order of the commission. A summary of the key points from the rule can be found in our investor deck on slide 23. From that, you can see that the administrative law judge recommended a $3.6 million revenue increase or a non-fuel $29 million revenue decrease; a 9.16% return on equity; an implied 0.05% return on fair value; the disallowance of the deferral and investment in the Four Corners SCR project; and recovery of the deferral and investment in the Ocotillo Modernization Project. There is no question that Four Corners has been a critical asset in serving our customers through the record heat the past several years. Without the EPA-mandated installation of SCRs, that plant would not have been allowed to operate, and there just isn't enough capacity in the West to reliably run the system without Four Corners. We continue to believe that the commission and other stakeholders recognize the importance of investing in assets such as Four Corners to maintain reliability, given the challenges that we've all seen in the West. And we've seen that as we work through the California wheel through order and the concern that the commission has expressed on limitations that reliability challenges in a neighboring state are imposing on Arizona. So Four Corners is critical for us to continue to serve our customers, and our goal is to continue to work with the commission to recover prudent investments and ensure that quality service can be maintained for our customers. The ROO, if approved as is, would put this objective in jeopardy. So where are we procedurally? We'll file exceptions to the ROO. They're currently asking for exceptions on August 23, and then the commission will schedule the case to be voted on at a future open meeting. We would expect a decision on this rate case to be issued during the third quarter of 2021. If the outcome of the case does not provide for necessary investments to support customer growth and to maintain the financial health of the company, we have the option to petition the commission for reconsideration of that decision to challenge the legality of the decision through the court system or to file another rate case. And we will evaluate all of these options after the conclusion of the case to determine the best path forward to serve our customers and to provide value and predictability to our shareholders. In the meantime, we'll follow the rate case procedural schedule, and we'll articulate and advocate the areas in which we disagree with the recommended order. On the ESG front, in May, the commission voted to preliminarily approve new clean energy rules that would provide for a final standard of 100% clean energy by 2070 with interim standards, the first of which requires a 50% reduction in carbon emissions by December of 2032. A final commission vote on the clean energy rules package is required for the rules to become effective. We think we're well aligned with the commission on the interim goals and expect to continue our current path to achieve 100% clean energy by 2050. We've executed a contract for an additional 60 megawatts of utility-owned energy storage to be located at our APS solar sites. This contract with a 2023 in-service date will complete the addition of storage on all of our current APS-owned solar facilities. In addition, we're working through our current all-source RFP for 600 to 800 megawatts of additional resources, with decisions from that RFP expected in the third quarter of this year. Our MSCI ESG rating improved from a single A to AA this year, with MSCI noting our strong water management performance and decarbonization efforts as key score attributes. So we made good progress through the first half of this year, improving our customer experience, enhancing our stakeholder relationships, and working towards achieving our ESG and clean energy goals. We need to work through the recommended opinion and order and ensure that our perspective is understood by the commission. So there's certainly more work to do, but I do want to acknowledge the team's dedication and commitment. And with that, I'll turn the call over to Ted.

Thank you, Jeff, and thank you all for being here today. With Jeff having discussed our operational and regulatory updates, I will now go over our second quarter 2021 financial results. I'll also share additional details regarding our customer and sales growth and the potential impacts from the administrative law judge's recommended opinion and order. Our performance in the second quarter was strong, earning $1.91 per share compared to $1.71 per share in the same quarter of 2020. The increase in earnings was driven by higher pension and other post-retirement non-service credits, higher sales and usage, and favorable weather, though this was partially offset by increased operations and maintenance expenses compared to last year. We saw a 2.3% growth in customers and a 5.7% increase in weather-normalized sales during the second quarter compared to the same period in 2020. Residential sales rose by 1.3%, while commercial and industrial sales increased by 10.3% compared to the second quarter of 2020. This growth in commercial and industrial sales reflects the reopening and return to in-person work this year versus the previous year when COVID-related business closures and remote work were prevalent. Given the substantial recovery in commercial and industrial sales along with continuous strength in residential sales, we are raising our 2021 sales growth estimate to a range of 1% to 2%, up from the previous estimate of 0.5% to 1.5%. The labor market in Arizona is on the mend from the impacts of the COVID pandemic. From the beginning of 2021 through May, employment in Metro Phoenix grew by 1%, compared to a 0.2% increase nationwide. In 2020, Arizona ranked as the third fastest-growing state in the country. Consequently, due to continued strong population growth, Arizona achieved its highest level of residential housing permits since 2006 last year. This year, through May, Maricopa County has already recorded 21,000 housing permits, indicating that we are on track to surpass last year’s total. We believe that relatively low mortgage rates, an affordable cost of living, a desirable environment with ample space, and affordable housing will continue to drive growth in the Metro Phoenix housing market and benefit the overall local economy. This remains one of our core strengths in our long-term growth strategy. Moving on to our financial health. While the administrative law judge's recommendation is not a final order from the commission, we want to provide a clear understanding of the potential financial ramifications if the commission approves the recommendation as presented. As a reference point, it's estimated that every 50 basis point reduction in ROE would correspond to about $32 million in revenue requirements. Regarding the recommendation to deny the recovery of the Four Corners SCR investment and deferral, as of June 30, 2021, the SCR deferral balance stood at approximately $75 million, with the net book value of the asset around $320 million net of accumulated deferred income taxes. Since this is merely a recommendation from the administrative law judge and not a finalized decision from the commission, we will not make adjustments to the deferral at this moment. If the commission denies recovery of the deferral, it would likely lead to a write-off of around $75 million, net of accumulated deferred income tax. Should the commission also deny recovery of the investment itself, we will explore all regulatory and legal channels to reduce any potential write-offs. In summary, we estimate that the ROO, if approved, could lower annual net income by as much as $90 million, factoring in the non-fuel decrease as well as the impact of increased costs once rates become effective. We already rank among the top quartile performers for operations and maintenance and are implementing additional rigorous cost management improvements throughout the organization. This level of revenue decline would be significant and harmful to all of our stakeholders, including our customers. Concerning our financing strategies, we plan to issue up to $500 million of long-term debt at APS during the remainder of 2020 to fund capital investments. We will hold an investor briefing at the conclusion of the rate case, during which we will offer financial guidance, including forecasts for Pinnacle West’s funding needs. As we continue to navigate the ongoing pandemic and the resolution of our current rate case, we are dedicated to our commitments to our shareholders, customers, communities, and our team. The strong and diverse economic growth, rising population, and overall appeal of Arizona within our service territory, along with our solid operational performance and disciplined cost management, all suggest a positive outlook for the future. We will keep working diligently to address these current challenges. This wraps up our prepared comments. I will now hand the call over to the operator for questions.

Our first question comes from the line of Julien Dumoulin-Smith with Bank of America.

I want to clarify things at the outset. This is obviously disappointing. How should we consider the balance sheet needs and impact from an equity funding perspective? You mentioned your regulatory and legal avenues, suggesting there could be a multistage balance sheet impact. It seems that pending a resolution, you wouldn't take the full write-off of the principal net balance until a subsequent decision is made, correct?

Yes, Julien, this is Ted. Thanks for the question. I think you're approaching it correctly. Let's break it down into two parts regarding the recommendation about SCR disallowance. The first part is the deferral. Since this is only a recommendation and not a final decision, the deferral remains in place for now. If the recommendation turns into a final decision, it could result in a write-off of the deferral, which, as of June 30, is approximately $75 million. However, if the commission decides to disallow the actual plant of SCR, we have other options to consider, both regulatory and legal. Therefore, we would assess our options at that time, and that might not require an immediate write-off, as there would still be alternative paths to explore, even if the decision aligns with the ROO.

Let me prod further a little bit. When you think about the avenues here, you all have talked about an equity funding need conceptually already. To the extent that which one would pursue an immediate subsequent rate case here, would that effectively necessitate, again, necessitate in soft terms, the need to true up the capital structure inclusive of that initial $75 million?

Well, we'll continue to evaluate the equity needs. We've said for a while now that we would be focused on looking at equity needs to preserve the equity ratio. That said, fully recognize that if there is any write-off impact to the income statement, that will have an impact on equity ratio going forward. So we'll evaluate that. But keep in mind also, we do continue to have a strong balance sheet, both at Pinnacle and APS, and we'll evaluate being able to utilize that balance sheet to the extent possible to mitigate any further equity dilution impact.

Yes. Understood. You absolutely have a strong balance sheet there. And just to clarify here, if you don't mind breaking it down. You said a $90 million figure here. Can you break that down just a little bit more between the SCR and some of the other items here? Just high level, if you don't mind, just in terms of the impact there as we sensitize a potential outcome.

Sure. Yes, happy to. High level, so you've got the $4 million net sort of revenue increase as proposed in the ROO. That includes fuel. So we've got to get that down to non-fuel. So you back out about $33 million of fuel-related increases, that takes you to a total non-fuel revenue decrease of $29 million. You add to that the incremental cost that we've stated for a while now, will hit the income statement once rates go into effect of about $110 million. And then you tax effect that, that gets you to the $90 million estimated annual impacts to ongoing earnings. And again, we expect that to be up to $90 million, and that's an estimate at this time.

Got it. And if they approve the SCR, just what would that $90 million go to? Do you have anything like that?

If the SCR plant would be put back into rates as approved, then about half that $90 million impact would be mitigated.

Got it. Excellent. Okay. And sorry, just to squeeze in one more here, if I can. What are you willing to go to on a consolidated FFO-to-debt metric here? Just to clarify the earlier comment you made here. Obviously, you do have a strong balance sheet and recognizing that.

Yes, Julien, appreciate the question. That's not something we can really discuss today. But when we do have our investor briefing at the conclusion of the rate case, I'm happy to walk through more details of our financing plans at that time, given that we'll have certainty on the case. All the details will be known and look forward to sharing how we think about credit metrics and financing going forward at that point.

Indeed, I appreciate that it's a certainly a fluid situation. All the best.

Thank you.

Our next question comes from the line of Insoo Kim with Goldman Sachs.

Thank you for the insights provided by Julien's question regarding the different breakdowns. From a procedural standpoint, you mentioned that there are various avenues available, particularly concerning legal considerations related to the rate case. Are these avenues mutually exclusive, or is it feasible to file another rate case if there are additional regulatory delays along with other recovery items while also pursuing specific legal considerations separately?

Yes. Insoo, I'd say what is the requirement to exhaust administrative remedies, so the rehearing reconsideration request is necessary before you pursue a court appeal. But if you do pursue a court appeal, then that doesn't change your ability to file another rate case and have the appeal pending and a separate rate case moving. But again, we would look at what options we would need to employ based on what the conclusion of the case is.

Got it. Got it. I'll leave that there. And then just a different topic. On the load growth, it seems like a continuation of solid, whether it's customer growth or just demand growth that you're seeing, I guess, more on a normalized basis beyond 2021, are those trends that you're seeing giving you the confidence that you could raise that? The normalized weather normal will go to by 0.5% on average through 2023? Just some more color there.

Yes. Insoo, I think that's right. We're looking at the local economy, the trends that we see. Last year was difficult to be able to separate what was normal growth versus fluctuation between C&I and residential due to COVID, but we're starting to see that trend normalize with some repeated patterns. And so for example, the residential growth we see, we believe that's true sustained growth. On C&I, we believe out of the 10.3%, just under 2% of that is really organic growth. And then when we see what's coming down the pipe with respect to new industrial and commercial growth, which then in turn spurs more housing growth, we're confident that we'll continue to have robust customer growth, and that will translate into the increased usage, which is what gave us confidence to increase that range.

Our next question comes from the line of Paul Patterson with Glenrock Associates.

So a couple of things. Just a housekeeping item. The LFCR, which they didn't vote to increase but you guys are still deferring, is that going to be impacted if the rule were to be adopted?

Paul, this is Barbara Lockwood. We didn't propose to do anything with the LFCR in this case. We just propose to let it continue to operate as it currently operates. And so we expect that it will just continue to function with the balancing account that already exists with the LFCR and it will be addressed in the next application to change that adjustment.

But if they don't allow an increase, I guess, it just simply keeps getting deferred. Is that sort of how we should think about it?

Yes. There is a balancing account with that adjuster where the dollars will accumulate until action is taken on that adjuster, in one way or another.

Okay. Please continue.

I apologize, Paul. In the ROO, there is a provision to reopen the rate case for 12 months so we can collaborate with stakeholders on alternatives for our adjuster suite. We see this as an opportunity to find alignment and common ground and to prepare a proposal that will address any issues or concerns, ultimately resolving any lingering questions about our adjusters.

Got it. The Chair issued a letter earlier this week, and there has been some discussion regarding the renewable implementation in Solana and the related contract. Your team has been very clear in your communication. I'm not sure if it was you, Barbara, or someone else, who mentioned that prudency shouldn't be evaluated retrospectively. Nonetheless, we received a letter on Monday suggesting we should conduct a prudency review on an older PPA that has rates significantly higher than current market rates. How should we approach this issue? What are your thoughts on it?

Yes, Paul. Right now, a single commissioner has shared her perspective on the Solana contract, and I strongly agree with her. Reflecting on when that contract was established, there was significant discussion regarding solar thermal versus solar photovoltaic technologies, the future of energy, and the value of capacity along with the importance of molten salt storage for us, along with a very different natural gas price scenario at the time. It would be imprudent to look back and view that contract as a mistake today. This contract is a Power Purchase Agreement and is not part of our rate base; it was executed in line with the commission's guidance back then. The commissioners were very enthusiastic and supportive of advancing that project. I appreciate Chairwoman Marquez-Peterson's opinion on the matter. We will continue to express our views, but I believe that the decision was prudent at the time it was made and aligned with the standards we had then. Legally, I don't see how we could be held accountable for any issues concerning it now.

If it were to be rejected by the commission, would that be considered a force majeure? Or would you simply need to proceed with the legal steps you have to take? I mean, you would do that anyway, of course. But how should we consider that?

We take it one step at a time. Right now, the most important thing is to clarify the legal standard and understand how this plant fits into it. We want to avoid any issues with force majeure, as that would not be favorable for development in Arizona due to potential contract defaults. We believe strongly that this is a proceeding where we will present our perspective. It was a prudent decision at the time, and it should remain part of our asset portfolio. Let's continue to approach this step by step.

Okay. When faced with this kind of consumer advocacy or when there appears to be an attempt by the commission to regulate rates, you may achieve legal victories in many instances. However, our concern is that there are various ways to create challenges regarding recovery and other issues. How do you plan to move forward with your strategies and investments in this environment? In other words, are you considering different strategic options if this situation continues?

Yes. I follow what you're saying. I mean, that's been an important piece of us of how we've looked at this broadly. I mean our customer affordability initiative was driven in large part to say we've got to be as effective as we can at managing our controllable O&M expenses so that we can create headroom to make the investments in clean energy that we know we're going to need to make in the future and keep the rate of rate growth at or below the rate of inflation. And so that continues. And our rates are lower today than you compare to back in 2018.

6.7% average bill lower than 2018.

We have been focusing on maintaining low rates. It's crucial to communicate with our stakeholders and the commission to understand that we need to find a balance. If this approach negatively impacts credit ratings and increases our cost of debt, customers will ultimately bear the consequences. Additionally, if the cost to raise equity rises because we fail to remain competitive in attracting investment, it will lead to higher costs for customers. This principle is vital, and we are doing everything possible to manage expenses. We are exploring ways to transition from variable fuel resources to reduce our fuel costs, but this must be done carefully. We need to convey to the commission that solely concentrating on short-term rate impacts without considering our past efforts in reducing rates will eventually cost customers more. Therefore, it's an ongoing effort for alignment that we must continue to prioritize.

Yes. And Paul, this is Ted. I'll just add, too, from a strategic standpoint. When we look at the value creation opportunities we've got, we are disappointed in this ROO, no two ways about it, and we've got a lot of facts to be able to continue to demonstrate as to why the investments are prudent and critical to keep the lights on. But we also recognize this is one of the last legacy issues that we are working to resolve with the commission. We were called into this case; it didn't start out in the normal form. Notwithstanding, we've made a lot of great progress with the commission. This is one of the last legacy items that we need to put to bed and get behind us. But once we do, we can't forget about the fact that we have robust growth in our service territory; just increased the ranges again today, continue to have that strong balance sheet, disciplined cost management, and a tremendous path forward for investing in clean. We will continue to make progress with the commission and get this case behind us and then be able to unlock more value with those other strengths that we've got.

Our next question comes from the line of Steve Fleishman with Wolfe Research.

I guess, first question is just in terms of in the event that you do need to pursue a legal review of this case, any sense on how long that might take? How long has that taken maybe in other cases in the courts?

Yes, Steve. The law in Arizona does provide for a direct appeal and a rate case matter to the Court of Appeals. So you go into the court of appeals rather than starting at superior court and then working your way up. And so typically, those are in the year time frame or so, which is often why you might see a case also filed. If you got a legal appeal, you might still see a company file a rate case at the same time.

Okay. I understand that the balance sheet is strong and your payout ratio is relatively low. How should we assess the risk to credit and potentially the dividend if this were to be implemented?

Yes, Steve. Well, certainly, we're engaged with the agencies as we continue to work through this. They recognize that this was just a recommendation, not a decision. But they also recognize we've got continued growth in rate base and capital investment. And as soon as we solidify our financing plans similar with our equity investors, we'll be working with the agencies to make sure that we incorporate the conclusion of the case and update any assumptions there. So we'll evaluate, certainly, with them what credit metrics look like and ratings, et cetera. With respect to the dividend, our intent is to continue defending the dividend. The Board reviews this annually. We'll certainly take into consideration where the case concludes. But we'll share more dividend policy at the investor brief here at the end. But we intend to continue defending the dividend.

Okay. The last question is about the outcome of this case. It's important for future cases, and you have a substantial capital plan. Currently, the renewable provider has not been approved. Additionally, these rate cases tend to take a considerable amount of time in the state. How are you approaching the management of the capital plan given the recent developments and the duration of rate cases? How do you maintain focus on such a large capital plan if this is the situation we find ourselves in?

Steve, I think that's a fair point. And aside from the current case that we're in from a regulatory construct standpoint, our top priority is to continue to work with stakeholders and the commission to minimize regulatory lag. And that includes getting back to the time frame of the cases that we had before. We've actually got a pretty good track record of relatively short duration rate cases. This one is a bit of an anomaly, particularly given it fell within a year of COVID, that certainly had an impact. But aside from that, whether it be our clean investments or investments to continue to support the robust growth within the service territory, we recognize that, that lag has an impact, and we believe there's options to be able to continue to mitigate it. And that is a priority for us, both within this case and beyond. We look at the capital plan and aside from investing in clean, we have to fund the growth. We've got commercial industrial customers coming, that demand investment in infrastructure to be able to continue to drive this local economy. And so we need to make sure that we're aligned with our stakeholders and the regulator on the need to continue to fund that capital to be able to fuel Arizona's growth because if you look at the $1.5 billion in our guidance, by far, the majority of that is just to keep up with Arizona's growth, and it's our job to do it.

Steve, I'll just add. One thing to know, this case has been particularly long. It is unusual in a number of ways and that we were called in. But it was also fully litigated and it's the first fully litigated case we've had in quite some time. We will always seek to settle and we can improve the time frames to do so, and we're hopeful that we'll be in that position in the next case that we have. So keep in mind that this case is relatively unique in terms of the time frame and the circumstances around it. And as Ted said, it's hopefully the final piece of some of the legacy issues that we've been dealing with.

Our next question comes from the line of Sophie Karp with KeyBanc Capital Markets.

Operator, we can move on to the next caller.

Our next question comes from the line of Anthony Crowdell with Mizuho.

Just, I guess, maybe a weird question. If the ROO was adopted and maybe the investment in the SCR was found not prudent, do you stop operation of it? I mean, I guess there's an O&M drag associated with operating the SCRs or operating the plant, would you stop utilizing that facility?

That's the question I'm grappling with, Anthony. The SCR is legally required for us to operate the plant, and today is expected to be a hot day. If we didn't have the capacity from Four Corners, there would be nothing else we could access in the West to keep the lights on. Therefore, we need to keep operating it. This is why I'm especially concerned about this recommendation; it has been clearly shown over the past two summers that it's not just necessary, but crucial from a capacity standpoint given the ongoing challenges around capacity in places like California and Texas. Now, we are being placed in a situation where we are told we have to run the plant, but we won't be compensated for either the necessary investment to keep it operational or the ongoing operating expenses. I just don’t think that’s a reasonable outcome.

Yes. And Anthony, I'll just add. Keep in mind, what's in this case and what we're talking about is the environmental technology, the SCRs. The plant itself is in rate base from prior decisions, obviously, and that remains in rate base.

I have a follow-up question regarding a long-term strategy. Looking at the evolution of the utility sector over the past 10 to 20 years, many single-state utilities have sought to mitigate their regulatory risk by either being acquired by a multistate utility or finding ways to efficiently move capital across different jurisdictions in response to challenging regulatory situations. If the ROO is upheld, would the company consider taking a similar approach?

Anthony, we don't talk about M&A issues. But I will say, in terms of diversification, we do have some work going on at our Bright Canyon affiliate. And so there is some opportunity there. Again, the vast majority of revenue net income comes from APS, but we continue to look at opportunities there. And just one perspective, we've got some ownership in a couple of wind farms, one is in Missouri and one is in Minnesota. And I think it will be important for us to share with the regulators that the returns that we see from capital invested in those states is better than the returns we can get here in Arizona that puts you in a real predicament. So the ROEs are important to maintain the attractiveness to get capital invested in states and have continued to invest in needed reliability, but we do have some assets that are outside the traditional regulated platform. It's not yet material from an earnings standpoint, but we do look for opportunities there.

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thank you for joining us today. This concludes our call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.