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Pinnacle West Capital Corp (NYSE:PNW)
Q2 2020 Earnings Call
Aug 6, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Pinnacle West Capital Corporation 2020 Second Quarter Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Stefanie Layton, Director of Investor Relations. Thank you. You may begin.

Stefanie Layton -- Director of Investor Relations

Thank you, Christine. I would like to thank everyone for participating in this conference call and webcast to review our second quarter 2020 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; Daniel Froetscher, APS' President and COO; and Barbara Lockwood, 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. Note that the slides contain reconciliations of certain non-GAAP financial 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 2020 form 10-Q was filed this morning.

Please refer to that document for forward-looking statements, cautionary language, as well as 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 13, 2020.

I will now turn the call over to Jeff.

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

Thank you, Stephanie, and thank you all for joining us today. I'd actually like to begin today's call by expressing my immense appreciation to our team. All of us in leadership stand in all of their incredible strengths and adaptability. We're continually impressed by their compassion for others and their sheer drive to do their very best each day to serve our customers, our stakeholders and our communities. The culture and engagement that we're striving to create throughout the organization is key to our success in navigating the ongoing COVID-19 challenges. Our plants are operating with impressive reliability during a severe Arizona summer. Our crews have kept the lives on, new customers are being served, and our customers are benefiting from an exceptional commitment to service demonstrated by our people. I'm also pleased to report that through the end of the second quarter, we remain in line with our expectations for the year.

I'll provide a brief overview of the current status of COVID-19 in Arizona and then some operational and regulatory updates. While weather variations are typical, we experienced an unusually hot second quarter this year that followed a mild second quarter of last year. So Ted will provide more details regarding the impact of weather, given the year-over-year change took us from really one extreme to the other and Ted will then offer a review of our financial performance and our future forecast. As you know, from March 13 through May 12, many businesses in Arizona were closed and the governor asked residents to stay home. Governor do stay home, stay healthy and state connected order expired on May 15, and and in early June, the state began to see an increase in COVID-19 cases.

As a result, on June 29, the governor paused operations of bars, nightclubs, gyms, movie theaters and water parks through August 10. And delayed the first day of in-person school to August 17. The governor's latest executive order, which was issued on July 9, limits indoor dining to less than 50% occupancy. On July 30, in his last update, the governor shared that Arizona's numbers are trending down. Positive cases, emergency room visits from COVID-like symptoms and hospitalizations for COVID cases have all decreased over the last months. Importantly, the state is focused on reducing the number of people infected by an infectious person to less than one. By July 15, Arizona achieved this goal with an RT of $0.9 million and the numbers are continuing to trend down. I know that's the indicator that he's very focused on. As we've stated previously, we cannot predict what the ultimate impact from COVID-19 will be.

However, we remain committed to providing relevant and timely information as the COVID pandemic evolves. From an operations perspective, we continue to execute well under new work protocols. We completed two major planned outages, one at four corners unit five and a refueling outage of Palo Verde Unit two this quarter. Those and other prepatory activities prepared us for a peak summer season, which brings both extreme temperatures and increased customer demand. While we're experiencing above-average wildfire activity this season, our robust fire mitigation efforts, preparation and planning is serving us well in helping to protect the communities we serve and our infrastructure.

In at least one instance that fire mitigation training went beyond keeping the power on for our customers, I want to share a story about one of our customer servicemen, Ron Walker, was driving from a job in Sedona to his home in flagstaff, where he saw a car on fire on the side of the freeway. Without hesitation, Ron fold over to help using his fire extinguishers, hydration pack and a shovel, to keep the fire from spreading until firefighters could reach the scenes some 30 minutes later. Ron's quick smart and safe actions helped keep the situation from becoming severe and demonstrated his personal commitment and APS' dedication to doing the right thing for our neighbors. Turning to another kind of preparation.

On June 26, we filed our 15-year integrated resource plan, providing a forward look into our resource planning needs. Between 2020 and 2024, we expect approximately 2,500 megawatts of renewable energy, demand response, energy efficiency and energy storage will be needed to make progress toward our clean energy commitment. We expect the renewable energy additions will include wind and solar generation with the exact mix determined through all source RFP procurement processes. In fact, we're already executing on our plan, we are currently finalizing contract negotiations from our 2019 RFPs for new clean energy resources, and we expect to announce the results soon. We also expect to issue another outsource RFP later this year that will support customer reliability and our clean energy goals.

The longer-term look from 2020 through 2035 projects service territory growth driven by population growth, economic growth, data center growth and changing customer trends related to electric vehicles and distributed generation. The positive economic environment Arizona offers to businesses and the state's focus on encouraging technology and development are key drivers there. In addition to resource needs to meet that anticipated growth, approximately 1,400 megawatts of coal are scheduled to be retired and another 1,600 megawatts of gas purchase agreements are scheduled to expire over the next decade. These resource requirements and contract roll-offs, coupled with the need for additional capacity to meet our anticipated peak demand growth, resulting in capacity needs of approximately 6,000 megawatts by 2035. We're committed to our goal of being carbon-free by 2050 and the path outlined in our IRP support this objective.

We also recently released a report on the McMicken battery event that occurred last year, with the conclusion of that investigation, we are now positioned to evaluate the safest and most effective way to move forward, integrating additional storage on our system, including refreshing the energy storage procurement activities that were already under way at the time of the McMicken event. On the regulatory front, the administrative Lodge edge granted the Corporation commission staff and the residential utility consumer offices joint request for a 60-day extension to file testimony in our pending rate case. The new date for staff and interveners filed testimony will be October 2, 2020, with rate design testimony due October 9, and the hearing is now scheduled to begin on December 14, 2020.

While the rate case and regulatory relationship remain top of mind and key priorities through the remainder of 2020, we're also focused on providing reliable service through our peak summer season, emphasizing our cost management initiatives to support both our financial performance and customer affordability and continuing the transition to a cleaner energy mix. Lastly, I want to mention that while COVID-19 has created significant challenges, there are many lessons learned and achievements made that we may not have thought possible previously to the pandemic. Our culture transformation is focused on a growth mindset, which means learning from challenges and seeking continuous improvement.

And I'm pleased that, that's exactly what we and the team are doing. Thank you for your time today, and I'll turn it over to Ted.

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Thank you, Jeff, and thank you, everyone, again, for joining us today. Jeff recognized a number of our team's accomplishments, and I'd also like to add to that by mentioning Jeff's receipt of the Smart electric Power Alliance individual power player of the year award. This award recognized Jeff for his demonstrated leadership and innovation to advance clean energy and its value as a resource to help meet the future needs of our customers. On behalf of the entire Pinnacle West team, I want to express our congratulations and appreciation for Jeff's leadership.

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

Thanks, Ted.

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

This recognition for your support, Jeff, of our clean energy plan is well deserved. Turning now to our earnings update. I'll cover our second quarter results, economic activity, successes in our cost savings initiative and forward-looking expectations. Our performance in the second quarter remained strong despite impacts of COVID. Earning $1.71 per share compared to $1.28 per share in the second quarter of 2019. Above-average temperatures, continued cost management and higher pension and OPEB nonservice credits contributed to the increase in earnings. As we've highlighted before, weather can be a significant factor in our annual earnings. The above-average temperatures from this quarter, combined with the below-average temperatures in the second quarter last year added $0.43 to earnings year-over-year.

Compared to normal, weather added $37 million of pre-tax gross margin or $0.25 per share. We also experienced 2.4% customer growth in the second quarter 2020 compared to the same period last year. These positive drivers were partially offset by a 1.3% reduction in weather-normalized sales for the quarter, including the impacts from COVID. From May 13, when businesses started reopening, through July 28, weather-normalized sales were essentially flat compared to the same period last year. We continue to see a reduction in weather-normalized commercial and industrial sales of 4% offset by an increase in weather-normalized residential sales of 4%.

In June, we experienced 2.5% customer growth and 0.8% weather-normalized sales growth. Reflecting the growth in our service territory and continued improvement in our economy following the full COVID closure period earlier this quarter. In addition to customer growth, weather has been impactful this year, notably, on July 30, between five and six p.m., our customers required a new all-time high peak energy demand of 7,660 megawatts. This exceeded the prior peak set in 2017 by nearly 300 megawatts. Our company performed exceptionally well and delivered reliable service to our customers across the state in order to keep our communities cool and comfortable.

I want to thank our entire operations team who stepped up once again to serve customers with reliable power during these extreme conditions. This year's peak demand record is an example of how important our resource planning efforts have become. Although weather-normalized sales may be relatively flat, which reflects full day customer usage, we plan for the summertime peak demand, which informs our resource procurement needs. This means, regardless of sales growth, our customers have a growing peak energy demand that requires new resources and customer programs in order to serve reliably through the summer period. Our recently filed integrated research plan outlines this point very well.

While the extreme heat has been a driver this year, weather-normalized sales may continue to lag during the near-term as a result of COVID-19. Long term, however, we've remained confident in the growth of our service territory. According to the Phoenix Business Journal, Taylor Morrison Home Corp. had its best month in Scottsdale homebuilders history. The company finished June 2020 with a 94% increase in net sales year-over-year and had an all-time high monthly pace of average sales per community. Further demonstrating the strength in our market, the Phoenix business Journal reported 9% year-over-year gains in home price growth during Q2, representing the highest growth among 19 U.S. cities measured by the case shiller index.

On the commercial side, we continue to expect solid growth in our service territory as new developments are announced each month. Amazon recently purchased 91 acres of land next to a 112-acre parcel being developed in a new industrial park. In Metro Phoenix, Merit Partners, the developer of the recently constructed red Bull and white cloud facilities purchase dated three acres with plans to develop another industrial part. And in Buckeye, retailer five below announced it will build an 850,000 square foot facility with construction expected to be completed in 2021. The center is expected to create 150 jobs initially with plans to grow to 290 jobs in five years. While the labor market in Arizona was impacted by COVID, construction was deemed an essential service and work continued throughout the shutdown.

For 2020 through the end of May, employment in Metro Phoenix decreased 0.7% compared to 4.4% for the entire U.S. manufacturing employment in Metro Phoenix decreased 0.5%. However, construction employment increased by 3.1% as local residential and commercial construction projects continue. The economic highlights discussed above reinforced our 2.4% customer growth that we saw this past quarter. Turning to cost management. We continue to focus on eliminating waste and achieving efficiencies as a means to keep customer rates affordable. I'd like to share a few recent examples, demonstrating our team's commitment. The procurement operations team delivered new savings by negotiating lower prices with certain vendors through maximizing the competitive bidding process and driving efficiency gains with vendor contracts.

These efforts, along with negotiating early paid discounts, contributed approximately $5 million in savings through the end of the second quarter. In addition, our customer service team implemented new process modifications, automation, and revised training that eliminated the need for certain external resources saving approximately $500,000 in 2020, with additional savings planned for 2021. Some savings are large, some are on the smaller side. But the point is we're developing a leading culture where employees continuously look for efficiencies and ways to improve service to our customers. These and other cost savings initiatives helped offset COVID-19 expenses such as testing and PP. They also allowed our company to support our customers and communities with additional bill assistance and charitable donations during this unprecedented time.

Now turning to our capital program. The $4.7 billion of capex we've projected through 2022 on slide 15 is consistent with the investments needed to support our resource additions, as depicted in the recently filed IRP. As Jeff mentioned, we'll use our standard competitive RFP process to procure additional clean generation resources, and we expect to continue utilizing a mix of owned and purchase resources. For our future earnings expectations and 2020 guidance, despite the impacts from COVID-19 experience thus far, we continue to expect Pinnacle West consolidated earnings for 2020 will be in the range of $4.75 to $4.95 per share. Given the impacts of Covet, we reduced our 2020 weather-normalized year-over-year sales growth expectations from 1% to 2% growth to flat to negative 1%. We also reduced our 2020 to 2022 weather-normalized sales expectations from an increase of 1% to 2% to an increase of 0.5% to 1.5%.

Offsetting these decreases in 2020 sales is a decrease in adjusted O&M expense, a decrease in interest expense, net of AFUDC, and an increase in other income and a decrease in our estimated effective tax rate. A complete list of factors and assumptions underlying our 2020 guidance can be found on slide s three and four. With respect to financing plans for the remainder of the year, we expect to issue up to $400 million of additional term debt at APS and do not expect to issue equity in 2020. Despite the unexpected circumstances so far this year, we remain focused on hitting our metrics and serving our customers with clean, affordable and reliable power.

Our team has done a remarkable job working through extreme summer conditions. Embracing new ways of working due to COVID and taking care of our customers with reliable service and industry-leading financial support. Our long-term goals remain intact, and we look forward to taking steps in the near-term to continue implementing our clean energy plan. We are embracing a growth mindset to build upon the learnings from the first half of this year, while delivering value to our shareholders and honoring our commitments to our customers and stakeholders going forward.

This concludes our prepared remarks. I'll now turn the call back over to the operator for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Michael Weinstein with Credit Suisse. Please proceed with your question.

Michael Weinstein -- Credit Suisse -- Analyst

Hi, good afternoon guys.

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Good morning Michael.

Michael Weinstein -- Credit Suisse -- Analyst

For the on the gross margin financial outlook, where I noticed it's a little bit lower than back in May. Is that all COVID related or is there some other dynamic that's happening there?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

No, Michael, you're absolutely right. That's just simply reflecting the adjustment in our expected weather-normalized sales for the year given the impact of COVID.

Michael Weinstein -- Credit Suisse -- Analyst

Got it. And then the other numbers are all intending to offset that?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

That's correct.

Michael Weinstein -- Credit Suisse -- Analyst

Is it I think if you add it all up, it comes out to a little bit lower overall expectation than before, although you're maintaining guidance, are there any other factors that may not be on the page that we that would be positive and offsetting?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

No, nothing else there, Michael. We've got ranges listed. We're being conservative with our weather-normalized sales expectations for the balance of the year. As we said through June, we're really at 0.3% negative, but we gave a range of flat to negative 1%. But the other adjustments should offset, but we are confident in our year-end guidance range of $4.75 to $4.95.

Michael Weinstein -- Credit Suisse -- Analyst

Got you. And Jeff, with the delay in the procedural schedule a little bit further for the rate case, it looks like the hearings will start after the election. Does this mean that we should wait until after into next year probably for any kind of settlement process to take place? Or I think we were talking before maybe about a partial settlement in September, but to me, it looks like that maybe you all pushed out into next year. Is that the right way to think about it?

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

Yes, Michael, I mean, you kind of flagged the one of the issues, which is when the procedural schedule pushes out it puts the window between staff and intervene or testimony. As we've said before, typically, you can't really begin a real settlement process before you see staff and intervene or testimony and you book end the ranges. I'd point out, too, that in the last response that the commission staff filed, they were pretty clear that they were looking for an indication from the bench if there was settlement. And otherwise, they're proceeding down a litigated case.

And so now you've got an added complexity that bench may change. So we're still open for discussions with anybody that wants to talk about issues. There's still ways that you could potentially take issues off the table. I think it's harder to see a comprehensive settlement in a traditional rate case settlement process coming about right now. And if that were to happen, it probably would happen in later probably next year. But again, then you're going to be in the middle of the hearings. So we'll have to just watch and see how that develops.

Michael Weinstein -- Credit Suisse -- Analyst

Okay, thank you very much.

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

Thanks, Michael.

Operator

Our next question comes from the line of Shahriar Pourreza with Guggenheim. Please proceed with your question.

Shahriar Pourreza -- Guggenheim -- Analyst

Hey Todd in your is doing

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Hey good Shar, how are you.

Shahriar Pourreza -- Guggenheim -- Analyst

Let me just follow-up on Michael's question on sort of the settlement here. Are you having discussions right now? And sort of how are discussions forming, right? I mean, is it are you gaining a little bit of traction here? And then just does the delay in the schedule shift to push your thinking about the timing of the next rate case, and in turn, your plans to sort of raise equity that you've previously said later in 2021 or early '22?

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

Yes, Shahriar, on the settlement question, I mean we're to the extent you talk to you have a customer, for example, who would come in and say, I'm interested in this kind of new program, you can have those conversations at any point in the process. And so we continue I think the notion of kind of the traditional comprehensive settlement discussions those aren't happening. And again, I think staff would be looking for a signal from the bench to begin to do that, and that's less likely to happen, I think, now with this commission.

But we're open to talking to anybody who wants to talk about taking issues off the table or working through different aspects. And even if you don't get a comprehensive settlement, it helps you work through issues and make the hearing more streamlined. You kind of have to see how the hearing process goes in order to see what timing effects that would have on the next case. So I don't really no change in plans right now, but we need to watch how this case proceeds, I think.

Shahriar Pourreza -- Guggenheim -- Analyst

Okay. And then just sorry, but I don't know if you addressed the delay in the rate case and how to think about the next rate case in equity?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Yes, Shar, this is Ted. The way I think about that is it really depends on the timing and outcome of the current case we're in. So once this case concludes, we'll evaluate the outcome, and that will really inform the timing of the next case as well as timing of equity needs.

Shahriar Pourreza -- Guggenheim -- Analyst

Got it. And then just most of the recent renewable clean target proposes in the energy rules docket, i.e., the staffs and burns and Kennedy's seems to follow the goals you guys have already put out. Are there any kind of puts or takes that we should be thinking about as the dialogue continues with interim step targets i.e., every five years, be less desirable than a straightforward endpoint, i.e., neutral 2050. And has there been any more conversations about alternative mechanisms i.e., a rider for solar and storage? So you don't have to be a serial filer? Or is the preference with the ACC and stakeholders just to keep things status quo?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Yes, Shahriar. I think what's encouraging is directionally, it feels like there's a lot of alignment in terms of the direction we're going. Obviously, the details are important. And you do have to look at, and I think some of the comments that we make and other parties would make is how do you think about interim goals? So we wanted to make sure with ours that we didn't just set a 2050 target and then nothing until 2050. And so we had put a 2030 goal and in place. The challenges you get more granular as it just gets harder on the procurement, so you lose some flexibility. So if you were to have goals every year, every two years, then it's a little bit harder to try to do the procurement and the flexibility that you can get around different technologies with that.

And so it's an evolving conversation. I think that just watch the filings and the comments that come into those to that docket. With respect to tracking mechanisms, I expect there'll be some conversation about that in the current rate case because you're exactly right on the impact of that, if you don't do a tracking mechanism of some sort or some kind of regulatory mechanism, then it just pushes you into a pretty continuous rate case filing stream. And so there's value, we think, in that. But again, that's part of what I expect will be the evidence that will be heard in the rate case that we've got on file right now.

Shahriar Pourreza -- Guggenheim -- Analyst

Got it. Thanks guys. I was doing my questions. thanks for that

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Thanks Shar.

Operator

Our next question comes from the line of Durgesh Chopra with Evercore. Please proceed with your question.

Durgesh Chopra -- Evercore -- Analyst

Hey, good afternoon. Team. Thanks for taking my question.

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Mr Durgesh. Great, thank you.

Durgesh Chopra -- Evercore -- Analyst

On the guidance front, the reduction in interest expense it's partly driven by higher APDC. What is driving that? And are you just assuming lower rates now in the updated assumption?

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

Yes. That's exactly right. It's updated with our current financing, the current rate and then higher net of higher AFUDC than originally projected.

Durgesh Chopra -- Evercore -- Analyst

Understood. And then just one small nat. The capex plan did not change, but the rate base is modestly higher, and this may be too much into the weeds. I'm looking at your slide where you actually put out rate base and break it into the company and FERC, and it's modestly higher, but the capex plan didn't change. What is driving that?

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

Yes. So that's just simply an update in the rate base projection given the capex forecast that we previously released. We did not change any of our forward-looking projections in the last quarter. But as you can see this time, we updated most to reflect both impacts of COVID as well as update rate base to be in line with the recently issued capex forecast. So it's just getting those two in sync.

Durgesh Chopra -- Evercore -- Analyst

I get it. So this is basically up-to-date and ties with your most recent capex forecast?

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

That's correct.

Durgesh Chopra -- Evercore -- Analyst

Okay. Understood. And then just one last question. In terms of the cover trends and demand trends, you're saying you're pretty conservative in for the back half of the year, assuming that the trends as to what you saw in Q2, would that put you in the high end of the guidance range?

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

Well, I think it's too early to project. The COVID situation is still fairly uncertain. But the way I think about it is we're pleased to see that since the reopening in mid-May, we've seen the decline in commercial sales be evenly offset by the increase of residential, and that's an important metric for us. But other than that, we'll just continue to focus on things normalize for the balance of the year.

Durgesh Chopra -- Evercore -- Analyst

Understood. Guys, thank you for taking my questions.

Operator

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

Insoo Kim -- Goldman Sachs -- Analyst

Thank you. My first question, regarding the delayed staff testimony and the filings associated with that. Correct me if I'm wrong, but it seems like it still opened up the possibility of a change in the test year for this rate case. Is that correct? And that is the case, what is the process? And if it were to get changed, would it be the commission's decision at by a certain day to make that happen?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

No, I don't think it's Insoo. It's not a change in the test year. You may change some of the pro forma. I mean, that's something we'd have to look at for the rebuttal case. But the test year was the test year we filed. And again, we may make adjustments in post test year plant and other things to that test year.

Insoo Kim -- Goldman Sachs -- Analyst

Right. And in terms of the protester adjustments, would it allow you with is a way to extend the time line for Pursuit tester adjustments?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

I mean, I guess that's possible. I think you'd have to see how the case would evolve.

Insoo Kim -- Goldman Sachs -- Analyst

Got it. And then in terms of the renewable process kind of following up on a couple of the other questions. I think at this point in Arizona, it's more of an acknowledgment or not acknowledgment process for when you file an IRP. As you weigh into all of the capacity investments in renewables and storage over the next few years, are there any conversations that you're trying to have with the commission to establish more of a soft approval or acknowledgment of provide for those type of investments?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Yes, there I guess, I'd say there is and I'll ask Barbara to chime in if she's got a different or some additional information. But the IRP process itself is an acknowledgment process, right? And there's some discussions about what would happen with that under the new energy rules. That's probably a topic of discussion that could come up in the new energy rules debate. When you get into then the individual RFPs, it gets a little more nuanced because there could be things that do require commission approval and there could be things that don't.

In a lot of cases, you wouldn't be going through a siting committee approval because these aren't thermal plants, so they're not subject to this state siting act. But I think there it's going to be something we'll watch as the rules evolve as to how the approval process go, do you want to add anything, Barbara?

Barbara Lockwood -- Senior Vice President, Public Policy, Arizona Public Service Company

Yes. And so this is Barbara Lockwood. I would say the way to think about it is the conversation is evolving to more engagement with the commission and stakeholders through both the IRP process as well as the RFP process and approval or acknowledgment is all in discussion on various components associated with that. But really, the best way to think about it right now is the discussion is how to engage more with the commission through those processes as well as with the stakeholders. Nothing definitive in that regard yet.

Insoo Kim -- Goldman Sachs -- Analyst

Yeah, thanks.

Operator

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

Paul Patterson -- Glenrock Associates -- Analyst

Hey, good morning. I apologize if I missed this, but the sales growth change over the long term, what caused you to change that?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Paul, that's really just reflecting the flat to negative expected weather normalized sales growth we see in 2020. So given it's a three-year period, including 2020, we just want to make sure that we updated that period to reflect the expected 2020 results and impacts as a result of COVID.

Paul Patterson -- Glenrock Associates -- Analyst

So when COVID is over, whenever that is, you guys don't really expect to see sort of a catch-up, so to speak, you see basically just sort of things progressing pretty much as they were before. Is that the right way to think about it? So it's kind of a lost year as opposed to not lost year, but if you follow me like COVID will cause a decrease for this year. And then off of that, then you'll get back to where you were before, your growth rate will be the same, but there won't be some big rebound in terms of catch-up. Is that the right way to think of it?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

I think that's a fair way to think about it. A couple of data points for you. As I mentioned, the economy remains robust in virtually every measure you look at it. If you look at June, of course, the most recent month in this period, we had 2.5% customer growth. We had 0.8% weather-normalized sales growth and that's during what I would still consider to be a COVID period. We look to the future, difficult to predict, of course. But we want to make sure we reflected updated guidance over the next three years that did include the impacts we're seeing in 2020. That said, those numbers do exclude contributions we'd expect from data centers, and so that provides upside as well.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. And then you also mentioned, and I apologize if I didn't get it completely, but you mentioned something about your peak growth hasn't been changed, I think or I apologize again, I heard it, but I got slightly distracted. Could you just elaborate a little bit more on what you meant by the peak quotes and how that I guess, it's still driving your it doesn't in other words, your capex is less affected, I guess, by the sales growth at South, but more by the peak growth?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Yes, that's exactly right, Paul. One of the key pieces is regardless of annual sales growth, we plan for the long-term to ensure that we're there on the hottest day of the year when our customers need us the most and that's the peak demand day. This year, that peak demand day increased demand by over 300 megawatts compared to the last all-time high, which is significant. And that's really what's driving our resource procurement needs and the integrated resource plan for the long-term is making sure that we've got resource capacity plus reserves to maintain reliable service during peak demand on a forward-looking basis.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. And that really hasn't OK. Okay. And I think the rest of my questions have been asked and answered. Just on the energy rules, I mean, there does seem to be some sort of an impact, I guess, at least currently, and I know the commission probably will be changing in November. So any thoughts on that? Or does it have any is it sort of just a wait-and-see sort of situation? Or is there any other takeaway from that, do you think?

Barbara Lockwood -- Senior Vice President, Public Policy, Arizona Public Service Company

Yes. Paul, this is Barbara Lockwood. I think that's true. There's a philosophical alignment on many parts of the energy rules, but the procedure and the process for making policy and getting through to a boat seems to be complicated, and it's just a wait and see right now. They're discussing it again today to see if they can find a process to move forward. But at this point, it really is just a wait and see from a procedural perspective, if they can get anywhere.

Paul Patterson -- Glenrock Associates -- Analyst

Okay, great, thanks so much.

Barbara Lockwood -- Senior Vice President, Public Policy, Arizona Public Service Company

Thank you.

Operator

Our next question comes from the line of Charles Fishman with Morningstar. Please proceed with your question.

Charles Fishman -- Morningstar -- Analyst

Good morning. You have consistently left data center growth out of your forecast, which certainly makes sense because, I guess, that moves the needle. And I guess my just general question is, with this work-at-home trend going on and potentially benefiting data center growth, are you seeing anything specific to the Phoenix area with respect to the data center growth that you can provide color on?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Yes. Charles, that's an insightful question. The short answer is nothing specific that we can point to. But when we look at technology trends and expected data center demand, we certainly recognize the point you're making, which is if you have to parallel, keep systems and data up and running, both in corporate network and at home, then there's a potential to increase demand. But I'd say that's hypothesis by many and nothing specific that we can point to at this time. Our focus for the data center growth is really the customers that we know that we're interconnecting, that we are building out capacity for, and it's still early in that process.

As you can probably imagine, we plan for their peak capacity, but what they actually use is uncertain until they start to fill out the shell of the data center. And so that's why we exclude it because it's got some long term, very strong demand, but it's just unclear on the trajectory in which they fall to fill up that demand.

Charles Fishman -- Morningstar -- Analyst

Okay. That was all I had. Thank you.

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Thank you.

Operator

Our next question comes from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please proceed with your question.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Okay. Hey guys, good morning and good afternoon and thanks for the time. I want to revisit the subject a little bit here, but I wanted to address it more directly. So you will have a pretty substantive clean energy spend in your outlook for next year and the year after. And you've made a lot into the course of the call about a potential for some sort of tracking type mechanism to avoid a subsequent case. In the context of the current case, you've talked about recovery. Can you suppress more directly, what would be the sort of ideal avenue for pathway of recovery?

And then secondly, to the extent which that this rate case is perhaps protracted and broadly defined, do you anticipate that or do you have confidence that still spend in our incorrector spend in 2021 for the clean energy capital without having the certainty of any specific writers, etc.? I understand you probably could move ahead and do it, but do you have the specific projects lined up and at least organizationally and operationally ready to make those investments people without the recovery riders you play?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Yes, Julian, you're a little muffled at a couple of times there. I think I got the gist of your question. And so yes, we do plan in the case to talk about how a tracking mechanism could work and what the existing mechanisms are. I think that's going to be a topic of a lot of discussion. And to the point that was raised earlier, if you don't have a tracking mechanism, what happens and it just increases the pace of which you have to file rate cases. We've got a combination of the clean energy commitment, I think general alignment on where clean energy is going in the state from a lot of different parties.

And what you heard and I think my comments is that we also have a growing capacity need. And so we're going to have to be building out the wind solar and batteries to meet the capacity needs that we're going to have. And so yes, we'd like to tie it to a tracking mechanism and make sure we have a good discussion around that, see if there are existing mechanisms like the RES or other things that we could potentially use and expect that's going to have a fair amount of discussion in the rate case. But the reliability needs are going to drive some of that spending as well.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Right. But maybe just to be clear about this, operationally, do you have projects identified for 2021? I know you don't have necessarily the recovery mechanism, but do you have the specific projects already sort of teed up for 2021 that you anticipate pursuing? And what's the nature of those projects, if you can speak to them? Just I know, historically, there's been these competitive processes for larger-scale projects, what's the nature of what you anticipate spending in 2021, more specifically, if you can speak to it?

Daniel T. Froetscher -- President and Chief Operating Officer, Arizona Public Service Company

Julian, this is Daniel Froetscher. Prior to our McMicken event, we had a number of solar, solar plus storage projects teed up for progression through 2021, '22 and '23. And now post McMicken will be dusting them off and moving them forward, integrating the learnings from our McMicken event from an engineering design and safety standpoint. Jeff has alluded to significant resource roll-offs occurring over the next few years. Ted has alluded to customer growth. So absent any tracker, we still have reliability and service obligations that we plan to meet through the combination of wind, solar and battery and have every intention of doing so, to benefit our customers.

We've got a couple of tranches of battery storage to accompany our Arizona sun photovoltaic installations that we built a number of years ago. We've got a couple of PPAs that were teed up, have been placed on the shelf since McMicken that we've been working with those suppliers throughout the course of our McMicken learnings to incorporate again the safety, design and engineering improvements that are needed there. And we have a couple of current RFPs out that Jeff mentioned in his opening remarks, within which we'll be making decisions shortly in either the wind, solar or both spaces as it relates to those RFPs. So there is real work in play.

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Yes. Thanks, Daniel. And Julian, I'd just summarize by saying we're going to execute on that 2021 capital plan, whether it be the RFPs, Daniel mentioned, or projects that we have coming up, we will be executing on that plan.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. So it sounds like you're pretty confident regardless of the construct of recovery?

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

That's correct. Although certainly, recovery is what we've made clear is necessary to be able to execute clean plan in the long term, promote rate gradualism and ensure that you don't have serial rate case filings.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. Yeah, thanks.

Operator

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.

Stefanie Layton -- Director of Investor Relations

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

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Stefanie Layton -- Director of Investor Relations

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

Ted N. Geisler -- Senior Vice President and Chief Financial Officer, Pinnacle West Capital Corporation and Arizona Pub

Barbara Lockwood -- Senior Vice President, Public Policy, Arizona Public Service Company

Daniel T. Froetscher -- President and Chief Operating Officer, Arizona Public Service Company

Michael Weinstein -- Credit Suisse -- Analyst

Shahriar Pourreza -- Guggenheim -- Analyst

Durgesh Chopra -- Evercore -- Analyst

Insoo Kim -- Goldman Sachs -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

Charles Fishman -- Morningstar -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

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