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Pinnacle West Capital Corp (PNW) Q1 2019 Earnings Call Transcript

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Pinnacle West Capital Corp  (NYSE: PNW)
Q1 2019 Earnings Call
May. 01, 2019, 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 2019 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) 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.

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 first quarter earnings, recent developments, and operating performance. Our speakers today will be our Chairman and CEO, Don Brandt; and our CFO, Jim Hatfield. Jeff Guldner, APS' President; and Daniel Froetscher APS' Executive Vice President of 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. 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 the Company assumes no obligation to update these statements. Because actual results may differ materially from expectations, we caution you not to place undue reliance on these statements. Our first quarter 2019 Form 10-Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language, as well as the risk factors, and MD&A sections; which identify risks and uncertainties that could cause actual results to differ materially from those contained in our disclosures. A replay of this call will be available shortly on our website for the next 30 days. It will also be available by telephone through May 8th.

I will now turn the call over to Don.

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

Thank you, Stefanie, and thank you all for joining us today. 2019 has started off in line with our expectations and we remain well positioned for a solid year. Before Jim discusses the details of our first quarter results, I'll provide a few updates on our recent regulatory and operational developments. On April 9th, Chief Administrative Law Judge, Jane Rodda, issued a recommended opinion and order or rule, as we call it, in the customer complaint docket. The rule states that the customer complaint should be dismissed. The rule also recommends that in the next rate review, APS, commission staff, and other stakeholders collaborate on better ways to communicate the bill impacts to residential customers. The rule suggests that any further issues concerning the reasonableness of APS' rates or the adequacy of its customer education and outreach program be considered in the current rate review docket.

The current rate review docket was opened by the commission in January to review APS' 2018 books and records and -- excuse me -- determine whether APS has earned more than its allowed return. As we've mentioned on our fourth quarter 2018 earnings call, our 2018 ACC jurisdictional return on equity was 9.5%, which is less than the authorized 10% ROE. Commission staff is in the process of reviewing our 2018 financial information and I'll provide the Commissioners with a report at the conclusion of their review. While the commission staff had originally been targeting a May 3rd deadline for their report, the staff indicated during the open meeting on April 23rd and 24th that they may need some additional time. Lastly, the commission approved our second refund to customers from federal tax reform. Starting April 1st, we began passing an additional $86 million back to customers.

Together with the first $119 million in savings approved in 2018, customers will receive more than a $200 million rate decrease. The third and final tax refund request was filed with the commission on April 10th and is currently awaiting approval. If approved, TEAM Phase III will return an additional $34 million to customers annually for the first three years. The tax reform reductions combined with additional savings from lower fuel cost are expected to lower bills $14 per month or $160 a year for the average residential customer compared to one year ago. Turning to our operations. Palo Verde generating station had another successful quarter operating above a 100% capacity factor. A planned refueling and maintenance outage for Palo Verde Unit 1 began on April 6. Additionally, the Ocotillo Modernization Project is on budget and schedule to have all five units in service by this summer.

On August 1st we plan to file our preliminary Integrated Resource Plan, which includes a 15-year forecast of electricity demand and the resources needed to serve our customers reliably in the future. We're currently engaging with a wide variety of stakeholders to gather input and ideas prior to our preliminary filing. The final IRP will be filed with the commission in April of 2020. An important part of our forecast will be increasing the integration of clean energy resources and technology in an economically responsible manner. Clean energy resources not only reduce our carbon intensity, they also reduce O&M and fuel cost for customers. Similar to the bill savings from tax reform, these reductions will allow us to continue investing in technology and grid enhancements necessary to support additional clean energy while maintaining customer bills at an affordable level.

As you know, in February we announced the addition of nearly 1 gigawatt of new clean energy projects. Consistent with this plan, in April we issued a request for proposal for 59 megawatts of storage that will be added to our existing Chino Valley and Red Rock solar plants. Both projects are expected to be in service in 2021. We also issued a request for proposal for a new 100 megawatt solar facility paired with 100 megawatts of battery storage to be in service in 2021. Lastly, I'd like to provide an update on the equipment failures that occurred on April 19th at our McMicken substation battery storage facility. During the response to this incident, firefighters from Surprise in Peoria, Arizona were injured. Our hearts go out to the injured firefighters. We greatly appreciate their hard work and bravery in responding to this event. An investigation with APS, first responder representatives, and third-party engineering and safety experts is under way.

A thorough investigation will help us determine the cause of the failure. We have no reason to believe there are any safety issues with similar energy storage facilities. However, we will use the findings from the investigation to ensure all our facilities are safe moving forward. In addition, we will continue with our plans to add clean energy projects to our system, including pairing storage with solar resources. Energy storage is a breakthrough technology helping to solve challenges and create new opportunities for additional clean energy resources. In closing, we are delivering on our commitments and continue to be well positioned for long-term growth. We're focused on operational excellence while solidifying Pinnacle West as a sustainable leader through strategic clean energy investments.

I'll now turn the call over to Jim.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Thank you, Don. And thank you again, everyone, for joining us today. This morning we reported our financial results for the first quarter of 2019. As shown on Slide 3 of the materials, for the first quarter of 2019 we earned $0.16 per share compared to $0.03 per share in the first quarter of 2018. Higher adjusted gross margin and lower adjusted operating and maintenance expenses were the key positive drivers during the quarter. Adjusted gross margin was up $0.14 per share compared to the prior year first quarter period. Favorable weather was a positive $0.14 gross margin impact during the quarter driven by the second coldest February in the last 40 years. Higher adjusted gross margin was also supported by a shift in the seasonality of revenue. The positive drivers were partially offset by lower transmission revenue and lower other gross margin. As Don mentioned, TEAM Phase II was approved by the commission and was implemented beginning on April 1st.

The impact of the TEAM Phase II is expected to be earnings neutral as both the timing of the refund and the offsetting income tax benefit will be recognized based on our seasonal sales pattern. Sales, net of energy efficiency and distributed generation, were up 1% in the quarter compared to the prior year first quarter period. As we mentioned last year, we expect to see the headwinds from energy efficiency and distributed generation decline, which will likely narrow the difference between customer growth and retail sales growth going forward. Continuing with the drivers, lower adjusted operations and maintenance expenses increased earnings $0.09 per share primarily due to lower planned outage costs. Partially offsetting the positive earnings drivers were higher depreciation and amortization expenses due to plant additions and lower pension and other post retirement non-service credits due to lower market returns.

As we look ahead to the remainder of 2019, we remain focused on achieving long-term benefits for customers and investors. We have a track record of cost management discipline and we are taking the next steps in becoming a lean principal organization. We are committed to identifying new ways of working and strengthening our lean and digital capabilities in order to create cost reduction opportunities to keep customer rates affordable over the long term. Turning now to the Arizona economy, Metro Phoenix continues to show strong job growth and has consistently been among the national average. Through February of 2019 employment in Metro Phoenix increased 3.1% over 2018 compared to 1.8% for the entire US. Job growth remained strong in the construction and manufacturing sectors, a sign of strength in the regional economy. Construction employment increased by 10.3% and manufacturing employment increased by 4.3%.

We expect a continuation of business expansion and the related job growth to continue to support commercial and economic development. In particular, we have had several recent announcements of companies moving to the west side of the Metro Phoenix area. Red Bull announced they will build a 700,000 square feet facility in Glendale and milk distributor Fairlife plans to build a 300,000 square foot -- feet facility in Goodyear. After announcements from Stream Data Centers and Vantage Data Centers regarding plans to build in the West Valley, Microsoft recently confirmed their plans to build world-class data center facilities on two new sites in Goodyear. Phoenix was also ranked the second most active market in data center leasing in 2018 according to CBRE's latest US data center trends report. The Metro Phoenix residential real estate market has also continued its upward post-recession trend.

In 2019 we expect a total of 30,000 housing permits, an increase of about 2,800 compared to 2018 driven by single family permits. We believe that solid job and income growth and relatively low mortgage rates should allow the Phoenix metro housing market and the economy more generally to continue to expand faster than the national average. Reflecting the steady improvement in economic conditions, APS' retail customer base grew 1.9% in the first quarter of 2019. We expect that this growth rate will continue to accelerate in response to the economic growth trends I just discussed. Importantly, long-term fundamentals supporting future population, job growth, and economic development in Arizona appear to be in place. According to the US census data, Maricopa County ranked Number 1 in the US for population growth for the third straight year and we believe Phoenix should remain one of the country's fastest growing large metropolitan areas.

Switching to our financing activities. On February 26th, APS entered into a $200 million unsecured term loan facility that matures on August 26th 2020. On February 28th, APS issued $300 million of 30-year 4.25% senior unsecured notes. The proceeds were used to repay the $500 million of 8.75% senior notes at maturity. We continue to expect to issue up to $450 million of long-term debt at APS during the remainder of 2019. Overall, liquidity remained strong. Turning to guidance, we continue to expect Pinnacle West consolidated earnings for 2019 will be in the range of $4.75 to $4.95 per share. A complete list of the key factors and assumptions underlying our guidance is included on Slide 6 and 7 of the materials.

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

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Greg Gordon with Evercore. Please proceed with your question.

Greg Gordon -- Evercore ISI -- Analyst

Hey gentlemen, good afternoon.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Hey, Greg.

Greg Gordon -- Evercore ISI -- Analyst

So I see all of the underlying short, medium, and long-term guidance drivers are the same as Q4; but I did notice that you've extended the planned outage schedule for Cholla on Page 10 of the presentation. Can you explain what's going on there and why that's not having an impact on your O&M or moving you around in the guidance range in any material way I would hope?

Daniel T. Froetscher -- Executive Vice President of Operations, Arizona Public Service Company

Yes. Greg, it's Daniel Froetscher. Thanks for the question. When we opened up the generator in Cholla at the outset of our planned outage, we discovered some rubbing and erosion elements that affected rotor vibrations and in essence had to remove that rotor, ship it offsite, get it recalibrated and balanced, and it's due to be back on site later this week. The outage was originally scheduled for 46 days, it will go to approximately 79 days. And the reality is at this time of year based on its anticipated running profile anyway, there will not be an increase to overall fossil O&M.

Greg Gordon -- Evercore ISI -- Analyst

Great. Thanks. Second question. I know that we fought the war to end all wars on rooftop solar several years ago in terms of getting a balanced decision on net metering. But I saw news yesterday that Tesla, the artist formerly known as SolarCity, significantly cut -- is significantly cutting the cost of its rooftop solar installations. I know it's only been a day, but do you have any sense of whether or not that might allow them to -- for increase or did -- or slow the deceleration of their penetration under the current rate structure in Arizona?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Sunrun has probably been the leader in our service territory over the last 18 months or so and so it's hard to say what that will do that at this point in time.

Greg Gordon -- Evercore ISI -- Analyst

Okay. Thank you, guys. I'm sure I won't take up any more time. I'll go to the back of the queue if I have more. Have a great day.

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

Thanks, Greg.

Operator

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

Insoo Kim -- Goldman Sachs -- Analyst

Thank you. Apologies, I was on mute. Just going back to the Cholla plant, I know you guys are potentially looking into the conversion of one of the units to biomass. Could -- any detail you could provide on timing or scale of such a conversion? And my second related question is why are you only considering the conversion of one of the units as opposed to the remaining couple?

Daniel T. Froetscher -- Executive Vice President of Operations, Arizona Public Service Company

Yes. Thanks for the question. Again, it's Daniel Froetscher. We have just taken an exploratory look at converting potentially Cholla 1 to biomass. We've engaged the services of a third-party engineering and design firm, invested in that exploratory look over the last 60 days to 75 days, and in relatively short order should be coming forth with a summary of that analysis and a discussion at the Arizona Corporation Commission then about whether that appears to be the right approach to take for customers and our Company. So, ask you to be patient a little bit longer. In terms of only the one unit versus Unit 1 and 3, frankly there is an existing biomass plant within which APS is the off-taker in Northern Arizona. There is some level of uncertainty about long-term contracts with harvesting the biomass and slash from the Northern Arizona forest to support multiple -- multiple biomass plants and so we're taking a conservative approach. Additionally, there are some gas pipeline issues that would prevent Cholla from being converted into anything larger than a Unit 1 conversion of about 60 megawatts to 70 megawatts.

Insoo Kim -- Goldman Sachs -- Analyst

Got it. Thanks, Dan. And then maybe switching to guidance a little bit. In your 2019 guidance, do you incorporate the Four Corners SCR investment recovery and return to go into effect sometime in this year, potentially mid-2019?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Yes. So, our guidance considered an earlier 2019 implementation date. We'll continue to look at guidance throughout the year. But I don't believe that material -- that guidance will change as we continue to throw -- offset most of the costs of the SCR. So, we should be good within our original guidance.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. Thank you very much.

Operator

Our next question comes from the line of Michael Weinstein with Credit Suisse. Please proceed with your question.

Michael Weinstein -- Credit Suisse -- Analyst

Hi, guys.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Hi, Michael.

Michael Weinstein -- Credit Suisse -- Analyst

I see that in the CapEx forecast there's a little bit more clean generation of CapEx planned for 2020, I think some of the buckets have changed a little bit. Maybe you could just talk about what that's from and what's happening since the last -- since the fourth quarter report?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Nothing has really changed. We've just trued up the cash flows over those years as we got better understanding of how all the cash flows would work.

Michael Weinstein -- Credit Suisse -- Analyst

Okay. And after -- I guess once we get the staff report through, eventually it's -- assuming it's -- I guess it might be delayed, but I guess officially right now it's still May 3rd. Is that correct?

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

No. Michael, this is Jeff. So, there was discussion at the last open meeting. I think Don mentioned that there was discussion at the last open meeting where staff indicated that they were not likely to make that May 3rd date. And so we expect -- I don't have great visibility on when it's coming out, but I would expect it will probably come out later in May.

Michael Weinstein -- Credit Suisse -- Analyst

And could you kind of explain what actions -- what are the possible choices that the commission have -- has after that like what happens at the ACC level once that report comes out?

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

Well, they'll issue the report. So, one of the questions is what open meeting will it be synced to. There's an open meeting in May 21st and 22nd given the time for exceptions and such, it's challenging to see it making that open meeting. Then there's an open meeting June 11th and 12th. When they issue the recommended opinion and order, all parties have an opportunity to file exceptions to that. Part of the discussion that had been in that process was what are the remedies and I think that would be my opinion, more future focus so things to address in the next rate case, But you got to see what the staff report says.

Michael Weinstein -- Credit Suisse -- Analyst

Got you. Okay. 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

Good morning. How are you?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Hey, good, Julien. How are you?

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

Good, excellent. Thanks for the time. Perhaps just to come back to where Michael just left it off if you can. Can you talk a little bit more about the timeline here as you see it more for the Four Corners step up? And then also if I can go back to Insoo's question. How do you think about offsetting factors here for guidance depending on the timeline for Four Corners to get done especially if it's pushed out from June into July or whenever? And I'm thinking here about O&M cost cuts or anything else that again as you think about like affirming the 2019 outlook specifically here. I know a number of different questions there so I'll let you take it at each point.

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

Yes. Julien, It's Jeff. Let me start with the sequencing. So you've got -- you've got the customer complaint case, recommended opinion and order came out on that. They recommended dismissing the complaint. That was discussed, but not voted on at the last open meeting. And so then you've got the rate review and so we'd expect a rule to come out next month or so. The timing of that, so I don't know whether the customer complaint is going to go on the May open meeting or whether that will get pushed to potentially coincide with the rate review at a subsequent open meeting and again all that will then drive what happens with the SCR decision and will they all be on an open meeting or will there be some sequencing between there. I just don't have visibility to that. But from a timing standpoint, that's what I look at.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

And then on your last question, Julien, I mean I look through the guidance through the course of the year, well managed within the bandwidth of all the factors of guidance. So, again I don't expect a delay will cause us to rethink guidance at least at this point.

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

And sorry, just to clarify that. When you say at least at this point, that's contemplating a delay potentially into this July timeframe or actually how do you even think about the timeframe and is there a relationship between this rule and just getting this Four Corners step up done at this point? I know a lot's going on.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

I think we look at the range of timing of the SCR rule. I'm still very comfortable with our guidance.

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

Okay. Fair enough, understood.

Operator

Our next question comes from the line of Ali Agha with SunTrust. Please proceed with your question.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Thank you. Good morning.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Good morning.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Clarifying a few of the points made already. First on the staff audit on the returns calculation, are there certain adjustments that they make that may be different of the -- to the way you calculate that? Because if I heard you right, you guys have already done the math and you didn't see yourself overearning, but is there a different math that staff likely goes through than the way you've done it?

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

Ali, it's Jeff. I don't know. They'll come out with the staff report and we do -- when we do rate cases, you do pro forma adjustments and things. But we'll have to see in the staff report.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

I see. And then, Jim, coming back just again to get a perspective on this. This Four Corners step up and you said there's deferred costs obviously currently that are out there as well. So on a net basis, can you just give us a sense of what the impact is of this Four Corners step up net of deferred costs?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

While all the costs are deferred so the deferral balance gets bigger as you go through the year.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Right. So when you do get the step up in other words, what's kind of embedded in guidance in terms of the net EPS impact. How should we think about that?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

I would think about it as the deferral covers the -- your costs and so until the -- get those into effect, you're just deferring all the cost and not a significant financial impact.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

I get that. But I'm saying assuming this all plays out, I mean is this a net $0.10 pickup or $0.05 pickup? I mean just to get a sense of magnitude the way you're thinking about it.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

It's in guidance.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Okay. And then my final question. Can you just remind us again on your current thinking on when to file the next rate case and when at the earliest you think you may need to issue external equity at this point?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

So, right now our plans are June 1, 2020. And as we've said in the past, we'll consider to issue an equity sometime this year, but it won't be a -- it will be a modest amount so...

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

So sometime this year, but a modest amount?

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Yes. We're considering sometime this year, but whatever we issue will be a modest amount. It's really to top off the capital structure.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

I got you. Thank you.

Operator

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

Steve Fleishman -- Wolfe Research -- Analyst

Hi, thanks. Hey Don, just a question on the battery fire and just I think in some of the articles I read that there has been some of these maybe overseas. So, I'm just kind of curious what is -- of some of the ones that have occurred elsewhere, what have generally been the reason for it and just do you have any sense of what can be done differently to make sure these don't happen in the future?

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

Yes. Thanks, Steve. I don't think we have a lot of data on the fires overseas. I think that there are a variety of different causes and it's just far too preliminary to even speculate on what happened. We're not quite sure if it was fire, explosion, or both. It was very early. I think it was just last Monday that the experts got into the field, so to speak, where it was secured and save to begin the inspection and we think it's going to be at least a couple weeks to do the postmortem on it.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. And so I mean I assume -- I mean obviously this is a big new sector and having something like this happens kind of not -- it's kind of important. I mean are you seeing like a lot of people take a look at this from well beyond kind of your just the company involved, the supplier?

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

Yes. I think the industry is taking a look at it and obviously we're getting a lot of questions what happened. But the technology is not extremely complex, identifying what the issues in this specific instance was and to make sure that doesn't recur. I don't think it's anything systemic relative to the design or the industry as a whole. We still have full confidence in going forward on our clean energy projects including pairing batteries with solar resources. So, we don't have doubts there. I mean some glitch happened and we're going to run it to ground and make sure it's not any place else on our system and I think the industry will be looking to make sure it's not any place else.

Steve Fleishman -- Wolfe Research -- Analyst

Okay. Thank you.

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

Alright.

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.

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Hey, Paul.

Paul Patterson -- Glenrock Associates -- Analyst

Just to go back on the Champion complaint case. When I was listening to one of the -- I guess it was last week the hearing, it seems that there was some discussion of that it was like 56% of customers were not on the economically optimal rate plan and I think it was Commissioner Olson seemed to suggest the idea of placing customer service default on the economics -- on a plan that would be economically optimal for them since the education seems to be sort of a challenge here. And I was just wondering do we have a sense as to what the -- the potential revenue impact of that might be or just your general thoughts about that approach?

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

Yes. Paul, this is Jeff. So the complexity with that, I think this was talked about at the hearing, was that -- was that the settling parties in that underlying rate case agreed on a framework where the customer would move on to the most like rate. And so there was a lot of customer outreach to try to encourage customers to move on to the best rate, but because of the -- this is we're ahead of the rest of the country I think in residential rate design. And so a lot of the things that we're working through here are going to be important in how you do this in other places and so that was one of them. But the parties initially to the settlement said we think we should move customers to the most like, most similar rate structure not necessarily the one that is best for them. And so what I think you'll see in this and the rate review case is a fair amount of attention on that how do you focus on the customer education piece of this and then how you factor that into revenue, you'd have to look at that in subsequent cases.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. But I guess what I -- what it sounded to me like when I listened to it was that just in general because of the complexity of this and because of the sort of the response that we've seen and the fact that we've got this complaint case, et cetera. It seemed to me that they were looking sort of perhaps beyond the idea of educating customers to simply going for a default rate that would be economically optimal. Do you follow what I'm saying? And I'm just wondering if that did happen, do we have a sense what that would mean from a revenue impact? Do you follow what I'm saying, if they were to take it?

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

Yes. No, I don't and again my guess is that would be in a subsequent case.

Paul Patterson -- Glenrock Associates -- Analyst

You don't think it would be as part of this -- this complaint case?

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

I don't know, but I hope so.

Paul Patterson -- Glenrock Associates -- Analyst

Okay. That's it. The rest of my questions were asked and answered. Thanks so much, guys.

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

Thanks.

Operator

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

Charles Fishman -- Morningstar -- Analyst

Thank you. Don, in your opening remarks, I believe you said as part of the next round of IRP process that you would forecast demand to 2035 and then if memory serves me the last time you went through this, you were talking a 30% increase by 2030 in customer demand. I would think with what's going on over the last five years with respect to the Phoenix economy, with respect to the rate design that is now more balanced between utility scale renewables as well as rooftop; is it fair to assume that that number is going to -- is not going to be lower and it could even go a little higher as far as a 15-year growth rate?

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

That's a good observation. Charles. I hate to front-run (ph) our work on the IRP, even the preliminary IRP; but the economy here in Arizona is really humming on all cylinders. You don't have to do a study, you can just drive around all the frames and the excavation and buildings going on both commercial, industrial, residential. So, it wouldn't surprise me to see longer-term growth rates higher than they were last time around.

Charles Fishman -- Morningstar -- Analyst

Okay, great. Thank you. That's all I had, Don.

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

Thanks.

Operator

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

Stefanie Layton -- Director of Investor Relations

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

Operator

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.

Duration: 37 minutes

Call participants:

Stefanie Layton -- Director of Investor Relations

Donald E. Brandt -- Chairman of the Board, President & Chief Executive Officer

James R. Hatfield -- Chief Financial Officer, Executive Vice President

Greg Gordon -- Evercore ISI -- Analyst

Daniel T. Froetscher -- Executive Vice President of Operations, Arizona Public Service Company

Insoo Kim -- Goldman Sachs -- Analyst

Michael Weinstein -- Credit Suisse -- Analyst

Jeffrey B. Guldner -- Executive Vice President-Public Policy, General Counsel

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

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Steve Fleishman -- Wolfe Research -- Analyst

Paul Patterson -- Glenrock Associates -- Analyst

Charles Fishman -- Morningstar -- Analyst

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