Jeremy Tonet: So just to clarify that 25% would be whatever the new tenor of that refinance would be. It 3, 5, 10 years, 25% is hedged for that length of time?
David Ruud: Right.
Jeremy Tonet: Got it. And then, maybe just as you think about forward planning and weather and you provided a lot of helpful thoughts there, that’s been great. But if you think about, I guess, the sample set that you apply the standard deviation against — is the reason to revisit that just given the severity of this year? Or anything could happen in 1 year? Just wondering how to think about, I guess, how to best budget for storm impacts in future years?
Gerardo Norcia: Typically, what we do is we look at our 15-year weather patterns and we build a plan off of that. Our rates are also built off a 15-year average, if you will. And then we build in a 1 standard deviation in weather for consumption. And in addition to that, we carry storm budget that’s based typically on a 5- to 7-year average. So we’ll we’re revisiting some of that as we speak, because we’ve experienced more severe weather patterns in the last handful of years. So that will continue to track against those types of averages. So that’s how we build our portfolio and we’ve been quite successful in delivering in the last 16 years by using that approach. And even in the last 5 to 7 years. And so we’ll continue with that approach and we’ll continue modifying it as we see patterns continue to change.
And we roll forward our 15-year averages for weather and that’s just temperatures that I’m talking about there, DDDs and HDDs. And then we’ll also look at storm activity as it continues to build as it has, we’ll continue to increase contingencies for that.
Jeremy Tonet: Got it. That’s very helpful. Thank you for all your thoughts today and looking forward to seeing the team at EEI.
Operator: Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.
Julien Dumoulin-Smith: Just in the saving, as Jeremy was just asking about on offsets here, you’ve got [indiscernible] offsets here against these headwinds. How do you think about the sustainability of them but also how do you think about some of the pull-forward items that you pulled in ’23 that could come back in ’24? I get that there’s a question about sustainability going forward of some of these items. But how much slip back, call it, in a onetime basis in ’24, how do you think about that in setting up a baseline here as you think about rolling forward, if you will? And again, what kind of items are there? I’ll leave it open.
Gerardo Norcia: Yes. No, great question, Julien. So some portion of $1.31 will be sustainable but I just want to make it clear that we’re not slow in applying incremental costs into 2024. We will return to our normal levels of maintenance. As you know, over the many years where we had favorability in our plan. We pulled forward maintenance and banked it. So we were able to take these onetime pauses in noncritical preventative maintenance. And so — but next year, we’re going to return to our normal pattern. So I don’t want people to think that we’re [indiscernible] any kind of cost into 2024. We’ll return to normal levels of maintenance expenditures. Hopefully, that helps.
Julien Dumoulin-Smith: Right. That is, it’s not an outsized year in ’24 to get back to a run rate in ’25, if you will, just to make sure we’re…
Gerardo Norcia: That’s correct. We’re going back to our normal run rate that we otherwise would have had in ’22 and ’23 and return to normal maintenance level of expenditures.
Julien Dumoulin-Smith: Got it. Excellent. And Jerry, in the same direction of things, residential weather norm sales of 2.6% year-to-date here. I mean that seems like an outsized impact but obviously, with weather years with outsized weather impacts, it’s hard to be precise. Mean how do you think about that impacting ’24 onwards and whatever this return to office environment is for you guys on resi [ph]?
Gerardo Norcia: Sure. So I’ll start with the weather part and I’ll let Dave talk about residential load. And what we’ve seen this year compared to what we had forecasted for this year and what we plan to forecast for next year. So from a weather perspective, Michigan, believe it or not, when we do the analysis was we only stayed in the Midwest that experienced cooler-than-normal weather and by more than 1 — cooler than normal weather for sure. And then we also experienced more than one standard deviation and warmer than normal weather in the winter. So very unusual combination and then package that with some storm activity, twice the number of catastrophic storms. And it’s essentially a unicorn of a year. And we had — I had my statisticians roll through that analysis and it’s a 1 in 50-year probability.
So of course, we’ll work with the 15-year averages. It will impact our 15-year average and our 5-year storm activity average and we’ll build that into our plans going forward. But Dave, you want to comment on residential sales?
David Ruud: Sure. Yes. Our sales this year have come in pretty much as expected for the year, consistent with our budget, consistent with the rate case filing we had. As you said, residential is down a little as we knew people would be on returning to work. So we saw that come down. As far as our forecast, we — in the rate case that we forecast residential sales remain somewhat flat. And there’s been no dispute in our forecast going forward here either. So we should get that — that shouldn’t be an issue here coming up in this rate case.
Julien Dumoulin-Smith: Okay, all right. Fair enough. And so — but do you see consistent pressure going into ’24? Just as you think about building out the plan on ’24 and ’25 on resi? Or is it more [indiscernible]?
David Ruud: We won’t see pressure from residential forecast in ’24.
Operator: Your next question is from the line of Anthony Crowdell with Mizuho.
Anthony Crowdell: Just a quick balance sheet question and a follow-up. I think Moody’s maybe put out an update earlier this year with the company’s FFO to debt metric is probably the lowest they’ve been in several years. I guess, the impact of this year’s storm activity, mild weather and the rate decision, I guess just where do you think you end up in the end of ’23? And how does that rate relative to downgrade threshold and what are you thinking in ’24?
David Ruud: Anthony, we remain in a position with our balance sheet. We did meet with all the rating agencies this year and even ahead of this call. Now the FFO to debt from ’22 was really due to lower FFO from our fuel cost and that’s getting recovered this year. So we’ll see that FFO to debt in ’23 come back as we recover our PSCR primarily at our electric company. So we remain in good position, good headroom to the thresholds, any downgrade thresholds at any of our rating agencies at this point?
