Jeff Guldner: We’ve got pretty significant growth, obviously happening here in, I’d say, a few different sectors. One is the industrial load from TSMC and there’s some other kind of high load factor factory load that is coming up. And a lot of that is really being driven by land availability. So you look at some of the big parcels of land that can hold these facilities. And as some of these companies compete, if it’s not company A, company B is going to come in and take that land. And so some of that industrial load growth, I think, is going to continue and we continue to see pretty significant upside from the TSMCs and the supply chain that, that brings because that brings Linde and sort of gas manufacturers and other things.
Data centers, I think, are absolutely happening, they’re a little bit harder to figure out exactly where the megawatts are going. So I think that you can look in the region and say there’s a certain amount of megawatts that are here, how that gets allocated between individual customers gets challenging for some of our planning folks, but it’s more of a question of where it’s going to go and how do we build the transmission distribution system out to that, match it on the generation side. But this is an attractive market for data centers. So we see that as a pretty significant growth opportunity. Coop, you want to comment on just how it’s spoke through on the IRP?
Andrew Cooper: So year-to-date, we’re seeing our C&I sales growth in the 2.8% range year-to-date through September, which is as we’ve gone through the year, we’ve had to monitor the ramp rate and it goes back to what Jeff was saying in that when you’re thinking about these customers, you may have an anchor tenant and then they’re building out their box from there. And so watching those ramp rates and understanding them with some of these earlier customers that are coming through will help inform our long term view. But that 4.5% to 6.5% growth rate that we’re expecting through ’25 is based on the data centers we know we’re ramping up, it’s based on TSMC and its supply chain. TSMC has made recent announcements that reaffirm their 2020 commitment to being up and running. And so that’s the planning forecast that we’re working under in the near term and then the continued attractiveness of the service territory over the longer term from an IRP perspective.
Julian Dumoulin-Smith: And then I know we’ve spoken to times about earned returns here, and that’s difficult in some respects to get ahead of in the context of the case. But any further points that you would make in terms of items that would stand out in terms of puts and takes against your ability to earn your authorized levels here? I mean, obviously, we’ve sort of seen a number of points, but obviously, Nick mentioned pension a second ago. But what other points would you flag here as you think about the puts and takes and the ability to see improvement here, especially those in your control?
Andrew Cooper: We do have a historical test year and so we’re working with a number of costs that go back to the ’21, ’22 period. And so if you think about O&M, there, we need to continue to manage costs, exercise our lean muscle, because those costs do go back to a time when I think people still use the word transitory to talk about inflation. So O&M is one of those pension. We’ve done what we said we were going to do throughout the case is once we knew the numbers, we’d go back in and advocate in favor of addressing those. And then interest expense is really the third one, and that’s partially within our control and partially not. Strategically, within this case, we were okay with areas of WACC other than ROE being lower to keep the overall revenue requirement down.
So having a low interest expense and a slightly lower equity capital structure was really all in the name of ensuring that we could focus on ROE and the importance of a market competitive ROE to our ability to attract capital to the state. So on the interest expense side, we’re really doing all the things that are within our control to finance opportunistically. If you think about it, we went in earlier this year to — with the banks to expand our revolver capacity, so that we could be in the CP market more often to give us flexibility and not lock in long term rates because we have to, but be able to choose market environments that are conducive to doing it. On interest expense, I would also say that we’re — the advocacy in the rate case is important because ultimately, ensuring that our credit rating stabilizes at an appropriate level, means that on a relative basis to our peers, achieving competitive credit spreads will help to mitigate rates as well.
And there, we’ve taken whatever measures we can to clear out 2024 maturities. We actually refinance one of our pieces of 2024 maturity debt back a couple of years ago at very competitive yield. And we only have one fixed rate maturity next year that needs to be reset at current rates. So I think those are really the three areas. The key advocacy we’re doing is around ways to reduce regulatory lag coming out of this case. The SRB is certainly one mechanism we could do it. We’re leaning into our FERC return assets that have a formula rate. And after this case, we will continue to identify and push for ways to reduce regulatory lag in the state overall.
Operator: Your next question is coming from Paul Patterson from Glenrock Associates.
Paul Patterson: I wanted to go over just the sales growth and the changes we’ve seen since the beginning of the year in 2023. Could you just elaborate a little bit more like why it’s not met your expectations for 2023? And I know that you guys are reiterating the long term weather normalized sales growth. But maybe just review why you don’t think what’s happening this year is going to impact longer term?
Andrew Cooper: So if you think about the course of the year and the trajectory that our sales growth has been. We’ve known really even going back 12 to 18 months that we’ve been moving into an environment where our sales growth is going to be driven by extra high load factor, large C&I customers. And we had very robust residential growth during the years around COVID as we had the work from home trend. And what we’ve seen quarter upon quarter is that trend tends to reverse out. We still have 2% customer growth coming into the service territory but the contribution from residential sales between energy efficiency, continued rooftop solar penetration and then some of the normalization of trends around residential usage, we’ve seen a decline, that decline has caused more of a deceleration than we expected.
And that’s frankly also relative to trying to gauge and continuously forecast EV penetration, which helps to offset some of that. So from a residential perspective, it may have been more pronounced over the last few quarters. But ultimately, it’s moving from a trend perspective in the direction that we’ve anticipated. But again, this quarter, I think continue to emphasize a trend and it’s probably been a little bit more pronounced. Early in the year, we did reforecast our high load factor customers, and that was really primarily based on the delay that Taiwan Semiconductor announced in the ability to start up the facility. They’ve committed to and they’ve reiterated recently a 2025 startup, and that is the basis of the long term plan. The continued ramp of the data centers we’re seeing from one data center to another could be slower or faster than we expected.
That’s driving year-to-date, as I mentioned, 2.8% sales growth in the C&I segment. And so for the year, we’re looking at 1% to 3% overall, down from the 2% to 4% that we talked about last quarter. That is fundamentally driven by some of the deceleration on the residential side. But over the long term, much of that sales growth is driven by the large C&I segment. And we continue to see the inflows of these larger customers, both the data centers and some of the advanced manufacturing and we feel confident that it can change from quarter-to-quarter a little bit who’s ramping, who’s not. As Jeff said, from a land use perspective, there’s attractive parcels and we know who all is talking about taking them. So we feel good about it and the continued attractiveness of Arizona for those businesses coming in.
