Pinnacle West Capital Corporation (NYSE:PNW) Q3 2023 Earnings Call Transcript

While we always look for opportunities to pull forward O&M from a future year, in this case, we took the anticipated weather benefit, we took the new surcharge revenue that was coming in and we look to the opportunities we have within the year to derisk our system, ensure plant reliability and address some of the wage issues that ensure we could maintain a competitive workforce. So what you’re seeing from that 15 to 35 range that’s remaining on track, the ability to derisk future years is probably a little bit more constrained given the needs of this year in particular. But certainly, as we see those opportunities, whether — even the smallest things, we’re encouraging people to look to do that work this year, if they can.

Anthony Crowdell: And just one follow-up. I believe, Jeff, you were answering — I think it was Mike but my brain is a little squishy right now from the day. Just on the SRB, talked about having conversations and the uniqueness to what happened to Tucson. But just, one is any update you can give us on maybe the conversations you’re having? And two, how do you think the SRB would — how do you tie that into with one of the commissioners opening up a docket to minimize regulatory lag? You would think that the SRB would fit there and kind of already answer the question to minimize regulatory lag, I’ll leave it open ended there.

Jeff Guldner: Anthony, it’s certainly consistent with the dock and on regulatory lag. Obviously, that hasn’t really started or is going to take a while to work through that docket. So we’re, again, making the advocacy here in the case. It came in later in the process with Tucson than it did with us. So we were able to have more conversation at the hearings on it. And so if you listen to some of the hearings, I think there was, again, more dialog about folks trying to understand what does this do. We have now the briefing process and so this is being briefed out and so you’ll be able to see it in the briefs. And then you’ve got — so you’ve got really two more steps. So the judge is going to have to take the briefs and the advocacy that she heard at the hearing and conclude what is her recommendation based on that.

And then the next opportunity is with the commission. And so the judge’s recommended opinion is a recommended opinion. And so regardless of where that comes out, you will likely see continued advocacy through the open meeting as we present these cases, because just like you said, if they are — and I think they are looking at how can I reduce regulatory lag, because it helps to reduce the number of rate cases that you have to come in with. And so as we tie those together, whether it’s in the briefing stage right now or ultimately at the open meeting, those are exactly the arguments that we’re trying to make. And again, the importance to us is that in PPA — if you PPA, all the projects we need for reliability, you have less control from a project execution standpoint, and so a little bit more risk in getting those projects in.

And so you want to make sure that there’s that appropriate balance of self build versus PPAs. And it’s really hard to self build this stuff if you’re then picking up regulatory lag and it will drive quicker rate case filings. And so I think all those items are going to come out in the continued conversation, but we’re still a ways from getting that through but it’s probably early next year or later this year before we’ll see that.

Anthony Crowdell: And just lastly, what is the cost to mitigate a rate case. Have you guys put an estimate or a range around mitigating a rate case?

Jeff Guldner: I wouldn’t say — we don’t do like rate case expense. Some utilities file like rate case expense and put it in there. This is all embedded within the existing team, so the costs are essentially already embedded in the teams that we have. And when we come out of a rate case that just moves into other regulatory matters. So it’s not something that we’ve ever really focused on. Certainly, there’s paper and other things involved, but it’s not material.

Operator: Your next question is coming from Travis Miller from Morningstar.

Travis Miller: Trying to unpack this weather and then also related to earlier questions on O&M. I’m guessing and correct me if I’m wrong, that you’ve incurred some extra O&M just for the fact that you’ve had to operate the system at a higher level given the weather. What’s the resulting potential benefit in, say, 2024 or 2025, if you get back to normal weather, you move the earnings on the top line? But are there other impacts that would be a benefit from not having hot weather?

Andrew Cooper: No, it’s a good question, Travis. And certainly, there were some reliability related needs. A lot of them anticipated even before the summer where we were spending money to continue to ensure our fleet. We do all of our summer preparedness the same way every year. We project for the summer forecast. In fact, the peak load we reached was consistent with the types of forecast that we set in advance and we plan our own resources and the PPA and market based resources accordingly. So we’re spending money on O&M on the fleet even before the summer. And certainly coming out of the summer, the wear and tear, both the CapEx that I mentioned that we’ve increased this year as well as the O&M are related to that. You do see we released this quarter the outage schedule for next year.

So you do see across our gas fleet and hopefully as well as the normal Palo Verde refueling outage pretty robust outage schedule next year, including what will be the beginning of the last major outage at Four Corners during the asset’s life. So there is some [Indiscernible] related work to get us through the remainder of the decade next year. One of the things that we didn’t have this year, but we planned for is we didn’t have a very strong monsoon rain and wind season this year. So there’s some — a little bit of a mitigant there, we plan for that every year and didn’t have intense storms. But we did have very intense storms in the winter at the beginning of this year. So there’s puts and takes every year on how we plan and then how we deploy those O&M resources.

But foundationally, given the outages we have next year and the overall plan, I think if we had a normal weather year next year, it wouldn’t have a material impact on the overall O&M picture.

Travis Miller: And then just real quick on the 5% to 7%. I think you’ve said base year was normalized 2022. If you — and correct me if that’s wrong. But if you get through when you get through this rate case, do you foresee then adjusting that 5% to 7% to think about post rate case earnings number as the jump-off point?