Paul Patterson: Okay. Then I guess the answer to the first question is probably not until 2025 would we see an actual filing for a new rate case. Does that make sense? Am I thinking about it correctly?
Jeff Guldner: Yes, I think you’ve got, you want to put rates in effect. If we put rates in effect in March, you typically will want to have at least half a year rates in effect. That’s been the process that has been used in Arizona. And then if you start lining up calendar versus split years, but obviously, like you said, we want to watch how the docket evolves and decide how we move forward. The other thing just to, we’ve got flagged that I think is an important driver. And you saw it with the complexity of this case is that continuing to work with stakeholders on the value of settlements. We had a long history prior to the last couple of cases where we were able to reach pretty constructive settlements that had benefits. And the real benefit of moving into a settlement is you don’t see, typically you don’t see binary outcomes.
There’s things where there’s benefits to both sides. And so some of the customer related programs in particular, you can actually get pretty good results in a settlement when you’re crafting things like that. And so I would hope that at the same time as the commission is working through the regulatory lag docket that we continue to work with stakeholders to set up an environment where we could see the next case moving in. And again, maybe taking advantage of whatever comes out of that docket, but moving into more of a settlement structure than a fully litigated case. So still too early to tell on both counts, but those are two areas we’d be focused on.
Paul Patterson: Awesome. Thanks so much.
Jeff Guldner: Yes.
Operator: Thank you. Your next question is coming from Bill Appicelli from UBS. Your line is live.
Bill Appicelli: Hi, good morning. Thank you.
Jeff Guldner: Yes. Hi, Bill.
Bill Appicelli: Just a question. So on the SRB, practically speaking, would that be deployed in 2026 when some of these assets are coming into service, or when will we first see that deployed?
Jeff Guldner: A short answer, yes. If you think about the RFP, assuming that our projects clear through the RFP, the earliest in services you have in advance of summer 2026. There is a filing process around the time the assets go into service, which I mentioned earlier in the remarks could be in the six-month range, but that’s something that we’ll work through at the time. The first slug of projects is ensuring that we have reliability over summer ’26. And you’ll see the types of projects that are in that list of potential opportunities are pretty diverse group of technology types. And so that was really the other thing I think that I would highlight from that opportunity set is it addresses reliability needs for the summer peak, as well as some of the shifts that we’re making in our clean energy commitment.
So 2026 is the period. I talked about earlier, this is a medium-term part of the solution on regulatory lag, is increasing the share of capital, and that’ll pair nicely with the work that we’re doing right now on some of those income statement costs that we want to make sure that we’re recovering in a timely way.
Bill Appicelli: Okay. And then I guess around that on the cost side, did you guys take advantage of some of the weather and pull forward some of the O&M from ’24 into ’23? Or I guess maybe how are you combating some of these inflationary pressures to keep the core O&M declining year-over-year?
Jeff Guldner: Yes. So as the weather continued to be a positive benefit through the year, we did look at opportunities to take some of the O&M out of 2024. As we were triaging during the summer, we were really just making sure that we were allocating O&M to the right spots within ’23 to make sure that we’re meeting the needs of our generation fleet and keeping reliability through that summer. So there was some modest pull forward. And that’s something that we look at every year and look at the opportunity to take costs out. What’s really driving the long-term trend is our overall focus on customer affordability and on that lean culture that we’ve ingrained in the organization. That’s a fundamental driver. You also have Challo.
This is the last year of operations, and so some of the O&M from Challo rolls off as we move away from some of the heavier fuel, heavier O&M assets into some of the lighter O&M assets. So it’s really a combination. All of that is offset by a full-year impact of our contracted IBW and some of the other wage pressure that we’ve seen. But there’s a lot of pride internally on the ability to manage O&M and operate a reliable system with a lean mentality underlying it.
Bill Appicelli: Okay. All right. And then lastly, just two quick ones on the ’24. There’s $0.10 in the guidance for the BCE sale. But I just want to clarify that you’re still good growing off of the midpoint, right, even though that obviously is a sale that’s not going to repeat. And then secondly, just on the equity, the $600 million to $700 million, that should be sort of block equity that we should expect upfront this year, right? And then the 400 is more rateable through all the options that you just discussed earlier. Is that the way to think about it?
Andrew Cooper: Yes. Just going back to your first question, yes, our guidance range includes the expected gain on the sale of Bright Canyon this year. And we’re very confident that 5% to 100% earnings growth is available to us on that rebased level, including that year-over-year $0.10. Going to the equity, I wouldn’t want to comment on the timing specifically of that $600 million to $700 million, but fundamentally, you’re thinking about it the right way, which is that we have a need to true up our capital structure. And that capital structure need goes with the question that was asked earlier around the timing of our rate case, which we’re also going to continue to monitor. So we’re fortunate to have flexibility from the perspective of our capital plan and our financing plan as to when we do that larger equity ratio true up need.
Common equity is the default kind of base case option for that need. We are flexible in terms of the timing. We’ll continue to monitor the markets and you execute the optimal time for us. The $400 million that comes later is really a longer term periodic need over the period to make sure that we’re supporting our CapEx from the right mix of external financing sources.
Bill Appicelli: All right. Great. Thank you, and congrats on getting through a successful rate case.
Andrew Cooper: Thank you, Bill.
Operator: Thank you. Your next question is coming from Anthony Crowdell from Mizuho. Your line is live.
Anthony Crowdell: Hey, good morning, team. Just two quick ones. Where did you end 2023 on an FFO to debt bases at Pinnacle West? And second, to Mike’s question earlier on the balance sheet, you talked about a lot of discussions with the rating agencies. I’m just curious if you think the recent balanced outcome in the APS case is enough to remove the negative outlook at the agencies?
Andrew Cooper: Yes. Thanks, Anthony. The agencies haven’t provided their kind of official calculations on FFO to debt at year end yet. If you think about the old range that we had set at 16% to 18%, if you look at any of the kind of trailing periods before that, we had fallen below that. We were in the 15s. I don’t have a Q4 number, but from the agencies, it’s in the 15s on a trailing basis before that. And so, one of the things we wanted to do was be realistic about setting a range that made sense to meet our capital needs that we believed allows us to preserve solid investment, great credit ratings. And that’s why we reset that target to 14% to 16%. S&P was pretty clear in the middle of the year that their downgrade threshold with a constructive rate case outcome is in the 13% range, and they’re of course the one that’s one notch lower.
And so we feel confident that our range allows us to continue to manage around that. The other agencies, which have a one notch higher rating, we’re still at a point to your second question where we’re waiting to see how they evaluate the credit. But we felt comfortable moving to this 14% to 16% target range over the longer term to match up our capital needs and where we thought we’d be okay from a ratings perspective. So to your second question, we’ve had quite a bit of conversation with the agencies over the last couple of years. We’ve spent a lot of time highlighting with them, and they’re certainly mindful of the constructive regulatory outcomes that we’ve seen. And so we can’t really predict when they’re going to act, but we are actively going to engage with them now that the rate case is complete to continue to highlight these factors.
As we said all along, the agencies are focused as much qualitatively here on the improvements and de-risking of the regulatory construct, which we believe we’ve seen over the course of the proceedings over the last two years. But certainly we’ll be sharing with them numbers and forecasts and that dialogue so that they can — they don’t typically have outlooks not resolved for this period of time. They were clearly waiting for this rate case outcome to complete in order to resolve their outlooks. And so again, well, I can’t anticipate how and when they’ll act. Our expectation would be that now that they have all the information in front of them, they can make an evaluation of the ratings.
Anthony Crowdell: Great. Thanks for taking my questions.
Andrew Cooper: Thank you, Anthony.
Operator: Thank you. That concludes our Q&A session. Ladies and gentlemen, this completes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
