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Amanda Ho; Director of International Relations; Pinnacle West Capital Corporation
Andrew D. Cooper; Senior Vice President and Chief Financial Officer; Pinnacle West Capital Corporation
Jeffrey B. Guldner; Chief Officer; Pinnacle West Capital Corporation
Antonio Christopher Crowdell; Chief executive officer; Mizuho Securities USA LLC, Research Division
Julien Patrick Dumoulin-Smith; Director and Head of U. S. Energy, Utilities and Alternative Energy Equity ResearchU. S. Citizenship and Drug BofA Securities, Research Division
Michael B. Lonegan; Research Analyst; Evercore ISI Institutional Equities, Research Division
Nicolás José Campanella; Research Analyst; Barclays Bank PLC, Research Division
Paul Patterson; Analyst; Glenrock Associates LLC
Shahriar Pourreza; MD and Head of North American Energy; Guggenheim Securities, LLC, Research Division
Sophie Ksenia Karp; Director and Senior Analyst of Electric and Energy Utilities; KeyBanc Capital Markets Inc. , Research Division
Travis Miller; Director of Research and Public Services Strategist; Morningstar Inc. , Research Division
Operator
Good morning everyone and welcome to Pinnacle West Capital Corporation’s Q3 2023 earnings convention (trader’s instructions). Now I’m excited to pass on to your hostess, Amanda Ho. Madam, the land is yours.
Amanda Ho
Thank you, Mateo. Me would like to thank everyone for participating in this phone and webcast convention to review our third-quarter 2023 effects, recent developments, and our operating performance. Our speakers today will be our President and CEO, Jeff Guldner; and our Chief Financial Officer, Andrew Cooper. Ted Geisler, president of APS, Jacob Tetlow, executive vice president of operations; and Jose Esparza, senior vice president of public policy, are also with us. First, I want to make a few main points. The slides we will use are available for our investor relations as well as for our earnings release and similar disclosures. Today’s comments and our slides involve forward-looking statements based on existing expectations, and actual effects could possibly differ materially from expectations. Our third quarter 2023 Form 10-Q was filed this morning. Please refer to this document for forward-looking statements, cautionary statements, threat points, and MD sections
Jeffrey Guldner
Excellent. Thank you, Amanda, and thank you to each and every one for joining us today. We continue to perform well in our operational functionality and monetary management. As part of my operations update, I will share with you our good fortune in managing a record summer in the Valley and reliably serving our consumers when they wanted it most. I will also provide an update on our ongoing tariff case and other regulatory filings. As Andrew expects our earnings for the year to be as expected, we are on track to meet our recently updated Q2 guidance range. First, I would like to recognize our cashier and operational groups for doing an exceptional job in maintaining reliable service for our consumers this summer. July was just one day away from an entire month of 110+ degrees and August didn’t bring much relief. We ended the summer with five days of temperatures above 110 degrees and 36 days of nighttime lows above 90 degrees. During this era, our generation fleet performed very well and was available when our consumers were in great need of electrical power. Our careful long-term plans for resource adequacy, combined with apparatus maintenance systems and state-of-the-art systems driven by visitor requests, proved favorable throughout the summer. APS set five new peak demand records during the month of July, finally achieving 8,162 megawatts on July 15. This figure is more than five00 megawatts higher than our last peak request identified in August 2020. Our baseload and surge assets adding Four Corners, Ocotillo and Palo Verde have performed well. The equivalent availability of our non-nuclear generation park, which is the percentage of time that a generation unit is available and ready to operate when requested, was 93. 4% from June to September. Additionally, we were extremely pleased to have our Agave Sun and AZ Sun battery installations online and able to serve our consumers. Finally, the capacity of the Palo Verde plant for the same period was 99%. With the happy final touch of summer operations, Palo Verde Unit 1 entered its fully scheduled refueling program on October 7. Not only were our production facilities there when we wanted them, but so were our consumers. Customers who participated in APS’s Cool Rewards program helped build network capacity while earning bill credits for voluntarily reducing their use of force. A network of more than five 8,000 consumers and approximately 80,000 smart thermomaxes created a virtual power plant to save energy during summer peak hours. This year, interested consumers stored a record 13. 5 megawatts of power, the equivalent of one peak unit. APS Cool Rewards are the cornerstone of our virtual power plant, the component of which will temporarily reach two hundred megawatts and will be a vital component of our long-term resource creation plan strategy. We will continue to expand this resource and those vital component partnerships with our consumers as we continue our journey towards 100% carbon-free and carbon-free electric power through 20five. Making long-term plans has been essential to offer a reliable service. In fact, yesterday we presented our Integrated Resource Plan or IRP to the Arizona Project Corporation, outlining our resource desires for the next five years. We expect strong visitation and a call for expansion during this era and have explained desired resources to provide affordable and reliable service for our consumers. We anticipate that a variety of resource types will be vital to meeting this era of strong visitor expansion and look forward to collaborating with consumers, expanders and stakeholders to bring those technologies online. Although the IRP does not specify the type of property, we are committed to continuing our competitive all-source bidding process, which will result in a combination of PPA and property projects. The IRP includes a variety of conditions, but our favorite scenario identifies a varied mix of technologies to ensure a reliable network while placing a strong emphasis on affordability for visitors. And this situation is also helping to achieve our 65% carbon-free blank energy targets through 2030. With the extreme weather we experience every summer, it remains more important than ever to continue helping our communities through our support systems. for heat release. APS components with the local network. organizations to help the state’s most vulnerable populations, this help includes collaboration with the Senior Citizens Foundation, which offers emergency maintenance and replacement of air conditioning systems during the hot summer months. The Salvation Army’s network of 18 cooling and hydration stations across Arizona, an emergency shelter and homelessness prevention program in partnership with St. Vincent de Paul, and a new partnership with Solari/211 and Lyft to Provide eligible Arizonans with free rides to cooling shelters. These are just a few examples of our collaborative efforts to gain benefits for our consumers and communities, and I am pleased to announce that APS was recently identified with Phoenix Business Journal’s Innovative Corporate Philanthropy Award for those partnerships and systems that provide warmth relief to vulnerable Americans. and consumers. I am also pleased to announce that we have finalized our collective negotiations with our local [IBEW] and that a recently ratified agreement is in effect. We have worked hard to identify a collaborative relationship with our union employees. And I’m grateful that we were able to reach an agreement that allows us to continue serving our consumers and retain top level-headed talent. Finally, our visitor services center ranked first among our peers during the third quarter of this year, as rated by our consumers in the J. D. Customer Satisfaction Study. PowerElectric. And, in general, the satisfaction of our visitors, as rated by consumers through J. D. Power, still solid. I am very proud of our employees, our progress to date, and looking ahead to finishing the year strong. Let’s move on to our pricing file. After 24 days of hearings, we concluded on October 3 and the components are now in the data era. Initial briefs are due November 6 and reaction briefs are due November 21. We hope that the administrative court will issue its opinion later this year, perhaps early next year, and that it will be included in the schedule of a Public Meeting at a later time. We look forward to finalizing our rate case constructively while ensuring that load recovery is necessary to enable the continued expansion of our electric grid and assist Arizona’s expanding economy. As we look towards the end of 2023, our focus and priorities continue to deliver on our project of delivering clean, reliable and affordable service to our consumers. I want to thank you all for your time today and I’ll hand it over to Andrew.
Andrew D. Cooper
Thank you, Jeff, and thank you to everyone who joined us. Today we released our third quarter 2023 currency effects. I’ll review those effects, which were definitely influenced by weather conditions, and provide more takeaways on the various drivers of the quarter. We earned $3. 50 on a constant basis this quarter, an increase of $0. 62 from the third quarter of last year. As Jeff mentioned, we have consistently experienced record summer heat. Therefore, climatic situations were, by far, what most explained the accumulation of effects from one year to the next. In fact, the number of residential cooling degree days, which is a measure of climate effects through utilities, increased more than 28% over the same period last year and was 32% higher than previous averages. for 10 years. Residential cooling degree days for the month of July were the highest of any year since data tracking began in 1974, and August had the second-highest cooling degree days for the month, behind only August 2020. This resulted in a climate benefit of $0. 38 compared to the 3rd. quarter of last year, which in turn was slightly warmer than normal. Favorable surtax revenue from our LFCR and new surtax similar to the latest 2019 rate case appeal results, income tax source and other net pieces were also positives, partially offset through an increase consistent with interest, an increase consistent with depreciation and amortization, and a decrease. pension credits and OPEB credits for non-services. Our source of income tax benefits is largely due to the timing of certain tax pieces through the effective tax rate. The third quarter income tax source was also favorably impacted through the amortization of investment tax credits at our Arizona solar battery facilities and production tax credits at our Agave solar facilities. Let’s move on to visitor expansion in the third quarter. It sits at 2%, right in the middle of our planned diversity of 1. 5% to 2. 5%. Arizona remains an attractive destination for demographic migration and economic progress. APS was revered in the September issue of Site Selection magazine as one of the most sensible utilities in economic growth based on investments in corporate end-user projects and associated task creation. Our sales expansion, normalized due to weather situations, remained strong in the third quarter compared to last year. For the quarter, residential sales decreased 1. 9% due to decreased weather-normalized visitor usage; however, our strong C&I sales expansion continued at 2. 2% during the quarter and now stands at 2. 8% for the 3 quarters so far this year. Due to the slowdown in weather-normalized residential sales, we are adjusting our sales expansion forecast for the year to between 1% and 3%, while maintaining our long-term sales expansion forecast between 4. 5% and 6%. %. Array5%. Let’s move on to O&M. This quarter was slightly lower than last year. However, we continue to see consistent booking and maintenance pressures due to inflation and price increases incurred to meet significant expansion in our service territory. We continue to look for opportunities to reduce risks and find efficiencies that keep our prices low and rates affordable for visitors. We increased our O&M guidance last quarter and are now reaffirming it as we proceed to target O&M declines consistent with megawatt hours over the long term. Interest prices remain a drag on earnings as the Federal Reserve continues to combat inflation by raising rates and has signaled that rising rates are most likely consistent. This is expected to have an effect on long-term debt financings and refinancings. That said, I would like to point out that we only have a constant interest rate of $250 million in 2024 and that we will continue to closely monitor our financing needs. Recently, our board of directors approved a 1. 7% increase in our quarterly dividend. We are proud to continue our history of stable dividend expansion and are confident in our goal of returning to our long-term dividend payout ratio target of 65% to 75%. Let’s move on to CapEx. We raised our 2023 forecast from $1. 67 billion to $1. 8 billion. This build is driven through distribution investments necessary to serve our developing service territory and production investments to aid the reliability of our fleet. This increase consistent with the CapEx point also includes increasing transmission spending as we continue to make key investments in our high-voltage FERC jurisdictional system. We now forecast that 2023 spending levels will be almost 50% higher than last year across our entire regulated footprint. Finally, I would like to reiterate the effect of weather situations on our monetary forecasts for the year. Taking into account the mild spring weather of the second quarter and the incredibly warm summer weather of the third quarter, we continue to trend towards our earnings consistent with a range of percentage guidance of $4. 10 to $4. 30 for the year. Once the tariff procedures have been completed, we look forward to proceeding to implement our strategy while awaiting the issuance of the advised opinion order and final decision. This concludes our prepared remarks. I will now hand it back to the oconsistent for any questions.
Operator
(Operator’s Instructions). The first comes from Shahriar Pourreza of Guggenheim Partners.
Shahriar Pourreza
So, Jeff, the TransCanyon won under the DOE program and, evidently, it’s a great line, 214 miles, from Utah to Nevada. Can you simply let us know about the timing, scale, next steps, and how to visualize such opportunities in relation to existing CapEx guidance. And it is clear that there are other desires in the region. How curious, do you see more classified ads like this?
Jeffrey Guldner
I think it’s one of the three announcements that the DOE made, and there’s another one in the domain here that doesn’t concern us. But this, this line, as you know, is a joint task that I’ve been working on for some time with Berkshire Hathaway. This announcement by the DOE is necessarily an opportunity to detract. So that’s really positive for the task, but it’s still far from over. This is the core of our business and it’s streaming. But since it’s an unregulated subsidiary of TransCanyon, it would be more of a funded endeavor. So, it’s a little bit different from the main shipment within the app that we’re talking about, which is, again, the It’s an area where we tend to look primarily at investment opportunities, but it’s really anything that we need to keep paying attention to. But it’s a way out.
Shahriar Pourreza
They gave it to me. It is ok. Perfect. And then, noticeably, very quickly, the accumulation of capital expenditures is remarkable, and you increase it markedly at the end of the year. Could we see buildups similar to CapEx ’24 and ’25?What about long-term updates? Or is a one-time rate accruing this year?A tariff base similar to the last one is still being projected for the 2025 period. So I guess what do we think about cadence.
Andrew D. Cooper
Yes, Shar. It’s Andrés. Yes, we increased capital expenditures for the year to $130 million. It was about looking for wishes for the year, regardless of the possible final results of a tariff case and how production could be addressed in the follow-up. There were wishes around the existing fleet and we knew them. On the distribution side, we continue to see an expansion of visitors and, frankly, some of the devices we want to purchase to accommodate that expansion are costing more in the current environment. I would say the domain is: We may not be able to provide an update on CapEx beyond this year until we complete the rates case. But I would say that the trend that is key to highlight, when we think about where the real transportation opportunities begin for us, is our regulated footprint. And so, I think the additional $55 million that we’re spending this year on our FERC transmission assets reflects a trend that we’ve noticed in recent years, building in this sector. system. We have a competitive formula rate and ROE. So this is a domain we hope to continue looking at, regardless of the final outcomes of the tariff case and CapEx desires going forward. But the desire here was low-key to identify desires in 2023, and we will be able to provide an update for 24 and beyond when we emerge from the rate case.
Operator
The following is from Nicholas Campanella of Barclays.
Nicolas Jose Campanella
Can you hear me? So I just wanted to ask a question about the pension. Could you just give us an idea of what this looks like in relation to the target returns to date and understand that the pension recovery is only partial because of the way the check was made?The year in the case of fees is structured. Should we think about continued gains or a headwind in 2024?Anything you can quantify would be helpful when we think about 24.
Andrew D. Cooper
Of course, Nick. So from the beginning, I would say that we are actually committed to a strategy focused on accountability. And I’ve said it many times before: we invest primarily in a steady source of income, which represents about 80% of our portfolio. And it’s about matching the assets and liabilities so that our capitalization position remains strong, because from the perspective of the price proposition for investors, I think that in the long term they will have to mitigate through the strategy that they want to pass to the market and increase external funds. capital to fund retirement, that’s what we don’t want to do. That’s why we focus on the state of the investment. The transfer of fixed sources of income has continued to be questioned this year. For 2024, we can’t actually take inventory today because we only think about assets and liabilities at the end of the year. So, as you may remember from previous years, we looked at actuarial gains and losses relative to the expected return at the end of the year. And if they are significant, we measure it using what’s called the Hall test, which is the most common accounting technique among utilities for managing actuarial gains and losses. And at this stage, if material, we would amortize any gains or losses over the life of the plants, which is 10 to 12 years. Therefore, it is too early to look at 2024. You alluded to the pension burden that will crystallize at the end of 2022, based on last year’s market transfers. And there we have discussed all the stages of this rate case, adding the hearing, and we will continue to do so until the public meeting to ensure that we discharge an adequate recovery, consistent with our past rate case, which in a year trial division. As you noted, this doesn’t necessarily allow us to recover the full amount, but it would give us on average a portion of the recovery at the end of ’22. So we’ll continue to advocate for that and in fact we’ll be able to keep you updated as we think back to everything that’s going to happen at the end of the year about the effect of the 23 return passes. The only thing I would like to remind you is that higher interest rates, although they may affect the price of our bond portfolio, have a significant positive effect on servicing costs, which helps us from an operational and financial perspective. maintenance. And you can see it in this year’s year-over-year O&M numbers. And of course, this could potentially lead to a further expected recovery next year, given the state of yields. Therefore, we are investigating all the buying and selling options around higher interest rates and reducing rates at the end of the year and can provide you with an update at that time.
Nicolas Jose Campanella
It is ok. And I guess just the IRP, obviously, there’s some wonderful opportunities here, and I don’t make any assumptions about ownership at this point. But can you give us an idea of this? Could this spending potentially be incorporated into the next five-year plan?Or is it something deeper than that?
Andrew D. Cooper
Yes, Nick, I’m Andrew again. What I would say is that you have our existing CapEx forecasts for the next 3 years. We will update on the 24th and 25th after the case. Once the tariff case is complete, we will have greater clarity on the BRS mechanism, which we continue to defend in this dossier. The IRP is agnostic. As you said, we have projects in other stages of progression in our portfolio and the final touch of the projects will depend on the reliability and diversity of a developer organization, adding to ourselves. But also, whether or not there are contemporaneous returns due to the combined nature of these CapExes, we need to make sure that we consider the option of recouping that investment in a timely manner.
Operator
The following is from Julien Dumoulin-Smith of Bank of America.
Julien Patrick Dumoulin-Smith
In fact, let me temporarily pick up where Nick left off at IRP. Simply, obviously, the expansion of new knowledge centers is pretty impressive here. I was just looking to get a sense of how physically powerful some of those commercial productions are, and the knowledge centers are, the questions of knowledge that appear here. I mean, obviously, [those things] are important, subject to certain moves and delays, but how’s the time going?Are those numbers here, in front of us? I’m going to leave it open for you.
Jeffrey Guldner
Yes. Julien, I’m glad to hear you. We have a fairly significant expansion, which is clearly being transmitted here, I would say, in some other sectors. One is TSMC commercial cargo and there is another type of top cargo: additional cargo on the way. And this largely depends on the availability of land. So let’s take a look at some of the gigantic plots of land that can house such facilities. And since some of those corporations compete, if it’s not corporation A, corporation B will come and take over this land. So, I think some of that trade load expansion is happening to continue and we’re seeing, we’re seeing some pretty significant benefits from TSMC and the source chain that that brings because it brings [Linde] and something like that. Fuel brands and stuff. I think data centers are surely disappearing. It’s a little more complicated to determine precisely where the megawatts go. So I think you can look at the region and say there’s a safe amount of megawatts here. How that cash is distributed to individual consumers is a challenge for some of our planners, but it is more about where this flow needs to happen and how we can build the transmission and distribution formula that fits the production side. But it is an interesting market for knowledge centers. So we see it as a pretty significant expansion opportunity. Coop, you should comment that this is an IRP bet.
Andrew D. Cooper
So, since the beginning of the year, we have noticed an expansion in our C sales.
Julien Patrick Dumoulin-Smith
I have understood excellently and I know that we have talked here about deserved returns, and in some tactics it is difficult to move forward in the context of this case. But do you have any other arguments to make in terms of items that would stand out in terms of buying and selling compared to your ability to obtain the titles allowed here?I mean, obviously, I’ve noticed a number of issues, but obviously, Nick talked about the pension just now, but what other issues would I point out here when you’re thinking about sales and selling functions and the ability to see innovations here, that is, those that are under your control?
Andrew D. Cooper
Sí. No, Julien. We have an old control year, so we are using a number of prices going back to the period 21-22. And if it’s the O
Operator
The following is from Paul Patterson of Glenrock Associates.
Paul Patterson
I just wanted to overlook the sales expansion and adjustments we’ve noticed year-to-date in 2023. Could you explain a little bit why you didn’t meet your expectations for 2023?And I know you’re reiterating the long-term sales expansion normalized by the weather. But maybe you can just take a look at why you don’t think what’s being streamed this year will have a longer-term impact.
Andrew D. Cooper
So if you think about the year and the trajectory that our sales expansion has taken, we’ve known for 12 to 18 months that we’re entering an environment where our sales expansion will be driven through a much higher load thing and giant C customers.
Paul Patterson
It is ok. Great. Only in the residential. You also discussed in the clever comments about the virtual, the good luck of your virtual force, the name, but participation in a virtual force plant, and everything else. See? I mean, do you think there might be an elasticity of value challenge developing?I mean, is good luck in that? What do you think about it?I guess there’s a connection to that, that’s what I’m thinking. Are you wondering what’s happened in terms of the weakness in the residential realm and maybe the interest in being part of that savings program you talked about earlier?
Jeffrey Guldner
Yes, Paul, the fundamental rewards program, which is this virtual force plant program, I don’t think it has an effect on residential growth. It’s an opportunity for us to reach those consumers multiple times a year. In many of them, you first cool the space before hosting the event, and then the consumer can unsubscribe without any penalty. And so we’re seeing a little bit, if you call it, several days in a row, there’s a little bit, there’s a little bit of erosion that happens as you go through events, but I don’t think it has an effect on sales.
Paul Patterson
I didn’t mean. . . I didn’t mean that, this program itself was the problem. What I was saying was interest or participation in this program, which happens to be quite strong. Could this be a sign that they’re looking to save money, right?It’s a component of. . . I get it, so I was wondering if it was. . . If they were similar in that sense, if they stick to me, rather than being the driving force behind a decline in residential consumption. Does that make sense?
Andrew D. Cooper
Yes. No. And it’s Andrew again. I think I would differentiate this show from the trend you think might be happening. And we definitely take a look at usage patterns as a whole. If you think about the trajectory of our quarter, we had 1. 5 months of incredibly intense weather. And as the weather began to cool, there would inevitably be consumers looking at their spending and wondering if they could save cash in September. And I think as the quarter progressed, we saw residential use consistent with a decrease in visitors. And I think that partly reflects a rebound effect after a very intense summer. Therefore, we always perceive those trends and reactions from visitors, whether from a bill-sensitive attitude or just general retention. But I think these are probably anomalies for this specific quarter. There is usually a psychology when I turn off the air conditioning during the year. And this year, other people might have done it sooner, simply because they knew they were doing it so hard over the summer. But on the other hand, we actually saw the value of megawatt hours increase during the quarter, which means that when we’re in this constant intense heat, consumers have become more desensitized to our time usage rates. With megawatt hour sales, it is seen at a lower price because it is more valley. That’s why I think that, month after month, we see other visitor behaviors and we try to receive them in the most productive way possible. But overall, for the quarter, I think we continue to see the same trend of slowing residential consumers, looking for energy power and distributed generation, and that [has been very opposed]. If you go back year after year, quarter after quarter over the last 24 months, you will see that the COVID charts of house numbers continue to be opposite as other people pass on general usage habits.
Operator
Next up comes from Michael Lonegan of Evercore.
Michael B. Lonegan
I am following an earlier query on the Julien tariff case factor. Obviously, the bottom line depends to some extent on the bottom line, but it shows, given the delay in recovery due to the nominal expansion in operations and maintenance. , the accumulation of interest expense and pension expense, as you mentioned. And assuming that the BRT recovery mechanism is not granted, obviously, as in the case of Tucson Electric, there is obviously the option that there will be some significant regulatory delay. . You talked about some mitigation. But I’m wondering what your expectations are as to when you’ll possibly have to log your next fare case and only with the general frequency, especially without a recovery mechanism like BRT.
Jeffrey Guldner
Yes, Michael, that is actually the key factor around the JUR, given that and, frankly, given the expansion that we have been talking about for most of this call, if there is not a mechanism to help us recover this. The post-year factory testing we’ve been doing lately only gets you so far. So the point of having a JUR is that if you don’t do it, it will lead to more common tariff filings. We may not know the details of this until we see the final results of this tariff case. So it’s too early to determine precisely what that timeline would look like. But it absolutely comes down to the fact that if we have a JUR mechanism that helps us, that helps us track some of the capital and de-risk some of the projects that are mandatory to serve the load reliably, then we are able to to do it. this without having to return to the price register so frequently. And then Tucson didn’t understand. It’s a bit more of a unique story, I think, given the circumstances. That’s why we continue to protect it in this case. There is a lot of positive discussion towards the end of the hearing. Sort of, but we may not know until we complete the rate case process.
Operator
The next one comes from Anthony Crowdell of Mizuho.
Antonio Christopher Crowdell
I hope everything goes well. I just, I guess quickly, if I can catch up for the year, some very strong drivers like the third quarter that I could give us for the fourth quarter?And is there a capability that allows you to scale operations and maintenance over the course of the year?
Andrew D. Cooper
Yes, Anthony, I’m Andrew. Then you may have noticed that in this quarter the O
Anthony Christophe Crowdell
Super. Et just a follow-up. I think, Jeff, you were replying, I think it’s Mike, but my brain is a little fluffy right now since that day. Right on BRT, I talked about having conversations and the uniqueness of what happened in Tucson. But just one Is there any update you can give us on the conversations you’re having?And secondly, what do you think of the SRB? How does that relate to one of the commissioners opening a file to minimise the regulatory delay?BRT would support that, and you’re already answering the question of minimizing [regulatory backlog]. I’m going to leave that open.
Jeffrey Guldner
Yes, Anthony, this is consistent with the regulatory holdup case. Obviously it hasn’t actually started or it will take a while to finish this file. So, once again, we appeal here on this matter. This happened later in the procedure with Tucson than with us. So we were able to talk more about it during the hearings. So if you pay attention to some of the audiences, I think, again, there’s been more discussion about other people looking to perceive what this feels like. Now we have the reporting procedure and this is being explained and you will be able to see it in the reports. And then you have. . . so you actually have two more steps. Therefore, whoever issues a ruling must take into account the writings and arguments heard at the hearing and conclude what their advice is based on them. And then the next opportunity will be with the commission. The opinion advised through the opinion on passing judgment on is, therefore, an advised opinion. And so no matter where this comes from, we’ll probably see continued advocacy during the town hall as we provide those instances because, as you said, if they are, and I think they’re looking at how can I reduce the regulatory backlog because this helps reduce the number of rate instances you must submit. And so when we bring them together, whether at the briefing level today or ultimately at the public meeting, those are precisely the issues we seek to raise. And again, what’s vital for us is that in the PPA, if you do a PPA, all the tasks that we want for reliability, you have less control from an execution standpoint. task and therefore a little more threat to make those tasks happen. That’s why I want to make sure there’s a proper balance between self-build and PPAs. And it’s actually difficult to create these things yourself if you then fall behind in complying with regulations, which will lead to faster rate filings. So, I think all of those things will come to light as the verbal exchange continues, but we’re still a long way from getting there, and it will probably be early next year or late this year before we can see it.
Anthony Christophe Crowdell
And finally, what is the charge of mitigating a tariff case?Have you set an estimate or to mitigate a rate case?
Jeffrey Guldner
Is. . . I wouldn’t say we don’t like to compare expenses. Some utility companies classify them as case expenses and include them there. All of this is integrated into the existing equipment, so the prices are necessarily already integrated into the groups we have. And when we come out of a tariff case, that just brings us to other regulatory issues. So it’s not something we’ve focused on. Sure, it’s about paper and other things, but it’s not important.
Operator
The next one comes from Travis Miller of Morningstar.
Travis Miller
Thank you. Hi everyone. I need to analyze this climate and then I’m also connected to the previous questions about the O.
Andrew D. Cooper
Yes. No, that’s a smart question, Travis. And indeed there were desires similar to reliability. Many of them were already expecting it before the summer, when we were spending cash to continue insuring our fleet. We do all our summer arrangements the same way every year. We are making plans for the summer forecast. In fact, the peak load we achieved was consistent with the types of forecasts we had made beforehand, and we planned our own resources, PPP, and market-based resources accordingly. That is why we are dedicating operation and maintenance expenses to the fleet even before the summer. And in fact, as a result of the summer, the wear and tear, the capital expenses that I mentioned and that we will increase this year, as well as the operation and maintenance expenses, are related to that. You will see that this quarter we published the outage schedule for next year. So you can see in our fuel fleet and, in addition to the general Palo Verde refueling outage, a physically powerful outage schedule next year, adding what will be the start of the last primary outage at Four Corners during the useful life of the asset. So there are some breaks in similar charts that will help us get through the rest of the decade next year. One of the things we didn’t have this year, but expected, is that we didn’t have a very strong monsoon wind and rain season this year. So there’s a little bit of mitigation there. We plan for this every year and have not had any major storms. But we had some very intense storms during the previous winter this year. So there are adjustments every year to how we plan and then how we deploy O&M resources. But basically, contemplating the cuts we will have next year and the general plan. I believe that if we had general weather next year, the curtains would not affect the overall operation and maintenance situation.
Travis Miller
It is ok. Which makes sense. And then, very temporarily, between five and 7%. I think you said that the base year normalized until 2022. If so, let me know if it’s wrong. But if you can get past this rate theme, then do you plan to adjust that 5% to 7% to take a look at the post-pricing profit figure as a starting point?
Andrew D. Cooper
Sí. De again, some other smart question. This is all that will emerge after the tariff case. I’ve commented before in this forum that we said between 5% and 7% in a year that had been a monetary reset. As a result, our earnings are declining in the year we have announced. So that would be, in fact, anything we’d take a look at. Because at the end of the day, what we need that 5% to 7% to make up is a steady long-term rate of expansion. And therefore, being able to achieve this in the long term, regardless of the base, is the ultimate aspiration. So that’s all we’ll see after the case when we update the guidelines.
Operator
Next up comes from KeyBanc’s Sophie Karp.
Sophie Ksenia Karp
I’ve just answered most of my questions, but I was curious if I could ask you to comment a little bit on the effect that the expansion of knowledge centers and other similar business users will have. They will have margins if this continues. So can it help us understand, I suppose, whether the effect of adding an average load gigawatt of knowledge is equivalent to the number of residential consumers?And over time, how do you think the rates go?Will paid through other consumer categories replace in Arizona?
Andrew D. Cooper
That’s André. Et, one of the things we’ve talked about a lot is that with our higher load customers, given the hours they’re running, you’re going to see a decrease in the overall margin. . We have a tendency to give a general rule of thumb of percentage expansion that if you have 1% residential expansion, that equates to $20 million to $25 million margin. If you have 1% top load expansion, that’s more like $5 million to $10 million in margin. And so, you see a reduction in the margin, but a lot more megawatt hours. And, from that point of view, that’s why we’re focusing so much on the fact that our O
Operator
This concludes our Q&A session. Ladies and gentlemen, this concludes today’s event. You can tune out in that moment and have a glorious day. Thank you for your participation.