Pinnacle West Capital Corporation

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Pinnacle West Capital Corporation 2022 Second Corner Earnings Conference Call. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to the host, Amanda Ho, Director of Investor Relations. Please go ahead.

Thank you, Kelly. I would like to thank everyone for participating in this conference call and webcast to review our second quarter 2022 earnings, recent developments, and operating performance. Our speakers today will be our Chairman and CEO, Jeff Goldner, and our CFO, Andrew Cooper. Ted Geisler, APS President, and Jacob Tetlow, Executive Vice President of Operations, are also here with us. First, I need to cover a few details with you. The slides that we will be using are available on our Investor Relations website. along with our earnings release and related information. Today's comments and our slides contain forward-looking statements based on current expectations and actual results may differ materially from expectations. Our second quarter 2022 Form 10Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language, as well as the risk factors and MD&A sections, which identify risks and uncertainties that could cause actual results to differ materially from those contained in our disclosures. A replay of this call will be available shortly on our website for the next 30 days. It will also be available by telephone through August 10, 2022. I will now turn the call over to Jeff.

Thank you, Amanda, and thank you all for joining us today. We were troubleshooting a little bit of static on the line, so hopefully we were able to address that as we get the call started here this morning. Financial results year to date in 2022 continue to be in line with our expectations. And so before Andrew discusses the details of our second quarter results, I'll provide a few updates on recent operational and regulatory developments. And I'll also touch on our ESG progress and accomplishments. As we move through the summer season, our team continues to excel in delivering reliable service to our customers. Each year we prepare for summer, ensuring that we've got adequate generation resources to meet our peak demand, and preparing for the summer wildfire season, which started early this year. Our robust vegetation management, fire mitigation programs, and mandatory line inspection requirements prior to re-energizing high-risk area lines all contribute to the protection of our infrastructure and to public safety, as well as to reliable service for our customers. Additionally, our resource procurement efforts and reserve margin standards have allowed us to provide exceptional service to our customers through multiple days, consecutive days of over 110 degrees, and we're well prepared to meet the expected peak demand through the balance of the summer. With the extreme weather that we experience each summer, it remains as important as ever to continue assisting our communities through our heat release support programs. APS has expanded its heat relief initiatives, including partnering with local community organizations to aid the state's most vulnerable populations. This support includes a collaboration with the Foundation for Senior Living, where we offer emergency repair or replacement of air conditioning systems during the hot summer months, the Salvation Army's network of 18 cooling and hydration stations across Arizona, and an emergency shelter and eviction protection program that we do in partnership with St. Vincent de Paul. These are just a few examples of our effort to collaborate for the benefit of our customers and our community. We continue to remain focused on improving our customers' experiences. As previously shared, APS's J.D. Power residential rankings for overall customer satisfaction have improved over the past two years. And thanks to the hard work of our employees, that improvement trend continued with the latest J.D.P. residential 2022 second quarter results which reflects our mid-year progress. Compared to 2021, APS made quartile gains in every driver of customer satisfaction, and overall satisfaction now exceeds industry benchmarks when compared to our large investor-owned peers nationally. APS's strongest performing drivers in the latest J.D. Power survey were customer care, and that's both phone and digital, power quality and reliability, and corporate citizenship. And our improvement is also being recognized by our business customers, as we saw in J.D. Power's business 2022 mid-year results. APS is now in the first quartile for business customer satisfaction, and we're also the second most improved utility in the nation. Although we've made good progress in our customer experience journey, we're not done yet. I'm proud of the team's progress to date, and I look forward to sharing further advancements in our customer experience journey with you in the future. Turning to our regulatory updates, in June, we filed our notice of intent to file a new rate case with the Arizona Corporation Commission. In that notice, we outlined the various items that we expect to request, including 12 months of post-test year plant to be included in rate base. This application will really focus on a return to balanced rate making, which will enable the company to make the necessary investments to support Arizona's growing economy and resilient infrastructure, service reliability, improved customer experience, and a clean and secure energy future for our customers. We made the decision to delay the filing a few months from mid-year to the end of October to allow for additional time to work with stakeholders and address topics that were raised by Chairwoman Leah Marquez-Peterson through various filings in the docket. The rate case will now have a test year ending June 30, 2022, and that test year actually allows us to include changes in revenue, expenses, and investments that we've experienced in the first six months of 2022, and to provide the Commission a more accurate view of our current financial needs. In addition, we continue to work with the Arizona Corporation Commission and many stakeholders in an effort to gain a common understanding on a variety of issues, and to pursue balanced solutions, and we look forward to continuing that work in our rate case. As an update on our ESG progress, earlier in May, we issued our 2022 all-source RFP, which we're seeking 1,000 to 1,500 megawatts of new resources, and that will include up to 600 to 800 megawatts of renewables, and we've seen a very robust response to that proposal. We're currently in the process of reviewing bids, We expect to develop a shortlist by the end of August. And I'm also proud to share that for the second consecutive year, the Environmental Protection Agency recognized APS with the Energy Star Partner of the Year Award for Excellence in Customer Energy Efficiency Programs. These offerings include the APS Marketplace, which is a one-stop online shop that offers customers smart energy products, and the company's Cool Rewards Smart Thermostat Program. In our fourth year of operation, our Cool Rewards Demand Response Program essentially operates like a virtual power plant where our customers provide over 100 megawatts of flexible, clean capacity. The program connects nearly 66,000 APS customers with smart thermostat technology that helps them save money while also playing an integral role in conserving energy when the demand on the electric grid is its highest. This partnership helps us ensure reliable, uninterrupted service to our customers on the hottest Arizona days, while also assisting us on our journey to 100% clean and carbon-free electricity by 2050. We've made solid progress through the first half of the year, improving our customer experience and enhancing our stakeholder relationships and working towards achieving our ESG and clean energy goals. There's certainly more work to do, but this is a good opportunity for me to acknowledge the team's dedication and those early accomplishments. Finally, I'd like to congratulate Ted Geisler on his recent promotion to president of APS. Returning to a separate CEO and president roles within APS allows us to consolidate our core utility functions, including operations, public policy, technology, customer experience, and strategy. And Ted's well-rounded utility experience will be extremely valuable in this role. And additionally, I'd also like to congratulate and welcome Andrew Cooper as our chief financial officer. Some of you met Andrew in his prior role as the company's treasurer, and I look forward to each of you getting to know him better in his new role. And so with that, Andrew, I'll turn the call over to you.

Thank you, Jeff, and thanks again to everyone for joining us today. As Jeff mentioned, our second quarter 2022 financial results continue to be in line with our expectations. I will review those results and provide some additional details around sales, growth, O&M, and benefit costs. We earned $1.45 per share in the second quarter this year, down 46 cents compared to the second quarter last year. As was the case in the first quarter, the unfavorable rate case decision continues to be the primary driver for the lower year-over-year results. Again, the largest contributing factor is that the company is no longer deferring the costs related to the Four Corners SCR and Ocotillo Modernization Project to a regulatory asset, and these costs are now reflected in our income statement, resulting in a reduction of net income. Other negative impacts include lower margin because of lower transmission and LFCR revenues, higher O&M, higher depreciation and amortization, and lower pension and OPEB non-service credits. Weather impacts of the quarter yielded only a modest headwind, despite June of 2021 having been the hottest June on record. Partial offsets to these negative drivers were lower property tax expense, as well as continued sales and usage growth. Turning to sales and usage, second quarter customer growth was in line with guidance at 2%. Sales growth has seen the strong trend of previous quarters continue as we experienced weather normalized sales growth in the second quarter of 3.2%, primarily driven by our CNI customer segment. We are continuing to monitor sales and usage trends and are not changing our guidance ranges at this time. The Arizona labor market, which began to recover in 2021, has remained strong in 2022 to date. In May, the Arizona unemployment rate stood at 3.2%, the lowest state unemployment rate in over 40 years compared to the national rate of 3.6%. In addition, Arizona's population continues to grow and benefit from high net migration into the state. Recent census data shows that Arizona had the highest number of cities included among the top 15 fastest growing U.S. cities in 2021. Those top 15 nationally included four cities served by APS, Buckeye, Casa Grande, Maricopa, and Goodyear. The cost of living in Arizona and Metro Phoenix compares favorably to many locations from which we received net migration, including many areas of California. We continue to project steady population growth and solid APS customer growth. In addition, commercial and industrial growth remain strong. In fact, Commercial Search, a commercial listing platform, found that Phoenix ranked second nationally for industrial development growth in 2022. While the growth we're experiencing is positive, the negative impacts of the rate case continue to outweigh the benefit of that growth. This again underscores the need for substantial capital investment to maintain grid reliability and resource adequacy to keep up with growth as customers continue to move into the service territory and the corresponding need for reasonable and timely recovery of those investments. Like everyone else, we're facing significant inflationary pressures across every area we operate. We continue to rely on our Lean Sigma culture and customer affordability initiatives to mitigate these pressures. We will continue to monitor the inflationary impacts through the year and remain committed to our goal of keeping O&M flat and having declining O&M per megawatt hour. Turning to the issue of benefit costs, given the volatility in the markets, we understand this has been a topic of interest. While we do not calculate 2023 pension expense until year-end 22, making it too early to estimate, if the markets remain where they are today, we do expect to have some headwind for pension in 2023. However, there are three key points I want to highlight that serve to mitigate volatility of benefit costs and support a robust pension funded status. First, the company practices a liability-driven investment strategy and is currently in a well-funded position. Consistent with liability-driven investing, as the funded status of the plan has increased to current levels, allocation to more volatile asset classes has been reduced in the portfolio. The allocation to lower volatility assets, particularly fixed income, is expected to support funded status and benefit cost over the longer term. Additionally, and very importantly, in the near term, benefit cost is also impacted by this asset allocation to fixed income. and higher prevailing fixed income yields would be reflected in next year's expected return on plan assets. Second, we employ the corridor test to account for benefit cost, which is a GAAP prescribed accounting method commonly used in the utility industry. Any differences between actual results and actuarial assumptions are booked to an account for possible future amortization. Only the portion that exceeds the corridor test is amortized over the remaining service life. Third, as we look to future recovery of benefit cost given our mid-2022 test year, we expect to reflect at least a portion of this year's benefit cost impacts in our upcoming rate case. Turning to our current guidance, we are maintaining the 2022 earnings guidance range of $3.90 to $4.10 per share as we continue to see benefits of sales growth but recognizing the inflation headwinds. All other areas of our financial guidance remain unchanged. We're confident we can continue to execute on our strategy and we'll finish the year strong to deliver on that outlook. This concludes our prepared remarks. I will now turn the call back over to the operator for any questions.

Certainly. The floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Insu Kim with Goldman Sachs. Please close your question. Your line is live.

Yeah, thank you. My first question just maybe on that pension item and the growth that you're expecting in 2023, I know it's still in flux and there are many moving pieces that could change it by year end, but it seems like you're relatively confident that you could mitigate or offset most of that. And as we think about it, one, is that true? And I guess if we think about the 23 growth off of 22, at least on the midpoint of the current guidance, that five to seven, it's not an annual guidance, but any indication on whether you could still be in that range for 23 or is it too early to say?

Yeah, Andrew, thanks for the question. It is definitely too early to say right now. As I mentioned, we are monitoring from an O&M perspective as well as this pension headwinds. There are absolutely mitigants to the headwind that we see from the market returns on our assets where we stand today. There will undoubtedly be some headwind if the market continues to be at the level that it is today. But what we really wanted to highlight was that because we are so heavily allocated to fixed income, all asset classes have performed similarly badly this year. But over the long term, fixed income is going to be the right place for us from a low volatility perspective. But in 2023, it will be an offset that I think may be missing from some of the calculations out there. Because we were starting from an expected return on assets this year that's lower than most in the industry at around 5% because we're so heavily invested in fixed income. And then when you project forward to next year and think about where we'll mark to market at year end, fixed income yields are 200 basis points higher than they were when we set that return last year. And that will weigh into the expected return on asset calculation next year, which is an offset against the amortization of those potential losses that we'd have on the asset side.

Got it. Okay. No, that's helpful. Thank you for that. Second, Jeff, I guess as you're going through the stakeholder process and getting ready for the late fall rate case filing, You know, and, you know, with the IRA bill that, you know, who knows what will happen, but if that could potentially, you know, benefit, I guess, and, you know, make it more favorable to just the outlook for further investments in solar and other clean energy resources. You know, one of the things that, you know, we didn't get last year in the Ray case was the the clean energy rider mechanism. As you go through that stakeholder process, just initially, is that a big topic of focus as you go through those conversations and what have been the initial feedback?

Yeah, that's obviously an area that we're focused in right now. I think it's important that we continue to have good discussions. I'd say right now we're more in the technical aspects of what's building up the rate case application. As you get Further into the case, and again, particularly as you start to see which track, whether it moves in a settlement track or whether it moves in a fully litigated track, what some of those options are. And so you're exactly right. You want to make sure you build in conceptually what the benefits of that kind of a tracker are. And in particular in this case, it's focused on just clean energy resources. And it really does help avoid just having serial rate cases come in as we have to catch up with investments that we're making. And so I think it still presents a pretty compelling case. It's a little out of the ordinary for Arizona regulation. I expect that's something that Tucson Electric is also gonna be spending some time on. And so hopefully there's momentum that continues to build as people begin to see the benefits of having this more smoothly come in and not just force every utility here to come in on serial rate cases. Absolutely a topic of discussion.

Got it. Thank you so much, both.

Thanks, Insu.

Your next question is coming from Julian Dumoulin-Smith from Bank of America. Please pose your question. Your line is live.

Hey, good morning. Thanks, team. Appreciate the time. And welcome, Andrew, again. Maybe just to come back to the question on the IRA here, I just want to talk through a little bit more on that front. First off, AMT impacts. Elaborate a little bit on the latest there as well as just with respect, you mentioned all sorts of RFP here, et cetera, the opportunity to compete more effectively on a level playing field to win ownership opportunities. Again, notwithstanding, obviously, the renewable rider considerations that might be a limiting factor as well.

Yeah, Julian, no AMT. effect for us. I think you're right on the ability to compete. I mean, one of the things, obviously it's got to get over the finish line, but if you move into a solar production tax credit, that's very helpful. I think we view generally the IRA process as being helpful from a customer affordability perspective because it would really help reduce the cost for us to continue to move ahead with the deployment of the clean technology and take advantage of some of the different tax credits And so that's both us and obviously others that would be doing PPA work. But there's certainly a number of provisions in that bill that are helpful in maintaining a balance, and it still would be a balance, but a balance of utility ownership and PPAs as we move forward with deploying clean technologies.

Got it. All right. Excellent. And then related, can we talk about the longer term? Obviously, Kudos here on the nearer-term low growth trends. Just a little bit curious on what you're seeing on your side as to low growth in the longer term and some of the evolving economic picture here. Specifically, if you can touch on the TSMC contribution, that long-term guide. Obviously, I think it's probably non-trivial to some of the numbers you've thrown out there here. You can talk about that.

Sure, Julian. Let me start with the sales and usage side. You know, as we saw this quarter, it's been a continuation of a lot of trends. I think the most important thing we're seeing is the consistent continuation of that customer growth at that 2% level. From a customer usage perspective, this was really the quarter where we would have seen the maturation of some of those trends from the COVID recovery that, you know, work from home trend on the residential side. And then this is really the quarter where the last of the CNI customers started to come online, and we saw a lot of strengths there. So from the perspective of economic activity in the service territory, residential side, that continuation of customer growth is something that has been spot on to where our guidance has been and something that we feel pretty good about. On the CNI side, putting aside that longer-term question, which I'll let Jeff take around TSMC, we're seeing the maturation of some of those trends that we've seen play out over the course of the pandemic recovery.

Yeah, and Julian, on the TSMC, I think if you look at the state, there's a couple of key technology sectors that we're really, I think, moving ahead from a national standpoint. One of them is semiconductors. So we've had Intel here for quite a while. TSMC is now building out in our service territory. Intel is opening another fab over in Salt River's territory. And as I'm sure you know, as you start to see that clustering effect, that continues to make the case for other chip manufacturers, and I think the CHIPS Act will be a nice tailwind here, but it makes the case for other chip manufacturers to say, hey, I need to get into that ecosystem because there's so much infrastructure support. ASU, Arizona State University, and our state university systems continue to churn out engineers at a remarkable pace, and so that ecosystem, I think, will continue to help drive semiconductors in general. And then again, TSMC will, I think, as they continue to build out, we're going to be working to keep up with their growth and obviously work with them very closely. A little early to tell exactly what that timing looks like with supply chain and things like that, but we'll continue to keep folks updated because obviously that's likely to be our largest load, our largest customer. The other one to watch, though, also is the electric vehicle space, and you see clustering, whether it's Nikola Motors or Lucid or other companies that are building out in the Metro Phoenix area, we see a pretty significant scaling. I was down at the Lucid Motors site a couple of months ago, and the size of the factory that they're working on down there is just truly impressive. And so I think as we see some of those niche areas begin to develop, we already have a pretty strong bioscience area, but we certainly like the advanced manufacturing growth that we're seeing in the service territory. And, again, just because of how that's going to affect good utilization of our resources. Hopefully that was helpful.

Yeah, absolutely. In the bottom line, you weren't seeing any shifting yet, as you said, too early to tell on timing for TSMC either way. Yep. All right, excellent, guys. Thank you very much. Best of luck. See you soon. Thanks, Julian.

Your next question is coming from Nick Campanella with Credit Suisse. Please pose your question. Your line is live.

Hey, good morning. Congrats to Ted and Andrew. So I just wanted to ask on O&M, you know, I think you had, like, roughly a 10-cent headwind this quarter. If we look at the O&M, it's up, like, 6% to 7% versus time last year. And I know annual guidance is out there pointing to just a 4% kind of decrease. Can you just help kind of reconcile that? Is there kind of specifics to the back half of the year that you have line of sight on to still hit that? And then how do we kind of think about going into 23, just being able to kind of manage the O&M line without new rates and the current inflationary backdrop that we have? Thanks.

Sure, Nick. So we are definitely beginning in this quarter to see some of the headwinds from inflation play out, and that's what you're seeing reflected there. I don't think there's anything particular about the second half of the year. We certainly continue to monitor in the third quarter and going into the rest of the year that balance between sales and O&M, and so really aren't in a position to make any changes at this point, just monitoring that. Keep in mind, a lot of the inflation we're seeing is on the capital side, Jeff mentioned the RFP that we put out. You know, we'll see in that next RFP how some of those project costs play out, and those are the, you know, longer lead time piece of this. So, you know, from the perspective of O&M, it's really for us to continue to be vigilant on our customer affordability and Lane Sigma initiatives and just continue to monitor for this year and going into next. That's kind of the key for us. You know, fuel cost obviously was a big – inflationary item this summer. We were very well hedged, 85% plus, and that really helped to, from a customer affordability perspective, on the PSA mechanism to make sure that some of that was blunted, given how high gas prices have gotten for our business. So really just to continue vigilance and monitoring for the rest of the year.

Okay. Okay, so just continuing to monitor. Got it. And then if I could just go back to the pension, you had this disclosure on the slide about, you know, 100 percent of interest rate volatility using a combination of fixed income portfolio assets and, you know, U.S. Treasury future contracts. How does that kind of affect the downside to the assets? And just, you know, our understanding is this as rates go, you know, go up, that the contributions required would maybe be lower. But just can you help us understand how that plays in here?

Yeah, that's a great question, Nick. And so that hedging process, which is our liability-driven strategy, is really about funded status. And that is kind of our north star is to be in a position to not make future contributions to the pension. We don't project any contributions over the next few years. The funded status remains relatively intact. That 100% makes us agnostic to changes in interest rates. We do have a 20% allocation to equities and other risk assets still today. those assets from an asset perspective may move and that can create actuarial gains and losses relative to what our expected return is. So the allocation to those treasury securities and other fixed income securities is the LDI strategy matching up our liability with our asset and becoming agnostic to moves in interest rate from a funded status perspective. It does help with volatility from a benefit cost perspective, And that's because of the way we mark our fixed income assets to market at the end of the year, which in a rising interest rate environment helps with our expected return in the following year.

Got it. Okay. And then if I could just follow up on the pension thing, just one more question. You know, I know that you have, you know, other income guidance in 22, it's like 60 to 65 million or so. And, you know, what type of pension return informed that number? for year-end 21, and I guess if we were trying to kind of extrapolate how that number could change as you get into 23 here, could you give us any color?

Yes, so that number is the accumulation of actuarial gains and losses over time. And given where asset classes were in 21 and 20 and prior years, you're seeing a significant contribution from actuarial gains in those years. You know, it really, it's reflective of the returns on the assets in our portfolio in the prior year, which are, you know, have been historically, you know, still fairly fixed income heavy. We're at 80% fixed income this year, 20% equities, and I think that'll help, hopefully help you extrapolate. The information we provided this quarter in the deck is meant to kind of give you each driver and how it responds to changes in market forces. as well as interest rates and discount rates generally. So if you kind of take the combination of those factors, that's how we arrive at that non-service contribution or cost at the end of the year.

All right, thanks. I'll get back in the queue.

Your next question is coming from David Peters with Wolf Research. Please pose your question. Your line is live.

Yeah, hey. Hope you guys are all doing well. Sorry to keep harping on this, but I just had another question on the pension at OPEB. Understanding that a lot can happen between now and your end when you guys actually mark the assets, but is there any sense or sensitivity you can think on how to think about the potential impact in 23? Again, understanding that a lot of the assets are fixed income, which are faring better than equities, but still down 10% or so nonetheless. Thank you.

Yeah, the number of factors that go into both our service costs and our non-service costs that are related to changes in interest rates, it makes it hard to give a rule of thumb. As you get closer to zero on interest rates, it's more or less sensitive to certain line items. And as interest rates rise, it can become more sensitive. So they're not linear impacts. But if you at least start from the key factors, you have our service costs, which respond, and service costs, interest costs, which have nothing to do with market returns and everything to do with discount rates that move in opposite directions as interest rates move. You have our expected return for the following year, which may be on a smaller asset base if there's a negative return in the prior year, but as I mentioned earlier, has a positive impact from market to market with fixed income yields. And then you have any amortization of actual gains and losses which is always netted. So if you have a loss from the asset return the prior year, before you apply the quarter test, which is the accounting we use, you net any actuarial gains, which you would see from our discount rate having been higher than we expected in 2022. So you're going to have a smaller net actuarial loss that you would then apply the quarter test and amortize. So, I mean, those are the drivers and we want to make sure that you had all of them at hand. none of them are linear none of them work in exact uh synchronicity with each other but those are those are the factors that when you net them get us to what we would expect the headwind to be based on any market return okay appreciate that and just and just to clarify that 100 hedging on interest rate volatility does that help protect asset downside um on the 80 of the fixed income allocation Not directly. What it does is it ensures that as interest rates move, if the asset goes down or if the asset goes up, the liability goes down, the liability goes down, the asset goes up. So it's really meant to keep our funded status intact by making sure that we're looking at the average service life of our plan participants and becoming agnostic to moves in interest rates so that our funded status doesn't change materially. being heavily allocated to those fixed income securities is helpful to reduce the volatility of benefit cost, but it is not hedging the asset per se. It's hedging the relationship between the asset and the liability.

Okay, perfect. Thank you. Just one other question separate, just with respect to the sales growth, obviously, you know, continue to follow through on Q2 from Q1. Anything that you've seen changes as of late and then Maybe you could just remind us within the EPS CAGR that you guys have until maybe I guess you have new rates in effect from this next rate case. How much of that is being driven by sales specifically?

So the big trends we're seeing right now on the sales growth side are sort of that consistent customer growth, as I'd mentioned. We had a strong showing from CNI growth this quarter, and that was really a result of the you know, return to normalcy from the perspective of our C&I customers, in particular schools and government institutions. On the residential side, continuing to see customer usage start to get back to normal levels as anyone who was working from home is now working from home. So the residential side is really just going to be continued to be driven by customer growth. Over the long term and implicit in that 5% to 7% EPS CAGR, is this near-term 1.5% to 2% growth that we're tracking towards monitoring, and then in the longer term, that 3.5% to 4.5% growth, which is driven on the back end by a lot of the factors Jeff talked about earlier from some of our large industrial customers, which contribute an incremental 100 basis points to growth over that time period. And that's really the key thing baked in from a sales perspective.

Okay. Thank you, guys. Yep. Thank you.

Your next question is coming from Char Peruzza with Guggenheim Partners. Please pose your question. Your line is live.

Hey, guys. Hey, Char. Jeff, sorry to hit on this pension topic, but obviously everyone has estimates out there on what the potential drag could be. I guess, is the message today, if you were to mark today, you could offset the entire impact or you can offset some of the impact, I guess, without going into additional details on what that draft could be. I guess, what's the key takeaway?

Yeah, sure. I mean, obviously, the challenge, which you all are seeing, too, is we don't know how it's going to mark to market at the end of the year, so you don't have a good estimate as to what that is. I think, you know, Andrew indicated there are or strategies that we can use, but I can't say we're going to offset every headwind that that's going to create. I think that's likely to be a headwind for us in 23, and then depending on the amortization, that'll be a headwind for a little while. And for us, it's really back to anchoring around our Lean Sigma culture and just continuing to execute on the cost management that we can get and not to, you know, we're going to put it in the rate case and the averaging of the two testers. So again, it's helpful that we've got this split test here. So you've got 20-21 and then a 21-22 that would get averaged, which is based on how they did it in the last rate case. But we're not looking at proposing a deferral mechanism or some other regulatory mechanism for this because there's frankly other things we want to be pursuing in the rate case. Can we offset? We're gonna work to see what we can do to mitigate the impact of this headwind, just like other headwinds that we see moving forward. Can I tell you we can get that all this time? I can't. I don't know exactly what that headwind's gonna be, but we're obviously focused on doing what we can to continue to deliver on the long-term guidance that we've provided.

Got it, got it. And then just, were you trending towards your O&M guide? Are you closer to the lower end, just given the year-to-date performance?

As of now, sure, we're maintaining the guidance range that we have. We're seeing those pressures. We're going to continue to watch it as we get through the summer, see where we are. As I mentioned, a lot of the challenges around capital and some of the new projects that we're starting to engage in. It's not been easy, but some of the same things Jeff said around our customer affordability and maintaining that vigilance is what we are focused on doing right now.

Got it. And then just lastly, and thank you for this, it's just around guidance for 23 with the rate case being filed towards the back half of this year. Are you going to just wait on providing any visibility around 23 until the rate case concludes?

Yeah, sure. That would be consistent with our prior practice. So that's what's anticipated right now.

Fantastic. That was it. Thanks, guys. Appreciate it.

Thanks, Sharp. Thanks very much.

There appear to be no further questions in queue at this time. I'd like to thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.