Pinnacle West outlines 4%–6% long-term sales growth guidance as Arizona demand surges

Earnings Call Insights: Pinnacle West Capital Corporation (PNW) Q2 2025

Management View

• Chairman, President and CEO Theodore N. Geisler opened by stating second quarter financial results are in line with annual guidance. He highlighted that "for the third consecutive year, we set a new peak energy demand record," with a July 9 peak surpassing 8,500 megawatts and expectations of another potential record soon.
• Geisler reported that customer demand continues to grow, supported by Arizona's economic diversity and population expansion. He noted, "TSMC announced earlier this month that it plans to accelerate production time lines for some planned facilities by several quarters, and we're developing accelerated construction schedules now to meet their needs."
• The company is investing in both nuclear and natural gas generation, with 675 megawatts of additional gas generation under development and a new pipeline project with Transwestern Pipeline Company set for service by 2030.
• Geisler emphasized ongoing and increased investments in transmission infrastructure, stating "we have increased our investment in transmission infrastructure and expect this to continue being a strong component of our capital plan well into the future."
• The company filed a rate case on June 13, requesting a $580 million annual revenue increase with rates expected for the back half of 2026. The filing includes a 10.7% ROE proposal and introduces a formula rate adjustment mechanism aimed at reducing regulatory lag.
• CFO Andrew D. Cooper stated, "We earned $1.58 per share in the second quarter, a decrease of $0.18 compared to the second quarter of 2024. Weather, O&M, share issuance and pension and OPEB nonservice credits were the primary negative drivers for the quarter-over-quarter comparison, along with income taxes and D&A."
• Cooper noted strong sales growth, citing a 5.2% weather-normalized sales increase year-over-year, with commercial and industrial (C&I) growth at 8%. He added, "C&I once again has shown robust sales growth at 8% for the quarter with the continued ramping of diverse data center and large manufacturing customers in our service territory."

Outlook

• The company expects to end the year in the top half of its full year EPS range of $4.40 to $4.60 per share. Management reaffirmed their long-term sales growth guidance of 4% to 6% through 2027, with Cooper stating, "We continue to see strong in-migration and population growth... This provides us confidence in our current long-term sales growth guidance of 4% to 6% through 2027."
• The rate case filed in June includes a proposed formula rate adjustment mechanism, with new rates anticipated to be effective in the back half of 2026 and the first formula rate adjustment possible by September 2027.
• No comparison to analysts' estimates is provided due to lack of data.

Financial Results

• The company reported $1.58 per share in second quarter earnings, down $0.18 from Q2 2024, with weather-normalized sales growth at 5.2% and customer growth at 2.4% for the quarter.
• C&I sector led sales growth, driven by ramping data center and manufacturing customers.
• O&M was higher due to the timing of a major outage at the Four Corners plant, but management expects balanced spend for the remainder of the year and reiterated their goal of declining O&M per megawatt hour.
• The company issued $800 million in bonds in the second quarter to refinance 2025 maturities and support its funding strategy.
• A gain from an El Dorado equity investment contributed positively, but Cooper explained, "it's not something that is really part of that core that we're focused on for the long term."

Q&A

• Julien Patrick Dumoulin-Smith, Jefferies: Asked about the scale and opportunity of the new pipeline for uncommitted queue and future generation. Geisler responded, "We've contracted a volume that we believe supports substantial reliability and growth for many years to come. And we've contracted for the ability to procure even more from the pipe as needed as we both serve committed queue and begin to eat away at that uncommitted queue."
• Dumoulin-Smith also asked about transmission investment acceleration. Geisler replied, "transmission is key for really 3 reasons... we also expect a continued growing transmission portfolio," with Cooper noting the "run rate of transmission, just the local area projects, the core blocking and tackling is in that $300 million to $400 million range."
• Nicholas Joseph Campanella, Barclays: Inquired about regulatory lag through the rate case and formula rate plan. Geisler explained, "once the case concludes the end of '26, then based on the proposed plan... the first ability to file a formula rate adjustment... would be then in 2027."
• Campanella questioned the El Dorado gain; Cooper clarified it was "not something that we plan for when we budget... it's not something that is really part of that core that we're focused on for the long term."
• Travis Miller, Morningstar: Asked about capital investment opportunities in distribution. Geisler replied, "Distribution is directly tied to growth. And as we continue to experience strong growth, that puts pressure on continued investments in the distribution system."
• Sophie Ksenia Karp, KeyBanc: Asked about rate base CAGR inflection and customer pipeline quantification. Cooper stated, "we certainly expect to roll it forward in the ordinary course the way we would typically in the third quarter."
• Ryan Michael Levine, Citi: Asked about shareholder and ratepayer risk if uncommitted growth does not materialize. Geisler stated, "even if you had no uncommitted queue, this pipeline was still necessary to secure long-term reliability with the most affordable resources possible for our existing customers."
• Paul Basch Michael Fremont, Ladenburg: Asked about timing for 2026 guidance. Cooper said, "we would expect to be in a position to provide earnings guidance for 2026 based on that procedural schedule."

Sentiment Analysis

• Analysts focused on the scalability of recent investments, regulatory lag, and the visibility of growth plans, displaying a neutral to slightly positive tone, with questions emphasizing strategic execution and risk.
• Management maintained a confident tone in both prepared remarks and responses, with Geisler and Cooper frequently referencing robust growth, ongoing investments, and cost control. Statements like "We look forward to delivering on our commitment to customers for safe, reliable and affordable service, especially through the summer season, while also delivering on our commitments to shareholders as well" reflect this confidence.
• Compared to the previous quarter, management’s confidence and focus on large-scale growth initiatives remain consistent, while analysts continued to probe for clarity on growth sustainability and risk management.

Quarter-over-Quarter Comparison

• This quarter saw further emphasis on scalability of infrastructure and acceleration of major customer timelines, particularly TSMC.
• The company filed its new rate case this quarter, marking a shift from preparation to action on regulatory recovery and formula rate adoption.
• Key financial metrics, notably EPS and sales growth, were explicitly discussed in both quarters, but the Q2 call noted a decrease in EPS due to weather and other cost drivers, partially offset by stronger sales growth.
• Analysts’ questions were similar in focus—growth, capital planning, and regulatory mechanisms—but this quarter’s Q&A included more discussion of the pipeline’s role in unlocking additional growth.
• Management’s tone remains confident, highlighting execution on capital and customer growth, and continuing to reaffirm long-term guidance.

Risks and Concerns

• Management cited regulatory lag as a challenge and is proposing a formula rate adjustment to mitigate this.
• O&M costs were higher in the quarter due to the timing of planned outages, though management expects these to normalize.
• The company is closely monitoring economic trends, weather, and customer growth for potential impacts on sales and capital plans.
• Analysts raised concerns about the risk profile of large infrastructure investments if uncommitted customer growth does not materialize, though management stated the pipeline remains essential to existing reliability needs.

Final Takeaway

Pinnacle West highlighted robust customer and sales growth, the acceleration of infrastructure investments, and strategic moves to secure long-term reliability and regulatory recovery. Management reaffirmed long-term sales growth guidance and is prioritizing investments to meet Arizona’s increasing demand. The company is advancing its capital plan, supported by a strong economic backdrop and regulatory initiatives designed to limit lag, while remaining attentive to cost control and risk management as it navigates a rapidly expanding service territory.

Read the full Earnings Call Transcript

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