Pinnacle West Capital Corporation

What they do

Pinnacle West derives essentially all revenues and earnings from Arizona Public Service Company (APS), which provides electric service to approximately 1.5 million retail customers in 11 of Arizona's 15 counties. APS owns or leases 6,257 MW of regulated generation capacity, including a 29.1% interest in the Palo Verde nuclear station, and operates transmission and distribution. The company's reportable segment is its regulated electricity segment, with other active subsidiaries El Dorado and PNW Power.

Revenue drivers

• Regulated retail electric sales — Electric service to approximately 1.5 million retail customers under ACC cost-based rate regulation; no single purchaser or user of energy accounted for more than 1.9% of 2025 electric revenues.
• Wholesale and transmission — Wholesale sales supplied under traditional cost-based rate regulation and transmission service revenues, which management cited as lower in the 2026 second quarter.
• Rate mechanisms and riders — Cost-recovery mechanisms such as the Power Supply Adjustor, Lost Fixed Cost Recovery, Formula Rate Adjustment and System Reliability Benefit that adjust retail base rates for fuel, purchased power and other costs.

Recent performance

Second-quarter 2026 net income attributable to common shareholders was $178.6 million, or $1.43 per diluted share, versus $192.6 million, or $1.58 per diluted share, a year earlier. The roughly $14 million decrease came primarily from higher interest charges, higher depreciation and amortization, and lower transmission service revenues, partly offset by weather, customer growth and usage, lower operations and maintenance expenses, and lower taxes. Total sales rose 9.6% and weather-normalized sales growth was 5.6%, with residential customer growth of 2.1% and a 7% increase in residential cooling degree days. Full-year 2025 revenue was $5.34 billion with net income of $631.6 million, and operating cash flow was $1.81 billion.

Strategy

APS is pursuing top-quartile reliability while meeting growing Arizona demand, relying on Palo Verde as a carbon-free base and maintaining a balanced energy mix. In July 2026 APS announced plans to convert two Cholla units to natural gas, adding approximately 380 MW, and plans to add up to 2,000 MW of flexible natural gas generation, with construction on the conversion targeted to begin in 2028 and in-service in 2029. APS executed a gas transportation precedent agreement in July 2025 for a third-party-owned pipeline expected operational by late 2029. In March 2026 APS announced its intention to renew operating licenses for all three Palo Verde units, extending operations from the mid-2040s through the mid-2060s, and it is developing its next IRP due to the ACC in August 2026. APS also continues wildfire mitigation investment, including defensible space, grid technology and Enhanced Powerline Safety Settings.

Risks

• Regulatory rate outcomes — Essentially all earnings come from APS under ACC cost-based regulation, so rate case and rider decisions directly affect results; the 2025 Rate Case includes pro forma adjustments for the Palo Verde Unit 2 lease acquisitions.
• Gas supply constraints — Management states existing natural gas pipelines into Arizona are fully committed, making planned gas-fired additions dependent on a new third-party pipeline expected operational by late 2029.
• Cost and interest pressure — The 2026 second-quarter decline was driven primarily by higher interest charges and higher depreciation and amortization, reflecting a capital-intensive buildout.
• Wildfire and extreme weather — Wildfire safety remains a critical focus, with increased spending on fire mitigation and grid technology, and the company cites continued investment to reduce the impact of extreme weather events.

Outlook

Management described the lower second-quarter 2026 results as within its expectations, pointing to early summer heat, a 7% increase in residential cooling degree days, and continued customer and load growth in Arizona. APS is proceeding with gas conversion and new gas capacity plans and expects a third-party gas pipeline by late 2029, subject to comparison with other sources in the 2025 ASRFP. The next IRP is due to the ACC in August 2026, and Palo Verde license renewal would extend operations into the mid-2060s.