Earnings call transcript: Pinnacle West Q2 2025 sees mixed results

Pinnacle West Capital Corp reported its Q2 2025 earnings, revealing an EPS of $1.58, narrowly missing the forecast of $1.60. Revenue reached $1.36 billion, exceeding expectations slightly. The stock saw a modest pre-market increase of 0.06%, reflecting cautious investor optimism amidst broader market growth. According to InvestingPro analysis, the company appears overvalued at current levels, with a P/E ratio of 18.4x that’s relatively high compared to its near-term earnings growth prospects.

Key Takeaways

• Pinnacle West’s Q2 EPS fell short of expectations by 1.25%.
• Revenue surpassed forecasts, reaching $1.36 billion.
• The stock price increased by 1.66% post-announcement.
• Strong sales growth and infrastructure projects drive positive sentiment.
• Regulatory and operational challenges present ongoing risks.

Company Performance

Pinnacle West’s performance in Q2 2025 showed mixed results, with earnings slightly below expectations but revenue growth providing a positive offset. The company continues to benefit from Arizona’s economic expansion, with InvestingPro data showing impressive revenue growth of 10.7% over the last twelve months. Despite operational costs and weather-related impacts weighing on earnings, the company maintains strong profitability with a gross margin of 41.4%. The stock’s low volatility (Beta of 0.38) and consistent dividend history make it an interesting consideration for income-focused investors.

Financial Highlights

• Revenue: $1.36 billion, a slight increase over forecasts.
• Earnings per share: $1.58, down $0.18 from the previous year.
• Sales growth: 5.2% increase year-over-year.

Earnings vs. Forecast

Pinnacle West reported an EPS of $1.58, missing the forecasted $1.60 by 1.25%. However, revenue exceeded expectations, coming in at $1.36 billion compared to the anticipated $1.35 billion. This mixed result reflects both operational challenges and successful sales initiatives.

Market Reaction

Following the earnings announcement, Pinnacle West’s stock rose by 1.66%, reaching $92.4 in pre-market trading. This increase suggests investor confidence in the company’s long-term growth prospects despite the minor earnings miss. The stock’s stability is further evidenced by its 33-year streak of maintaining dividend payments, with a current yield of 3.9%. InvestingPro subscribers can access additional insights through comprehensive Pro Research Reports, which provide deep-dive analysis of the company’s financial health and growth prospects.

Outlook & Guidance

Pinnacle West anticipates ending the year in the upper half of its EPS guidance range of $4.40 to $4.60. The company is focused on infrastructure investments, including new gas generation projects and the expansion of the Desert Southwest pipeline. Long-term sales growth of 4-6% is targeted through 2027.

Executive Commentary

"We’re working diligently with our customers and community leaders to develop the new infrastructure needed to power our state’s growth," said CEO Ted Geisler. CFO Andrew Cooper highlighted, "We continue to see strong in-migration and population growth," underscoring the company’s strategic positioning in a thriving market.

Risks and Challenges

• Weather and operational costs impacting earnings.
• Regulatory uncertainties related to the $580 million rate case filing.
• Potential delays in infrastructure projects affecting growth timelines.
• Competitive pressures in the energy market.

Q&A

During the earnings call, analysts inquired about the company’s pipeline capacity and growth potential, as well as details on transmission investment opportunities. The management’s responses emphasized their commitment to strategic infrastructure development and regulatory strategies to support long-term growth.

Full transcript - Pinnacle West Capital Corp (PNW) Q2 2025:

Conference Operator: Good day, everyone, and welcome to the Pinnacle West Capital Corporation twenty twenty five Second Quarter Earnings Conference Call. It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma’am, the floor is yours.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation: Thank you, Matthew. I would like to thank everyone for participating in this conference call and webcast review our second quarter earnings, recent developments and operating performance. Our speakers today will be our Chairman, President and CEO, Ted Geisler and our CFO, Andrew Cooper. Jacob Tetlow, COO is 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 twenty twenty five Form 10 Q was filed this morning. Please refer to that document for forward looking statements, cautionary language as well as risk factors and MD and 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 thirty days.

It will also be available by telephone through 08/13/2025. I will now turn the call over to Ted.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thank you, Amanda, and thank you all for joining us today. Our second quarter financial results are in line with our annual guidance. Before Andrew discusses the details of these results, I’ll provide a few updates on recent operational and regulatory developments. As we progress through the summer season, I’m very proud to share our team continues to excel in delivering reliable service to our customers. For the third consecutive year, we set a new peak energy demand record.

Our customers reached a new peak on July 9 at more than 8,500 megawatts when Phoenix reached 118 degrees, more than a 300 megawatt increase from last year’s peak. And we may surpass this again tomorrow as temperatures are expected to reach at least 118 again. We take our responsibility to reliably and affordably serve our customers seriously through robust planning, resource procurement efforts and a dedicated team. I want to recognize our planners, engineers, operators, field teams, everyone that makes up the APS workforce for doing an exceptional job making sure our customers continue to experience reliable service through our summer season. Setting a new peak does not come as a surprise since our state continues experiencing growing customer demand, steady population growth and economic diversity.

The Arizona Commerce Authority just reported a record breaking year in fiscal twenty twenty five with a projected 24,000 jobs created in the state and businesses committed to investing over $31,000,000,000 in Arizona communities. For the second year in a row, Arizona earned the top spot by Site Selection Magazine for attracting business investment in the Mountain Region. Additionally, CNBC recently ranked Arizona in the top three states for infrastructure, which takes into account how states are delivering on customer power and data demands. We’re working diligently with our customers and community leaders to develop the new infrastructure needed to power our state’s growth. In fact, TSMC announced earlier this month that it plans to accelerate production timelines for some planned facilities by several quarters, and we’re developing accelerated construction schedules now to meet their needs.

Our all of the above approach to resource planning is ensuring that we deliver reliable service to our customers every day and in the moments when it matters most, like this week. The cornerstone of our balanced energy portfolio is the Palo Verde Generating Station, which celebrated its fortieth anniversary this year. We continue to invest in Palo Verde for the long term. Although we have already secured twenty year license extensions to continue operating into the 2040s, we’re taking steps now to prepare for subsequent license renewals into the 2060s. In addition, we recently contracted to exercise a buyout option of 94 megawatts, previously contracted under sale leaseback.

This will allow us to continue providing reliable and low cost baseload energy to our customers for decades to come. In addition to nuclear, natural gas continues to be an important part of our diverse resource portfolio. We are already developing six seventy five megawatts of additional natural gas generation to support reliability. Earlier today, we announced a project with Transwestern Pipeline Company to support the Desert Southwest pipeline expansion. The new pipeline will help maintain year round regional energy reliability by expanding transport capacity of natural gas from the Permian Basin to Arizona, enabling new gas generation infrastructure to be built in support of our customers into the next decade and beyond.

This new pipeline was a critical milestone for our team to secure before proceeding further with procuring new gas generation needed to support Arizona’s reliability and growth. We expect the pipeline project to be in service by 02/1930, and we will be coordinating the development of new gas fired generation to be in service coincident with this timing. In addition to generation, we continue to make progress on our transmission investments and are on track to complete multiple transmission and substation projects for our growing customer base. With the tremendous growth and critical need to build out the grid, we have increased our investment in transmission infrastructure and expect us to continue being a strong component of our capital plan well into the future. We are evaluating additional opportunities to build FERC jurisdictional transmission for the benefit of our customers and look forward to providing additional information on this in the future.

As Arizona continues to grow at unprecedented levels, reliable service for our customers is our top priority, which has led us to update our clean energy goal from zero carbon to carbon neutral by 02/1950. We’re also transitioning away from interim targets to better reflect our near term focus of reliability and affordability for our customers. And instead, we’ll report interim progress in our resource plans going forward. We will rely on the integrated resource planning process to forecast the right energy mix and our all source RFP process to support reliability through best fit, least cost resources, including dispatchable resources such as natural gas, plus solar and storage. Turning to our regulatory updates.

We filed a rate case on June 13. Key components of the filing include a 10.7% return on equity, 1% return on the fair value increment, 52.4% equity layer in twelve months of post test year plan. We requested an increase of annual revenue of $580,000,000 with rates to be in effect in the 2026. Since our filing, a procedural schedule has been issued, which shows a hearing in May and a final open meeting vote in October 2026. The rate case supports investments in our energy infrastructure to ensure that all customers continue to receive the reliability they count on and increased resiliency under all weather conditions.

We’re focused on investments to protect the grid from extreme weather and have invested in programs such as vegetation management, predictive maintenance and wildfire early detection and mitigation tools. On a related note, HB2201, the state’s wildfire mitigation bill, received bipartisan support from the Arizona legislature and was recently signed into law by Governor Hobbs. The bill requires Arizona utilities to submit comprehensive wildfire mitigation plans to the Arizona Department of Forestry and Fire Management for approval and mitigates wildfire liability risk by defining standards for the wildfire mitigation in Arizona with reference to those plans. Lastly, we’re laser focused on reducing regulatory lag, controlling costs and keeping rates as low as possible for our customers. We’ve proposed a formula rate adjustment mechanism to improve timely recovery of prudent and necessary costs, while smoothing out customer bill impacts.

In addition, we’re proposing adjustments to our existing rate design to ensure new large customers will pay their full cost of service without shifting cost to other customers. We’re focused on building out the grid to serve growth, ensuring reliability for our customers at the lowest cost possible and executing on our regulatory priorities. 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. With that, I’ll turn the call over to Andrew.

Andrew Cooper, CFO, Pinnacle West Capital Corporation: Thank you, Ted, and thanks again to everyone for joining us today. This morning, we released our second quarter twenty twenty five financial results. I will review those results and provide some additional details on key drivers for the quarter. We earned $1.58 per share in the second quarter, a decrease of $0.18 compared to the 2024. Weather, O and M, share issuance and pension and OCAD non service credits were the primary negative drivers for the quarter over quarter comparison along with income taxes and D and A.

These were partially offset by sales growth and transmission revenue and a gain from an Eldorado equity investment. While weather was beneficial for the quarter as compared to normal weather, it was less than half the weather benefit we experienced in the second quarter last year. As a reminder, June 2024 was the hottest June on record contributing much of the quarter over quarter drag. Our sales growth was strong for the quarter contributing $08 of benefit year over year as our weather normalized sales increased 5.2% compared to the second quarter last year, solidly within our guidance range of 4% to 6% and with significant contributions from both residential and C and I customer classes. C and 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.

We experienced 2.4% customer growth in the second quarter and Arizona’s economic backdrop remains strong. We continue to see strong in migration and population growth with Phoenix ranking in the top three among the 50 hottest new home markets for 2025 according to Zonda, a national housing market data firm. In addition, according to recent U. S. Census population estimates, multiple cities within our service territory have seen tremendous growth over the past five years with Buckeye, Goodyear, Surprise and Coolidge all exceeding 15% population growth.

This customer growth included a surge in new home builds and new meter sets. In fact, meter sets through the first half of the year are on a similar pace to last year, which was the highest number of new meters in over a decade. Also of note, in Phoenix, inflation and unemployment both remained below national averages. This provides us confidence in our current long term sales growth guidance of 4% to 6% through 2027. We continue to monitor overall economic trends both locally and nationally and we’ll take them into consideration for future updates.

O and M was higher this quarter. And year to date, while our O and M costs were higher compared to last year, this is largely due to the timing of the planned major outage at our 4 Corners plant. Our cost saving measures and lean culture remain a central tenant of our operations, and we continue to anticipate balanced spend aligned with our O and M guidance in the second half of the year. We’re also maintaining our goal of declining O and M per megawatt hour while our customer footprint continues to grow. We are focused on executing our capital investment program and financing strategy.

Our long term plans remain intact with the passage of the One Big Beautiful Bill Act. We have already begun construction on our Agave and Ironwood projects where we anticipate tax credit benefits and these key reliability resources are on track to be in service by 2026. Turning to our financing plan, we issued $800,000,000 in bonds in the second quarter to pay off our 2025 maturities and support our funding strategy. We continue to be deliberate in our financing plan to support a balanced capital structure and balance sheet strength and find advantageous financing opportunities. We are reiterating all other aspects of guidance and given the strong execution of our plan through the first half of this year, we expect that we will end the year in the top half of our full year EPS range of 4.4 to $4.6 per share.

As always, we are closely monitoring sales growth and weather as we move through the summer. We look forward to continuing to execute our strategy throughout the rest of 2025. This concludes our prepared remarks. I will now turn the call back over to the operator for questions.

Conference Operator: Certainly. Everyone at this time will be conducting a question and answer Your first question is coming from Julien Dumoulin Smith from Jefferies. Your line is live.

Julien Dumoulin Smith, Analyst, Jefferies: Hey, good morning. Good afternoon team. Thanks for the time. I appreciate it. Nicely done this quarter.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thanks, Julian. Good morning.

Julien Dumoulin Smith, Analyst, Jefferies: Yes. Hey, nice to chat, Ted. Hey, so just if you could elaborate a little bit about today’s announcements with ET here in the pipe. I mean, can you talk about the opportunity to scale beyond just this RFP here for 28 to 30? I mean, obviously, you’ve got two gigawatts and change there, but

Paul Patterson, Analyst, Glenrock Associates: the ability to potentially tap into

Julien Dumoulin Smith, Analyst, Jefferies: some of the 16 gigawatts of uncommitted queue. I mean, it’s a big commitment with ET here. I mean, that really aligning with your participation in just the two gigawatts? Or is it more than that in terms of your own generation opportunity that you see?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Yes, Julien, appreciate the question. A couple of pieces there. This pipe was a critical strategic commitment for us to create a long term reliable supply of natural gas that was sort of foundational for us to be able to then build the generation and transmission needed to be able to power the state’s growth well into the future. And so this is a really important milestone, and we’ve been working on it hard and waiting to secure it before being able to officially sort of roll forward and bring clarity on additional transmission and generation projects. Look, it’s big pipeline project, 42 inches, design capacity 1.5 Bcf per day, and APS is the anchor shipper.

So 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. I think with respect to the RFP, what you’ve seen from us is we’ve got just about annual RFPs. And so the one that was put out here for 2,000 megawatts, that was targeting a very narrow window of time and really wanting to accomplish two things. One, be able to secure a renewal of existing gas resources that are tolls or PPAs so that we can ensure that capacity for the long term and then marry it up with long term commitments of new data center growth. But then two, to be able to start to solicit the market for new gas generation and the pipeline will be a key element of that.

We believe APS is well positioned to have strong ownership opportunities with new gas generation. And the total results from this RFP and procurement efforts alongside it could easily exceed two gigawatts. But we’ll look to be able to provide more clarity on that as we get later into the year.

Julien Dumoulin Smith, Analyst, Jefferies: Got it. Understood. And then maybe can you speak a little bit to the transmission opportunity here? I mean, look, clearly accelerating here from, call it, the $3.50 level to double that to $700,000,000 by ’27. But to your point, you’re kind of insinuating that ’29 procurement here, you have procurement needs in 02/1930.

What’s the scale of

: the opportunity on transmission and then the

Paul Patterson, Analyst, Glenrock Associates: merit of what you just talked

Julien Dumoulin Smith, Analyst, Jefferies: a second ago, on generation? And ultimately, would you guys provide a

: reveal of longer term CapEx? Because almost everything we’re talking about here is beyond the scope of what you guys, I suppose, technically or officially disclosed today in medium term.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Yes, Julien. That’s correct in the sense commensurate with a continued growing generation portfolio. We also expect a continued growing transmission portfolio. And transmission is key for really three reasons. One, as we build new generation, we’re going to need to invest in new transmission and connect that with customer demand.

Two, we’ve got a substantial need within the service territory to continue to expand the capacity and resiliency of the existing system, which is part of what’s driven the capital program for transmission to more than double here in the recent period. But then three, on top of that higher run rate going forward, we expect that there’ll be an opportunity for large regional transmission investments to give us access to the marketplace even outside of the Phoenix Metropolitan Area, both access to the market for low cost energy, but also access to additional generation that may continue to provide a balanced energy supply into Phoenix. And those will be lumpy over time as most large new transmission projects are, but we view that as above and beyond the current run rate necessary just to support reliability and resiliency. And as we roll forward capital, the next iteration of that likely on our Q3 call, then we’ll see opportunities to continue to lean in the transmission over time.

Andrew Cooper, CFO, Pinnacle West Capital Corporation: Just Julien, it’s Andrew. To cut a little bit around the numbers where we are today, the run rate of transmission, just the local area projects, the core blocking and tackling is in that 300 to $400,000,000 range. And that is a major step up from the 150,000,000 to $200,000,000 we were doing in that space you know, less than five years ago. And then as you think forward, you know, the numbers we’ve disclosed ’25 to twenty twenty twenty five to 2027, those are the beginnings of some of the strategic transmission projects that we outlined in our strategic transmission plan last year, you know, which was a, you know, pretty substantial plan over a decade. And if you think about even the run rate of that plant, it has pointed as lumpy.

But as we you know, twenty five to twenty seven is only the beginnings of those projects to your point that it has become operational in the, latter part of the decade. As we roll, you know, things forward, you’ll see more detail on those projects, and then you’ll start to see some of the projects that are in the strategic transmission plan that we’re still evaluating and how those may may play out. And those are the longer lead time, lumpier projects that Ted was referring to.

Julien Dumoulin Smith, Analyst, Jefferies: Right. So it seems like you in the transmission investment potential is accelerating into the end of the decade as you kind of reach more of the COD on the long distance projects?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: That’s correct.

Julien Dumoulin Smith, Analyst, Jefferies: Thank you, guys. All I’ll leave it there. A lot more to ask, but thank you for the time.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thanks, Julien.

Conference Operator: Thank you. Your next question is coming from Nick Campanella from Barclays. Your line is live.

Nick Campanella, Analyst, Barclays: Hey, good morning.

Paul Patterson, Analyst, Glenrock Associates: Hey, Nick.

Nick Campanella, Analyst, Barclays: Good afternoon if you’re in the East Coast, but nice to hear from you. So hey, I think everyone understands that you’re in the middle of a rate case. You know, now we have to go through ’26. There’s gonna be additional lag while we wait for those new rates. Can you just kind of talk about how you expect that lag to evolve ’twenty six, ’twenty seven and then ’twenty eight as we get through the GRC as well as the formula rate plan?

Thank you.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Yes, Nick. I think the easiest way to think about that is obviously 2026 is key to being able to conclude this rate case. And with better visibility now with the procedural schedule, we expect that to be in the latter part of the year. And importantly, while we look forward to resolving that case, it’s still based on the 2024 test year. So day one of new rates in effect still means meaningful regulatory lag, which is why we believe the commission is so focused on wanting to address that for all utilities through formula rate mechanisms and formula rate policy.

And so once the case concludes the ’26, then based on the proposed plan of administration, the first ability to file a formula rate adjustment based on updated costs would be then in 2027. And so we would expect for that filing to occur by 07/31/2027 based on the proposed administration with a new formula rate adjustment in effect by September 1. That’ll certainly give some relief and update on regulatory lag. And then 2028 has the potential to be the first full year of those updated costs with then of course an annual adjustment going thereafter. So that’s how we think about it.

But obviously, we’ve got to agree on that with the commission and go through the stakeholder process through this upcoming case first.

Nick Campanella, Analyst, Barclays: Okay. That’s that’s helpful. And then I guess just to follow-up on the on the last question, just just to be very clear. The Southwest pipeline, you have two gigs of committed in the queue right now and just this pipeline unlocks how much capacity that you could actually serve into the early 2030s, if you could just simplistically frame it.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Yes. So to be clear, we’ve got close to 4.5 gigawatts of committed extra high load factor customer demand, and that’s a blend of largely data centers as well as large manufacturing like TSMC. That’s the committed amount that we are actively working on, committed projects, under contract, putting steel on the ground to serve. In addition to that, we’re now approaching, just under 20 gigawatts of uncommitted queue that has expressed serious interest in new projects within our system, and we’re working with that queue on being able to identify new resources to be able to serve them. The pipeline was a critical first step in us then gaining clarity on the ability to reliably commit and serve to that uncommitted queue.

Now that we’ve got that in place, we’re gonna continue working and finalize new generation projects that’ll be able to be allocated to that uncommitted queue and then the transmission associated with that. So I think this pipeline was the first key step. It’ll certainly be used to help ensure long term reliability for our committed customers. But a big part of that pipeline, given the magnitude, is going to really be used to allow us to start to commit to projects in the uncommitted queue. And I think we’ll get more visibility on that later in the year and into next as we announce generation projects and transmission projects to support those uncommitted customers.

Nick Campanella, Analyst, Barclays: Okay. That’s great. And just one last one if I could. Just the Eldorado gain, just was that expected in guidance when you set guidance? Or is that kind of incremental through this year?

And otherwise, you still be at the midpoint?

Andrew Cooper, CFO, Pinnacle West Capital Corporation: Sure, Nick. It’s Andrew. You know, just by way of background, know, Eldorado is our non, utility, non regulated business. It is some legacy investments, that were, you know, to invest in energy infrastructure and in some community projects over the years. And SAI, became profitable over the last year.

It’s a electric switchgear company and actually serves the data center market among others. And so we’ve had to recognize some gains, related to the increased profitability in that investment. It’s something that we monitor quarter to quarter, because it’s, you know, minority investment under an equity, investment method of accounting. It’s not something that is, you know, part of core business. It’s not something that we, you know, plan for when we budget.

And so, you know, while it’s been nice to see some tailwinds from it this year, which have contributed to, you know, among many other factors have contributed in to our ability to have confidence in the upper end of our range. It’s not something that, you know, is really part of that core that we’re that we’re focused on for the long term. And, you know, you’ve seen us, you know, last year, we exited by Canyon business as a way to really emphasize the core. And while SAI has been, you know, profitable and and a good story this year, it’s not something that we’re certainly focused on as the core infrastructure investments.

Nick Campanella, Analyst, Barclays: Okay. That makes sense. Thank you.

Conference Operator: Thank you. Your next question is coming from Paul Patterson from Glenrock Associates. Your line is live.

Paul Patterson, Analyst, Glenrock Associates: Hey. Hey, Paul. So a lot of stuff has been covered, but I just have one really sort technical question. On the solar on your slides, the solar power plant performance, it looks like for the six months and three months, it’s the performance is down, I guess, from 36% to 26%. Can you just tell me what that is?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Yes, Paul. I think that’s really referring to peak value or peak demand. And really, that’s just reflecting that the more solar you install, the less capacity is there to be able to serve peak demand. So that’s well within our resource planning assumptions and consistent with what we would expect.

Paul Patterson, Analyst, Glenrock Associates: So it’s like a curtailment thing?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: No, it’s not curtailment. It’s just a factor of total capacity installed and the amount of that that’s actually serving peak energy demand. But the solar facilities that we have and our utility scale facilities, they’re performing well and performing as expected.

Paul Patterson, Analyst, Glenrock Associates: Okay. So it’s okay, I got you. I think I get what you’re saying. So it’s I guess it’s the way it’s sort of laid out here. Okay, that’s it.

The other guys answered asked my questions. Thanks so much. Thanks, Paul.

Conference Operator: Thank you. Your next question is coming from Travis Miller from Morningstar. Your line is live.

Travis Miller, Analyst, Morningstar: Hi, everyone. Thank you.

Andrew Cooper, CFO, Pinnacle West Capital Corporation: Hey, Travis.

Travis Miller, Analyst, Morningstar: Hi, there. Lot of questions and thoughts here on the generation and transmission side. I was wondering on the distribution side, as you hit some of these peak demand and continue to see some of this growth, is there upside opportunity in terms of capital investment or other O and M savings, etcetera, at the distribution level?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Yes, Travis. I appreciate the question. Absolutely. Distribution is directly tied to growth. And as we continue to experience strong growth, that puts pressure on continued investments in the distribution system.

So I think what you see today is a growing level of distribution investments commensurate with the customer growth we have. And if you look at the quarterly values of customer growth, we’ve got the highest level of customer additions this past quarter that we’ve had in the last two years. And the growing distribution category is reflective of keeping up with that growth. In addition, within distribution, we have resiliency investments because we continuously invest back into the existing distribution system to ensure we’re achieving our target of top quartile reliability for all our customers. And that includes new technology to create greater visibility and automation on the distribution grid in addition to replacing old circuits, adding redundancy and then building new circuits and transformers to keep up with growth.

So that’s an important part of our capital program, and we believe we’ll continue to see growth into the future as we continue to support a growing customer region. The last thing I’d say is from a peak demand standpoint or customer count standpoint, while we may be a midsize utility, we actually have the fifth largest service territory from a square mile standpoint of our peers. And that means it’s a big distribution system. And so there’s a lot of investment opportunity just to ensure we’re maintaining reliable service to our customers over the long term.

Travis Miller, Analyst, Morningstar: Okay. That’s great. And then real quick on the rate case. Anything in your initial conversations or putting together, the request that you think will be more contentious or less contentious with all the stuff that you’ve got in there?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: You know, I think that the case was filed as expected. But importantly, this case includes two elements that are, I’ll call it, unique and above and beyond what you would expect from a standard rate case filing. So the three key components for the case is the standard component, which is simply seeking recovery to make up for the revenue deficiency. The second component though is to provide a proposal consistent with the commission’s policy statement for transitioning to a formula rate plan going forward. And we filed our case consistent with the outcome of the workshops that were held last year and with a design that incorporated a lot of feedback from stakeholders along the way.

So it’d be unfair to say everyone agrees with the details of that plan, but it does incorporate a lot of the feedback that was considered last year, and we look forward to working with stakeholders and the commission on finalizing the details of that. The third component, importantly, is on the minds of many, and that is a proposal for adjusting rate design to ensure that our new large customer additions are paying their fair share of the infrastructure required and preventing a cost shift to other customer classes. And that’s an important element of this case that’s particularly important now given the sizable additions of customers and infrastructure to support that new growth. And I know that’s top of mind for many utilities across the country, and we believe it’s paramount to ensure affordability for our existing customer base going forward. So those are the three elements.

I wouldn’t say there’s any aspect of that that stands out as overly contentious, but there are two key components that are above and beyond what you would normally expect in just a standard rate case filing.

Travis Miller, Analyst, Morningstar: Sure. Yeah. Okay. And and then could the commission break those out such that they would might approve parts of any of those three?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Well, I suppose anything’s possible. I don’t know if that would be the most efficient way, though, to process this case, and we fully expect to have a standard hearing process. And it probably makes sense then, while you have an administrative law judge and all the stakeholders weighing in through a formal hearing to ensure that everyone has the opportunity to produce evidence and testimony to, debate and support all three of those elements. So we believe that’s likely how the commission is thinking about it, and that’s certainly the way we believe is the most efficient way to process this filing.

Travis Miller, Analyst, Morningstar: Great. Okay. Well, I appreciate the talks.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thank you.

Conference Operator: Thank you. Your next question is coming from Sophie Karp from KeyBanc. Your line is live.

Sophie Karp, Analyst, KeyBanc: Hey. Good morning, guys. Thank you for taking my question.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Morning, Sophie.

Sophie Karp, Analyst, KeyBanc: A lot of growth happening in your territory, some of which you’re highlighting through volume growth as well as customer growth, etcetera. At what point do you think your kind of rate base CAGR begins to inflect to the upside? And how do you think about that the timing of maybe quantifying it for investors given the rate case and all the other moving parts, that you have?

Andrew Cooper, CFO, Pinnacle West Capital Corporation: Hi, Sophie. It’s Andrew. Yeah. You know, I I think a lot of the, key things that Ted highlighted earlier on are, you know, critical to think about the long, runway that we have from both a customer growth perspective and a CapEx perspective. And that is the sort of new era where we’re looking at some of these larger generation investments that we could make and that’s you know, we talked about the pipeline kind of unlocking the opportunity to begin to look at those.

And then then as we think about, accessing new resources from afar, some of these transmission projects that are above and beyond, the run rate that we’ve been talking about. And because they’re larger projects, we started to give more information in our disclosure around, you know, the equip aspect of some of these longer lead time projects that may not show up in rate base in such a narrow window that we show, which right now is 25 to 27. I think you pointed to the rate cases and important milestone, given, you know, the formula rate that Ted just talked about gives us the opportunity to look at all capital on an even playing field because you’ll have, very consistent cost recovery across, you know, different asset types. And I think we’ll have, you know, better visibility into that, you know, the the cadence of the long term growth CapEx spend, you know, really across the different parts of parts of our business. And so, you know, we haven’t made any determinations around elongating that CapEx disclosure, but certainly expect to roll forward in the ordinary course the way we would typically in the third quarter.

And as we’ve developed these strategic transmission projects, continue to work, as Ted said, on the generation opportunities unlocked by the pipeline, we’ll be able to provide more information as we go forward.

Sophie Karp, Analyst, KeyBanc: Got it. Thank you. And then I don’t know if I missed it maybe in the prepared remarks part, but, are you quantifying your kind of large load customers pipeline, in terms of maybe, load study request or however else you you may quantify it?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Sofia, if I think if I understood you right, have we quantified, the potential customer commitments that are available to the uncommitted queue? Give me if I misunderstood your question, but we’ve got about 4.5 gigawatts of committed customers that fall into the category of we consider extra high load factor customers or significant large commercial customers. And and that’s made up of largely data centers and large manufacturing. But in addition to that, we’ve got nearly 20 gigawatts of customer requests in in an uncommitted queue. And the pipeline was a critical infrastructure commitment that we wanted to secure and get visibility to before we start to then get further on new generation or transmission build necessary to be able to then start the contract in that uncommitted queue.

Now that we’ve got the pipeline secure, I think we’ll be able to begin in earnest working with some of those customers and associating their needs with new generation or transmission projects.

Sophie Karp, Analyst, KeyBanc: Terrific. Thank you so much. That’s all for me.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thanks, Sophie.

Conference Operator: Thank you. Your next question is coming from Ryan Levine from Citi. Your line is live.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation0: Hi everybody.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Hi Ryan.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation0: One clarifying question. In relation to the anchor shipper relationship, what’s the risk for shareholders and rate payers if the uncommitted growth projects don’t materialize? Or is there any color around how to phrase the risk profile recognizing that there’s a lot of growth potential? I’m just trying to understand the the potential risk if some of that doesn’t materialize.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Yeah. Ryan, I think the easiest way to think about that is 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 and the customers that we’ve already committed to serve. So while there’s upside for us to be able to procure even additional capacity on this pipeline, The pipeline was essential even just to serve our existing customer base and those that we’re currently building out to serve in the committed queue. And, as a result, we believe that this pipeline is easily demonstrated as prudent and necessary to support reliability now and for the long term.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation0: Thank you. And just a follow-up. Are there contractual rights to be able to expand your your capacity if needed and the growth materializes at renegotiated tariff rates? Or is that subject to future negotiations?

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: We’ve commercially secured the ability to flex up capacity procurement.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation0: Great. Thanks for taking my questions.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thanks, Ryan.

Conference Operator: Thank you. Your next question is coming from Paul Fremont from Ladenburg. Your line is live.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation1: Thank you very much and congratulations on the quarter.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thanks, Paul.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation1: Given the fact that you guys are currently in a rate case, when should we expect that you would give 2026 guidance?

Andrew Cooper, CFO, Pinnacle West Capital Corporation: Paul, it’s Andrew. Typically, as you alluded to in a rate case, just given I’ve turned to over the timing of its conclusion, we wouldn’t normally provide earnings guidance. But, you know, as Ted mentioned in the prepared remarks, you know, we now have the procedural schedule, and we expect rates we expect a hearing, in the fourth quarter. And as a result, you’re talking about next year being, for the most part, pretty much regular way. So we would expect to be in a position to provide earnings guidance for 2026 based on that procedural schedule.

And we would typically provide earnings guidance on the third quarter call.

Conference Operator: Great.

Amanda Ho, Investor Relations, Pinnacle West Capital Corporation1: That’s it for me. Thank you.

Ted Geisler, Chairman, President and CEO, Pinnacle West Capital Corporation: Thanks, Paul.

Conference Operator: Thank you. That completes our Q and A session. Everyone, this concludes today’s event. You may disconnect at this time.

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