PINNACLE WEST CAPITAL CORP Q3 FY2026 earnings call

• Operational Excellence & Reliability: Successfully navigated an extreme Arizona summer with 12 record-setting peak demand days. Palo Verde Nuclear Generating Station achieved a 100% capacity factor, providing critical carbon-free electricity.
• Community Support: Contributed $250,000 to Navajo Nation and Hopi Tribe for flood emergency assistance and made $5 million in company-funded aid available to customers facing financial hardship.
• Growth & Demand: Arizona’s economic strength continues to attract major investment. AMCOR Technology increased its planned investment to ~$12 billion. TSMC signed a direct pricing contract for 1.88 GW of demand.
• Integrated Resource Plan (IRP): Filed IRP projecting annual energy requirements to double to ~80,600 GWh by 2041, with peak demand reaching 14.5 GW. Plan identifies ~15 GW of new resources and ~2.6 GW of additional transmission capacity over 15 years.
• Regulatory Progress: Pending rate case closing briefs submitted; final Commission decision expected before year-end. Management aims to reduce regulatory lag and secure a durable framework for cost recovery.
• Financing Strategy: Executed disciplined financing in a rising rate environment, raising $700 million in senior unsecured notes and ~$235 million via ATM program (YTD ~$920 million). Maintained equity capital structure above 50%.

The provided transcript does not break down financial performance by specific product segments (e.g., Retail vs. Wholesale) with absolute dollar figures or revenue contribution percentages. The company operates primarily as a regulated utility holding company with APS as its main subsidiary. Financial highlights are presented in aggregate: Third Quarter 2026 EPS was $3.49 (up $0.10 YoY). Weather-normalized retail sales increased 9.5% overall, driven by a 14.5% increase in Commercial and Industrial (C&I) sales and a 4.5% increase in Residential sales. Customer growth remained healthy at 1.8%. No other segment-specific revenue data is disclosed.

• EPS Guidance Raised: 2026 EPS guidance increased to $5.05–$5.25 per share (previously $4.55–$4.75).
• Sales Growth Outlook: Full-year 2026 weather-normalized retail sales growth raised to 8%–10% (previously lower expectations), with large C&I contributing 5%–7%.
• Long-Term Sales Forecast: Long-term sales growth outlook through 2030 raised from 5%–7% to 8%–10%, with large C&I customers contributing 7%–9%.
• Customer Growth: Expected steady population-driven customer growth of 1.5%–2.5% annually through 2030.
• Rate Case Timeline: Expect final rate case decision by year-end 2026, with formula rate mechanisms potentially starting to narrow earnings-to-rate-base gaps in late 2027/2028.

• Regulatory Lag: Historical gap between authorized returns and actual earnings (~200 bps); management targets narrowing this to within 50 bps via formula rate mechanisms.
• Interest Rate Environment: Rising rates impact financing costs, though mitigated by efficient execution of debt/equity issuances.
• Capital Execution Risk: Significant capital investments required ($15 GW new resources, transmission expansion); delays or cost overruns could impact reliability or affordability.
• Weather Variability: While recent weather supported sales, future extreme events or deviations could impact load forecasts and operational stress.
• Cost Recovery Uncertainty: Affordability risks if fixed cost increases (cybersecurity, infrastructure) are not adequately offset by large customer contributions or efficiency gains.

Q: Jefferies asked about the limiting factors for incremental equity issuance given high sales growth and whether FFO or equity cap structure drives financing needs. / A: CFO Cooper stated both metrics move in unison. Improved cash flow from formula rates will support credit metrics and dividend payout ratios. Additionally, Direct Pricing Contracts (DPCs) provide upfront cash that defrays external financing needs. They aim to maintain equity cap structure above 50% (currently 52%+ range).

Q: Wells Fargo asked if the historical 200 bps lag between rate base growth and earnings growth would narrow given 8-10% sales growth, and what the structural lag should be. / A: Management goal is to earn within 50 bps of authorized return by catching up on lag via formula rates. Sales growth acts as a tailwind to close this gap. DPC structures also improve rate-making convergence. Large C&I growth contributes significantly to this dynamic.

Q: Truist Securities asked for details on in-service dates for the 15 GW generation and 2.6 GW transmission in the IRP, and status of gas supply/pipeline commitments. / A: Ted Geisler clarified the 15 GW covers committed demand (now 5.8 GW, up 1.3 GW). Projects include Redhawk, Cholla, Saguaro, Desert Sun (40% APS-owned). Transmission needs are driven by reliability and lack of excess capacity. Southwest Pipeline is critical for 2030s thermal gen; they have contracted capacity beyond announced projects. Balanced portfolio of gas, solar, and storage remains optimal.

Q: Barclays asked if the DPC framework can be replicated for data centers/manufacturing, timeline for converting uncommitted queue load, and composition of long-term sales growth. / A: DPC is designed to be replicated with standard credit support (cash CWIP, deferred revenue prepayments). Negotiations ongoing with other queue customers. Load growth is diverse: more manufacturing than data centers, plus strong residential growth. TSMC's 1.88 GW is included in the 5.8 GW committed figure.

Q: Mizuho asked how much of the EPS guidance raise was weather-driven vs. sales growth, and sustainability into 2027. / A: CFO Cooper emphasized the raise was fundamentally driven by higher-than-forecasted sales growth across all classes, not just weather. Modest weather benefit existed but sales were primary driver. Sustained 8-10% growth expected into 2027, with mix shifting slightly toward large C&I as residential usage normalizes from unusual heat patterns.