8-K: Pinnacle West Reports Strong 2025 Growth, Sets 2026 EPS Outlook

Pinnacle West Capital Corp. reported increased full-year 2025 net income driven by robust customer and sales growth, while providing 2026 earnings guidance.

Summary

• Pinnacle West Capital Corp. reported consolidated net income attributable to common shareholders of $616.5 million, or $5.05 per diluted share, for full-year 2025, compared to $608.8 million, or $5.24 per diluted share, in 2024.
• For the fourth quarter ended December 31, 2025, the company reported consolidated net income attributable to common shareholders of $15.4 million, or $0.13 per diluted share, a significant improvement from a net loss of $6.8 million, or a loss of $0.06 per diluted share, for the same period in 2024.
• The company provided 2026 EPS guidance in the range of $4.55 to $4.75 per diluted share on a weather-normalized basis.
• APS experienced robust retail customer growth of 2.4% in 2025 and anticipates projected average annual growth in the range of 1.5% to 2.5% through 2030.
• Weather-normalized retail electricity sales growth was 5.0% in 2025, with future sales expected to increase between 5% and 7% annually through 2030, largely due to new large commercial and manufacturing facilities.
• The capital plan for APS from 2025-2028 totals $10.35 billion, with projected investments of $2.60 billion in 2026, $2.65 billion in 2027, and $2.70 billion in 2028.
• APS has requested rates to become effective in the second half of 2026, seeking a net revenue increase of $580 million, which would result in a 13.99% customer net revenue impact on Day 1.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed report. While the company demonstrates strong operational performance and significant growth in its service territory, the decline in full-year EPS and lower 2026 guidance, coupled with earning below its allowed return, temper the positive outlook.

Positives

• Full-year 2025 net income attributable to common shareholders increased to $616.5 million from $608.8 million in 2024.
• Q4 2025 net income of $15.4 million represents a significant turnaround from a $6.8 million net loss in Q4 2024.
• Robust retail customer growth of 2.4% in 2025, with projected average annual growth of 1.5% to 2.5% through 2030.
• Strong weather-normalized retail electricity sales growth of 5.0% in 2025, with long-term sales growth increased to 5%-7% through 2030, driven by large commercial and industrial customers.
• The company's diverse generation fleet delivered high-level performance, and the system continued to perform at a high level, placing APS among the top quartile of utilities nationwide for reliability.
• Expanded customer assistance programs connected Arizonans to approximately $70 million in annual support in 2025.
• APS earned first-quartile national rankings in the J.D. Power Business Customer Satisfaction Study and Utility Digital Experience Study for residential customers in 2025.
• In an Escalent survey, APS ended 2025 in the first quartile for overall customer satisfaction among residential customers and second quartile among business customers.
• Arizona's economy continues to be robust and attractive, with Maricopa County ranked top for economic development in 2025 by Site Selection Magazine and Phoenix ranked #1 for industrial real estate market by Newmark Group.
• Significant investment opportunities exist to serve increased demand, including a new gas generation build of up to 2 GWs and increased investment in the Palo Verde capital program of approximately $500 million over the next 10 years.
• Transmission expansion could drive over $6 billion in cumulative capital investment from 2026-2035 to support reliability, resiliency, and integration of new resources.

Negatives

• Full-year 2025 diluted EPS decreased to $5.05 from $5.24 in 2024, despite higher net income, primarily due to an increase in outstanding shares.
• Higher net interest, pension and other post-retirement, operations and maintenance, and amortization expenses negatively impacted 2025 full-year results.
• Weather had a negative impact on 2025 results, with a $0.71 negative impact on full-year EPS and a $0.19 negative impact on Q4 EPS.
• APS continues to earn well below its allowed return, underscoring the importance of constructive regulatory outcomes and timely investment recovery.
• The 2026 EPS guidance range of $4.55 $4.75 is lower than the 2025 actual EPS of $5.05.
• Expected negative impacts on 2026 EPS include O&M ($0.39), other taxes ($0.40), El Dorado SAI investment gain ($0.12), and change in outstanding shares ($0.07).

Risks

• Inability to achieve timely and adequate rate recovery of costs through regulated rates and adjustor recovery mechanisms, including returns on and of debt and equity capital investment.
• Impacts of federal, state, and local laws, judicial decisions, statutes, regulations, and FERC, NRC, EPA, ACC, and other agency requirements, including changes by legislative and regulatory action as well as executive orders (e.g., relating to tax, environment, energy, nuclear plants, and deregulation).
• Substantial regulatory oversight and potentially significant liabilities and capital expenditures associated with the operation of Palo Verde.
• Increased costs and business impact from changes to existing environmental laws or new environmental laws.
• Potential effects of climate change on the electric system, including weather extremes (prolonged drought, high temperature variations) and impacts of policy and regulatory changes introduced to address climate change.
• Unaligned goals among co-owners of jointly owned generation and transmission facilities.
• Willingness or ability of counterparties, participants, and landowners to meet contractual or other obligations or extend rights for continued generation and transmission operations.
• Increased competition due to deregulation of the electric industry or large customers developing their own utility-scale generation.
• Variations in demand for electricity due to weather, seasonality, general economy, social conditions, customer and sales growth (or decline), data center growth (or lack thereof, including to support the AI industry), energy conservation measures, distributed generation (DG), and technological advancements.
• Wildfires, including those arising from climate change, extreme weather events, or the expansion of the wildland urban interface.
• Generation, transmission, and distribution facilities and system operating costs, conditions, performance, and outages.
• Ability and efforts to meet current and anticipated future needs for generation, transmission, and distribution facilities at reliable levels, including factors affecting the ability to acquire and develop new resources and difficulties in accurately forecasting load growth, particularly from high load energy users.
• Availability of fuel and water supplies, as well as the volatility and costs of fuel and purchased power.
• Direct or indirect effects on facilities or business from cybersecurity threats or intrusions, data security breaches, terrorist attack, physical attack, severe storms, or other catastrophic events (e.g., fires, explosions, pandemic health events).
• Risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty.
• Development of new technologies and their impact on the retail and wholesale electricity market, and the impacts of adopting or failing to adopt such technologies.
• Availability and retention of qualified personnel and the need to negotiate collective bargaining agreements with union employees.
• Cost of debt (including increased cost from rising interest rates) and equity capital, ability to access capital markets when required, and impacts of a credit rating downgrade.
• Investment performance of assets of nuclear decommissioning trust, captive insurance cell, coal mine reclamation escrow, pension, and other postretirement benefit plans, and the resulting impact on future funding requirements.
• Pinnacle West's cash flow dependence on the performance of APS and its ability to make dividends and distributions.
• Potential shortfalls in insurance coverage.
• Pinnacle West's ability to meet its debt service obligation could be adversely affected because its debt securities are structurally subordinated to the debt securities and obligations of its subsidiaries.
• Liquidity of wholesale power markets and the use of derivative contracts in the business.
• Policy changes in Arizona or other states through ballot initiatives or referenda that may increase costs or operations or affect business plans.
• General economic conditions, such as tariffs, inflation, and other supply chain constraints, as well as uncertainties associated with the current and future economic environment and conditions in Arizona.
• Disruptions in financial markets that could adversely affect the cost of and access to credit and capital markets.

Future Outlook

Pinnacle West estimates its consolidated earnings for 2026 will be within a range of $4.55 to $4.75 per diluted share on a weather-normalized basis. The company targets long-term EPS growth of 5%-7% off the original 2024 midpoint, driven by projected retail customer growth of 1.5%-2.5% and weather-normalized retail electricity sales growth of 5%-7% through 2030, including a 4%-6% contribution from large commercial and industrial customers.

Management Comments

• "APS, our principal subsidiary, continues to experience significant customer and sales growth as more people move to Arizona, and businesses and commercial operations choose our service territory to locate and expand." Ted Geisler, Pinnacle West Chairman, President and CEO.
• "As a result, our 2025 earnings reflect this positive growth pattern and the significant investments being made to expand and reinforce the infrastructure needed to support the collective demand for electricity across our service territory." Ted Geisler.
• "Our diverse generation fleet delivered high-level performance when our customers absolutely needed it most." Ted Geisler.
• "APS customers set three all-time peak demand records — each higher than the last — and peak demand in 2025 rose more than 5% over the prior year. Even with the intense demand, our system continued to perform at a high level, placing APS among the top quartile of utilities nationwide for reliability." Ted Geisler.
• "Despite these strengths, APS continues to earn well below its allowed return, underscoring the importance of constructive regulatory outcomes and timely investment recovery needed to serve one of the nations fastest-growing regions, while at the same time working to ensure affordability remains a top priority for the company and its employees." Ted Geisler.
• "Amid national inflationary pressures, we are committed to keeping bills as low as possible for our customers." Ted Geisler.
• "employees remain focused on delivering value by keeping costs in check, strengthening reliability, and raising customer satisfaction, positioning the company for a solid year in 2026." Ted Geisler.

Industry Context

StockSavvy.ai notes that Pinnacle West's strong customer and sales growth in Arizona reflects the state's robust economic development, particularly in Maricopa County and Phoenix, which are attracting new manufacturing facilities and data centers. This regional growth significantly outpaces national averages for residential customer growth, creating substantial demand for utility infrastructure investment. The company's focus on reliability and customer satisfaction, despite intense demand and weather challenges, positions it well within a rapidly expanding market, though regulatory outcomes remain critical for cost recovery.

Comparison to Industry Standards

• APS is among the top quartile of utilities nationwide for reliability.
• APS earned first-quartile national rankings in the J.D. Power Business Customer Satisfaction Study in 2025.
• APS earned first-quartile national rankings in the J.D. Power Utility Digital Experience Study for residential customers in 2025.
• In an Escalent survey, APS ended 2025 in the first quartile among large IOUs for overall customer satisfaction among residential customers and second quartile among business customers.
• Maricopa County was ranked the top county for economic development in 2025 by Site Selection Magazine.
• The U.S. Census ranked Maricopa County third among U.S. counties for growth.
• Phoenix is ranked #1 out of 15 top growth markets for manufacturing by Newmark Group.
• Arizona State University ranked #1 in Innovation for the 11th straight year by U.S. News and World Report.
• Phoenix remains #1 as the best positioned industrial real estate market by Commercial Caf Report.

Stakeholder Impact

• Shareholders: Potential for long-term EPS growth (5%-7%) driven by regional expansion and significant capital investments, but near-term EPS decline and regulatory challenges pose risks to returns. Capital raises indicate potential dilution.
• Customers: Benefit from expanded customer assistance programs ($70 million annual support) and improved reliability and customer satisfaction. However, a proposed 13.99% net revenue increase on Day 1 from the 2025 rate case could lead to higher bills.
• Employees: Management emphasizes focus on delivering value by keeping costs in check, strengthening reliability, and raising customer satisfaction.
• Creditors: Optimized financing plan aims to maintain strong balance sheet and current investment-grade credit ratings (Baa1/BBB+/BBB+ for APS, Baa2/BBB+/BBB for Pinnacle West).

Next Steps

• APS has requested rates to become effective in the second half of 2026, following the 2025 Rate Case application.
• Various regulatory filings and hearings are scheduled throughout 2026, including for the 2025 Rate Case, Power Supply Adjustor (PSA), Transmission Cost Adjustor, Lost Fixed Cost Recovery (LFCR), Resource Comparison Proxy (RCP), RES Implementation Plan, DSM/TE Implementation Plan, and Integrated Resource Plan (IRP).
• New gas generation build of up to 2 GWs announced, with a new gas pipeline expected to be in service by late 2029.
• Continued investment in the Palo Verde capital program of approximately $500 million over the next 10 years.
• Several major transmission investments are planned, including Helios to Milligan (~23 mi/230kV) by 2027, Pinnacle Peak to Ocotillo (~50 mi/230kV) by 2030, Cotton Transmission Corridor (~80 mi/230kV) by 2030/2031, and Jojoba to Rudd (~29 mi/500kV) by 2031.

Key Dates

Recommendation

The company operates in a high-growth region with robust customer and sales expansion, supported by significant planned capital investments in infrastructure. Operational reliability and customer satisfaction are strong. However, the decline in full-year 2025 EPS and lower 2026 guidance, coupled with the company earning below its allowed return and facing regulatory hurdles for rate recovery, present near-term headwinds. The proposed rate increase, while necessary for investment recovery, could face public and regulatory scrutiny. Given the mixed financial performance and the critical need for constructive regulatory outcomes to realize long-term growth, a "hold" recommendation is appropriate for a seasoned investor, awaiting clearer signals on rate case approvals and sustained EPS growth.

Keywords

Utility, Electric Power, Arizona Public Service, Pinnacle West, Earnings, Financial Results, Customer Growth, Sales Growth, Rate Case, Capital Expenditure, Infrastructure, Regulatory, Nuclear Power, Transmission, PNW