Pinnacle West Capital Corp. (PNW) Q3 2026 earnings review
Pinnacle West raises sales plans, but grid costs limit profit
Pinnacle West, the parent of Arizona's largest electric utility, is selling record power to businesses while grid costs eat up most of the profit gain. Electricity volume excluding weather rose 10% from a year ago and revenue climbed 8%, but profit per share edged up only 3%. Chief executive Ted Geisler lifted the full-year profit outlook well above what the prior plan pointed to, though by our math the new target leaves a small loss for the fourth quarter.
| Retail electricity volume, excluding weather | +9.5% from a year ago (business +14.5%) |
|---|---|
| Operating revenues | $1,973M +8.3% from a year ago |
| Diluted profit per share | $3.49 +2.9% from a year ago ($3.39) |
| Full-year profit per share outlook | Raised $0.50 $5.05–$5.25 (+2% at middle of range) |
⚖️ Verdict: 🟢 Bullish
The story got better because the utility finally raised its long-term electricity sales plan through 2030 to 8%–10% a year and added 1.3 gigawatts of signed large-customer demand after four unchanged quarters. One caution: management left its 5%–7% long-term profit growth target untouched and raised its 2026 core operating expense plan by $70 million, proving that volume growth alone does not flow through to shareholders under current rates.
The question now is whether Arizona regulators will approve the higher allowed returns and annual formula rate resets the utility needs to turn 9% demand growth into matching profit growth. A constructive rate order lets profit catch up to grid spending in 2027 and 2028; a harsh ruling leaves interest, depreciation, and new stock sales absorbing the boom. The Arizona Corporation Commission's final rate decision in December 2026 will settle it.
🐂 Bull Case
Large Business Demand Lifted Long-Term Sales Plans
Pinnacle West, the parent of Arizona Public Service (APS), the state's largest electric utility, is seeing rapid power demand from factories and data centers. Chief executive Ted Geisler said that "Arizona continues to grow at an extraordinary pace, and our responsibility is clear: deliver safe, reliable and affordable energy for the customers who count on us every day."
Electricity volume excluding weather Effects jumped 9.5% from a year ago, marking an eleventh straight quarter at or above the utility's original 4% to 6% target. Because large commercial and industrial customers are ramping up faster than planned, management dropped its cautious 4% to 6% full-year forecast and raised both its 2026 and long-term sales growth plans.
- Commercial and industrial electricity volume: up 14.5% from a year ago, excluding weather
- Usage per business customer: 44,175 kilowatt-hours, up 13.3% from a year ago by our math
- 2026 underlying electricity sales growth plan: raised to 8%–10%, from 4%–6%
- Long-term underlying electricity sales growth plan through 2030: raised to 8%–10%, from 5%–7%
What to watch: the mix of residential versus large business volume in the full-year report. Large industrial users generate much less profit per percentage point of volume growth than households do under current utility rates.
Committed Large-Customer Queue Expanded by 1.3 Gigawatts
For four quarters, APS's backlog of signed agreements with extra-large power users — such as semiconductor plants and data centers — sat unchanged at 4.5 gigawatts (GW). This quarter, the utility filed its 2026 Integrated Resource Plan (IRP), a 15-year blueprint for power plants and power lines, with the Arizona Corporation Commission (ACC), the state utility regulator.
Alongside the filing, the utility's committed large-customer queue climbed by 1.3 GW to 5.8 GW, with another 20 GW of uncommitted requests waiting behind it. Only 0.9 GW of that 5.8 GW is currently connected, and the presentation noted that "More than 84% of committed load is yet to be served, requiring substantial generation and transmission build out".
What to watch: signed contracts from the 2025 all-source request for proposals by year-end. Converting that 4.9 GW of unserved demand into revenue requires building 15 GW of new power resources and 2.6 GW of transmission lines by 2041.
🐻 Bear Case
Grid Costs and Dilution Still Hold Back Profit
Under Arizona's historical rate rules, APS must pay to build and finance power plants and lines long before regulators let it raise customer bills to recover those costs. That regulatory delay keeps profit per share growing much more slowly than electricity demand.
Operating revenue rose 8.3% from a year ago and underlying electricity volume rose 9.5%, but diluted profit per share grew only 2.9% to $3.49. Even that small gain relied on a hot summer: excluding the $0.09 per share boost from warmer weather than last year, profit per share was $3.40 by our math, just one cent above last year.
- Underlying sales and usage gain: +$0.35 per share from a year ago
- Depreciation and amortization (wear and tear on grid assets): -$0.11 per share, up 8.0% from a year ago
- Interest charges net of construction credits: -$0.10 per share, up 11.1% from a year ago by our math
- Higher share count: -$0.07 per share, as average diluted shares rose 2.0%
What to watch: the final ACC rate case decision expected in December 2026. The utility kept its long-term profit growth target at 5% to 7% even as it raised its sales growth target to 8% to 10%, showing that rate relief — not volume — decides profit.
Operating Expenses Rose Despite Flat Cost Claims
Management highlights strict expense discipline to help keep customer bills affordable during a rate case year. In its presentation, the utility stated that "Total O&M remains flat with rapidly growing customer base" and pointed to a goal of lowering operations and maintenance (O&M) costs per megawatt-hour.
The updated full-year outlook cuts against that claim. In the third quarter, reported O&M expense — the cost of running power plants and maintaining lines — fell 1.7% from a year ago, dropping by 1.5 percentage points of revenue to 14.9%. Yet management raised its 2026 O&M outlook excluding renewable and demand programs by $70 million, to $1.09–$1.11 billion, up 5.6% from 2025 at the middle of the range.
What to watch: fourth-quarter core O&M spending alongside the 46-day planned refueling outage at Unit 1 of the Palo Verde nuclear station. Rising core operating costs reduce earned returns until new base rates take effect.
New Stock Sales Will Dilute Existing Shareholders
Building power plants and high-voltage lines for Arizona's factory boom requires more cash than APS generates internally. To fund its $10.35 billion capital plan for 2025 through 2028 while keeping debt ratings steady, Pinnacle West plans to issue $1.0 billion to $1.2 billion of new parent-company stock between 2026 and 2028.
The company has already locked in prices on about $920 million of those future share sales using forward contracts through October 2026, including $235 million under a new $500 million stock-sale program started in August. None of the $840 million priced for 2026 has settled into actual shares yet, but the company still lifted its 2026 average diluted share count forecast from 123.8 million to 125.1 million.
What to watch: the timing of forward share settlements in the fourth quarter and early 2027. Once Pinnacle West delivers those shares to collect the cash, the higher share count will weigh directly on profit per share.
Risks this quarter didn't answer
Five standing regulatory and operational risks depend on court rulings, regulatory dockets, or multi-year construction milestones that did not conclude in the third quarter.
- 2025 rate case outcome: APS wants a $609 million net revenue increase and a 10.70% return on equity, while ACC staff recommended $506 million and 9.55%–9.80%; the ACC's final order in December 2026 will settle it.
- Formula rate litigation: APS's proposed Formula Rate Adjustment Mechanism (FRAM), which would update rates annually, rests on an ACC policy statement currently challenged in Arizona Superior Court; a court ruling or the December rate order will show if FRAM survives.
- Extra-large customer contracts: Geisler said "Growth should pay for growth. It’s that simple," and that "When a data center or manufacturer comes to Arizona, they pay the cost of the infrastructure needed to serve them", but the utility gave no filing date for its first subscription contract.
- Power plant and pipeline execution: the Cholla coal-to-gas conversion (up to $440 million, not yet in the capital budget) and new gas plants depend on a gas pipeline due in late 2029; project approvals and budget updates in 2027 will test the schedule.
- Wildfire and water risks: APS managed a record 9,166 MW summer peak and an active monsoon season without major fire incidents, while long-term Colorado River water cuts remain an ongoing cost watch item.
👓 Other Themes
Regulators Approved $33 Million in Customer Credits
With a 14.69% customer bill increase request awaiting a December decision from Arizona regulators, APS took steps to ease immediate bill pressure during a hot summer. Following ACC approval, the utility is returning more than $33 million in bill credits in November through its Environmental Benefits Surcharge, cutting a typical household bill by about $14, and Pinnacle West added $5 million of shareholder funds for hardship aid.
💲 Other KPIs
Total assets rose 11.7% from about $30.0 billion a year ago and 2.8% from $32.6 billion last quarter, outpacing the 8.3% rise in quarterly operating revenue. The expansion reflects continuous spending on power lines and generation under the utility's $2.60 billion annual capital budget.
The retail customer base grew 1.8% from a year ago (with residential accounts up 1.9%), adding 25,372 customers. That pace slowed slightly from 2.1% in the second quarter, 2.2% in the first quarter, and 2.4% a year ago, while remaining comfortably inside management's 1.5% to 2.5% full-year target.
Fuel and purchased power costs — what APS pays for natural gas, nuclear fuel, and outside electricity — rose 15.6% from a year ago, as purchased power volume climbed 16.6% to meet summer peaks. The expense took up 38.4% of revenue, up 2.4 percentage points from last year, though APS passes these costs through to customer bills over time.
🔮 Guidance
Raised. Management lifted the full-year profit target by $0.50 per share after hot summer weather and strong business electricity usage, turning a planned annual profit drop into a 2.0% gain at the middle of the range. Because nine-month profit is already $5.20 per share, the outlook leaves a loss of $0.05 per share for the fourth quarter by our math, down from a $0.13 profit a year ago due to a 46-day nuclear outage and higher taxes.
Raised. The company lifted its full-year revenue range by $200 million after holding it steady for three quarters, pointing to 8.8% growth at the middle of the range. By our math, that leaves about $1.23 billion for the fourth quarter, or 9.2% growth from a year ago, slightly faster than the third quarter's 8.3% pace.
Raised. After eleven straight quarters of meeting or beating its original 4% to 6% target, management raised the 2026 volume outlook by 4 percentage points, including a 5% to 7% contribution from large factories and data centers. With nine-month underlying volume up 9.5%, the middle of the new range leaves about 7.2% growth for the fourth quarter by our math.
Unchanged. The plan continues to call for 2.0% customer growth at the middle of the range, matching the 2.0% pace delivered across the first nine months of 2026.
Raised. Management lifted the range by $140 million, to 7.0% growth from 2025 at the middle of the range. Of that increase, $73 million comes from warmer-than-normal weather through the first three quarters ($28 million in Q3 alone), with the rest driven by commercial and industrial electricity demand.
Raised. The utility added $60 million to its full-year fuel and purchased power estimate, bringing the middle of the range to 16.0% above 2025. Nine-month fuel costs reached $1.75 billion, leaving about $497 million for the fourth quarter by our math, or 18.2% above last year's fourth quarter.
Raised. After holding this cost target unchanged for four quarters, management raised it by $70 million, which puts full-year core O&M up 5.6% from 2025 at the middle of the range. Core O&M accounts for $1.035–$1.045 billion of the total, with planned plant outages adding $50–$60 million.
Cut. Management trimmed this combined depreciation and non-income tax forecast by $10 million, to a 6.1% increase over 2025 at the middle of the range. Nine-month costs totaled $905.6 million, leaving about $314 million for the fourth quarter by our math.
Raised. The company lifted its net other income outlook by $20 million. Through the first nine months of the year, pension and postretirement credits plus net other income already totaled $17.7 million.
Cut. The net interest forecast moved down by $5 million, assuming about $125 million of total construction financing credits (down from $128 million previously). Through nine months, interest expense net of both borrowed and equity construction credits was $310.2 million, leaving about $110 million for the fourth quarter by our math.
Raised. The expected full-year tax rate jumped by 3.5 percentage points as pre-tax profit climbed on summer weather and higher volume. Because the effective tax rate was 14.7% across the first nine months ($112.8 million on $765.1 million of pre-tax income), the higher full-year rate will weigh on fourth-quarter net income.
Raised. Management increased its full-year average diluted share count estimate by 1.3 million shares, or 1.1%. With nine-month diluted shares averaging 124.2 million, the full-year figure points to roughly 127.8 million diluted shares in the fourth quarter by our math.
❓ Key Questions
What drove the $70 million jump in core O&M?
Management raised its 2026 adjusted O&M outlook from $1.02–$1.04 billion to $1.09–$1.11 billion while stating on slide 8 that total O&M remains flat. Investors need to know how much of the $70 million increase is permanent cost inflation versus summer storm response.
Why did full-year diluted shares rise with zero forwards settled?
Slide 9 shows $0 of forward equity settled in 2026, yet the 2026 average diluted share guidance rose from 123.8 million to 125.1 million, implying nearly 128 million shares in Q4 by our math. How much comes from fourth-quarter forward settlements versus convertible debt dilution?
How much of the 1.3 GW queue addition is TSMC?
Committed large-customer load rose from 4.5 GW to 5.8 GW alongside the October IRP filing. How much of that 1.3 GW step-up came from Taiwan Semiconductor Manufacturing Co.'s expanded $265 billion commitment versus new data centers, and when does each ramp begin?
When will APS file its first extra-large customer subscription contract?
Geisler reiterated the Pledge for Responsible Energy Growth so extra-large users pay for their own grid infrastructure, and management previously aimed to file its first subscription agreement with the ACC in 2026. Will a contract be filed before year-end?