Detailed narrative
Operational Excellence and Peak Demand Management
Pinnacle West demonstrated strong operational results in 2025, serving a new system peak of 8,648 megawatts on August 7, an increase of over 400 megawatts from the prior year. The generating fleet performed exceptionally well, with the Palo Verde nuclear plant achieving a 100% summertime capacity factor and receiving a 2025 INPO excellence award. Safety and reliability remain top priorities, particularly through the third hottest summer on record.
Customer Experience and Digital Innovation
The company made meaningful progress in customer satisfaction, ending 2025 in the top quartile nationally for residential customers and second quartile for business customers, as measured by Escalent. Digital experience also ranked in the first quartile nationally in J.D. Power's study. Innovations like an AI-powered high bill analyzer were deployed to help customers manage energy usage and costs, reflecting a focus on affordability and service.
Economic Growth and Large Load Customers
Arizona's economy continues to see robust growth, driven by commercial and industrial customers, including chip manufacturing and data centers. TSMC is significantly expanding its footprint with multiple fabs under construction or in development, and 900 additional acres acquired for future growth. This large load demand, combined with strong residential growth (over 34,000 new meters installed for the second consecutive year), underpins the company's long-term sales growth outlook of 5% to 7% through 2030.
Grid Expansion and Infrastructure Investments
Pinnacle West is actively expanding its grid infrastructure to support this rapid growth. Over 400 megawatts of APS-owned resources, including new gas units, battery storage, and solar, were completed ahead of schedule. The Red Hawk gas expansion is on track for 2028 completion, with plans for up to 2 gigawatts of additional gas capacity by 2030. The company is also monitoring the upsized Transwestern's Southwest Desert Pipeline expansion, critical for regional demand.
Regulatory Matters and Rate Case Progress
The company's rate case remains on track, with staff and intervener testimony expected next month and hearings scheduled for May. Management values collaboration with the commission and stakeholders to support Arizona's growth, reduce regulatory lag, and ensure appropriate cost allocation. The recent UNS gas case decision, which included a formula rate, was viewed as generally constructive, though material differences exist for APS's situation.
Financial Performance and Cost Management
For full year 2025, the company delivered earnings of $5.05 per share, despite a $0.71 weather-driven drag compared to 2024. Weather-normalized sales growth was 5% for the full year, with 2% residential and 7.5% C&I growth. Pinnacle West achieved a 3.3% year-over-year decrease in O&M per megawatt hour in 2025 and expects further reductions in 2026, emphasizing cost efficiencies and operational excellence.
Financing Strategy and Liquidity
The capital program is supported by a disciplined mix of debt and equity, with 2026 equity needs largely derisked by nearly $500 million already priced. The company expanded its revolving borrowing capacity by $550 million and extended core credit facilities to 2031, enhancing liquidity. Management is exploring alternative financing sources, including customer financing and federal grants, to support its growing capital investment program.