PNW Q2 2025: Transmission CapEx Doubles to $300M–$400M on Growth Plans
- Robust Growth Pipeline: The management detailed that they have secured 4.5 GW of committed extra high load factor customer demand and nearly 20 GW of uncommitted customer queue. This provides both near-term and long-term upside as the secured pipeline enables them to scale generation and transmission investments to capture this demand.
- Accelerating Transmission & Generation Investments: Discussions highlighted a significant ramp-up in transmission spending—from a previous run rate of $150–$200M to now $300–$400M in the local area—with plans to pursue additional strategic projects. These investments, coupled with new gas generation initiatives supported by the pipeline, position the company to effectively meet the growing demand in its territory.
- Favorable Regulatory and Rate Recovery Outlook: Management’s approach in the rate case includes proposals for formula rate adjustments and refined rate design to ensure new large customers bear their fair cost. This structured approach aims to smooth recovery of capital expenditure and reduce regulatory lag, supporting improved long-term earnings stability.
- Regulatory Uncertainty: The ongoing rate case introduces a delay in cost recovery, with new rates only coming into effect in 2026 and full updated costs not operational until 2028, which could place short-term earnings and margins under pressure.
- Dependence on Uncommitted Growth: The business model relies on tapping into nearly 20 GW of uncommitted customer demand; if these projects fail to materialize, it could weaken growth prospects and strain future capital investments.
- High CapEx Exposure: Significant capital investments are required for new generation, transmission, and distribution to support customer growth, which might burden financials if the anticipated demand and corresponding rate recovery do not materialize as planned.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS Guidance | FY 2025 | no prior guidance | Top half of full-year EPS range of $4.4 to $4.6 per share | no prior guidance |
Sales Growth Guidance | FY 2025 | 4% to 6% | 4% to 6% through 2027 | no change |
Customer Growth | FY 2025 | 2.3% | 2.4% | raised |
Capital Investment Program | FY 2025 | no prior guidance | Focused on executing its capital investment program and financing strategy with projects like Agave and Ironwood expected to be in service by 2026 | no prior guidance |
Transmission and Generation Projects | FY 2025 | no prior guidance | Plans to continue investing in transmission and generation projects to support reliability and growth, focusing on new gas generation and strategic transmission | no prior guidance |
O&M Costs | FY 2025 | Guidance for FY 2025 O&M remains unchanged | Anticipates balanced spending aligned with its O&M guidance and a goal of declining O&M per megawatt hour | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Regulatory Uncertainty | Q1 2025 detailed regulatory lag and formula rate plan discussions ; Q4 2024 emphasized reducing regulatory lag and ROE matters ; Q3 2024 discussed rate case timing and policy impacts | Q2 2025 focused on formula rate plan delays, regulatory lag, and allowed ROE uncertainties with detailed timeline info | Consistent focus on addressing regulatory lag with enhanced emphasis on timeline details and stakeholder engagement. |
Capital Expenditure and Investment Execution | Q1 2025 highlighted capital plans meeting growth needs and execution risks ; Q4 2024 discussed CapEx forecasts and alignment with trackers ; Q3 2024 stressed increased CapEx and financing strategy | Q2 2025 detailed key projects such as Agave, Ironwood, and a critical pipeline project, along with increased transmission and distribution investments | Steady focus on strategic investments with a heightened emphasis on pipeline projects and expanded transmission investments. |
Growth Pipeline and Extra High Load Factor Demand | Q1 2025 noted 4 GW committed capacity and over 10 GW of uncommitted queue ; Q4 2024 highlighted broad economic growth and customer base diversification ; Q3 2024 mentioned around 4,000 MW extra high load factors | Q2 2025 reported approximately 4.5 GW of committed extra high load factor demand and nearly 20 GW in the uncommitted queue, with pipeline expansion support | Indications of upward scale in customer demand and capacity commitments, with more detailed articulation of both committed and uncommitted pipelines. |
Operational Execution and Revenue Recognition | Q1 2025 provided details on grid reliability initiatives and revenue recalibration ; Q3 2024 described operational performance and earnings adjustments ; Q4 2024 offered robust operational measures | No discussion on these topics in Q2 2025 | Previously a key focus, but the current period shows a marked reduction in emphasis on operational execution and revenue recognition adjustments. |
Earnings Guidance and Margin Outlook | Q1 2025 reaffirmed guidance and noted weather-normalized sales and margins ; Q4 2024 reiterated long-term EPS and margin approaches ; Q3 2024 provided detailed earnings and margin updates | Q2 2025 reiterated EPS guidance of $4.40–$4.60 and highlighted margin drivers such as sales growth and controlled O&M costs | Guidance remains stable and consistent across periods, with continued emphasis on balanced margins amid evolving rate and cost recovery dynamics. |
TSMC Expansion and Industrial Demand Growth | Q1 2025 announced TSMC’s significant additional investment and expansion plans ; Q4 2024 discussed TSMC’s $65B investment and job creation ; Q3 2024 outlined TSMC’s fab progress and broader industrial demand | Q2 2025 emphasized TSMC accelerating production timelines and strong industrial demand growth, integrated with new infrastructure projects | The topic continues to be a major growth driver with an acceleration of TSMC’s expansion, reinforcing a strong industrial demand environment. |
Impact of Inflation and External Cost Pressures | Q3 2024 mentioned inflation affecting O&M and capital costs along with regulatory lag implications ; minimal or no mention in Q1/Q4 2024 | Not mentioned | Once discussed in Q3 2024, this topic has faded out in the current period, suggesting a reduced emphasis on external cost pressures or better mitigation strategies. |
-
Regulatory Lag
Q: How will rate lag evolve through 2026-2028?
A: Management explained that new rates in 2026 will initially reflect a lag from the 2024 test year. They expect a formula rate adjustment filing by 2027 and a full update in 2028, providing relief over time. -
Growth Risk
Q: What if uncommitted growth projects underperform?
A: Management stressed that even without extra uncommitted projects, securing the pipeline supports long-term reliability for existing and committed customers, thereby lowering risk. -
Pipeline Potential
Q: How does the pipeline enhance generation opportunities?
A: Leadership noted that the secured pipeline offers about 4.5 GW of committed capacity and opens the door to nearly 20 GW of uncommitted demand, setting the stage for additional generation projects beyond the initial 2 GW. -
Transmission Investment
Q: What is the scale of additional transmission funding?
A: Management highlighted that local transmission expenditures have nearly doubled—from roughly $150M–$200M to $300M–$400M—with further large-scale projects expected as strategic needs materialize. -
Distribution Investment
Q: Is there a capital upside in the distribution network?
A: The company indicated that rising customer growth is driving increased distribution spending to enhance reliability and resiliency, bolstering one of the largest service territories. -
Solar Performance
Q: Why did solar performance metrics drop this quarter?
A: It was explained that lower figures reflect the natural decrease in peak demand contributions as more solar is added, not from curtailment issues but due to grid capacity dynamics. -
Eldorado Gain
Q: Was the Eldorado gain in earnings expected?
A: Management noted that the gain is a non-core benefit arising from legacy investments and, while positive, does not drive the core business outlook. -
Rate Base Growth
Q: When will rate base growth accelerate?
A: They believe that with continued customer and capital investments, particularly in transmission and generation, rate base growth will pick up as these projects mature, though specifics remain under review. -
Guidance Timing
Q: When will 2026 earnings guidance be provided?
A: Guidance for 2026 is expected on the third-quarter call once the rate case process reaches clarity, aligning with the updated procedural schedule.
Research analysts covering PINNACLE WEST CAPITAL.