Executive Summary

Q3 2025 delivered modest YoY EPS growth and beat consensus: diluted EPS $3.39 vs $3.37 YoY and vs S&P Global consensus $3.08*, on revenue $1.821B vs $1.769B YoY and vs consensus $1.793B*; drivers were higher sales/usage, transmission revenue, lower O&M/D&A, and AFUDC, partially offset by higher interest and taxes and less favorable YoY weather .
2025 EPS guidance raised to $4.90–$5.10 from $4.40–$4.60; 2026 EPS guided to $4.55–$4.75 on weather-normalized basis as management assumes “normal weather” and no rate-case uplift in 2026 (regulatory lag), with higher financing and D&A costs partially offset by sales growth and transmission .
Structural growth tailwinds remain strong: weather-normalized retail sales +5.4% in Q3 (residential +4.3%), customer growth +2.4%, and a new all-time peak demand of 8,631 MW; management advanced a two-phase, up to 2,000 MW Desert Sun gas project and highlighted ~$6B+ transmission plan through 2034 with constructive FERC recovery .
Capital plan and balance sheet: 2026 financing plan includes ~$8.0B cash from operations (2026–2028), $1.0–$1.2B PNW equity (≈85% of 2026 need already priced), and continued prioritization of investment-grade credit metrics and formula-rate recovery to reduce lag .

What Went Well and What Went Wrong

What Went Well

Strong operational execution in peak season: “Palo Verde Generating Station operated at 100% capacity factor the entire summer,” supporting reliability through multiple record-peak days .
Sales and transmission momentum: Q3 weather‑normalized retail sales +5.4% with residential +4.3%; transmission revenue rose YoY; operating income grew to $581.8M from $547.0M YoY .
Guidance raise and growth visibility: 2025 EPS raised to $4.90–$5.10 on stronger sales and transmission revenue; launched Desert Sun (up to 2,000 MW) to serve committed and extra‑large customers under a “growth pays for growth” subscription model .

What Went Wrong

Weather less favorable vs last year’s record Q3: management cited “unfavorable impacts of weather effects versus the same period a year ago,” partially offsetting positives .
Higher costs and financing headwinds: YoY increases in interest expense and income taxes (higher pre‑tax income, lower tax credits) weighed on results; reduced pension/OPEB credits also hurt YoY comps .
2026 EPS guided below 2025 on normalized weather and lag: Despite robust sales/transmission, 2026 guidance reflects no assumed rate‑case contribution and higher financing/D&A, implying interim earnings pressure until formula-rate timing is established .

Financial Results

Quarterly trend (QoQ within 2025)

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Billions)	$1.03	$1.36	$1.82
Diluted EPS ($)	-$0.04	$1.58	$3.39
Operating Income ($USD Billions)	$0.06	$0.31	$0.58
Operating Margin (%)	5.5% (calc.)	22.6% (calc.)	32.0% (calc.)

Note: Margins calculated from cited revenue and operating income.

YoY comparison (Q3)

Metric	Q3 2024	Q3 2025
Revenue ($USD Billions)	$1.77	$1.82
Diluted EPS ($)	$3.37	$3.39
Operating Income ($USD Billions)	$0.55	$0.58
Operating Margin (%)	30.9% (calc.)	32.0% (calc.)

Q3 vs S&P Global consensus

Metric	Q3 2025 Actual	Q3 2025 Consensus*	Surprise
Revenue ($USD Billions)	$1.82	$1.79*	+$0.03
Diluted EPS ($)	$3.39	$3.08*	+$0.31

*Values retrieved from S&P Global.

Segment/Categoric revenue detail (Q3)

Revenue Category ($USD Millions)	Q3 2024	Q3 2025
Retail – Residential	$967	$963
Retail – Business	$722	$765
Total Retail	$1,688	$1,728
Sales for Resale (Wholesale)	$39	$46
Transmission for Others	$39	$44
Other Misc. Services	$3	$2
Total Operating Revenues	$1,769	$1,821

KPIs (Q3 highlights)

KPI	Q3 2025
Weather‑normalized retail sales growth	5.4%
Residential weather‑normalized sales growth	4.3%
Total customer growth (YoY)	2.4%
All‑time peak demand (MW)	8,631 on Aug 7
Cooling degree‑days vs 10‑yr avg	+9.1%
Avg total retail customers	1,436,455

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
EPS (diluted)	FY 2025	$4.40–$4.60 (as of Q2)	$4.90–$5.10	Raised
EPS (diluted, weather‑normalized)	FY 2026	N/A	$4.55–$4.75	Introduced
Adjusted Gross Margin ($B)	FY 2025	N/A	$3.21–$3.28	New detail
Adjusted O&M ($B)	FY 2025	N/A	$1.03–$1.05	New detail
Other OpEx (D&A + other taxes) ($B)	FY 2025	N/A	$1.15–$1.17	New detail
Interest expense, net AFUDC ($M)	FY 2025	N/A	$345–$365	New detail
Effective Tax Rate	FY 2025	N/A	14.0%–14.5%	New detail
Avg Diluted Shares (M)	FY 2025	N/A	122.0	New detail
Adjusted Gross Margin ($B)	FY 2026	N/A	$3.31–$3.37	Introduced
Adjusted O&M ($B)	FY 2026	N/A	$1.02–$1.04	Introduced
Other OpEx (D&A + other taxes) ($B)	FY 2026	N/A	$1.22–$1.24	Introduced
Interest expense, net AFUDC ($M)	FY 2026	N/A	$415–$435	Introduced
Effective Tax Rate	FY 2026	N/A	11.25%–12.25%	Introduced
Avg Diluted Shares (M)	FY 2026	N/A	123.8	Introduced
Dividend	2025	Indicated annual $3.58 prior	Raised to $3.64 (quarterly $0.91)	Raised

Non‑GAAP note: “Adjusted gross margin” and “Adjusted O&M” exclude RES/DSM program pass‑throughs; reconciliation provided in Q3 presentation .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
Large‑load growth (semis/data centers)	TSMC expansions; 4 GW committed; >10 GW uncommitted; RFP 2+ GW 2028–2030	~4.5 GW committed; ~20 GW uncommitted; subscription model tranche (1.2 GW) underway	Up
Transmission expansion (FERC)	Run‑rate stepping up; 300–400M/yr core; strategic projects beyond	$6B+ through 2034; >600 miles EHV in plan; FERC formula recovery	Up
Regulatory lag & FRAM	Will file GRC with formula‑rate design; aim to reduce lag	2026 guidance assumes no rate‑case uplift; expect hearing Q2’26; first formula adjustment targeted 2027	Progressing
New gas generation	All‑source RFP; pipeline anchor shipper secured; ownership favored	Desert Sun site up to 2,000 MW in two phases; phase 1 by late‑2030; phase 2 via subscription	Accelerating
Weather/peaks & reliability	Cooler Q2 vs record 2024; operational readiness	Peak 8,631 MW; summer reliability strong; Palo Verde at 100% CF	Solid
Safety/technology	AI fire‑sensing cameras for wildfire mitigation (Q1)	Continued grid hardening and wildfire mitigation focus	Steady

Management Commentary

“Palo Verde Generating Station operated at 100% capacity factor the entire summer, delivering a solid performance for our customers and the entire Desert Southwest region.” – CEO Ted Geisler .
“We are raising our 2025 EPS guidance… to $4.90–$5.10 per share” driven by strong sales, above‑normal weather, higher transmission revenues, and El Dorado contributions, partially offset by higher O&M .
“The Desert Sun Power Plant… up to 2,000 MW… Phase Two is earmarked for extra‑large energy users and would be paid for by those customers through APS’s proposed subscription model… ‘growth pays for growth’” .
“Transmission investment… benefits from constructive and timely recovery through our… formula rate and creates opportunities for additional wheeling revenues that support affordability” .

Q&A Highlights

Desert Sun timeline and pipeline alignment: Pipeline expected in service 2029; Desert Sun phase 1 targeted late‑2030; key equipment, land, and interconnection secured; phase 2 paced to subscription customers’ ramp .
Transmission earnings step‑up: ~$0.55 EPS uplift in 2026 reflects converting elevated FERC‑regulated capex into revenue; management noted sustainability with some year‑to‑year lumpiness as larger lines are sectionalized over time .
Equity/financing: About 85% of 2026 equity need already priced; $1.0–$1.2B equity forecast 2026–2028 with ATM used to match capex cadence; pursuing lag reduction and subscription pre‑funding to mitigate dilution .
Rate case assumption: 2026 guidance embeds no contribution from the general rate case; resolution expected late 2026 with updates to follow; first formula‑rate adjustment targeted in 2027 .
Rate base recovery under subscription: All investments still go into rate base; subscription is a special rate agreement ensuring large users fund the infrastructure they need while protecting affordability .

Estimates Context

Q3 2025 beat consensus: EPS $3.39 vs $3.08* (+$0.31); revenue $1.821B vs $1.793B* (+$0.03B). Drivers: higher sales/usage, transmission revenue, lower O&M/D&A, AFUDC; partial offsets from interest/taxes and weather vs 2024 .
2025 guidance raised to $4.90–$5.10 suggests upward EPS revisions; 2026 guided to $4.55–$4.75 on normalized weather and lag implies near‑term recalibration while growth drivers (sales/transmission) remain intact .
*Values retrieved from S&P Global.

Key Takeaways for Investors

Q3 delivered a clean top‑ and bottom‑line beat with operating leverage from sales and transmission; structural demand tailwinds (semis/data centers, population) remain robust .
2025 EPS raise is a clear positive; 2026 guide below 2025 sets expectations given normalized weather and lag—watch the 2026 rate‑case outcome and timing of first formula‑rate reset in 2027 as the next catalysts .
Transmission remains a compounding earnings engine under FERC formula rates with a $6B+ decade‑long runway; management highlighted a sizable 2026 step‑up and continued scaling thereafter .
Generation capacity additions (Desert Sun, Redhawk expansion) and the 2029 pipeline underpin serving ~4.5 GW committed load and an ~20 GW opportunity pipeline under a “growth pays for growth” model—reducing dilution risk over time .
Balance sheet positioning is prudent: ~85% of 2026 equity need priced; financing plan aims to preserve investment‑grade ratings while funding elevated capex and rate base growth .
Dividend was raised 1.7% to an indicated $3.64; income investors get incremental yield while growth investments proceed .
Near‑term trading: likely supported by guidance raise and demand visibility; medium‑term thesis hinges on execution of capex/transmission build, regulatory outcomes (FRAM mechanics), and large‑load subscription uptake .

Additional Context and Prior Quarters

Q2 2025: EPS $1.58 on revenue $1.359B; cooler weather vs 2024 reduced YoY, but sales growth +5.2% and transmission helped; full‑year 2025 EPS at the time guided to $4.40–$4.60 .
Q1 2025: EPS -$0.04 on revenue $1.032B; planned outages and timing of O&M; reiterated focus on rate case and formula rate to address lag .

Sources: Q3 2025 8‑K/press release and slides ; Q3 call transcript ; Q2 2025 press and call ; Q1 2025 press and call .

PINNACLE WEST CAPITAL CORP (PNW)·Q3 2025 Earnings Summary