Pinnacle West Capital Corporation Q2 FY26 Earnings Analysis

- Long-term sales growth guidance through 2030 is projected at 5% to 7%, driven by a diverse customer base and strong additions, particularly from extra high load factor customers. - First quarter 2026 showed weather-normalized sales growth of 9.4%, with commercial & industrial growth at 14.6% and residential growth at 1.8%. - Customer growth was strong at 2.2%, near the high end of annual guidance. - Despite a one-time adjustment last year, current trends show sustained growth without changing the annual sales growth guidance of 4% to 6% for 2026. - There is a large backlog in the subscription queue (~20 gigawatts uncommitted) indicating potential future incremental load growth as contracts move to commitment. - Ongoing investment in transmission and generation infrastructure supports expected growth and reliability needs. - Growth is linked closely to new large customer commitments, with options for bilateral contracting aiding funding and expansion efforts.

- First quarter 2026 earnings showed strong improvement: $0.27 per share vs. loss of $0.04 in Q1 2025. - Transmission revenue contributed $0.16 per share; benefit expected to continue aligning with annual guidance. - Sales growth remains robust, with weather-normalized growth of 7.4%-9.4% in Q1; annual guidance remains 4%-6%. - Long-term sales growth guidance sustained at 5%-7% through 2030, driven by committed high load factor customers and new additions. - Transmission investment and infrastructure growth contribute to gradual earnings increase. - Ongoing efforts to reduce regulatory lag and close ROE gap (~50 basis points target by 2029) aim to improve profitability. - Subscription model and bilateral contracting with large customers expected to support capital funding and earnings stability. - Management expects consistent earnings growth with continued robust demand and infrastructure investment.

- Construction underway at Red Hawk expansion project: 8 combustion turbines adding ~400 MW natural gas capacity. - Progress on Desert Sun project: secured major equipment reservations; advancing siting and permitting. - Ongoing evaluation of bids for new resources in 2029-2031 from all-source RFP; final awards expected later this year. - Long-term capital plan will support resource and transmission needs based on updated Integrated Resource Plan (IRP) filings. - Transmission investment doubled over last 5 years, continuing upward trend to support growing load and reliability. - Subscription model contracts under negotiation for incremental infrastructure exceeding organic growth. - Planning for potential gas conversion at retired generation site (Cholla) evaluated continuously. - Equity plan in place through 2028, with $850 million equity funding available; ongoing assessment of financing aligned with capital needs.

- APS has a 3-year equity plan through 2028 as a base case to fund the current capital expenditure plan. - Nearly $850 million of equity has been secured through equity forward transactions, with $350 million priced in Q1. - The stated equity need for 2024 is $650 million; an additional $200 million is available via ATM programs for future needs. - APS is opportunistically working on additional equity funding beyond what is currently secured. - For new money needs from 2026 to 2028, APS estimates $1 billion to $1.2 billion to be raised, with several hundred million already addressed. - APS continues to utilize a mix of debt and equity to maintain a balanced capital structure. - There are ongoing discussions to revisit financing plans aligned with capital plans, aiming to derisk and fund growth opportunistically.

- The current uncommitted load backlog or orderbook is just under 20 gigawatts within the service territory. - Ongoing subscription model negotiations are underway to potentially move a portion of that 20 gigawatts into the committed customer bucket. - Initial subscription offering sized at 1 to 1.2 gigawatts reflects available generation and transmission capacity, primarily from Desert Sun and associated infrastructure. - Interest in the subscription model remains robust and consistent with earlier expectations, with active counterparties engaged. - The process of contracting and filing agreements with the commission is expected to progress throughout the year, providing more clarity on actual committed volumes. - The large uncommitted load presents ongoing opportunity for conversion to committed contracts as infrastructure and agreements materialize.