PNW

• Arizona Economic and Load Growth

  • Arizona's economy continues strong, sustainable growth, led by semiconductor and advanced technology manufacturing. Taiwan Semiconductor Manufacturing Company (TSMC) announced an additional $100 billion investment in Arizona, bringing its total commitment to $265 billion, with plans to build up to 12 leading-edge fabrication and packaging facilities plus an R&D campus in North Phoenix.
  • The TSMC investment has generated widespread regional development: ~20,000 acres of surrounding land are in planning, with large mixed-use projects like Halo Vista already underway, expected to deliver 30 million square feet of development and 9,000 residential units over the next decade.
  • The company set a new all-time peak demand record of 9,164 megawatts on August 2, 2026, exceeding 2025's record by over 500 megawatts, and maintained reliable service through extreme summer heat.

• Capital and Generation Projects

  • The company announced plans to convert two retired coal-fired units at the Choi Power Plant to natural gas. The project will deliver 380 megawatts of dispatchable generation by 2029, repurposing existing infrastructure and transmission to meet growing demand at low cost. The project is expected to add up to $440 million in incremental capital expenditure, mostly in 2027 and 2028.
  • The company is making large, ongoing investments in transmission infrastructure to improve reliability, enable renewable integration, and access out-of-state generation. These projects benefit from FERC formula rate recovery and generate wheeling revenue that supports retail customer affordability.
  • The company has contracted for the new Desert Southwest natural gas pipeline, planned to enter service by the end of the 2020s to meet growing gas demand next decade. The pipeline follows an existing route, is in early development, and remains on schedule with FERC scoping underway.

• Regulatory Status

  • The company's pending rate case concluded 31 days of hearings in July 2026 and is now in the briefing phase, with initial briefs due August 27 and reply briefs due September 11. A final Arizona Corporation Commission decision is expected before the end of 2026, and management is pursuing a constructive outcome to establish a consistent framework for investment cost recovery.

• Customer Experience and Strategy

  • The company is focused on improving customer experience via flexible billing/payment options, digital self-service investments, and tailored energy cost management tools. In Q2 2026, subsidiary APS ranked in the first quartile for business customer satisfaction and second quartile for residential customer satisfaction on the Escalon customer relationship index, showing continued progress.
  • Management follows an "all-of-the-above" resource strategy to meet growing demand while delivering reliable, affordable service.

• Full year 2026 earnings guidance of $4.55 to $4.75 per share is reaffirmed, and management expects full year results to come in at the top end of this range.
• 2026 full year sales growth guidance is maintained for now, though year-to-date results have exceeded expectations and show upside potential to the current outlook.
• Long-term annual sales growth guidance is 5% to 7% total, with 4% to 6% for C&I. Current robust growth indicates potential upside to this range, and management will continue to monitor growth pace for potential future updates.
• Annual capital expenditure guidance is not updated in this call, and does not yet include the $440 million incremental capital for the Joya coal-to-gas conversion project.
• The Integrated Resource Plan (IRP) remains on track to be filed by the end of October 2026, after a delay from the prior August target to allow incorporation of the latest TSMC growth details.
• Results from the 2025 all-source RFP are expected to be finalized and contracted by the end of 2026.

Pinnacle West is an integrated electric utility serving the Arizona region. This call does not break out financial performance across multiple distinct product segments; the only reported segment-level results are aggregated for the core utility business. For Q2 2026, the company reported earnings of $1.43 per diluted share, a 15 cent decrease from Q2 2025. Key drivers for the year-over-year decline were higher interest expenses (after adjusting for AFU DC), higher depreciation and amortization from increased plant balances, and lower transmission revenue due to a 2025 final true-up adjustment. These negatives were partially offset by beneficial hotter-than-average weather and strong customer and usage sales growth. Residential sales grew 5.6% year-over-year, while commercial and industrial (C&I) sales grew 12.7% year-over-year, with C&I growth driven by data center and advanced manufacturing expansion. O&M expense declined modestly year-over-year, while interest and depreciation/amortization increased year-over-year.

• Actual full year 2026 earnings may differ from guidance due to unexpected weather variability and sales volatility during the remaining summer peak demand season.
• Large transmission and natural gas pipeline projects face siting, regulatory permitting, and development risks that could delay in-service dates or increase costs.
• Regulatory outcomes from the pending rate case are uncertain, even though management expects a final decision by year end. Unfavorable outcomes on cost recovery frameworks could impact earnings and ability to fund future growth investments.
• Sustained drought and proposed reductions to Arizona's Colorado River water allocation create long-term economic uncertainty, though the company does not expect near-term operational impacts. Palo Verde Nuclear Generating Station uses 100% recycled wastewater, and the company has cut operational water use in half over the past 10 years, reducing exposure.
• Unexpected changes to the pace of C&I customer ramp, particularly for large semiconductor and data center projects, could lead to sales growth that differs from current projections.

Q: With retail sales growth exceeding expectations this quarter, will this strong pace continue through the rest of the year, and will you revisit your long-term sales guidance? / A: Growth is broad-based across residential and C&I, with semiconductor and data center projects driving the strong C&I performance. Year-to-date growth is closer to the top end of the 5-7% long-term sales guidance range, with clear upside potential and a long runway of robust growth. 2.1% residential customer growth is above guidance midpoint, driven by secular population inflow and higher usage trends, while 12.7% C&I growth is well above the 4-6% long-term C&I range, with 4,500 megawatts of contracted C&I load ramping over multiple years. Management will continue monitoring growth pace for potential guidance upside.

Q: Will the new TSMC investment be included in the upcoming October IRP, and what are the knock-on effects for uncommitted load growth? / A: The IRP remains on track for October, and will include the full planned build out of TSMC's new investment as committed load, with matching generation resources added to the plan. Management is still refining the total additional demand and ramp timeline with TSMC, and will share final details once confirmed. No new details are available on additional uncommitted load projects, with updates to come as contracts are finalized.

Q: What can we expect from the October IRP, why was it delayed from August, and when will 2025 RFP results be announced? / A: The IRP was delayed to October to capture all recent updates to committed load growth, including the new TSMC investment, and to allow more constructive stakeholder engagement, resulting in a more accurate up-to-date filing. The IRP will provide clear first-line visibility into the timing of 4.5+ gigawatts of committed load growth (including TSMC) and the total generation resources needed to serve that growth. Robust year-to-date sales growth has not yet included material TSMC demand, which will ramp primarily starting next year. Management expects to finalize 2025 all-source RFP contracts by the end of 2026.

Q: What is your outlook for the pending rate case after hearings concluded, and what are next steps for transmission investment? / A: Management reports the 31-day hearing process went well, with strong evidence on the record supporting the company's position on cost recovery and a new sustainable regulatory framework, and the process has been constructive to date. The case remains on schedule for a final commission decision by the end of 2026. Transmission investment has grown substantially from ~$200 million annually earlier this decade, with large strategic projects already in development to improve system resiliency and access new resources. Large projects benefit from FERC formula rate recovery and generate wheeling revenue that supports customer affordability, with work underway to reduce regulatory lag via segmented construction and energization.