Pinnacle West's Q2 2026 EPS fell to $1.43 from $1.58 as higher interest and depreciation outweighed a 7.1% revenue gain from early heat and data-center demand; 2026 guidance of $4.55–$4.75 was reaffirmed while the Arizona rate case awaits a decision.
Revenue
$1.5B
+7.1% YoY
Net income
$179M
-7.3% YoY
Diluted EPS
$1.43
-9.5% YoY
Operating margin
21.0%
Overview
Pinnacle West Capital, the Phoenix-based holding company that owns Arizona Public Service (APS), Arizona's largest electric utility, earned $178.6 million, or $1.43 per diluted share, in the second quarter of 2026, down from $192.6 million, or $1.58, a year earlier. Revenue rose 7.1% to $1.46 billion because Arizona got hot early and customers ran their air conditioners harder, but the extra revenue did not reach the bottom line: interest on a growing debt load, depreciation on new power plants and lines, and lower transmission revenue together outweighed it.
Management said the result was "within our expectations" and kept its 2026 guidance unchanged. The first half of the year still looks better than 2025: six-month earnings per share were $1.70, up from $1.54.
Key figures
Metric
Q2 2026
Q2 2025
YoY Change
Operating revenues
$1,455.7M
$1,358.8M
+7.1%
Fuel and purchased power
$558.5M
$477.0M
+17.1%
Revenue less fuel and purchased power (non-GAAP)
$898M
$882M
+1.8%
Operating income
$305.7M
$307.6M
-0.6%
Operating margin
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Weather-normalized retail sales growth (Q2, per release)
5.6%
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Figures from the Form 10-Q for the quarter ended June 30, 2026 and the August 4, 2026 earnings release. Operating margin (the share of revenue left after running the business, before interest and tax) is operating income divided by operating revenues.
Why revenue rose but profit fell
For a regulated utility, the headline revenue number is misleading on its own, because most of the cost of fuel and bought-in power is passed straight through to customers. That is why the company focuses on revenue less fuel and purchased power — roughly, what is left to pay for running the grid, paying lenders and earning a return for shareholders. That figure rose only $16 million (+1.8%), against a $97 million rise in total revenue. The 10-Q breaks the $16 million down:
Driver of revenue less fuel (Q2 2026 vs. Q2 2025)
Net change
Effects of weather
+$19M
Higher usage and customer growth (net of pricing and energy efficiency)
+$18M
Lost fixed cost recovery (LFCR) revenue
+$3M
Net fuel and purchased power costs, incl. off-system sales and deferrals
-$4M
Lower transmission revenues
-$12M
Lower renewable energy surcharges (mostly offset in O&M)
-$16M
Miscellaneous
+$8M
Total
+$16M
The renewable surcharge line looks like a big negative but is largely a wash: operations and maintenance (O&M) costs for renewable and similar regulatory programs fell $18 million at the same time, so the lower surcharge mostly reflects lower program spending being billed through. Total O&M fell $4 million, with that $18 million decline partly eaten up by higher nuclear generation (+$4M), transmission, distribution and customer service (+$4M) and corporate costs (+$5M).
Below operating income, the damage came from financing and the cost of a bigger asset base:
Interest. Interest charges net of capitalized interest rose about $20 million, to $122 million, "primarily due to higher debt balances." APS plans to spend about $2.6 billion this year on plants and wires, and much of that is funded with borrowing before new customer rates catch up.
Depreciation. Up $14 million on more plant in service, partly offset by lower depreciation after the Cholla coal plant stopped operating.
Share count. Weighted-average diluted shares rose 2.2%, reflecting stock issued under forward sale agreements and the company's at-the-market equity program. That is why EPS fell 9.5% while net income fell 7.3%.
The weather boost comes with a caveat. The CEO pointed to temperatures of 105°F in March and a 7% rise in residential cooling degree days (a standard measure of how much air conditioning the weather calls for) in the quarter, and the 10-Q notes residential usage stayed elevated in April and May even on days with normal weather. Management guides on a weather-normalized basis, and the company says typical weather swings can move annual net income by up to $30 million, so part of this quarter's revenue strength is not repeatable.
Growth: data centers and customers
Underneath the weather, demand is growing quickly for a utility. Retail customers grew 2.1%, and the release puts Q2 weather-normalized sales growth at 5.6%. For the year to date, the 10-Q reports weather-normalized retail sales up 9.5%, with commercial and industrial sales up 13.6% as new data centers and large factories ramp up (about 0.9 percentage points of the year-to-date growth comes from a Q1 2025 change in how unbilled revenue is estimated, which depressed the prior-year comparison). Management expects:
2026 weather-normalized sales growth of 4.0%–6.0%, with data centers and large manufacturers contributing 3.0%–5.0% of that.
Average annual sales growth of 5.0%–7.0% through 2030.
Customer growth of 1.5%–2.5% a year.
The company says requests from large, round-the-clock users such as AI data centers "far exceed available generation and transmission resource capacity" in the region, and it is pursuing long-term contracts under which those customers pay for the infrastructure built to serve them. In July 2026 APS also announced a plan to convert two retired Cholla coal units to natural gas (about 380 MW, targeted for 2029, estimated cost up to about $440 million and not yet in the capital spending plan) and plans up to 2,000 MW of new flexible gas generation.
The rate case is what matters most
The quarter's weak spot — costs from new investment arriving before the revenue to pay for them — is exactly what APS's pending 2025 Rate Case before the Arizona Corporation Commission (ACC) is meant to address. A rate case is the process in which a regulated utility asks its regulator to reset customer prices to cover its costs and an allowed return on its investment.
Party
Total base revenue increase requested/recommended
Return on equity
APS (rejoinder, May 11, 2026)
$691.6M ($608.7M net of adjustor transfers)
10.7%
ACC Staff (surrebuttal, May 1, 2026)
$506.5M
9.55%–9.80% (initial testimony)
RUCO (consumer advocate, initial testimony)
$200.2M–$278.1M
9.00%–9.20%
APS is also asking for a formula rate adjustment mechanism (FRAM), which would update rates annually instead of waiting years between rate cases — shrinking the "regulatory lag" behind this quarter's interest and depreciation squeeze. The hearing concluded on July 7, 2026, and the administrative law judge's procedural order anticipates the case being resolved before the end of 2026. The ACC's formula-rate policy itself is still being challenged in Arizona state court, which adds uncertainty to the FRAM piece.
Balance sheet and funding
Capital spending plan at APS: $2.6 billion in 2026, $2.65 billion in 2027 and $2.7 billion in 2028, with transmission rising from $550 million to $860 million over that period.
First-half operating cash flow was $629 million, down from $663 million, as fuel and purchased power payments rose $68 million and interest paid rose $35 million. Investing outflows were $1.2 billion, so the gap is being filled with debt and equity.
Pinnacle West's debt-to-capitalization ratio was about 62% at June 30, 2026, against a 65% covenant ceiling in its bank agreements; APS's was 51%.
Pinnacle West's credit ratings were Baa2 / BBB+ / BBB (Moody's / S&P / Fitch), all with stable outlooks, as of July 31, 2026.
The board declared a quarterly dividend of $0.91 per share, paid September 1, 2026.
Takeaway: Demand is not the problem — customers, usage and data-center load are all growing, and the extra margin from them was real. The problem is timing: interest on a debt-funded $2.6 billion-a-year investment program and depreciation on new plant are hitting the income statement now, while the rate increase meant to pay for them has not been decided. Until the ACC rules on the 2025 Rate Case, earnings growth depends on weather and selling more power, not on the return the company earns on its growing asset base.
Outlook
Management reaffirmed 2026 EPS guidance of $4.55–$4.75 on a weather-normalized basis. With $1.70 earned in the first half, the year hinges on the July–September summer quarter, when Arizona's air-conditioning demand peaks. Points to watch in the third-quarter results:
The rate case decision. APS asked for new rates to take effect in the second half of 2026; the size of the approved increase, the allowed return on equity and whether the FRAM is approved will set earnings growth for 2027 and beyond far more than any single quarter.
Interest costs versus new revenue. Net interest expense rose about 20% this quarter. Without new rates, that line will keep growing faster than margin as the capital program continues.
Dilution. Continued equity issuance to fund capital spending (another forward sale agreement of about $84 million was added in July 2026) will keep weighing on per-share growth.
Weather normalization. Some of the first half's strength came from unusually early heat; the weather-normalized sales figures are the better guide to underlying growth.
Our read: the core business is growing faster by volume than most US utilities, but 2026 is a "wait for the regulator" year. The quarter's EPS decline reflects rate-case timing rather than weaker demand, and the outcome of that case later this year matters more than this quarter did.