PNW Q3 2025: Transmission CapEx Surges to $2.6B, Powering 5–7% Sales Growth Through 2030
PNW’s Q3 showcased a decisive pivot to large-scale transmission and generation investments, underpinned by robust customer and sales growth across all classes. The company raised its long-term sales growth outlook and extended its capital plan to meet demand from data centers, manufacturing, and residential expansion. With a $2.6 billion transmission CapEx ramp through 2028 and a new subscription model to de-risk growth, PNW is positioning for durable, diversified earnings and rate base expansion.
Summary
- Transmission Investment Accelerates: PNW’s $2.6B through-2028 CapEx plan anchors long-term growth strategy.
- Subscription Model De-risks Expansion: New capacity contracting shifts risk and aligns growth with customer demand.
- Sales Growth Outlook Raised: Management now targets 5–7% normalized sales growth through 2030, signaling confidence in Arizona’s economic tailwinds.
Performance Analysis
PNW delivered strong operational and financial results in Q3 2025, driven by broad-based sales growth and higher transmission revenues. Weather-normalized sales grew 5.4% YoY, with commercial and industrial (CNI, business customers) up 6.6% and residential up 4.3%. This performance reflects not just population growth but also the accelerating influx of large-scale industrial and high-load customers, including semiconductor fabs and data centers.
The company’s earnings per share saw a modest YoY increase, as higher sales and transmission income offset headwinds from increased interest expense and a higher share count. PNW raised its full-year EPS guidance, citing robust customer growth and above-normal weather, but also increased its O&M (operations and maintenance) forecast to account for higher operating expenses. Transmission and generation investments are now the company’s primary growth lever, with a clear shift toward long-term infrastructure buildout to support both committed and queued demand.
- Transmission Revenue Strength: Formula rate recovery and wheeling revenues contributed to margin expansion.
- Customer Growth at High End: Residential additions and large-load ramps exceeded expectations, narrowing guidance to the top of the range.
- O&M Cost Discipline: Despite growth, management expects flat to slightly declining O&M per megawatt hour, signaling ongoing efficiency focus.
With the Desert Sun Power Plant and major transmission projects moving forward, PNW’s earnings and rate base outlook are increasingly tied to execution on these multi-year capital programs and the successful deployment of its new subscription contracting model.
Executive Commentary
"Our peak demand record reflects the strong underlying economic growth in our service territory, with weather normalized sales growth of 5.4% and residential sales growth of 4.3% in the third quarter alone. Arizona's population growth remains robust, fueled by major employers expanding their operations and driving demand for skilled labor. To support this growth, we're executing our plan for long-term investments in both transmission and baseload generation, which are essential to secure a reliable grid for the long term."
Ted Geisler, Chairman, President, and CEO
"We are raising our 2025 EPS guidance... Sales growth across all customer classes continues to be strong. For overall sales growth, we expect weather normalized sales to continue to grow at 4% to 6% in 2026. And with the strong residential sales growth trends and continued ramping acceleration plans by our extra high-load factor customers, including in the advanced manufacturing space, we are increasingly confident in our forecasted long-term sales growth range and are raising it up from 4% to 6% to 5% to 7% and extending it through 2030."
Andrew Cooper, Chief Financial Officer
Strategic Positioning
1. Transmission and Generation CapEx: The Growth Engine
PNW’s capital plan now targets $2.6 billion in transmission investment through 2028, with a further $6 billion identified through 2034. This surge is driven by the need to serve both committed (4.5 GW) and queued (20 GW) high-load customers, including data centers and advanced manufacturing. The Desert Sun Power Plant, a two-phase natural gas project, will add up to 2 GW of capacity and is designed to match the ramp rate of customer demand, reducing stranded asset risk.
2. Subscription Model: Aligning Growth with Demand
PNW’s new subscription model, a special rate agreement framework, contracts capacity directly with large customers, ensuring growth pays for growth and funding is secured up front. This model de-risks capital deployment and protects affordability for the broader customer base, as large users help finance the infrastructure required to serve their demand.
3. Regulatory and Rate Case Strategy
The pending rate case, with a hearing scheduled for Q2 2026, is a critical milestone. PNW’s formula rate recovery for transmission assets and focus on reducing regulatory lag are central to its ability to deliver more stable, “evergreen” earnings growth. Management is also leveraging FERC (Federal Energy Regulatory Commission) formula rates to accelerate cost recovery and generate additional wheeling revenues from wholesale customers.
4. Diversified Growth Drivers
Unlike many utilities dependent on a single sector, PNW’s growth is diversified across residential, commercial, industrial, and data center customers. Maricopa County’s top national ranking in economic development, and Phoenix’s leadership in manufacturing growth, underpin a resilient demand outlook. The company’s service territory benefits from a favorable cost of living and lower inflation than the national average, further supporting population inflows and business expansion.
5. Capital Structure and Equity Issuance
With 85% of its 2026 equity needs already priced, PNW is using a mix of block issuance and at-the-market (ATM) programs to match capital raises with project milestones. Management is actively working to mitigate dilution by maximizing internally generated funds and securing upfront contributions from subscription customers.
Key Considerations
PNW’s Q3 marks a transition from “growth optionality” to “growth execution,” with the company now actively deploying capital to meet surging demand across customer classes. The following considerations are central to the investment case:
- Transmission as Margin Driver: FERC formula rates and incremental wheeling revenues are now a material contributor to earnings stability and margin expansion.
- Desert Sun and Pipeline Synchronization: The sequencing of the new gas pipeline and Desert Sun plant is on track, with all key equipment and land secured for phase one delivery in 2030.
- Subscription Model Uptake: Active negotiations on the first 1.2 GW tranche will test the model’s ability to align customer ramp rates with infrastructure buildout and financing.
- Regulatory Lag Remains a Watchpoint: Management is prioritizing reduction of regulatory lag through its rate case and formula rate initiatives, but the timing and outcome remain uncertain until the case concludes.
Risks
Execution risk is elevated as PNW ramps up multi-billion dollar transmission and generation projects, with potential for cost overruns, permitting delays, or mismatched timing relative to customer demand. Regulatory lag and the outcome of the 2026 rate case are pivotal for earnings stability. Equity dilution remains a risk if internal funding or subscription proceeds fall short, while macroeconomic or policy shifts could dampen Arizona’s growth engine.
Forward Outlook
For Q4 and into 2026, PNW guided to:
- EPS of $4.55–$4.75 for 2026 (down from revised 2025 levels, reflecting normalized weather and higher financing/D&A costs)
- Customer growth of 1.5%–2.5% in 2026, with continued robust sales growth expected across all classes
For full-year 2025, management raised EPS guidance to $4.90–$5.10 and narrowed customer growth guidance to the high end of 2%–2.5%.
Management highlighted several factors that will influence results:
- Ongoing transmission and generation project execution and cost recovery
- Active contracting with subscription customers and progress on rate case resolution
Takeaways
PNW’s Q3 results and updated outlook signal a structural shift toward infrastructure-led growth, with transmission and generation investments now the primary earnings and rate base drivers.
- Transmission CapEx Is Now the Core Growth Lever: Multi-year investments and formula rate recovery are set to drive margin and earnings stability.
- Subscription Model Is a Strategic Innovation: Aligns capital deployment with demand and helps contain dilution risk, but market uptake and execution will be closely watched.
- Regulatory and Execution Milestones Will Define 2026–2028 Trajectory: Investors should monitor rate case progress, project delivery, and customer contracting as key signals for forward returns.
Conclusion
PNW is leveraging Arizona’s economic momentum with an ambitious capital plan and innovative contracting to capture multi-year sales and earnings growth. Success now hinges on project execution, regulatory outcomes, and the ability to match infrastructure buildout to customer demand in a rapidly expanding market.
Industry Read-Through
PNW’s aggressive transmission and generation build signals a new era for utilities in high-growth Sun Belt regions, where demand from data centers, manufacturing, and population influx is outpacing legacy grid capacity. The company’s subscription contracting model could become a template for other utilities seeking to de-risk large capital projects and align growth with customer commitments. Expect increased focus on regulatory lag, capital discipline, and diversified demand drivers across the sector as utilities respond to similar growth and infrastructure challenges.