PNW · 10-Q · 2026Q2 · Full report
Fuel and Purchased Power Costs
PINNACLE WEST CAPITAL CORP · 2026-08-04 · Importance 43 · Surprise 6 · In source text
Pinnacle West remains exposed to electricity and natural-gas commodity prices and related transportation costs, which affect purchased-power economics and regulated cost recovery. The company hedges forecasted electricity and natural-gas purchases and sales with futures, forwards, options and swaps. At June 30, 2026, energy derivative positions had a total fair value of approximately $79 million of liabilities, with the largest exposure tied to natural gas, and hypothetical price movements would substantially offset the underlying physical exposures.
Key facts
- Existing natural gas pipelines into Arizona are fully committed; in July 2025 APS executed a gas transportation precedent agreement to secure long-term additional natural gas transportation. source
- Fuel and purchased power expense for the three months ended June 30, 2026 was $558 million compared with $477 million in the prior-year period, an increase of $81 million. source
- Fuel and purchased power expense for the six months ended June 30, 2026 was $995 million compared with $857 million in the prior-year period, an increase of $138 million. source
- The new pipeline secured by the July 2025 gas transportation precedent agreement is expected to be operational by late 2029 and will be owned and operated by a third party. source
- Net pretax mark-to-market change in energy derivative positions balance at end of period was $(79) million as of June 30, 2026 (balance at beginning of period $(26) million, decrease (increase) in regulatory asset (53)). source
- The fair value total by maturity of energy derivative contracts as of June 30, 2026 was $(79) million (observable prices $(46) million, prices based on unobservable inputs $(33) million). source
- A hypothetical 10% price movement would change the mark-to-market reported in regulatory asset (liability) for natural gas by $(50) million for Price Up 10% and $(58) million for Price Down 10% as of June 30, 2026. source
- APS expects participation in the WEIM and future Markets+ will lower its fuel and purchased-power costs and improve situational awareness and resource integration. source
Impact estimates
| metric | direction | stage | expected | basis |
|---|---|---|---|---|
| operating_income | negative | realized | -9.5% | Fuel and purchased power expense for the six months ended June 30, 2026 was $995 million compared with $857 million in the prior-year… |
| operating_income | negative | realized | -5.6% | Fuel and purchased power expense for the three months ended June 30, 2026 was $558 million compared with $477 million in the prior-year… |
| operating_income | negative | realized | -5.4% | Net pretax mark-to-market change in energy derivative positions balance at end of period was $(79) million as of June 30, 2026 (balance at… |
| liability | negative | contingent | -0.0% | A hypothetical 10% price movement would change the mark-to-market reported in regulatory asset (liability) for natural gas by $(50)… |
| operating_income | negative | committed | — | Existing natural gas pipelines into Arizona are fully committed; in July 2025 APS executed a gas transportation precedent agreement to… |
| operating_income | positive | probable | — | APS expects participation in the WEIM and future Markets+ will lower its fuel and purchased-power costs and improve situational awareness… |
| revenue | unclear | contingent | — | 2025 Rate Case proposed a rate of $0.043881 per kWh for the portion of APS’s base rates attributable to fuel and purchased power costs. |