Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the southwest Gas Holdings 2019 year end quarter earnings Conference call.
This time, all participants are any in listen only mode. After the speak your presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to him.
The conference over to your host Vice President Finance and Treasurer, Ken Kenny Sir. Please go ahead.
Thank you Latino welcome to the southwest gasoline <unk> 2019 earnings conference call.
We teach stated my name is Ken Kenny and I'm, The Vice President Finance Treasury.
Our conference call is being broadcast live over the Internet for those of you would like to access the webcast. Please visit our website at www.
Got it W. gas holdings Dot com and click on the conference call we.
We also have slides on the internet, which can be accessed our presentation.
Today, we have Mr., John P., Hester Southwest's, President and Chief Executive Officer, Mr., Gregory Jay Peterson, Senior Vice President Chief Financial Officer, Mr., Justin L. Brown Senior Vice President General Counsel and other members of senior management to Brad to provide a brief overview of 2000.
Nike earned and provide earnings per share guidance for 2020.
Also the company will address factors that may impact is coming years earnings and.
Right some longer term guidance.
Further our lawyers have asked me to remind you that some of the information that will be discussed contains forward looking statements.
These statements are based on management's assumptions, which may or may not come true and should be referred to.
No what we refer to this language in the press release RFP filings and also slide number tree presented today for a description of the factors that may cause actual results.
Differ from our forward looking statements.
All forward looking statements are made as of today and we assume no obligation to update getting such date.
That said I would like to turn the time over to John.
Thanks, Kim turning to slide four show a high level summary ever company's business like.
Well scaffolding comprises two complementary business segments, and the utility infrastructure space approximately 70%, 76% of our net income is generated through regulated natural gas distribution operations in Arizona, California, and the data.
With approximately 24% of net income contributed by our unregulated utility infrastructure services segment of the contractor to mostly regulated energy utilities across the United States from Canada.
We both segments are poised for strong growth in years to comp growth in customers right.
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Regulated utility management teams focus some customer growth and economic development.
Portable builds for our customers opportunities for capital investment rate based growth decreasing greenhouse gas emissions and continued earnings and dividend growth. Similarly, our century management team focused on excellent operations execution cost management.
For two entities to cross sell services as we expand our electric present continued earnings and dividend growth and providing cash for southwest gas Holden.
Moving to slide five.
We outlined some highlights for 2019.
I'm a consolidated results perspective, we realized yearend earnings per share $3 nine forced to.
Earlier this week, our board of directors authorize a 10 cents per share increase in our annual dividend raising it from $2.18 to $2.28 for sure and we completed our reincorporation from California. The Delaware is overwhelmingly all right as far as shareholders that are last annual meeting.
It's a provider company more developed predictable and responsibly legal jurisdiction that we believe we'll make or company more attractive to investors directors and executive offices.
At our regulated utility operations, we continue to see strong regional economies in which we added 34000, new customers last year, an annualized growth rate 1.7 that we realized $23 million in additional margin due to the reference robust customer growth was incremental.
And we have major rate case application now on file an Arizona, Nevada, as well as in California, and propel I like what.
At our century infrastructure services business, we saw record revenues of $1.75 billion record net income of $52.4 billion and significant expansion of our electric operations.
Full year financial results from our line Tech services group.
On slide six.
We provide outline for today's call.
Greg Peterson will provide an overview of financial results for the Corporation.
Segment break down for both regulated and unregulated utility operations, Justin Brown will provide a review of our extensive regulatory activities, including a rate case activity I referenced.
I will wrap up the call an update on a regional economic conditions and customer growth planned capital expenditures growth and dividend sustainability efforts and our expectations for 2020 and beyond.
I will turn the call over to Greg.
Thanks, John.
Yesterday afternoon, we announced our 2019 earnings and provided some statistical information a form 8-K filing with the FCC.
We also filed in Nevada General rate case yesterday, the Justin will comment on his regulatory.
Yeah.
We plan to file or annual report on form 10-K, which will include information regarding the rate case.
The FTC later tomorrow or Monday morning.
Please refer to these documents for a comprehensive analysis of our operations 29.
Let's start today with a comparative summary of total company income on slide seven.
For 2019 consolidated net income was $213.9 million or 394 per diluted share.
Compared to $182.3 million were 368 per share for 28 team.
The P.S. result of 394 for 2019 exceeded the top end up our revised EPS guidance, which was $300 an 80 cents per share.
Primarily due to three items associated with natural gas operations.
One coli cash surrender value increases were $6.2 million in the fourth quarter.
This is an estimated 1 million dollar, resulting in a 10 cents per share incremental increase.
Two incremental operating margin, partially due to higher volumes resulted in a margin increase of 4.8% between years above our revised high end of 4.5 per se.
And Threed changes in state tax unfortunate methodology options and other factors reduce the effective income tax rate and income taxes for 2019.
Revenue increases for century, what the top end up our revised guidance, a 15%, but were partially offset the percentage of operating income of 5.1% that was near the lower end of our revised guidance of 5.0% to 5.5%.
The relative incremental contributions to net income between years for each operating segment.
And on the next slide.
Slide eight depicts the composition of the 31.6 million dollar increase in consolidated results between 2018 2019.
Net income for the natural gas operations segment increased $24.3 million.
Net income for the utility infrastructure services segment was up $7.4 million in years.
I'll provide some additional detail surrounding the changes in each segment in the following slides.
As shown on slide nine as John previously mentioned the natural gas operations segment provided approximately three fourths of southwest gas Holby consolidated net income in 2019.
Century, our utility infrastructure services segment contributed one for.
The chart on slide 10 shows the components of the 24.3 million dollar increase the natural gas operations results between 2018 and 29 team.
Additional details are on slide 32 of the presentation of the <unk> presentation appendix.
The 45.4 million dollar operating margin increase includes $11 million 34000, net new customers added during the past 12 months, a 1.7% growth rate.
Rate relief in Nevada, and California, attrition collectively provided 12 million an operating margin.
The remaining increase primarily resulted from surcharge to recover regulatory assets with a partial offset of $12.2 million an amortization.
These program recoveries included California, public purpose and Kathy trade program in Nevada, renewable energy and infrastructure replacement programs, partially offset by credits for conservation and energy efficiency programs.
The 17.4 million or 4% increase in operations and maintenance or when it makes sense.
It was primarily due to general cost increases and higher legal claims experience.
One am expenses were also impacted by a $2.4 million increased in line Mokady or call before you did cost.
Associated with population and customer growth throughout our service territory.
As well as nearly $2 million and costs associated with our customer data modernization initiative.
Depreciation and amortization increased $23.8 million, including the $12.2 million and regulatory account amortization I previously mentioned.
Capital expenditures that $779 million in 2019.
<unk> 586 million or 9% increase in average gas service and an 11.6 million dollar increase depreciation and amortization.
The 26.8 million dollar improvement in other income primarily reflect changes between years than the cash surrender value company owned life insurance or coli policies.
Well, we values increased 17.4 million in 2019 as a major portion of the underlying investments surged with the general stock market.
Coli values declined 3.2 million in 2018, consistent with market volatility experience that here.
Additionally, non service related pension and postretirement benefit costs declined $6 million between years.
The 13.3 million dollar increase in interest expense reflects higher outstanding debt balances, including 300 million a 4.15% senior notes issued in May 29.
Southwest ongoing capital expenditures of in finance with a combination of debt and equity issuances to supplement cash flows from operation.
The 9 million dollar decrease in income tax expense and lower effective tax rate [laughter] the impact of lower state income taxes due to changes in a portion that methodology option.
And 2.3 million and amortization of excess deferred taxes following U.S. tax rate.
[noise] will now review century results, starting with slide 11.
This chart shows the components of the 7.4 million dollar increase in utility infrastructure services net income between 2018 and 29.
Additional details can be found on slide 39 in the appendix of our presentation.
Century revenues increased 229 million due primarily to a full year revenues about 236 million from line Tech versus 14 million up 28. He line tech revenue subject to some subsequent to our acquisition of them in November 2018.
Partially offsetting these increases were decreased revenues from certain non routine projects such as customer request and support in 2018 during that customers labor dispute work stoppage.
Revenues for 2018 also included nine 9 million dollar negotiated settlement of an earlier water pipe replacement on track.
Revenues from contract with southwest totaled $158.7 million in 2019 at $135.9 million in 28.
Representing 9.1% an 8.9%.
Centuries total revenues for 2019 in 2018 spec.
Century expenses were 185.5 million higher than the prior year incremental line Tech expenses were 172.1 million between years.
Implementation of new regulatory requirements for operating locations within certain states in the eastern U.S.
Resulted in productivity inefficiencies and higher costs during 2019.
Approximately 8 million an additional costs were also recognize associated with an industrial project in Canada.
Incremental general and administrative costs were also incurred and provides support for the overall growth in operation.
Depreciation and amortization increased 30.2 million, primarily due to 25 million of incremental depreciation as well as amortization of intangible assets associated with the line Tech acquisition.
The 2.6 million dollar decline reflected as other on the chart includes 2.7 million of income in 2019 that is attributable to the non controlling parties that still on an ownership interest in line Tech operation.
Income tax expense increased 3 million between years, primarily due to the increase in pretax income.
Overall century posted record revenues and record net income in 2019 and is poised for record results for calendar year 21.
I'll now turn the call over to Justin Brown for regulatory update.
Thanks, Greg as both John and Gray alluded to from their comments, we filed in Nevada rate case yesterday and with that filing we now have rate cases in each of our regulatory jurisdiction and collectively these cases total nearly a 144 million and proposed revenue.
We anticipate that we will start to see decisions from these various proceedings, beginning with Arizona This summer and continuing through the remainder of this year.
Speaking of Arizona, We recently received testimony from the intervening parties.
And the staffing and consumer advocates physician as compared to our proposals are shown here on slide 12. In addition to our proposal on deferred taxes. The staff is proposed the additional amortization of approximately $15 million associated with certain plant that we originally classified as protected which the staff claim should be.
Protected and thus the exit deferred taxes should be returned to customers faster than the IRS prescribed methodology for protected plant.
In addition, they've also proposed an interest component based upon their interpretation of the Commission's decision on our 2018 tax reform proposal.
Some other noteworthy items for staff testimony, they do not opposed the inclusion of the LNG facility and the coil and VSP work that we've done through December 30, Onest 2019, as part of our post test year plan adjustment in the case. In addition, they do not oppose our proposal to amortize approximately 12 million of VSP.
Oil surcharge revenue that we propose last year as part of our annual surcharge filing.
We are Kurt we are currently preparing rebuttal testimony and will be preparing for the upcoming hearings that are currently scheduled for April 20.
Turning to slide 13.
We continue to work through the discovery phase of our $12.8 million, California General rate case. It was filed last August we expect to see the public advocate testimony March 27 with hearing scheduled to begin June threerd.
As I mentioned previously we just filed our 2020 in Nevada General rate case, we're requesting an increase in revenues of $38 million, which incorporate the requested are are we have 10% relative to an equity ratio of 50%. Their request is primarily driven by the significant investment in our distribution system to ensure continued.
Safe and reliable service to our customers, which result in a proposed rate base of approximately 1.5 billion an increase of $230 million consistent with the commission decision on our customer data modernization initiative proposal last fall. We are also request need to recover certain costs associated with the CEDIA mine.
Hey.
We're also renewing our request to include some of the other items that were not allowed to be recovered in rates as part of our last rate case.
Speaking of our 2018 rate case, just a quick update on the judicial review proceeding the district Court held a hearing in early January and upheld the commission's underlying decision.
Once the court issued the final notice the venture in order we plan to evaluate decision and then we'll likely file a notice of a pill within about a Supreme Court.
Turning to slide 14. In addition to our state rate cases, we recently received or I'm, sorry, We recently reached a black box settlement on our Paiute rate case that will reduce the existing cost of service by 700000 dollar.
Based upon a stated pre tax rate of return of 9.9%.
Similar to our state cases. This could result, all tax reform issued in addition, the parties agreed to continue the term differentiated rate design and both transportation and LNG storage customers agreed to five year contract extensions as part of the setup.
The parties there currently in the process of documenting the stipulation and we are targeting to middle suffered by the end of March. The agreement is still subject to the FERC approval, which should occur in the second half of this year.
Turning to slide 15, and an update on several expansion related projects.
The LNG facility in southern Arizona is complete and with placed in service in December. We're currently in the process of filling the tank with LNG, but it is ready and available for use if necessary.
We continue to make progress on building out our distribution system in mesquite and hooking up new customers, including work on bringing the permanent gas supply to mesquite with an approach, Maine, which is still expected to be in service by the first quarter 2021. Meanwhile, we will continue to serve customers with our temporary virtual pipeline and compressed natural gas.
Lastly, we recently received approval to proceed with a 62 million dollar SB 151 Spring Creek proposal, we submitted a stipulation and commission last fall, which was approved in December we are targeting the start of construction. This summer with the potential to begin serving customers by fall.
Turning to slide 16, and our customer data modernization initiative, we're still working our way through the regulatory process in hopes of receiving constructive regulatory support in Arizona that helped facilitate the timely and complete cost recovery. The project hearings are currently scheduled for April plant.
In California, we did receive approval to establish a memorandum account to begin trucking costs and we've also reached an agreement in principle with the public advocates office on our request for approval of the project and to establish a two way bouncing count recover costs.
That settlement has been documented and submitted to the commission for approval and we expect the final decision later in the second quarter.
Turning to slide 17, another important focus a tough with gas has been working with stakeholders on various sustainability initiatives, including partnering on compressed natural gas and renewable natural gas opportunity.
As well as most recently as a member of a coalition of diverse businesses and interest groups, who supported the bipartisan passage of the balance Energy Solutions Act in Arizona. This bipartisan legislation that was signed into law last week by Governor duty preserved Arizona's ability to take advantage of each and every energy option that is offered.
[music] them for use in their homes and businesses, including natural gas.
Some other recent developments, including proposal and CLO in California to amend our Taylor tariff to facilitate renewable natural gas purchases and include them in our gas portfolio.
This was the proposal that we submitted almost one year ago, and then we were able to reach an agreement with the public advocates office last fall on a stipulation that Vince submitted to the commission for approval, we expect a final decision any day.
Also in Nevada with the passage of best be 154 in 2019, we are working through the final stages of a rule, making process that will establish regulations to support our ability to engage in renewable natural gas activity, which include the investment in R&D facility and the purchase of R&D as part of our gas portfolio and with that I'll turn it back.
John.
Thanks, Justin.
Turning to slide 18, as I mentioned at the outset over call regional economic conditions throughout our regulated service territory remain robust, we expect population growth in Arizona, California, Nevada to exceed the national leverage over the coming five year period job growth continues at levels.
Inefficiently higher than the National average and new home construction is expected to remain strong over the next several years.
Moving to slide 19.
As I also mentioned that the outs that of the call. We continue to see strong customer growth across our regulated utility service territories customer additions over the next several years are expected to continue at a rate of 35000 or more per year growing to just under 2.2 million customers.
By the end of 2022.
On slide 20.
Opportunities to invest one or regulated utility operations to increase safety reliability and serve new growth remained strong we anticipate investing approximately $700 million per year over the coming three year period or regulated capital expenditure budget of two point.
I think $1 billion approximately 50% of the funds will come from internal cash flows, but the remaining needs provided by an equal mix with debt and equity, including issuances through our ATM program.
Turning to slide 21, we illustrate a more detailed breakdown of total capital needs and sources for or natural gas operations over the three year period, ending twentytwenty too.
On slide 22, we show, how our regulated utility capital investments impact rate base levels over the coming five year period with continued average annual capital expenditures of $700 million per year, we expect fee rate base increase from.
$4.1 billion at the end of last year to $6.2 billion by the end of 20, Tony for an increase of 50% and regulated utility rate base over the next five years.
Moving to slide 23.
Joe our successful track record of increasing our dividend.
Compounded annual growth rate of 7% over the last five years, culminating with the newest increase in our dividend to an annual rate of $2.28 per share approved by our board of directors earlier. This week prospectively, we plan to maintain a payout ratio.
Between 55, and 65% of future dividend increases expected to correlate with continued increases in earn.
On slide 24, we returned to the sustainability theme and show some of our ongoing greenhouse gas mitigation efforts. In addition to those touched on earlier by Justin.
As a company, we've committed to reducing or greenhouse gas emissions from our fleet and facilities by 20%, while the year 2025.
Plan to accomplish this combination of energy efficiency efforts increased use of vehicular CMG and other initiatives. We're also working large lead operators in our service territory.
Moving the mass transit bus operators in Las Vegas, and Phoenix as well as you, yes waste management and Republic services as those business partners seek to lower their carbon footprint through increased use of trust natural gas.
We're also excited about securing renewable natural gas supply for the portfolio of our sales customers. These supplies can be secured from landfills sewage treatment plants in dairy farms and are considered to be either carbon neutral or carbon negative sources of supply.
Next on Slide 25, we compare earnings per share results of 2019 to our expectations for 2020.
Our guidance range for 2020 as from $3.75 to $4 per share, including normalized company owned life insurance returns of $3 million to $5 million.
For comparative purposes, or 2019 earnings included approximately 25 cents per share of coal the earnings beyond normalized annual expectations.
On slide 26, we detail expectations that underlie our 2020 earnings per share guide at our regulated utility operations, we anticipate operating margins increased by 4% to 5% operating income to increased by 3% to 5% pension.
Cost to increased by $13.6 million due to lower end of year discount rates.
Partially offset by positive asset returns.
Definitely $5.2 million or the pension increase reflected in other expense.
Normalized coli returns of $3 million to $5 million capital expenditures of $650 million to $700 million and equity issuances of approximately $200 million through our ATM program.
At our century business segment for 2020, we expect organic revenue growth of 5% to 10% operating income equating to 5.5% to 6% of revenues interest expense between $13.5 million to $14.5 million.
Net income expectations are net of non controlling interest and due to our Canadian operations fluctuations in Canadian exchange rates can influence results.
Moving to slide 27, with respect to longer term expectations at the holding company level, we expect equity issuances of five homes to $675 million for the three year period, ending 2022 to continue funding the growth of our business.
We will also endeavor to maintain the dividend payout ratio of 55% to 65% for natural gas operations, we anticipate investing $3.5 billion and capital expenditures over the five year period, ending twentytwenty for with rate base, increasing by 50% over that.
Same period and at our century business segment, we expect average annual revenue growth of 5% to 8% through 2022 with operating income expected to equal five and a half to six from half percent over that same period.
And finally on slide 28, we believe that both business segments. The southwest gas holdings are well positioned for excellent growth in the years to come.
Regulated utility operations expected to contribute approximately 73% of holding company net income over the coming three year period.
Our regulated natural gas operations are experiencing rate customer growth and strong rate base growth, which is increasing the safety and reliability of our well maintain gas distribution system. Meanwhile, essentially we believe our investors have a high quality and relatively low risk.
Utility services business with great prospects for continued growth partnering with mainly regulated utilities and 40 different states provinces across United States from Canada.
With that I'll now turn the call.
Thanks, John.
That concludes our prepared presentation.
For those who have accessed our slides we have also provide an appendix slides that includes other pertinent information about southwest gas holdings Inc. and its two business said.
These slides can be reviewed at your convenience our operator in the team will now explain the process for asking questions.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound King again that star one and you touched on telephone to ask a question.
Please standby, while we've compiled the culinary roster.
Our first question comes from Iga My Kraska.
Yes. Your line is open.
Good morning, congratulations on the quarter.
Hey, thanks.
On the last earnings call you revise down 2019 utility operating margin growth unfortunate module will exceed the revised range. What are the key driver that's really not included in threeq guidance and exceeded expectations.
Hi, I guess this this is Greg are you talking specifically about the margin number.
Yes.
Operating margin.
Really.
Yes. It was it was really a combination of several items that partially was volume metric. So if you compare.
The fourth quarter volumes in 2019 to the fourth quarter volumes in 28 team they were up.
And.
Part of that is we are decouple, but we do have some.
Some volume metric surcharges and so that created part of the growth inside discussed earlier.
In March.
Not as big an impact in net income, but some because some of our customers outside the decoupling also experienced higher volume usage.
Perfect. That's very helpful. Could you. Please also provide little more color on the Arizona rate case in particular on recommendations.
Closing future DST and other replacement program. So do you highlight on slide 12, how that could impact analysis, only capex, the future and the potential regulatory lag.
Yes. This is Justin.
The staff in the consumer advocate position. So the this that came out in support of.
The COYL program, so continuation a bit but with respect to the VSP and the plastic pipe program.
They found that.
Kind of moving forward that they felt like a case had not been made the programs were in the public interest.
And so that was really their position.
I think we still have some pretty compelling.
Arguments and things that will make on rebuttal on through hearing and hopes that the lj or the commission.
Picks up on some of those because and I think one of the important things with these tracker programs that we've established.
In Arizona, and Nevada, quite frankly is that they've always been identified as this is work we're willing to do if we have supportive regulatory mechanisms from a cost recovery standpoint. So.
Obviously, if they are signaling a desire not to do the proactive VSP or plastic pipe work then naturally.
We're not necessarily going to spend that same level capital on those project that we're not going have to support a cost recoveries I think that addresses the lag question I think yet.
Perfect. That's very helpful. Thank you for taking my question.
Thank you you bet.
Your next question comes from right in line of Citi. Your line is okay.
And can you speak to what your longer term RMG strategy as it looks like it's you're pursuing it in Arizona.
Although I suppose.
Are you looking at.
Purchasing RMG I heard the to reduce your greenhouse gas emissions per your goal or are you willing to investing some of the infrastructure to build out that supply source.
Hi, Ryan This is John and I think the answer to that both of those items. We are certainly looking at the prospects of acquiring RMG, but we also are working with a variety of entities throughout our service church are actually in all three states, including Pima County in Arizona.
The Archie see here in Nevada, which operates in mass transit system, and the Victor Valley Water Reclamation authority, and California, and partnering with those entities. We have a couple of different options, including as I think just alluded to.
In one of his earlier slides the possibility of investing in the facilities that are needed to collect scrub the gas and get it into our pipeline. So.
Both opportunities our future opportunities for the company. Thanks, it's pretty exciting.
It's our way to train the potential man the dollar to say you'd be willing or.
Our evaluating it to pursue that a buildup.
I think it's pretty early in the game to come up with a number like that I think that it probably would be safe to say that those dollars with the under the umbrella. The 700 million dollar for your capital budget that we have.
Okay.
And Maggie.
And now and then last one for me in terms of your Capex spending outlook.
Can you speak to how much of that spending is tied to.
Interesting pipe.
Various other forms of components of that Capex.
Yes, Brian this is Greg.
Yes.
Trying to trying to get some of the breakout of that's not something that we really have certainly there are fluctuations in the market that might be part of the source of.
Your comment, but I don't have in front of me a specific breakdown as far as pipe outside services or internal labor.
But it's not a different mix from what weve normally experience, but I don't have any of those details right in front.
Okay.
That's helpful. Thank you.
Thank you. Our next question comes from Chris Ellinghaus.
See you were at Williams Your line is open.
Oh, sorry, guys.
Yeah.
The.
The various filings for our Angie.
Do you have any sense of when you may have greater details some of what you might pursue.
Hi, Chris This is John I'll start and turn it over to adjust them.
But I think that those efforts are underway right now I think that there really isn't anything that's an obstacle to most moving forward with for example in in the projects that I briefly referenced in the previous question I think that general reception from our regulators actually has been pretty enthusiastic.
About this it's just making a through some of.
The various administrative provisions for example, how do you include that type of cost in your gas supply what opportunities do you have to invest in those incremental facilities I mentioned in the previous question and then how does that translate into rate recovery.
Yes, Thanks, John Chris. This is just then yeah consistent with what Johnson the idea was to make sure that we get a framework in place in each jurisdiction to support those initiatives into work with the various policymakers whether at the state level or if the commission level on as well as being able to support.
Our customers that are desiring that type of energy as well.
Right Okay.
[laughter] Justin.
Sure well you're here.
The what do you think that the.
I hesitate to say odds are but.
How well do you think that things like the jury's still pipe replacement program might be received by a nail Jay or 30 Commission relative to the stands to staff has taken.
We'll be in your Vegas, Guy, Chris and you're talking about Vegas, I'm not I can see how you're wanting to say AWS, but yes, it's tough to answer in that way I mean, I do think that will be preparing our rebuttal case, we'll be filing here the second week of March.
Which I think.
I'd encourage you to look at that when we file that that case, because I think we've got some pretty pretty good arguments on why it makes sense to look at proactive replacement on some of this aging infrastructure and so I think from our perspective.
We feel pretty good about arcade, but we also recognized that.
There's a lot of deference to the staff in these proceedings so.
It is really hard to hard to handicap.
Well the part that surprised me a little bit about the staffs sort of opinion on.
Plastic pipe replacement I thought was kind of interesting because.
Given the number of safety issues that have arisen nationwide and also the a significant concern about.
Environmental issues with methane release I would've thought they were be more amenable to both of these issues being in the public interest so.
That's really why I'm curious is whether maybe higher level thinkers lay Gail Jayson commissioners might be more interested in those topics and staff, we're thinking about costs.
Yes, it's very possible I mean, I agree Chris It was there fairly conservative position that were taken.
Right Okay.
There are some interesting watching.
As far as the century long term guidance you gave I appreciate the insight there.
The the 5% to 8% annual revenue growth I assume that's incorporating things like cross selling opportunities and things like that but what is the sort of can you give us some color on what you think.
The base core growth opportunity is excluding say line Techs addition.
Yeah. Chris. This is Greg you know everything is is included in that five to eight that's our organic.
Growth number that we think that we can do over the next several years.
We do expect line tech to continue to grow and we do expect that we will get some of those cross selling opportunities as I mentioned previously on on one of our earlier calls.
The utility customers that we do business with operate much like southwest gas does in which they forged long term relationship.
With the contractors that do business with them and so it's not a quick spin that somebody will.
Move their entire electric or gas operations to century, but we continue to work on that and that is included in those growth levels.
Okay and as far as the margins.
Do you think that's a fair range sort of.
Regardless of economic conditions or is that more indicative of sort of status quo pretty pretty respectable economic conditions.
Yes. This is Greg again I.
Certainly.
Experienced didnt expect to continue to experience that.
Century will grow despite or even in light of whatever economic conditions are out there that it's a service it's needed and we provide that service.
In good times in a bad and economic times, So I think the five and a half the six and a half long term percentage of operating income of revenues.
Pretty indicative of what we really expect again come good or bad in the economy.
Okay, great. Thank you very much appreciate the color guys.
Thanks Jess.
Thank you. Our next question comes from Chris Ignasi of Jefferies. Your line is open.
Hey, good afternoon, thanks for taking my questions guys.
Okay.
If I could circle back I guess, a couple of topic I wanted to touch on but if if I got to start maybe.
With where Chris was an ACO was earlier in regard to where earlier in regards to the.
The replacement programs and the opposition in Arizona and I guess.
What I'm interested to know if I look at slide 20 on the capital.
Expenditure breakdown by year by type.
Thank you.
Golden bucket of infrastructure under trackers <unk> is that if you don't if this proves to be something that the jurisdiction in Arizona doesn't seem to be supportive of is that biased down or is this based on just the programs you know will continue.
Yeah. This is this is Greg Chris.
Yeah, but the gold band across the top on slide 20.
It includes what we expect that to happen there, we know that there might be some fluctuations.
Yes, the capital tracker programs that we currently requested are not.
Accepted or authorized.
Certainly we will continue to seek other ways.
To do that and I don't see that there will be much degradation or change in our overall capital spend we would probably just change the mix of work that we do.
But that includes book.
Tracker mechanisms that are in place and things that we think might be in place and the company.
And Chris another.
Another potential impact from then I'll, let jets and expand on this.
You know me, depending on the capital spending have associated with trackers.
If that fluctuate.
Had impacts on the frequency of us filings general rate case.
Yep Okay.
I guess.
Related to that.
And I appreciate Greg your your clarity on the financing.
Side of the house, what's anticipated over a multiyear parent.
It's a very next slide just curious should we should we think that the ATM issuance happens in sort of a ratable action or given that you know it looks like you'll be out of rate case for a little bit in all three areas. After this year do you.
You take advantage of low interest rates and do more dad defer some of the equity or what do you. What do you I guess, what would you guys that we model.
Yeah. This is Greg Chris.
Certainly we will look at what's happening in the market as we encountered the needs.
I think we've been pretty clear that our needs will be ongoing, but whether we choose to issue debt or equity will depend on the market conditions, the time and time and our expectations for what's most advantageous.
Whether it relates to rate case planning.
Or just trying to I won't say, we're trying to time to market will look and see what seems to make the most sense at the time, but I think you can expect that generally this will be consistent.
Over the course of the three years that are in this schedule.
Okay.
Okay and then final question for me you know you've given color and you always have on the capital expenditure plans at the utility you've now given you know you've been talking about a multiyear growth rate at sentry I'm, just wondering what level of spend.
You know you think is required to two effects of that type of revenue growth.
Hi, This is Greg.
Yeah, No century does the rate job and working with the suppliers of the equipment that they need to do their ongoing business.
Well I don't have the number right in front of me I lead the number for 2019 was about 150 ish million dollars of Capex.
Further equipment that they used to grow the business and century certainly.
With the acquisition of line Tech experienced some considerable growth during 2019.
A run rate number.
Is probably in that Hundredish to 150 neighborhood, depending on the growth requirements that they have.
Okay.
Great. That's very helpful. Thank you for the color.
Thank you once again to ask question Press Star one at this time.
Next question comes from Steven Breezy of Granite Lane.
Line is open.
Hey, guys. Good afternoon, Thanks for taking my question.
But I.
Just on them the operating margin growth for 2020.
The 4.5% at the midpoint looks like that's roughly 45 million Bucks.
You bucket some of the main drivers of that so I know you call out customer growth and then I guess a rate case, but can you bucket infrastructure pieces, the writer pieces and what others have contribution your guys are saying. Thanks. Yeah. Yeah. This is this is Greg I think the bucket there to be easiest for us to identify.
Fly and share is the customer growth bucket and that number will be relatively consistent with what we've seen in prior years.
The others, whether they're trackers or the the rate cases.
Yeah, we're waiting for a little more clarity on what the rate cases will be but of the customer growth side of that should be consistent with what we experienced in 19.
And can you just remind me what that was sorry, I know you said in the script, but yeah, absolutely about $11 million.
Okay, and just the on the Nevada rate case, what's the expected timing for rates to be effective I think it was decision by the end of the year, maybe or news from I know.
Yes, Stephen this is Jeff than in Nevada, They have a 210 day time costs. So we filed yesterday once the filing the how 210 days.
Generally speaking, it's we're looking at like.
An estimated October 1st rate effective date.
Okay.
All right. That's all I had thank you guys.
Thank you at this time I like to turn the call back over to change any for closing remarks, Sir.
Thank you a teeth.
This concludes our conference call and we appreciate your participation and interest in southwest gas holdings.
Have a great day.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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