Q1 2020 Earnings Call
Thank you for standing by and welcome to the southwest gas holdings 2021st quarter.
First quarter earnings conference call.
At this time all participants are in that listen only mode. After the speakers presentation, there will be a question and answer session.
Ask a question during this session you would need to press Star then the number one on your telephone.
If you require further assistance. Please press Star then zero.
I like to turn the conference over to your speaker for today, Mr., Ken Kenny Vice President Finance and Treasurer.
Maybe getting your conference.
Thank you.
Welcome to southwest gas holding team 2021st quarter earnings Conference call. As Trulia stated my name is Ken Kenny and I'm, The Vice President Finance Treasury.
Our Congress call is being broadcast live over the Internet for those of you we'd like to access the webcast. Please visit our web site at Www Dot ESCO do you gas holdings Dot com.
The conference call.
We have slides on the internet, which can be.
To follow our presentation.
Today, we have Mr., John P., Hester, President and Chief Executive Officer, Mr., Gregory Jay Peterson, Senior Vice President Chief Financial Officer, Mr., Justin Brown Senior Vice President General Counsel Southwest Gas Corporation, and other members of senior management to brighter.
Brief overview the copies operations and earnings ended March 31st 2020, and reaffirm our earnings per share guidance for 2000.
Also the company will address or actors that hey.
This coming year Uh huh.
Further our doors have asked me to remind you that some of the information that what we discuss contains forward looking statements.
These statements are based on management's assumptions, which may or may not come true and you should refer to the language on slide three and the press release and also whereas he see filings for a description of factors may cause actual results to differ from forward looking statement. All forward looking statements are made.
As of today, and we assume no obligation to update.
Okay.
With that said I'd like to turn the time over to John.
Thanks Kim.
Turning to slide before we show some highlights for 2020.
The holding company, we experienced first quarter earnings per share. The dollar 31. These earnings were adversely impacted by company owned life insurance returns reducing earnings by 28 cents per share on the positive side, we're able to increase our dividend for the 14th straight year and ROE.
Regulated utility operations, we saw continued strong customer growth.
The past 12 months of 1.6%, allowing us to at 33000 net new customers. We saw utility operating margin increased by $14 million for the quarter filed in Nevada General rate case application the Justin well overview later in this call and we saw our state.
Utility commissions take supportive regulatory actions to acknowledge the increased cost of business associated with cold, but 19.
And at our unregulated.
Century infrastructure services segment, we saw revenues for the quarter increased by $21 million expenses increased by $19 million and the aggressive adoption of new safety practices and policies to protect our employees and customers from cobot 19.
Slide five we provide an outline for the substance of today's call.
First I will provide a brief update on the company's response to the challenges presented by the Cobot 19 health issue, Greg Peterson will follow with an update on our financial results segment breakout for our regulated and unregulated operations, Justin well, we'll provide an update.
On our various regulatory activities.
I will close with an update on customer growth.
Rate base growth dividend growth, our sustainability efforts and expectations for 2020 penalty all.
Moving to slide six.
During the cold at 19 challenge we are of course focused on maximizing the health safety of our employees our customers are contractors and supporting the communities we serve.
For our employees at both our regulated nonregulated operations, we have an active.
Business continuity plan that were already in place have the vast majority of our office employees now working from home or practicing strict social distancing.
<unk> increased use of personal protective equipment.
And have restricted Oh, no essential travel.
In fact over just the past two days, we convened or May board meeting and our annual shareholder meeting using virtual formats that worked excellently.
Understanding that many of our customers may be facing adverse economic consequences from cobot 19, we have temporarily suspended service disconnections for non payment. So all customers continue to receive essentially utility service they require especially as more.
Our customers are spending more time at home.
Were focused on offering customers a suite of financial assistance programs, including the for payment programs and a variety of bill assistance programs that vary by state.
Fortunately for our customers. So what's gas is always considered having a low bill to meet a competitive advantage.
Coming six month period for example average residential monthly Bill from May through October is estimated at approximately $20 per month.
Turning to slide seven.
And partnering with our contractors do much of our capital expenditure work, we're stressing constant communication sharing best practices practicing social distance thing and using more personal protective equipment more frequently.
We're also mindful of our corporate stewardship. So the communities, we serve and having increased our filling pluck tropic contributions from southwest gas Foundation to support a variety of cobot 19 related non profit organizations and have made sure we have been.
Sending out regular communications.
Sure everyone natural gas deliveries is considered an essential service and something that our customers and our communities can depend on as we all work together through this challenge.
Continuing on slide eight.
As we work through the various aspects of Cobot 19, we are of course monitoring any financial impacts <unk>. It may have on the company.
For our utility operations, we have become a great structures and all of our jurisdictions on top of that as I. Previously mentioned, we will be entering our seasonally low sales period for the next several months.
Got a century group as I mentioned at the outset, we are continuing our work as an essential services provider.
And are using enhanced safety protocols to safeguard the health of our employees were also monitoring the cost consequences of the safety stops and have already begun discussions with several of our utility clients about recovering such calls.
We have adequate liquidity at the company just last month, we extended our holdings and southwest gas credit facilities through April 20 to 25.
We're also closely monitoring or customer uncollectible expense, but with our seasonally low bills right, even customer bills support options and deferred accounting orders already in place in California, Nevada, We don't expect it won't be a material issue. We also don't expect any changes to the funding of our pension.
With that I'll now turn the call to Craig for an update of our financial results.
Thanks, John let's begin with a summary of total company operating results on slide nine.
For the first quarter of 2020 consolidated net income was 72, and a half million dollars or $1.31 per diluted share compared to 94.8 million dollar 77 per diluted share for the first quarter 2019.
Oh, the 46 cents per share reduction between quarters 42 cents was due to temporary changes and the cash surrender values of company on life insurance or coli policies.
For the 12 months ended March 31, 2020, net income was $192 million or $3.50 per share compared to net income in the prior year period of 198 million or 391 per share.
Temporary coli changes between 12 month period totaled $10.8 million or 20 cents per share.
Next we'll take the detailed look into each segment, starting with the quarterly comparison of natural gas operations on slide 10.
Net income for natural gas operations declined $19.8 million between quarters due to a 26 and a half million dollar decrease and other income.
Temporary changes in the cash surrender values of coli policies resulted in a 15 and a half million dollar noncash loss in the first quarter 2020, well the first quarter of 2019 reflected coli and come up $7.6 million.
Both results were primarily due to significant volatility the overall stock market underlying the policies, including a co bid 19 influenced 20% decline in the S&P 500 during the first quarter 2020.
At March 31, 2020, coli cash surrender values told the totaled $117 million well the face value of the associated life insurance policies is about $240 million.
Currently approximately two thirds of our coli policy cash surrender values fluctuate based on the broader stock market.
Based on the market close yesterday, it's estimated that about one half of the loss reflected in Q1. This year would already have been recruit.
Operating income for utility operations include increased 9.1 million between the first quarters of 2019 and 2020 due to higher operating margin.
Lower own Evan costs.
The 14 million dollar increase in operating margin includes 5 million from customer growth at 33000 net new customers were added over the past 12 Mountains and 1 million from California attrition.
Miscellaneous revenues, an increase recoveries of regulatory program balances in the current quarter.
Coupled with the impact of a onetime adjustment in Arizona 5 million related to tax reform in the prior year quarter accounted for the remaining operating margin increased.
The 2.5 million dollar decline in operations and maintenance or own M. expenses included lower pipeline maintenance costs and a reduction in legal claims expense, partially offset by an approximate 400000 dollar increase in bad debt expense.
Management has also undertaking various initiatives.
Outlined later in this presentation to mitigate the potential impacts of Copel 19 headwinds on our results.
The 7.3 million dollar increase in depreciation amortization and general taxes includes an incremental 2.6 million and regulatory amortization, which is also reflected an operating margin.
A 684 million or 10% growth than average gas plant services, we continue to expand and reinforce our distribution system drove the depreciation increase.
Lastly, the 2 million dollar increase in interest expense reflects higher debt outstanding, including 300 million of senior notes issued in May 2019 to facilitate southwest ongoing expenditures program.
Next let's go to slide 11, which depicts centuries comparative changes for the first quarter.
Results for century, our utility infrastructure services segment declined 2.2 million in the first quarter 2020 versus the first quarter 2019.
While losses during the first quarter are typical due to the impacts of winter weather on operations.
The current quarter also reflects the impacts of cope with 19 our operations.
Revenues increased $20.6 million, despite the temporary shutdown of certain crews in response to some local governmental requirements and safety precautions.
Infrastructure services expenses increased 18.8 million between quarters due to the incremental work and also reflect implementation of new safety standards. That's the workforce inefficiencies associated with the cobot 19 working environment.
The 3 million dollar increase in depreciation and amortization is primarily due to incremental depreciation associated with equipment needed for expanded operations some of which was litle during the current crew during certain crews shutdowns.
Current accrued counts are behind original expectations, but are increasing due to the advent of spring and because many utility customers or read zooming, they're necessary capital expenditure program.
However, the impacts of cobot 19 are likely to be more pronounced during the second quarter because of the lost earnings capabilities of the idle crews during this seasonal ramp up period.
Management has ample implemented and we'll continue to refine cost saving initiatives as detailed later in his presentation to combat the headwinds associated with the current cobot 19 environments.
Let's look at total company 12 month results on slide 12.
[noise] slide 12 depicts the relative contributions by or two business segments. During the 12 months ended March 31 2020.
As you can see natural gas operations provided about three fourths of our consolidated net income while centuries utility infrastructure services group provided about one for.
This general pattern is expected to continue.
Slide 13 depicts the components of an eight half million dollar decline in natural gas operations income between 12 month period.
Like the first quarter coli fluctuate he's had a significant impact as the current 12 month period reflected a 5.7 million dollar temporary decline in coli customer undervalued.
Well the prior 12 month period had coli income of $5.1 million.
[noise] the 40 million dollar improvement in operating margin includes 12 million from solid customer growth.
And 9 million in combined rate relief in Nevada, and California.
The prior year period included the 5 million tax reform adjustment I mentioned previously.
The remaining increase in operating margin includes incremental recoveries of regulatory assets of which $9.2 million is correspondingly reflected in amortization expense and miscellaneous revenues.
The 11.6 million or 3% increase and knowing that includes general cost decreases in higher legal claims experience as well as 2.4 million of incremental damage prevention for call before you did costs associated with utility in construction related activity throughout our service territories.
The 25 million dollar increase in depreciation amortization and general taxes reflects the impacts of 625 million or 9% increase in average gas plant service plus the 9.2 million dollar increase in regulatory amortization as previously noted in the margin discussion.
The 11.4 million increase in interest expenses, primarily due to 300 million of debt issued in May 2019 to support the expansion and fortification of our distribution system.
The 9.8 million dollar reduction in income taxes was partially due to lower state income taxes due to a portion that changes.
And 2.6 million, an amortization of excess deferred income taxes following us tax reform.
The components of the 12 month change in our utility infrastructure services segment are reflected on slide 14.
This slide shows the components of the $2.3 million increased in century net income between 12 month periods.
Revenues increased 196 million, including 192 million of incremental revenues from wind Tech, which we acquired in November 2018.
Utility infrastructure services revenues also grew with existing customers due primarily to additional pipe replacement work across the U.S. in Canada, partially offset by non routine customer requested support in 2018 and early 2019 during the strike related and emergency response situations.
Infrastructure expenses were $163 million higher than the prior year period.
Due to an incremental 158 million for line Tech operations, and the greater and greater operating expenses to support revenue growth.
Depreciation and amortization increased 25.8 million, primarily due to $17.7 million incremental amounts associated with line tech operations as well the depreciation on additional equipment purchase to support a growing volume of work.
The other category includes a 1.9 million dollar increase in net income.
Assigned to non controlling interest associated with the 20% of line Tech operations that we do not currently.
The 3.2 million dollar increase an income tax expense, primarily reflects higher pre tax earnings.
For the 12 months it at March 31, 2020 century operations contributed $50.2 million net income toward our consolidated results.
Let me close my presentation by saying, we're mindful of the continuing challenges that communities businesses customers in our employees and their families are facing the this cobot 19 environment.
As providers of essential services, we remain committed to providing safe and reliable service to our customers in both business segments, while ensuring that continued safety of our customers and employees I'll now turn the call over to Justin Brown for an update on regulatory matters.
Great. Thanks, Greg [noise].
Starting on slide 15, it provides an overview of our $93 million rate case in Arizona.
Including a summary of the various positions on certain issues. We've completed all rounds of testimony and participate in a procedural conference yesterday, where the administrative law Judge said a hearing date for June 29.
With the hearing date being set for June 29, we would anticipate a draft Lj decision within 60 to 90 days following the herring opinion, but on the timing of any post hearing briefing that may or may not occur as such we would expect to see a draft decision as early as September and possibly October.
Yeah.
Turning to our $12.8 million, California rate case.
On slide 16, since our last call. We received the public advocates off his testimony and a summary of their positions are included on this slide.
The primary differences and our positions really boiled down to two issues difference in recommended Aro weeds and a difference of opinion on to capital related issues that were projected as part of our future test year. We're now preparing rebuttal testimony to that as do next week and then we will turn our attention to preparing for hearing which is currently scheduled to begin.
In June 3rd we also have a settlement conference scheduled for next week with the public advocates office to begin discussions to see if there is a path forward shorter proceeding hearing we do not currently anticipate any delays in this case.
Turning to the next slide with respect to our 38 million dollar, Nevada General rate case, which was filed at the end of February. We're currently in the midst of responding to discovery request. The commission held the scheduling conference hearing last month setting the hearing for August 17, and we would expect to see a decision by.
The fourth quarter.
Similar to California, we do not currently anticipate any delays in processing this case.
Turning to slide 18, as previously mentioned.
And our prior call we reached a black box settlement on our Paiute rate case that will slightly reduced the existing cost of service based upon a stated pre tax rate of return of 9.9% in.
In addition, the parties agreed to continue the term differentiated rate design and bulk transportation and LNG storage customers agreed to five year contract extensions as part of the settlement.
The proposed settlement was submitted to the okay at the end of March.
Okay recently certified the settlement as uncontested and recommended the FERC approved the settlement without modification.
Postal has now been submitted to the FERC for their review and we expect them to consider the proposal sometime over the next couple of months.
Turning to slide 19, and a quick update on several expansion related projects in Nevada.
In southern Nevada, we continue to make progress in line with our expectations on or 28 million dollar expansion project in Nevada, We anticipate starting construction on the permanent gas supply pipeline. This summer and this could be completed as early as year end, if not the first quarter 2021.
Lastly sets receiving approval to proceed with our 62 million dollar SB 151 Spring Creek proposal, we are continuing with the design and permitting phase of the project and we are targeting to start construction. This summer with the potential to begin serving customers by the fall.
Turning to slide 20, and then other important focus the southwest gas has been working with stakeholders on various sustainability initiatives, including partnering with key stakeholders on compressed natural gas and renewable natural gas opportunities.
Earlier this year as a member of a coalition of diverse businesses and other interest groups. We supported the bipartisan passage of the balance Energy Solutions Act in Arizona. This bipartisan legislation was signed into law on February by Governor disease, and preserves Arizona's ability to take advantage of each and every energy option.
That is offered to them for use in their homes and businesses, including natural gas.
Some other recent developments include our proposal in California into a met our tariff to facilitate renewable natural gas purchases and to be able to include them in our gas portfolio. This proposal was approved by the commission yesterday at their most recent agenda meeting.
Also in the Nevada Commission recently approved final final regulations for SB 154, which was legislation that was passed in 2019, and then authorized utilities to engagement renewable natural gas activities, which include the investment in R&D facility and the purchase of renewable natural gas as part of it.
Our gas portfolio. What these two recent proposal or with I'm sorry, but these two recent approvals in California, and Nevada, We now have the ability to begin purchasing renewable natural gas as part of our gas supply portfolio in both states.
And lastly, turning to slide 21.
This slide highlights the very supportive regulatory treatment that John referenced earlier that we have either received or that we're currently working on we have orders in California, and Nevada authorizing a track the financial impacts associated with cobot 19 to present them to the commissions at a future day for possible recovery in era.
No no chairman Burns issued a proposed blanket accounting order at the end of April which the commission discussed that it's open meeting this week.
And they will likely again consider it at a future meeting most likely their June open meeting.
Alternatively, depending upon what ultimately happens with this proposed blanket accounting order. We may also give consideration to finally in our own request with the commission.
And with that I'll turn it back to John.
Thanks, Justin.
Moving to slide 22.
We displaced some metrics illustrating the quality of our stable and growing customer base, 85% of the operating margin at our utility operations comes from residential and commercial customers. We have decoupled rate structures across all three states, we serve which covers 85% of our utility.
Margin and we continue to see strong customer growth, having added 33000 customers over the past year.
Spoke patients that we see an additional 1.6% growth rate this year.
Turning to slide 23, we show our capital expansion plan for the next three years, we plan to invest $2.1 billion over the reference three year period to serve continuing customer growth as well as enhance the safety and reliability of our gas distribution systems.
We anticipate approximately $675 million will be invested this year and that the funding for those investments will come through a combination of internal cash flows along with the balance of debt and equity issued through our ATM program.
On slide 24.
Additional detail.
Funding of our ongoing investments in capital as provided as indicated on this slide we anticipate issuing $500 million to $7 million of equity and 500 $700 million of debt.
An additional $1.1 billion to $1.3 billion provided by utility cash flows from operations.
Moving to slide 25, or continued significant investment of capital ultimately translates into significant rate base growth, we anticipate rate base growth will grow from $4.1 billion to $6.2 billion.
Over the five year period ended December 2024, this growth constitutes an 8.6% compound annual growth rate over that period.
Turning to slide 26.
Significant continued growth and our dividends as illustrated in February our board of directors authorized an increase in our other than to an annual rate of $2.28 per share our dividend has experienced a 7.1% compound annual growth rate over five years.
[noise] on slide 27.
We provide some detail on our many sustainability initiatives at our company that Justin referenced earlier, we have made a commitment to reduce greenhouse gas emissions from our fleet and facilities.
Slide 20% quite here 2025, we plan to accomplish this through a variety of energy efficiency methods as well as through greater use of clean burning compressed natural gas and our vehicles. Many of our business partners and our service territory are also very interested in increased use of.
Compressed natural gas on their vehicles organizations like the regional Transportation Commission in southern without the city of Phoenix Republic services waste management, and new PS are all increasing their transportation use of natural gas to reduce their carbon footprints and that's also.
Of alluded to buy just an earlier. We're also very excited about our efforts to secure a renewable natural gas for a portfolio renewable natural gas can come from sources, such as landfills wastewater treatment facilities are dairy farms and constitutes a carbon neutral or often carbon negative.
Source of energy for our customers.
Turning to slide 28, we detailed the compelling business thesis for our investors in southwest gas holdings for our utility operations. We see continued strong capital and rate based growth strong customer growth clean economically attractive and reliable energy for.
Summers continued de carbonization of our gas utility portfolio enhanced by a continued focus on energy efficiency supportive multi jurisdictional regulatory environments that just spoke of continued earnings and dividend growth.
At our century utility infrastructure services business segment, we're focused on continued operations excellence cost management and resource optimization cross selling of gas and electric services to combination utility customers, increasing segment profitability in dividends and providing.
Cafs source for southwest gas holdings, we believe the priorities we've outlined for both of these business segments will create continued significant value growth for our shareholders.
On slide 29.
We detailed some of the contingency planning we have been doing as a team to allow continued successful execution of our management plan.
Keep our company on track financially during the Cobot 19 challenge the table on page 29 lists some of the potential headwinds for both business segments as well offsetting cost levers, we can pull to manage the potential adverse impacts of cobot 19, the degree to.
Any of the listed headwinds will manifest themselves. This year remains to be seen but we are prepared to aggressively manage their impact with a variety of different offsetting initiatives.
Moving to slide 30, we provide the detail our 2020 earnings per share guidance and compare that to the results. We experienced last year in consideration of our experience in the first quarter of this year and our expectations for the subsequent nine months, we are affirming the earth.
Earnings guidance range of $3.75 to $4 per share that we issued earlier. This year. There are a variety of factors that can influence our financial results here. Some of the more notable variable include the timing of rate relief that Justin reference utility customer growth.
These changes in operations and maintenance expense the timing of the release of century work orders from its utility customers and incremental cost of new safety protocols to safeguard the health of our employees.
Page 31.
Further line item guidance is provided consistence with our reaffirmed earnings per share guidance range.
For a regulated utility operations.
We expect operating margin to increased by 3% to 5% due to anticipated continued customer growth of 1.6%.
Operating income was expected to increased by 3% to 5%.
Pension costs are expected to increase by $13.6 million due to lower discount rates with approximately $5.2 million increase reflected in other expense.
We do assume normalize coli returns of $3 million to $5 million.
Capital expenditures for this year should range from 652 $700 million totaling $2.1 billion for the three year period, and Twentytwenty too and we expect continued equity issuances year of $150 million to $200 million.
And at a century infrastructure services segment, we now expect revenues to increase by 2% to 7% through organic growth operating income is expected to be five and have to 6% of revenues interest expense is expected to be 12.5 to 13.5 million.
Collars net income expectations reflect earnings attributable to southwest gas holdings net of approximately $4 million non controlling interest and remember since we do have Canadian operations fluctuating Canadian exchange rates can influence results.
Turning to slide 32.
And our longer term expectations.
The holdings level, we plan to issued $500 million to $675 million of equity over the three year period ended 2022, and we plan to target dividend payout ratio of approximately 55% to 65% for our regulated utility operations capital expenditures.
Totaled $3.5 billion over the five year period ended 2024 with rate base expected to grow at a compound annual growth rate of 8.6% over the period as a result of those investments and growth safety and reliability.
And then at our infrastructure services group, we expect revenue growth of 5% to 8% annually over the three years ended 2022 operating income expected to be five and a half to six.
Percent of revenues over that same period.
And then finally wrapping up on slide 33, we believe that southwest gas holdings offers a compelling investment proposition for our shareholders with two complementary business segments, including our natural gas distribution operations continued to experience.
Strong customer of rate base growth and our century infrastructure services group that offers a low risk platform, providing utility infrastructure to investment grade utility clients, but who we have long term relationships and who in turn have long term.
And your capital investment Horizons.
That I'll turn the call to Ken.
Thanks, John.
That concludes our prepared presentation for those who have accessed our slides. We have also provides an appendix slide 10 include other information of South southwest cash holdings and its two business segments. These slides can be reviewed at your convenience our operator Julia will now explain.
In the process for asking questions [noise].
[noise] [noise] as a reminder, if he would like to ask a question Press Star then the number one on your telephone.
Your first question comes from the line of.
Uh huh.
Im sorry disconnected Chris.
[music].
Chris.
[noise] Hello.
Yes go ahead Sir.
Hey, guys said, Chris from Jefferies. They don't.
Good.
And well thanks, we update today.
I wanted to.
In a couple of things if I could.
John you guys have a friend the capital plans at the utility I'm just wondering I don't know this three year Greg.
What affects coveted would have on on diminishing.
It's administered year to date activity that sentry, you've talked about that but just as you're thinking about the capital budget. There is that something you think you can make up or.
Should we should we anticipate you know a lower level of spend at century this year.
[noise] I think that our capital expenditure plans remain on track Chris.
One of the things that I'd also say and we've talked about this before but a lot of times, we look at southwest gas as being a bit of a microcosm of what gas utility customers across the nation or looking to do and what I am personally.
Calls the American gas association or talking about issues impacting other utilities, including Cobot 19 of course, and how utilities are responding to that I don't I don't hear people talking about throttling back on their capital expenditure plans have there been.
A couple of issues that result from Cowen 19 that requires some additional personal protective gear have you had some governmental agencies, perhaps close down for a few weeks or months that may have slowed down some permitting.
Things like that it.
It had been happening, but I think as you look forward towards end of the year.
We don't really see a lot of difference and what we're doing and I don't hear a lot of difference from the folks that I talked to at age eight as saying that it other gas utilities.
Okay. So I would think now that's.
Right.
You're on track.
Okay, and then I guess as it related point, new kind of raise it but just some noted the efforts to create regulatory assets and hope of recovering some of the co they'd related so that specific spending at the utility level I'm, just curious to the extent that.
Additional PPD or slower activity, Ed and century due to just into measures causes higher costs for you to deliver what you.
Ordinary deliver on on the infrastructure services side do you have reopeners in your contracts to absorb.
Things like that which might stem from governmental mandates are just unforeseen events like the ones. It seems.
[noise], Chris we haven't had any itself with gas we haven't had those discussions with century, just yet I know that century has had those discussions with several of their other clients I think that that's certainly going to be something that we'll be talking to them about.
We wanted to make sure for our customers that we yet the best cost we can for the infrastructure investments that we make but we also realize that with the multiple contractors that we have that we want those folks to be in business for a long time.
Column and to have some healthy competition amongst each other so it will be something that we're sensitive too and we'll be looking at that on a case by case basis as we have those discussions with our contractors.
Okay.
Okay, Great and then a final question for me and it just it's maybe split into two parts, but as it pertains your guidance the maintenance of the operating income at the utility, but reduction operating margin sort of indicates that there is and ongoing Ellen and pick up and I think.
Greg you mentioned somebody on him savings and the first quarter I'm. Just wondering are the anticipation for the full year is that correct lead and maybe some of the drivers there it's different than what you experienced in the first quarter.
And then secondly, it looks like with some of the other reductions Johnny to reduction in growth rate at the customer accounts.
You know, it's small hit to the to the code into the century.
Growth rate in terms of revenues and others and offset with with interest expense there.
And it looks like based on the slide Justin has for the Arizona rate case that maybe it slightly later implementation date this year than maybe what you were forecasting in the last earnings presentation, it's safe to assume that maybe the ranges the same but but internally where your forecast and to be within that range might be a little bit lower.
[music].
Chris This is John let me.
Startup responded to that and then I'll turn it over to Greg I think it is too early to come to that conclusion.
Frankly that was one of the things that we were closely looking at as we approach.
This call and our earnings release, and we're looking at the opportunities we had for offsetting measures and we did.
Think about what kind of additional color, we may have to put on that but when we looked at the cost consequences. What we saw for continued growth et cetera, we didn't think it was necessary to.
That kinda delineation, so I would say that it's still early in the gains so to speak but when we look at the experience that we're seeing at.
The company for both business segments.
Frankly that both seem to be fairly resilience. So.
Okay.
Making sure to keep our pulse on those issues both growth and the cost containment.
And as we continue to move forward and months ahead, Craig you want to add some additional color on the yes, certainly John Chris as you mentioned, we have taken the utilities.
Margin growth and kind of widen that range from four to five down to three to five.
And you correctly point out and I think I did talk a little bit about that that we are managing knowing that that is one of the levers that we can pull to ensure that our operating income at the utility.
It is maintained at the level that we anticipated b.
So, yes, I think that Ah onez will be.
Either not growing as fast or or maybe even flat.
Compared to the prior year, we'll just have to watch and see it really will be a function of what happens on the topline and the timing of of our rate case relief recoveries.
We obviously have a huge capex program that we're continuing at the utility. It's so depreciation is certainly going to rise in proportion to that incremental activity, but we do think we've got all the levers in place to keep the guidance up where we had established earlier this year.
Okay, and Greg maybe just one quick follow up to the Ellen and savings. If you will that year may be able to achieve here versus what you were originally forecast and when you put together that budget. Initially do you think those are sustainable savings or are those sort of the response to the environment right now that you're.
John mentioned, no essentially nothing but its central travel things like that that maybe get relaxed later or is it something you think that maybe create so permanently lower cost structure.
Yeah. Yeah. This is Greg again, I think it's going to be a mix of those items as you mentioned a certainly no. One here at the company is traveling anywhere although I wouldnt expect it as a restrictions or eastern that becomes more again, a normal part of the business environment that we will.
Continue to do that to make sure that we maintain relations with analysts such as yourself with the rating agencies with our customers throughout the nation and so some of those costs will come back we have been very.
Pleased with some of the savings that Weve recognized from some of the work at home environment that our folks have been doing and have found that that is a practical solution in many cases to what we're doing here at the company. So some of those I guess in summary, some of those cost.
Savings will carry over into the future, but some will return to more normal levels as the economy normalizes again.
Okay. Thanks, a lot sort of color. This morning, I stay safe and I'll hop back in appreciate.
Okay to Chris Thank you.
Your next question comes from the line of Steven them broad Zee.
Hi, guys. Thank you very much for taking my question, but here that you guys are all staying safe.
I just had a quick question or two quick questions. I guess the first one is about the rate case getting pushed out I think the original expectations were like in too early to Q4, a an order and now you're talking sounds like about mid Threeq you from Justin's commentary.
So that's like a four or five months' delay can you just give us a little bit of a flavor about.
How much revenue those four or five months would have represented relative to the 93 million dollar ask that you guys had.
Yes, Stephen it's just and I don't think it that long of the delay I think it's probably more in the you know 60 to 90 day timeframe is kind of where we were always projecting was more of kind of a summer decision and now it.
Maybe early early fall may fall and so.
So that that's an essence I think kind of what we're looking at and then I think from a revenue standpoint, I think you know again based on the ask you can just got to probably closely divide that by by 12 I guess.
Kind of depending on what position you want to look at the parties to kind of figure out that that number.
I just wasn't sure if its seasonal at all but okay. Just about yes, it is a little bit but not too much with the decoupling mechanism that we have in place for the most part we've been moving more to little more levelized throughout the year.
I would say for for bulk ballpark now you're probably okay with the 12 that's helpful. Okay great.
And then just on the coli.
Yet I guess I guess kind of.
What you know the reiteration of the $3 million to $5 million, but can you just walk me through so you know it's down 60 million in the quarter you got it sounds like you got 8 million of it back.
In two Q today, what what does the market need to do like what type of rebound from current levels do we need to see in order to get to the midpoint of the $3 million to $5 million and coli earnings.
Yes, Stephen this is Greg I don't know that I'll try and predict exactly what the market either needs to do or may do but as I indicated.
Of our cash surrender value, which was about 117 million at the end of the first quarter about two thirds of that is you know subject to stock market the broader stock market fluctuation.
So I think he can do some math, there and realize what kind of returns.
I need to happen in the market to bring it back up to normal normal levels, we don't need a dramatic increase in the stock market from where it was at year end 2019, but it does need to come up from where it's out now okay.
Great. That's all I had thank you guys very much for the time I appreciate it.
Okay.
As a reminder, if he would like to ask a question first start then the number one on your telephone.
You have no further questions.
I'm sorry, you do have a question.
Is it a though.
[noise], but as far as a good morning.
Could you maybe to previous question on that's usually on them.
Mentioned that maybe some cost will be more sustainable to do you think going forward, maybe we should expect that oh and I'm growth will be lowered that your prior kind of long term guidance I think of 2% to 3%.
Yeah. Good this is Greg I don't know that we over the long term would think that it'll be lower than that has been.
Hi, we're certainly mindful of the environment that we're in right now and we are certainly implementing and we'll look at continuing to implement policies that will help us maintain an appropriate level of profitability.
And some of that doesn't include a the deferral of filling positions and such and that is a deferral mechanism, which means that it will ultimately need to be done. So I think overall, our long term growth levels and own app or can be fairly consistent with where they've been in the past its just a little bit of.
A lower level this year and some but not all of that will come back in future periods.
And if you look at the impact of Covet 19 on your guidance.
Is there any range that you kind of calculated based on this scenarios that you look at how you could help US you know.
I understand how we should think about the impact on different segments.
Yeah I get this is Greg again.
Yeah, I don't know that were quite in a position to try and identifier delineate what the cobot 19 impacts might be honest, we've taken that into account and setting the guidance and re affirming the guidance of 375 to four and we're looking at other measures to make sure we keep in that range, but there's still a lot of.
Unknowns at this time and we are working in that environment as we get more knowledge and as we watch the economy. Both here in our three state service territory as well as throughout the nation as it relates to century open back up that would give us a little more clarity and we will certainly at a future conference call.
I'll share our thoughts at that time.
And last question on the timing on equity issuances.
We'll have done your program for this year. So how will you managed to timing das equity issuances.
Yeah. This is Greg if we will certainly looked at the markets I think its people looked early on that and the the first quarter late in the first quarter. There was a little concern that we might be in an environment similar to the 2008 2009 financial crisis that is not.
The case and so we're gonna be judicious, Sydney and how we issue stock obviously as you can see in our quarterly report we did not issue any stock under the ATM program in the first quarter, hence our adjustment to our longer outlook for 2020 of 150%.
200 million, so we will watch the market and the as we find it appropriately priced with our stock we will continue to issue under that program.
Thank you.
Okay.
Thank you if you have to act.
If you like to ask a question Chris Star then the number one on your telephone keypad.
[noise] you have no further questions.
Okay. Thank you Julia.
This concludes our conference.
Call and we appreciate your participation and interest in southwest cash Holdings, Inc.
He's all the same thing not stay well thank you.
This concludes todays conference you may now disconnect.
[noise] [noise] [noise].