Q4 2020 Southwest Gas Holdings Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the southwest gas Holdings plenty of 20 year end earnings conference call. At this time all the expense are in a listen only mode.
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The likes of turning the conference over to your host, Ken Kenny Vice President of Finance and Treasurer.
Please go ahead.
Thank you Sherry welcome to the Southwest Gas Holdings, Inc, 2020 earnings conference call cash.
<unk> stated my name is Ken Kenny and I am the.
Vice President Finance and Treasurer, Our conference call is being broadcast live over the Internet for those of you who would like to access the webcast. Please visit our website at Www Dot Swg, Hey gas holdings.
Hum.
Click on the conference call link.
Have slides on the internet, which can be accessed to fall of our presentation.
Today, we have Mr. John P Hester southwest President and Chief Executive Officer, Mr. Gregory.
Jay Peterson Senior Vice President Chief Financial Officer, and Mr. Justin L. Brown Senior Vice President General Counsel and other men members of the senior management to provide a brief overview of 2020 earnings and provide earnings per share guidance for 2021.
All of the company will address the factors that may impact this coming year's earnings and provide 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 you should refer to the language in the press release, our SEC filings and also slide number three presented.
A day for a description of the factors that may cause actual results to differ from our forward looking statements. All forward looking statements are made as of today and we assume no obligation to update any such statement.
With that said I'd like to turn the time over to John.
Thanks, Kevin turning to slide for southwest closed out a strong year for 2020, realizing record net income of $232 million representing record earnings per share of $4 15, and our 15th year of dividend increases of 10.
An increase to our dividend to an annualized rate of $2 38 per share for our regulated utility operations. We added 37000 net new customers. The strongest gain we've seen since 2006 operating margin increased by $24 million decreased.
<unk> and maintenance expense of $16 million from.
The rate relief of almost $60 million in Arizona, and Nevada, and an agreement and our California rate case for over $6 million and rate relief in the unexpected forthcoming decision from the commission finally at our unregulated infrastructure services operations, we realized record revenues of $1 nine.
Dollars, which represented a $197 million gain over the prior year, we saw a significant storm restoration revenues of $82 million as we helped our regulated utility customers recover from eight major weather events impacting retail customers in 14 different <unk>.
We experienced record net income of just under $75 million.
43% increase over the prior year and century contributed cash dividends of $26 million for the parent Corporation.
Moving on to slide five an outline for today's call Greg Peterson will provide the financial results overview of segment breakdown for our regulated and unregulated operations, Justin Brown will provide an overview of our extensive regulated activities and I will provide an update on our response to the.
Corona virus pandemic, our diversified and growing customer base, our efforts of advancing interest in sustainability, our capital and rate base growth of our dividend and our expectations for the remainder of this year with that I will now turn the call to Greg. Thanks.
Thanks, John.
Yesterday afternoon, we announced our 2020 earnings and provided some statistical information in our form 8-K filing with the SEC.
We also filed our annual report on form 10-K with the SEC. Please refer to these documents for a comprehensive analysis of our operations for 2020.
I will touch on some highlights and additional details of our operating results for 2020.
Let's start today with the comparative summary of total company income on slide six.
As John mentioned consolidated net income was a record $232 million for for 14 per diluted share.
Compared to $214 million of $3 94 per diluted share for 2019.
The EPS result of for 14 for 2020, you exceeded the top end of our EPS guidance range, primarily due to the tailwind from incremental emergency storm restoration work performed by century and sizable increases in the cash surrender values of the company owned life insurance at the utility.
The relative incremental contributions to net income between years for each operating segment are shown on the next slide.
Slide seven depicts the composition of the $18 4 million dollar increase in consolidated results between 2019 and 2020.
Net income for the natural gas operations segment declined about $4 million, while net income for the utility infrastructure services segment was up over 22 million between years.
I'll provide some additional details surrounding the changes in each segment in the following slides.
The waterfall chart on slide eight shows the components of the net $4 million decrease the natural gas operations results between 2019 and 2020.
Additional details are on slide 40 of the appendix to this presentation.
Let me start by saying that operating margin reached an historic level of $1 billion from 2020.
The $24 million of operating margin increase includes $14 million from 37001st time meter sets during the past 12 months of one 8% growth rate.
Rate relief in Nevada, and attrition increments in California, collectively provided 7 million of operating margin.
The remaining $3 million increase between years includes the impact of of onetime $5 million reduction to margin in 2019 associated with the tax reform adjustment to the Arizona decoupling mechanism of.
The moratorium on charging late fees negatively impacted 2020 margin by an estimated $6 million.
The $15 $8 million decline in operations and maintenance of O&M expense reflects managements efforts to reduce expenses at the outset of the COVID-19, pandemic, including a $4 million reduction in travel in person training and related costs.
A modified process to minutes my to minimize customer contact or Inc. Tenant changes saved about $2 million in expenses and we temporarily reduced head count by about 1% from 2019 levels, while maintaining a 96% customer satisfaction rating.
Legal claims were down about $3 million between years, however of strong housing and construction market and the accompanying population growth resulted in a $5 million increase in line locating or call before you dig costs to ensure the safety of the communities we serve.
Incremental O&M costs, including training for our customer data modernization initiative or <unk> project.
We're about $2 million in 2020, and we anticipate an additional two plus million dollars in incremental O&M to facilitate go lives of these projects in mid 2021.
Depreciation amortization and general taxes increased $28 million between years cash.
<unk> expenditures of $692 million in 2020 drove a $668 million or 9% increase in average gas plant in service and a corresponding $19 7 million or 9% increase in depreciation and amortization.
Even with the similar level of overall capital expenditures in 'twenty, one depreciation is dissipated to grow an incremental $5 million to $6 million associated with the mid year implementation of the CDMA projects, which have shorter depreciable lives in our pipeline infrastructure.
General taxes will also increase in 'twenty, one as the property tax tracker based in Arizona is reset with the new level of expense associated with the recent general rate case decision.
The $16 $1 million decline in other income includes an $8 $2 million reduction between years and the change.
Cash surrender values of company owned life insurance for coli policies.
Both years, where more than our expected $3 million to $5 million of annual increase as a major portion of the underlying investments surged with the general stock market specifically.
Specifically coli values increased $9 2 million in 2020 versus a record high increase of $17 4 million in 2019.
The mix of the underlying investments was adjusted in the fourth quarter of 2020 to mitigate these extreme volatilities in cash surrender values going forward, while maintaining the face value of the policies at approximately $260 million.
The other major component of the decline in other income was of $5 million increase in non service related pension and postretirement benefit costs between years.
These non service pension and related costs are expected to decline about $6 million in 'twenty. One however, O&M will experience an offsetting increase associated with the service related pension costs.
The $6 $1 million increase in interest expense reflects higher outstanding debt balances, including $450 million of two 2% senior notes issued in June 2020.
Southwest's ongoing capital expenditures of being financed with the combination of debt and equity issuances to supplement cash flows from operations.
We will now review century results on slide nine.
This chart shows the components.
Of the 22 and a half million dollar increase in the utility infrastructure services net income between 2019 and 2020.
Century revenues increased $197 million to nearly $1 $95 billion due primarily to incremental of electric infrastructure revenues of $145 million from expansion of work with existing customers and securing work with new customers.
Included in electric infrastructure revenues in 2020 is $82 million from emergency storm restoration services provided for.
Performed by line Tech following hurricane or tornado damage to above ground utility infrastructure in the Gulf coast and eastern regions of the U S.
Most of this work was performed during the third quarter and early fourth quarter at the peak of this effort. We had nearly 700 employees working 16 hour days to restore power to thousands of homes and businesses.
These employees were diverted from other worked for form these emergency services by comparison, only $13 million and similar services were provided in 2019.
[laughter].
Century also experienced continued growth was existing gas infrastructure customers and benefited from generally favorable weather working conditions. During the year. These overall revenue increases are even more impressive given the challenges associated with performing and of COVID-19 environment.
Revenues from contracts with southwest totaled $135 million in 2020, and $159 million in 2019, representing six 9% and nine 1% of century's total revenues for 2020 in 2019, respectively.
Century expenses were $156 million higher than the prior year, largely due to incremental expenses related to electric infrastructure services of $109 million, including costs associated with the storm restoration work.
Storm restoration work typically generates a somewhat higher profit margin than the core infrastructure services due to improved operating efficiencies related to equipment utilization and absorption of fixed costs.
During 2020 century received $4 1 million in wage subsidies from the Canadian government associated with COVID-19 relief programs recorded as a reduction of the wage expense.
Also included in utility infrastructure services expenses for general and administrative costs, which increased $24 million between years due to higher payroll and operating costs and higher profit based incentive compensation.
Offsetting these increases were of lower insurance costs from favorable claims experience under self insurance programs.
Depreciation and amortization increased $9 1 million, primarily due to $5 8 million of incremental depreciation related to the continued growth of line Tech.
Interest expense declined $4 8 million, primarily due to lower borrowing rates on the outstanding balances of centuries facilities.
The $4 $6 million decline in other income on the chart shows the includes the net income allocable to non controlling interests that grew by nearly $4 million, reflecting the portion of the <unk> business that we currently do not all of them.
Income tax expense increased $9 7 million between years due to the substantial increase in free tax income.
In the appendix to the slides accompanying this presentation. We've added summary operating results of century in a format that includes a gross profit line and separately identified the amortization of intangible assets of <unk>.
Separate presentation of EBITDA, a non-GAAP measure is also included.
We believe these additional materials may be useful to investors and analysts and further evaluating the century results.
Finally, as shown on slide 10, the natural gas operations segment provided 68% of our consolidated net income in 2020 and century contributed 32 per cent.
Centuries growth in revenues, including significant emergency storm restoration services to the thousands of homes and businesses for.
<unk> record net income and an increased share of consolidated results with new utility rates effective in Arizona, and Nevada and anticipated in California. The utility's contribution to consolidated net income is currently expected to exceed 70% in 2021.
I'll now turn the call over to Justin Brown for a regulatory update.
Thanks, Greg as John referenced previously subject to receiving final approval on our pending California settlement, we will see refresh rates in each of our state jurisdictions that will result in increased revenues of approximately $66 million.
This will help us continue to provide safe reliable and affordable energy service for over 2 million customers across our three state service territory.
Starting with find 11, we've received final approval in December on our Arizona rate case. This results in increased revenues of nearly $37 million. We were also authorized to continue our fully decoupled rate design, our property tax tracker implement a new income tax tracker and continue with a slightly modified coil program.
Turning to slide 12, we also recently made a compliance filing identifying our plan for reconciling any unrecovered revenues from the coil and VSP programs in 2019, the commission froze the existing surcharge and suspended future surcharge filings pending the outcome of our rate case.
As such we now need to reconcile the differences between the coil and VSP surcharge revenue, we've received to date and the amount outstanding through the calendar year 2020, plus address the VSP plant that is not included in base rates. Following our most recent rate case in total this adds up to about $74 million.
We plan to make a filing in may requesting to adjust the tracker surcharges and recover these costs at which time. The commission, we will evaluate the proposal, including the time period in which the costs are going to be recovered we'd expect to see of decision before the end of the year.
Moving to slide 13, and our Nevada rate case, the commission authorized the revenue increase of $23 million with an ROA of 95, and an equity ratio of just under 50%.
Rates became effective back in October.
In California, turning to Slide 14, we filed a proposed settlement agreement with the commission. The first week of August. The proposed settlement agreement provides for a revenue increase of just about six and a half million, including an ROE of 10% of an equity ratio of 52%. We also agreed to continue our annual attrition filings, which will allow us.
The adjusted revenues by $2 seven 5% annually over the next five year range cycle. Two other very important components of the rate case include approval of our proposed risk informed decision, making programs, which will allow us to invest up to $119 million over the next five years and safety measures to ensure continued safe and reliable service for our Calif.
Cornea customers and we also will be.
To recover these costs annually through a surcharge. In addition, we agreed to remove a large replacement project in North Lake Tahoe from the base rate request and instead of the parties agreed to simply recover the cost annually as the segments of the project are completed this was originally estimated as of $60 million of project and we included about <unk>.
$30 million of it is part of the future test period in the original filing which accounted for about 4 million of the original $12 $8 million proposed deficiency in the case. The ALJ recently made a filing requesting to extend the statutory time period through April and signaling a march timeframe for the order we currently.
Have a memorandum account in place that allows us to track the differences between existing rates and the proposed new range such that we will not be harmed due to any delay in getting a final order issued.
Turning to slide 15.
And a quick update on several of our expansion related projects that we've been working on in southern Nevada, We continue to make progress on our $28 million expansion project in mesquite last quarter. We saw the completion of the approach main which would be the main source of permanent supply of gas for the area.
In Northern Nevada, we started hooking up our first customers last quarter since receiving approval to proceed with our $62 million Spring Creek proposal. The first development area along the approach main was well received by new customers as we saw a 100% of the eligible customers request gas service, we will continue to build out to the other portion of the spring.
Throughout the remainder of the year and with that I'll turn it back to John.
Thanks, Justin moving to slide six the same south.
The sky assets out of a multifaceted response of the COVID-19 virus to protect the interest of our employees our customers our shareholders.
The interests of our employees, we successfully pivoted to a work from home environment last year for our office staff and rolled out increased personal protective equipment and social of physical distancing guidelines for our field employees as well as our contractors protecting the interests of our customers we temporarily suspended Utah.
The late payment and Disconnections for nonpayment.
Offered outreach of assistance from flexible payment plans from coordinated with state and local government entities to secure funds available for payment of utility customer bills.
And protecting the interests of our shareholders our utility rate designs of operate under decoupled revenue structures, while our century of utility infrastructure services revenues remain strong and growing we're able to secure a specific COVID-19 regulatory asset treatment in both our California and Nevada.
The Tory jurisdictions.
Turning to slide 17, we continued to experience strong customer growth, adding 37000, new customers over the past year as homebuilding activity and in migration to our service territories remains strong.
On slide 18, we believe our continued significant customer growth is predicated on the great value proposition, we offer to our customers. The natural gas service. We offer is reliable affordable strongly demanded by both current and new customers and comes with a high bar for customer.
Service for which we realized a 96% customer satisfaction. This past year as noted by Greg along with the first place ranking from independent third party customer satisfaction studies.
Moving to slide 19, we feature two of the newest areas of expansion of our service territory as detailed by Justin earlier, Mesquite and Spring Creek, Nevada expansion into these areas was selected by support of state legislation that allows southwest to propose service territory.
The expansions into areas of Nevada that are unserved or underserved by natural gas both towns consider the availability of natural gas to be critical to their economic development interests, and we have committed almost $100 billion in capital to support.
Of course that interest turning to slide 20.
We show the breakdown of our customers and margins by state jurisdiction residential and small commercial customers make up over 99% of our customer base and our served under decoupled rate designs in all three states on the <unk>.
Slide 21, our some selected quotes characterizing the strength and resilience of the southern Nevada, New home market of 2021 already off to a very impressive start and on slide 22, we show.
Some of the comparable quotations, reflecting the significant new home growth in Arizona.
Slide 23 illustrates that the economic development in our service territory is not singularly focused on new homes, but encompasses substantial new business expansions of companies like resorts World, Google Raytheon and the Las Vegas Raiders among others.
Turning to slide 24.
We detailed some of the many programs we are developing and implementing to secure of natural gas is a rightful place in a sustainable future greenhouse gas reduction and climate change interests are important to our company, our regulators and our customers and important part of our ability to influence future reductions in greenhouse gas.
This includes the increased use of renewable natural gas as well as promoting the displacement of diesel and gasoline in the transportation sector with compressed natural gas. We now have tariffs from programs throughout our service territories to support expanded deployment of RMG and C N G to our customers.
Yes.
Slide 25 demonstrates that the support we are receiving on our regulatory venues is translating into real projects on the ground as we partner with our customers to secure renewable natural gas supplies for our system expand the use of C. N G and look towards a hydrogen inclusive of fuel.
Sir one of.
My favorite initiatives is our partnership with the RTC here in southern Nevada that had already converted its extensive bus fleet to compressed natural gas to address air quality of containment issues, but in the interest of establishing of carbon neutral footprint recently entered into an agreement with southwest gas to.
Secure renewable natural gas as an alternative to much more expensive and operationally inferior electric buses moving.
Moving to slide 26 for more information on southwest gas is promotion of numerous initiatives to enhance the sustainable future. Please see our sustainability report, which is accessible through the web site noted at the bottom of the slide.
Turning to slide 27, our plans for capital investment across our three state footprint of detailed southwest gas plans to invest approximately $2 $1 billion over the next three years to serve new growth and enhance the safety and reliability of our gas distribution network.
We anticipate funding of about 50% of those investments with internal cash flows and the remaining balance with an even mix of both debt and equity issued through our ATM program.
On slide 28, when including dividend payout expectations, we anticipate our three year capital needs will approximate $2 $5 billion, which is planned to be sourced with roughly $1 $2 billion from cash flow from operations approximately $600 million in utility debt issuance.
And about $700 million and equity issuances.
Turning to slide 29, our continued investment in our gas distribution systems is expected to result in significant continued growth in rate base of total rate base expected to grow from the level of $4 $5 billion at the end of 2020.
$6 $5 billion at the end of 2025 this growth in rate base of approximates a seven 5% compounded annual growth rate in rate base over the five year period end of 2025.
Moving to slide 30, this graphic illustrates the continued expected investment of capital compared to our historic expenditures with each of the next three years expected to see approximately $700 million of year of continued capital investment.
Slide 31.
Shows the historic growth in our dividend.
Horton part of the total shareholder return we offer our investors just earlier this week our board of directors approved an increase in the annual dividend of 10 cents to an annualized payout of $2 38 per share.
Moving to slide 32, we outlined our strategy to continue to increase the value proposition. We believe we offer our shareholders at our regulated natural gas operations. We anticipate continued significant investment in capital in growing rate base continued strong customer growth of focus.
On cost control to ensure of affordability to our customers efforts to encourage a sustainable future through increased use of CMG RMG energy efficiency in the hydrogen constructive regulatory results and continued growth in earnings and dividends at our century utility infrastructure services.
We anticipate very favorable of continued opportunities to grow both our gas and electric services. Our focus on operations Excellence continued refinement of our cost management and resource optimization encourage cross selling of services to our combination utility customers increased prop.
The ability and dividends and increased sourcing of cash to southwest gas holdings.
Turning to slide 33, and our expectations for 2021, we provide earnings per share guidance for 2021 in a range of $3 95 to $4 20 per share our expectation for the current year compares to 2020 results which included.
$9 million of returns associated with company owned life insurance versus an average annual expectation of $3 million to $5 million moved.
Moving to slide 34 line item detail is provided for our 2021 earnings guidance for our regulated natural gas operations, we expect operating margin to grow by 6% to 8% based on continuing customer growth rate relief in all three states expansion projects and infrastructure tracking mechanisms.
Operating income should increase by 3% to 5% pension costs are expected to be flat compared to the prior year company owned life insurance returns again are assumed to be $3 million to $5 million capital expenditures should approximate $700 million at our century utility infrastructure services group.
We expect revenues to grow by one 4% and recognition of significant storm restoration activity experienced in 2020 operating income is expected to be five 3% to five 8% of revenues interest expense should total $8 million to $9 million and net income expectations reflect earnings.
<unk> southwest gas holdings net of Noncontrolling interests.
Also please remember that due to our Canadian operations fluctuations in currency exchange rates can influence results.
On slide 35, we affirm our longer term expectations of southwest gas holdings, we anticipate $600 million to $800 million in equity issuance through our ATM program for the three years ended 2023, and we will target a dividend payout ratio of 55% to 65% at our regulated utility operation.
We anticipate investing $3 $5 billion in our gas delivery systems over the five year period ended 2025, and expect great great great base to grow at an annualized rate of seven 5% and at our century utility infrastructure services group for the three year period end of 2023.
We expect revenues to grow 5% to 8% annually operating income is expected to be five and a quarter to six for the quarter per cent of revenues and EBITDA is estimated to be 10% to 11% of revenues.
Wrapping up on slide 36, we believe the southwest gas holdings offers two attractive and complementary business segments to our investors our natural gas operations offer great customer growth strong rate base growth and operations focus on safety and reliability are relatively new debt.
Distribution system kind of opportunities to enhance our sustainability posture with the development of renewable natural gas supplies hydrogen energy efficiency and more similarly at our century of utility infrastructure services segment, we see continued favorable growth opportunities of low risk sort of.
This platform long term relationships with an exceptional group of investment grade utility clients and increasing opportunities for dividends and free cash flow.
I'll return the call for Ken.
Thanks, John.
That concludes our prepared presentation for those who have access of our slide. We have also provided an appendix with slides that includes other pertinent information about southwest gas Holdings, Inc, and its two business segments.
The slides can be reviewed at your convenience of.
Our operator, Sadie will now explain the process for asking questions.
Thank you, Sir ladies and gentlemen, if you would like.
The press Star one on the telephone again, if you would like to ask a question press Star one of your telephone with once weekly from moment to compile the Q&A Rusty.
Sure.
Yeah.
For reference the question of we have great strength.
Thank you Yang from Bank of America mature of your line's open.
Hey, good morning, Thanks for taking my question.
Good morning Rich.
Hi, I'm just curious on your 2021 guidance range.
Appreciate all the all the drivers that you're giving for each segment.
But just curious how you think about executing within that range just given it is relatively wide and are you assuming any revenue.
Revenue requirement from the tracker into that guidance just given the timeline there.
Richie This is Greg.
We're at the very beginning of the year I think this 25% range that we provided is consistent with the.
The 25 that we provided last year.
So you know.
We give the guidance and we will watch as the year progresses to see how we do our I believe there is some adjusted could certainly provide additional detail, but there is some level of the.
Recovery for the subsequent rate filing in the Arizona into those results, but again, we'll have to watch and see after the filing is made.
To see if that impacts the range at all.
Got it and he said share some additional detail on there from from Justin just curious of what that was.
Hey, rich, it's just the I know I think he's just referring to I mean, it's it's kind of unique in that there's not like a set timeframe. So I think our assumptions are based on typically in the past we would make a tracker filing in February we would usually get a decision by June or July and so were kind.
Of estimating given the fact that it's related to the tracker programs that should follow kind of a similar path and so we expect to see of decision towards the end of the year similar timeframe and that's what's kind of reflected in terms of our guidance.
Okay got it that's helpful for theirs.
All of them out I'm, just giving the timing at the end of the year.
And then I guess just on your long term rate base growth.
Thompson.
It looked like that debt down.
The seven 5% from your prior guide of 8.6.
And the equity need it moved up.
A tad there I guess, what's driving the delta between those two.
The numbers if you can go on to the little bit more detail on that of the.
The thing around the type of rider programs. There that are not included in there or how are you guys thinking about that all together.
Richie This is Greg I can I can start.
One by saying that just the math I guess is what really drives the three year CAGR down on Capex. If you remember last year. The it was still of 700 million dollar a year.
Expectation of Capex on a lower beginning rate base. So as we've continued out that $700 million are just the math drives that down a little bit and we're pretty comfortable with the $700 million range. We think it was.
With what we executed two in 2020, and we see that available going forward in 2021 up through 2025.
As it relates to the equity needs of all.
I'll start by saying, we're using round tens of billions of dollars and so of that.
Of that six to $600 million to $800 million range from equity.
It's pretty much the same as what it was before but just to make the math work you end up picking things up by a point 1 billion. So I wouldn't say that there's anything driving that other than it's just the math that makes it work, but again, we expect and are.
Are working to ensure that we maintain this 50 50 equity and debt mix that we have on our books.
That's a good place to be and so we will be issuing the equity all along the way over the course of the next few years to ensure that that's where we stay out.
Alright got it that was very helpful and just last one if I can sneak it in.
On your emphasize for business.
Has the recent weather events cause any increase the men so that the the winter weather events in particular.
And is that baked into your current expectation.
Hey, Rich this is John I think that the recent weather events for century has kind of been a little bit of plus or minus so I wouldn't say that we've seen any kind of significant uptick.
The weather conditions that were as poor as they were that caused a little bit of a slowdown in normal work that you wouldn't be doing with utilities and then they had some other limited opportunities to work with utilities that had their facilities.
The needed to be the.
Needed to be restored so I would say that our we're not expecting to see a big increase out of the most recent storm and so it's a it's not really reflected in the 2021 results and our 2021 of our 'twenty and 'twenty one guidance wouldn't changes of.
<unk> of that weather.
Okay, Great that's very helpful and any fuel impacts of U.
Alex the answer I'm, assuming not.
Well, we actually did see some impact on the gas this is John again.
The impact on the gas prices that we experienced with our customers, we get a fair amount of gas out of Texas for our Arizona customers, which are served primarily off of El Paso I think that there were some lesser impact from some of the other pipeline.
When we take gas off of including current River northwest pipeline Ruby pipeline work kind of tailing up those are incremental costs now we've got rate making.
Mechanisms in each of our jurisdictions that we think will accommodate the increased cost that we experienced but it's something that we're gonna go back take a look at have some discussions with our regulators and see if there are any incremental accommodations.
We might need to make in the interest of our customers, but the.
The important part for US was notwithstanding the cuts that we saw some of our pipeline systems. We did not experience any outages for our end use customers and we're pretty happy to see that.
Alrighty excellent. Thanks for all of the color that's all of that.
Thanks for thanks for cheap.
For our next question, we have Richard <unk> from JP Morgan.
Richard Your line is open.
Hi, Good morning, just maybe starting off with the follow up on that last point there the.
Your potential of accommodations, you alluded to would that be sort of around recovery timing or the length of period for recovery.
So can you speak of that element of little bit more.
Yes. This is John that's exactly what we're talking about Richard I think that it's something that we want to take a look at what the fluctuations in bills will be over time, how do those compare with the fluctuations that we've seen historically.
As you probably know we've got relatively low bills in our service territory of our average bill in and of Arizona and Southern Nevada is probably in the neighborhood of $45. So.
When we are looking at an increase in gas costs and gas costs are less than half of the bill.
We want to be thoughtful of it but yeah, what we would be looking at as of.
Are there any particular areas that we would want to consider a longer amortization period than what would normally be included under the normally operating mechanisms.
Okay.
Got it that makes sense.
You're just too I'm just looking forward here when should we expect an uptake moving both wanted to on the you know the.
The total cost and two on on those regulatory discussions.
Yes, Richard this is Greg.
I know our documents are pretty long, we did add a little bit of the estimated flavor to say that these incremental gas cost that we incurred over the peak period.
We are estimated at 200 millions of $300 million.
So I think that you know.
We've seen some of the other utility peers that operated much colder climates have numbers that are.
The 10 times that big so a range of $200 million to $300 million, we probably won't do any update with that until we actually come out with the Q1.
Reports.
And that will also give us time to assess the timing and have the meetings that we intend to do with the regulatory bodies. So I wouldn't expect anything likely until the Q1 update in early may.
Great I appreciate the color and then one final one for me here.
The the coli commentary earlier in the script, if I misunderstood the site apologize, but it sounded like there were some changes made to the the portfolio overall.
The the volatility going forward, but it doesn't look like the return expectations have changed at all so just could you kind of thread the needle between those two elements are in the other considerations here.
Yes, certainly Richard this is Greg again as you know we've had some significant run up so at least the last two years right out of range has been $3 million to $5 million and in 2019 of was $17 4 million of increase of $9 2 million of increased and those are really driven by the stock market.
Returns if you go back another year it was of $3 $2 million decline in coli because of the stock market activity in 2018.
Our overall expectations haven't changed it's really just like balancing any other investment type portfolio. You have so we've moved stuff out of things that are more linked to stock and move them into more of a fixed return component.
Previously probably in the last year I talked about having over 50% of our cash surrender values invested in the things that move like the stock market.
That number's probably.
Half of that now so it's probably more in the 25% range. So the three to 5 million still a good thing we've got a big base to work with now of over $140 million of cash surrender value.
I think the range youll still be fine our intent is to minimize the volatility because at the end of the day of the dollars that we actually get from this are based on the ultimate life insurance proceeds that come from those policies, which as I indicated total of about 260 million.
Yeah.
Great. Thank you for the update there.
Certain of our next question we have.
Great.
That's from cyber resilience, Chris Your line is open.
Hey, guys how are you.
Good morning.
Morning, Chris can you talk a little bit John about what you're seeing in terms of.
RMG de carbonization of investment opportunities out there.
Sure, Chris I think that we see those opportunities.
The existing now and growing I think the our regulators have been pretty supportive of us moving into the venue. We have a lot of customers who are interested in.
In harnessing the.
The methane that is produced as part of their operations other euro of dairy farm or a sewage treatment plant or a landfill.
Some of those same partners.
Maybe if you're a municipality you have an interest in getting that renewable gas into your bus fleet, but the challenge for a lot of those customers is that they're not.
Necessarily experts and the operations of gas.
Supply and distribution. So the commission has been supportive of us being able to partner with them investing capital and helping them accomplish those goals. So we think it's a it's definitely happening right now and we expect that the continued to grow over time.
You sound like you have a very strong housing market and Vegas and Phoenix areas.
In an acceleration in new housing starts that's material.
Hi.
Lost awards.
There Chris but.
If you're asking is the acceleration of the housing market.
I think of it definitely has been accelerated and it's very strong and we're.
We're continuing to see of high demand.
People that live in our service territory to buy new homes, there's a relatively low amount of inventory.
The resale homes of seeing some.
Decent increases in price, although regionally, it's still a very affordable market. So we continue to see that going on through this year.
Think that if you look at any of the the homebuilding stocks of certainly you can see their expectations and the revenues and profits.
The share prices have increased significantly. So we think this continues to have legs for a continuing to grow and I think the other thing that we're seeing related to that that I alluded to in the that you followed for years, Chris is the interest and individuals.
Locating to the desert southwest for a number of different reasons, including the lifestyle that you might be able to enjoy here tax considerations of a lot of other states have some significant tax shortfalls that are going to be followed by significant incremental tax increases so.
We think that the future looks pretty bright.
Okay. Thanks, Justin.
Arizona.
There's been some significant changes at the commission there.
If the sort of an assessment from your point of view of where.
Or do you see.
The tenor of the commission going forward.
Yeah, Chris it's Justin.
To your point Theres been some.
Some changes.
This election, you had you know the.
And with the new chair as well so we have of new New Chairman woman and Lee of Marquez Peterson, New Commissioner and Jim O'connor and the New Commissioner of Anatol Bar I know actually scheduled to some meetings. This last week, where we've met with several of them are still got a couple of left to meet with but so far I mean.
I think things seem to be pretty positive we have.
A nice long standing relationship with the Commissioner Tovar, giving her days in the state legislator as well as being the former mayor of Collison. So.
That's someone we know pretty well and then I know with respect to commissioner Oconnor haven't had a chance to meet him yet I think we've got a meeting next week with him.
But my understanding is is he is someone that's a pretty good friend with Doug Little who is the former commissioner and my understanding is the they are.
Are like minded as what I understand and and so we're definitely anxious to get to know him and develop a good working relationship with him as well and I think of fee. If what I'm hearing is correct that is similarly minded to Doug Little I think that that'll be a positive thing because I think.
Commissioner little was a pretty constructive regulator.
During his time at the ACC.
Thanks.
Get the details guys.
You bet.
Our last question, we have I guess, the gross Scott from UBS.
Your line is open.
Thank you, Jeff and I have one clarification question on the financing.
Finally.
You mentioned the rate increase of liquidity for them.
Yes, it does for both the <unk> B and should we expect the one time rate increase or there will be more gradual increase overtime for PSP.
Yeah, Hey, I guess, Justin that's a good question. So that's that's the total amount.
It's kind of we've calculated it.
And so really to your second part so that would be in total for that includes all three components and then the the second part of that is you know I think there's probably some flexibility on whether theoretically that's the one year or if that's the multiyear thing if you recall in our rate case.
When we had made our 2019 surcharge filing and the commission kind of froze the surcharges at that time and move things.
To the rate case.
There was we had pending of $12 million increase the to the surcharge will ultimately we moved that to the rate case, and we propose to amortize that over three years. So again, I think theres a little bit of a precedent there were.
Some people may look to in terms of whether that's one year, whether that's over three years.
Whether it's applied the one component of all three components I mean, that's part of the process that we'll be working with the commission and the staff. This summer as we look to get a decision hopefully.
By fall.
Thank you for the color in the preferred day, Mike I think it was mentioned debt do you have no time for development of R&D project do you plan to invest the connections are also in the facility.
Are those costs, the essentially going to be resumes.
What's the kind of the spending that you're thinking about on the annual basis could that accelerate growth.
A lot of worried about that.
Yeah.
Well this is John.
Start out and then maybe I'll turn it over to Justin I think that the increased opportunities for investing in facilities related the RMG would be considered to be included in that $700 million of year of capital that we plan.
Moving forward with.
That our primary interest is too.
The work that through the regulatory process, the regulators have been pretty pretty supportive of it I'm pretty interested.
In us acquiring those supplies and working with customers who might not naturally have the operational experience that we have and working with those types of fuels. So.
I expect it to continue to go up but I think that it would be included in our express capital.
Spend at your plants anything else on the.
So, yes, so consistent with what John's describing and as the anchors was reflected on the slide that the he touched on in the prepared remarks.
No.
<unk> a couple of years ago, we've just been focused on working with all three states on getting frameworks in place that will allow and support those opportunities as they arise and so we'll continue to we've got some good legislation in Nevada, We've got some good tariffs in California, and Arizona, We had a proposal in our Arizona.
The rate case, they're going to have a workshop later this year to talk about that further and so again our plan is to continue to get that framework in place so that that way when opportunities arise we will be able to partner with.
Suppliers those of you know.
It's the <unk> that that have these resources available. So we can bring them online.
Alright. Thank you so much that's it for me.
I am the I am showing no further questions at this time I would now like to turn the conference back to Tom Kennedy.
Thank you Sir This concludes our conference call and we appreciate your participation in the interest in southwest Gas Holdings, Inc. Everyone have a great day. Thank you.
Ladies and gentlemen. This concludes today's conference you may now disconnect.
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Yes.
Yeah.
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