Q3 2022 Southwest Gas Holdings Inc Earnings Call
Ladies and gentlemen, good day and welcome to the southwest gas Holdings third quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the prepared remarks, if he would like to ask a question at that time. Please press star one on your telephone keypad.
As a reminder, today's conference is being recorded.
I would now like to turn the call over to Thomas Moran, Vice President General Counsel and corporate Secretary for Southwest Gas Holdings. Please go ahead Sir.
Thank you, Jeff Hello, everyone and welcome to the southwest gas Holdings third quarter 2022 earnings call.
The call will be we will be referencing presentation slides, which have been posted on our investor Relations website.
I am joined on today's call by carrying Holler, President and CEO of southwest gas Holdings, Justin Brown President of Southwest Gas Corporation, Paul Daly, President and CEO of century group and Greg Peterson, Senior Vice President and Chief Financial Officer.
Please note that on today's call. The company will address certain factors that may impact this year's earnings and provide some longer term guidance.
Some of the information that will be discussed today 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 25 of this presentation and the press release as well as our SEC filings 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 statements.
Now I'll turn the call over to Karen.
Thanks, Tom I'm pleased you're joining us today to discuss the southwest gas holdings third quarter results.
Turning to slide four I'd like to provide a brief strategic update.
Earlier this week, we announced that Robert to Fanny will be joining southwest Gass Senior Vice President and CFO effective November 32022, Rob was most recently CFO and treasurer at Pico Energy, an excellent company and we are pleased to be bringing in such an accomplished leader to join our team.
Rob, it's strategically oriented and brings strong skills and financial planning and analysis operational finance accounting and treasury functions.
As previously announced great Peterson will be retiring from his position as CFO on November 30th.
We want to thank Greg for his 27 years of dedication and contributions to southwest gas.
We are continuing to review strategic alternatives for mountain West and century, including a sale or spinoff of century.
I appreciate that many of you are looking for an answer today regarding the timing of the strategic process.
We are in the later stages of the process and remain actively engaged we do not plan to provide additional details regarding the process the timing or speculate on potential outcomes, while the process is ongoing.
Our jet objective remains to maximize value for all stockholders and we are expeditiously working toward that objective.
Additionally, as previously announced we have extended our cooperation agreement with Carl Icahn.
Now that we've covered that update I'd like to turn to the business.
Moving to slide six.
All of us at southwest gas holdings are energized by the opportunities we have in front of us.
Utilities, we continue to strengthen financial and operational performance to accelerate value creation for our stockholders.
We also continue to work to optimize our capital expenditure program.
At century, our utility infrastructure segment, we were confronted with significant inflationary pressures and customer supply chain challenges that affected margins during a quarter, where we delivered record revenues.
Finally mountain West remains an irreplaceable critical infrastructure asset at a structurally advantaged and could not be replicated today.
Overall, the fundamentals of our business remains strong even in the face of challenging macroeconomic conditions.
<unk> and reliability remain a priority as we meet the energy needs of our customers across our portfolio.
We are confident our business positioned for sustained profitable growth as we continue to meet the energy needs of our customers across our three independently strong businesses.
Greg will discuss details on the performance of our three segments.
But in summary, our third quarter results were broadly in line with expectations for our natural gas distribution and pipeline and storage segment, while our utility infrastructure segment was impacted by inflationary and other pressures.
We believe we are well positioned to produce strong outcomes for our customers and the communities, we serve and prioritize value creation for our stockholders.
Now I'll turn the call over to Justin to discuss the utility.
Thank you Karen on slide seven we provide an overview of several key initiatives, we have underway at the utility I want to start with an update on our pending Arizona General rate case. This is the largest rate case in the Companys history, and it's something that is top of mind for all of US as we continue to work toward a final decision in early 2023.
We completed hearings in September and legal briefing, just a couple of weeks ago.
We were fortunate to reach stipulations with both ACC staff and the residential utility consumer office on several key issues just prior to hearing we reached agreement to support an ROE of nine 3% and to use an equity layer of 50%.
Following the board's announcement in August to suspend the strategic alternatives process for the utility we developed an optimization plan consisting of seven different elements that will guide our focus at the utility over the next six to 12 months. We believe this plan provides an opportunity to level set where we have been by undertaking comprehensive analysis.
<unk> of existing capitalization and new business policies as well as our budget process and to take a deep dive into the current cost structure of the utility to make sure. The investments. We are making are efficient targeted and are positively contributing to building a solid foundation for future success.
We believe this evaluation will help us identify cost savings and efficiency opportunities that will help support the tremendous growth we have across our service territory.
And helped pass on savings to our customers improve ROE and result in positive returns for our stockholders.
We believe these efforts will also complement our commitment to delivering excellent customer service and operational efficiency. In fact, we were recently recognized by Forbes as one of the best in state employers. This year and we ranked number one by J D power in customer satisfaction for businesses with natural gas service in the west our third consecutive year.
And we rank first in five of the six J D power study factors, including safety and reliability corporate citizenship billing and payment communications and best in price.
We have two very exciting sustainability and clean energy related projects. We are working on first we have signed an agreement to serve as a utility energy services contractor for our project at Fort Irwin National Security Center in California, If approved by the Commission, we will expand our service territory by constructing a <unk> 39.
22, and a half mile high pressure pipeline to serve the army base and help them essentially transform the base into a sustainable micro grid community. We believe this is an excellent project to demonstrate the role natural gas plays in a sustainable energy future by providing energy reliability resiliency and security to the.
While also lowering GHT emissions and helping support both on site combined heat and power and solar generation.
We recently filed for approval of a hydrogen blending project.
In Northern California. This project proposals to utilize an electrolyzed or to create hydrogen and test the blend of 5% to 20% hydrogen with natural gas.
This project will provide valuable information on the dynamics of hydrogen blending, especially in one of the coldest parts of our service territory.
We are excited about this opportunity to demonstrate clean fuel technologies and the role they play in our future. We anticipate a commission decision sometime over the next 18 months.
We are very excited about each of these initiatives and the opportunities that come with them. We also believe that following.
Our comprehensive review and assessment as part of our optimization plan that we will identify new opportunities and initiatives that will help pave the way as we chart, our future to becoming an industry leader in operating efficiency safety and cost management and customer service I will now turn the call over to Paul to provide an update on century.
Thank you Justin century, this quarter generated 750 million in revenues, which was a 20% increase compared to last year's quarter, driven principally by the inclusion of rigs disciplined but it was also a 6% organic increase from our legacy gas and electric infrastructure.
Businesses. These same legacy busy.
Year to date has achieved a 7% organic growth rate, we had a strong core customer base many of north Americas largest blue chip utilities and are well positioned for continued success as we further expand with rigs disciplined and our entire enterprise into new high growth.
Electric T&D five G in offshore wind markets.
That being said I do want to take a few moments to talk about the headwinds we faced this quarter and the pressure on margins from increased operating expenses in the current inflationary environment there.
<unk> been three principal impacts during Q3 and year to date.
That have affected us one inflation impacts primarily came from continued higher fuel and equipment rental costs.
Along with sub contractor expenses.
Fuel costs alone during the quarter were $95 million greater than last year.
With 75 million miles driven year to date, providing infrastructure distribution transmission support our fuel expense. This year has increased by $28 million over the same periods last year.
There's two additional factors that have been or as as impacted or more impact to the bottom line than inflationary impact is.
Significantly less demand than normal for a higher margin storm restoration services during the quarter and year to date.
We expected a strong hurricane season in August and September which is a normal start of the storm season to begin to drive above storm revenue.
For the quarter and the year, but there were no hurricanes until the end of September .
Hurricane Fiona made landfall in Nova Scotia, and Hurricane and that made landfall in Florida generated $18 million of revenues in Q3.
That is not near the level expected.
With the typical hurricane season coming to a close at the end of this month and given that we have experienced a $28 million a year year to date revenue reduction in storm work.
It is very unlikely that we will experience this year anything close to our historical average of $75 million a year. It should be noted that if we had had a normal storm year and then going forward on normal storm year, we have doubled the number of electric crews today that we had.
Last year during the third quarter, So our storm work shouldnt be much much higher during a normal storm year.
The third impact is continuing significant supply chain issues.
<unk> faced by our clients have in many instances led to severe shortages of critical components required to start or complete new films.
And delays in receiving the materials required for maintenance replacement or hardening work.
The lead times for procurement of the key systems materials and components required for electric T&D work have increased by 2% to four times for most categories with nearly call approaching or exceeding one year delivery time.
Several examples linked times for district for non distribution power Transformers are now 100 to 120 weeks as two times the normal delivery circuit breakers or 90 weeks, that's three times and conductors are 80 weeks, that's four times, what our utility clients normally.
Take to get received the conductors similar impacts our experienced among gas distribution clients.
On risers and gas meters on the average it's now over 60 weeks lead time.
How has this affected us.
Numerous capital projects that we had in our budget performance for performance. This year has backlog, whereas a high percentage of our weighted pipeline have been delayed significantly and pushed into next year.
Standard lead times also materially alters our work mix and therefore, our ability to efficiently sequence park, resulting in less productive execution, which then leads to underutilized equipment or labor becomes much less productive and we are.
I realize increased project related travel expenses.
Centuries financial performance was also impacted this quarter by increased amortization expense of about $3 million, an increase interest expense $10 million primarily related to the acquisition of rigs just learners, Inc. Interest expenses more than doubled due to higher rates on the acquisition debt.
Yes.
Additionally, we recognized a $5 $7 million loss on a gas infrastructure contract this quarter, although we generally.
Perform good words less than 17% a year of our revenue. We did this bid project is for one of our larger utility clients that we have worked for for continuously for the last 15 years.
Awarded in 2020, it had profitable execution all the way through the end of 2021, but this year. The project encountered later in the year inflationary cost increases in fuel and subcontractors and some unanticipated project specific job site conditions impacting productivity.
Pivoting along with permitting delays that were the responsibility of others.
The project is anticipated to be substantially complete in Q4. This year and we are working with our long tenured client to recover the incremental costs.
Now, let me turn to some of the highlights that make us confident that century's business.
Prospects are very strong and then we will see.
So.
Successfully navigate the near term.
Winds.
During the quarter, we one contract awards totaling $175 million, including a new Midwestern U S gas utility MSA customer. We also secured $20 billion in annualized incremental revenue increases on existing customer contracts to offset certain.
Inflationary cost increases.
These increases are all incremental to our normal contract revenue adjustment clauses that we achieve each year.
In other words Theyre, all increases to our base rates and this will benefit 2023 in future years.
On clean energy projects were excited to see award and notice to proceed for $217 million agreement with <unk> to provide.
Onshore assembly fabrication import logistics for just additional offshore wind projects in the northeastern United States.
Together with our existing $135 million of contracts.
And our pending $175 million award from force that we expect soon to have over $500 million of backlog supporting multi year performance.
We are very excited about these offshore projects, which will drive our revenue growth and increase our margins in 2023 and beyond.
Additionally, we are very proud of our line tech national power wine and rigs Distler storm crews and employees, which was comprised of 800 plus employees deployed across the southeast and into Canada that help restore power to countless communities.
Both hurricane Fiona and Hurricane Han.
I also want to highlight our second annual sustainability report published this quarter.
Clearly sets forth, our commitment to making energy infrastructure more efficient, while taking care of the people in place around us our principal we value deeply.
Finally, before I turn the call back to Karen we anticipate current headwinds to persist into 2023, and we anticipate margin pressure from the economic environment to continue somewhat.
After they hit.
Those are great <unk>, we started our integration work and we have completed that integration and across the enterprise, we have taken $20 million in annualized expenses out of the business.
Going forward.
In addition, with over $20 million in that incremental revenue assistance from our customers that I previously mentioned, we expect to drive growth and performed significantly better going forward and we have been able to during 2022.
Notwithstanding these headwinds the fundamentals of our business remain very strong we have strong backlog and a high quality project pipeline.
Driven by an extremely strong multiyear outlook for our traditional gas and electric T&D markets and significant continuing multiyear additional growth opportunities in the <unk> and offshore wind related infrastructure.
Karen.
Thanks, Paul now I'm going to turn to some of mountain West performance highlights this quarter mountain West delivered a $12 $3 million net income in the third quarter.
While results were impacted by $5 7 million of pretax nonrecurring expenses, primarily associated with post acquisition integration costs. Once these expenses are stripped out. These results were in line with company expectations.
In addition, we see the potential for more than $200 million in incremental growth capital expenditure opportunities through 2025. Some of the details of each of those projects are included on this slide including the carbonate tap expansion.
Expansion, which are already under contract we expect to construct these projects at an EBITDA multiple of less than six times driving meaningful value creation for stockholders.
Throughout the integration mountain West has shown strong consistent cash flow generation high performance and superior levels of customer service.
Since acquiring the business, we have made enhancements to business systems and procedures to improve overall customer service. We are successfully re contracting all available capacity and we have maintained subscription rates for all pipelines it significantly more than 90%.
We are pleased to say that we expect the integration of mountain west to be mostly complete by the end of 2022 and moving into the first quarter of 2023, we expect the majority of TSA services will conclude.
Mountain West will be a standalone organization fully integrated into southwest gas.
The last thing I want to cover is the FERC rate review, which is solely focused on one of the three mountain with pipelines the mountain West Overthrust pipeline.
These kinds of rate reviews are relatively common and we are well advised in the discussions we have filed our initial response with firms are.
<unk> isn't the FERC estimate of a return on equity in excess of 30% significantly overstated because the FERC model did not apply the FERC current requirements regarding the treatment of lease revenue.
Current per precedent reaffirmed as recently as a month ago requires cough and revenues relating to lease the capacity be excluded from the calculation for rate making purposes.
Leaving all other assumptions from the FERC model Hussein properly, excluding the costs and revenues received from Overthrust lease capacity to properties Express pipeline would result in a return on equity of 15, 49%, which is below the levels that has historically attracted interest.
Any rate change could be perspective, we expect a final order in mid to late 2024, unless the rate review process results in a settlement now I will turn the call over to Greg to discuss the financials.
Thanks, Karen we issued our third quarter earnings press release and filed our 10-Q earlier this morning.
Please refer to these documents for additional background on our third quarter results.
I'll start with a general overview of consolidated results.
Slide 11 depicts consolidated operating results for the company and line items for each of the operating segments for the three 9% and 12 month periods.
On an adjusted basis, we recognized a loss of <unk> <unk> per share for the third quarter of 2022 versus adjusted EPS of <unk> a share for the prior year quarter.
Year to date 2022, adjusted EPS was $1 82, compared to $2 49 for the year to date 2021.
And adjusted 12 month diluted EPS was $3 27 in 2022 and $4 28 in 2021.
Before I talk about each operating segment, let me touch on our corporate and administrative line item on this slide this.
This line item for the 2021 periods those prior to our acquisition.
Of mountain West includes G&A amounts not charged to the operating units.
Total amount of interest expense related to the holding company credit facility.
With the acquisition of mountain West at year end, 2021, which was financed with Holdco debt.
Fed fund rate increases the interest component at Holdco was $13 8 million.
For the third quarter of 2022.
The corporate and administrative line also included $6 $8 million pre tax of strategic review and related costs for the third quarter of 2022, which are components in the adjustments line.
Next let's move to the operating segments, starting with utility results on slide 12.
As a reminder.
Winder due to the seasonality of our utility business losses during the third quarter are expected on.
Our GAAP basis utility results improved from a loss of $27 5 million in last year's third quarter to a loss of $22 2 million in the third quarter of this year.
Operating margin grew by 11 $4 million between the quarters, driven by $4 million of rate relief, primarily in Nevada and.
In recognition of previously Unrecovered coil and DSP amounts in Arizona totaling $5 2 million.
The addition of 40000 customers provided $2 million and operating margin.
The $6 million increase in other income includes $3 million of higher interest income primarily on deferred purchase gas adjustment receivable balances.
$3 $3 million reduction in non service pension costs.
Offsetting these items was a temporary one 5 million decline in returns on coli policies.
Interest expense increased four and $5 million due to higher interest rates on variable rate debt and higher average debt balances.
Let's now turn to slide 13 to discuss century.
As shown on the right side of the slide quarterly revenues for legacy century were up 6% between 2021 and 2022 as Paul mentioned the.
The revenues for rig dislodge only reflect amounts since we acquired them at the end of August 2021.
Legacy century revenues were up 7% for the year to date September 2022.
<unk> to the same period in 2021.
Customer supply chain constraints, and lower storm restoration surface work impacted expected topline growth.
The waterfall chart on the left side of the slide depicts the major components of the change in adjusted EBITDA between the nine months ended September 2021.
In the corresponding period in September 2022.
Higher fuel costs continue from earlier this year and increased 21 $2 million between nine months periods for legacy century operations.
We have been successful with multiple utility companies that we serve and securing modifications in our contracts to adjust for fuel.
And other inflationary items going forward.
The $5 million loss on our gas infrastructure job was recognized in the third quarter of 2022 due to unexpected cost overruns.
As Paul mentioned this project will be substantially complete by year end and we are pursuing recovery from the customer for incremental costs.
In connection with the lower storm restoration revenues that I mentioned earlier, the negative impact on EBITDA between periods was $6 $4 million.
While we cannot predict the level of storm work in any given period, we are proud of our responsiveness and reestablishing utility service for the families and businesses impacted by Hurricanes, Fiona and Ian.
The rich this lower adjusted EBITDA contribution of 32, and a half million dollars.
Is net of $6 4 million of higher fuel costs.
The growth prospects that rigs disorder, including onshore projects for offshore wind.
But some work anticipated earlier this year has been temporarily delayed due to customer supply chain issues and changes in customer specification.
Turning to slide 14, we can see the third quarter results of mountain West since we acquired them on December 31 2021.
Both adjusted net income and adjusted EBITDA were in line with our internal expectations.
<unk> West earned $12 million of net income in the third quarter and $17 million of adjusted net income after accounting for nonrecurring expenses associated with stand up integration costs consulting fees and one time employee benefits.
EBITDA was $35 million during the quarter and adjusted EBITDA was $41 million, excluding the previously mentioned cost.
There is strong demand for natural gas transportation storage services in the Rocky Mountain region, and we have identified several growth projects for the business.
Since the acquisition strong operating cash flows from mountain West and provided support for parent company interest on the acquisition debt and dividends to stockholders.
Let me now move to slide 16, and our company guidance for 2022 and beyond.
For southwest Gas Corporation, we update our 2022 Capex range to $650 to $675 million previously was 600 $650 million.
We continue to focus on making capital investments to support customer growth pipe replacement program and system improvements, while optimizing the timing and amount of these investments.
We reaffirm our utility net income estimate about $185 to $195 million. We continue to include the $3 million to $5 million of normalized coli income in our 2022 projection.
Reaffirm our five year Capex spending plan of two five to $3 5 billion through 2026, and the resulting rate base increase CAGR of 5% to 7% during that same period.
We reaffirm our five year O&M per customer compound annual growth rate target of less than 1% 2022 to 2026 and reaffirm our 8% plus return on equity goals after utility for 2023 forward.
At century, we modified and tightened our 2022 revenue guide to two 6% to $2 7 billion from the previous $2 65 to $2 8 billion due to a reduction in expected storm restoration work and continued customer supply chain issues that have temporarily delayed certain.
Checks.
Due to continued inflationary pressures, especially on fuel.
Some customer supply chain headwinds, we expect EBITDA margins of 885% in 2022.
Now from our previous guide of 10% to 11%.
However, we believe these impacts are temporary and update our expectations that EBITDA margins will be nine 5% to 11% in 2023 previously 11 to 12.
For 2023 to 2026, we've reaffirmed a forecasted adjusted EBITDA compound annual growth rate of 9% to 11%.
The mountain West we reaffirm our estimated revenue range of $250 million to $255 million, we reaffirm our EBITA margin range of 65% to 67%.
We continue our integration plan of mountain West adjusting for onetime integration and overlapping costs, we reiterate that the mountain west will be accretive to EPS in 2022.
As previously mentioned, we've identified over $200 million previously 100 billion in incremental growth Capex investment opportunities of mountain west through 2025.
I'll now turn the call back over to Karen for some closing remarks.
Thank you Greg before we.
We open the call for questions I wanted to touch on a couple of the key points. We've made today I want to emphasize that maximizing value for all stockholders, that's what guides, our strategic plan and the decisions we make sound.
Southwest Gas Corporation and mountain West continued to deliver results in line with our expectations and we are actively managing the business with unique or exceed those results.
<unk> faced some short term headwinds.
Fundamental drivers in the business are highly attractive and we are excited and confident in the future for southwest gas holdings and look forward to continuing to serve our communities.
Operator, you can now open the call for questions.
Thank you.
At this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue by pressing star two star.
Star one for any questions and we will go first to Richard Sunderland with Jpmorgan. Your line is open Sir. Please go ahead.
Hi, good morning, and thank you for the time today.
Karen I appreciate that you have there been any comments on the strategic review, but just one question on this appointment I'm curious if you can frame the overall process backdrop and how that compares to your August update.
Essentially you are currently on track or if they just slipped a little bit.
I would say that the process is taking maybe a little longer than we anticipated, but we are essentially on track we will make announcements as soon as we have something as I indicated I think that we our.
Approaching the later stages of the process.
And.
We will hope to make some announcements and once that process concludes.
Okay understood.
And switching gear to the results here.
How are you dealing with.
Interest expense, particularly at the corporate level.
<unk> short term debt.
Clearly a headwind on the quarter kind of what's your strategy for handling that over the long term.
Yes, rich this is Greg.
We certainly like most of the rest of the country have been impacted by the fed changes in interest rates and we do have variable rate debt.
At both the holding company the utility and at century, we are working through those processes as you are aware we.
Recently extended the term facility at fee.
Parent company that term loan was originally due in December of this year and we've extended to December of next year, while we work through the strategic review process. So we think that's a key component of what we will do with that going forward.
Got it I appreciate the time today. Thank you.
Thanks Rich.
Our next question comes from Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead.
Hey, good morning, good afternoon team I appreciate the time.
Listen I just wanted to come back to how Youre thinking about the leverage question. Here you really do you think that will be looking at terming things out of I would think that the.
Answer on how to deal with leverage would come from the sale or spin consideration, but.
Would you expect at that point in time determined things out or are there other considerations as you think about just the.
The short term debt impact are there other.
Right hedging considerations here that we should be considering on a on a full year run rate basis, just trying to get a sense on where that stands into 'twenty three and the strategic avenues that exist out there to deal with some of the volatility in rates that we've seen for you guys.
Yes, certainly Julian this is Greg.
Again as I mentioned, we are experiencing that volatility the fed has ramped up the fed funds rate multiple times. This year and we are feeling the impact however, due to the strategic process that we're in we are monitoring that and looking for the optimal time.
To either term out or.
With the proceeds from any sale.
To eliminate those debt obligations, but those are really all contingent on the process and we will monitor that going forward.
Got it and then related how are you thinking about handling just did the.
I appreciate that you've got right activities underway already but.
Respective inflation are at the core business.
The core regulated businesses, specifically into 'twenty three here, how do you think about that and that driving subsequent rate activity, you're a new if you will.
If you can kind of talk talk how it aligns with your rate case cycle.
Hey, Julien it's Justin.
Yes, that's a great question I think in our jurisdictions of Nevada, and Arizona. There are some of the highest actually inflationary.
Pressures across the nation from some of the data that I've seen and so it obviously factors in but I think historically one thing to keep in mind.
Lot of our rate case activity is actually driven by capital investments.
Given our cost management strategies and things and so I'm sure. It will have an incremental effect, but really the drivers for us theyre going to be the capital.
<unk> and spend and finally into those future rate cases.
Excellent Alright, and then can you talk a little bit about the other businesses, you're both the mountain west opportunities. It seems like growth is expanding a little bit and then also just on the the other businesses. How do you think about inflation just ability for margins to quote normalize here a little bit if you don't like.
So with respect to the mountain west opportunities.
We've added some additional opportunities the 100 million was through 2020 before we see some additional opportunities most of those are called the gas conversions, we've had number of customers.
Many customers have reached out to us with respect to some of those conversions and so we do see additional opportunities.
Coming with respect to growth.
With mountain West.
And Julien I'll step in this is Greg and just indicate that yeah. All of our companies again, we're not immune from inflation.
We are working with that.
Paul mentioned in his remarks.
Things that we're doing with century to try and mitigate and actually reverse some of those pressures by right sizing.
Our company.
As we have assimilated now rigs disciplined to the operations. We continue to look for cost saving measures and cost Kirby measures in all of our businesses after utility App mountain West and at century. So we're working to do that to minimize the impact to our customers on a go.
Forward basis.
This is Paul in addition to the 20 plus million that I mentioned and henkel incremental rate adjustments those are great adjustments to existing contracts that are up for renewal, we had probably 20% to 25% large of our large.
Msas that were up for renewal starting in 2023, and we've already renewed those and of course we've.
Baked into those the higher fuel rates and all the higher other inflationary rates on a multiyear basis. So that in addition to the 20 plus million that we had from the customers and then as Greg mentioned we.
We took and the integration with Greggs, we took over $20 million out of the business.
And it's nonrecurring expense that's gone away.
Excellent guys and Hey, Greg Best of luck, it's been a real pleasure.
Thanks, Julie and appreciate them.
Our next question comes from Ryan Levine with Citi. Your line is open. Please go ahead.
Hi, Thank you yeah I wanted to focus on the 2023 guidance change for century can you elaborate as to what percentage of the margin.
Change was higher fuel storm activity and other changes on the cost structure relative to the new projects an incremental cut.
Customers are growth opportunities you see.
Yes.
Yeah. Ryan This is Greg I don't know that we've broken out the specific items, there and like I said fuel is certainly a challenge for us, but as Paul mentioned.
We are mitigating some of those challenges.
Right sizing our operations and looking for other cost savings measures, but it is still going to be a challenging environment in 2023, and so that was the reason for the reduction in the EBITDA margin down to the nine 5% to 11% range from our previous range, but we still see us mark.
Improvement from 2022 as you can see and we do have continued revenue growth. So we're we're looking at all fronts there.
But we will continue to see some cost pressures at some levels and efficiencies going forward.
But as the supply chain for our customers.
On the century side continues to improve.
We will be able to be more efficient.
And have better mix of work and we think that that will benefit us overall.
To follow up on that I mean are you, saying that effectively all the EBITDA margin change as diesel cost outlook and then it gets to the extent that that's a material portion what forward curve are you assuming or price outlook for 'twenty, three and your guidance for diesel.
Yes.
I don't think we've put anything out as far as what we think the diesel prices will be or are fuel prices in general, but that is still an economic impact.
I would love to see all fuel prices come down.
The last time I filled up my take care of it was just a tad below $5 a gallon for gas here in Las Vegas.
So we will watch, but we do have the range of nine 5% to 11 includes what we think are reasonable assumptions for fuel prices in 2023.
Using the forward curve are you, creating your own forecast.
I think if you look at the forward the forward curve, that's kind of baked into what we have but we are optimistic that things will.
We will get better, but much like everything thats been prognosticated for the future, including interest rates theres quite a bit of variability there.
Okay and then.
The breakout of organic versus inorganic for century contribution for the quarter.
Do you have a sense of the EBITDA contribution for the two for the inorganic legacy assets versus the incremental.
Position from an EBITDA contribution is it comparable to the revenue mix.
Yes.
I don't think we would get into that I will say I think we've mentioned this on previous calls Ryan This is Greg again.
The work that rigs dislodge does.
Is generally the electric work and it has a little higher EBITDA margin.
That is an important piece of that but we haven't broken out the specifics.
Okay I appreciate the color. Thank you.
And that will conclude the Q&A portion of today's conference I would now like to turn the conference back to Thomas Kurian for closing remarks.
Thank you Jess and thank you all for joining US today. This concludes our conference call. We appreciate your interest in southwest gas holdings and have a good day.
Thank you and again, ladies and gentlemen that concludes today's southwest gas Holdings third quarter 2022 earnings call and webcast. You may disconnect. Your lines at this time and have a wonderful day.
[music].