Southwest Gas (SWX) - 2023 Q3 - Quarterly Report

Financial Performance - Operating margin for natural gas distribution increased to $1,226.7 million in the twelve months ended September 2023, up from $1,130.7 million in the same period in 2022, driven by higher regulated operations revenues and customer growth[132] - Utility infrastructure services revenues increased by $245.5 million in the first nine months of 2023 compared to the same period in 2022, with electric infrastructure revenues up $117.8 million and offshore wind revenue up $114.3 million[141] - Operations and maintenance expenses for natural gas distribution increased by $9.2 million (2%) in the third quarter of 2023, driven by higher external contractor costs, direct labor charges, and fuel expenses[128] - Utility infrastructure services expenses increased by $301.3 million between periods, driven by higher subcontractor costs and general and administrative expenses, partially offset by improved operating efficiencies[145] Cash Flows and Financing - Cash flows from consolidated operating activities decreased by $105 million in the first nine months of 2023 compared to the same period in 2022, primarily due to higher natural gas costs and deferred purchased gas cost balances[163] - The company received $1.02 billion in proceeds from the sale of MountainWest in February 2023, significantly impacting cash flows from investing activities[165] - Consolidated financing cash flows decreased by $852 million in the first nine months of 2023 compared to the same period in 2022, primarily due to a $1.1 billion repayment of a term loan related to the MountainWest acquisition[166] - Southwest Gas Corporation's operating cash flows decreased by $76 million in the first nine months of 2023, mainly due to higher gas purchases and working capital changes[168] - Investing cash flows increased by $124 million in the first nine months of 2023, driven by higher capital expenditures and changes in customer advances for construction[169] - Net cash provided by financing activities increased by $233 million in the first nine months of 2023, largely due to $530 million in parent capital contributions and a $450 million term loan repayment[170] - Southwest Gas Holdings, Inc. entered into a $550 million Term Loan Credit Agreement in April 2023, with proceeds primarily used to repay a $450 million term loan and for working capital[177] - Southwest Gas Holdings, Inc. has a $300 million credit facility expiring in December 2026, with $57.5 million outstanding as of September 30, 2023[178] - Southwest issued $300 million in 5.450% Senior Notes in March 2023, maturing in March 2028, with proceeds used to repay credit facility borrowings and for general corporate purposes[176] Regulatory and Cost Recovery - The Delivery Charge Adjustment (DCA) filing in April 2023 addressed an over-collected balance of $53.5 million, with new rates effective August 1, 2023[150] - The Tax Expense Adjustor Mechanism (TEAM) resulted in a refund of $6.5 million of estimated net EADIT savings, approved by the ACC effective May 1, 2023[151] - Southwest's PGA balancing accounts showed an under-collection of $687 million as of September 30, 2023, due to natural gas price spikes and market forces[175] - The ability to recover costs associated with PGA mechanisms or other regulatory assets is uncertain[188] - Regulatory support for infrastructure programs and expansions is crucial for future performance[188] Capital Expenditures and Investments - Natural gas distribution segment construction expenditures totaled $778 million for the twelve months ending September 30, 2023, with 55% allocated to pipeline replacement and system reliability[171] - Management estimates natural gas segment construction expenditures will be approximately $2.0 billion for the three-year period ending December 31, 2025, with $720-$740 million expected in 2023[172] Market and External Factors - Customer growth rates and housing market conditions could significantly impact the company's financial results[188] - Inflation, interest rates, and government actions are key factors affecting the company's business[188] - Changes in gas procurement practices and capital requirements could affect financial outcomes[188] - The impact of weather on Centuri's operations is a significant variable[188] Financial Stability and Future Risks - The company's ability to raise capital in external financings is a critical factor[189] - Ongoing evaluations of goodwill and other intangible assets could influence future results[189] - The timing and ability to consummate the Centuri separation could impact stock price and credit ratings[189] - The company's ability to remain within debt covenant ratios is essential for financial stability[189] Interest and Deferred Costs - Deferred purchased gas cost balances increased significantly from $381 million as of September 30, 2022, to $687 million as of September 30, 2023, impacting interest income and cash flows[124][159] - Net interest deductions increased by $32 million between the twelve-month periods of 2023 and 2022, primarily due to the issuance of $600 million in Senior Notes in March 2022 and $300 million in December 2022 and March 2023[137]