Southwest Gas (SWX) - 2022 Q4 - Annual Report

Natural Gas Supply and Pricing - Southwest acquired natural gas from 36 suppliers in 2022, ensuring competitive pricing and reliability in its supply portfolio[39] - For the 2022/2023 heating season, firm fixed-price physical commodity purchases ranged from approximately $4.59 to $9.89 per dekatherm[42] - Southwest entered into a $450 million term loan in January 2023 to fund increased supply costs due to rising natural gas prices[50] - The natural gas market has experienced price spikes due to low storage levels and extreme weather conditions, impacting supply costs[50] - Southwest's price volatility mitigation program includes fixed-price purchasing arrangements, primarily in California and Arizona jurisdictions[41] - The company has limited market area storage services availability, which impacts its operational flexibility and average annual price of natural gas[44] - Southwest's natural gas supplies are primarily obtained from producing regions in Colorado, New Mexico, Texas, and Canada[49] - Southwest may file for rate increases to recover the increased cost of purchased gas, but there is no assurance of timely rate relief[86] - Rate adjustment clauses allow Southwest to recover increases in purchased gas costs, but disallowance of these costs could negatively impact cash flows and earnings[116] - Rising natural gas prices may reduce Southwest's liquidity and earnings, impacting capital resources and potentially leading to short-term borrowings[114] Centuri Operations and Financials - Centuri's backlog as of December 31, 2022, was approximately $441 million related to outstanding fixed-priced contracts[66] - In 2022, approximately 82% of Centuri's revenue was earned under unit-price and time-and-materials contracts[66] - Centuri served over 400 customers in 2022, with Southwest accounting for approximately 5% of total revenue[68] - Centuri's acquisition of Riggs Distler in 2021 positions the company to support the development of onshore infrastructure for offshore wind and power[65] - Over half of Centuri's utility infrastructure services revenues were generated from ten customers in 2022, indicating a concentration of risk[84] - Inflationary pressures have negatively affected Centuri's construction costs, particularly in fuel, labor, and materials, impacting profitability and cash flows[88] - Centuri's fixed-price contracts are susceptible to losses due to unforeseen inflation and cost increases, affecting profitability[90] - Supply chain constraints have negatively impacted Centuri's work mix and volumes, potentially leading to delays and increased costs[101] - Labor disruptions at Centuri could materially affect business operations and cash flows due to collective bargaining agreements[104] - Weather conditions significantly impact Centuri's operations, with revenues typically lowest in the first quarter due to winter weather[93] - The Centuri Spin-Off will lead to both Southwest Gas Holdings and Centuri becoming less diversified companies, increasing their vulnerability to market conditions[108] Financial and Economic Conditions - The consumer price index increased significantly throughout 2022, potentially impacting operating expenses due to heightened inflation[85] - The Federal Reserve has raised benchmark interest rates, which is likely to increase borrowing costs for the company over time[89] - Economic conditions may affect Southwest's ability to finance capital expenditures, with rising interest rates posing a particular challenge[119] - A significant reduction in the company's credit ratings could lead to increased borrowing costs and diminish financial results[129] - Any downgrade in credit ratings may require the company to pay higher interest rates and could decrease the pool of potential investors[130] - Economic downturns, such as those caused by rising inflation and increasing interest rates, may adversely affect the company's financial condition and results of operations[128] Regulatory and Compliance Risks - The U.S. Department of Transportation's PHMSA instituted Distribution Integrity Management Programs effective February 2010 to enhance safety in gas distribution pipelines[64] - Regulatory actions and policies can significantly impact Southwest's earnings and cash flows, particularly regarding rate increases and compliance with environmental laws[123] - The company faces risks related to obtaining necessary permits and approvals for pipeline expansion and infrastructure development, which could negatively impact business operations and earnings[127] Strategic Initiatives and Challenges - The company announced a spin-off of Centuri to create long-term growth, with the MountainWest Sale closing on February 14, 2023[106] - The Centuri Spin-Off is subject to various conditions, and failure to meet these could delay or prevent the transaction[106] - The cash surrender value of company-owned life insurance policies may fluctuate significantly, impacting earnings during periods of stock market volatility[117] - Changes in pension asset values and actuarial assumptions could adversely affect the financial results of Southwest, potentially increasing pension expenses[118] - Natural disasters, public health crises, and geopolitical events could adversely affect the company's operations and financial condition[133] - A slow response to events causing business interruptions may negatively impact operations and earnings[134] - The company may struggle to integrate business acquisitions effectively, which could result in increased costs and decreased expected revenues[131] Workforce and Employment - At December 31, 2022, Southwest had 2,351 regular full-time equivalent employees, with an average tenure of approximately 11 years[76] - Centuri had 11,008 regular full-time equivalent employees as of December 31, 2022, with a majority represented by unions[77]