Southwest Gas Holdings (SWX) Q4 FY25 earnings call: guidance and Q&A

How will the company manage equity needs for the large capital plan, especially beyond 2026, and what is the engagement with rating agencies regarding FFO metrics through the construction cycle?

Management plans to utilize significant leverage capacity at the holding company to offset equity needs, expecting minimal equity issuances. They do not anticipate upsizing the existing $340 million ATM program, signaling confidence in managing total equity needs through the plan while maintaining credit metrics.

“We think we can utilize some pretty significant leverage capacity at the holding company first to sort of offset those with really minimal equity needs. I think the way I would put it is when you think about -- we have a shelf that expires at the end of 2026. We'll be renewing and extending that shelf, but we don't anticipate upsizing our existing $340 million ATM.”

asked by Julien Dumoulin-Smith · answered by Justin Forsberg

Can management elaborate on the total scope of the Great Basin project beyond the 800 Mcf subscribed capacity, including potential for larger scope and emerging interest from data centers?

The 800 Mcf capacity is for the 2028 in-service date, chosen from a multi-open season process. Management received more inbound requests than signed capacity, indicating future demand. They will evaluate a supplemental open season after design completion to fill any remaining capacity and continue to assess interest for dates beyond 2028, including from data centers.

“If there's an opportunity to do a supplemental open season to fill up any remaining capacity based on the design, we'll do that. I think we feel confident that there's demand there and interest that people would take that. And then I think when we think about dates beyond 2028, we'll continue to work with prospective shippers on kind of what their interest is, what their timing is, and we can always look to evaluate, again, kind of maybe another open season for a different date down the road.”

asked by Julien Dumoulin-Smith · answered by Justin Brown

What is the expected cadence of earnings uplift, and how does the company plan to close the regulatory lag gap in Arizona and Nevada as part of the updated plan?

The company expects to cut about 100 basis points from the historical 160 basis points regulatory lag gap through new rate cases and formula rate mechanisms in Arizona and Nevada. This, combined with the Great Basin in-service, is expected to drive a front-end loaded EPS growth rate of 15% to 17% through 2028-2029.

“I think in combination with Nevada and Arizona, we're hoping to cut off about 100 basis points is what our goal is. So... we see about 15% to 17% EPS growth rate over sort of that '28 to '29 from now.”

asked by Julien Dumoulin-Smith · answered by Justin Brown

What is the expected run-rate earnings contribution from Great Basin in 2030, once it's fully in service?

The full benefit of Great Basin's incremental annual margin of $215 million to $245 million is expected in 2029 and 2030, as 20-year transportation service agreements will be in place prior to the project's in-service date near the end of 2028.

“I think that's where we can point to the margin that we -- that Justin mentioned, right, the $215 million to $245 million expected margin that we'll get out of Great Basin. And with the sort of end of the year or toward the end of the year in-service date in 2028, that margin contribution is expected fully in '29 and in '30 because I'll just remind you and everybody on the call that we are expecting once we -- prior to in-service that we would execute minimum 20-year transportation service agreements that we would bring in that margin.”

asked by Elias Jossen · answered by Justin Forsberg

Can you provide an update on the progress of the Nevada workshops for alternative ratemaking?

The Nevada workshops, which began last summer, are focused on drafting regulations and achieving stakeholder consensus. The commission emphasizes consensus, and the company expects draft consensus regulations to be released in the next one to two months, indicating they are nearing the end of the process.

“I think we feel pretty good about we're getting near the end. And so we anticipate probably getting some kind of draft consensus regulations out from the commission here over the next month or 2.”

asked by Christopher Ellinghaus · answered by Justin Brown

How is the company derisking Great Basin project costs related to E&C, compressors, and pipe, and what is the current status of cost estimates?

The company is proactively managing supply chain risks and working through the pre-filing process with FERC. While the current cost estimate is considered good, an updated and more precise cost will be provided when the formal FERC application is filed at the end of the year, serving as a key mile marker.

“I think to your point on kind of where we sit right now, we feel like that's a pretty good estimate of what the cost is. Obviously, working through with our EPC contractor and different things, I think one of the things that I would say is when we make the anticipated filing with FERC at the end of this year, for the formal application, we'll have an updated cost at that point in time.”

asked by Gabriel Moreen · answered by Justin Brown