Southwest Gas Holdings Inc.

11/05/2025 | Press release | Distributed by Public on 11/05/2025 07:14

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southwest Gas Holdings is a holding company that owns all of the shares of common stock of Southwest Gas; and until the Centuri IPO in April 22, 2024, all of the shares of common stock of Centuri. The Company's businesses were managed within two separate reportable segments until August 2025, our Natural Gas Distribution segment (Southwest Gas) and our Utility Infrastructure Services segment (Centuri). After August 2025, our business is solely comprised of our Natural Gas Distribution segment.
Consistent with the Company's earlier determination to simplify the Company's portfolio of businesses, the Company determined it would pursue a separation of Centuri. In April 2024, the Company and Centuri announced the completion of the Centuri IPO. The Company completed subsequent sales of Centuri stock in May through September 2025. Following the August, 11, 2025 transaction, the Company owned 30.9% of Centuri at which time it no longer had a financial controlling interest in Centuri and therefore met the requirements for deconsolidation. On September 5, 2025, the Company sold its remaining shares of Centuri common stock, and no longer owns any shares of Centuri or has any governance rights afforded to it under the Separation Agreement.
Our business includes Southwest Gas, which is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Southwest Gas is the largest regulated distributor of natural gas in Arizona and Nevada, and also distributes and transports natural gas for customers in portions of California. Additionally, through its subsidiaries, Southwest Gas operates two regulated interstate pipelines serving portions of Nevada and California. Southwest Gas makes investments in infrastructure to support customer demand associated with population growth and economic development activity, and the safe and reliable operation of its system through adherence to pipeline integrity management programs.
As of September 30, 2025, Southwest Gas had approximately 2,276,000 residential, commercial, industrial, and other natural gas customers, of which 1,222,000 customers were located in Arizona, 847,000 in Nevada, and 207,000 in California. Over the past twelve months, first-time meter sets were approximately 40,000, of which 23,000were added in Arizona, 16,000in Nevada, and 1,000in California; compared to 41,000during the twelve months ended September 30, 2024, of which 23,000 were located in Arizona, 16,000 in Nevada, and 2,000 in California. Residential and small commercial customers represented over 99% of the total customer base. During the twelve months ended September 30, 2025, 54% of operating margin (Regulated operations revenues less the net cost of gas sold) was earned in Arizona, 34% in Nevada, and 12% in California. During this same period, Southwest Gas earned 85% of its operating margin from residential and small commercial customers, 4% from other sales customers, and 11% from transportation customers. These patterns are expected to remain materially consistent for the foreseeable future subject to the ultimate outcome of the Great Basin Expansion project. Refer to Potential 2028 Great Basin Expansion Project discussion below.
Southwest Gas recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating margin is a financial measure defined by management as Regulated operations revenues less the net cost of gas sold. However, operating margin is not specifically defined in U.S. GAAP. Thus, operating margin is considered a non-GAAP measure. Management uses this financial measure because Regulated operations revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under PGA mechanisms. Fluctuations in the net cost of gas sold impact revenues on a dollar-for-dollar basis, but do not impact operating margin or operating income. Therefore, management believes operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest Gas' financial performance in a rate-regulated environment. The principal factors affecting changes in operating margin are generally the timing and amount of updated rates (to better align with Southwest Gas' cost of service and capital investments, including impacts of infrastructure trackers) and customer growth. Public utility commission decisions on the amount and timing of relief may impact our earnings. Refer to the Summary Operating Results table below for a reconciliation of gross margin to operating margin, and refer to Rates and Regulatory Proceedings,in this MD&A, for details of various rate proceedings.
The demand for natural gas is seasonal, with greater demand in the colder winter months and decreased demand in the warmer summer months. All of Southwest Gas' service territories have decoupled rate structures (alternative revenue programs), which are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of weather variability and conservation on operating margin, allowing Southwest Gas to pursue energy efficiency initiatives. Nearly all of our customers, and resulting revenue and margin, are included as part of mechanisms that reduce the impact of weather and volume variability on our earnings.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION September 30, 2025
Our business may be impacted by economic conditions that impact businesses generally, such as inflationary impacts on goods and services consumed in the business, rising or sustained high interest rates, labor markets and costs (including in regard to contracted or professional services), and the availability of those resources.
This MD&A of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto, as well as the MD&A, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, in addition to the Risk Factors included in these documents as may be updated from time to time.
Executive Summary
The items discussed in this Executive Summary are intended to provide an overview of the results of the Company's and Southwest Gas' operations and are covered in greater detail in later sections of this MD&A.
Summary Operating Results
Period Ended September 30,
Three Months Nine Months
(In thousands, except per share amounts) 2025 2024 2025 2024
Contribution to net income
Natural Gas Distribution
$ 5,520 $ 572 $ 182,139 $ 163,991
Corporate and administrative(1)
(1,345) (9,799) (17,136) (29,849)
Income (loss) from continuing operations 4,175 (9,227) 165,003 134,142
Income (loss) from discontinued operations, net of taxes 266,301 9,516 206,460 (27,783)
Net income attributable to Southwest Gas Holdings
$ 270,476 $ 289 $ 371,463 $ 106,359
Weighted average common shares 72,209 71,880 72,104 71,816
Basic earnings (loss) per share
Continuing operations $ 0.06 $ (0.13) $ 2.29 $ 1.87
Discontinued operations 3.69 0.13 2.86 (0.39)
Net earnings (loss) per share - basic $ 3.75 $ - $ 5.15 $ 1.48
Natural Gas Distribution
Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure)
Utility Gross Margin $ 118,141 $ 91,650 $ 546,006 $ 471,235
Plus:
Operations and maintenance (excluding Admin. & General) expense 77,012 81,616 242,538 246,071
Depreciation and amortization expense 79,073 74,153 241,703 220,663
Operating margin $ 274,226 $ 247,419 $ 1,030,247 $ 937,969
(1) In connection with the deconsolidation of Centuri, certain amounts in Corporate and administrative that relate to Centuri separation have been reclassified to discontinued operations for all periods presented as applicable.
3rd Quarter 2025 overview and other recent developments
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION September 30, 2025
Southwest Gas Holdings highlights include the following:
•Completed sale of last remaining shares of Centuri common stock through secondary public offerings and private placements resulting in net proceeds of $901.2 million; collective net proceeds used to repay outstanding indebtedness and the third quarter dividends to stockholders, with expectation to use the remainder for general corporate purposes including support for the potential 2028 Great Basin expansion
•Finished the third quarter of 2025 with approximately $779 million of cash on a consolidated basis; the Company does not expect to issue equity in 2025
Natural gas distribution highlights include the following:
•Year-to-date gross margin of $546 million and operating margin of $1.0 billion
•40,000 first-time meters sets occurred over the past 12 months, resulting in a 1.8% growth rate
•Finished the quarter with over $182 million in cash (given collection of previously deferred purchased gas costs)
•$570.4 million capital investment year-to-date
Results of Operations
Southwest Gas' revenues and cost of gas sold can change depending on natural gas cost included in customer rates, but these changes do not directly affect the company's profits. Regulatory commissions have set up mechanisms that allow Southwest Gas to adjust customer rates to reflect fluctuations in natural gas cost.
If the actual cost of gas differs from what is recovered through customer rates, the difference is recorded as a deferred amount.
•If Southwest has under-recovered costs, it records a regulatory asset along with interest income.
•If Southwest has over-recovered costs, it records a regulatory liability along with interest expense.
These deferred amounts are either refunded to or recovered from customers during periods approved by the regulatory commissions.
Results of Natural Gas Distribution
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(Thousands of dollars) 2025 2024 2025 2024
Regulated operations revenues $ 316,911 $ 359,131 $ 1,459,645 $ 1,922,157
Net cost of gas sold 42,685 111,712 429,398 984,188
Operating margin 274,226 247,419 1,030,247 937,969
Operations and maintenance expense 133,808 129,736 399,867 390,229
Depreciation and amortization 79,073 74,153 241,703 220,663
Taxes other than income taxes 23,368 22,283 70,379 66,414
Operating income 37,977 21,247 318,298 260,663
Other income 13,277 16,665 40,385 48,976
Net interest deductions 46,156 42,312 135,524 118,595
Income (loss) before income taxes
5,098 (4,400) 223,159 191,044
Income tax expense (benefit)
(422) (4,972) 41,020 27,053
Contribution to consolidated results $ 5,520 $ 572 $ 182,139 $ 163,991
In the three months ended September 30, 2025 compared to the same period in 2024, the increase in net income of $4.9 million was primarily due to:
•$26.8 million higher Operating margin primarily driven by updated rates that better align with Southwest Gas' cost of service and capital investments across all our territories adding approximately $22.3 million of incremental margin and $1.6 million attributable to customer growth. Customer growth is reflective of approximately 40,000 first-time meter sets added during the last twelve months. The combined impacts of increases in recovery/return associated with regulatory accounts balances and the variable interest expense adjustment mechanism in Nevada also resulted in incremental margin between comparable periods.
Partially offset by:
•$4.9 million, or 7%, higher Depreciation and amortization expense reflecting a $663.4 million, or 6%, increase in average gas plant in service since the corresponding third quarter of 2024. The increase in plant was attributable to
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SOUTHWEST GAS CORPORATION September 30, 2025
pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure.
•$4.6 million higher Income tax expense due to pre-tax income differences, the amortization of excess accumulated deferred income taxes, and COLI.
•$4.1 million higher Operations and maintenance expense primarily attributable to increases in employee-related labor, as well as incentive compensation costs of $3.7 million. These increases were partially offset by reductions in bad debt expense and leak survey and line locating expenses.
•$3.8 million higher Net interest deductions primarily due to amounts incurred on higher over-collected PGA balances for Arizona and Nevada when compared to the same period in 2024.
•$3.4 million lower Other income (which is net of other deductions) primarily driven by a $3.0 million decrease in interest income, reflecting a reduction in carrying charges on regulatory account balances, notably a reduction in under-collected PGA balances related to California when compared to the same period in 2024.
In the nine months ended September 30, 2025 compared to the same period in 2024, the increase in net income of $18.1 million was primarily due to:
•$92.3 million higher Operating margin primarily driven by updated rates that better align with Southwest Gas' cost of service and capital investments across all our territories adding approximately $73.4 million of incremental margin and $9.2 million attributable to customer growth. Customer growth is reflective of approximately 40,000 first-time meter sets added during the last twelve months. Contributing to the increase is also $6.4 million related to the combined impacts of increases in recovery/return associated with regulatory account balances and $5.2 million attributable to the variable interest expense adjustment mechanism in Nevada (for which amortization is recognized in interest expense).
Partially offset by:
•$21.0 million, or 10%, higher Depreciation and amortization expense reflecting a $710.5 million, or 7%, increase in average gas plant in service since the corresponding third quarter of 2024, in addition to $6.4 million in higher amortization related to regulatory account balances. The increase in plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure.
•$16.9 million higher Net interest deductions primarily due to amounts incurred on higher over-collected PGA balances for Arizona and Nevada when compared to the same period in 2024, as well as the impacts of surcharges/surcredits and deferral activity related to a regulatory mechanism associated with Southwest Gas' industrial development revenue bonds.
•$14.0 million higher Income tax expense due to an increase in pre-tax income compared to the prior period, the amortization of excess accumulated deferred income taxes, and COLI.
•$9.6 million higher Operations and maintenance expense primarily attributable to increases in employee-related labor, as well as incentive compensation costs of $5.6 million, higher insurance costs of $3.8 million, and outside services costs. These increases were partially offset by reductions in bad debt expense and leak survey and line locating expenses.
•$8.6 million lower Other income (which is net of other deductions) primarily driven by a $10.3 million decrease in interest income. This decrease was mainly driven by lower carrying charges on regulatory account balances, most notably a reduction in the under-collected PGA balance for California. Additionally, Arizona and Nevada transitioned from net under-collected balances during the beginning of 2024 to over-collected balances as of September 30, 2024 and remained over-collected for the nine month period ended September 30, 2025. Partially offsetting the decrease was a $1.6 million gain on the sale of certain miscellaneous assets.
•$4.0 million higher Taxes other than income taxes due to an increase in property taxes across all of Southwest Gas' jurisdictions.
Corporate and Administrative
In the three months ended September 30, 2025 compared to the same period in 2024, the reduction in net loss of $8.5 million was primarily due to:
•$8.6 million lower Net interest deductions primarily driven by the repayment of the $550 million term loan ($225 million outstanding as of June 30, 2025) in August of 2025 (see Note 4 - Debt).
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION September 30, 2025
In the nine months ended September 30, 2025 compared to the same period in 2024, the reduction in net loss of $12.7 million was primarily due to:
•$12.6 million lower Net interest deductions primarily driven by the repayment of the $550 million term loan in June and August of 2025 (see Note 4 - Debt).
Discontinued Operations
In the three months ended September 30, 2025 compared to the same period in 2024, the increase in net income of $256.8 million was primarily due to:
•$367.4 million gain from Centuri deconsolidation, inclusive of a $230.4 million remeasurement gain from adjusting the 30.9% retained interest to fair value as of August 11, 2025. This interest was later sold on September 5, 2025 as described below.
Partially offset by:
•$77.3 million higher income tax expense primarily related to the gain on deconsolidation of Centuri.
•$19.7 million reduction in Centuri's pre-tax income attributable to the Company.
•$9.7 million loss from the sale of the Company's 30.9% retained interest on September 5, 2025.
•$3.9 million higher Centuri separation related costs.
In the nine months ended September 30, 2025 compared to the same period in 2024, the increase in net income of $234.2 million was primarily due to:
•$367.4 million gain from Centuri deconsolidation, inclusive of a $230.4 million remeasurement gain from adjusting the 30.9% retained interest to fair value as of August 11, 2025. This interest was later sold on September 5, 2025 as described below.
•$2.0 million reduction in Centuri's pre-tax loss attributable to the Company.
Partially offset by:
•$125.5 million higher income tax expense primarily related to the gain on deconsolidation of Centuri and federal and certain state income tax deconsolidation.
•$9.7 million loss from the sale of the Company's 30.9% retained interest on September 5, 2025.
Rates and Regulatory Proceedings
Southwest Gas is subject to the regulation of the ACC, the PUCN, and the CPUC, and two of Southwest Gas' subsidiaries are subject to regulation by the FERC.
Arizona Jurisdiction
Arizona General Rate Case.Southwest Gas filed its 2024 Arizona rate case application in February 2024, proposing an increase in revenue of approximately $126 million and a return on common equity of 10.15%, relative to a 50% target equity ratio, and a proposed twelve-month post-test year adjustment for non-revenue producing plant to reflect the continued significant capital investments in the state and to update rates to more closely align with Southwest Gas' current level of operations and maintenance expense. The ACC's final decision in March 2025 authorized an overall annual rate increase of approximately $80.2 million, and a return on common equity of 9.84% relative to a 48.5% equity ratio. Southwest Gas' proposals for the continuation of full revenue decoupling under the DCA mechanism and a property tax tracking mechanism were approved, but the proposed UGCE mechanism to address timelier recovery of the purchased gas cost portion of uncollectible customer accounts following write-off was ultimately withdrawn in favor of the historical regulatory treatment for uncollectible accounts and related expense. The legacy COYL program was discontinued; however, an application was filed requesting recovery of the associated outstanding revenue requirement of approximately $5.2 million for work through March 2025. Recovery of the outstanding COYL revenue requirement over three years, as requested, was approved by the ACC in September 2025. Rates associated with the ACC's decision became effective in March 2025, commensurate with the timing of the rate case order.
Initially included as part of the rate case application, Southwest Gas proposed the establishment of the SIM, a capital tracker designed to support non-revenue producing code and regulatory-related infrastructure replacements in Arizona, which was subsequently bifurcated from the rate case application. A settlement agreement supporting implementation of the SIM was reached with the majority of the parties, including a SIM surcharge effective April 1 each year subject to refund, to recover the
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION September 30, 2025
revenue requirement associated with eligible plant placed in service by December 31 of the prior calendar year. The settlement considered by the ACC included a surcharge cap of $0.02 per therm, which represented approximately $150 million of annual SIM-related investment. In July, the ACC modified the settlement to limit SIM-related investments to $50 million annually. Other key provisions of the settlement remain unchanged.
Delivery Charge Adjustment.The DCA, or Arizona decoupling mechanism, as noted above, includes a filing each April, which along with other reporting requirements, contemplates a rate to return/recover the over- or under-collected margin tracker (decoupling mechanism) balance. The most recent filing was made in April 2025 to request a rate to address the under-collected balance of $40.7 million existing as of March 31, 2025. In August, the ACC approved the application, as filed, to recover the under-collected balance of approximately $40.7 million.
Tax Reform. A TEAM was approved in Southwest Gas' 2019 general rate case to timely recognize tax rate changes resulting from federal or state tax legislation following the TEAM implementation. In addition, the TEAM tracks and returns/recovers the revenue requirement impact of changes in amortization of EADIT, including that which resulted from 2017 U.S. federal tax reform, compared to the amount authorized in the most recently concluded general rate case. Following the inaugural surcredit rate establishment under the TEAM mechanism in December 2022, Southwest Gas filed subsequent TEAM rate applications, including a recent filing, which proposed to update the TEAM surcharge to recover approximately $5.2 million resulting from changes related to the amortization of EADIT. The proposed surcharge rate was approved and became effective June 1, 2025.
PGA Modification. On January 27, 2025, Southwest Gas filed a request to increase the GCBA adjustment to allow for a greater credit rate to be implemented more quickly in order to facilitate the return of the existing over-collected balance. Typical adjustments authorized by previous decisions limit the increase in the GCBA rate to $0.01 per month. The ACC approved Southwest Gas' recent request to implement a credit rate of $0.08138 per therm effective April 1, 2025, which is expected to be in place for approximately one year and will terminate when the GCBA balance is reduced to less than $10 million.
Nevada Jurisdiction
Nevada General Rate Case. Southwest Gas filed its most recent general rate case in September 2023, updated with a certification filing primarily for plant placed in service, and incremental annual leak survey costs, through November 2023. Those updates resulted in an updated overall request of approximately $74 million. The PUCN issued a decision approving an annual increase in revenues of $59 million, approving the earlier proposed settlement, and authorizing a return on common equity of 9.5%, including the use of a hypothetical capital structure of 50% debt and 50% equity. Included in the settled items were: a continuation of full revenue decoupling; authority to continue tracking incremental annual leak survey costs in a regulatory asset; and refreshed depreciation rates somewhat lower than those proposed. New rates became effective in April 2024.
General Revenues Adjustment.The GRA, or Nevada decoupling mechanism, was affirmed as part of Southwest Gas' most recently concluded general rate case and adjustments are included in the ARA filings intended to update rates to recover/return amounts associated with various regulatory mechanisms, including the GRA. Recovery of rates and adjustments thereto as part of the ARA primarily impact cash flows, but not net income overall. Rates for the GRA and other regulatory mechanisms relating to the November 2024 ARA filing, associated with balances as of September 30, 2024, became effective July 1, 2025.
Line Locate Activity Expenses Application. Southwest Gas filed an application with the PUCN for authority to establish regulatory accounting treatment for line locate activity expenses, allowing Southwest Gas to track the actual level of line locate costs in operation and maintenance expense and to record, in a regulatory asset or liability account, the difference between amounts incurred and the level established in the most recent general rate case. In July 2025, the PUCN approved regulatory accounting treatment of the line locate activity expenses, effective January 1, 2025. The proposal did not include carrying charges on the regulatory account balance in order to focus solely on stemming the financial attrition suffered in between rate cases related to this work. Amounts deferred in the regulatory asset will be considered in the next general rate case, where authority to continue regulatory accounting treatment must be requested.
DEAA Modification. Southwest Gas filed an application with the PUCN for approval to adjust the DEAA rates in excess of the maximum allowable adjustment of 2.5 cents per therm contemplated by the Nevada Revised Statutes given the significant over-collected balances of the PGA in both southern and northern Nevada. A stipulation was reached with the parties and approved by the PUCN providing for the implementation of a DEAA credit of $0.20000 per therm applicable to southern Nevada customers and a credit of $0.25000 per therm applicable to northern Nevada customers effective July 1, 2025. The October 1, 2025 quarterly adjustment was calculated consistent with the statutory cap range resulting in an increased credit rate of $0.22500 in southern Nevada and $0.27500 in northern Nevada. The projected PGA balance for southern Nevada at November 30, 2025 is anticipated to be an over-collection of approximately $206 million and in northern Nevada the balance is anticipated to be an over-collection of approximately $41 million at November 30, 2025. These amounts represent reductions from the existing June 30, 2025 over-collected balances of $229.4 million and $53.5 million for southern and northern Nevada,
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SOUTHWEST GAS CORPORATION September 30, 2025
respectively. This modification is expected to impact near-term liquidity at Southwest Gas when compared to earlier projections over 2025-2026 while modestly reducing interest expense on a net basis.
Resource Plan. In September 2025, Southwest Gas filed an application seeking approval of its first triennial resource plan, required by October 1, 2025, pursuant to SB 281 (2023). The application seeks approval of certain significant operational or capital requirements, as defined by SB 281, during the three-year action plan period, including two single extension facilities projects in southern Nevada designed to serve more than 2,000 customers, safety-related and system integrity management investments in southern and northern Nevada, and a proposal to commence a vintage 1984/1985 pipe replacement program in southern Nevada. The estimated capital investment associated with these programs is approximately $208 million over the three-year action plan period. The application also seeks approval of an approximate $5 million investment over the action plan period in two new safety-related programs and includes a request to establish regulatory accounting treatment for each program. The natural gas alarm pilot program proposes the purchase and installation of approximately 10,000 natural gas alarms in high occupancy facilities across Southwest Gas' southern and northern Nevada service territories and the meter protection program proposes the purchase and installation of meter snow shelters to enhance the protection of existing meters in heavy snow load areas in Southwest Gas' northern Nevada service territory around Lake Tahoe. Southwest Gas is seeking approval to extend the currently authorized COYL replacement program, including the annual statewide capital investment amount of $5 million, and associated regulatory accounting treatment beyond the current program sunset date of July 30, 2027, through the end of 2028. Also included in the application is a request for approval of Southwest Gas' customer demand forecasting methodology for the applicable three-year action plan period. With respect to gas resources, Southwest Gas requested modification of its currently authorized price cap of $14/dekatherm to $25/dekatherm for RNG purchases to better align with evolving RNG market conditions and to extend its current contract term length and purchasing authority for RNG beyond the currently approved date of December 31, 2029. The application also requests authority to purchase responsibly sourced gas in the form of carbon capture and storage-enabled natural gas for incorporation into Southwest Gas' gas supply portfolio to meet up to 5% of its normal weather demand in northern and southern Nevada. Southwest Gas also seeks approval of a demand-side management plan and proposed activities and programs, with a total statewide budget of $9.8 million over the three-year action plan period, to promote energy efficiency and conservation. Southwest Gas expects a decision in April 2026.
California Jurisdiction
California General Rate Case. Southwest Gas filed its most recent general rate case in September 2024 related to a future test year (2026), originally proposing a statewide revenue increase of approximately $49 million. Southwest Gas later updated its request to $43.7 million through supplemental testimony, requesting a revised revenue increase of $36.6 million for the southern California rate jurisdiction, a decrease of $2.8 million for the northern California rate jurisdiction, and an increase of $9.8 million for the South Lake Tahoe rate jurisdiction. The request is based on a capital structure consisting of 50% long-term debt and 50% common equity with a requested return on common equity of 11.35%, a modest increase compared to the 11.16% currently authorized. A continuation of Southwest Gas' 2.75% PTY margin attrition adjustment for attrition years 2027 - 2030 is included, as well as continued use of the automatic trigger mechanism in lieu of annual cost of capital filings. Southwest Gas' filing also includes a risk-based decision-making framework, proposing the continuation of the targeted pipe replacement program, the meter protection program, and COYL Program, along with the addition of a new annual leak survey program, collectively, under the IRRAM umbrella. Authority to establish a damage prevention cost balancing account to record and recover (or return) certain costs associated with damage prevention expenses, specifically those related to line locating activities, was also requested. Consolidation of Southwest Gas' northern California and South Lake Tahoe rate jurisdictions into a single rate-making jurisdiction was also proposed. The Public Advocate's Office (Cal Advocates) filed direct testimony April 4, 2025 recommending a statewide revenue increase of approximately $26 million based on a capital structure consisting of 48% common equity and 52% long-term debt, as well as support for the continuation of the 2.75% PTY margin attrition adjustment as well as the automatic trigger mechanism. Cal Advocates also supported Southwest Gas' proposed infrastructure investments under the IRRAM, though the level of overall investment was slightly lower than the amount proposed by Southwest Gas. As a result of constructive settlement discussions, Southwest Gas and Cal Advocates successfully reached a partial settlement and agreed to litigate the outstanding issues, limited to capital structure, return on equity and the resultant overall rate of return. The limited-issue hearing was held on July 29, 2025. The all-party partial settlement filed in September 2025 included an agreed-to revenue increase of $39.5 million, before consideration of the litigated capital structure and cost of capital issues. Southwest Gas anticipates a final decision in the fourth quarter of 2025, and new rates are expected to be effective in January 2026. The CPUC granted Southwest Gas' motion seeking authority to establish a general rate case memorandum account effective January 1, 2026 through the effective date of the CPUC's final decision in the event the decision is issued after January 1, 2026. This will allow Southwest Gas to track changes in the revenue requirement beginning January 1, 2026.
Attrition Filing. Following the 2021 implementation of rates approved as part of the previous general rate case, the continuation of annual PTY margin attrition increases of 2.75% began in January 2022. The most recent annual margin attrition
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increase was also inclusive of adjustments related to the amortization of EADIT. The cumulative impact resulted in an annual increase of $7.3 million effective January 2025 for Southwest Gas' combined southern California, northern California, and South Lake Tahoe rate jurisdictions. The PTY increase of $3.6 million associated with the North Lake Tahoe Lateral revenue requirement became effective February 1, 2025.
FERC Jurisdiction
General Rate Case. Great Basin, a wholly owned subsidiary of Southwest Gas, filed a notice of a change in rates (pursuant to applicable regulations) on March 6, 2024, requesting that rates for its natural gas service subject to the filing be made effective April 6, 2024. The FERC, however, suspended the case for a five-month period, which allowed rates to go into effect, subject to refund, on September 6, 2024. The filing included a request to continue a term-differentiated rate structure, which was adopted as part of Great Basin's previous general rate case, to provide an overall annual revenue increase of approximately $13 million, and a return on equity of 11.95% and a capital structure of 50% long-term debt and 50% common equity. A primary driver of the increase was approximately $99 million of capital investments, much of which was placed in service by the end of the August 31, 2024 test year. An all-party settlement was reached recommending approval of a $9.6 million revenue increase based on a 9.76% pretax rate of return. Rate base increased to approximately $191 million, a 41% increase over the previously authorized $135.5 million. The settlement was filed with the FERC for final consideration in December 2024, and a Letter Order was issued in March 2025, approving the uncontested settlement. Since no party requested reconsideration, the Letter Order became effective April 2, 2025 and refund amounts in excess of the base tariff rates established in the settlement were issued timely.
Potential 2028 Great Basin Expansion Project.In response to inquiries related to available capacity and changing market needs, Great Basin posted notice of a Binding Open Season for a 2028 system expansion. The Binding Open Season, initially scheduled from January 28, 2025 through April 30, 2025 to determine the level of interest of existing and potential shippers for new or additional firm transportation service, was extended through June 2025 to allow for consideration of alternative in-service date requests as part of the bids, and resulted in a potential incremental capacity of up to ~1.76 Bcf of demand per day. Precedent agreements have been tendered to the potential shippers and the level of commitment for the project is anticipated to be determined in the fourth quarter of 2025.
PGA Filings
The rate schedules in all of Southwest Gas' service territories contain provisions that permit adjustment to rates as the cost of purchased gas changes. These deferred energy provisions and purchased gas adjustment clauses are collectively referred to as "PGA" clauses. Differences between gas costs recovered from customers and amounts paid for gas by Southwest Gas result in over- or under-collections. Balances are recovered from, or refunded to, customers on an ongoing basis with interest. As of September 30, 2025, over-collections in Southwest Gas' Arizona and Nevada service territories resulted in a liability of approximately $356 million and under-collections in California resulted in an asset balance of approximately $99,000 on the Company's and Southwest Gas' Condensed Consolidated Balance Sheets. The over-collected balances in the table below reflect the impacts related to specific recovery rates under existing mechanisms, which have exceeded the cost of recent gas supply purchases by Southwest Gas.
Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staffs. The operation of the mechanism in California is typically the most responsive to changes in gas supply costs, and maximum rate adjustments for the earlier build-up (positive or negative) apply to Nevada and Arizona; however, refer to the PGA Modificationdiscussion above related to Arizona and the DEAA Modification in Nevada. PGA changes impact cash flows but have no direct impact on operating margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual consolidated income statement components. These include Regulated operations revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).
The following table presents Southwest Gas' outstanding PGA, including accrued purchased gas costs, balances receivable/(payable):
(Thousands of dollars) September 30, 2025 December 31, 2024 September 30, 2024
Arizona $ (73,717) $ (47,700) $ (36,187)
Nevada
(282,741) (207,698) (186,684)
California 99 13,807 9,699
$ (356,359) $ (241,591) $ (213,172)
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION September 30, 2025
Capital Resources and Liquidity
Historically, cash on hand and cash flows from operations have provided a substantial portion of cash used in investing activities (primarily for capital expenditures and property additions). In recent years, Southwest Gas has undertaken substantial pipe replacement activities to fortify system integrity and reliability, including on an accelerated basis in association with certain gas infrastructure replacement programs. This activity has necessitated the issuance of both debt and equity securities to supplement cash flows from operations, before cash reserves built up at the utility in more recent periods, including from collections under the PGA mechanisms. Southwest Gas Holdings and Southwest Gas' capitalization strategy is to maintain an appropriate balance of equity and debt to preserve investment-grade credit ratings, which help minimize interest costs. Investment-grade credit ratings have been maintained by Southwest Gas Holdings and Southwest Gas. The only changes to Southwest Gas Holdings' or Southwest Gas' ratings by Standard & Poor's Ratings Services, Moody's Investors Service, or Fitch Ratings from those included in the Annual Report on Form 10-K for the year ended December 31, 2024, were as follows:
•Fitch Ratings adjusted its Issuer ratings outlook for Southwest Gas Holdings' from Negative to Stable in August 2025.
•Standard & Poor's Ratings Services adjusted its Issuer rating from BBB- to BBB+ and Outlook from Positive Outlook to Stable Outlook for Southwest Gas Holdings and Senior unsecured long-term debt rating from BBB to BBB+ and Outlook from Positive Outlook to Stable Outlook for Southwest Gas in September 2025.
Cash Flows
Southwest Gas Holdings, Inc.:
Operating Cash Flows.Cash flows provided by consolidated operating activities of continuing operations decreased $553.3 million in the first nine months of 2025 as compared to the same period of 2024. The decrease was primarily driven by the substantial reduction of collection of previously deferred purchased gas costs for Southwest Gas. Recovery rates were in place to collect the earlier build-up of PGA balances, which are collectively now in a liability position. The remaining difference reflects the impacts of changes in other components of working capital overall.
Investing Cash Flows.Cash flows used in investing activities of continuing operations decreased $66.5 million in the first nine months of 2025 as compared to the same period of 2024. The decrease was driven by reduced outflows for capital expenditures and property additions in the first nine months of 2025 compared to the same period of 2024, partially offset by a reduction in proceeds received from the sale of other property as compared to 2024.
Financing Cash Flows.Cash flows used in consolidated financing activities of continuing operations increased $705.5 million in the first nine months of 2025 as compared to the same period of 2024. The increase included payment in full on Southwest Gas Holdings' term loan of $550.0 million and $130.0 million (net of borrowings) paydown on its revolving credit facility utilizing proceeds from the Company's secondary public offerings and private placement sales of the Company's Centuri stock of $1.3 billion. The remaining difference was primarily due to the issuance of Company common stock.
Corporate and administrative expenses/outflows for Southwest Gas Holdings in the first nine months of 2025 overall primarily include interest paid on outstanding borrowings.
The capital requirements and resources of the Company generally are determined independently at the segment level. Our Natural Gas Distribution segment is generally responsible for securing its own debt financing sources. However, Southwest Gas Holdings may raise funds through equity issuances or other external financing sources in support of our Natural Gas Distribution segment.
Southwest Gas Corporation:
Operating Cash Flows.Cash flows provided by operating activities decreased approximately $568.1 million in the first nine months of 2025 as compared to the same period of 2024 primarily attributable to the substantial reduction in collection of deferred purchased gas costs (as discussed above), in addition to reflecting cash flows from other working capital changes overall.
Investing Cash Flows.Cash used in investing activities decreased $66.0 million in the first nine months of 2025 as compared to the same period of 2024. Outflows for capital expenditures decreased by $73.4 million between periods, partially offset by greater inflows from the sale of property in 2024 compared to 2025. See also Natural Gas Distribution Segment Capital Expenditures, Debt Maturities, and Financingbelow.
Financing Cash Flows.Net cash used in financing activities decreased $42.5 million in the first nine months of 2025 as compared to the same period of 2024, primarily due to a decrease in dividends paid between periods.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION September 30, 2025
Natural Gas Distribution Segment Capital Expenditures, Debt Maturities, and Financing
During the nine-month period ended September 30, 2025, capital expenditures for the Natural Gas Distribution segment were $570.4 million. These expenditures are associated with new construction and other general plant additions, in addition to the replacement of existing transmission and distribution pipeline facilities to fortify system integrity and reliability.
Management estimates capital expenditures during the three-year period ending December 31, 2027 will be approximately $2.6 billion. Of this amount, approximately $880 million is expected to be incurred during calendar year 2025. Southwest Gas plans to continue to request regulatory support to undertake projects, or to accelerate projects as necessary for the improvement of system flexibility and reliability, or to expand, where relevant, to unserved or underserved areas. Southwest Gas may expand existing, or initiate new, programs. Significant replacement activities are expected to continue well beyond the next few years. See also Rates and Regulatory Proceedings. During that same three-year period, cash flows from operating activities of Southwest Gas are expected to provide approximately 74% of the funding for gas operations of Southwest Gas and total capital expenditures and dividend requirements. Any additional cash requirements, including construction-related, and any paydown or refinancing of debt, are expected to be provided by existing credit facilities, parent equity contributions, and/or other external financing sources. The timing, types, and amounts of additional external financings will be dependent on a number of factors, including the cost of gas purchases, conditions in capital markets, timing and amount of rate relief, timing and amount of surcharge collections from, or amounts returned to, customers related to regulatory mechanisms and programs, maturities of long-term debt instruments, as well as growth levels in Southwest Gas' service areas and earnings. External financings may include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing. Southwest Gas has $75.0 million of long-term debt maturing in 2026, but no debt maturities in 2025.
Dividend Policy
Dividends are payable on the Company's common stock at the discretion of the Board. In setting the dividend rate, the Board considers, among other factors, current and expected future earnings levels, our ongoing capital expenditure plans, expected external funding needs, our payout ratio, and our ability to maintain investment-grade credit ratings and liquidity. The Company has paid dividends on its common stock since 1956. In February 2025, the Board determined to maintain the quarterly dividend at $0.62 per share, effective with the June 2025 payment. Although no assurances can be provided on our future dividend payments, it is anticipated that we will pay a dividend at a level consistent with industry peers.
Liquidity
Several factors (some of which are out of the control of the Company) that could significantly affect liquidity in the future include: variability of natural gas prices, changes in ratemaking policies of regulatory commissions, regulatory lag, customer growth in the Natural Gas Distribution segment, the ability to access and obtain capital from external sources, interest rates, income tax laws and changes thereto, pension funding requirements, inflation, and the level of earnings. Natural gas prices and related gas cost recovery rates, as well as plant investment, have historically had the most significant impact on liquidity. The series of Centuri separation transactions which culminated with the final disposition of Centuri strengthened the Company's liquidity position, primarily through the repayment of the $550 million term loan, additional cash on hand, and favorable credit rating adjustment by Standard & Poor's and issuer ratings outlook by Fitch. Aside from these benefits, the transaction is not expected to have a material ongoing effect on the Company's future liquidity.
On an interim basis, Southwest Gas defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest Gas uses this mechanism to either refund amounts over-collected or recoup amounts under-collected as compared to the price paid for natural gas during the period since the last PGA rate change went into effect. At September 30, 2025, the PGA balance was an over-collection of $356.4 million and Southwest Gas' substantial cash balance of $182.0 million will be used to provide refunds to customers over future periods along with its credit facilities. See PGA Filingsfor more information.
Southwest Gas Holdings has a $300 million revolving credit facility that matures in August 2029. This facility is intended for short-term financing needs. At September 30, 2025, there were no borrowings outstanding under this facility. At October 8, 2025 the applicable margin changed from 1.25% to 1.125% for loans bearing interest to SOFR and from 0.250% to 0.125% for loans bearing interest with reference to the alternative base.
In August 2024, Southwest Gas Holdings entered into a $550 million term loan that had been set to mature in July 2025. In June 2025, Southwest Gas Holdings entered into a second amended and restated term loan credit agreement, extending the maturity date to June 2026. Southwest Gas Holdings utilized the proceeds received from the Centuri separation transactions to repay the entire balance as of September 30, 2025.
Southwest Gas has a revolving credit facility with a borrowing capacity of $400 million, which is set to expire in August 2029. Southwest Gas designates $150 million of capacity under the facility for long-term borrowing needs and the remaining $250 million for working capital purposes. In June 2025, Southwest Gas amended this revolving credit agreement, which
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION September 30, 2025
among other things, added a swingline loan sub-facility in an aggregate principal amount at any time outstanding not to exceed $30 million. There was no activity on either the long-term or short-term portions of the existing facility during the nine-month period ending September 30, 2025. Additionally, at September 30, 2025, no borrowings were outstanding on either the long-term or short-term portions of the existing facility. The credit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, or meeting the refund needs of over-collected balances. The credit facility in place has generally been adequate for Southwest Gas' working capital needs outside of funds raised through operations and other types of external financing. Any additional cash requirements could include utilization of the credit facility, equity contributions from the Company, and/or other external financing sources.
Southwest Gas has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest Gas' revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program is designated as long-term debt. Interest rates for the commercial paper program are calculated at the current commercial paper rate during the borrowing term. At September 30, 2025, there were no borrowings outstanding under this program.
In April 2024, Centuri successfully completed the Centuri IPO. Since the Centuri IPO and through September 5, 2025, the Company sold portions of its interests in Centuri through secondary public offerings and private placements. As of September 30, 2025, the Company completed its divestiture of its ownership in Centuri and, resultantly, no longer retains any governance or consent rights over the actions of Centuri under the Separation Agreement. The Company used the proceeds of $1.3 billion for the repayment of outstanding indebtedness, the third quarter dividends to stockholders, and expects to use the remainder for general corporate purposes including support for future capital investments at Southwest Gas as well as the potential 2028 expansion of Great Basin, and future dividend payments to stockholders that would otherwise be funded by Southwest Gas.
Critical Accounting Policies and Estimates
As of September 30, 2025, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in the MD&A in the Companies' Annual Report on Form 10-K for the year ended December 31, 2024.
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