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What changed in Southwest Gas Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Southwest Gas Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+543 added−236 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in Southwest Gas Holdings, Inc.'s 2023 10-K

543 paragraphs added · 236 removed · 177 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

80 edited+33 added−22 removed46 unchanged
Biggest changeThe health and wellness of our workforce are supported by group insurance programs, incentive programs in support of total health, and related employee programs. Southwest also offers a tuition assistance program. Regular succession planning helps ensure that talent is identified, and existing and prospective leaders are developed in order to build their skills and be prepared for future roles.
Biggest changeRegular succession planning helps ensure that talent is identified and prospective leaders are developed in order to build their skills and be prepared for future roles. At December 31, 2023, Centuri had 12,572 regular full-time equivalent employees working across 45 states and provinces throughout the U.S. and Canada.
Safety metrics also form part of incentive compensation programs for leaders of all the Company’s business segments, reinforcing our top priority to safeguard our communities, our employees, and our assets. At Southwest, such metrics include Damages per 1,000 Tickets and Incident Response Time; at Centuri, they include Total Recordable Incident Rate and Days Away/Restricted/Transferred (“DART”).
Safety metrics also form part of incentive compensation programs for leaders of the Company’s business segments, reinforcing our top priority to safeguard our communities, our employees, and our assets. At Southwest, such metrics include Damages per 1,000 Tickets and Incident Response Time; at Centuri, they include Total Recordable Incident Rate and Days Away/Restricted/Transferred (“DART”).
To fully satisfy this increased high-priority demand, gas is withdrawn from storage in certain service areas, or peaking supplies are purchased from suppliers. If necessary, service to interruptible lower-priority customers may be curtailed to provide the needed delivery system capacity. Southwest maintains no significant backlog on its orders for gas service.
To fully satisfy this increased high-priority demand, gas is withdrawn from storage in certain service areas, or peaking supplies are purchased from 6 suppliers. If necessary, service to interruptible lower-priority customers may be curtailed to provide the needed delivery system capacity. Southwest maintains no significant backlog on its orders for gas service.
Southwest may be required to incur additional indebtedness in connection with future spikes in natural gas prices as a result of extreme weather events, or otherwise. Forecasts show that an ample and diverse natural gas supply continues to be available to Southwest’s customers at a competitive price when compared to competing energy forms.
Southwest may be required to incur additional indebtedness in connection with future spikes in natural gas prices as a result of extreme weather events, or otherwise. Current forecasts show that an ample and diverse natural gas supply continues to be available to Southwest’s customers at a competitive price when compared to competing energy forms.
The Board oversees matters relating to our vision, values, and culture where employee health and safety; diversity, equity, and inclusion; and human and workplace rights are priorities. The Board receives regular reports from management and subject matter experts in these areas, and in turn provides guidance on current and future initiatives.
The Board oversees matters relating to our vision, values, and culture where employee health and safety; diversity, equity, and inclusion; and human and workplace rights are priorities. The Board receives regular reports from management and subject 11 matter experts in these areas, and in turn provides guidance on current and future initiatives.
Southwest contracts for storage services from Great Basin’s above-ground LNG facility. This storage service generally provides vaporization and injection, as well as peaking capability only for the northern Nevada and northern California rate jurisdictions. Southwest also has interruptible st orage contracts with Northwest Pipeline Corporation (“NWPL”) for the northern Nevada and northern California rate jurisdictions.
Southwest contracts for storage services from Great Basin’s above-ground LNG facility. This storage service generally provides vaporization and injection, as well as peaking capability only for the northern Nevada and northern California rate jurisdictions. 7 Southwest also has interruptible st orage contracts with Northwest Pipeline Corporation (“NWPL”) for the northern Nevada and northern California rate jurisdictions.
Natural Gas Supply Southwest is responsible for acquiring and arranging delivery of natural gas to its system in sufficient quantities to meet its sales customers’ needs. Southwest’s primary natural gas procurement objective is to ensure that adequate supplies of natural gas are available at a reasonable cost.
Natural Gas Supply Southwest is responsible for acquiring and arranging delivery of natural gas to its system in sufficient quantities to meet its customers’ needs. Southwest’s primary natural gas procurement objective is to ensure that adequate supplies of natural gas are available at a reasonable cost.
Natural gas supplies for Southwest’s southern system (Arizona, southern Nevada, and southern California properties) are primarily obtained from producing regions in Colorado and New Mexico (San Juan basin), Texas (Permian basin), and Rocky Mountain areas. For its northern system (northern Nevada and northern California properties), Southwest primarily obtains natural gas from Rocky Mountain producing areas and from Canada.
Natural gas supplies for Southwest’s southern system (Arizona, southern Nevada, and southern California jurisdictions) are primarily obtained from producing regions in Colorado and New Mexico (San Juan basin), Texas (Permian basin), and Rocky Mountain areas. For its northern system (northern Nevada and northern California properties), Southwest primarily obtains natural gas from Rocky Mountain producing areas and from Canada.
The decoupled rate mechanisms in place in the three state service territories, as described below, are structured with seasonal variations. Also, earnings for interim, or any, periods can be significantly affected by the timing of general rate relief.
The decoupled rate mechanisms in place in the three state service 5 territories, as described below, are structured with seasonal variations. Also, earnings for interim, or any, periods can be significantly affected by the timing of general rate relief.
Then, in March 2022, and August 2022, PHMSA issued rules 7 amending federal pipeline safety regulations applicable to valve installation and minimum rupture detection standards for transmission pipelines, and amendments applicable to transmission pipeline integrity management, effective in October 2022 and May 2023, respectively.
Then, in March 2022, and August 2022, PHMSA issued rules amending federal pipeline safety regulations applicable to valve installation and minimum rupture detection standards for transmission pipelines, and amendments applicable to transmission pipeline integrity management, effective in October 2022 and May 2023, respectively.
The United States Environmental Protection Agency (the “EPA”) and State of California Environmental Protection Agency (the “Cal/EPA”) regulations require the reporting of GHGs from large sources and suppliers in order to facilitate the development of policies and programs to reduce GHGs.
The United States Environmental Protection Agency (the “EPA”) and State of California Environmental Protection Agency (the “Cal/EPA”) regulations require the reporting of GHGs from large sources and suppliers in order to facilitate the development of 9 policies and programs to reduce GHGs.
To mitigate customer exposure to short-term market price volatility, during 2022 Southwest sought to fix the price on a portion of its forecasted annual normal-weather volume requirement (up t o 25% in the California jurisdiction and to a limited extent, in the Arizona jurisdiction), primarily using firm, fixed-price purchasing arran gements that are secured periodically throughout the year.
To mitigate customer exposure to short-term market price volatility, during 2023 Southwest sought to fix the price on a portion of its forecasted annual normal-weather volume requirement (up t o 25% in the California jurisdiction and to a limited extent, in the Arizona jurisdiction), primarily using firm, fixed-price purchasing arran gements that are secured periodically throughout the year.
In early 2021, winter storms in the central U.S. also led to unprecedented price spikes over a number of days.
In 2021, winter storms in the central U.S. also led to unprecedented price spikes over a number of days.
The natural gas market has responded to the abundant supply of natural gas at prices that are competitive with other forms of energy; however, the market price of natural gas has spiked in recent periods as a result of numerous market forces, including historically low storage levels, upstream maintenance events, and cold weather conditions across the central United States in December 2022 and regional pricing dislocation on the west coast in January 2023.
The natural gas market has responded to the abundant supply of natural gas at prices that are competitive with other forms of energy; however, the market price of natural gas has spiked in recent periods as a result of numerous market forces, including historically low storage levels, upstream maintenance events, and cold weather conditions across the central United States (“U.S.”) in December 2022 and regional pricing dislocation on the west coast in January 2023.
Southwest also contracts for firm natural gas supplies that are delivered to Southwest’s city gates to supplement its firm capacity on the interstate pipelines and to 5 meet projected peak-day demands. Southwest could also utilize its interruptible contracts on the interstate pipelines for the transportation of additional natural gas supplies.
Southwest also contracts for firm natural gas supplies that are delivered to its city gates to supplement its firm capacity on the interstate pipelines and to meet projected peak-day demands. Southwest could also utilize its interruptible contracts on the interstate pipelines for the transportation of additional natural gas supplies.
The table below lists the percentage of operating margin (operating revenues less net cost of gas) by major customer class for the years indicated: Distribution For the Year Ended December 31, Residential and Small Commercial Other Sales Customers Transportation 2022 85 % 4 % 11 % 2021 85 % 4 % 11 % 2020 85 % 3 % 12 % Southwest is not dependent on any one or a few customers such that the loss of any one or several would have a significant adverse impact on earnings or cash flows.
The table below lists the percentage of operating margin (operating revenues less net cost of gas) by major customer class for the years indicated: Distribution For the Year Ended December 31, Residential and Small Commercial Other Sales Customers Transportation 2023 85 % 4 % 11 % 2022 85 % 4 % 11 % 2021 85 % 4 % 11 % Southwest is not dependent on any one or a few customers such that the loss of any one or several would have a significant adverse impact on earnings or cash flows.
GHG emissions. 6 Southwest remains committed to providing customers with safe, reliable, sustainable, and affordable natural gas service and continues to work with policy makers and regulators to support and adopt renewable initiatives and expanded use of RNG and compressed natural gas (“CNG”) as a transportation fuel. Additionally, Southwest is investigating blending hydrogen into its gas supply.
Southwest remains committed to providing customers with safe, reliable, sustainable, and affordable natural gas service and continues to work with policy makers and regulators to support and adopt renewable initiatives and expanded use of RNG and compressed natural gas (“CNG”) as a transportation fuel. Additionally, Southwest is investigating blending hydrogen into its gas supply.
Competition within the industry has traditionally been limited to several regional and numerous local competitors in what has been a largely fragmented industry. Some national competitors also exist within the industry. Centuri operates in over 73 primary locations across 45 states and provinces in the U.S. and Canada, with its corporate headquarters located in Phoenix, Arizona.
Competition within the industry has traditionally been limited to several regional and numerous local competitors in what has been a largely fragmented industry. Some national competitors also exist within the industry. Centuri operates in 87 primary locations across 45 states and provinces in the U.S. and Canada, with its corporate headquarters located in Phoenix, Arizona.
Rates charged to customers vary according to customer class and rate jurisdiction and are set at levels that are intended to allow for the recovery of all commission-approved costs, including a return on rate base sufficient to pay interest on debt as well as a reasonable return on common equity.
Rates charged to customers vary according to customer class and rate jurisdiction and are set at levels that are intended to allow for the recovery of all commission-approved costs, including a return on rate base sufficient to pay interest on debt as well as a reasonable return on common equity in financing rate base investments.
In each case, the measures are widely used in the respective industries comprising our businesses. All segments maintain additional behavioral-based programs and extensive employee training initiatives to promote safe work. At December 31, 2022, Southwest had 2,351 regular full-time equivalent employees.
In each case, the measures are widely used in the respective industries comprising our businesses. All segments maintain additional behavioral-based programs and extensive employee training initiatives to promote safe work. At December 31, 2023, Southwest had 2,371 regular full-time equivalent employees.
Overall, management does not anticipate any material adverse impact on operating margin from fuel switching or alternative energy initiatives over the near term. Southwest competes with interstate transmission pipeline companies, such as El Paso, Kern River, Transwestern, Tuscarora, and Ruby to provide service to certain large end-users.
Overall, management does not anticipate any material adverse impact on operating margin from fuel switching or alternative energy initiatives over the near term. See also “Environmental Matters” below. Southwest competes with interstate transmission pipeline companies, such as El Paso, Kern River, Transwestern, Tuscarora, and Ruby to provide service to certain large end-users.
While transportation is typically cited as the leading source of carbon dioxide emissions in the U.S., natural gas for residential consumption/use is cited as accounting for less than 6% of total U.S.
While motor vehicle transportation is typically cited as the leading source of carbon dioxide emissions in the U.S., natural gas for residential consumption/use is cited as accounting for less than 6% of total U.S. GHG emissions.
The CPUC also regulates the issuance of all debt securities by Southwest, with the exception of short-term borrowings. Certain accounting practices, transmission facilities, and rates are subject to regulation by the FERC. Centuri, by contrast, is not rate regulated by the state utilities commissions or by the FERC in any of its operating areas.
The CPUC also regulates the issuance of all debt securities by Southwest, with the exception of short-term borrowings. Certain accounting practices, transmission facilities, and rates are subject to regulation by the Federal Energy Regulatory Commission (the “FERC”). Centuri, by contrast, is not rate regulated by the state utilities commissions or by the FERC in any of its operating areas.
The adoption of this type of legislation by Congress or similar legislation by state governments mandating a substantial reduction in GHGs, or decarbonization generally, could have significant impacts on the energy industry in the future.
The adoption of this type of legislation by Congress or similar legislation by state governments mandating a substantial reduction in GHGs, reduction in pipeline or project permitting, or decarbonization generally, could have significant impacts on the energy industry.
Southwest can use any allocated allowances that remain after consignment, along with allowances it can purchase through CARB auctions or reserve sales, or through over the counter (“OTC”) purchases with other market participants, to meet its compliance obligations. As part of this program, there are ongoing three-year compliance periods established. The current compliance period ends in 2023.
Southwest can use any allocated allowances that remain after consignment, along with allowances it can purchase through CARB auctions or reserve sales, or through over the counter purchases with other market participants, to meet its compliance obligations. As part of this program, there are ongoing three-year compliance periods established. The current compliance period ended on December 31, 2023.
Southwest has taken steps to align with these efforts by supporting energy efficiency in our jurisdictions, being part of greenhouse gas protocols and initiatives in California, partnering on hydrogen blending innovation, and creating new biogas and renewable natural gas (“RNG”) tariff schedules in Arizona, California, and Nevada. See also “ Environmental Matters” below.
Southwest has taken steps to align with these efforts by supporting energy efficiency in our jurisdictions, being part of greenhouse gas protocols and initiatives in California, partnering on hydrogen blending innovation, and creating new biogas and renewable natural gas (“RNG”) tariff schedules in Arizona, California, and Nevada.
Their talent and dedication are what allows us to provide safe and reliable service to customers and explore new opportunities that align with our strategies, while carrying out organizational core values related to safety, quality, and stewardship, among others.
Their talent and dedication are what allow us to provide safe and reliable service to customers and explore new opportunities that align with our strategies, while carrying out organizational core values related to safety, quality, stewardship, integrity, relationships, and sustainability, among others.
Transportation of customer-secured gas to end-users accounted for 42% of total system throughput in 2022, but represents only 11% of operating margin as shown in the table above. Customers who utilized this service transported 93 million dekatherms in 2022, 95 million dekatherms in 2021, and 98 million dekatherms in 2020.
Transportation of customer-secured gas to end-users accounted for 38% of total system throughput in 2023, but represents only 11% of operating margin as shown in the table above. Customers who utilized this service transported 86 million dekatherms in 2023, 93 million dekatherms in 2022, and 95 million dekatherms in 2021.
Carbon offsets can only be used to satisfy a portion of the 2023 compliance obligation, and those combined with ongoing allowance purchases will support compliance years through 2023. The CPUC previously issued a decision that provides for the regulatory treatment of the program costs.
In 2022, Southwest purchased carbon offsets that will partially meet the 2023 compliance obligation. Carbon offsets can only be used to satisfy a portion of the 2023 compliance obligation, and those combined with ongoing allowance purchases will support compliance years through 2023. The CPUC previously issued a decision that provides for the regulatory treatment of the program costs.
Southwest acquires natural gas from a wide variety of sources with a mix of purchase provisions, which includes spot market and firm supplies. The purchases may have terms from one day to several years and utilize both fixed and indexed pricing. During 2022, Southwest acquired natural gas from 36 suppliers.
Southwest acquires natural gas from a wide variety of sources with a mix of purchase provisions, which includes spot market and firm supplies. The purchases may have terms from one day to several years and utilize both fixed and indexed pricing. During 2023, Southwest acquired natural gas from 48 su ppliers.
During 2022, Centuri served over 400 customers. Southwest accounted for approximately 5% of total revenue. Two additional customers accounted for approximately 18% of total revenue. No other customers individually accounted for 5% or more of total revenue. Centuri is not directly affected by regulations promulgated by the ACC, PUCN, CPUC, or FERC. Centuri is an unregulated subsidiary of the Company.
During 2023, Centuri served over 400 customers. Southwest accounted for approximately 4% of total revenue. Four additional customers accounted for approximately 26% of total revenue. No other customers individually accounted for 5% or more of total revenue. Centuri is not directly affected by regulations promulgated by the ACC, PUCN, CPUC, or FERC. Centuri is an unregulated subsidiary of the Company.
The Corporate Governance Guidelines, Code of Business Conduct and Ethics, and charters of the Nominating and Corporate Governance, Audit, and Compensation Committees of the Board of Directors of the Company are also available on the www.swgasholdings.com website. Print versions of these documents are available to stockholders upon request directed to the Corporate Secretary, Southwest Gas Holdings, Inc., 8360 S.
The Corporate Governance Guidelines, Code of Business Conduct and Ethics, and charters of the Nominating and Corporate Governance, Audit, and Compensation Committees of the Board are also available on the www.swgasholdings.com website. Print versions of these documents are available to stockholders upon request directed to the Corporate Secretary, Southwest Gas Holdings, Inc., 8360 S. Durango Drive, Las Vegas, NV 89113.
However, because Centuri performs work for Southwest, its associated costs are subject indirectly to “prudency reviews” like any other capital work performed by third parties or directly by Southwest. However, these reviews do not bring Centuri under the regulatory jurisdiction of any of the commissions noted above.
However, because Centuri performs work for Southwest, its associated costs are subject indirectly to “prudency reviews” like any other capital work performed by third parties or directly by Southwest. However, these reviews do not bring Centuri under the regulatory jurisdiction of any of the commissions noted above. HUMAN CAPITAL Throughout our collective operations, employees are critical to our success.
Utility infrastructure services activity is seasonal in most of Centuri’s operating areas. Peak periods are the summer and fall months in colder climate areas, such as the northeastern and midwestern U.S. and in Canada. In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity continues year round.
Peak periods are the summer and fall months in colder climate areas, such as the northeastern and midwestern U.S. and in Canada. In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity continues year round.
As of December 31, 2022, Southwest purchased and distributed or transported natural gas to 2,197,000 residential, commercial, and industrial customers in geographically diverse portions of Arizona, Nevada, and California. Southwest added 41,000 new customers during 2022.
As of December 31, 2023, Southwest purchased and distributed or transported natural gas to 2,226,000 residential, commercial, and industrial customers in geographically diverse portions of Arizona, Nevada, and California. Southwest added 40,000 new customers during 2023.
While certain forms of renewable energy initiatives compete with natural gas, the abundance, low cost, resiliency, and reliability of natural gas, as well as the convenience and comfort it provides to our customers, result in competitive advantages across our portfolio of customers.
The law became effective on August 25, 2020. While certain forms of renewable energy initiatives compete with natural gas, the abundance, low cost, resiliency, and reliability of natural gas, as well as the convenience and comfort it provides to our customers, result in competitive advantages across our portfolio of customers.
Southwest is not only supporting a regional transportation customer in Nevada with its fleet’s RNG and CNG needs, but Southwest also received favorable cost recovery regarding the conversion of part of its own vehicle fleet to CNG, in support of the state’s GHG emission reduction goals.
Southwest serves multiple companies with CNG across Arizona and Nevada, in addition to supporting a regional transportation customer in Nevada with its fleet’s RNG and CNG needs. Southwest also received favorable cost recovery regarding the conversion of part of its own vehicle fleet to CNG, in support of the state’s GHG emission reduction goals.
Southwest believes that a skilled, highly trained workforce is a key to success in the utility industry, and a driver of Southwest’s safety performance and high customer satisfaction ratings. Southwest believes it has a good relationship with its employees and that compensation, benefits, and working conditions are comparable to those generally found in the utility industry.
Southwest believes that a skilled, highly trained workforce is a key to success in the utility industry, and a driver of Southwest’s safety performance and high customer satisfaction ratings. Southwest has a positive reputation as an employer and strong relationships with employees. The compensation, benefits, and working conditions are comparable to those generally found in the utility industry.
Centuri maintains a market-based total rewards strategy to attract, retain, motivate, and develop employees. Additionally, Centuri has a scholarship program, which awards more than half of the grants to minority students who are dependents of Centuri employees. Similar employee engagement and succession planning protocols to those existing at Southwest are deployed at Centuri.
Additionally, Centuri has a scholarship program, which awards more than half of the grants to minority students who are dependents of Centuri employees. Similar employee engagement and succession planning protocols to those existing at Southwest are deployed at Centuri.
Durango Drive, Las Vegas, NV 89113. 2 NATURAL GAS DISTRIBUTION General Description Southwest is subject to regulation by the ACC, the Public Utilities Commission of Nevada (the “PUCN”), and the California Public Utilities Commission (the “CPUC”). These commissions regulate public utility rates, practices, facilities, and service territories in their respective states.
NATURAL GAS DISTRIBUTION General Description Southwest is subject to regulation by the Arizona Corporation Commission (the “ACC”), the Public Utilities Commission of Nevada (the “PUCN”), and the California Public Utilities Commission (the “CPUC”). These commissions regulate public utility rates, practices, facilities, and service territories in their respective states.
These monthly or daily index prices are not published or known until the purchase period begins. The baseload firm natural gas supply arrangements are structured such that Southwest must nominate a stated volume of natural gas and the supplier must confirm that nomination. Contracts provide for fixed or market-based penalties to be paid by the non-performing party.
The baseload firm natural gas supply arrangements are structured such that Southwest must nominate a stated volume of natural gas and the supplier must confirm that nomination. Contracts provide for fixed or market-based penalties to be paid by the non-performing party.
There have also been a number of federal and state legislative and regulatory initiatives proposed in recent years in an attempt to control or limit the effects of global warming and overall climate change, including greenhouse gas emissions (“GHGs”), such as methane.
There have also been several federal and state legislative and regulatory initiatives proposed and implemented in recent years attempting to control or limit the effects of global warming and overall climate change, including those focused on greenhouse gas emissions (“GHGs”), such as carbon dioxide or methane.
California legislation and regulations promulgated by the California Air Resources Board (the “CARB”) require Southwest to comply with the California GHG Emissions Reporting Program and the California Cap and Trade Program, which play an important role in the state’s goal of reducing GHG em issions to 40% below 1990 levels by 2030. Southwest must report annual GHGs each year.
California legislation and regulations promulgated by the California Air Resources Board (the “CARB”) require Southwest to comply with the California GHG Emissions Reporting Program and the California Cap and Trade Program, which is intended to help the state reach its goal of reducing GHG emissions to 40% below 1990 levels by 2030. Southwest must report annual GHGs each year.
FERC Order No. 1000, issued in July 2011, established transmission planning requirements to encourage development of electric transmission infrastructure projects. In 2020, PHMSA issued its final “Mega Rule,” including requirements for reconfirming transmission pipeline maximum allowable operating pressure and verification of pipeline materials, in addition to expanding assessments and requirements for work in moderate consequence areas, among other things.
In 2020, PHMSA issued its final “Mega Rule,” including requirements for reconfirming transmission pipeline maximum allowable operating pressure and verification of pipeline materials, in addition to expanding assessments and requirements for work in moderate consequence areas, among other things.
However, increased environmental legislation and regulation can also be beneficial to the natural gas industry. Natural gas is more environmentally friendly than many other fuels currently available and its use can help energy users comply with stricter environmental air quality standards.
Natural gas can be more environmentally friendly than many other fuels currently available and its use can help energy users comply with stricter environmental air quality standards.
Such hazards might include digging in an area that was contaminated prior to construction, finding endangered animals, digging in historically significant sites, etc. Otherwise, Centuri’s operations have limited environmental impact (dust control, normal waste disposal, handling harmful materials, etc.).
Contracts with customers also contain provisions which make customers generally liable for remediating environmental hazards encountered during the construction process. Such hazards might include digging in an area that was contaminated prior to construction, finding endangered animals, digging in historically significant sites, etc. Otherwise, Centuri’s operations have limited environmental impact (dust control, normal waste disposal, handling harmful materials, etc.).
In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity typically continues year round. During recent years, various factors resulted in an increase in large multi-year utility system replacement programs and expanded protocols. The U.S. Energy Policy Act of 2005 established mandatory electric grid reliability standards and incentivized investments in transmission and distribution systems.
In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity typically continues year round. During recent years, various factors resulted in an increase in large multi-year utility system replacement programs and expanded protocols. The U.S.
Southwest successfully met its earlier compliance obligations by surrendering a sufficient number of allowances prior to the required date, the most recent of which was November 1, 2021.
Southwest successfully met its earlier compliance obligations by surrendering a sufficient number of allowances prior to the required date, the most recent of which was November 1, 2021. Southwest will meet the 2023 compliance obligation by surrendering sufficient allowances prior to November 1, 2024, or may also surrender carbon offsets to meet a portion of the 2023 compliance obligation.
The table below lists recent docketed general rate filings and the status of such filing within each ratemaking area: Ratemaking Area Type of Filing Month Filed Month Final Rates Effective Arizona General rate case December 2021 February 2023 California: Northern, Southern, and South Lake Tahoe General rate case August 2019 January 2021 Nevada: Northern and Southern General rate case August 2021 April 2022 FERC: Great Basin General rate case May 2019 February 2020 Demand for Natural Gas Deliveries of natural gas by Southwest are made under a priority system established by state regulatory commissions.
The table below lists recent docketed general rate filings and the status of such filing within each ratemaking area: Ratemaking Area Type of Filing Month Filed Month Final Rates Effective Arizona* General rate case December 2021 February 2023 California: Northern, Southern, and South Lake Tahoe General rate case August 2019 January 2021 Nevada: Northern and Southern** General rate case August 2021 April 2022 FERC: Great Basin General rate case May 2019 February 2020 *Southwest filed a general rate case in Arizona in February 2024, with rates expected to be effective in April 2025. ** Southwest filed a general rate case in Nevada in September 2023, with rates expected to be effective in April 2024.
The U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”) instituted Distribution Integrity Management Programs (“DIMP”) effective February 2010, which required operators of gas distribution pipelines to develop and implement integrity management programs to enhance safety by identifying and reducing pipeline integrity risks.
Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”) instituted Distribution Integrity Management Programs (“DIMP”), which required operators of gas distribution 10 pipelines to develop and implement integrity management programs to enhance safety by identifying and reducing pipeline integrity risks as well as the establishment of transmission planning requirements to encourage development of electric transmission infrastructure projects.
In recent years, employee engagement surveys have been deployed to gauge the extent to which employees feel connected and valued. Flexible working arrangements are available to employees, which support work-life balance. No Southwest employees are represented by a labor union.
Employee engagement surveys are periodically deployed to gauge the extent to which employees feel connected and valued. Flexible working arrangements are available to employees, which support work-life balance. No Southwest employees are represented by a labor union. A stable workforce has been important to knowledge transfer and succession processes, with the average tenure of Southwest employees being approximately 11 years.
As a result of this increase in pricing, Southwest has undertaken incremental borrowing in order to fund the higher cost, including recently, when it entered into a $450 million term loan in January 2023 in order to fund increased supply costs.
As a result of these types of price escalation events, Southwest has undertaken incremental borrowing in some cases in order to fund increased supply costs, including when it entered into a $450 million term loan in January 2023 (since repaid) for this purpose.
The decision also implemented the California Climate Credit in October 2018, representing a return of auction proceeds, which is updated annually each April. There is no expected direct impact on earnings.
The decision also implemented the California Climate Credit in October 2018, representing a return of auction proceeds, which is updated annually and normally distributed each April. There is no expected direct impact on earnings. California legislation and regulations require Southwest to incorporate RNG produced from diverted waste into its California gas supply portfolios.
Such new legislation or regulations could result in increased compliance costs or additional operating restrictions on our business, affect the demand for natural gas, or impact the prices we charge our customers. At this time, we cannot predict the potential impact of such laws or regulations, if adopted, on our future business, financial condition, or results.
Such new legislation or regulations could result in increased energy costs overall, increased compliance costs or additional operating restrictions on our business, affect the demand for natural gas, or impact the supply costs we incur and prices we charge our customers.
We commit to creating a safe and respectful workplace by encouraging employees to value diversity through unconscious bias training, and by inviting them to engage in meaningful conversations about diversity, equity, and inclusion topics.
We commit to creating a safe and respectful workplace by encouraging employees to value diversity through unconscious bias training, and by inviting them to engage in meaningful conversations about diversity, equity, and inclusion topics. Through these and other efforts, we place value in our people and nurture their development, while ensuring that all employees have an equitable opportunity for success.
Certain large commercial, industrial, and electric generation customers have the capability to switch to alternative energy sources. To date, Southwest has been successful in retaining most of these customers by setting rates (subject to conditions of the respective state tariffs) at levels competitive with commercially available alternative energy sources such as electricity and fuel oils.
To date, Southwest has been successful in retaining most of these customers by setting rates (subject to conditions of the respective state tariffs) at levels competitive with commercially available alternative energy sources such as electricity and fuel oils. However, high natural gas prices or policies surrounding electrification could impact Southwest’s ability to retain 8 some of these customers.
Backlog represents the dollar amount of revenue Centuri expects to recognize in the future from contracts awarded and in progress as of the end of the reporting period. Reported backlog differs from the concept of remaining performance obligations as defined by accounting principles generally accepted in the U.S. (“U.S. GAAP”) and is not a measure of contract profitability.
Reported backlog differs from the concept of remaining performance obligations as defined by accounting principles generally accepted in the U.S. (“U.S. GAAP”) and is not a measure of contract profitability. As of December 31, 2023, backlog of approximately $293 million existed with respect to outstanding fixed-priced contracts.
These actions included entering into a definitive agreement to sell all of the equity interests in MountainWest in an all-cash transaction to Williams Partners Operating LLC (“Williams”) for $1.5 billion in total enterprise value, subject to certain adjustments (collectively, the “MountainWest Sale”).
These actions included entering into a definitive agreement to sell 100% of MountainWest to Williams Partners Operating LLC (“Williams”) for $1.5 billion in total enterprise value, subject to certain adjustments (collectively, the “MountainWest Sale”). The MountainWest Sale closed on February 14, 2023. As such, limited information with respect to MountainWest is included in this Annual Report on Form 10-K.
For employees hired on or before December 31, 2021, Southwest offers an employee pension and employer matching contributions to the employee defined contribution plan. Employees hired on or after January 1, 2022 do not participate in the employee pension plan, but receive non-elective employer contributions and increased employer matching contributions to the employee defined contribution plan.
Employees hired on or after January 1, 2022 do not participate in the employee pension plan, but receive non-elective employer contributions and increased employer matching contributions to the employee defined contribution plan. The health and wellness of our workforce are supported by group insurance programs, incentive programs in support of total health, and related employee programs.
Rate schedules in all service areas contain deferred energy or purchased gas adjustment provisions, which allow Southwest to file for rate adjustments as the cost of purchased gas changes. Deferred energy and purchased gas adjustment (collectively “PGA”) rate changes affect cash flows, but have no direct impact on profit margin.
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. Rate schedules in all service areas contain deferred energy or purchased gas adjustment provisions, which allow Southwest to file for rate adjustments as the cost of purchased gas changes.
During 2022, approximately 82% of revenue was earned under unit-price and T&M contracts. Storm restoration services are often contracted under T&M rates and generally involve a higher number of hours worked per day given the emergency response nature of the work performed.
Storm restoration services are often contracted under T&M rates and generally involve a higher number of hours worked per day given the emergency response nature of the work performed. Backlog represents the dollar amount of revenue Centuri expects to recognize in the future from contracts awarded and in progress as of the end of the reporting period.
Southwest makes natural gas purchases, not covered by firm fixed-price contracts, under variable-price contracts with firm quantities or on the spot market. Prices for these contracts are determined at the beginning of 4 each month to reflect that month’s published first-of-month index price or based on a published daily price index.
Prices for these contracts are determined at the beginning of each month to reflect that month’s published first-of-month index price or based on a published daily price index. These monthly or daily index prices are not published or known until the purchase period begins.
(“NPL”), NPL Canada Ltd. (“NPL Canada”), New England Utility Constructors, Inc. (“Neuco”), Linetec Services, LLC (“Linetec”), and Riggs Distler & Company, Inc. (“Riggs Distler”). Centuri has strategically expanded its geographic reach and service offerings through organic and inorganic growth to better meet diverse customer needs across both electric and gas infrastructure, including growing customer attention to achieving environmental objectives.
Centuri has strategically expanded its geographic reach and service offerings through organic and inorganic growth to better meet diverse customer needs across both electric and gas infrastructure, including growing customer attention to achieving environmental objectives. Utility infrastructure services activity is seasonal in most of Centuri’s operating areas.
Southwest currently has no market area storage service availability in its southern Nevada rate jurisdiction; however, in 2022, Southwest began receiving supply area storage services from Spire Storage West that will likely be used for the southern Nevada rate jurisdiction but could also be used to service the northern Nevada or northern California rate jurisdictions, as described below.
This also limits the influence the available storage services have on Southwest’s average annual price of natural gas. In 2022, Southwest began receiving supply area storage services from Spire Storage West that is used for the southern Nevada rate jurisdiction, but could also be used to service the northern Nevada or northern California rate jurisdictions.
The customer will generally continue to use the chosen energy source for the life of the equipment. Southwest interfaces directly with the various home builders and commercial property developers in its service territories to ensure that natural gas appliances are considered in new developments and commercial centers.
Southwest interfaces with regulators and directly with the various home builders and commercial property developers in its service territories to ensure that natural gas appliances are considered in new developments and commercial centers. As a result of these efforts, Southwest has continued to experience growth in the new construction market among residential and small commercial customer classes.
The availability of customer-provided materials, input costs, nature of specific customer contracts, and timing of incorporation of costs in change orders, if at all, can materially impact results.
The availability of customer-provided materials, input costs, nature of specific customer contracts, and timing of incorporation of costs in change orders, if at all, can materially impact results. Financial information concerning the Company’s business segments is included in Note 13 - Segment Information of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
These contracts often have annual pricing reviews that provide an opportunity for Centuri to reflect anticipated increases in labor costs. Centuri customers supply materials required for building and maintenance services under the majority of Centuri’s contracts, and thus, increased costs of materials generally do not present a direct material risk to Centuri.
Centuri customers supply materials required for building and maintenance services under the majority of Centuri’s contracts, and thus, increased costs of materials generally do not present a direct material risk to Centuri. During 2023, approximately 77% of revenue was earned under unit-price and T&M contracts.
Centuri is a strategic utility infrastructure services company dedicated to partnering with North America’s electric and gas providers to build and maintain the energy network that powers millions of homes across the United States (“U.S.”) and 1 Canada. Centuri’s skilled workforce delivers a comprehensive and integrated array of solutions through its primary operating companies: NPL Construction Co.
Results for the natural gas distribution segment are higher during winter periods due to the seasonality incorporated in its regulatory rate structures. 4 Centuri is a strategic utility infrastructure services company dedicated to partnering with North America’s electric and gas providers to build and maintain the energy network that powers millions of homes across the United States (“U.S.”) and Canada.
Centuri’s contract terms with utility customers generally specify unit-price or time-and-materials (“T&M”) terms under master service agreements, and occasionally, fixed-price arrangements for bid work. Unit-price contracts establish prices for all of the various services to be performed during the contract period.
Given the expected demand for replacements and upgrades, Centuri is well positioned to support continued growth in the industries it serves. Centuri’s contract terms with utility customers generally specify unit-price or time-and-materials (“T&M”) terms under master service agreements, and occasionally, fixed-price arrangements for bid work.
At December 31, 2022, Centuri had 11,008 regular full-time equivalent employees working in over 45 states and provinces throughout the U.S. and Canada. Employee counts fluctuate between seasonal periods, normally heaviest in the summer and fall. Typical of the segment’s industry, a majority of Centuri employees are represented by unions and covered by collective bargaining agreements.
Employee counts fluctuate between seasonal periods, normally heaviest in the summer and fall. Typical of the segment’s industry, a majority of Centuri employees are represented by unions and covered by collective bargaining agreements. Centuri maintains a market-based total rewards strategy to attract, retain, motivate, and develop employees.
Similarly, Southwest maintains a website (www.swgas.com) mainly focused on utility operations.
Southwest Gas Holdings maintains a website (www.swgasholdings.com) for the benefit of stockholders, investors, customers, and other interested parties. Similarly, Southwest maintains a website (www.swgas.com) mainly focused on utility operations.
As a result of its efforts, Southwest has continued to experience growth in the new construction market among residential and small commercial customer classes. In 2022 , Southwest provided natural gas to a large majority of the new homes constructed during the year in the major metropolitan markets composing our service territories.
In 2023 , Southwest provided natural gas to a large majority of the new homes constructed during the year in the major metropolitan markets composing our service territories. Certain large commercial, industrial, and electric generation customers have the capability to switch to alternative energy sources.
As of December 31, 2022, backlog of approximately $441 million existed with respect to outstanding fixed-priced contracts. Centuri maintains an average customer relationship tenure of more than 20 years, supported by its unwavering commitments to safety, quality, community engagement, and workforce development.
Centuri maintains an average customer relationship tenure of more than 20 years, supported by its unwavering commitments to safety, quality, community engagement, and workforce development. Materials used by Centuri in its utility infrastructure service activities are typically specified, purchased, and supplied by Centuri’s customers.
Likewise, there has been significant attention placed on electric grid modernization through national infrastructure legislation and related initiatives. The recently passed Inflation Reduction Act includes a number of provisions to accelerate the deployment of clean energy technologies, including incentives for the buildout of necessary infrastructure.
The recently passed Inflation Reduction Act also includes a number of provisions to accelerate the deployment of clean energy technologies, including incentives for the buildout of necessary electric infrastructure. According to the Department of Energy, almost 70% of electric infrastructure in North America is over 25 years old.
Filings to change rates in accordance with PGA clauses are subject to audit by the appropriate state regulatory commission staff. 3 Information with respect to recent general rate cases, PGA filings, and other regulatory proceedings is included in the Rates and Regulatory Proceedings section of Management’s Discussion and Analysis (“MD&A”), which is incorporated by reference herein and included within the 2022 Annual Report to Stockholders.
Information with respect to recent general rate cases, PGA filings, and other regulatory proceedings can be found in the Rates and Regulatory Proceedings section of Management’s Discussion and Analysis included in Item 7.
For periods beyond October 2020, Southwest has not and does not plan at this time to make fixed-price term purchases broadly in other than California (as set forth above), nor engage in swap transactions for any of its territories. For the 2022/2023 heating season, firm fixed-price physical commodity purchases ranged from approximate ly $4.59 to approximately $9.89 per dekatherm.
The cost of such financial derivatives combined with the associated indexed-price physical purchases was historically recoverable from customers through the PGA mechanism. Southwest does not currently plan to make fixed-price term purchases broadly in other than California (as set forth above), nor engage in swap transactions for any of its territories.
Natural gas purchases and the timing of related recoveries can materially impact liquidity. Results for the natural gas distribution segment are higher during winter periods due to the seasonality incorporated in its regulatory rate structures.
Natural gas purchases and the timing of related recoveries can materially impact liquidity.
Securities and Exchange Commission (the “SEC”). Southwest and its subsidiaries provide regulated natural gas delivery services to customers in portions of Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations.
Southwest 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 integrity management programs. Public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations.
However, high natural gas prices or policies surrounding electrification could impact Southwest’s ability to retain some of these customers. Reducing fossil fuel use has gained momentum in governmental policy overall in recent years.
Reducing fossil fuel use has gained momentum in governmental policy overall in recent years.
Additionally, the Company determined it will pursue a spin-off of Centuri (“Centuri Spin-Off”) to form a new independent publicly traded utility infrastructure services company. The Centuri Spin-Off together with the MountainWest Sale reflect the “Separation Transactions.” As indicated above, the MountainWest Sale closed on February 14, 2023.
Additionally, in December 2022, as part of the simplification strategy, the Company communicated it would pursue a separation of Centuri to form a new independent publicly traded utility infrastructure services company.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeMountainWest also operates and owns 50% of the White River Hub, LLC providing transportation and hub services through interconnections with six interstate pipeline systems and a major processing plant near Meeker, Colorado. Information on properties of Centuri can be found in this Form 10-K under Utility Infrastructure Services under Part I, which by this reference is incorporated herein.
Biggest changeInformation on properties of Centuri can be found in this Form 10-K under Utility Infrastructure Services under Part I.
Service areas in southern Nevada include the Las Vegas valley (including Henderson and Boulder City), Laughlin, and Mesquite. Service areas 18 in southern California include Barstow, Big Bear, Needles, and Victorville. Service areas in northern California include the Lake Tahoe area and Truckee.
Service areas in southern Nevada include the Las Vegas valley (including Henderson and Boulder City), Laughlin, and Mesquite. Service areas in southern California include Barstow, Big Bear, Needles, and Victorville. Service areas in northern California include the Lake Tahoe area and Truckee.
The northern Nevada and northern California properties of Southwest are referred to as the northern system; the Arizona, southern Nevada, and southern California properties are referred to as the southern system. Total gas plant at December 31, 2022 was $9.7 billion at Southwest, including construction work in progress.
The northern Nevada and northern California properties of Southwest are referred to as the northern system; the Arizona, southern Nevada, and southern California properties are referred to as the 24 southern system. Total gas plant at December 31, 2023 was $10.3 billion at Southwest, including construction work in progress.
Removed
MountainWest, which was part of our operations and properties in 2022, but sold in February 2023, provides over 2,000 miles of interstate natural gas pipelines and storage facilities in Utah, Wyoming, and Colorado. Plant investment primarily consists of transmission mains, storage facilities, and gas gathering and processing property.
Removed
Substantially all property is constructed across property owned by others under right-of-way grants, similar to Southwest, with regular renewal, and no serious difficulty is currently expected in obtaining future renewals. MountainWest’s system is located in the Rocky Mountains near large reserves of natural gas in six major producing areas, including the Greater Green River, Uinta, and Piceance basins.
Removed
MountainWest transports gas from these areas to other major pipeline systems for delivery to markets in the west and midwest including the Dominion Energy local distribution system serving natural gas utility customers in Utah, southwest Wyoming, and southern Idaho.
Removed
MountainWest owns and operates the Clay Basin storage facility located on the Wyoming-Utah border, an underground storage reservoir in the Rocky Mountain Region. Through wholly-owned subsidiaries, MountainWest owns and operates MountainWest Overthrust Pipeline, LLC in southwestern Wyoming.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn addition, the Company and Southwest are named as a defendant in various other legal proceedings. The ultimate dispositions of these proceedings are not presently determinable; however, it is the opinion of management that none of this litigation individually or in the aggregate will have a material adverse impact on the Company’s or Southwest’s financial position or results of operations.
Biggest changeThe ultimate dispositions of these proceedings are not presently determinable; however, it is the opinion of management that none of this litigation individually or in the aggregate will have a material adverse impact on the Company’s or Southwest’s financial position or results of operations. Item 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Removed
Item 3. LEGAL PROCEEDINGS The Company maintains liability insurance for various risks associated with the operation of its natural gas pipelines and facilities. In August 2021, a natural gas pipe operated by Southwest was involved in an explosion that injured four individuals and damaged property. The explosion was caused by a leak in the pipe, and is under investigation.
Added
Item 3. LEGAL PROCEEDINGS The Company and Southwest are named as a defendant in various legal proceedings.
Removed
Individuals that were injured have each brought legal claims against Southwest and other parties. As of December 31, 2022, Southwest’s earnings exposure was deemed to be limited to its maximum self-insured retention level of $5 million.
Removed
Based on our insurance policies, amounts incurred above the self-insured retention amounts that are indemnifiable by insurance companies are recorded on the balance sheet, but do not impact our earnings. An estimate of actual losses greater than that which has been recognized in these financial statements cannot be estimated as of the date these financial statements are issued.
Removed
See Note 10 - Commitments and Contingencies for a discussion on ongoing litigation, including litigation filed by certain stockholders and by funds managed by Carl Icahn. Item 4. MINE SAFETY DISCLOSURES Not applicable.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. MINE SAFETY DISCLOSURES 19 Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 19 PART II 20 Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 20 Item 6. [RESERVED] 20 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20 Item 7A.
Biggest changeItem 4. MINE SAFETY DISCLOSURES 25 PART II 25 Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 25 Item 6. [RESERVED] 25 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 26 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 45 Item 8.
Removed
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 21 Item 9A. CONTROLS AND PROCEDURES 22

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn setting the dividend rate, the Board considers, among other factors, current and expected future earnings levels, our ongoing capital expenditure plans and expected external funding needs, our payout ratio, and our ability to maintain strong credit ratings and liquidity. The Company has paid dividends on its common stock since 1956.
Biggest changeDividends 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 and expected external funding needs, our payout ratio, and our ability to maintain strong credit ratings and liquidity.
Although no assurances can be provided on our future dividend payments, the Board currently intends to reevaluate the dividend upon the completion of the Centuri spin-off, and it is anticipated that we will pay a dividend consistent with industry peers.
Although no assurances can be provided on our future dividend payments, the Board currently intends to reevaluate the dividend upon the completion of the Centuri separation, and it is anticipated that we will pay a dividend at a level consistent with industry peers.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The principal market on which the common stock of the Company is traded is the New York Stock Exchange and the ticker symbol of the stock is “SWX.” At February 15, 2023, there were 10,711 holders of record of common stock, and the market price of the common stock was $64.98.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The principal market on which the common stock of the Company is traded is the New York Stock Exchange and the ticker symbol of the stock is “SWX.” At February 15, 2024, there were 10,353 holders of record of common stock, and the market price of the common stock was $60.25.
The quarterly dividend was $0.62 in 2022, and in February 2023, the Board determined to retain the quarterly dividend at $0.62 per share effective with the June 2023 payment.
The Company has paid dividends on its common stock since 1956. The quarterly dividend was $0.62 in 2023, and in February 2024, the Board determined to retain the quarterly dividend at $0.62 per share effective with the June 2024 payment.
Removed
The dividends on, and information relating to, the Company’s common stock required by this item are included in the 2022 Annual Report to Stockholders filed as an exhibit hereto and incorporated herein by reference. Dividends are payable on the Company’s common stock at the discretion of the Board.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeItem 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is included in the 2022 Annual Report to Stockholders and is incorporated herein by reference. Item 7A.
Biggest changeDiscussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which incorporates by reference the Company’s annual report to stockholders filed as Exhibit 13 to that Annual Report on Form 10-K.
Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of income and balance sheets from their functional currency (the Canadian Dollar) to our reporting currency (the U.S. Dollar) for consolidation purposes. During 2022, translation adjustments due to fluctuations in exchange rates were not significant.
Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of income and balance sheets from their functional currency (the Canadian Dollar) to our reporting currency (the U.S. Dollar) for consolidation purposes. During 2023, translation adjustments due to fluctuations in exchange rates were not significant.
The following table represents the variable rate debt as of December 31, 2022 and 2021 and interest rate sensitivity analysis for a hypothetical 1% change in interest rates, assuming a constant outstanding balance in such debt over the next twelve months: (Millions of dollars) 2022 (1) Increase/Decrease in Interest Expense from 1% Rate Change 2021 (1) Increase/Decrease in Interest Expense from 1% Rate Change Variable Rate Debt: Southwest $ 325.0 $ 3.25 $ 430.0 $ 4.30 Centuri 1,090.5 10.91 1,220.5 12.21 Corporate 1,320.2 13.20 1,659.0 16.59 Total Southwest Gas Holdings, Inc. $ 2,735.7 $ 27.36 $ 3,309.5 $ 33.10 (1) Excludes the IDRBs noted above.
The following table represents the variable rate debt as of December 31, 2023 and 2022 and interest rate sensitivity analysis for a hypothetical 1% change in interest rates, assuming a constant outstanding balance in such debt over the next twelve months: (Millions of dollars) 2023 (1) Increase/Decrease in Interest Expense from 1% Rate Change 2022 (1) Increase/Decrease in Interest Expense from 1% Rate Change Variable Rate Debt: Southwest $ 50.0 $ 0.50 $ 325.0 $ 3.25 Centuri 1,071.4 10.71 1,090.5 10.91 Corporate 628.5 6.29 1,320.2 13.20 Total Southwest Gas Holdings, Inc. $ 1,749.9 $ 17.50 $ 2,735.7 $ 27.36 (1) Excludes the IDRBs noted above.
Southwest is not assured that decoupled rate structures will continue to be supported in future rate cases. 20 Similarly, Southwest has in place ongoing infrastructure replacement protocol for certain pipe replacement activity. These programs are designed to mitigate the financial attrition associated with pipe replacement activity between rate cases by providing for the recovery of and return on expenditures.
Similarly, Southwest has in place ongoing infrastructure replacement protocol for certain pipe replacement activity. These programs are designed to mitigate the financial attrition associated with pipe replacement activity between rate cases by providing for the recovery of and return on expenditures.
Interest Rate Risk Changes in interest rates could adversely affect earnings or cash flows. The primary interest rate risks for the Company are the risk of increasing interest rates on variable-rate obligations and the risk of increasing interest rates between the time of an anticipated debt offering and the time of actual issuance.
The primary interest rate risks for the Company are the risk of increasing interest rates on variable-rate obligations and the risk of increasing interest rates between the time of an anticipated debt offering and the time of actual issuance.
Commodity Price Risk In managing its natural gas supply portfolios, Southwest has historically entered short duration (generally one year or less) fixed-price contracts for its California rate jurisdictions, as well as variable-price contracts (firm and spot) for all its rate jurisdictions.
Commodity Price Risk In managing its natural gas supply portfolios, Southwest has historically entered short duration (generally one year or less) fixed-price contracts for its California rate jurisdictions, as well as variable-price contracts (firm and spot) for all its rate jurisdictions. Southwest has experienced price volatility over the past several years and such volatility could continue into 2024 and beyond.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various forms of market risk, including commodity price risk, rate design risk, interest rate risk, and foreign currency exchange rate risk. The following describes our exposure to these risks.
We caution you to not rely unduly on any forward-looking statement(s). Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various forms of market risk, including commodity price risk, rate design risk, interest rate risk, and foreign currency exchange rate risk. The following describes our exposure to these risks.
All such mechanisms provide stability in annual operating margin by insulating us from variations in customer usage associated with abnormal weather conditions (including margin protection during warm weather and limits on margin during cold weather).
All such mechanisms provide stability in annual operating margin by insulating us from variations in customer usage associated with abnormal weather conditions (including margin protection during warm weather and limits on margin during cold weather). Southwest is not assured that decoupled rate structures will continue to be supported in future rate cases.
The programs have included the replacement of Early Vintage Plastic Pipe, Vintage Steel Pipe, and Customer-Owned Yard Lines, in addition to the conversion of master-metered mobile home parks to individually metered mobile homes. Southwest is not assured that currently approved programs will continue to be supported in future regulatory proceedings.
The programs have included the replacement of Early Vintage Plastic Pipe, Vintage Steel Pipe, and Customer-Owned Yard Lines, in addition to the conversion of master-metered mobile home parks to individually metered mobile homes. More recently, Southwest has proposed the SIB mechanism in the pending Arizona general rate case.
These mechanisms generally allow Southwest to defer over- or under-collections of gas costs to PGA balancing accounts. With regulatory approval, Southwest can either refund amounts over-collected, or recoup amounts under-collected in future periods. In addition to the PGA mechanism, Southwest has historically utilized a Volatility Mitigation Program attempting to further reduce price volatility for its California rate jurisdiction customers.
Southwest is protected financially from commodity price risk by deferred energy or purchased gas adjustment (collectively “PGA”) mechanisms in each of its jurisdictions. These mechanisms generally allow Southwest to defer over- or under-collections of gas costs to PGA balancing accounts. With regulatory approval, Southwest can either refund amounts over-collected, or recoup amounts under-collected in future periods.
During 2022, Southwest continued to fix the price on a portion of its California natural gas portfolios using fixed-price contracts. For periods beyond October 2020, Southwest does not currently plan to make fixed-price term or swap purchases broadly for the Arizona or Nevada jurisdictions; however, it will continue to make fixed-price purchases for the California jurisdictions.
Southwest does not currently plan to make fixed-price term or swap purchases broadly for the Arizona or Nevada jurisdictions; however, it will continue to make fixed-price purchases for the California jurisdictions, and will monitor conditions and otherwise work collaboratively with regulators to address any changes to these plans.
Removed
Southwest has experienced price volatility over the past several years and such volatility is expected to continue into 2023 and beyond. Southwest is protected financially from commodity price risk by deferred energy or purchased gas adjustment (collectively “PGA”) mechanisms in each of its jurisdictions.
Added
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS About Southwest Gas Holdings, Inc. Southwest Gas Holdings, Inc. is a holding company that owns all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas distribution” segment), all of the shares of common stock of Centuri Group, Inc.
Removed
Great Basin’s regulated rate design, similar to that which was in place for MountainWest in 2022, is under the jurisdiction of the FERC, and provides for a substantial portion of its rate structures based on fixed reservations and storage charges and it is not assured that currently approved structures will continue to be approved by the FERC in future filings or proceedings.
Added
(“Centuri” or the “utility infrastructure services” segment), and until February 14, 2023, all of the common stock of MountainWest Pipelines Holding Company (“MountainWest” or “pipeline and storage” segment).
Removed
A sensitivity analysis at a different date may provide a higher or lower result, including relative to the amount of debt then outstanding.
Added
Southwest Gas Holdings, Inc. and its subsidiaries are collectively referred to as the “Company.” In December 2022, the Company announced that its Board of Directors (the “Board”) unanimously determined to take strategic actions to simplify the Company’s portfolio of businesses.
Removed
For instance, after the most recent balance sheet date of December 31, 2022, Corporate debt was substantially reduced in conjunction with the sale of MountainWest to Williams, when closing proceeds of $1.075 billion were used to substantially pay down amounts due under a 364-day Term Loan Facility, thereby reducing the amount due to $72 million compared to $1.15 billion included in the Corporate balance in the table above as of the end of 2022.
Added
These actions included entering into a definitive agreement to sell 100% of MountainWest in an all-cash transaction to Williams Partners Operating LLC (“Williams”) for $1.5 billion in total enterprise value, subject to certain adjustments. The MountainWest transaction closed on February 14, 2023.
Added
In December 2023, the Company announced its intent to pursue an initial public offering (the "Centuri Holdings IPO") of newly issued shares of Centuri Holdings, Inc. ("Centuri Holdings"). The Board has determined that the Centuri Holdings IPO is the optimal path to advance the separation of Centuri as an independent utility infrastructure services company to maximize value for stockholders.
Added
Centuri Holdings has confidentially submitted a draft Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (the "SEC"). The execution of the Centuri Holdings IPO is subject to market and other conditions, the completion of the SEC's review process, and final Board approval to proceed with the transaction.
Added
Following the Centuri Holdings IPO, the Company intends to reduce its ownership in Centuri Holdings in one or more disposition transactions, including by way of distributions to Company stockholders, one or more distributions in exchange for Company shares or other securities, a sell-down of its remaining owned shares of Centuri Holdings common stock or any combination thereof.
Added
As of December 31, 2023, the Company had a U.S. federal net operating loss carryforward of $1.03 billion, which could be available to offset a taxable gain incurred by the Company in connection with a taxable disposition of the Centuri stock.
Added
The Company also retains strategic flexibility to separate Centuri through a tax-free spin-off of all or a part of Centuri in the event market conditions are not conducive to an IPO or secondary sales by the Company following an IPO.
Added
On November 3, 2023, the Board authorized a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of common stock, $1 par value per share, of the Company to stockholders on record at the close of business on November 17, 2023.
Added
The description and terms of the Rights are set forth in a Tax-Free Spin Protection Plan, dated as of November 5, 2023 (as may be amended from time to time, the “Plan”), between the Company and Equiniti Trust Company, LLC, as rights agent.
Added
Each right entitles the registered holder to purchase from the Company one ten-thousandth of a share of Series A Junior Participating Preferred Stock, no par value per share, of the Company, at a purchase price of $300.00 per one ten-thousandth of a share of Series A Preferred, subject to adjustment.
Added
By adopting the Plan, the Board is seeking to preserve the Company’s ability to effectuate a separation of Centuri Holdings that would be tax-free to the Company (the “Tax-Free Status”). The Board believes it is in the best interest of the Company and its stockholders to preserve the Company’s ability to effectuate a spin-off transaction with Tax-Free Status.
Added
Our business includes Southwest, which is engaged in the business of purchasing, distributing, and t ransporting natural gas for customers in portions of Arizona, Nevada, and California. Southwest is the largest distributor of natural gas in Arizona and Nevada, and distributes and transports natural gas for customers in portions of California.
Added
Additionally, through its subsidiaries, Southwest operates two regulated interstate pipelines serving portions of Nevada and California. Southwest 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 integrity management programs.
Added
As of December 31, 2023, Southwest had 2,226,000 residential, commercial, industrial, and other natural gas customers, of which 1,192,000 customers were located in Arizona, 828,000 in Nevada, and 206,000 in California. First-time meter sets were approximately 40,000 in 2023, compared to 41,000 in 2022. Residential and commercial customers represented over 99% of the total customer base.
Added
During 2023, 55% of operating margin (gas operating revenues less the net cost of gas sold) was earned in Arizona, 33% in Nevada, and 12% in California. During this same period, Southwest earned 85% of its operating margin from residential and small commercial customers, 4% from other sales customers, and 11% from transportation customers.
Added
These general patterns are expected to remain materially consistent for the foreseeable future. Southwest 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.
Added
However, operating margin is not specifically defined in accounting principles generally accepted in the United States (“U.S. GAAP”). Thus, operating margin is considered a non-GAAP measure.
Added
Management uses this financial measure 26 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 purchased gas adjustment (“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.
Added
Therefore, management believes operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest’s financial performance in a rate-regulated environment. The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure program recoveries) and customer growth. Commission decisions on the amount and timing of relief may impact our earnings.
Added
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 Management’s Discussion and Analysis 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.
Added
All of Southwest’s 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 to pursue energy efficiency initiatives.
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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. Centuri is a strategic infrastructure services company that partners with regulated utilities to build and maintain the energy network that powers millions of homes and businesses across the U.S. and Canada.
Added
With a commitment to serve as long-term partners to customers and communities, Centuri’s employees enable regulated utilities to safely and reliably deliver natural gas and electricity, as well as achieve their goals for environmental sustainability. Centuri operates in 87 primary locations across 45 states and provinces in the U.S. and Canada.
Added
Centuri operates in the U.S., primarily as NPL, Neuco, Linetec, and Riggs Distler, and in Canada, primarily as NPL Canada . Utility infrastructure services activity can be impacted by changes in infrastructure replacement programs of utilities, weather, and local and federal regulation (including tax rates and incentives).
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Utilities continue to implement or modify system integrity management programs to enhance safety pursuant to federal and state mandates. These programs have resulted in multi-year utility system replacement programs throughout the U.S. Likewise, there has been similar attention placed on electric grid modernization through national infrastructure legislation and related initiatives.
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The Department of Energy estimates more than 70% of the nation’s grid transmission lines and power transformers are over 25 years old, creating vulnerability exacerbated by seasonal storm and extreme weather events.
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This, along with continued gas pipeline replacements expected to be necessary across North America, result in management expectations that Centuri will continue to benefit from these collective electric and gas infrastructure replacement programs for the foreseeable future. The amount that may be awarded to Centuri compared to its industry competitors is not presently known.
Added
Generally, Centuri revenues are lowest during the first quarter of the year due to less favorable winter weather working conditions. Revenues typically improve as more favorable weather conditions occur during the summer and fall months.
Added
In cases of severe weather, such as following a regional storm, Centuri may be engaged to perform restoration activities related to above-ground utility infrastructure, and related results impacts are not solely within the control of management.
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In addition, in certain circumstances, such as with large bid contracts (especially those of a longer duration), or unit-price contracts with revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid. Work awarded, or failing to be awarded, by individual large customers can impact operating results.
Added
All of our businesses may be impacted by economic conditions that impact businesses generally, such as inflationary impacts on goods and services consumed in the business, rising interest rates, labor markets and other costs (including in regard to contracted or professional services), and the availability of those resources.
Added
Certain of these impacts may be more predominant in certain of our operations, such as with regard to fuel costs for work equipment and skilled/trade labor costs at Centuri. 27 Executive Summary The items discussed in this Executive Summary are intended to provide an overview of the results of the Company’s and Southwest’s operations and are covered in greater detail in later sections of management’s discussion and analysis.
Added
Summary Operating Results Year ended December 31, (In thousands, except per share amounts) 2023 2022 2021 Contribution to net income (loss) Natural gas distribution $ 242,226 $ 154,380 $ 187,135 Utility infrastructure services 19,652 2,065 40,420 Pipeline and storage (16,288) (283,733) — Corporate and administrative (94,701) (76,002) (26,776) Net income (loss) $ 150,889 $ (203,290) $ 200,779 Weighted average common shares 70,787 65,558 59,145 Basic earnings (loss) per share Consolidated $ 2.13 $ (3.10) $ 3.39 Natural Gas Distribution Reconciliation of Gross Margin to Operating Margin (Non-GAAP measure) Utility Gross Margin $ 640,955 $ 574,534 $ 570,325 Plus: Operations and maintenance (excluding Admin. & General) expense 316,246 308,276 267,160 Depreciation and amortization expense 295,462 263,043 253,398 Operating margin $ 1,252,663 $ 1,145,853 $ 1,090,883 Overview Southwest Gas Holdings: • Issued 4.1 million shares of common stock for net proceeds of $238.4 million • Completed the MountainWest sale and paid down the remaining balance of the term loan used to initially fund the MountainWest acquisition • Confidentially submitted a draft Registration Statement on Form S-1 to the SEC relating to the Centuri Holdings IPO • Corporate and administrative expenses include $42.8 million in interest expense related to borrowings and $11.1 million in Centuri separation costs, offset by certain tax benefits Natural gas distribution: • 40,000 first-time meters sets ( 1.8% gr owth rate) added over the past 12 months • Operating margin increased $107 million , or 9%, between 2023 and 2022 • Arizona rate case finalized with annualized revenue increase of $54 million, effective February 1, 2023 • Received approval to implement an increase in the Gas Cost Balancing Account rate to facilitate timely recovery of ~$358 million in Arizona purchase gas costs effective August 1, 2023 • Filed $70 million general rate case in Nevada in September 2023, and $126 million general rate case in Arizona in February 2024 • $762 million capital investment in 2023 • COLI results increased $15.5 million compared to the prior year Utility infrastructure services: • Record revenues of $2.9 billion in 2023, an increase of $139 million, or 5%, compared to 2022 • $86 million storm restoration services revenues in 2023, an increase of $17 million over 2022 • $215 million of revenues from sustainable wind energy projects in 2023 including the first U.S. commercial-scale offshore project to deliver generated electricity to the grid • Executed a multi-year contract extension of a master services agreement with an existing gas utility customer in Ontario, Canada with anticipated revenues of ~$1 billion over the contract term 28 This section of Form 10-K provides comparison of 2023, 2022, and 2021 results and pertinent components.
Added
Also provided is a discussion of 2023 and 2022 and year-to-date comparisons between those years.
Added
Results of Natural Gas Distribution Year Ended December 31, (Thousands of dollars) 2023 2022 2021 Regulated operations revenues $ 2,499,564 $ 1,935,069 $ 1,521,790 Net cost of gas sold 1,246,901 789,216 430,907 Operating margin 1,252,663 1,145,853 1,090,883 Operations and maintenance expense 511,646 491,928 438,550 Depreciation and amortization 295,462 263,043 253,398 Taxes other than income taxes 87,261 83,197 80,343 Operating income 358,294 307,685 318,592 Other income (deductions) 70,661 (6,884) (4,559) Net interest deductions 149,830 115,880 97,560 Income before income taxes 279,125 184,921 216,473 Income tax expense 36,899 30,541 29,338 Contribution to consolidated results $ 242,226 $ 154,380 $ 187,135 2023 vs. 2022 Contribution to consolidated net income from natural gas distribution operations increased $88 million between 2023 and 2022.
Added
The increase was primarily due to increases in Operating margin and Other income, offset by increases in Operations and maintenance expense, Net interest deductions, and Depreciation and amortization. Operating margin increased $107 million between years.
Added
Customer growth provided approximately $14 million as 40,000 first-t ime meter sets were added in 2023, and combined rate relief (primarily in Arizona, as well as benefits of rate relief in Nevada through the first quarter of 2023 and the annual California attrition increase) provided approximately $56 million of incremental operating margin during the current year.
Added
Increases in recoveries associated with regulatory programs of $19 million also contributed to the increase; such amounts also increase amortization expense (discussed below).
Added
A dditionally, an $8 million out -of-period adjusting entry was made in the first quarter of 2023, which reduced Net cost of gas sold (See Basis of Presentation in Note 1 - Background, Organization, and Summary of Significant Accounting Policies) . Other increases include margin associated with customers outside the decoupling mechanisms.
Added
Operations and maintenance (“O&M”) expense increased $20 million, or 4%, between 2023 and 2022.
Added
Increases occurred throughout the business, including in direct labor ($8 million), external contractor and professional services expenses ($10 million), notably related to a consulting arrangement for the identification, benchmarking, and assessment of utility business optimization opportunities, and for leak survey and line locating activities ($4 million), along with higher incentive compensation expense ($4 million), costs for fuel used in operations ($3 million), and others.
Added
Employee benefit costs decreased between periods (approximately $5 million reflected in O&M expense), primarily due to the lower service-related component of postretirement benefit costs offset by increases in employee medical and other costs; these employee benefit costs are part of an overhead/labor loading process for which approximately 80% is included in O&M expense, with the remainder primarily becoming part of capital projects.
Added
Legal/claim-related costs were also lower between periods ($7 million). Depreciation and amortization expense increased $32 million, or 12%, between years including due t o a $583 million, or 6%, increase in average gas plant in service in the current year.
Added
The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure. An increase in amortization of regulatory account balances of $19 million , as discussed in regard to Operating margin above, also contributed to the increase.
Added
Taxes other than income taxes increased $4.1 million, or 5%, between 2023 and 2022 primarily due to an increase in property taxes in Arizona, and to a lesser extent, in California. Other inc ome increased $78 million b etween 2023 and 2022.
Added
Interest income increased $35 million compared to the prior year, related to carrying charges associated with the elevated deferred purchased gas cost balance and interest on other regulatory 29 account balances, with another nearly $2 million associated with the equity portion of the allowance for funds used during construction.
Added
Additionally, non-service-related components of employee pension and other postretirement benefit costs decreased $21 million between years, thereby positively impacting results between periods. Southwest also recognized a $16 million increase in COLI results between years.
Added
Net interest deductions increased $34 million bet ween 2023 and 2022 primarily due to $300 million of Senior Notes issued in December 2022, $300 million of Senior Notes issued in March 2023, and in part to $600 million of Senior Notes issued in March 2022; as well as due to a term loan, entered into in January 2023 to support higher natural gas supply costs, which was repaid in April 2023.
Added
These increases were offset by the March 2023 repayment of the remaining $225 million balance associated with the March 2021 Term Loan.
Added
Results of Utility Infrastructure Services Year Ended December 31, (Thousands of dollars) 2023 2022 2021 Utility infrastructure services revenues $ 2,899,276 $ 2,760,327 $ 2,158,661 Operating expenses: Utility infrastructure services expenses 2,617,402 2,529,318 1,955,467 Depreciation and amortization 145,446 155,353 117,643 Operating income 136,428 75,656 85,551 Other income (deductions) 64 (887) 1,067 Net interest deductions 97,476 61,371 20,999 Income before income taxes 39,016 13,398 65,619 Income tax expense 14,736 5,727 18,776 Net income 24,280 7,671 46,843 Net income attributable to noncontrolling interests 4,628 5,606 6,423 Contribution to consolidated results $ 19,652 $ 2,065 $ 40,420 2023 vs. 2022 Contribution to consolidated net income from utility infrastructure services increased $17.6 million in 2023 compared to 2022.
Added
While net interest deductions increased $36.1 million due to higher interest rates, operating income increased $60.8 million due to an increase in revenue of $138.9 million and improvements in operating income overall due primarily to decreases in fuel prices and changes in mix of work.
Added
The Utility infrastructure services revenue increase of $138.9 million, or 5%, was driven primarily by a $211.7 million increase in electric infrastructure services revenue, which included a $120.4 million increase in offshore wind revenue.
Added
Offshore wind revenue stems from several multi-year contracts, whereby Centuri provides materials, subcontracts manufacturing, and self performs fabrication and assembly of secondary steel components onshore, with delivery at a port facility.
Added
Also included in electric infrastructure revenue was $86.4 million from emergency restoration services following tornado and other storm damage to customers’ above-ground utility infrastructure in and around the Gulf Coast and eastern regions of the U.S., compared to $69.7 million in storm restoration work in the prior year.
Added
Centuri’s revenues derived from storm-related services vary from period to period due to the unpredictable nature of weather-related events, and when this type of work is performed, it typically generates a higher profit margin than core infrastructure services, due to improved operating efficiencies related to equipment utilization and absorption of fixed costs.
Added
The remaining increase in electric infrastructure services revenues was due to higher volumes under certain existing customer master service agreements. Gas infrastructure services revenue decreased $81.8 million overall from the prior year, driven primarily by a net reduction in volume under master services agreements with certain existing customers, primarily in Canada.
Added
That amount reflects the mitigated impact of increased revenue from bid work of $87.3 million with a U.S. customer. Other revenues increased $9 million, primarily due to completion of a large industrial bid project during the year. Centuri revenues from contracts with Southwest totaled $116.4 million in 2023 and $134.7 million in 2022.
Added
Centuri accounts for services provided to Southwest at contractual prices. Utility infrastructure services expenses increased $88.1 million, or 3.5%, in 2023 when compared to 2022, primarily as a result of increased costs to complete a higher volume of work. Subcontractor costs increased during 2023 compared to the prior year notably due to increased revenue related to offshore wind projects.
Added
Despite continued inflationary pressures, margin on work completed in 2023 improved from the prior year due to changes in the mix of work and lower fuel prices. Also included in total Utility infrastructure services expenses were general and administrative costs, which increased approximately $1.3 million between years due to continued growth in the business.
Added
Gains on sale of equipment (reflected as an offset to Utility infrastructure services expenses) were approximately $4.5 million and $6.4 million in 2023 and 2022, respectively. 30 Depreciation and amortization expense remained largely consistent as a percentage of revenue between years.
Added
Amortization of intangible assets decreased in 2023 compared to 2022 due to Riggs Distler’s backlog intangible asset becoming fully amortized in 2022. The increase in net interest deductions of $36.1 million was primarily due to higher interest rates on outstanding variable-rate borrowings, notably, the Centuri term loan and revolving credit facility, as amended.
Added
Income tax expense increased $9 million between 2023 and 2022, primarily due to increased pre-tax income in 2023.
Added
Results of Pipeline and Storage Year Ended December 31, (Thousands of dollars) 2023 Regulated operations revenues $ 35,132 Operating expenses: Net cost of gas sold 6,368 Operations and maintenance expense 11,378 Depreciation and amortization — Taxes other than income taxes 1,490 Goodwill impairment 21,215 Operating loss (5,319) Other income 486 Net interest deductions 2,200 Loss before income taxes (7,033) Income tax expense 9,255 Contribution to consolidated results $ (16,288) Operating results for the pipeline and storage segment for 2023 reflects activity from January 1, 2023 through February 13, 2023 (the last full day of ownership by the Company), including residual goodwill impairment recognized during 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

77 edited+40 added−23 removed64 unchanged
Biggest changeA disruption in service could adversely impact our reputation, ability to provide services for our customers, and the media used to communicate and exchange information both internally and externally. We process and store sensitive information, including personal identifiable information (“PII”), intellectual property, and business proprietary information as part of normal business operations.
Biggest changeWe process and store sensitive information, including certain personal identifiable information (“PII”), intellectual property, and business proprietary information as part of normal business operations. A cybersecurity breach of this information could expose us to monetary and other damages from customers, suppliers, business partners, government agencies, and others.
Our credit ratings are subject to change at any time in the discretion of the applicable ratings agencies. Numerous factors, including many which are not within our control, are considered by the ratings agencies in connection with assigning credit ratings. Any downgrade could increase our future borrowing costs, which would diminish our financial results.
Our credit ratings are subject to change at any time at the discretion of the applicable ratings agencies. Numerous factors, including many which are not within our control, are considered by the ratings agencies in connection with assigning credit ratings. Any downgrade could increase our future borrowing costs, which would diminish our financial results.
While Centuri maintains oversight of those third-party suppliers and subcontractors it utilizes to assist with certain aspects of the work it performs for clients, any delay or failure by these parties in the completion of their portion of a given project may result in delays in the overall progress of the project or cause us to incur additional costs, thereby potentially impacting Centuri’s overall profitability.
While Centuri maintains oversight of third-party suppliers and subcontractors it utilizes to assist with certain aspects of the work it performs for clients, any delay or failure by these parties in the completion of their portion of a given project may result in delays in the overall progress of the project or cause us to incur additional costs, thereby potentially impacting Centuri’s overall profitability.
Increases in the cost of natural gas may arise from a variety of factors, including weather, changes in demand, the level of production and availability of natural gas, transportation constraints, transportation capacity cost increases, federal and state energy and environmental regulation and legislation, the degree of market liquidity, natural disasters, wars and other catastrophic events, national and worldwide economic and political conditions, the price and availability of alternative fuels, and the success of our strategies in managing price risk.
Increases in the cost of natural gas may arise from a variety of factors, including weather, changes in demand, the level of production and availability of natural gas, transportation constraints, transportation capacity cost increases, federal and state energy and environmental regulation and legislation, the degree of market liquidity, natural disasters, wars and other 18 catastrophic events, national and worldwide economic and political conditions, the price and availability of alternative fuels, and the success of our strategies in managing price risk.
Failure to achieve the anticipated benefits of acquisitions could result in increased costs, decreases in the amount of expected revenues generated, and the potential diversion of management’s time and energy, all of which could have an adverse effect on the consolidated financial position, results of 17 operations, cash flows, credit ratings, or market price of our common stock.
Failure to achieve the anticipated benefits of acquisitions could result in increased costs, decreases in the amount of expected revenues generated, and the potential diversion of management’s time and energy, all of which could have an adverse effect on the consolidated financial position, results of operations, cash flows, credit ratings, or market price of our common stock.
A local disaster or pandemic illness (including COVID-19) could result in part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business. In addition, these risks could result in loss of human life, significant damage to property, environmental damage, impairment of our operations and substantial loss to the Company.
A local disaster, pandemic, or epidemic illness (including COVID-19) could result in part of our workforce being unable to operate or maintain our infrastructure or perform other tasks necessary to conduct our business. In addition, these risks could result in loss of human life, significant damage to property, environmental damage, impairment of our operations and substantial loss to the Company.
If the economy or the markets in which we operate decline from present levels, it may have an adverse effect on our business, financial condition, and results of operations. A significant reduction in Southwest Gas Holdings, Inc. and Southwest’s credit ratings could materially and adversely affect our business, financial condition, and results of operations.
If the economy or the markets in which we operate decline from present levels, it may have an adverse effect on our business, financial condition, and results of operations. A significant reduction in Southwest Gas Holdings, Inc., Centuri’s, and Southwest’s credit ratings could materially and adversely affect our business, financial condition, and results of operations.
While Southwest has decoupling mechanisms in place in all three states in which it operates, 11 warmer than normal weather can reduce the amount of billed revenue, as well as amounts collected or returned related to regulatory tracking mechanisms under various programs, thereby impacting cash flows.
While Southwest has decoupling mechanisms in place in all three states in which it operates, warmer than normal weather can reduce the amount of billed revenue, as well as amounts collected or returned related to regulatory tracking mechanisms under various programs, thereby impacting cash flows.
In addition, the diversification of 13 revenues, costs, and cash flows will diminish, such that each company’s results of operations, cash flows, working capital, effective tax rate, and financing requirements may be subject to increased volatility and its ability to fund capital expenditures and investments, pay dividends and service debt may be diminished.
In addition, the diversification of revenues, costs, and cash flows will diminish, such that each company’s results of operations, cash flows, working capital, effective tax rate, and financing requirements may be subject to increased volatility and its ability to fund capital expenditures and investments, pay dividends, and service debt may be diminished.
If market interest rates continue to increase, prospective investors may desire a higher dividend yield on our common stock or may seek securities paying higher dividends or interest. As a result, interest rate fluctuations and capital market conditions may affect the market price of our common stock and such effects could be significant.
If market interest rates continue to increase, prospective investors may desire a higher dividend yield on our common stock or may seek securities paying higher dividends or interest. As a result, interest rate fluctuations and capital market conditions may affect the market 19 price of our common stock and such effects could be significant.
However, current global economic events such as the war in Ukraine, rising inflation, and increasing interest rates may cause the global economy to enter a period of economic slowdown or recession. We cannot predict the timing, strength, or duration of any future economic slowdown or recession.
However, current global economic events such as the war in Ukraine and Israel, rising inflation, and increasing interest rates may cause the global economy to enter a period of economic slowdown or recession. We cannot predict the timing, strength, or duration of any future economic slowdown or recession.
Governmental policies and regulatory actions, including those of the ACC, CPUC, PUCN, and FERC relating to allowed rates of return, rate structure, purchased gas and investment recovery, operation and construction of facilities, present or prospective wholesale and retail competition including electrification or decarbonization policies or proposed policies by governmental entities or other parties, changes in tax laws and policies (including regulatory recovery or refunds thereof), and changes in and compliance with environmental and safety laws, including state or federal EPA or PHMSA regulations, and regulations placed on us or our customers regarding the product we deliver in meeting customer energy needs could reduce our earnings.
Governmental policies and regulatory actions, including those of the ACC, CPUC, PUCN, and FERC relating to allowed rates of return, allowable rate base, rate structure, purchased gas and investment recovery, operation and construction of facilities, present or prospective wholesale and retail competition including electrification or decarbonization policies or proposed policies by governmental entities or other parties, changes in tax laws and policies (including regulatory recovery or refunds thereof), and changes in and compliance with environmental and safety laws, including state or federal EPA or PHMSA regulations, and regulations placed on us or our customers regarding the product we deliver in meeting customer energy needs could reduce our earnings.
References below to “we,” “us,” and “our” should be read to refer to Southwest Gas Holdings, Inc. and any combination of its subsidiaries, including Southwest Gas Corporation and Centuri Group, Inc. Operational Risks Southwest relies on having access to interstate pipelines’ transportation capacity.
References below to “we,” “us,” and “our” should be read to refer to Southwest Gas Holdings, Inc. and any combination of its subsidiaries, including Southwest Gas Corporation and Centuri Group, Inc. 12 Operational Risks Southwest relies on having access to interstate pipelines’ transportation capacity.
Our natural gas distribution and pipeline and storage operations are subject to inherent hazards and risks such as gas leaks, fires, natural disasters, catastrophic accidents, explosions, pipeline ruptures, and other hazards and risks that may cause unforeseen interruptions, personal injury, or property damage.
Our natural gas distribution operations are subject to inherent hazards and risks such as gas leaks, fires, natural disasters, catastrophic accidents, explosions, pipeline ruptures, and other hazards and risks that may cause unforeseen interruptions, personal injury, or property damage.
Centuri has not been able to (except in limited circumstances), and may not be able to, fully adjust its contract pricing to compensate for these cost increases, which has affected, and may continue to affect, Centuri’s profitability and cash flows.
Centuri has not been able to (except in limited circumstances), and may not be able to, fully adjust its contract pricing to compensate for these cost increases, which has adversely affected, and may continue to adversely affect, Centuri’s profitability and cash flows.
We may be unable to successfully integrate business acquisitions into our business and realize the anticipated benefits of the acquisitions. Business acquisitions are expected to result in various benefits, including, among other things, being accretive to earnings in future periods.
We may be unable to successfully integrate business acquisitions into our business and realize the anticipated benefits of such acquisitions. Business acquisitions are expected to result in various benefits, including, among other things, being accretive to earnings in future periods.
We may be unable to obtain sufficient insurance to cover all risks associated with local and national disasters, pandemic illness, terrorist activities, catastrophic failure of the pipeline system and other events, which could increase the risk that an event adversely affects our financial condition, results of operations and cash flows. Item 1B. UNRESOLVED STAFF COMMENTS None.
We may be unable to obtain sufficient insurance to cover all risks associated with local and national disasters, pandemic or epidemic illness, terrorist activities, catastrophic failure of the pipeline system and other events, which could increase the risk that an event adversely affects our financial condition, results of operations and cash flows. Item 1B. UNRESOLVED STAFF COMMENTS None.
Additionally, the impact of new regulatory and compliance requirements could result in productivity inefficiencies and adversely impact Centuri’s results of operations and cash flows, or timing delays in their realization. Southwest’s liquidity, and in certain circumstances our earnings, may be reduced from historical amounts or expectations during periods in which natural gas prices are rising significantly or are more volatile.
Additionally, the impact of new regulatory and compliance requirements could result in productivity inefficiencies and adversely impact Centuri’s results of operations and cash flows, or timing delays in their realization. Southwest’s liquidity, and in certain circumstances its earnings, may be reduced from historical amounts or expectations during periods in which natural gas prices are rising significantly or are more volatile.
The achievement of the anticipated benefits of such acquisitions is subject to a number of uncertainties, including whether the businesses are integrated efficiently and effectively.
The achievement of the anticipated benefits of such acquisitions is subject to a number of uncertainties, 21 including whether the businesses are integrated efficiently and effectively.
Interruptions to or reductions of interstate pipeline service caused by physical constraints, excessive customer usage, or other force majeure could reduce our normal supply of gas. Restrictions placed on pipelines or the extractive and mid-stream industries could disrupt our business and reduce cash flows and earnings.
Interruptions to or reductions of interstate pipeline service caused by physical constraints, excessive customer usage, cyber attacks, or other force majeure could reduce our normal supply of gas. Restrictions placed on pipelines or the extractive and mid-stream industries could disrupt our business and reduce cash flows and earnings.
This constrained supply environment has adversely affected, and could further affect, customer-provided component availability, lead times and cost, and could increase the likelihood of unexpected cancellations or delays of supply of key components to customers, thereby leading to delays in Centuri’s ability to timely deliver projects to customers.
This constrained supply environment has adversely affected, and could further adversely affect, customer-provided component availability, lead times and costs, and could increase the likelihood of unexpected cancellations or delays of supply of key components to customers, thereby leading to delays in Centuri’s ability to timely deliver projects to customers.
Conversely, Southwest’s revenues are highest during the first and fourth quarters of the year during the winter months as customer consumption increases.
Southwest’s revenues are highest during the first and fourth quarters of the year as customer consumption increases during the winter months.
Centuri’s efforts to adapt quickly or redeploy to other projects may fail to reduce the impact of these adverse supply chain conditions on Centuri’s business. Despite these mitigation efforts, the constrained supply conditions may adversely impact Centuri’s revenues and results of operations.
Centuri’s efforts to adapt quickly or redeploy to other projects may fail to reduce the impact of these adverse supply chain conditions on Centuri’s business. Despite such mitigation efforts, constrained supply conditions may materially and adversely impact Centuri’s revenues and results of operations.
This concentration of risk could impact operating results if construction work slowed or halted with one or more of these customers, if competition for work increased, or if existing contracts were not replaced or extended.
This concentration of risk could impact operating results if construction work slowed or halted with one or more of these customers, if competition for work increased, or if existing contracts were not renewed or extended.
As a result of the inflationary factors discussed above affecting the Company, Southwest, and Centuri, our business, financial condition, results of operations, cash flows, and liquidity could be adversely affected over time. Fixed-price contracts at Centuri are subject to potential losses that could adversely affect results of operations.
As a result of the inflationary factors discussed above affecting the Company, Southwest, and Centuri, our business, financial condition, results of operations, cash flows, and liquidity could be adversely affected over time. Certain contracts at Centuri are subject to potential losses that could adversely affect results of operations.
It is anticipated that the effective tax rate for each separate company will differ from the Southwest Gas Holdings consolidated effective tax rate. If the Centuri Spin-Off is completed, there may be changes in our stockholder base, which may cause the price of our common stock to fluctuate .
It is anticipated that the effective tax rate for each separate company will differ from the Southwest Gas Holdings consolidated effective tax rate. If the separation of Centuri is completed, there may be changes in our stockholder base, which may cause the price of our common stock to fluctuate .
Local or national natural disasters, pandemic illness (including COVID-19), actual or threatened acts of war or terrorist activities, including the political and economic disruption and uncertainty related to Russia's military invasion of Ukraine, catastrophic failure of pipeline systems and other extreme events are a threat to our assets and operations.
Local or national natural disasters, pandemic, or epidemic illness (including COVID-19), actual or threatened acts of war or terrorist activities, including the political and economic disruption and uncertainty related to Russia's military invasion of Ukraine and the conflict in Israel, catastrophic failure of pipeline systems and other extreme events are a threat to our assets and operations.
We cannot predict the likelihood that any future event will occur which will result in a claim exceeding these amounts; however, a large claim for which we were deemed liable would reduce our earnings up to and including these self-insurance maximums. Weather conditions in our operating areas can adversely affect operations, financial position, and cash flows.
We cannot predict the likelihood that any future event will occur which will result in a claim exceeding these amounts; however, a large claim for which we were deemed liable would reduce our earnings up to and including these self-insurance maximums, and uninsured claims for which we were deemed liable would reduce our earnings in the amount of the claim. 14 Weather conditions in our operating areas can adversely affect operations, financial position, and cash flows.
The ability of Southwest Gas Holdings’ subsidiaries to pay upstream dividends and make other distributions are subject to relevant debt covenant restrictions of subsidiaries and applicable state law. Utility infrastructure segment clients’ budgetary constraints, regulatory support or decisions, and financial condition could adversely impact work awarded.
The ability of Southwest Gas Holdings’ subsidiaries to pay upstream dividends and make other distributions are subject to relevant debt covenant restrictions of subsidiaries and applicable state law. Centuri’s clients’ budgetary constraints, regulatory support or decisions, and financial condition could adversely impact work awarded.
Physical damage due to a cybersecurity incident or acts of cyber terrorism could impact utility, transmission, storage, and related services provided to customers and could lead to material liabilities. The Company has taken the initiative in fortifying the core infrastructure that supports the provision of these services.
Physical damage due to a cybersecurity incident or acts of cyber terrorism could impact our utility sales, transportation, storage, and related services provided to customers and could lead to material liabilities. The Company has taken the initiative in fortifying the core infrastructure that supports the provision of these services.
The Company maintains liability insurance that covers Southwest for some, but not all, risks associated with the operation of our natural gas pipelines and facilities, and the utility infrastructure services we provide.
The Company maintains liability insurance that covers Southwest for some, but not all, risks associated with the operation of our natural gas pipelines and facilities, and the utility infrastructure services of Centuri.
Additionally, we cannot predict whether the market value of our common stock and the common stock of Centuri after the Centuri Spin-Off will be, in the aggregate, less than, equal to, or greater than the market value of our common stock prior to the Separation Transactions.
Additionally, we cannot predict whether the market value of our common stock and the common stock of Centuri after the Centuri separation will be, in the aggregate, less than, equal to, or greater than the market value of our common stock prior to the Centuri separation.
Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if in excess of insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our financial condition, results of operations, cash flows and our ability to pay dividends on, and the per share trading price of, our common stock.
Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if in excess of insured levels, could have an adverse effect on our financial condition, results of operations, cash flows and our ability to pay dividends on, and the per share trading price of, our common stock.
We expect there to be increased costs associated with compliance (and potential penalties for any non-compliance) with applicable laws. If these costs are not recoverable in our customer rates, or if there are delays in recoverability due to regulatory lag, they could have a negative impact on our operating costs and financial results, including against our expectations.
We expect there to be increased costs associated with compliance (and potential penalties for any non-compliance) with applicable laws over time. If these costs are not recoverable in our customer rates, or if there are delays in recoverability due to regulatory lag, they could have a negative impact on our operating costs and financial results.
Our ability to finance capital expenditures and other matters will depend upon general economic conditions in the capital markets. Declining interest rates are generally believed to be favorable to utilities while rising interest rates are believed to be unfavorable because of the high capital costs of utilities.
Southwest’s business is capital intensive. Our ability to finance capital expenditures and other matters will depend upon general economic conditions in the capital markets. Declining interest rates are generally believed to be favorable to utilities while rising interest rates are believed to be unfavorable because of the high capital costs of utilities.
Our ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain talented professionals and a technically skilled workforce, and impacts our ability to transfer the knowledge and expertise of our workforce to new employees as our aging employees retire.
Our ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain talented professionals, including executives and other management, and a technically skilled workforce, and impacts our ability to transfer the knowledge and expertise of our workforce to new employees as our aging employees retire.
If the Centuri Spin-Off is completed, our and Centuri’s operational and financial profiles will change and each will be a less diversified company than Southwest Gas Holdings as it exists today. The Centuri Spin-Off will result in us and Centuri being less diversified companies with more limited businesses concentrated in their respective industries.
If the separation of Centuri is completed, our and Centuri’s operational and financial profiles will change and each will be a less diversified company than Southwest Gas Holdings as it exists today. The Centuri separation, if effected, will result in us and Centuri being less diversified companies with more limited businesses concentrated in their respective industries.
Inflationary pressures and related recessionary concerns in light of governmental and central bank efforts to mitigate inflation could also cause uncertainty for Centuri’s customers and affect the level of their project activity, which could also adversely affect Centuri’s profitability and cash flows.
Inflationary pressures and related recessionary concerns in light of governmental and central bank efforts to mitigate inflation could also impact our customers, causing uncertainty for Centuri’s customers and affecting the level of their project activity, which could also adversely affect Centuri’s profitability and cash flows.
Southwest has used short-term borrowings in the past to temporarily finance increases in purchased gas costs, and we expect to do so during 2023, if the need again arises. 14 Southwest may file requests for rate increases to cover the rise in the cost of purchased gas.
Southwest has used short-term borrowings in the past to temporarily finance increases in purchased gas costs, and would expect to do so again if the need arises. Southwest may file requests for rate increases to cover the rise in the cost of purchased gas.
Because of the relative size of subsidiary operations, and their relative impacts to net income and cash flows, substantial dependency on the utility operations of Southwest Gas Corporation and the infrastructure services of Centuri Group, Inc. exists.
Because of the relative size of subsidiary operations, and their relative impacts to net income and cash flows, substantial dependency on the utility operations of Southwest and the infrastructure services of Centuri exists.
Throughout 2022, the consumer price index increased substantially and may continue to remain at elevated levels for an extended period of time. Federal policies and recent global events, such as the volatility in prices of oil and natural gas, and the conflict between Russia and Ukraine, may have exacerbated, and may continue to exacerbate, increases in the consumer price index.
Recently, the consumer price index increased substantially and may continue to remain at elevated levels for an extended period of time. Federal policies and recent global events, such as the volatility in prices of oil and natural gas, and the conflicts between Russia-Ukraine and Israel-Hamas, may have exacerbated, and may continue to exacerbate, increases in the consumer price index.
Weather extremes such as drought and high temperature variations are common occurrences in the southwest U.S. and could impact our growth and results of operations.
Weather extremes such as drought and high temperature variations are common occurrences in the southwestern U.S. and could impact Southwest’s growth and results of operations.
This change may not match some stockholders’ investment strategies, which could cause them to sell their shares of our common stock or the common stock of Centuri, and excessive selling pressure could cause the market price to decrease following the consummation of the Centuri Spin-Off.
This change may not align with some stockholders’ investment strategies, which could cause them to sell their shares of our common stock or the common stock of Centuri, and excessive selling pressure could cause the market price to decrease following the consummation of the Centuri separation.
If the Centuri Spin-Off is completed, shares of our common stock will represent an investment in a business concentrated in the natural gas distribution industry, and shares of the common stock of Centuri will represent an investment in the strategic utility infrastructure business.
If the Centuri separation is completed, shares of our common stock will represent an investment in a business concentrated in the natural gas distribution industry, and shares of the common stock of Centuri will represent an investment in the utility infrastructure services business.
A prolonged interruption or reduction of interstate pipeline service or availability of natural gas in any of our jurisdictions, particularly during the winter heating season, would reduce cash flow and earnings. Failure to attract and retain an appropriately qualified employee workforce could adversely affect our collective operations.
A prolonged interruption or reduction of interstate pipeline service or availability of natural gas in any of our jurisdictions, particularly during the winter heating season, would reduce cash flow and earnings. Failure to attract and retain an appropriately qualified employee workforce, including executives and other management, could adversely affect our collective operations and ability to timely deploy on our plans.
Southwest has life insurance policies on members of management and other key employees to indemnify ourselves against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. Cash surrender values are directly influenced by the investment portfolio underlying the insurance policies.
Southwest has life insurance policies on members of management and other key employees to indemnify against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. Cash surrender values are directly influenced by the investment portfolio underlying the insurance policies. This portfolio includes both equity and fixed income (mutual fund) investments.
In an effort to mitigate these risks, Centuri has redirected efforts to projects whereby the customer has provided necessary materials, but delays in materials and redirecting workforces can lead to inefficiencies in absorption of fixed costs, higher labor costs for teams waiting to be deployed, and delays in pivoting to projects where necessary materials are available.
To mitigate such risks, Centuri has redirected efforts to projects for which the customer has provided necessary materials. However, delays in obtaining necessary materials and redirecting workforces can lead to inefficiencies in absorption of fixed costs, higher labor costs for teams waiting to be deployed, and delays in pivoting to projects where necessary materials are available.
This portfolio includes both equity and fixed income (mutual fund) investments. As a result, the cash surrender value (but not the net death benefits) moves up and down consistent with the movements in the broader stock and bond markets. Current tax regulations provide for tax-free treatment of life insurance (death benefit) proceeds.
As a result, the cash surrender value (but not the net death benefits) moves up and down consistent with the movements in the broader stock and bond markets. Current tax regulations provide for tax-free treatment of life insurance (death benefit) proceeds.
As inflation persists, the Board of Governors of the United States Federal Reserve Bank has raised and has indicated that it intends to continue to raise benchmark interest rates into 2023 and 2024, which likely will cause our borrowing costs to increase over time.
As inflation persists, the Board of Governors of the United States Federal Reserve Bank has raised during 2023 and may continue to raise benchmark interest rates during 2024, which likely will cause Centuri’s borrowing costs to increase over time.
Centuri is experiencing pressures on fuel, materials, and certain labor costs as a result of the inflationary environment and current general labor shortage, which has resulted in increased competition for skilled labor and wage inflation.
Centuri has experienced and continues to experience pressures on fuel, materials, and certain labor costs as a result of the inflationary environment and recent general labor shortage, which has resulted in increased competition for skilled labor and wage inflation.
We are currently subject to, and may be subject in the future, to litigation or threatened litigation, including claims brought by stockholders and otherwise in the ordinary course of business. In particular, we are subject to ongoing stockholder litigation 15 and are subject to a risk of additional stockholder litigation in the future.
We are currently subject, and may be subject in the future, to litigation or threatened litigation, including claims brought by stockholders and otherwise in the ordinary course of business.
As a result, during periods in which the inflation rate exceeds the rate increases applicable to purchased gas, or other types of expenditures, we may not adequately mitigate the impact of inflation, which may adversely affect our business, financial condition, results of operations, and cash flows.
As a result, during periods in which the inflation rate exceeds customer rate increases, we may not adequately mitigate the impact of inflation, which may adversely affect our business, financial condition, results of operations, and cash flows.
Furthermore, declines in our stock price resulting from economic downturns or otherwise could impact our ability to finance our operations as planned. Historically, we have frequently used our at-the-market equity offering program (“ATM Program”) to fund certain liquidity requirements. During 2022, we did not use our ATM program at the same levels that we have in prior years.
Furthermore, declines in our stock price resulting from economic downturns or otherwise could impact our ability to finance our operations as planned. Historically, we have frequently used an at-the-market equity offering program (“ATM Program”) to fund certain liquidity requirements. During 2023, we did not use our ATM Program. We intend to establish a new ATM program in 2024.
The COVID-19 pandemic, labor market, and conflict in Ukraine have also contributed to and exacerbated this strain 12 within and outside the U.S., and there can be no assurance that these impacts on the supply chain will not continue, or worsen, in the future, negatively impacting any of our business segments and their results.
Inflationary pressure, the labor market, and the conflict in Ukraine have also contributed to and exacerbated this strain within and outside the U.S., and there can be no assurance that these impacts on the supply chain will not worsen in the future, negatively impacting any of Centuri’s operating business lines and their results.
Additionally, inflationary pricing has had and may continue to have a negative effect on the construction costs necessary to complete projects at Centuri, particularly with respect to fuel, labor, and subcontractor costs discussed above.
Additionally, inflationary pricing has had and may continue to have a negative effect on the construction costs necessary to complete projects at Centuri, particularly with respect to fuel, labor, and subcontractor costs, in addition to increasing other operating and general and administrative expenses.
However, there can be no assurance that Southwest will be able to obtain adequate and timely rate relief to offset the effects of inflation and any non-recovery of costs or 10 regulatory lag will reduce our cash flows and earnings.
However, there can be no assurance that Southwest will be able to obtain timely rate relief to offset the effects of inflation or to timely or adequately cover borrowing costs to fund the increased cost of purchased gas and capital expenditures; and any non-recovery of costs or regulatory lag will reduce our cash flows and earnings.
Unforeseen inflation, or other costs unanticipated at inception, can detrimentally impact profitability for these types of contracts. The nature of our operations presents inherent risks of loss that could adversely affect our results of operations.
Unforeseen inflation, or other costs unanticipated at inception, can detrimentally impact profitability for these types of contracts, which could have an adverse impact on Centuri’s financial condition, results of operations, and cash flows. The nature of our operations presents inherent risks of loss that could adversely affect our results of operations.
Loss of one or more significant customers at Centuri could adversely affect results. During 2022, over half of utility infrastructure services revenues were generated from ten customers.
Loss of, or a reduction in business from, one or more significant customers at Centuri could adversely affect results. During 2023, over half of our utility infrastructure services revenues were generated from eleven customers.
Failure to attract, hire, and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor could adversely affect our ability to manage and operate our business.
Failure to attract, hire, onboard, and adequately train replacement employees, including strategic leaders, and to transfer significant internal historical knowledge and expertise to the new employees and management, or the future availability and cost of contract labor could adversely affect our ability to manage and operate our business, and to execute on our strategic plans, or to do so within the timeframes we plan.
For example, lower than assumed returns on investments and/or reductions in bond yields could result in increased contributions and higher pension expense which would have a negative impact on our cash flows and reduce net income. Uncertain economic conditions may affect Southwest’s ability to finance capital expenditures. Southwest’s business is capital intensive.
For example, lower than assumed returns on investments and/or reductions in bond yields could result in increased contributions and higher pension expense which would have a negative impact on our cash flows and reduce net income.
In order to help cope with the effects of inflation on its operations, Southwest may file requests for rate increases to cover the increased cost of purchased gas or other types of expenditures noted above.
In order to help cope with the effects of inflation on its operations, Southwest has filed and may file requests for rate 13 increases to cover the increased cost of purchased gas included in a regulatory asset or expense items noted above.
Challenges relating to current supply chain constraints have negatively impacted Centuri’s work mix and volumes and could adversely impact our results of operations overall.
Challenges related to supply chain constraints have negatively affected, and may in the future negatively affect, Centuri’s work mix and volumes and could adversely impact our results of operations overall.
The current supply chain challenges could also result in increased use of cash, engineering design changes, and delays in the completion of customer or other capital projects, each of which could adversely impact our business and results of operations for Centuri or Southwest.
Supply chain challenges could also result in increased use of cash, engineering design changes, and delays in the completion of customer or other capital projects, each of which could adversely impact our business and results of operations for the Company over an extended period. 16 Disruptions in labor relations with Centuri’s employees could adversely affect results of operations.
In addition, during periods of rising inflation, variable interest rates and the interest rates of any debt securities we, Southwest, or Centuri issue will likely be higher than more recent debt issuances, which will further tend to reduce returns to our stockholders.
In addition, during periods of rising inflation, including by government action, variable interest rates and the interest rates of any debt securities we, Southwest, or Centuri issue will likely be higher than earlier periods or than for earlier fixed-rate debt issuances, which will reduce our earnings.
Furthermore, continuation of the decoupled rate designs currently in place is subject to regulatory discretion, and if unfavorably modified or discontinued, could adversely impact Southwest’s financial position and results of operations. 16 Southwest may be subject to increased costs related to the operation of natural gas pipelines under recent regulations concerning natural gas pipeline safety, which could have an adverse effect on our results of operations, financial condition, and/or cash flows.
Southwest may be subject to increased costs related to the operation of natural gas pipelines under recent regulations concerning natural gas pipeline safety, which could have an adverse effect on our results of operations, financial condition, and/or cash flows.
Deviations from normal weather conditions, even those occurring outside of our service territories, as well as the seasonal nature of our businesses can create fluctuations in short-term cash requirements of both Southwest and Centuri, and earnings, primarily related to Centuri.
Deviations from normal weather conditions, as well as the seasonal nature of our businesses, can create fluctuations in short-term cash requirements of both Southwest and Centuri, and earnings, primarily related to Centuri. Regulatory and legislative developments related to climate change may adversely affect our operations and financial results.
Southwest Gas Holdings’ ability to pay dividends to stockholders is dependent on the ability of its subsidiaries to generate sufficient net income and cash flows to service debt and pay upstream dividends.
Southwest Gas Holdings, Inc. has no significant assets other than the stock of operating subsidiaries and is not expected to have significant operations on its own. Southwest Gas Holdings’ ability to pay dividends to stockholders is dependent on the ability of its subsidiaries to generate sufficient net income and cash flows to service debt and pay upstream dividends.
We assess long-lived assets, including intangible assets associated with acquisitions, for impairment whenever events or circumstances indicate that an asset’s carrying amount may not be recoverable. To the extent that circumstances change, there may be additional goodwill impairment and losses on sale that could have a material impact on our results of operations.
Our goodwill and other assets have been subject to impairment and may be subject to further impairment in the future. We assess long-lived assets, including intangible assets associated with acquisitions, for impairment whenever events or circumstances indicate that an asset’s carrying amount may not be recoverable.
A sustained or further increase in inflation could have a material adverse impact on our operating expenses incurred in connection with, among others, the cost of natural gas supply, labor, products, and services required for operations, maintenance and capital improvements at Southwest, and fuel, labor, and materials costs at Centuri, as well as general administrative expenses for both segments.
A sustained or further increase in inflation could have a material adverse impact on expenses incurred in connection with our labor force, general and administrative expenses, operating supplies and expenses, and maintenance of our system, as well increasing outlays for gas supply passed on to customers and the cost of capital improvements at Southwest, in addition to requiring us to borrow amounts to fund the incremental outlays.
Due to increased demand across a range of industries, the global supply market for certain customer-provided components, including, but not limited to, electric transformers and gas risers needed to complete customer projects at Centuri, has experienced isolated performance constraint and disruption in recent periods in support of a few customers.
The global supply market for certain customer-provided components, including, but not limited to, electric transformers and gas risers needed to complete customer projects at Centuri, can experience isolated performance constraints and disruptions.
As a result, we will continue to explore alternative financing sources, which may not be available to us on attractive terms or at all. Future issuances of securities could be more expensive than ATM issuances and may dilute stockholders. Continued increases in market interest rates may have an adverse effect on the market price of our common stock.
Future issuances of securities could be more expensive than ATM issuances and may dilute our existing stockholders’ percentage of ownership. Continued increases in market interest rates may have an adverse effect on the market price of our common stock.
Collectively, these mechanisms provide stability in annual operating margin. Significantly warmer-than-normal weather conditions in our service territories and other factors, such as climate change and alternative energy sources, may result in decreased cash flows attributable to lower natural gas sales and delays in recovering regulatory asset balances.
Significantly warmer-than-normal weather conditions in our service territories and other factors, such as climate change and alternative energy sources, may result in decreased cash flows attributable to lower natural gas sales and delays in recovering regulatory asset balances. 20 Furthermore, continuation of the decoupled rate designs currently in place is subject to regulatory discretion, and if unfavorably modified or discontinued, could adversely impact Southwest’s financial position and results of operations.
We cannot predict the amount and timing of any future impairments, if any. Any future impairment of our goodwill or intangible assets could have an adverse effect on results of operations, as well as the trading price of our common stock.
Any future impairment of our goodwill or intangible assets could have an adverse effect on results of operations, as well as the trading price of our common stock. Financial, Economic, and Market Risks As a holding company, Southwest Gas Holdings, Inc. depends on operating subsidiaries to meet financial obligations.
Additional states are also considering new laws and regulations that further protect the confidentiality, privacy, and security of personal information. Should the Company experience a breach and/or become subject to additional regulation, it could face substantial compliance costs, reputational damage, and uncertain litigation risks.
The federal and state legislative and regulatory environment surrounding PII, information security, and data privacy is evolving and is likely to become increasingly demanding. Should the Company experience a material breach and/or become subject to additional regulation, it could face substantial compliance costs, reputational damage, and uncertain litigation risks.
Furthermore, inflationary pressures may also influence Southwest’s customers in remitting payments on their utility bills, which may adversely affect Southwest’s cash flows and associated reserves for uncollectible accounts in earnings.
Inflationary pressures on customers of both Southwest and Centuri may influence the timely remittance (or any remittance) of customer payments for service, which may adversely affect our cash flows and associated reserves for uncollectible accounts and earnings.
Governmental policies and regulatory actions can reduce Southwest’s earnings or cash flows. Regulatory commissions set our utility customer rates and determine what we can charge for our rate-regulated services. Our ability to obtain timely future rate increases depends on regulatory discretion.
As a consequence, liability exposure could materially and adversely affect our business and results of operations to the extent it is not fully mitigated by such insurance coverage. Governmental policies and regulatory actions can reduce Southwest’s earnings or cash flows. Regulatory commissions set our utility customer rates and determine what we can charge for our rate-regulated services.
A cybersecurity incident has the potential to disrupt normal business operations, expose sensitive information, and/or lead to physical damages, and may result in legal claims or damage to our reputation. As a utility provider, midstream service provider, and infrastructure services provider, maintaining business operations is critical for our customers, business partners, suppliers, and our employees.
As a utility provider and infrastructure services provider, maintaining business operations is critical for our customers, business partners, suppliers, and employees.
Removed
For example, the market price of natural gas spiked as a result of cold weather conditions across the central United States in December 2022 and regional pricing dislocation on the west coast in January 2023.
Added
It also impacts our ability to timely deploy on strategic initiatives we plan.
Removed
As a result of this increase in pricing, Southwest entered into a $450 million term loan in January 2023 in order to fund the incremental cost. Southwest may be required to incur additional indebtedness in connection with future spikes in natural gas prices as a result of extreme weather events.

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