DEF 14A: Southwest Gas Holdings Aims for Long-Term Growth and Value with Centuri Separation

Southwest Gas Holdings is focused on becoming a premier, fully regulated natural gas utility through the separation of Centuri Holdings and strategic investments in infrastructure.

Summary

• Southwest Gas Holdings is pursuing a transformational strategy to become a premier, fully regulated natural gas utility.
• A key milestone in 2024 was the successful initial public offering (IPO) of Centuri Holdings in April.
• The company is focused on the successful completion of the Centuri separation.
• Southwest Gas executed its 2024 capital plan and reaffirmed its commitment to maintaining a strong investment grade balance sheet and competitive dividend.
• The company did not need to access the equity markets in 2024.
• Positive rate case outcomes and cost management efforts are expected to optimize utility operations and deliver value for stockholders.
• Southwest Gas Corporation's financial snapshot includes $2.5 billion in 2024 revenue and $261.2 million in 2024 net income.
• The utility return on equity was 8.1% in 2024, and the estimated rate base was $6.4 billion.
• Southwest Gas Corporation served 2,258,000 total customers in 2024.
• The company added 41,000 first-time meter sets in 2024.
• Southwest Gas Corporation filed a ~$126 million general rate case in Arizona, and a ~$50 million general rate case in California.
• An annual revenue increase of ~$59 million was approved in Nevada for Southwest Gas Corporation.
• Southwest Gas Holdings finished 2024 with ~$360 million in cash.
• The Board recommends stockholders vote FOR the election of directors, the advisory vote on executive compensation, and the ratification of the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm.

Sentiment

Score: 8

Explanation: The document expresses a positive outlook due to the successful Centuri IPO, strong financial performance, and strategic focus on the core utility business.

Positives

• Successful IPO of Centuri Holdings completed in April 2024.
• Strong financial performance for 2024 with $2.5 billion in revenue and $261.2 million in net income for Southwest Gas Corporation.
• Utility return on equity of 8.1% in 2024.
• 41,000 first-time meter sets added in 2024.
• Annual revenue increase of ~$59 million approved in Nevada.
• Southwest Gas Corporation ranked #1 in Customer Satisfaction with Residential Natural Gas Service in the West among Large Utilities for the fifth consecutive year.
• The company finished 2024 with ~$360 million in cash.

Risks

• Regulation by various state and federal utility regulatory commissions is a key risk.
• Limits imposed on Southwest Gas as a public utility permeate its business operating model.
• Credit and liquidity risks are addressed in the review of capital budgets and ongoing capital requirements.
• Cybersecurity risks are addressed in review of regular reports to the Board.
• Operational risks are addressed in the review of operating budgets, key performance indicators and regulatory compliance requirements, including pipeline safety requirements.

Future Outlook

The company is well positioned to continue delivering sustainable energy options for customers and is focused on optimizing the utility to deliver value.

Management Comments

• As stewards of the Company and your investment, we remain focused on developing, overseeing and supporting strategies that will deliver long-term growth and value for all of our stockholders.
• We are incredibly proud of our achievements in 2024 and want to share some highlights of our efforts to advance our strategic priorities.
• Our Board and management team are focused on the Company's transformational strategy to become a premier, fully regulated natural gas utility.
• We have taken steps to position Centuri as an industry leader in utility infrastructure services and realize the full value of our investment.
• As a result of our effective strategy execution, we did not have to access the equity markets in 2024.
• We have made significant investments in infrastructure in recent years to ensure we continue to provide safe, reliable and resilient service.
• Positive rate case outcomes, as well as ongoing cost management efforts, provide us with confidence in our ability to optimize utility operations and continue delivering value for stockholders.

Industry Context

The announcement reflects a broader trend in the utility industry of companies focusing on core regulated businesses and unlocking value through strategic separations.

Comparison to Industry Standards

• The peer group used for executive compensation benchmarking includes companies like Alliant Energy Corporation, Ameren Corporation, Atmos Energy Corporation, and others.
• The company's utility return on equity of 8.1% is a key metric compared to industry peers.
• The company's customer satisfaction ranking is compared to large utilities in the West.

Related Party Transactions

• Purchases by an executive officer and several Company directors of Centuri stock through the Centuri IPO reserved share program were deemed not inconsistent with the best interests of the Company.
• The Unutilized Tax Assets Settlement Agreement that the Company entered into with Centuri and Centuri Group, Inc. was determined that entry into the Tax Assets Agreement was not inconsistent with the best interests of the Company.

Stakeholder Impact

• The company strives to make a positive impact on our customers, employees, communities and the environment.
• The company is dedicated to delivering safe, reliable energy services, improving energy efficiency, protecting the environment, and supporting innovation.

Next Steps

• The Board is overseeing leadership's accountability for the successful completion of the Centuri separation.
• The Board will reexamine our dividend policy following the full separation of Centuri.
• Implementing the Utility Optimization Process at Southwest Gas to enhance financial performance, safety, efficiency and effectiveness.
• Obtaining positive regulatory outcomes for rate cases and programs to help obtain timely recovery of investments.
• Executing on the Board's strategic direction for the separation of Centuri and becoming a pure play utility.
• Creating a culture of financial discipline and accountability for budgets.
• Leading the Company's sustainability vision.
• Ensuring safety remains the top priority at all levels of the Company.

Key Dates

Keywords

Southwest Gas Holdings, Centuri Holdings, utility, natural gas, rate case, IPO, financial performance, regulatory, infrastructure, executive compensation, directors, governance