Wednesday, Feb. 20, 2002 | 10:58 a.m.
Southwest Gas Corp., the primary natural gas supplier in Southern Nevada, posted fourth quarter 2001 earnings of $31 million, 96 cents a share, the company announced Tuesday.
The results are down from $32.5 million, $1.03 a a share, for the same period a year ago. The results are based on revenues of $384 million, up from $340 million for the quarter in 2000.
The company said earnings reflect increased costs incurred to hook up 60,000 new customers last year and continuing to serve its existing 1.4 million customers in Nevada, Arizona and Califonia.
Revenues less the cost of gas in the quarter were $3.3 million lower to $14.6 million because of weather variations between periods partially offset by $6 million in revenues from new customers and $5.3 million in higher rates.
The company said operating expenses in the quarter increased $7.9 million and financing costs rose 3 percent to $651,000.
After the close of markets Tuesday, Southwest Gas reported annual earnings for 2001 of $37.2 million or $1.16 per share, down from $38.3 million and $1.22 per share in 2001 and 7 cents below analysts' consensus of $1.23 per share. The company reported 2001 revenues of nearly $1.4 billion, up from $1 billion in 2000.
The company showed losses of $16.5 million in the second quarter and $11.1 million in the third quarter. Southwest typically profits in the winter months and shows losses in the summer.
Jeff Shaw, senior vice president of finance and treasurer, said because of the way the company's rates are structured, it has to pay for ever-increasing infrastructure costs before asking utility regulators to increase rates to recover those expenses.
"So our earnings shrink because of cost increases until we can get rate relief," he said. "We do receive revenues from new customers but our cost of growth over time exceeds revenues from customers and it generally costs more over time for labor, materials, pipe and contractors. We have a lot of infrastructure that needs to be built."
The company -- the fastest growing natural gas utility in the country -- invested $248 million in 2001 expanding its gas system and said capital expenditures will approach $225 million in 2002.
"The reduction in earnings between periods was largely a function of delayed general rate relief," said Michael Maffie, president and chief executive officer. "However, during the fourth quarter, general rate cases in both Arizona and Nevada were favorably concluded. Looking ahead, we are well positioned to post improved results in 2002."
The Public Utilities Commission of Nevada granted the company a rate increase of $19.4 million per year effective Dec. 1, while its counterpart in Arizona approved a $21.6 million increase beginning Nov. 1 last year.
"We didn't get the positive effect of the new rates until late in the year," Shaw said.
In January the company sold its interests in Arizona property that was originally acquired during natural gas shortages in the 1970s for underground storage but was never developed. The sale will result in a one-time pretax gain of $8.9 million and will be recognized in the first quarter of 2002.
The company reported an 8 percent increase in operating margins in 2001 of $40 million, to $515 million over $476 million in 2000 as a result of customer growth, rate relief and normal weather. Operating margins are total revenues less the cost of gas and cover all costs -- including finance costs -- and any profit authorized by regulators, Shaw said.
Other revenues included increases from new customers, electric power generators and industrial users, who contributed $30 million. Another $5.3 million in 2001 was realized from rate increases.
Shaw said weather in 2001 was generally not a factor because "if it's cold, we sell more gas and benefit. When it's warm, we don't because our rate design is based on average weather patterns over 10 years and some years we're ahead and some years behind."
Financing costs were $9.9 million or 13 percent more than 2000 as the company financed both new construction to keep up with customer growth and unrecovered costs for gas purchases.
"We picked up some growth but invested in infrastructure," Shaw said. "Also, the cost to serve existing customers increases over time, so you have those negatives against the positives you bring in. We have to spend the money before we ask for new rates, so during that time period you don't have the new rates and that affects the bottom line."
Southwest stock closed Tuesday at $22.70, off nearly 1.8 percent for the day and was mostly unchanged in early trading today. Over the past 12 months, the company's stock has traded from a low of $18.61 to a high of $24.67.
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