Colder first quarter adds to Southwest Gas profit

Kevin Rademacher

Thursday, April 29, 2004 | 10:42 a.m.

Crediting cooler weather, Southwest Gas Corp. of Las Vegas on Wednesday reported a wider first-quarter profit.

The natural gas distribution company said first-quarter net income was $41 million, or $1.18 per share, up from $25.5 million, or 76 cents per share, for the same 2003 quarter. The company reported revenue of $473.4 million, up from $403.3 million in the year-ago quarter.

"Our first-quarter earnings reflect the impact that a return to more normal weather can make," said Southwest Gas Chief Executive Michael Maffie.

Through 2003, the company's results were trimmed because of abnormally high temperatures throughout its service territory of Nevada, Arizona and California. While touting better luck early in 2004, Maffie cautioned that second-quarter results could suffer because of warmer-than-normal April temperatures.

The company said its operating margin -- defined as revenue minus the cost of gas sold -- increased by $31 million, or 18 percent from the first quarter of 2003. Of that margin increase, the company attributed $18 million to added weather-related demand. Another $7 million came from the settlement of a California rate case.

Customer growth also generated an additional $6 million.

During the last 12 months, Southwest Gas added 71,000 customers companywide. Another 9,000 customers were added in October when the company acquired Black Mountain Gas Co. near Phoenix. Southwest Gas has about 1.6 million customers companywide.

Operating expenses for the first quarter increased $7.5 million, or 7 percent, compared to the same 2003 quarter. The company blamed that increase on the cost of updating and expanding the gas system to keep up with customer growth.

The March 2003 refinancing of the company's industrial development revenue bonds produced a savings of $761,000 in financing costs for the first quarter.

Following the earnings news, Fitch Ratings affirmed the gas company's investment-grade credit rating at BBB with a stable outlook.

In a statement, Fitch noted that the company's fast-growing service territory requires high capital expenditures and leads to high operational costs -- and that the company experiences a lag in recovering those costs due to the regulatory approval process.

"However, in recent years the company has made timely general rate case filings in all three jurisdictions and received rate relief," the statement said.