Growth blamed for SW Gas loss

Kevin Rademacher

Thursday, Aug. 11, 2005 | 11:15 a.m.

Growth isn't cheap.

Officials made that point in a conference call with investors Wednesday morning, just over 24 hours after the company reported a second-quarter loss of $2.8 million.

Southwest Gas' results amounted to a loss of 7 cents a share, narrower than the loss of $8.4 million, or 24 cents a share, in the same 2004 quarter. The improved results were largely attributed to normal weather conditions throughout the company's operating territory of Nevada, Arizona and California. The company also said it benefited from rate relief in California and Nevada.

Southwest Gas Chief Executive Jeffrey Shaw, however, said the company was still struggling to get similar relief in Arizona.

The company's goal is to make rates less dependent on weather variations since such a large amount of the company's costs -- like laying pipe to keep up with growth -- are fixed, regardless of weather and usage.

Shaw said that in the 12 months ending June 30, the company added 103,000 customers, including the 19,000 added in a recent acquisition in the Lake Tahoe area. In that same 12 months, capital expenses totalled $242 million.

With that in mind, Shaw said the company is attempting to grow economically.

"We will continue to aggressively manage growth," he said.

In a recent Nevada rate case, the state Public Utilities Commission allowed the company to increase its monthly basic service charge -- paid by all customers regardless of usage -- by 50 cents to $8.50. The recent Nevada Legislature passed new regulations that will allow Southwest Gas to change rates quarterly based on rising natural gas prices, allowing the company to more quickly recover the higher prices it pays.

The pending rate case in Arizona would increase annual revenue by more than $70 million and push the basic service charge in that state higher. Shaw said parties in that case made preliminary recommendations amounting to about two-thirds of the revenue increase, and moved to reject rate design changes.

He added that the company would "vigorously defend" its requests.

"The Arizona rate case outcome will ... have a significant future impact on the company," Shaw said.

Nevada regulators have pointed out that despite Southwest Gas' reputation as a well-run utility, it's debt rating sits perilously close to junk status. The utility has argued that until its rate structure is altered to allow more efficient collection of fixed costs, those ratings will remain less than ideal.

In the conference call, Shaw pointed out that debt ratings are directly tied to the company's cost of capital and that customers benefit from lower capital costs.