Southwest Gas Corporation (SWX - Free Report) filed an application with the Public Utilities Commission of Nevada to increase statewide overall general rate of $32.5 million including the benefit of reduced tax liability associated with the Tax Cuts and Jobs Act of 2017 for its Nevada service areas. Through this rate increase filing, the company intends to recoup the capital investment made since the last rate filing in April 2012 in Nevada as well as for the planned capital investment going ahead.
The previous rate hike came into effect from November 2012, which raised the company’s annual revenues by $7 million, lower than the filing rate hike of $26.9 million. Since the last rate filing in Nevada, the company’s total investment amounted to nearly $2,402.4 million for customer support, enhancement and replacement of gas infrastructure across all its three service territories, namely Arizona, California and Nevada.
The company also received an approval for its planned proposal to expand its natural gas services to Mesquite, NV. The expansion approval calls for a capital investment of approximately $28 million, for construction of 17 miles of approach main and 20 miles of distribution pipelines.
Infrastructure Replacement & Capex Plan
Companies distributing natural gas require a huge amount of capital spending to fund infrastructure needs. Over the past decade, the company’s expenditure to build, replace and upgrade its aging infrastructure has increased.
The company is expected to incur a capital expenditure of nearly $2 billion over the period of 2018-2020 and estimates to recover 63% of the annual investment within a year’s time. It included a capital expenditure on replacement of 6,700 miles of vintage pipelines.
Southwest’s Position in Nevada
The company is the largest distributor of natural gas in Nevada by serving the Las Vegas metropolitan area and Northern Nevada. At the end of 2017, the company had more than two million residential, commercial, industrial and other natural gas customers, of which, almost 0.75 million are based in Nevada alone. Also, the company derived 35% of the total operating margin in 2017 from Nevada.
Nevada does not have significant amount of natural gas resources and hence, producing only a limited amount of the demand required in the region. Nearly, 88% of the total energy consumed in Nevada comes from outside the state.
Per U.S. Energy Information Administration (EIA), in 2016, 73% of the electricity generated in Nevada came from natural gas. This demand for natural gas is greater than the usual supply in Nevada. Plus, three of five households use natural gas as the primary source of energy for home heating fuel. Therefore, this rise in requirement for natural gas in the region calls for more capital investment as well as exploration of growth opportunities for companies like Southwest Gas.
In the last six months, the Southwest Gas stock has gained 12.8%, outperforming its industry’s rise of 6.8%.
Other Stocks to Consider
Southwest Gas carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other top-ranked stocks from the same sector include the following:
CMS Energy Corporation (CMS - Free Report) has a Zacks Rank #2. It reported first-quarter 2018 adjusted earnings of 86 cents per share, surpassing the Zacks Consensus Estimate of 82 cents per share, by 4.9%. Currently having an Earnings ESP of 13.89%.
South Jersey Industries, Inc. (SJI - Free Report) has a Zacks Rank #2. It reported first-quarter 2018 adjusted earnings of $1.26 per share, surpassing the Zacks Consensus Estimate of 96 cents by 31.3%. Currently having an Earnings ESP of 1.62%.
Xcel Energy Inc. (XEL - Free Report) holds a Zacks Rank of #2. It reported first-quarter 2018 adjusted earnings of 57 cents per share, surpassing the Zacks Consensus Estimate of 51 cents per share, by 11.8%. Currently having an Earnings ESP of 2.15%.
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