Southwest Gas Corporation has reported consolidated earnings of US$2.94 per basic share for 2015, a US$0.10 decrease from the consolidated earnings of US$3.04 per basic share during 2014. Consolidated net income was US$138.3 million for 2015, compared to consolidated net income of US$141.1 million for 2014. The natural gas segment had net income of US$111.6 million in 2015 compared to net income of US$116.9 million in 2014. Consolidated current year results include a US$500 000 loss, or (US$0.01) per share, due to decreases in the cash surrender values of company owned life insurance (COLI) policies, while the prior year included US$5.3 million, or US$0.11 per share, in other income associated with COLI policies.
According to John P. Hester, President and Chief Executive Officer, "We are pleased to report earnings per share of US$2.94 for 2015, which compares favourably to 2014 when taking into account the impacts of COLI. Our natural gas segment results were largely in line with expectations as we added 26 000 net new customers, advanced and completed key system integrity projects, and lowered interest costs through opportunistic debt redemptions." Hester concluded.
During the 4Q15, consolidated net income was US$66.1 million, or US1.40 per basic share, versus US$58.7 million, or US$1.26 per basic share, for the 4Q14. Construction services results improved by US$9 million between periods.
Full year 2015
Operating margin, defined as operating revenues less the cost of gas sold, increased US$14 million between years. New customers contributed US$8 million in operating margin during 2015 as approximately 26 000 net new customers were added during the year. Combined rate relief in the California jurisdiction and Paiute Pipeline Company provided US$5 million in operating margin. Operating margin associated with customers outside the decoupling mechanisms and other miscellaneous revenues increased by US$1 million.
Operations and maintenance expenses increased US$9.5 million between years due primarily to general cost increases and higher employee related expenses, including pension expense. The increase was partially offset by certain expenses in 2014 that did not recur in 2015, including a US$5 million legal accrual in 2014 and US$1.1 million in rent expense (associated with the previously leased corporate headquarters complex). On a combined basis, depreciation and general taxes increased US$11.5 million, or 5%, between years primarily due to a 5% increase in average gas plant in service.
Other income and deductions, which principally includes changes in the cash surrender values of COLI policies and non-utility expenses, decreased US$4.9 million between years due to a US$5.8 million reduction in COLI-related income. Net interest deductions decreased US$4.2 million between years, primarily due to the redemptions of US$65 million of 5.25% Industrial Development Revenue Bonds (IDRBs) in November 2014, US$31.2 million of 5.00% IDRBs in May 2015, and US$20 million of 5.25% IDRBs in September 2015, partially offset by increased interest expense on deferred purchased gas adjustment (PGA) balances.
Operating margin increased US$4 million between quarters including US$2 million attributable to customer growth. A combined US$1 million of rate relief in the California jurisdiction and Paiute Pipeline Company contributed to the increase. Operating margin associated with customers outside the decoupling mechanisms and other miscellaneous revenues improved by US$1 million.
Operations and maintenance expenses increased US$7.9 million between quarters primarily due to higher pension and self-insured employee medical costs, as well as general cost increases. Depreciation expense increased US$2.6 million, or 5%, primarily due to a 5% increase in average gas plant in service.
Net interest deductions decreased US$863 000 between quarters primarily due to the IDRB redemptions noted above, partially offset by increased interest expense on deferred PGA balances.
Outlook for 2016
Operating margin for 2016 is anticipated to benefit from customer growth (similar to 2015), infrastructure tracker mechanisms, expansion projects, and California attrition. Combined, these items are expected to produce approximately 3% in incremental margin. Additionally, new rates established to recover Nevada conservation and energy efficiency program costs are expected to increase margin by approximately US$11 million, but will be offset by a similar increase in amortisation expense.Operations and maintenance expense is expected to be relatively flat as higher general costs and costs associated with customer growth should be substantially offset by a decrease in pension costs. Depreciation and general taxes should increase consistent with the growth in gas plant in service (approximately 5% to 6%) plus the amortisation of Nevada conservation and energy efficiency programme costs noted above. Operating income is expected to increase by 4% to 5% between years.
Net interest deductions for 2016 are expected to be approximately US$5 million to US$7 million higher than 2015, primarily due to an anticipated increase in average outstanding debt associated with capital expenditures.
Changes in cash surrender values of COLI policies will continue to be subject to volatility, as evidenced by a US$500 000 loss in 2015 compared to US$5.3 million of income in 2014. Management generally anticipates longer term normal increases in COLI cash surrender values to range from US$3 million to US$5 million on an annual basis.
Capital expenditures in 2016 are estimated at US$460 million, in support of customer growth, system improvements, and accelerated pipe replacement programmes.
Adapted from press release by Francesca Brindle
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