ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
Commission File Number 1-07850
SOUTHWEST GAS CORPORATION
(Exact name of registrant as specified in its charter)
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number | Exact name of registrant as specified in its charter and principal office address and telephone number | State of Incorporation | I.R.S. Employer Identification No. | |||||
001-37976 | Southwest Gas Holdings, Inc. | Delaware | 81-3881866 | |||||
5241 Spring Mountain Road | ||||||||
Post Office Box 98510
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Las Vegas, | Nevada | 89193-8510 | ||||||
(702) | 876-7237 | |||||||
1-7850 | Southwest Gas Corporation | California | 88-0085720 | |||||
5241 Spring Mountain Road | ||||||||
Post Office Box 98510 | ||||||||
Las Vegas, | Nevada | 89193-8510 | ||||||
(702) | 876-7237 | |||||||
Registrant’s telephone number, including area code:(702) 876-7237
Title of each class | Trading Symbol | Name of each exchange on which registered |
Southwest Gas Holdings, Inc. | SWX | New York Stock Exchange |
Southwest Gas Holdings, Inc. | Yes | ☒ | No | ☐ | |
Southwest Gas Corporation | Yes | ☐ | No | ☒ | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to thisForm 10-K. ☑
Southwest Gas Holdings, Inc.: | ||||||
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
Southwest Gas Corporation: | ||||||
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
☒
2019
18, 2020
18, 2020
.Description | Part Into Which Incorporated | |
Annual Report to December 31,
2020 Proxy Statement | Parts I, II, and IV Part III | |
Item 1.1345677Item 1A.81313131314141414141415151516171718181919202021Item 16.20
consolidated financial statements are presented on a combined basis for both entities. All Items other than Part II – Item 8 are combined for the reporting companies. its regulatory rate structures. again in November 2018, in the southeast region of the U.S. through the acquisition of an 80% interest in Linetec. Centuri results are also seasonal with lower revenues during the first quarter of the year due to unfavorable winter weather conditions. Operating revenues typically improve as more favorable weather conditions occur during the summer and fall months. For the Year Ended December 31, 2016 December 31, 2015 December 31, 2014 Stockholders. jurisdictions. The following summarizes Southwest’s access to storage services for those rate jurisdictions. California rate jurisdictions. from this interruptible storage, which consequently limits Southwest has continued to experience growth in the new construction market among residential and small commercial customer classes. or alternative energy initiatives over the near term. While transportation is typically cited as the leading source of carbon dioxide emissions in the United States, Southwest continues to work with policy makers, and regulators to provide customers with clean, efficient, affordable natural gas service and to support and adopt renewables initiatives and expanded use of compressed natural gas. In recent years, regulatory activity in both Arizona and Nevada has led to provisions allowing the development and potential investment in RNG projects, adding to the existing dairy biomethane pilot provisions in California. In addition, proposals have been made in all jurisdictions to allow the purchase of RNG as part of Southwest’s gas supply portfolio. November 1, 2018. The CPUC Corporation and Centuri Group, Inc. environment surrounding PII, information security, and data privacy is evolving and is likely to become increasingly demanding. For example, California recently enacted the California Consumer Privacy Act, which became effective on January 1, 2020 and requires covered businesses to, among other things, provide disclosures to California consumers regarding the collection, use, and disclosure of such consumers’ PII and afford such consumers new rights, including the right to opt out of certain sales of PII. Additional states are also considering new laws and regulations that further protect the confidentiality, privacy, and security of personal information. Should the Company experience a breach and/or become subject to additional regulation, it could face substantial compliance costs, reputational damage, and uncertain litigation risks. earnings or cash flows. equity and fixed income (mutual fund) investments. As a result, the cash surrender value (but not the net death benefits) moves up and down consistent with the movements in the broader stock and bond markets. Utility Infrastructure Services These conditions also require certain areas to scale back their workforce at times during the winter season, presenting challenges associated with maintaining an adequately skilled labor force when it comes time to re-staff its work crews following the winter layoffs. PART IBUSINESSIn 2015, the Board of Directors (“Board”) of Southwest Gas Corporation authorized management to evaluate and pursueholding company reorganization to provide further separation between regulated and unregulated businesses, and to provide additional financing flexibility. As part of the holding company reorganization, Centuri Construction Group, Inc. (“Centuri”) and Southwest Gas Corporation would each be subsidiaries of the new publicly traded parent holding company, Southwest Gas Holdings, Inc. (“Southwest Gas Holdings”); whereas, historically, Centuri had been a direct subsidiary of Southwest Gas Corporation. All of Southwest Gas Corporation’s outstanding debt securities (not associated with Centuri) at the time of the reorganization would remain at the Southwest Gas utility entity. Regulatory applications for preapproval of the reorganization werecombined report being filed with the Arizona Corporation Commission (“ACC”), the California Public Utilities Commission (“CPUC”), and the Public Utilities Commission of Nevada (“PUCN”) in October 2015. Approvals were received from the CPUC, the PUCN, and the ACC in January, March, and May, respectively, of 2016. The reorganization, which was approved by the Board of Directors in December 2016, became effective in January 2017. Each outstanding share of Southwest Gas Corporation’s common stock automatically converted into a share of stock in Southwest Gas Holdings, on aone-for-one basis, and the ticker symbol of the stock, “SWX,” remains unchanged. This report is as of the balance sheet date of December 31, 2016 and periods up to that date (prior to the effective date of the holding company formation), with disclosures, where appropriate, for events following that date. Throughout this report, the “Company” refers to Southwest Gas Corporation and subsidiaries for periods prior to January 1, 2017 and totwo separate registrants: Southwest Gas Holdings, Inc. and Southwest Gas Corporation. Except where the content clearly indicates otherwise, any reference in the report to “we,” “us” or “our” is to the holding company or the consolidated entity of Southwest Gas Holdings, Inc. and all of its subsidiaries, including Southwest Gas Corporation, which is a distinct registrant that is a wholly owned subsidiary of Southwest Gas Holdings, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.periods subsequentSouthwest Gas Holdings, Inc. and Southwest Gas Corporation, in that order. The notes to December 31, 2016.Companyreincorporation was effective as of September 20, 2019. Southwest continues to be incorporated in the state of California.California. The Company is composed of two business segments:California and provides regulated natural gas operations (“Southwest” or the “natural gas operations” segment) and construction services.Southwest is engaged in the business of purchasing, distributing, and transporting natural gas fordelivery services to customers in portions of Arizona, Nevada, and California. Public utility rates, practices, facilities, and service territories of Southwest isare subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations. Natural gas purchases and the largest distributortiming of related recoveries can materially impact liquidity. Results for the natural gas operations segment are higher during winter periods due to the seasonality incorporated in Arizona, selling and transporting natural gas in most of central and southern Arizona, including the Phoenix and Tucson metropolitan areas. Southwest is also the largest distributor of natural gas in Nevada, serving the Las Vegas metropolitan area and northern Nevada. In addition, Southwest distributes and transports natural gas for customers in portions of California, including the Lake Tahoe area and the high desert and mountain areas in San Bernardino County. (the “construction services” segment), a 96.6% owned subsidiary of the Company, is a comprehensive constructionutility infrastructure services enterprise dedicated to meeting the growing demandsdelivering a diverse array of solutions to North American utilities, energyAmerica’s gas and industrial markets.electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions primarily for energy services utilities.solutions. Centuri operations are generally conducted under the business names of NPL Construction Co. (“NPL”(“NPL”), NPL Canada Ltd. (“(“NPL Canada”, formerly Link-Line Contractors Ltd.Canada”), W.S. Nicholls Construction,New England Utility Constructors, Inc. and related companies (“W.S. Nicholls”(“Neuco”), and Brigadier Pipelines Inc. (“Brigadier”Linetec Services, LLC (“Linetec”). In May 2016,November 2017, Centuri completedexpanded its operations in the northeast region of the U.S. through the acquisition of two privately held, affiliated construction businesses: Enterprise Trenchless Technologies, Inc.Neuco, and ETTI Holdings (collectively, “ETTI”).Company’sCompany’s business segments is included in Note 14 - Segment Informationof the Notesnotes to Consolidated Financial Statements,consolidated financial statements, which is included in the 20162019 Annual Report to ShareholdersStockholders and is incorporated herein by reference.shareholders,stockholders, investors, customers, and other interested parties. Similarly, Southwest maintains a website (www.swgas.com) mainly focused on utility operations. The annual report on Form10-K, quarterly reports on Form10-Q, current reports onForm 8-K, and all amendments to those reports are available, free of charge, through the www.swgasholdings.com website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”(the “SEC”). All Company SEC filings are also available on the www.swgasholdings.com website. Nothing included on our website shall be deemed to be a part of the annual report on Form 10-K. The Corporate Governance Guidelines, Code of Business Conduct and Ethics, and charters of the nominatingNominating and corporate governance, audit,Corporate Governance, Audit, and compensation committeesCompensation Committees of the boardBoard of directorsDirectors of the Company are also available on the www.swgasholdings.com website. Print versions of these documents are available to shareholdersstockholders upon request directed to the Corporate Secretary, Southwest Gas Holdings, Inc., 5241 Spring Mountain Road, Las Vegas, NV 89150.CPUC.California Public Utilities Commission (the “CPUC”). These commissions regulate public utility rates, practices, facilities, and service territories in their respective states. The CPUC also regulates the issuance of all debt securities by Southwest, with the exception of short-term borrowings. Certain accounting practices, transmission facilities, and rates are subject to regulation by the Federal Energy Regulatory Commission (“FERC”(the “FERC”). Centuri, by contrast, is not regulated by the state utilities commissions or by the FERC in any of its operating areas.2016,2019, Southwest purchased and distributed or transported natural gas to 1,984,0002,081,000 residential, commercial, and industrial customers in geographically diverse portions of Arizona, Nevada, and California. Southwest added 28,00034,000 net new customers during 2016.2019. Southwest expects similar customer growth in 2017.2020. Distribution Transportation Residential and
Small Commercial Other Sales
Customers 85% 3% 12% 85% 4% 11% 85% 4% 11% See Risk Factors below regarding impacts in the event of loss of significant customers in the construction services segment.47%44% of total system throughput in 2016,2019, but only 12%13% of operating margin as shown in the table above. Customers who utilized this service transported 97101 million dekatherms in 2016, 1042019, 105 million dekatherms in 2015,2018, and 9197 million dekatherms in 2014.2017.operations.operations due to this seasonality. The decoupled rate mechanisms in place in the three-state service territory, as described below, are structured with seasonal variations. Also, earnings for interim periods can be significantly affected by the timing of general rate relief.(“LNG”(“LNG”) storage facilities of Paiute Pipeline Company (“Paiute”(“Paiute”), a wholly owned subsidiary, and the rates it charges for transportation of gas directly to certainend-users and to various local distribution companies (“LDCs”(“LDCs”). The LDCs transporting on the Paiute system are: NV Energy (serving Reno and Sparks, Nevada) and Southwest (serving Truckee, South and North Lake Tahoe in California, and various locations throughout northern Nevada).prudently incurredcommission-approved costs, including a return on rate base sufficient to pay interest on debt as well as a reasonable return on common equity. Rate base consists generally of the original cost of utility plant in service, net of amounts associated with costs borne by third parties, plus certain other assets such as working capital and inventories, less accumulated depreciation on utility plant in service, net deferred income tax liabilities, and certain other deductions.“decouple”“decouple” the recovery of operating margin from natural gas consumption, though decoupled structures (alternative revenue programs), vary by state. In California, authorized operating margin levels vary by month. In Nevada aand Arizona, the decoupled rate structure appliesstructures apply to most customer classes providingon the basis of margin per customer, which varies by month. Collectively, these mechanisms provide stability in annual operating margin. In Arizona, a full revenue decoupling mechanism (currently, with a winter-period monthly weather adjuster) is in place for most customer classes.“PGA”“PGA”) rate changes affect cash flows, but have no direct impact on profit margin. Filings to change rates in accordance with PGA clauses are subject to audit by the appropriate state regulatory commission staff.and PGA filings, and other regulatory proceedings is included in the Rates and Regulatory Proceedings section of Management’sManagement’s Discussion and Analysis (“(“MD&A”&A”) in, which is incorporated by reference herein and included within the 20162019 Annual Report to Shareholders.Arizona:20162019Annual attritionNovember 2016January 2017Northern and SouthernDecember 2012June 2014Nevada:Northern and SouthernApril 2012April 2013FERC:PaiuteGeneral rate caseFebruary 2014February 2015Whileis subjectplans to regulatory rules and oversight with regard to rates and operating requirements under its various state tariffs (and federal tariff,file a new rate case in the case of Paiute Pipeline), it is also subject to regulation with regard to the safety and integrity of its pipeline systems. The Department of Transportation (“DOT”) administers pipeline regulations through the Office of Pipeline Safety, within the Pipeline and Hazardous Materials Safety Administration (“PHMSA”). In recent years, various pieces of legislation have been passed in the areas of distribution pipeline integrity, control room management, and pipeline safety. The Pipeline Inspection, Protection, Enforcement, and Safety (“PIPES”) Act of 2006 mandated, among other things, a graduated implementation program for control room management, a requirement to install excess flow valves on single-family residential customer locations, and a Distribution Integrity Management Program (“DIMP”), which was required to be in place by August 2011, and includes evaluation and mitigation of risks, as well as certain reporting requirements. Additionally, Congress passed the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (“the Bill”), effective January 2012, which increased/strengthened previously existing safety requirements, including damage prevention programs, penalty provisions, and requirements related to automatic and remote-controlledshut-off valves, public awareness programs, incident notification, and maximum allowable operating pressure for certain facilities. The Bill required the DOT to conduct further study of existing programs and future requirements; these studies are nearing their completion and proposed regulation changes are anticipated in some form in 2017/2018. The PHMSA is in the process of proposing a series of significant rulemakings that are expected to further transform the regulatory requirements for pipelines. In October 2016, PHMSA issued a final rule regarding expanding the use of excess flow valves in natural gas distribution systems. The new rule has an effective date of April 2017. Southwest continues to evaluate potential impacts of this regulation on its operations and customers. Southwest continues to monitor changing pipeline safety legislation and participates to the extent possible in developing associated mandates and reporting requirements. Additionally, it works with its state and federal commissions, where possible, to develop customer rates that are responsive to incremental costs of compliance. However, due to the timing of when rates are implemented in response to new requirements, and as additional rules are developed, compliance requirements could impact expenses and the timing and amount of capital expenditures.customers’customers’ needs. Southwest’sSouthwest’s primary natural gas procurement objective is to ensure that adequate supplies of natural gas are available at a reasonable cost. Southwest acquires natural gas from a wide variety of sources andwith a mix of purchase provisions, which includes spot market and firm supplies. The purchases may have terms from one day to several years and utilize both fixed and indexed pricing. During 2016,2019, Southwest acquired natural gas from 4036 suppliers. Southwest regularly monitors the number of suppliers, their performance, and their relative contribution to the overall customer supply portfolio. New suppliers are contracted when possible, and solicitations for supplies are extended to the largest practicable list of suppliers, taking into account each supplier’ssupplier’s creditworthiness. Competitive pricing, flexibility in meeting Southwest’sSouthwest’s requirements, and demonstrated reliability of service are instrumental to any one supplier’ssupplier’s inclusion in Southwest’sSouthwest’s portfolio. The goal of this practice is to mitigate the risk of nonperformance by any one supplier and ensure competitive prices in the portfolio.seekssought to fix the price on a portion (up to 25% in the Arizona and California jurisdictions) of its forecasted annual normal-weather volume requirement, primarily using firm, fixed-price purchasing arrangements that are secured periodically throughout the year. Southwest’sSouthwest’s price volatility mitigation program includes the use of financial derivatives, in the form offixed-for-floating-index-price swaps combined with indexed-price physical purchases, to secure a portion of the fixed-price portfolio for the Arizona rate jurisdiction. The combination of fixed-price contracts and financial derivatives is designed to increase flexibility for Southwest and increase supplier diversification. The cost of such financial derivatives combined with the associated indexed-price physical purchases is recovered from customers through the PGA mechanism.In late 2013, the utilization offixed-for-floating-index-price swaps and For periods beyond October 2020, Southwest does not plan to make any fixed-price purchases pursuant to the Volatility Mitigation Program (“VMP”) was suspended for the Nevada territories served by Southwest. Management evaluates, on a quarterly basis, the suspension of Nevada VMP purchases in light of prevailing market fundamentals and regulatory conditions. Any future decision concerning Nevada VMP purchases will be documented and retained to facilitate regulatory review in accordance with a previous regulatory stipulation. Southwest schedules quarterly meetings with the PUCN Staff and the Bureau of Consumer Protection to discuss market fundamentals, along with any decision by management concerning VMPterm or swap purchases for the Arizona jurisdiction, however, will continue to make fixed-price purchases for the California jurisdiction. Southwest does not currently enter into swaps or fixed-price purchases for its Nevada service territories.2016/20172019/2020 heating season, fixed-price physical commodity purchases ranged from approximately $2.65$1.15 to approximately $4.15$2.85 per dekatherm. Southwest makesnon-fixed-price natural gas purchases, not covered by fixed-price contracts, under variable-price contracts with firm quantities or on the spot market. Prices for these contracts are determined at the beginning of each month to reflect that month’sis required to be nominated by Southwest and delivered by the supplier.supplier must confirm that nomination. Contracts provide for fixed or market-based penalties to be paid by thenon-performing party.canmay influence the average annual price of natural gas, as storage allowsmay allow a company to purchase natural gas quantities during theoff-peak season and store it for use in high demand periods when prices may be greater or supplies/capacity tighter. Dependent upon the rate jurisdiction, Southwest has some access to storage services, but overall there are a small quantity of storage services available for Southwest’s use. For available storage services, Southwest purchases natural gas for injection during the off-peak period for use in the high demand months; however, since there is a small quantity of storage services available, storage has a limited impact on Southwest’s annual average price of natural gas. Additionally, Southwest utilizes most available storage services for operational purposes to meet customer demand and not for economic purposes. This also limits the influence the available storage services have on Southwest’s average annual price of natural gas.LimitedSouthwest has limited storage service availability exists infor the southern and northern California, northern Nevada, and the Arizona rate jurisdiction.that is intended for deliveryuse only within Southwest’sSouthwest’s southern California rate jurisdiction. In addition,withfor storage services from Paiute for its’s above-ground LNG facility allow forfacility. This storage service provides peaking capability only infor the northern Nevada and northern California. For all storage options, Southwest purchases natural gas for injection during theoff-peak period for use in the high demand months, but these supplies have a limited impact on the overall price.(“NWPL”(“NWPL”) for the northern Nevada and northern California rate jurisdictions. NWPL has the discretion to limit Southwest’sSouthwest’s ability to inject or withdrawSouthwest’sSouthwest’s use of this interruptible storage capacity. As such, this storage provides limited operational flexibility to adjust daily flowing supplies to meet demand, and has limited impact ondemand. overall price of natural gas supplies.Southwest also has an agreement for its Arizona rate jurisdiction, Southwest previously contracted with Enstor Grama Ridge Storage and Transportation, LLC (“Enstor”(“Enstor”) which providesprovided for a maximum inventory quantity of 600,000 dekatherms of natural gas underground storagestorage. This contract terminated in New Mexico that is deliverable on the El Paso system. Southwest previously received approval to construct, operate and maintainMarch 2019. Beginning in December 2019, a 233,000 dekatherm above-ground LNG facility in southern Arizona.Arizona was placed into service. This facility is intended to enhance service reliability and flexibility in natural gas deliveries in the southern Arizona area by providing a local storage option that is operated by Southwest and connected directly to its distribution system. The site for the facility was purchased in October 2015. Southwest solicited requests for proposals for the engineering, procurement and construction (“EPC”) phase of the project, and in October 2016 made a filing with the ACC to modify the previously issued Order to update thepre-approved costs to reflect anot-to-exceed amount of $80 million, which is intended to update thepre-approval to reflect the current pricing information made available through the recently completed EPC phase. The filing was approved by the ACC in December 2016. Through December 2016, Southwest has incurred approximately $4.1 million in capital expenditures toward the project (including land acquisition costs). Southwest included a proposal for the ratemaking treatment of facility costs as part of its current Arizona rate case filing. A settlement (contingent on ACC approval) in the general rate case was reached between several parties at a December 2016 settlement meeting and a formal draft settlement was filed with the ACC in January 2017. The draft settlement included an agreement to defer the revenue requirement associated with all costs incurred before December 31, 2020 for recovery in Southwest’s next general rate case proceeding and extended the authorization to defer costs through the same date. Any gas costs incurred that are not related to the initial construction and placement of the facility are to be recovered through the PGA mechanism. Construction is expected to be completed by the end of 2019.Southwest’sSouthwest’s southern system (Arizona, southern Nevada, and southern California properties) are primarily obtained from producing regions in Colorado and New Mexico (San Juan basin), Texas (Permian basin), and Rocky Mountain areas. For its northern system (northern Nevada and northern California properties), Southwest primarily obtains natural gas from Rocky Mountain producing areas and from Canada.Southwest’sSouthwest’s customers at a highly competitive price when compared with competing forms of energy.(“(“El Paso”Paso”), Kern River Gas Transmission Company (“(“Kern River”River”), Transwestern Pipeline Company (“Transwestern”(“Transwestern”), NWPL, Tuscarora Gas Pipeline Company (“Tuscarora”(“Tuscarora”), Southern California Gas Company, Paiute, and Paiute.Ruby Pipeline LLC (“Ruby”), costs for which are recovered from Southwest’s customers through the PGA mechanism. Southwest regularly monitors short- and long-term supply and pipeline capacity availability to ensure the reliability of service to its customers. Southwest currently receives firm transportation service, both on a short- and long-term basis, for all of its service territories on the pipeline systems noted above. Southwest also contracts for firm natural gas supplies that are delivered to Southwest’sSouthwest’s city gates to supplement its firm capacity on the interstate pipelines and to meet projectedpeak-day demands. Southwest could also utilize its interruptible contracts on the interstate pipelines for the transportation of additional natural gas supplies.territories’territories’ forecastedpeak-day requirements. As the need arises to acquire additional capacity on one of the interstate pipeline transmission systems and to secure additional supply, primarily due to customer growth, Southwest will continue to consider available options to obtain that capacity either(either through the use of firm contracts with a pipeline company or by purchasing capacity on the open market, or throughmarket), and will also consider options for the purchase of additional firm delivered natural gas supplies.Unlike residential and small commercial customers, certainoils, and coal.oils. However, high natural gas prices canor policies surrounding electrification could impact Southwest’sSouthwest’s ability to retain some of these customers. Alternative energy has gained momentum in governmental policy overall in recent years. Southwest has taken steps to align with these efforts by supporting energy efficiency in our jurisdictions, being part of greenhouse gas protocols and initiatives in California, and creating new biogas and renewable natural gas (“RNG”) tariff schedules in Arizona, California, and Nevada. While certain forms of renewable energy initiatives compete with natural gas, the abundance and low cost of natural gas provide competitive advantages across our portfolio of customers. Overall, management does not anticipate any material adverse impact on operating margin from fuel switching by these large customers.Tuscarora,Ruby to provide service to certain largeend-users.End-use end-users. End-use customers located in proximity to these interstate pipelines pose a potential bypass threat. Southwest attempts to closely monitormonitors each customer situation and provideprovides competitive service in order to retain the customer. Southwest has remained competitive through the use of negotiated transportation contract rates (subject to conditions of the respective state tariffs), special long-term contracts with electric generation and cogeneration customers, and other tariff programs. These competitive response initiatives have mitigated the loss of operating margin earned from large customers.archeologicalarchaeological resources, directly impact the complexity and time required to obtain pipelinerights-of-way and construction permits. There have also been a number of federal and state legislative and regulatory initiatives proposed in recent years in an attempt to control or limit the effects of global warming and overall climate change, including greenhouse gas emissions (“GHGs”), such as carbon dioxide. The adoption of this type of legislation by Congress or similar legislation by state governments mandating a substantial reduction in GHGs, or decarbonization generally, in the future could have significant impacts on the energy industry. Such new legislation or regulations could result in increased compliance costs or additional operating restrictions on our business, affect the demand for natural gas, or impact the prices we charge our customers. At this time, we cannot predict the potential impact of such laws or regulations, if adopted, on our future business, financial condition, or results. However, increased environmental legislation and regulation can also be beneficial to the natural gas industry. Natural gas is one of the most environmentally-friendly fossil fuels currently available and its use can help energy users to comply with stricter environmental air quality standards.(“EPA”(the “EPA”) and the State of California Environmental Protection Agency (“(the “Cal/EPA”EPA”) have issued regulations that require the reporting of greenhouse gas emissions (“GHG”)GHGs from large sources and suppliers in order to facilitate the development of policies and programs to reduce GHGs. Southwest reports required information to the EPA and Cal/EPA under respective rules including the volumes of natural gas that it receives for distribution to LDC customers, and the GHG emissions that result from the operation of its LDC pipelines. While some aspects of the mandatory reporting rules do not apply to Southwest, other required information is being reported to the Department of Energy, the Department of Transportation, or is available in existing databases. Management also monitors the development of climate legislation (including the State of California Global Warming Solutions Act), which could result in additional requirements or have financial implications.Assembly Bill Number 32legislation and the regulations promulgated by the California Air Resources Board (“CARB”(the “CARB”), require Southwest as a covered entity, to comply with all of the requirements associated with the California GHG Emissions Reporting Program and the California Cap and Trade Program. The objectiveProgram, objectives of these programs iswhich endeavor to reduce California statewide GHG emissionsGHGs to 1990 levels by the end of 2020. Southwest must report annual GHG emissions by April of each year and third-party verification of those reported amounts is required by September ofGHGs each year. Starting in 2015, theThe CARB annually allocates to Southwest a certain number of allowances based on Southwest’sGHG emissions. Southwest received its allocation for 2016 in the third quarter of 2015 and, for 2017, in the third quarter of 2016.GHGs. Of those allocated allowances, Southwest must consign a certain percentage to the CARB for auction. Southwest can use any allocated allowances that remain after consignment, along with allowances it can purchase through CARB auctions or reserve sales, or through over the counter (“OTC”(“OTC”) purchases with other market participants, to meet its compliance obligations. In addition to allowances, Southwest can satisfy a portion of itsobligation through the purchase of offsets,periods established; one which are credits available in the OTC market from industries that generate reductions in greenhouse gas emissions.There are two triennial compliance periods; one endingended in 2017 and the other, ending in 2020. To meet itsSouthwest successfully met the first three-year compliance obligations, during each triennial compliance period, Southwest must surrender a combination of allowances and offsets equal to 30% of its annual reported GHG emissions for the prior yearobligation by November 1 of each year (2016 through 2020). Also by November 1 of the year following each of the triennial compliance periods (2018 and 2021), Southwest must surrendersurrendering a sufficient number of allowances and offsetsprior to meet the amount of GHG emissions reported during that triennial compliance period, less the amount previously surrendered. has issued a decision that provides for the regulatory treatment of the program costs and therecosts. The decision also implemented the California Climate Credit in October 2018, representing a return of auction proceeds, which will be updated annually each April. There is no expected impact on earnings.2016,2019, Southwest had 2,2472,295 regular full-time equivalent employees. Southwest believes it has a good relationship with its employees and that compensation, benefits, and working conditions afforded its employees are comparable to those generally found in the utility industry. No employees are represented by a union.constructionutility infrastructure services enterprise dedicated to meeting the growing demandsdelivering a diverse array of solutions to North American utilities, energyAmerica’s gas and industrial markets.electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions primarily for energy services utilities. Centuri contracts primarily with LDCs to install, repair, and maintain energy distribution systems from the town border station to theend-user.solutions. The primary focus of Centuri operations is replacement of natural gas distribution pipe and electric servicehook-up replacements lines as well as line installations for new business development. Constructioninfrastructure installations. Utility infrastructure services work varies from relatively small projects to the pipinginstallation of infrastructure for entire communities. Constructionresidential communities or business parks. Utility infrastructure services activity is seasonal in most of Centuri’s operating areas. Peak construction periods are the summer and fall months in colder climate areas, such as the North East, Midwest,northeastern and midwestern U.S. and Canada. In the warmer climate areas, such as the southwestern United States, constructionand southeastern U.S., utility infrastructure services activity continues year round.the past fewrecent years, severalvarious factors have resulted in an increase in large multi-year distribution pipeutility system replacement projects.programs. The U.S. Department of Transportation’s Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”) instituted Distribution Integrity Management Programs (“DIMP”) effective February 2010 which required operators of gas distribution pipelines to develop and implement integrity management programs to enhance safety by identifying and reducing pipeline integrity risks. Also contributing to the increase in replacement projects were bonus depreciation tax deduction incentives. The Protecting Americans from Tax HikesU.S. Energy Policy Act of 2015 extended 50% bonus depreciation tax deduction incentives through 20172005 established mandatory electric grid reliability standards and at lesser rates through 2019. Finally, funding for customers’ planned replacement projects improved dueincentivized investments in transmission and distribution systems. FERC Order No. 1000, issued in July 2011, established transmission planning requirements to greater access to credit markets.In connectionencourage development of electric transmission infrastructure projects. the increased construction activity, several large multi-year distribution pipe replacement projects were awarded to Centuri. Centuri was selected as the sole contractor on certain of these projects, or one of several contractors to work on others. Centuri continues to bid on pipe replacement projects throughout the United States and Canada and has made structural and transitional changes to match the increased size and complexity of the business. The amount of work completed by Centuri on these multi-year contracts will vary from year to year.Centuri’s business activities are often concentrated in utility service territories where existing energy lines are scheduled for replacement. An LDC will typically contract with Centuri to provide pipe replacement services and new line installations. Contract termscustomers generally specify unit-price, fixed-price, or fixed-pricetime and materials arrangements. Unit-price contracts establish prices for all of the various services to be performed during the contract period. These contracts often have annual pricing reviews. During 2016,86%79% of revenue was earned under unit-price contracts. Backlog represents the dollar amount of revenue Centuri expects to recognize in the future from contracts awarded and in progress as of the end of the reporting period. Reported backlog differs from the concept of remaining performance obligations as defined by accounting principles generally accepted in the U.S. (“U.S. GAAP”) and is not a measure of contract profitability. As of December 31, 2016, a2019, backlog of approximately $88$122.8 million existed with respect to outstanding fixed-priced construction contracts.constructionutility infrastructure service activities are typically specified, purchased, and supplied by Centuri’sCenturi’s customers. Construction contractsContracts with customers also contain provisions which make customers generally liable for remediating environmental hazards encountered during the construction process. Such hazards might include digging in an area that was contaminated prior to construction, finding endangered animals, digging in historically significant sites, etc. Otherwise, Centuri’sCenturi’s operations have limited environmental impact (dust control, normal waste disposal, handling harmful materials, etc.).currently operates in 20 major markets within54 primary locations across 40 states and provinces in the United StatesU.S. and also within the Canadian provinces of British Columbia and Ontario. Its customers are primarily the principal LDCs in those markets.Canada. During 2015,2019, Centuri served over 100 customers, with Southwest accounting for approximately 9% of total revenues.revenue. Additionally, two customers combined accounted for approximately 24%19% of total revenue, while fourthree other customers individually accounted for 5% or more of total revenue.Employment construction periods, which are normally heaviest in the summer and fall months. At December 31, 2016,2019, Centuri had 4,0306,649 regular full-time equivalent employees. Employment peaked in September 20162019 when there were 5,9387,687 employees. Most employees are represented by unions and are covered by collective bargaining agreements, which is typical of the utility constructioninfrastructure services industry.Centuri’s operations are conducted from 24 field locations throughout the United States and 12 field locations within Canada, with corporate headquarters located in Phoenix, Arizona. Buildings and equipment storage yards are normally leased from third parties. The lease terms are typically five years or less.construction costs are subject indirectly to “prudency reviews” just as that is performed by third parties or directly by Southwest. However, such “prudency reviews”reviews would not bring Centuri under the regulatory jurisdiction of any of the commissions noted above.Centuri has a 65% interest in IntelliChoice Energy, LLC (“ICE”) and consolidates ICE as a majority owned subsidiary. ICE was established in 2009 and markets natural gas engine-driven heating, ventilating, and air conditioning (“HVAC”) technology and products. To date, ICE has not been a significant component of Centuri operating results.LTD. (“Western”Ltd. (“Western”), a Canadian constructioninfrastructure services company that is a variable interest entity that specializes in construction of underground aviation fueling systems and storage tanks. TheWestern is a variable interest entity of which the Company is not the primary beneficiary of Western;beneficiary; therefore, Western is not consolidated with Centuri and is accounted for under the equity method of accounting. Furthermore, Centuri, through its subsidiaries, also has a 25% interest inCCI-TBN Toronto, Inc., and a 50% interest in Matheson-Nicholls Joint Venture, subject to equity method accounting as well. To date, neither Western,CCI-TBN Toronto, Inc., nor Matheson-Nicholls Joint Venture have has not been a significant component of Centuri’sCenturi’s financial results. Because Southwest Gas Holdings, Inc. was formed as the successor issuer (to Southwest Gas Corporation) of public equity securities subsequent to December 31, 2016, and because these discussions relate to ongoing risks and future impacts, unless indicated otherwise, referencesReferences below to “we,” “us,”“we,” “us,” and “our”“our” should be read to refer to Southwest Gas Holdings, Inc. and its subsidiaries, including Southwest Gas Corporation.Holdings’Holdings’ ability to pay dividends to shareholdersstockholders is dependent on the ability of its subsidiaries to generate sufficient net income and cash flows to service debt and pay upstream dividends. Because of the relative size of subsidiary operations, and their relative impacts to net income and cash flows, substantial dependency on the utility operations of Southwest Gas Corporation and the infrastructure services of Centuri Group, Inc. exists. The ability of Southwest Holdings’Gas Holdings’ subsidiaries to pay upstream dividends and make other distributions would be subject to relevant debt covenant restrictions of subsidiaries and applicable state lawlaw.restrictions.earnings.such asincluding state or federal EPA or PHMSA regulations, and regulations placed on us or our customers regarding the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 and policies, canproduct we deliver in meeting customer energy needs could reduce our earnings. Risks and uncertainties relating to delays in obtaining, or In particular, theThe timing and amount of rate relief can materially impact results of operations.We The timing and amount associated with the recovery of regulatory assets and associated with the return of regulatory liabilities can materially impact cash flows.generally accepted accounting principles.U.S. GAAP. The creation of a regulatory asset allows for the deferral of costs which, absent a mechanism to recover such costs from customers in rates approved by regulators, would be charged to expense in the consolidated income statement in the period incurred. If there was a change in regulatory positions surrounding the collection of these deferred costs, there could be a material impact on financial position, results of operations, and cash flows.disallowances, penalties or finesincreased costs related to the operation of natural gas pipelines under recent regulations concerning natural gas pipeline safety, which could have an adverse effect on our results of operations, financial condition, and/or cash flows.new laws, such as the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 and the series of significant rulemakings to be proposed by the Pipeline and Hazardous Materials Safety Administration.applicable laws. We expect there to be increased costs associated with compliance (and potential penalties for anynon-compliance) with these and similarapplicable laws. If these costs are not recoverable in our customer rates, or if there are delays in recoverability due to regulatory lag, they could have a negative impact on our operating costs and financial results.Our operating results may be adversely impacted by another economic downturn.The 2007/2008 economic slowdown in the United States, and particularly in our service areas, resulted in a marked decline in the new housing market and an increase in the inventory of idle/vacant homes. Commercial entities (including restaurants and other service establishments) were also impacted, resulting in reductions in operations or closures. The impacts of that slowdown have eased in our service territories and most of the idle/vacant homes have returned to service. If another economic slowdown occurs, our financial condition, results of operations, and cash flows could be adversely affected. Fluctuations and uncertainties in the economy make it challenging for us to accurately forecast and plan future business activities and to identify risks that may affect our business, financial condition, and operating results. We cannot predict the timing, strength, or duration of any future economic slowdowns. If the economy or the markets in which we operate decline from present levels, it may have an adverse effect on our business, financial condition, and results of operations.pipelines’pipelines’ transportation capacity. If these pipelines and related transportation capacity were not available, it could impact our ability to meet our customers’customers’ full requirements. with a net death benefit value at December 31, 2016 of approximately $241 million on members of management and other key employees to indemnify ourselves against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. The net cash surrender value of these policies (which is the cash amount we would receive if we voluntarily terminated the policies) is approximately $107 million at December 31, 2016 and is included in the caption “Other property and investments” on the balance sheet. Cash surrender values are directly influenced by the investment portfolio underlying the insurance policies. This portfolio includes bothDuring 2016, the Company recognized income of $7.4 million in Other income (deductions) due to increases in the cash surrender values of its company-owned life insurance policies and net death benefits recognized compared to a loss of $500,000 due to decreases in cash surrender values during 2015. Current tax regulations provide fortax-free treatment of life insurance (death benefit) proceeds. Therefore, changes in the cash surrender value components of company-owned life insurance policies, as they progress towards the ultimate death benefits, are also recorded without tax consequences. Currently, we intend to hold the company-owned life insurance policies for their duration. Changes in the cash surrender value of company-owned life insurance policies, except as related to the purchase of additional policies, affect our earnings but not our cash flows.2017,2020, if the need again arises.flowflows and earnings.The nature of our operations presents inherent risks of loss that could adversely affect our results of operations.Our operations are subject to inherent hazards and risks such as gas leaks, fires, natural disasters, catastrophic accidents, explosions, pipeline ruptures, and other hazards and risks that may cause unforeseen interruptions, personal injury, or property damage. Additionally, our facilities, machinery, and equipment, including our pipelines, are subject to third party damage from construction activities, vandalism, or acts of terrorism. Such incidents could result in severe business disruptions, significant decreases in revenues, and/or significant additional costs to us. Any such incident could have an adverse effect on our financial condition, earnings, and cash flows. In addition, any of these or similar events could cause environmental pollution, personal injury or death claims, damage to our properties or the properties of others, or loss of revenue by us or others.We maintain liability insurance for some, but not all, risks associated with the operation of our natural gas pipelines and facilities. In connection with these liability insurance policies, we are responsible for an initial deductible or self-insured retention amount per incident, after which the insurance carriers would be responsible for amounts up to the policy limits. These liability insurance policies require us to be responsible for the first $1 million (self-insured retention) of each incident plus the first $4 million in total claims above our self-insured retention in the policy year. We cannot predict the likelihoodthat any future event will occur which will result in a claim exceeding $1 million; however, a large claim for which we were deemed liable would reduce our earnings up to and including these self-insurance maximums.Failure to attract and retain an appropriately qualified employee workforce could adversely affect operations.Our ability to implement our business strategy and serve our customers is dependent upon our continuing ability to attract and retain talented professionals and a technically skilled workforce, and being able to transfer the knowledge and expertise of our workforce to new employees as our aging employees retire. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, or the future availability and cost of contract labor could adversely affect our ability to manage and operate our business.“decouple”“decouple” the recovery of operating margin from natural gas consumption, though decoupled structures vary by state. In California, authorized operating margin levels vary by month. In Nevada aand Arizona, the decoupled rate structure appliesstructures apply to most customer classes providingon the basis of margin per customer, which varies by month. Collectively, these mechanisms provide stability in annual operating margin. In Arizona, a full revenue decoupling mechanism (currently, with a winter-period monthly weather adjuster) is in place for most customer classes. Significantly warmer-than-normal weather conditions in our service territories and other factors, such as climate change and alternative energy sources, may result in decreased cash flows attributable to lower natural gas sales and delays in recovering regulatory asset balances. Furthermore, continuation of the decoupled rate designs currently in place are subject to regulatory discretion, and if unfavorably modified or discontinued could adversely impact our financial position and results of operations.business;business, including for pipeline expansion or infrastructure development; any failure to obtain or maintain required permits or approvals, or other factors that could prevent or delay planned development, could negatively affect our business and results of operations.All of ourpermits.permits and approvals. The acquisition, ownership and operation of natural gas pipelines and storage facilities require numerous permits, rights-of-way, approvals and certificates from federal, state, and local governmental agencies.agencies or others. Various factors may prevent or delay us from completing such projects or may reversed in litigation.reversed. If there is a delay in obtaining any required regulatory approvals, or if we fail to obtain or maintain any required approvals or to comply with any applicable laws or regulations, we may not be able to construct or operate our facilities, may not be able to adequately service existing customers or we may be forcedsupport customer growth, or such conditions could cause us to incur additional costs.A cybersecurity incident has the potential to disrupt normal business operations, expose sensitive information, and/or lead to physical damages.As a utility provider, maintaining business operations is critical for our customers, business partners, suppliers, and our employees. A disruption in service Such conditions could adverselynegatively impact our reputation, abilityearnings. provide utility services for our customers, as well as impact the media used to communicateSouthwest Gas Holdings, Inc. and exchange information both internally and externally.We process and store sensitive information including personal identifiable information, intellectual property, and business proprietary information as part of normal business operations. A cybersecurity breach of this information could expose us to monetary and other damages from customers, suppliers, business partners, government agencies, and others. In addition, a breach could increase costs incurred to protect against such risks, introduce financial penalties, and increase regulation for the industry.Physical damage due to a cybersecurity incident or acts of cyber terrorism could impact utility services provided to our customers and could lead to material liabilities. We have taken the initiative in fortifying the core infrastructure that supports the utility services provided to our customers. While these measures do not eliminate the threats, they do provide layers of defense to mitigate these risks. Even though we have insurance coverage in place for cyber-related risks, if such an attack or act of terrorism were to occur, our operations and financial results could be adversely affected to the extent not fully covered by such insurance coverage.We may pursue acquisitions and other strategic transactions, the success of which may impact our results of operations, cash flows and financial condition.The integration of acquisitions requires significant time and resources. Investments of resources would be required to support any acquisition, which could result in significant ongoing operating expenses and may divert resources and management attention from other areas of our business. If we fail to successfully integrate companies we acquire, we may not realize the benefits expected from the transaction and goodwill recorded as a result of the acquisition could be impaired. We assess existing goodwill for impairment annually or more frequently if events or circumstances occur that would more likely than not reduce the fair value of an operating segment below its carrying value. We also assess long-lived assets, including intangible assets associated with acquisitions for impairment whenever events or circumstances indicate that an asset’s carrying amount may not be recoverable. To the extent the value of goodwill or long-lived assets becomes impaired, the impairment charges could have a material impact on our results of operations.Centuri’sCenturi’s operating areas can adversely affect operations, financial position, and cash flows.Centuri’sCenturi’sCenturi’s revenues are lowest during the first quarter of the year due to less favorable winter weather conditions.caps,caps), time and material (cost plus) contracts, and fixed-price (lump sum) contracts. Contracts with caps and fixed-price arrangements can be susceptible to constrained profits, or even losses, especially those contracts that cover an extended-duration performance period. This is due, in part, to the necessity of estimating costs far in advance of the completion date (at bid inception). Unforeseen inflation, or other costs unanticipated at inception, can detrimentally impact profitability for these types of contracts.constructionutility infrastructure services segment.2016,2019, over half of the constructionutility infrastructure services revenues were generated from seveneight customers. This concentration of risk could be impactful to operating results if construction work slowed or halted with one or more of these customers, if competition for work increased, or if existing contracts were not replaced or extended.Centuri’sCenturi’s employees could adversely affect results of operations.Centuri’sCenturi’s labor force is covered by collective bargaining agreements with labor unions, which is typical of the utility constructioninfrastructure services industry. Labor disruptions, boycotts, strikes, or significant negotiated wage and benefit increases at Centuri, whether due to employee turnover or otherwise, could have a material adverse effect on Centuri’sCenturi’s business and our results of operations and cash flows.plants,facilities, service lines, meters, and regulators, which comprise the pipeline systems and facilities located in and around the communities served. Southwest also includes other properties such as land, buildings, furnishings, work equipment, vehicles, and software systems in plant investment.utility plant. The northern Nevada and northern California properties of Southwest are referred to as the northern system; the Arizona, southern Nevada, and southern California properties are referred to as the southern system. Several properties are leased by Southwest. Total gas plant exclusive of leased property, at December 31, 20162019 was $6.3$8 billion, including construction work in progress. It is the opinion of management that the properties of Southwest are suitable and adequate for its purposes.onunder the streets and on the grounds of municipalities under authority conferred by franchises or otherwise, or onbeneath public highways or public lands under authority of various federal and state statutes. None of the numerous county and municipal franchises are exclusive, and some are of limited duration. These franchises are renewed regularly as they expire, and Southwest anticipates no serious difficulties in obtaining future renewals.all suchrights-of-way, and the associated gas mains and service lines, commencing with the initial stages of construction of such facilities. Permits have been obtained from public authorities and other governmental entities in certain instances to cross or to lay facilities along roads and highways. These permits typically are revocable at the election of the grantor, and Southwest occasionally must relocate its facilities when requested to do so by the grantor. Permits have also been obtained from railroad companies to cross over or under railroad lands orrights-of-way, which in some instances require annual or other periodic payments and are revocable at the election of the grantors.a system (including an LNG storage facility) owned by Paiute extending from the Idaho-Nevada border to the Reno, Sparks, and Carson City areas and communities in the Lake Tahoe area in both California and Nevada and other communities in northern and western Nevada; and
a system extending from the Colorado River at the southern tip of Nevada to the Las Vegas distribution area.
Southwest provides natural gas service in parts of Arizona, Nevada, and California. Service areas in Arizona include most of the central and southern areas of the state including Phoenix, Tucson, Yuma, and surrounding communities. Service areas in northern Nevada include Carson City, Yerington, Fallon, Lovelock, Winnemucca, and Elko. Service areas in southern Nevada include the Las Vegas valley (including Henderson and Boulder City), Laughlin, and Laughlin.Mesquite. Service areas in southern California include Barstow, Big Bear, Needles, and Victorville. Service areas in northern California include the Lake Tahoe area and Truckee.
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Item 4A. | EXECUTIVE OFFICERS OF THE REGISTRANT |
Item 5. | MARKET FOR |
Item 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In late 2013, For periods beyond October 2020, Southwest does not currently plan to make fixed-price term or swap purchases for the utilization of swaps and fixed-price purchases pursuant to the Volatility Mitigation Program was suspended for Southwest’sArizona or Nevada service territories. Management along with regulatorsjurisdictions, however, it will continue to evaluate this strategy in light of prevailing or anticipated changing market conditions.
Southwest’smake fixed-price purchases for the California jurisdictions.
Weather
13 | ||
Interest rate risk is the risk that changes
(Millions of dollars) | 2019 (1) | Increase/Decrease in Interest Expense from 1% Rate Change | 2018 (1) | Increase/Decrease in Interest Expense from 1% Rate Change | ||||||||||||
Variable Rate Debt: | ||||||||||||||||
Southwest | $ | 394.0 | $ | 3.94 | $ | 352.0 | $ | 3.52 | ||||||||
Centuri | 304.8 | 3.05 | 255.9 | 2.56 | ||||||||||||
Corporate | 17.0 | 0.17 | — | — | ||||||||||||
Total Southwest Gas Holdings, Inc. | $ | 715.8 | $ | 7.16 | $ | 607.9 | $ | 6.08 | ||||||||
IDRBs noted above.
We own construction
We have
14 | ||
of each company, including oureach respective Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and benefits of controls must be considered relative to their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
The Attestation Report of the Independent Registered Public Accounting Firm required to be reported herein is incorporated by reference to the information reported in the 2016 Annual Report to Shareholders under the caption “Report of Independent Registered Public Accounting Firm”Firm.”
Form 10-K does not include an attestation report of Southwest Gas Corporation’s registered public accounting firm regarding internal control over financial reporting pursuant to rules of the SEC that permit Southwest Gas Corporation to provide only management’s report in this annual report on Form 10-K.
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On February 23, 2017,
Annual incentives under the Management Incentive Plan will be payable in cash and will be based on net income measures, customer satisfaction, safety, and operations and maintenance expense per customer. The annual incentives will be subject to minimum thresholds. The target annual incentive opportunity and the range of payments for the named executive officers are as follows:
Item 9B. | ||||
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| OTHER INFORMATION | |||
As of January 1, 2017, the named executive officers were granted time-based restricted stock unit awards under the 2006 Restricted Stock/Unit Plan. Each time-based restricted stock unit award is eligible to vest as to 40% of the covered shares on the first anniversary of the grant date, and as to 30% of the covered shares on each of the second and third anniversaries of the grant date. The restricted stock unit awards for the named executive officers are as follows:
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Performance-based incentive opportunities under the 2006 Restricted Stock/Unit Plan were granted in the form of performance shares and will be based on, depending on the officer, consolidated earnings per share, utility net income, and return on equity, with an adjustment based on relative total shareholder return, in each case measured over three years. The target performance share opportunities and the range of performance share payments for the three-year performance period from January 1, 2017, to December 31, 2019, for the named executive officers are as follows:
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The foregoing descriptions of the awards are qualified by reference to the applicable administrative provisions of the Management Incentive Plan and the 2006 Restricted Stock/Unit Plan, which are incorporated herein by reference to the 2016 Proxy Statement filed on Schedule 14A on March 31, 2016 and 2014 Proxy Statement filed on Schedule 14A on March 26, 2014, respectively.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
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Name | Age | Position | Period Position Held | |||
John P. Hester | 57 | President and Chief Executive Officer
| 2015-Present
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Karen S. Haller | 56 | |||||
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Executive Vice President/Chief |
2019-Present | ||||
Executive Vice President/Chief Legal and Administrative Officer and Corporate Secretary * | 2018-2019 | |||||
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| Senior Vice President/General Counsel and Corporate Secretary * | 2015-2018 | ||||
Gregory J. Peterson | 60 | Senior Vice President/Chief Financial Officer * | 2018-Present | |||
Vice President/Controller/Chief Accounting Officer * | 2015-2018 | |||||
Eric DeBonis | 52 | Senior Vice President/Operations ** | 2015-Present | |||
Jose L. Esparza, Jr. | 45 | Senior Vice President/Information Services/Customer Engagement ** | 2019-Present | |||
Vice President/Customer Engagement ** | 2018-2019 | |||||
Vice President/Energy Solutions ** | 2015-2018 | |||||
Justin L. Brown | 47 | Senior Vice President/General Counsel | 2018-Present | |||
Vice President/Regulation & Public Affairs ** | 2015-2018 | |||||
Paul M. Daily | 63 | President and Chief Executive Officer |
2016-Present | |||
* | Position held at Southwest Gas Holdings, Inc. (formed January 2017) and Southwest Gas Corporation |
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Position held at Southwest Gas Corporation only | ||||
(f)Involvement in Certain Legal Proceedings. None.
(g)Promoters and Control Persons. None.
(h)Audit Committee Financial Expert.Information with respect to the financial expert of the Board of Directors’ audit committee is set forth under the heading “Committees of the Board” in the definitive Southwest Gas Holdings, Inc. 2017 Proxy Statement, which by this reference is incorporated herein.
(i)
Section 16(a) Beneficial Ownership Reporting Compliance. We have adopted procedures to assist directors and executive officers in complying with
by this reference is incorporated herein.
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Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Plan category | Number of securities to be issued upon vesting of award | Weighted-average grant date fair value of award | Number of securities remaining available for future issuance (excluding securities reflected in column a) | |||||||
(Thousands of shares) | (a) | (b) | (c) | |||||||
Equity compensation plans approved by security holders: | ||||||||||
Management Incentive Plan shares | 29 | $ | 79.16 | 701 | ||||||
Restricted Stock Units (1) | 365 | 60.94 | 1,220 | |||||||
Total Equity compensation plans approved by security holders | 394 | — | 1,921 | |||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||
Total | 394 | $ | — | 1,921 | ||||||
Pursuant to the terms of the management incentive plan, we may issue performance shares to encourage key employees to remain employed to achieve short-term and long-term performance goals.
Plan category | Number of securities to be issued upon vesting of performance shares | Weighted-average grant date fair value of award | Number of securities remaining available for future issuance (excluding securities reflected in column a) | |||||||||
| (a) | (b) | (c) | ||||||||||
| (Thousands of shares) | ||||||||||||
Equity compensation plans approved by security holders | 168 | $ | 55.62 | 818 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
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Total | 168 | $ | 55.62 | 818 | ||||||||
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Pursuant to the terms of the restricted stock/unit plan, we may award restricted stock and restricted stock units to attract, motivate, retain and reward key employees with incentives for high levels of individual performance and improved financial performance and to attract, motivate, and retain experienced and knowledgeable independent directors.
Plan category | Number of securities to be issued upon vesting of restricted stock units | Weighted-average grant date fair value of award | Number of securities remaining available for future issuance (excluding securities reflected in column a) | |||||||||
| (a) | (b) | (c) | ||||||||||
| (Thousands of shares) | ||||||||||||
Equity compensation plans approved by security holders | 262 | $ | 46.41 | 365 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
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Total | 262 | $ | 46.41 | 365 | ||||||||
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plan.
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Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
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Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
Southwest Gas Holdings, Inc. Consolidated Balance Sheets | 23 | |||
Southwest Gas Holdings, Inc. Consolidated Statements of Income | 24 | |||
Southwest Gas Holdings, Inc. Consolidated Statements of Comprehensive Income | 25 | |||
Southwest Gas Holdings, Inc. Consolidated Statements of Cash Flows | 26 | |||
Southwest Gas Holdings, Inc. Consolidated Statements of Equity | 27 | |||
Southwest Gas Corporation Consolidated Balance Sheets | 28 | |||
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Report of Independent Registered Public Accounting Firm | 80 | |||
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None.
Item 16. | FORM 10–K SUMMARY. |
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Exhibit Number | Description of Document | |
2.01 | ||
3(i) |
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3(ii) |
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4.01 |
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4.02 | ||
4.03 | ||
4.04 | ||
4.05 |
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4.06 | ||
4.07 | ||
4.08 | ||
4.09 | ||
4.10 | ||
4.11 | ||
4.12 | ||
Exhibit Number | Description of Document | |
4.13 | ||
4.14 | ||
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4.15 | ||
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4.16 | ||
4.17 | ||
4.18 | ||
4.19 | ||
4.20 | ||
4.21 | ||
4.22 | ||
4.23 | ||
4.24* | ||
4.25 | The Company and Southwest hereby agree to furnish to the SEC, upon request, a copy of any instruments defining the rights of holders of long-term debt issued by Southwest Gas Holdings or its subsidiaries; the total amount of securities authorized thereunder does not exceed 10% of the consolidated total assets of Southwest Gas Holdings and its subsidiaries. | |
10.01 | ||
10.02* | ||
10.03* | ||
10.04* | ||
10.05* |
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Exhibit Number | Description of Document | |
10.06 | ||
10.07 | ||
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10.08 | ||
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10.09 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14* | ||
10.15* | ||
10.16* | ||
10.17 | ||
10.18 |
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10.19* |
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10.20* | ||
10.21* | ||
Exhibit Number | Description of Document | |
10.22* | ||
10.23* | ||
10.24* | ||
10.25 | ||
10.26* | ||
10.27* | ||
10.28* | ||
10.29* | ||
10.30* | ||
10.31* | ||
10.32* | ||
10.33* | ||
10.34* | ||
13.01 |
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21.01 | ||
23.01 | ||
23.02 | ||
31.01 | ||
31.02 | ||
32.01 | ||
32.02 | ||
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
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Exhibit Number |
Description of Document | |
101.SCH | ||
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| XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
* Management Contracts or Compensation Plans | ||
SOUTHWEST GAS | ||||||
(registrant) | ||||||
Date: March 2, 2020 | By: | /s/ JOHN P. HESTER | ||||
John P. Hester | ||||||
President and Chief Executive Officer | ||||||
| 25 |
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Signature | Title | Date | ||
/s/ ROBERT L. BOUGHNER | Director | March 2, 2020 | ||
(Robert L. Boughner) | ||||
/s/ JOSÉ A. CÁRDENAS | Director | March 2, 2020 | ||
(José A. Cárdenas) | ||||
/s/ THOMAS E. CHESTNUT | Director | March 2, 2020 | ||
(Thomas E. Chestnut) | ||||
/s/ STEPHEN C. COMER | Director | March 2, 2020 | ||
(Stephen C. Comer) | ||||
/s/ JOHN P. HESTER | Director, President and Chief Executive | March 2, 2020 | ||
(John P. Hester) | Officer | |||
/s/ JANE LEWIS-RAYMOND | Director | March 2, 2020 | ||
(Jane Lewis-Raymond) | ||||
/s/ ANNE L. MARIUCCI | Director | March 2, 2020 | ||
(Anne L. Mariucci) | ||||
/s/ MICHAEL J. MELARKEY | Chairman of the Board | March 2, 2020 | ||
(Michael J. Melarkey) | of Directors | |||
/s/ A. RANDALL THOMAN | Director | March 2, 2020 | ||
(A. Randall Thoman) | ||||
/s/ THOMAS A. THOMAS | Director | March 2, 2020 | ||
(Thomas A. Thomas) | ||||
/s/ LESLIE T. THORNTON | Director | March 2, 2020 | ||
(Leslie T. Thornton) | ||||
/s/ GREGORY J. PETERSON | Senior Vice President/ | March 2, 2020 | ||
(Gregory J. Peterson) | Chief Financial Officer | |||
/s/ LORI L. COLVIN | Vice President/Controller/ | March 2, 2020 | ||
(Lori L. Colvin) | Chief Accounting Officer | |||
26 | ||
SOUTHWEST GAS CORPORATION | ||||||
(registrant) | ||||||
Date: March 2, 2020 | By: | /
| ||||
John P. | ||||||
| President and Chief Executive Officer | |||||
27 | |||
Signature | Title | Date | ||
/ | Director, President and Chief Executive | March 2, 2020 | ||
(John P. Hester) | Officer | |||
/s/ MICHAEL J. MELARKEY | Director | March 2, 2020 | ||
(Michael J. Melarkey) |
| |||
/s/ KAREN S. HALLER | Director, Executive Vice President/Chief Legal | March 2, 2020 | ||
(Karen S. Haller) | and Administrative Officer | |||
/s/ GREGORY J. PETERSON | Director, Senior Vice President/ | March 2, 2020 | ||
(Gregory J. Peterson) | Chief Financial Officer | |||
/s/ LORI L. COLVIN | Vice President/Controller/ | March 2, 2020 | ||
(Lori L. Colvin) | Chief Accounting Officer | |||
| 28 |
| ||
|
| |||
|
| |||
26