Southwest Gas Holdings, Inc. (SWX) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the 2012 year-end earnings conference call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Ken Kenny, VP, Finance and Treasurer. Please proceed.

Thank you, Chanel. Welcome to the Southwest Gas Corporation 2012 Earnings Conference Call. As Chanel mentioned, my name is Ken Kenny, and I am Vice President of Finance and Treasurer. Our conference call is being broadcast live over the Internet. For those of you who would like to access the webcast, please visit our website at www.swgas.com and click on the conference call link. We will have slides on the Internet, which can be accessed to follow our presentation. Today, we have Mr. Jeffrey W. Shaw, Southwest's President and Chief Executive Officer; Mr. Roy R. Centrella, Senior Vice President and Chief Financial Officer; and Mr. John P. Hester, Senior Vice President, Regulatory Affairs and Energy Resources; and other members of senior management to provide a brief overview of 2012 earnings and an outlook for 2013. Our general practice is not to provide earnings projections. Therefore, no attempt will be made to project the earnings for 2013. Rather, the company will address those factors that may impact this coming year's earnings. Further, our lawyers have asked me to remind you that some of the information that will be discussed contains forward-looking statements. These statements are based on management assumptions, which may or may not come true, and you should refer to the language in the press release, our SEC filings and also Slide #2 presented today for a description of the factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today. We assume no obligation to update any such statement. With that said, I'd like to turn the time over to Jeff.

Thank you, Ken. We thank you for joining us today on the call and spending a few minutes with us as we discuss the year 2012 and speak a little bit to what our expectations are for the future. I'm on -- we'll go -- move to Slide 3. We're pleased to report for 2012 that earnings reached a record level. Our stock price is trading today, as last time I looked, about $45 a share. Our financial position, our credit ratings have continued to improve. And earlier this week, the board increased the dividend on our common shares by nearly 12% from $1.18 to $1.32 on an annualized basis, the seventh consecutive year of dividend growth. With respect to highlights in Slide 3, what I wanted to talk about, first of all, is our earnings reached $2.89 per share, again, the seventh consecutive year that we've increased our dividend. We have experienced now full decoupled rate designs in all of our jurisdictions as of the full year 2012. Nevada, we have new rate release in Nevada. Some portions of that rate case continue, and we will speak to that in just a few moments. This has -- this was the second highest year of earnings for our Construction Services company, and we will speak to NPL as part of this call today as well. And we did have, and it's part of NPL, an improvement in the contract loss that we spoke of at the midyear conference call and have disclosed in our public filings. We did see some improvement in that contract in the fourth quarter, and we will speak to that. Now for the call outline on Slide 4, we'd like to address 2012 consolidated earnings. Roy Centrella, our Chief Financial Officer, will speak to that, as he will, NPL Construction Co., and what has been going on in that company over the last year. We will speak to Natural Gas Operations. Regulatory proceedings will be addressed by John Hester, who runs our pricing and energy services area. I will then come back and speak to customer growth, what we are seeing, what we expect, and talk -- I will speak to construction expenditures. And we will speak to -- I will speak to dividends and then deliver some expectations for 2013 and going forward. So with that, what I'd like to do then is move to Slide 5 and turn sometime over to Roy Centrella, our Chief Financial Officer, to address this portion of the presentation.

Thank you, Jeff, and let me also welcome those of you joining us today. I plan to provide a summary of 2012 operating results, recap the primary factors impacting the change from 2011 and review some financing-related activities. And I'll also comment on some expectations around 2013. So let's move to the slides. As Jeff mentioned, we're on Slide 5, consolidated net income increased from $112 million in 2011 to $133 million in 2012. As a result, basic earnings per share increased from $2.45 to $2.89. The earnings improvement was driven by strong performance in the Natural Gas segment, while NPL, our wholly owned construction subsidiary, declined from last year's record contribution but still posted their second best year. Most of today's discussion is going to focus on the Gas segment of the business, so let me first spend a few minutes on NPL. Slide 6, NPL highlights for the year included a 25% improvement in operating revenues, $8 million in gains on equipment sales and an improvement in the fixed-price contract loss during the fourth quarter. Additionally, good progress was made towards the structural changes necessary for NPL operations given their increased size. On Slide 7, NPL revenue totaled $606 million in 2012, up from $484 million during 2011. The revenue increase resulted mainly from additional pipe replacement work, as many of their existing customers have embarked on significant multi-year infrastructure replacement programs. In fact, about 75% of the 2012 revenue was derived from pipe replacement activity, which is similar to the percentage that was achieved in 2011. Despite the revenue increase, operating income declined from $35 million in 2011 to $27 million in 2012. The primary cause of the decline was a $15 million loss on a large pipe fixed-price contract, which I'll discuss next, partially offset by increased gains on sales of equipment. So now let's review the contract loss, Slide 8. On prior calls, we discussed that NPL had a large fixed-price contract in which it was losing money. During the first half of 2012, $18 million in pretax losses were recorded on this contract. During the second half of the year, NPL was successful in getting change orders processed, which reduced the full year loss to $15 million. The contract is now substantially complete, other than some restoration work, and no additional losses are expected in 2013. With that, we'll transition into the Gas segment, starting on Slide 9. Gas segment highlights included a record contribution to earnings, driven by Arizona rate relief and margin decoupling in all areas. We had strong returns on COLI policies, favorable refinancing results and Nevada rate relief granted late in the year, which John Hester will further discuss. On Slide 10, operating income improved by $29 million between 2011 and 2012, as the $52 million increase in operating margin was partially offset by higher O&M depreciation and property tax expenses. Other income was a significant factor, increasing $9.6 million between periods, while net interest deductions were also favorable, declining $1.8 million. Overall, the contribution to net income increased $25 million between periods. We'll walk through the income statement in a little more detail next. Slide 11 breaks down the increase in operating margin from 2011 to 2012. Rate relief contributed $47 million in incremental operating margin, with $45 million coming from Arizona and $2 million from Nevada. Customer growth contributed $5 million as the company increased its customer count by about 1%. For 2013, we would expect a similar level of customer growth and the remaining Nevada rate relief to be the primary drivers of incremental operating margin. Margin from our infrastructure tracking mechanisms, which is a strategic focus of ours, is not expected to be significant just yet. Slide 12 looks at operating expenses. They increased $23 million between years or 4%, which was consistent with our previously provided projections. O&M expenses were up $11.5 million or 3%, driven mainly by pension expense, which grew by $6 million, $1 million of leak survey costs pertaining to our customer-owned yard line program in Arizona and general cost increases. Depreciation increased $11 million or 6% as we spent $309 million last year on capital expenditures. If you look back over a longer period of time, operating expenses on a per-customer basis during the last 10 years increased just 1%, which was less than half the 2.4% rate of inflation during the same period. That said, for 2013, we see operating expenses increasing again at a 3% to 4% clip, with pension expense rising $5 million on a net basis due to the continued low interest rate environment. Slide 13, we have a mitigating factor to our operating cost increases. It comes from productivity improvements. One measure of that, that we are particularly focused on is the customer-to-employee ratio, which improved from 809 employees per customer to 836 between 2011 and 2012, an increase of 3%. Over the past decade, this ratio has improved 46% as we have embraced technology and process changes. Along the way, we have not sacrificed customer service as our customer satisfaction rating consistently averaged between 90% and 95%, including 2012, which was 93.5%. Slide 14, look at other income. Other income improved $9.6 million between years, as returns on investments underlying our customer owned -- I mean, our COLI policies, life insurance policies, were strong, and a pipe replacement program subject to partial non-recoverability was concluded. With regards to COLI, we think returns in the range of $2 million to $4 million would represent a more normal level, but these returns are influenced by market forces and therefore, subject to volatility. Over the next couple slides, we'll be looking at our financing activity and liquidity. Slide 15 shows that net financing costs declined from $69 million in 2011 to $67 million in 2012. This resulted primarily from favorable refinancing activities, most notably a $200 million 7.625% note, which matured in May of 2012 and was replaced with a 3.875% note. A portion of the interest savings from this refinancing will carry over into 2013. As recently as 2008, Gas segment net financing costs totaled $91 million. In 2013, we expect to ring out additional savings based on the 2012 refinancing and some smaller redemption opportunities we have in March of this year. On Slide 16, you'll see that we have $45 million in debt redemptions that we are planning to do tomorrow, in fact. We'll use our existing credit facility to effect this transaction. And finally, with regards to liquidity, we refinanced our $300 million credit facility in March 2012. The new facility runs out 5 years and also supports a $50 million commercial paper program. Borrowings in recent years have been primarily seasonal to meet winter gas supply needs. And it's also used to bridge any long-term financings to meet capital requirements. We believe the facility side is adequate for our needs. So with that, let me turn the discussion over to John Hester, who will provide a regulatory update.

Thanks, Roy. Turning to Slide 17 for the regulatory portion of today's call, I'd like to provide an update on a few key ongoing matters before our state commissions: first, in Nevada, an update on our continuing rate case proceeding; second, in California, a report on our 2013 attrition revenue change and our pending 2014 rate case; next, a summary of the company's activities related to infrastructure recovery mechanism; and finally, a brief update on our purchased gas balances. Moving to Slide 18, a final decision on our Nevada rate case remains to be issued by the Public Utilities Commission of Nevada. Recall that when Southwest's original application was filed in April of last year and the Commission issued its original decision in that proceeding with new rates effective this past November, the original decision provided a $7 million revenue increase, which results in an $11.4 million operating income increase after accounting for depreciation and tax changes. Southwest also requested establishment of an infrastructure recovery mechanism in its original application. But the Commission decided that the mechanism request should be addressed in a separate expedited rule-making, which I'll talk about in a few minutes. Continuing with the Nevada rate case on Slide 19, Southwest objected to the capital structure that was included in the Commission's original decision by filing a petition for reconsideration shortly after the order was issued. Specifically, Southwest was troubled by the fact that the order adopted a capital structure that was materially different from the company's recommendation. Southwest's recommendation was supported by both Commission Staff and the Consumer Advocate at the initial hearing. Southwest also requested reconsideration of a variety of disallowed costs in the original order. In addition to Southwest filing, the Commission Staff filed a petition for rehearing as a result of questions it had regarding the authorized capital structure. The Commission responded to the 2 petitions in a December order, which denied Southwest's requested reconsideration of the capital structure but granted the PUCN Staff's requested rehearing of the matter. The December order also reconsidered but did not change issues related to cost recovery of certain disallowed costs. Turning to Slide 20, a rehearing on cost of capital issues was convened this past month. The proceeding's presiding commissioner subsequently issued a draft decision this past Friday, which proposed only minor changes to the Commission's original decision and, if approved, would result to an incremental revenue increase of approximately $500,000. When the draft order was tendered for consideration at yesterday's regularly scheduled agenda session, however, Commissioner Rebecca Wagner requested Chairman Alaina Burtenshaw to postpone a vote on the draft order so that Commissioner Wagner could consider drafting an alternative resolution to the draft order's proposed capital structure. Chairman Burtenshaw conceded the requested delay and indicated an open-mindedness to alternative proposals. The commission's next regularly scheduled agenda session is March 14, at which point it is possible that the matter may once again be taken up for final resolution. We are hopeful that any additional alternative to the current draft order will represent an incrementally improved results from the proceeding. Moving on to California matters on Slide 21. As part of its 2009 rate case resolution, Southwest was granted annual attrition rate increases for years 2010 to 2013 to help keep rates current with the normally escalating costs of providing service to customers. The 2009 commission decision also provided an automatic trigger mechanism that may adjust Southwest's return on equity to reflect changing trends and Moody's AA utility bond yield. These 2 mechanisms somewhat offset each other in 2013, with the attrition mechanism providing a $2.4 million revenue increase and a return on equity trigger mechanism resulting in a $1.3 million revenue decrease. The net change of the 2 mechanisms was an annual revenue increase of $1.1 million. Continuing on with our California rate case on Slide 22, Southwest filed its most recent rate case in California in December of this past year. The application seeks an $11.6 million revenue increase for test year 2014, along with annual attrition year increases for years 2015 to 2018. The requested revenue increases are based on the capital structure that incorporates a 57% common equity component and 43% debt. The application's requested return on equity is 10.7%, and the return on equity is proposed to have an annual adjustment feature to track fluctuating return trend and the broader debt and equity markets. Importantly, our application also requested establishing an infrastructure recovery mechanism called the Infrastructure Reliability and Replacement Adjustment Mechanism, which may be used to recover future costs of nonrevenue-producing infrastructure investments and safety. The application is currently under review by the commission staff, with new rates expected to be effective January 1 of next year. Moving to Slide 23, continuing on with our infrastructure recovery mechanism theme. We recently concluded our first year of experience with our Arizona customer-owned yard line replacement program. This program was established as part of our December 2011 Arizona rate case decision. In that decision, Southwest was authorized to undertake a 3-year review of approximately 100,000 Arizona customers that have yard line services. These yard lines typically involve a gas meter located at the rear of the property and a customer-owned low-pressure service line that moves gas from the meter across the customer's property to their home. Such lines are owned and operated by the customer and usually involve 40- to 50-year-old unprotected steel piping that may develop leaks over time. Southwest's program provides for Southwest to review such lines, including potential leak surveying and to offer replacement of the line with utility facilities in situations where leaks are found. The program has been extremely successful in its first year, with Southwest having completed a review of over half of the initially identified population. Pursuant to this review, Southwest replaced approximately 2,000 customer-owned yard lines at a cost of just over $4 million in 2012. Capital costs for the replacement facilities are deferred to a regulatory asset account with carrying costs, and a cost recovery surcharge is established annually. We are very enthusiastic about continuing this program on into 2013. Returning to Nevada, on Slide 24, similarly, the Public Utilities Commission of Nevada is reviewing the prospects of infrastructure recovery mechanisms for natural gas utilities. As I mentioned earlier, the instant review was prompted by a proposal originally included in Southwest's April 2012 rate case application in which Southwest proposed replacing up to $40 million of aging early vintage plastic and steel pipe annually. The replacement was to occur in conjunction with the establishment of a regulatory asset and surcharge to recover the capital costs of the replacement in between rate cases. As I mentioned, the PUCN created a special docket outside the rate case proceeding to consider this matter, and a final decision by the Commission is anticipated in the third quarter of this year. Finally, turning to Slide 25, while the company has regularly adjusting gas cost rates in all of its regulatory jurisdictions, we actually saw our company-wide 2011 over-recovered gas cost balance of $70.1 million increase to $92.9 million at the end of 2012. At the end of 2012, Arizona had an over-recovered balance of $46.6 million, Nevada had an over-recovery of $52.3 million and California was slightly under-recovered by $6 million. The net increase in the year-on-year balances was primarily the result of stubbornly low natural gas prices, which are great for our customers. We believe that our gas rate mechanisms are fundamentally sound, and we expect to return or recover the balances to or from our customers over a reasonable timeframe, with substantial progress anticipated in 2013, depending of course, on prospective gas commodity price levels. With that, I will turn the call back to Jeff.

Thank you, John. Next, on Slide 26, I'd like to speak to customer growth just for a couple of moments. For the 12 months ended -- you'll see for 2010, '11 and '12, customer growth has hovered around 1%, sometimes slightly above, sometimes slightly below. What we have seen is that we're no longer eroding by having customers turn off, but rather, in fact, we have seen years such as 2011, where we had customers -- the customer homes that were vacant had been turned back on. And that's the $9,000 -- or 9,000 number that you see there in the 2011 column. We didn't see that phenomenon in 2012. It could've possibly been because the weather was somewhat warm in December, and maybe some customers that would've turned on didn't need to turn on their gas service yet. So we're not quite -- we're not concerned about this. The good news is you didn't see any erosion. We added 17,000 customers, new meter sets and that customers in 2012. That's kind of what we expect. We don't see any great huge growth numbers, kind of a similar trajectory probably on a going -forward basis. Total excess inactive meters as of December 31, we approximated about 37,000. Slide 27, you can see the economic overview here in terms of the unemployment rate. Nevada still remained -- has the dubious honor of having the higher of the unemployment rates, still hovering just below 12% -- in 11% to 12% range. It's -- there's nothing fundamentally that suggests to us that, that's going to ramp up -- or ramp down, I guess, I should say, depending on your perspective. But you can see, I think, a positive trend, generally speaking, in our company there. It's going to be -- we believe it takes some time -- it's going to take some time in order for us to see a significant change in the customer growth patterns. Slide 28, you can see that there is again an improvement: Southern California, from 2% to 1% -- 1.1% in employment growth -- or it's actually declined; Nevada increased; and Arizona increased. So it's mixed, it's gradual, it's directionally, we think, positive, but we're not expecting anything dramatic on the positive side at this point. Slide 29, capital expenditures. You'll notice here that, especially in the current -- or the most recent years, '11, '12 and '13, a fairly significant ramp-up in our capital expenditures, as has been explained. Our safety-related pipe replacement type work, getting ahead at some of the early vintage pipe, making sure we replace that. We do have very rigorous process in our engineering group to assess the risks of our pipe, the leak rates. And we are very aggressive, I would say, probably an industry leader in terms of our distribution integrity management processes, and we believe we've had some influence in the shaping of the laws that have come out of Washington. That being said, you will see that we are going to continue to be around that $300-plus million range in CapEx. And you see that yellow portion above the green bar there in 2013 estimated, that it's around a $40 million range. John referred earlier to the Nevada infrastructure tracking mechanism. If that does proceed forward, it could allow us to invest in additional pipeline safety-related infrastructure replacement that we would accelerate and move forward on. And our CapEx would then swell to upwards of $360 million during the year 2013. Keep in mind again, we still are benefiting from a bonus depreciation. I know that's somewhat controversial amongst CEOs in the utility industry because of the deferred taxes. And the net, that is against rate base. So I'm not quite so enthusiastic about that continuing into the future. But for the -- we need to take advantage of it certainly for regulatory purposes as long as it's available to us. Next slide, Slide 30, dividend growth. Again, I had mentioned earlier that we have increased the dividend now 6 -- excuse me, 7 straight years. This year, nearly 12%, that represents about -- almost an 8% dividend compound annual growth rate over the last, what, 7 years. So that's a positive for the company, and we're extremely pleased to be able to do that for our shareholders. And again, I'll speak to the dividend a little further here. Over time -- on Slide 31, this basically is our policy, and I think it's important and warrants a review of this policy for those on the call and for our shareholders in general. Over time, the board will -- intends to increase that dividend so that we address our payout ratio, that it approaches our local distribution company peer group, while we want to, again, maintain strength -- strong credit ratings and our ability to effectively fund future rate-based growth. So the timing and the amount of any of those increases will be based upon the board's continuing review of new dividend rate in the context of the performance of both the gas operation segment and the pipeline construction services segment of our businesses. Slide 32, expectations going forward, the Construction Services side of the business. We expect 2013 revenues to approximate 2012 levels. We'll -- the construction company is currently in the process of negotiating 2013 contracts. This is the season where they'll start to take shape and we get a better sense of those, end of first quarter, beginning of second. They know generally speaking, what the work's going to look like on a going-forward basis. We'll have additional clarity on those expected revenues upon completion of that. 2013 construction expenses will be favorably impacted by the fact that we will not have the same kind of loss we experienced in 2012. Our management is focused on the gross profit percentage as they go out and bid work. It's about -- that's an important part of their strategies to assure that they're not only increasing revenues but increasing revenues at a profitable level. We do expect that we will have some reduced gains on sales of equipment in 2013, and we will have a full year at certain of the costs that we incur to restructure the business. And that restructuring, as Roy alluded to earlier, are necessary given the size of the business. And to assure that as we go forward and continue to bid on contracts, that we have a very strong process in place in all of the areas coast to coast to make sure that we're bidding those jobs and taking those jobs that we expect to be profitable for the organization. So I think that the changes were favorable towards the changes. And I think as we look forward for that business, I would expect to see them perform at a level similar to what you might've seen in 2011, somewhere in that range. I don't expect them to go significantly above that. We would love to see growth on an annual basis on -- over time, over several years, approximating 5% to 8%, I think, is what we talked about on previous calls. We still stick with that number, and we think by doing this restructuring that we've done, it will help us to achieve that. On the Natural -- on Slide 20 -- or 33, excuse me, the Natural Gas Operations portion of the business. We look with anticipation to the Nevada rate case decision on the capital structure that John explained. We're, again, hopeful, as he said, for a positive conclusion to that, to apportion the rate case. And we will see a California attrition adjustment in the year 2013 as well. Our net customer growth, we expect to be similar to what we saw in 2012, 2011, somewhere in that 1 -- hovering around 1%, plus or minus. Operating cost increases, as Roy mentioned, 3% to 4% is a good range. We will continue to put a laser focus on the improving processes and using technology where we can to continue to contain costs. Our financing costs that, we believe, should continue to improve is we take some of these steps to take out some of the IDRBs that Roy mentioned earlier. Again, we expect our company life insurance returns to average somewhere in the $2 million to $4 million range on a long-term basis. And you'll see a little bit of volatility from year to year, depending on the market, again, remembering that we intend to hold those contracts presently to receive the death benefits. So this is more -- we looked at it and view this more of an accounting entry than it is a true economic entry for us. We're going to, again, continue to focus on these infrastructure mechanisms that John spoke to in the regulatory arena. And I would expect to -- I would tell you that it would be good to focus on those because that's going to be a key part of our strategy going forward to minimize regulatory lag and even have an opportunity to earn for the shareholder on those investments in between rate cases. And then of course, our California general rate case that we filed, we will have new rates beginning of 2014, so we look forward with anticipation to see what type of result we get there. Our focus going forward, it actually has been our focus for a decade. My entire tenure has been to work collaboratively with regulators. I think we have demonstrated our ability to do that. Roy mentioned some of the statistics in terms of productivity, customer satisfaction. Those factors have been mentioned on the record more than once in regulatory proceedings. So to be successful in working collaboratively with the regulators, we have had to demonstrate that we can control our costs, and we have done that, and we have benefited from controlling our costs and from having high customer satisfaction. So we have accomplished that, and we'll continue to focus on that on a going-forward basis. Again, improving our operating efficiencies, that's been a significant focus. Roy mentioned the statistics over the last year, a 46% increase in productivity on a customer-to-employee basis -- on a customer-to-employee ratio basis. That's an important statistic, one we focus on, and we think it's been very beneficial to us through the regulatory process. Everybody wins when we control our costs. We will seek prudent growth opportunities in our 2 operating segments. We think, again, we've positioned the construction company to go forward and do just that. And with the various steps we're taking in the regulated portion of our business, you've heard what our focus is, is to try to improve our earnings capability by increasing rate base and by making sure that we minimize the impact of regulatory lag. And gratefully, we have decoupled rate structures, and we'll do all that we need to do to maintain those. We think those have worked. They've been symmetrical. We can demonstrate that to our regulators. We think that everybody wins with that type of rate design. Again, we're going to strive to exceed our customers' expectations. We think we do a very, very good job, an admirable job in that. And remember, this is measured by outside parties, so we don't measure this ourselves. We have an outside entity that measures our customer satisfaction, and we're proud of that statistic. And over time, again, we continue to focus on our dividend. We want to move towards the industry average per our -- with our peer group. And so our board is focused on that. And I think that's demonstrated by the fact that over the last 7 years, we've increased that dividend now. So with that, I will turn the time back over to Ken, and we will be willing to field any questions that you may have for us.

Thanks, Jeff. Just a reminder, in our deck of slides, we also have an appendix with additional slides on there. We won't discuss those today, but I would recommend that you -- when you have a chance to take a look at those, as there's a lot of pertinent information in those slides as well. With that, that concludes our prepared presentation. Our operator, Chanel, will now explain the process of asking questions.

[Operator Instructions] Our first question comes from the line of Dan Fidell, U.S. Capital Advisors.

Just a couple of questions on my side. I guess, first, can you give us, Jeff, maybe a little more color on the inactive meter set returns kind of low-hanging fruit, 37,000 customers or so by your estimate. I thought that was pretty much tied to foreclosed homes being reoccupied. Is that right? And I guess, secondarily, if you can just remind us again in your prepared remarks what your thoughts are for 2013.

Sure. It -- we expected at the end of the year to probably see a similar trend that we saw in 2011, where you actually had more meters coming on than you had first-time meter sets. We didn't see that occur. And so we've looked at it and said why? Our impression is that because the weather was warm in the fourth quarter, that we didn't -- in the desert in particular, people to have a tendency to wait to turn on until they don't have -- until they absolutely have to or maybe they don't come -- the snowbirds don't come as early. So it can have an impact on when customers hook up, and it kind of straddles that year-end. We did see some more people hook up than maybe normal would occur in the January timeframe. So you might've seen a similar trend in 2012 as you did in 2011. Roy, do you have anything to add on that?

Yes, let's say, Dan, all throughout the year, we were building on average 20,000, 21,000 customers more per month than what we did in the prior year. It wasn't until December that you had this phenomenon. I think, as Jeff has hit it right on, that it was fairly warm through most of December. And then we got a really cold spell in early January, and we saw our customer count picked up. So it's probably like a one-month lag in there in terms of what we saw in December, that came in, in January instead. I would have put the customer count for the year more at 20,000, 21,000 as being more representative of the kind of growth level we had.

And Dan, I would follow up to just kind of complete your question. I think from a 2013 standpoint, probably something similar. I don't -- I think you're going to see that 37,000 inactive number gradually trickle downward. I don't see a significant change in 1 year. We are seeing growth, which is positive. We're seeing homes being built, which is positive. But from someone that's been at the company for 25 years, and many around this table the same or near that or longer, we saw our growth rates, as you'd recall, somewhere 5% to 6% one time. I'm not sure in my career we'll see that again, I don't know. I mean, it -- but it's -- I think it's -- at least the trends are suggesting that, that won't be anytime soon.

And then maybe just another question, switching topics to the just kind of a long-term outlook for construction growth. You're guiding to kind of flat year-over-year on revenue growth, but are you still viewing the long-term fundamental dynamics pretty favorable for beyond that year-over-year revenue growth?

You're talking about NPL, correct?

Correct.

Yes, I think NPL is very well poised to take advantage of growth. And I think that growth opportunity exists for a number of years. And the reason is many companies have announced long-term pipeline replacement projects. And we have offices coast to coast. When I say we, NPL. I think with the restructuring that we've done, part of that includes a new senior marketing level-type person, the corporate development-type person, for that entity. We split the country -- excuse me, the company into 2 regions from an operating standpoint, so we no more have just 1 officer over the whole operations of the company. Now we have 2. There are more contacts being made with these companies. And I think the infrastructure that we've got in place now provides us the opportunity, we think, to go out and make sure that we're at the table, bidding on the work that we want to bid on throughout the country. That being said, I think you want to grow smart, and you want to make sure that the business that you take on, that you have the opportunity to be profitable. And so I think that we are well situated to continue to grow. I would expect us to hopefully recover to something similar to what we had in 2011 in the year 2013. And beyond that, I would still stand by my 5% to 8% growth rate that we want to try to achieve over time, over the next, let's say, 3 to 5 years.

That's great. And the last question for you, John, just quickly. Jeff, you've mentioned kind of the CapEx guide, $320 million to $360 million. Kind of higher end of that is the Nevada trackers approved. I guess, John, any kind of comment you could give us in terms of just confidence level on approval of the tracker in Nevada, things seem to be going in the right direction?

Yes, Dan, I think they are going in the right direction. There've been some discussions among the parties about exactly how the rate-making mechanism works. Do you put a rate in place prospectively, while you're actually making the investments, or do you put a rate in after you have 1 year of experience and recover those types of costs. But I think that it's a pretty positive discussion with the Commission Staff. The Consumer Advocate isn't quite as supportive of this. But I think directionally, the Commission itself will be supportive of it as well because if they weren't, they didn't really have to create an additional expedited docket to address this outside the rate case. They could've just said, "It's part of the rate case. We don't think this is a good idea." So I think there's a pretty good cause for optimism.

[Operator Instructions] And there are no questions at this time. I'd now like to turn the call back over to management for closing remarks.

Thank you, Chanel. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Corporation. Hope everyone have a great day and a wonderful weekend.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.