Good day, ladies and gentlemen, and welcome to the Southwest Gas 2013 Third Quarter Earnings Conference Call. My name is Jasmine, and I will 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 your host for today, Mr. Ken Kenny, Vice President of Finance and Treasurer. Please proceed.

Thank you, Jasmine. Welcome to Southwest Gas Corporation's 2013 Third Quarter Earnings Conference Call. As Jasmine mentioned, my name is Ken Kenny, and I am Vice President, 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 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; Mr. John P. Hester, Senior Vice President, Regulatory Affairs and Energy Resources; and other members of senior management to provide a brief overview of the company's operations and earnings ended September 30, 2013, and a full year outlook for 2013. Our general practice is not to provide earnings projections, therefore, no attempt will be made to project 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's assumptions, which may or may not come true, and they should refer to the language on Slide 2, in the press release and also our SEC filings for a description of factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today, and 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. Let's first start with the call outline today. I'd like to begin my comments by touching upon the strategic focus of our company. I'd like to then turn the time over to Roy Centrella, our Chief Financial Officer, who'll discuss consolidated earnings through the third quarter ended September 30, 2013, touch upon the Natural Gas segment and also our Pipeline Construction subsidiary. And then we'll have John Hester discuss some of the regulatory developments, including the status of the California rate case currently on file, some infrastructure tracking mechanisms that we have requested and have had some success with and are continuing to prove upon those mechanisms, he'll talk about that, and then I'll conclude with some discussion regarding the full year 2013 outlook in conclusion. So with respect to strategic focus -- first, let me thank you for being with us today on the call. Let me begin again by saying we're pleased with our third quarter results. For the 12 months ended September 30, 2013, we've posted earnings per share of $3.25, a record for our company. Both the Natural Gas segment and our Pipeline Construction segment posted strong results. And our stock price is trading near its all-time high. In addition, over the past 7 years, we've been able to increase our dividend, making progress towards our stated goal of achieving a payout ratio that is competitive with our industry, which ranges from 55% to 65%. Now our 12-month operating results do contain some unusual items that we will discuss in this call in both segments. But let me briefly summarize why we are where we are today. If you look at our letters to shareholders over the last decade, you'll see that we laid out our basic strategy, working collaboratively with our regulators…

Thank you, Jeff. Let me also welcome those of you joining us today. Nice to see a lot of familiar names on the screen. I'll provide a comparative summary of third quarter and rolling 12-month operating results, with most of the emphasis on 12-month data, and identify factors which we expect will impact full year 2013 results. So Slide 5, we'll start there. During the third quarter of 2013, we incurred a loss of $0.06 per share versus a loss of $0.09 per share during the third quarter 2012. The improved results were attributed to NPL, which reflected income of $9.1 million compared to $7.1 million in the prior period. The Gas segment experienced a loss of $11.9 million in the quarter, down just slightly from last year's third quarter loss of $11.4 million. For the 12-month period, we earned $150 million or $3.25 per basic share versus $126 million or $2.74 per basic share during the prior period. There were 3 significant favorable factors influencing current period 12-month results. We had outsized returns on our company-owned life insurance, or COLI, policies for the Gas segment. And at NPL, there are large gains on sales of equipment, plus change order revenue recognized in the fourth quarter of 2012 with no related costs on a fixed-price contract. I'll speak to these in greater details as we move forward. Next, we'll move on to the Gas segment at Slide 6 and third quarter results. Our operating loss widened from $5.7 million last year to $8.3 million this year. Operating margin grew by $5 million, while that was more than offset by a $7.6 million or 5% increase in operating expenses. I wouldn't read anything into the operating expense increase percentage in terms of one quarter being outside of the 3% to 4%…

Thank you, Roy. Turning to Slide 16. We filed our most recent California general rate case in December of last year. The rate case incorporates the 2014 future test year. The application requests an overall margin increase of $11.6 million. Our requested California margin increase is based on the capital structure incorporating the 57% common equity component and a 10.7% proposed return on equity. In addition to the 2014 test year margin increase, we're requesting annual attrition margin increases at a rate of 2.95% for years 2015 to 2018. The application also requests establishing an infrastructure reliability and replacement adjustment mechanism. This proposal is similar to mechanisms we have had approved in Arizona and Nevada and would allow Southwest to propose specific infrastructure replacement projects outside of the normal rate case process. The costs of such projects are proposed to be deferred to a regulatory asset account for future annual surcharge recovery. In June, Southwest received a responsive testimony from the Division of Ratepayer Advocates, or DRA. The DRA's report supports only a $1.1 million margin increase for Southwest, but that margin increase is based on the capital structure using a 51.7% common equity component and a 9.52% return on equity. DRA supports the annual attrition increases but proposes a formulaic approach based on the consumer price index. They do not, however, support establishing an infrastructure replacement mechanism. Hearings in the application were held in August, and we expect the final decision from the commission by year-end. New rates resulting from the commission's forthcoming decision are requested effective January 1. Moving to Slide 17. Southwest continues to experience progress in its infrastructure replacement mechanism initiatives in both Arizona and Nevada. In Arizona, our December 2011 rate case decision established a customer-owned yard line replacement program. This program allows replacement of…

Thank you, John. Let's go to Slide 20. 2013 revenues for NPL are expected to moderately exceed those we posted in 2012. Construction -- excuse me, the net income, however, will probably be slightly better than that which we posted in 2011, remembering that the effects of the loss on the contract recorded in 2012. So again, 2013 revenues, moderately better than 2012 levels for revenues; and net income, we expect to be moderately better than what we posted in 2011. With respect to construction expenses, we expect the -- in terms of the percentage of revenues, we expect construction expenses to be consistent with what we have normally experienced. Again, the total expected loss on the large fixed-price contract was recorded in 2012. Gains on equipment sales for 2013, we believe, should be notably lower than 2012 due to the reduction in equipment purchases in the current year. And the depreciation expense trend line is expected to continue. Now we have charged NPL management to -- as a goal to grow the bottom line by 5% to 8% on an annualized basis. I can't say that that's going to be linear as well, but that's their charge. And the way their compensation packages are structured, they are motivated from that perspective to grow the business as well. So that would be an important point for the audience to consider. For the year, in the Natural Gas Operations segment of the business, operating margin is expected to be favorably influenced by Nevada rate relief and customer growth. Operating costs are anticipated for the full year to be in that 3% to 4% increase range. Pension expense on a net basis is about $5 million for the year 2013. COLI-related income for the year-to-date and 12-month period ended September 30, 2013, significantly exceeded the expected returns, as Roy mentioned. And we do not believe that it's sustainable at that level for the mid to long term. We expect, on an annual basis, COLI to return, when you consider the market returns and the way we're required to record those from an accounting perspective and also with debt benefits, if they happen to come, somewhere in the $2 million to $4 million range on an annualized basis. Due to debt refinancings, redemptions, offset partially by the $250 million debt offering that Roy mentioned to you, we expect approximately $4 million of interest savings in 2013 compared to 2012. So with that, those are our prepared comments. And I'll turn the time back to Ken.

Thanks, Jeff. That concludes our prepared presentation. For those of you who have accessed our slides, we have also provided an Appendix with the slides that include other pertinent information about Southwest Gas. You can review that in your convenience. Our operator, Jasmine, will now explain the process for asking questions.

[Operator Instructions] And your first question comes from the line of Matt Tucker from KeyBanc Capital Market.

First question on the ALCO expansion project. Could you give us a little more sense for what the milestones are going forward from here in terms of permitting? And I guess, on an open season, I assume that was nonbinding, but if you could just provide a little more color there, please.

Sure. This is John. The next, I guess, milestones will be, over the next couple of months, having a lot of that initial prefiling work, and we're going to get all that information completed before we can submit the final application to the FERC. We are also currently working on getting Precedent Agreements in place with the customers who expressed interest. There is some capacity that is on the current line that is going to probably be shifted around among customers. But it seems like there's some pretty good interest in the projects, so we're pretty optimistic that that's going to be going forward on a good time frame.

And any more color you can give us on the types of customers or, really, where the demand is coming from to drive the need for this project?

I think we're going to need to wait to get the Precedent Agreements signed before we give any more information on that. But generally speaking, the growth is due to increased mining activity in the area, which is not only creating industrial demand, but it's also creating that residual commercial and residential growth. And we're seeing increased demands from our industrial customers, but also we're seeing that residential and commercial growth in the Elko area, hence, it looks to be pretty impressive. So it's just general increased economic activity in that area.

Okay, great. And shifting gears, you've now had, call it, 5 quarters of pretty solid results at NPL after there were some issues there early last year. Did that factor in at all as you think about your dividend going forward? Or should we continue to think about that, just along the lines of the utility operations?

Yes, it's a good question. This is Jeff. We have stated in our annual report, and we continue to tell the market in our meetings that we intend as a board to address dividend policy and move our dividend more towards that competitive range in our industry somewhere 55% to 65%. Now why do I give a range of that magnitude? It's because we have NPL. When we consider as a board the net income at NPL and how much of that we ought to use for purposes of establishing dividend policy, we would not consider the full amount of those earnings like we would the Natural Gas segment for purposes of establishing dividend policy. So when I give a range of 55% to 65%, we would probably look at 45%, let's say, just as a target of the earnings for NPL that we would look at and consider in the mix for purposes of establishing dividend policy. So it's definitely a favorable positive thing if NPL can grow as we charge them at a 5% to 8% clip for purposes of establishing dividend policy. That will definitely be considered, but probably not at the same percentage payout as the Gas segment would be considered. So, fortunately, we have headroom on our dividend, and we've talked about the fact, within a short -- reasonably short period of time, we'd like to move the dividend for Southwest Gas consolidated up to a more competitive level from a payout ratio standpoint.

[Operator Instructions] And your next question comes from Michael Gaugler from Brean Capital.

Just a question on your 2013 outlook. Last bullet on Slide 21, you referenced that you're looking for $4 million of interest savings in '13 versus '12. As I kind of look at where you were in '12 for the year and through the first 3 months of '13, that would be -- I guess, you're kind of suggesting quite a step-up from the third quarter to the fourth quarter in terms of interest expense. Wondering what's behind that specifically.

Sure. Michael, it's Roy. With the -- we did the $250 million debt offering very early in October, in fact, like within the first 3 days of the month. So we'll have a full quarter's worth of interest on that just under 5%. That's sort of replacing the interest expense from our commercial -- our credit facility, I mean, which had -- we're paying interest roughly 1% on that financing. And so there is an incremental impact from issuing that debt over what we are currently experiencing.

And your next question comes from line of John Hanson from Praesidis.

Just one more thing I wanted to ask about was the pension cost. When -- what time of year do you do those calcs and when does that reflect in the next calculations in the expenses?

The pension expense -- this is Roy -- is really all predicated on the interest rate, the discount rate at December 31 of each year. So we have -- so expense is set at the beginning, before the year starts, and really only would change for the following year. So we've set our pension level following December 31, 2012, for 2013, and that was, I think, roughly $43 million overall. And we won't change it again until 2014, and that'll be based on interest rates at 12/31/13. I'll tell you if we were doing it today, interest rates would be up at least 100 basis points, and that would certainly lower our pension expense quite a bit. But it's all dependent on that one day.

And we do have a follow-up question from Mr. Matt Tucker from KeyBanc Capital Market.

I'm just hoping you could give us a little bit of an update on how you view the regional economic environment where you operate and your customer growth has been gradually accelerating. Do you see any signs that, that could really start to break out? Or are you kind of sticking to your 1% expectation at this point?

This is Jeff. Everything that we're seeing with respect to housing and job growth suggests there is a recovery underway. However, I can't tell you that we see it accelerating. I don't see a catalyst presently in any of my meetings in either of the major states we serve, Arizona and Nevada, where 90% of our business is. I don't see anything as you termed that would be breakout in nature. It's positive. Customer growth has been moderately improving our service areas over time. Unemployment has been dropping, which is good. But I would tell you that employment growth has somewhat flattened out in the last year, let's say, over the prior year. So that would suggest to me it's a moderate, maybe a more protracted improvement in the economy. That -- and again, that being said, we're pleased to see that builders are returning to market and building homes. And housing prices have come up, which helps them to continue to build. What we need to see is in Las Vegas area, in particular, Nevada, is some more movement towards some diversification. Gaming, as you know, proliferating throughout the country and the world. I just saw on the paper in New York approved 7 Las Vegas-style casinos out there. That's just indicative of the fact that gaming -- the secret on gaming is out. So there are efforts in our economy to diversify. I'll give you one example. In Las Vegas, there is an entity by the name of Switch. Switch is the database processing storage center that is growing game busters, and the governor is very interested in what's happening with that particular facility. It's kind of a segment of high-tech, the high-tech industry, and in the scenario that they're good to focus on and see if they can make some additional progress. The Phoenix market is more diversified. And so we're seeing some nice growth out of Phoenix compared to the rest of the country. That being said, it's certainly not at the levels we saw a few years ago. But directionally positive, probably a little longer-term in nature with respect to the recovery, but we're encouraged, and we're -- as you saw in the slide when Roy was speaking, we did have, on a trailing 12, $7 million in the margin from customer growth. That's a positive. If we didn't have that, it would be a more difficult challenging set of circumstances for us. But we're encouraged by that growth and that margin that we're getting and adding to the mix as we forecast to the business.

There are no remaining questions at this time. I would like to turn the call back over to Mr. Kenny for any closing remarks.

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

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. To you all, have a great day.