Southwest Gas Holdings, Inc. (SWX) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Southwest Gas Holdings 2020 First Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your speaker for today, Mr. Ken Kenny, Vice President of Finance and Treasurer. Sir, you may begin your conference.

Thank you, Julia. Welcome to Southwest Gas Holdings, Inc. 2020 First Quarter Earnings Conference Call. As Julia stated, my name is Ken Kenny, and I am the 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.swgasholdings.com and click on the conference call. We have slides on the Internet, which can be accessed to follow our presentation. Today, we have Mr. John Hester, President and Chief Executive Officer; Mr. Gregory Peterson, Senior Vice President and Chief Financial Officer; Mr. Justin Brown, Senior Vice President, General Counsel of Southwest Gas Corporation; and other members of the senior management to provide a brief overview of the company's operations and earnings ended March 31, 2020, and reaffirm our earnings per share guidance for 2020. Also, the company will address certain 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 you should refer to the language on Slide 3 in the press release and also our SEC filings for a description of the factors that may cause actual results to differ from forward-looking statements. All forward-looking statements are made as of today, and we assume no obligation to update any such statements. With that said, I'd like to turn the time over to John.

Thanks, Ken. Turning to Slide 4, we'll show some highlights for 2020. For the holding company, we'd experienced first quarter earnings per share of $1.31. These earnings were adversely impacted by company-owned life insurance returns, reducing earnings by $0.28 per share. On the positive side, we're able to increase our dividend for the 14th straight year in a row. For our regulated utility operations, we saw continued strong customer growth over the past 12 months of 1.6%, allowing us to add 33,000 net new customers. We saw utility operating margin increased by $14 million for the quarter. We filed a Nevada general rate case application that Justin Brown will overview later in this call. And we saw our state utility commissions take supportive regulatory actions to acknowledge the increased cost of business associated with COVID-19. And at our unregulated Centuri infrastructure services segment, we saw revenues for the quarter increased by $21 million, expenses increased by $19 million and the aggressive adoption of new safety practices and policies to protect our employees and customers from COVID-19. On Slide 5, we provide an outline for the substance of today's call. First, I will provide a brief update on the company's response to the challenges presented by the COVID-19 health issue. Greg Peterson will follow with an update on our financial results with segment breakout for our regulated and unregulated operations. Justin Brown will provide an update on our various regulatory activities, and I will close with an update on customer growth, rate base growth, dividend growth, our sustainability efforts and expectations for 2020 and beyond. Moving to Slide 6. During the COVID-19 challenge, we all are, of course, focused on maximizing the health and safety of our employees, our customers, our contractors and supporting the communities we serve. For our employees at both our regulated and unregulated operations, we have enacted business continuity plans that were already in place. We have the vast majority of our office employees now working from home, are practicing strict social distancing, have increased the use of personal protective equipment and have restricted all nonessential travel. In fact, over just the past few days, we convened our May Board meeting and our Annual Shareholder Meeting using virtual formats that worked excellently. Understanding that many of our customers may be facing adverse economic consequences from COVID-19, we have temporarily suspended service disconnections for nonpayment. So all customers continue to receive the essential utility service they require, especially as more of our customers are spending more time at home, and we are focused on offering customers a suite of financial assistance programs, including deferred payment programs and a variety of bill assistance programs that vary by state. Fortunately, for our customers, Southwest Gas is always considered having a low bill to be a competitive advantage. And for the coming 6-month period, for example, the average residential monthly bill for May through October is estimated at approximately $20 per month. Turning to Slide 7 and partnering with our contractors who do much of our capital expenditure work. We are stressing constant communication, sharing best practices, practicing social distancing and using more personal protective equipment more frequently. We are also mindful of our corporate stewardship to the communities we serve and have increased our philanthropic contributions from the Southwest Gas Foundation to support a variety of COVID-19-related nonprofit organizations and have made sure we have been sending our regular communications to assure everyone that natural gas delivery is considered an essential service and something that our customers and our communities can depend on as we all work together through this challenge. Continuing on Slide 8. As we work through various aspects of COVID-19, we are, of course, monitoring any financial impacts it may have on the company. For our utility operations, we have decoupled rate structures in all of our jurisdictions. On top of that, as I previously mentioned, we will be entering our seasonally low sales period for the next several months. At our Centuri group, as I mentioned at the outset, we are continuing our work as an essential services provider and are using enhanced safety protocols to safeguard the health of our employees. We're also monitoring the cost consequences of these safety steps and have already begun discussions with several of our utility clients about recovering such costs. We have adequate liquidity at the company. Just last month, we expanded our holdings in Southwest Gas credit facilities through April 2025. We are also closely monitoring our customer on collectible expense. But with our seasonally low bills, a variety of customer bill support options and deferred accounting orders already in place in California and Nevada, we don't expect it will be a material issue. We also don't expect any changes to the funding of our pension plan. With that, I'll now turn the call to Greg for an update on our financial results.

Thanks, John. Let's begin with the summary of total company operating results on Slide 9. For the first quarter of 2020, consolidated net income was $72.5 million or $1.31 per diluted share compared to $94.8 million or $1.77 per diluted share for the first quarter of 2019. Of the $0.46 per share reduction between quarters, $0.42 was due to temporary changes in the cash surrender value of the company-owned life insurance or COLI policies. For the 12 months ended March 31, 2020, net income was $192 million or $3.50 per share compared to net income in the prior year period of $198 million or $3.91 per share. Temporary COLI changes between 12-month periods totaled $10.8 million or $0.20 per share. Next, we'll take a detailed look into each segment, starting with the quarterly comparison of natural gas operations on Slide 10. Net income for natural gas operations declined $19.8 million between quarters due to a $26.5 million decrease in other income. Temporary changes in the cash surrender values of COLI policies resulted in a $15.5 million noncash loss in the first quarter of 2020, while the first quarter of 2019 reflected COLI income of $7.6 million. Both results were primarily due to significant volatility in the overall stock market underlying the policies, including the COVID-19-influenced 20% decline in the S&P 500 during the first quarter of 2020. At March 31, 2020, COLI cash surrender values totaled $117 million, while the face value of the associated life insurance policies is about $240 million. Currently, approximately 2/3 of our COLI policy cash surrender values fluctuate based on the broader stock market. Based on the market close yesterday, it's estimated that about 1/2 of the loss reflected in Q1 of this year would already have been recouped. Operating income for utility operations include -- increased $9.1 million between the first quarters of 2019 and 2020 due to higher operating margin and lower O&M costs. The $14 million increase in operating margin includes $5 million from customer growth as 33,000 net new customers were added over the past 12 months and $1 million from California attrition. Miscellaneous revenues and increased recoveries of regulatory program balances in the current quarter, coupled with the impact of a onetime adjustment in Arizona of $5 million related to the tax reform in the prior year quarter, accounted for the remaining operating margin increase. The $2.5 million decline in operations and maintenance, or O&M, expenses included lower pipeline maintenance costs and a reduction in legal claims expense, partially offset by an approximate $400,000 increase in bad debt expense. Management is also undertaking various initiatives, as outlined later in this presentation, to mitigate the potential impacts of COVID-19 headwinds on our results. The $7.3 million increase in depreciation, amortization and general taxes includes an incremental $2.6 million in regulatory amortization, which is also reflected in operating margin. A $684 million or 10% growth in average gas plant in service as we continue to expand and reinforce our distribution system drove the depreciation increase. Lastly, the $2 million increase in interest expense reflects higher debt outstanding, including $300 million of senior notes issued in May 2019 to facilitate Southwest's ongoing expenditures program. Next, let's go to Slide 11, which depicts Centuri's comparative changes for the first quarter. Results for Centuri, our utility infrastructure services segment, declined $2.2 million in the first quarter of 2020 versus the first quarter of 2019. While losses during the first quarter are typical due to the impact of winter weather on operations, the current quarter also reflects the impacts of COVID-19 on our operations. Revenues increased $20.6 million despite a temporary shutdown of certain crews in responses of some local governmental requirements and safety precautions. The infrastructure services expenses increased $18.8 million between quarters due to the incremental work and also reflect the implementation of new safety standards and some workforce inefficiencies associated with the COVID-19 working environment. The $3 million increase in depreciation and amortization was primarily due to incremental depreciation associated with equipment needed for expanded operations, some of which was idle during the current crew -- during certain crew shutdowns. Current crew counts are behind original expectations, but are increasing due to the advent of spring and because many utility customers are resuming their necessary capital expenditure programs. However, the impacts of COVID-19 are likely to be more pronounced during the second quarter because of the lost earnings capabilities of the idle crews during the seasonal ramp-up period. Management has implemented and will continue to refine cost save initiatives as detailed later in this presentation to combat the headwinds associated with the current COVID-19 environment. Let's look at total company's 12-month results on Slide 12. Slide 12 depicts the relative contributions by our 2 business segments during the 12 months ended March 31, 2020. As you can see, natural gas operations provided about 3/4 of our consolidated net income, while Centuri's utility infrastructure services group provided about 1/4. This general pattern is expected to continue. Slide 13 depicts the components of an $8.5 million decline in natural gas operations income between 12-month periods. Like the first quarter, COLI fluctuations had a significant impact as the current 12-month period reflected a $5.7 million temporary decline in COLI cash surrender values, while the prior 12-month period had COLI income of $5.1 million. The $40 million improvement in operating margin includes $12 million from solid customer growth and $9 million in combined rate relief in Nevada and California. The prior year period included the $5 million tax reform adjustment I mentioned previously. The remaining increase in operating margin includes incremental recoveries of regulatory assets of which $9.2 million is correspondingly reflected in amortization expense and miscellaneous revenues. The $11.6 million or 3% increase in O&M includes general cost increases and higher legal claims experienced as well as $2.4 million of incremental damage prevention or holding for the costs associated with utility and construction-related activities throughout our service territories. The $25 million increase in depreciation, amortization and general taxes reflects the impact of a $625 million or 9% increase in average gas plant in service plus the $9.2 million increase in regulatory amortization as previously noted in the margin discussion. The $11.4 million increase in interest expense is primarily due to $300 million of debt issued in May 2019 to support the expansion and fortification of our distribution system. The $9.8 million reduction in income taxes was partially due to lower state income taxes due to a portion that changes and $2.6 million amortization of excess deferred income taxes following the U.S. tax reform. The components of the 12-month change in our utility infrastructure services segment are reflected on Slide 14. This slide shows the components of the $2.3 million increase in Centuri net income between 12-month periods. Revenues increased $196 million, including $192 million of incremental revenues from Linetec, which we acquired in November 2018. Utility infrastructure services revenues also grew with existing customers due primarily to additional pipe replacement work across the U.S. and Canada, partially offset by nonroutine customer-requested support in 2018 and early 2019 during strike-related and emergency response situations. Infrastructure expenses were $163 million higher than the prior year period due to an incremental $158 million for Linetec operations and the greater -- and greater operating expenses to support revenue growth. Depreciation and amortization increased $25.8 million, primarily due to $17.7 million of incremental amounts associated with Linetec operations as well as depreciation on additional equipments purchased to support a growing volume of work. The other category includes a $1.9 million increase in income assigned to noncontrolling interests associated with the 20% of Linetec operations that we do not currently own. The $3.2 million increase in income tax expense, primarily reflects higher pretax earnings. For the 12 months ended March 31, 2020, Centuri operations contributed $50.2 million in net income toward our consolidated results. Let me close my presentation by saying we're mindful of the continuing challenges that communities, businesses, customers and our employees and their families are facing in this COVID-19 environment. As providers of essential services, we remain committed to providing safe and reliable service to our customers in both business segments, while ensuring the continued safety of our customers and employees. I'll now turn the call over to Justin Brown for an update on regulatory matters.

Great. Thanks, Greg. Starting on Slide 15. It provides an overview of our $93 million rate case in Arizona, including a summary of the various positions on certain issues. We've completed all rounds of testimony and participated in a procedural conference yesterday, where the administrative law judge set a hearing date for June 29. With the hearing date being set for June 29, we would anticipate a draft ALJ decision within 60 to 90 days following the hearing, depending on the timing of any post-hearing briefing that may or may not occur. As such, we would expect to see a draft decision as early as September and possibly October. Turning to our $12.8 million California rate case on Slide 16. Since our last call, we received the Public Advocates Office testimony and a summary of their positions are included on this slide. The primary differences in our positions really boil down to 2 issues: difference in recommended ROEs and a difference of opinion on 2 capital-related issues that were projected as part of our future test year. We are now preparing rebuttal testimony that is due next week, and then we will turn our attention to preparing for hearing, which is currently scheduled to begin June 3. We also have a settlement conference scheduled for next week with the Public Advocates Office to begin discussions to see if there is a path forward short of proceeding to hearing. We do not currently anticipate any delays in this case. Turning to the next slide. With respect to our $38 million Nevada general rate case, which was filed at the end of February, we are currently in the midst of responding to discovery requests. The commission held a scheduling conference hearing last month, setting the hearing for August 17, and we would expect to see a decision by the fourth quarter. Similar to California, we do not currently anticipate any delays in processing this case. Turning to Slide 18. As previously mentioned in our prior call, we reached a black box settlement on our Paiute rate case that will slightly reduce the existing cost of service based upon a stated pretax rate of return of 9.9%. In addition, the parties agreed to continue the term-differentiated rate design, and both transportation and LNG storage customers agreed to 5-year contract extensions as part of the settlement. The proposed settlement was submitted to the ALJ at the end of March. The ALJ recently certified the settlement as uncontested and recommended that FERC approve the settlement without modification. The proposal has now been submitted to the FERC for their review, and we expect them to consider the proposal some time over the next couple of months. Turning to Slide 19 and a quick update on several expansion-related projects in Nevada. In Southern Nevada, we continue to make progress in line with our expectations on our $28 million expansion project in Mesquite, Nevada. We anticipate starting construction on the permanent gas supply pipeline this summer, and this could be completed as early as year-end, if not the first quarter of 2021. Lastly, since receiving approval to proceed with our $62 million SB 151 Spring Creek proposal, we are continuing with the design and permitting phase of the project, and we are targeting to start construction this summer with the potential to begin serving customers by the fall. Turning to Slide 20, and another important focus of Southwest Gas has been working with stakeholders on various sustainability initiatives, including partnering with key stakeholders on compressed natural gas and renewable natural gas opportunities. Earlier this year, as a member of a coalition of diverse businesses and other interest groups, we supported the bipartisan passage of the Balanced Energy Solutions Act in Arizona. This bipartisan legislation was signed into law on February by Governor Ducey and preserves Arizona's ability to take advantage of each and every energy option that is offered to them for use in their homes and businesses, including natural gas. Some other recent developments include our proposal in California to amend our tariff to facilitate renewable natural gas purchases and to be able to include them in our gas portfolio. This proposal was approved by the Commission yesterday at their most recent agenda meeting. Also, in -- the Nevada Commission recently approved final regulations for SB 154, which was legislation that was passed in 2019, and they authorized utilities to engage in renewable natural gas activities, which include the investment in RNG facility and the purchase of renewable natural gas as part of our gas portfolio. With these two recent proposals -- or I'm sorry, with these two recent approvals in California and Nevada, we now have the ability to begin purchasing renewable natural gas as part of our gas supply portfolio in both states. And lastly, turning to Slide 21. This slide highlights the various supportive regulatory treatments that John referenced earlier that we have either received or we're currently working on. We have orders in California and Nevada authorizing us to track the financial impacts associated with COVID-19 and present them to the Commissions at a future date for possible recovery. In Arizona, Chairman Burns issued a proposed blanket accounting order at the end of April, which the Commission discussed at its open meeting this week. And they will likely, again, consider it at a future meeting, most likely their June open meeting. Alternatively, depending upon what ultimately happens with this proposed blanket accounting order, we may also give consideration to filing our own request with the commission. And with that, I'll turn it back to John.

Thanks, Justin. Moving to Slide 22. We displayed some metrics illustrating the quality of our stable and growing customer base, 85% of the operating margin at our utility operations comes from residential and commercial customers. We have decoupled rate structures across all 3 states we serve, which covers 85% of our utility margin, and we continue to see strong customer growth, having added 33,000 customers over the past year with expectations of seeing additional 1.6% growth rate this year. Turning to Slide 23. We show our capital expansion plan for the next 3 years. We plan to invest $2.1 billion over the reference 3-year period to serve continuing customer growth as well as enhance the safety and reliability of our gas distribution systems. We anticipate approximately $675 million will be invested this year and that the funding for those investments will come through a combination of internal cash flows, along with the balance of debt and equity issued through our ATM program. On Slide 24. Additional details on funding of our ongoing investments and capital is provided. As indicated on this slide, we anticipate issuing $500 million to $700 million of equity and $500 million to $700 million debt, with an additional $1.1 billion to $1.3 billion provided by utility cash flows from operations. Moving to Slide 25. Our continued significant investment of capital ultimately translates into significant rate base growth. We anticipate rate base growth will grow from $4.1 billion to $6.2 billion over the 5-year period ended December 2024. This growth constitutes an 8.6% compound annual growth rate over that period. Turning to Slide 26, a significant continued growth in our dividend is illustrated. In February, our Board of Directors authorized an increase in our dividend to an annual rate of $2.28 per share. Our dividend has experienced a 7.1% compound annual growth rate over 5 years. On Slide 27, we provide some detail on our many sustainability initiatives at our company that Justin referenced earlier. We have made a commitment to reduce the greenhouse gas emissions from our fleet and facilities by 20% by year 2025. We plan to accomplish this through a variety of energy efficiency methods as well as through greater use of clean burning compressed natural gas in our vehicles. Many of our business partners in our service territory are also very interested in increased use of compressed natural gas in their vehicles. Organizations like the Regional Transportation Commission in Southern Nevada, the City of Phoenix for Public Services, Waste Management and UPS are all increasing their transportation use of natural gas to reduce their carbon footprints. And as also alluded to by Justin earlier, we're also very excited about our efforts to secure renewable natural gas for our portfolio. Renewable natural gas can come from sources such as landfills, wastewater treatment facilities or dairy farms and constitutes a carbon-neutral or often carbon-negative source of energy for our customers. Turning to Slide 28. We detailed a compelling business thesis for our investors at Southwest Gas Holdings. For our utility operations, we see continued strong capital and rate base growth; strong customer growth; clean, economically attractive and reliable energy for our customers; continued decarbonization of our gas utility portfolio, enhanced by a continued focus on energy efficiency; supportive multi-jurisdictional regulatory environments that Justin spoke of; and continued earnings and dividend growth. At our Centuri utility infrastructure services business segment, we're focused on continued operations excellence, cost management and resource optimization, cross-selling of gas and electric services to combination utility customers, increasing segment profitability and dividends and providing a cash source for Southwest Gas Holdings. We believe the priorities we've outlined for both of these business segments will create continued significant value growth for our shareholders. On Slide 29, we detail some of the contingency planning we have been doing as a team to allow continued successful execution of our management plan and keep our company on track financially during the COVID-19 challenge. The table on Page 29 lists some of the potential headwinds for both business segments as well as offsetting cost levers we can pull to manage the potential adverse impacts of COVID-19. The degree to which any of the listed headwinds will manifest themselves this year remains to be seen, but we are prepared to aggressively manage their impact with a variety of different offsetting initiatives. Moving to Slide 30. We provided a detail of our 2020 earnings per share guidance and compare that to the results we experienced last year. In consideration of our experience in the first quarter of this year and our expectations for the subsequent 9 months, we are affirming the earnings guidance range of $3.75 to $4 per share that we issued earlier this year. There are a variety of factors that can influence our financial results this year, some of the more notable variables include the timing of rate relief that Justin referenced, utility customer growth rates, changes in operations and maintenance expense, the timing of the release of Centuri work orders from its utility customers and incremental costs of new safety protocols to safeguard the health of our employees. On Page 31. Further line item guidance is provided consistent with our reaffirmed earnings per share guidance range. For our regulated utility operations, we expect operating margin to increase by 3% to 5% due to anticipated continued customer growth of 1.6%. Operating income is expected to increase by 3% to 5%, pension costs are expected to increase by $13.6 million due to lower discount rates with approximately $5.2 million of the increase reflected in other expense. We do assume normalized COLI returns of $3 million to $5 million. Capital expenditures for this year should range from $650 million to $700 million totaling $2.1 billion for the 3-year period ended 2022, and we expect continued equity issuance this year of $150 million to $200 million. And at our Centuri infrastructure services segment, we now expect revenues to increase by 2% to 7% through organic growth. Operating income is expected to be 5.5% to 6% of revenues, interest expense is expected to be $12.5 million to $13.5 million, net income expectations reflect earnings attributable to Southwest Gas Holdings, net of approximately $4 million of noncontrolling interests. And remember, since we do have Canadian operations, fluctuating Canadian exchange rates can influence results. Turning to Slide 32 and our longer-term expectations. At the holdings level, we plan to issue $500 million to $675 million of equity over the 3-year period ended 2022, and we plan to target a dividend payout ratio of approximately 55% to 65%. For our regulated utility operations, capital expenditures should total $3.5 billion over the 5-year period ended 2024, with rate base expected to grow at a compounded annual growth rate of 8.6% over the period as a result of those investments in growth, safety and reliability. And then at our infrastructure services group, we expect revenue growth of 5% to 8% annually over the 3 years ended 2022, with operating income expected to be 5.5% to 6.5% of revenues over that same period. And then finally, wrapping up on Slide 33, we believe that Southwest Gas Holdings offers a compelling investment proposition for our shareholders with 2 complementary business segments, including our natural gas distribution operations that continue to experience strong customer and rate base growth and our Centuri infrastructure services group that offers a low-risk platform, providing utility infrastructure to investment-grade utility clients with whom we have long-term relationships and who, in turn, have long-term continued capital investment horizons. With that, I will return the call to Ken.

Thanks, John. That concludes our prepared presentation. For those who have access to our slides, we have also provided an appendix with slides that include other pertinent information about Southwest Gas Holdings and its 2 business segments. These slides can be reviewed at your convenience. Our operator, Julia, will now explain the process for asking questions.

[Operator Instructions]. Your first question comes from the line of Aga. I'm sorry, he disconnected Chris?

It's Chris from Jefferies. Well, thanks for the update today. I wanted to hit on a couple of things, if I could. John, you guys have affirmed the capital plans at the utility. I'm just wondering, and I don't know if this is for you, Greg. What effects COVID would have on diminishing -- it diminished your year-to-date activity at Centuri, you've talked about that. But just as you're thinking about the capital budget there, is that something you think you can make up? Or should we anticipate a lower level of spend at Centuri this year?

I think that our capital expenditure plans remain on track, Chris. One of the things that I would also say and we've talked about this before. But a lot of times, we look at Southwest Gas as being a bit of a microcosm of what gas utility customers across the nation are looking to do. And when I am personally on calls with the American Gas Association and we're talking about issues impacting the utilities, including COVID-19, of course, and how utilities are responding to that, I don't hear people talking about throttling back on their capital expenditure plans. Have there been a couple of issues that result from COVID-19 that requires some additional personal protective gear, have you had some governmental agencies perhaps close down for a few weeks or months, that may have slowed down some permitting. Things like that, I think, have been happening. But I think as you look forward towards the end of the year, we don't really see a lot of difference in what we're doing. And I don't hear a lot of difference from the folks that I talked to at AGA and seeing that at other gas utilities. So I think we are on track.

Okay. And then I guess a related point, you kind of raised it. But Justin noted the efforts to create regulatory assets in the hope of recovering some of the COVID-related or COVID-specific spending at the utility level. I'm just curious to the extent that additional PPE or slower activity at Centuri due to distancing measures causes higher costs for you to deliver what you would ordinarily deliver on the infrastructure services side. Do you have reopeners in your contracts to absorb things like that, which might stem from governmental mandates or just unforeseen events like the ones we've seen?

Yes. Chris, we haven't had any -- at Southwest Gas, we haven't had those discussions with Centuri just yet. I know that Centuri has had those discussions with several of their other clients. I think that, that's certainly going to be something that we'll be talking to them about. We want to make sure for our customers that we get the best cost we can for the infrastructure investments that we make, but we also realize that with the multiple contractors that we have that we want those folks to be in business for a long time to come and to have some healthy competition amongst each other. So it will be something that we're sensitive to, and we'll be looking at that on a case-by-case basis as we have those discussions with our contractors.

Okay. Okay, great. And then a final question for me, and just it's maybe split into 2 parts, but it pertains to your guidance. The maintenance of the operating income at the utility, but reduction in operating margin sort of indicates that there's an ongoing O&M pickup. I think, Greg, you mentioned some of the O&M savings in the first quarter. I'm just wondering the anticipation for the full year, is that a correct lead? And maybe some of the drivers there, if different, than what you experienced in the first quarter? And then secondly, it looks like with some of the other reductions, John, reduction in growth rate at the customer accounts, a small hit to the Centuri growth rate in terms of revenues. I know there's some offset with the interest expense there. And it looks like based on the slide Justin has for the Arizona rate case that maybe it's slightly later implementation date this year than maybe what you were forecasting in the last earnings presentation. Is it safe to assume that maybe the range is the same, but internally, where you're forecasting to be within that range might be a little bit lower?

Chris, this is John. Let me start responding to that, and then I'll turn it over to Greg. I think it is too early to come to that conclusion. Frankly, that was one of the things that we were closely looking at as we approached this call and our earnings release, and we're looking at the opportunities we had for offsetting measures. And we did think about what kind of additional color we may have to put on that. But when we looked at the cost consequences, what we saw for continued growth, et cetera, we didn't think it was necessary to make that kind of delineation. So I would say that it's still early in the game, so to speak. But when we look at the experience that we're seeing at the company for both business segments, frankly, they both seem to be fairly resilient. So we're making sure to keep our pulse on those issues, both the growth and the cost-containment options as we continue to move forward in the months ahead. Greg, you want to add some additional color on that?

Yes. Certainly, John. Chris, as you've mentioned, we have taken the utilities margin growth and kind of widened that range from 4% to 5% down to 3% to 5%, and you correctly pointed out, I think, I did talk a little bit about that, that we are managing O&M. That is one of the levers that we can pull to ensure that our operating income at the utility is maintained at the level that we anticipated it to be. So yes, I think that O&M will be either not growing as fast or maybe even flat compared to the prior year. We'll just have to watch and see. It really will be a function of what happens on the top line and the timing of our rate case relief recoveries. We obviously have a huge CapEx program that we're continuing at the utility. And so depreciation is certainly going to rise in proportion to that incremental activity. But we do think we've got all the levers in place to keep the guidance where we had established earlier this year.

Okay. And Greg, maybe just one quick follow-up to that. The O&M savings, if you will, that you're maybe able to achieve here versus what you were originally forecasting when you put together the budget initially. Do you think those are sustainable savings? Or are those sort of a response to the environment right now that you -- John mentioned no essential -- nothing but essential travel, things like that, that maybe get relaxed later? Or is it something you think that maybe creates a permanently lower cost structure?

Yes. This is Greg, again. I think it's going to be a mix of those items. As you mentioned, certainly, no one here at the company is traveling anywhere, although I would expect that as restrictions are eased and that becomes more, again, a normal part of business environment. But we will continue to do that to make sure that we maintain relations with the analysts such as yourself, with the rating agencies, with our customers throughout the nation. And so some of those costs will come back. We have been very pleased with some of the savings that we've recognized from some of the work-at-home environment that our folks have been doing and have found that, that is a practical solution in many cases to what we're doing here at the company. So some of those, I guess, in summary, some of those cost savings will carry over into the future, but some will return to more normal levels as the economy normalizes again.

Your next question comes from the line of Stephen D’Ambrisi. Stephen D’Ambrisi: Glad to hear that you guys are all staying safe. I just had a quick question -- or 2 quick questions. I guess the first one is about the rate case getting pushed out. I think the original expectations were like in early 2Q for an order. And now you're talking, it sounds like about mid-3Q from Justin's commentary. So that's like a 4- or 5-month delay. Can you just give us a little bit of a flavor about how much revenue those 4 or 5 months would have represented relative to the $93 million ask that you guys had?

Yes, Stephen, it's Justin. I don't think it's that long of a delay. I think it's probably more in the 60- to 90-day time frame is kind of where we were always projecting. It was more of kind of a summer decision, and now it's maybe early fall, mid-fall. And so that's, in essence, I think, kind of what we're looking at. And then I think from a revenue standpoint, I think, again, based on the ask, you can just kind of probably closely divide that by 12, I guess, it's kind of depending on what position you want to look at the parties to kind of figure out that number. Stephen D’Ambrisi: I just wasn't sure if it's seasonal at all, but okay, not just about...

Yes. It is a little bit, but not too much with the decoupling mechanisms that we have in place. For the most part, we've been moving more to a little more levelized throughout the year. So I would say for ballparking it, you're probably okay with the 12. Stephen D’Ambrisi: That's helpful. Okay. Great. And then just on the COLI, I get -- I guess, kind of what the reiteration of the $3 million to $5 million. But can you just walk me through -- so it's down $16 million in the quarter. You got -- sounds like you got $8 million of it back in 2Q to date. So what does the market need to do, like whatever rebound from current levels do we need to see in order to get to the midpoint of the $3 million to $5 million in COLI earnings?

Yes, Stephen, this is Greg. I don't know that I'll try and predict exactly what does the market either needs to do or may do. But as I indicated, our cash surrender value, which was about $117 million at the end of the first quarter, about 2/3 of that is subject to stock market, the broader stock market fluctuation. So I think you can do some math there and realize what kind of returns need to happen in the market to bring it back up to normal levels. We don't need a dramatic increase in the stock market from where it was at year-end 2019, but it does need to come up from where it's at now.

[Operator Instructions]. You have no further questions. I'm sorry, you do have a question from -- is it Aga?

As a follow-up, maybe to Chris' question on gas utility O&M. You mentioned that maybe some costs will be more sustainable. So do you think going forward, maybe we should expect that the O&M growth will be lower than your prior kind of long-term guidance, I think, of 2% to 3%?

Yes. Aga, this is Greg. I don't know that we, over the long term, would think that it will be lower than it has been. We are certainly mindful of the environment that we're in right now, and we are certainly implementing, and we'll look at continuing to implement policies that will help us maintain an appropriate level of profitability. And some of that does include the deferral of filling positions and such and that is a deferral mechanism, which means that it will ultimately need to be done. So I think overall, our long-term growth levels in O&M are going to be fairly consistent with where they've been in the past. It's just a little bit of a lower level this year and some, but not all of that will come back in future periods.

And as you look at the impact of COVID-19 on your guidance, is there any range that you kind of calculated based on the scenarios that you look at that you could help us understand how we should think about the impact on different segments?

Yes. Aga, this is Greg, again. Yes, I don't know that we're quite in a position to try and identify or delineate what the COVID-19 impacts might be on us. We've taken that into account and setting the guidance and reaffirming the guidance of $3.75 to $4. and we're looking at other measures to make sure we keep in that range. But there's still a lot of unknowns at this time, and we are working in that environment as we get more knowledge and as we watch the economy, both here in our 3-state service territory as well as throughout the nation as it relates to the Centuri open back up, that will give us a little more clarity, and we will certainly, at a future conference call, share our thoughts at that time.

And last question on the timing on equity issuances. You still have that in your program for this year. So how will you manage the timing of equity issuances?

Yes. This is Greg. Yes, we will certainly look at the markets. I think as people looked early on in the first quarter, late in the first quarter, there was a little concern that we might be in an environment similar to the 2008, 2009 financial crisis, that is not the case. And so we are going to be judicious in how we issue stock. Obviously, as you can see in our quarterly report, we did not issue any stock under the ATM program in the first quarter. Hence, our adjustment to our longer outlook for 2020 of $150 million to $200 million. So we will watch the market, and as we find it appropriately priced with our stock, we will continue to issue under that program.

[Operator Instructions]. You have no further questions.

Okay. Thank you, Julia. This concludes our conference call, and we appreciate your participation and interest in Southwest Gas Holdings, Inc. Please all be safe and stay well. Thank you.

This concludes today's conference. You may now disconnect.