Southwest Gas unveils $1.2B–$1.6B Great Basin expansion with 2025 profit forecast

Key Highlights from Southwest Gas Holdings' Q2 2025 Earnings Call

During the second quarter of 2025, Southwest Gas Holdings (SWX) made significant strides in positioning itself as a premier, fully regulated natural gas utility. The company's leadership emphasized progress in both operational and financial performance, with a trailing 12-month return on equity (ROE) of 8.3%. This was complemented by the signing of SB 417 in Nevada, which enhances the regulatory framework by allowing natural gas utilities to explore alternative ratemaking strategies.

Karen S. Haller, President and CEO, highlighted record net income for the first half of 2025 and reaffirmed the full-year net income guidance range of $265 million to $275 million. Additionally, the company successfully executed two secondary public offerings of Centuri shares, generating over $470 million in net proceeds. As a result, Southwest Gas Holdings now holds just over 52% of Centuri.

Haller also confirmed that no new equity issuance is expected under the ATM program in 2025 following Centuri sell-downs. The company remains committed to fully separating Centuri in a manner that optimizes value and limits execution risk for stockholders.

The company added approximately 40,000 new meter sets over the last 12 months, and as of the second quarter of 2025, it has more than $350 million in cash on hand and over $1 billion in liquidity.

Expansion Projects and Regulatory Progress

Justin Lee Brown, President of Southwest Gas Corporation, revealed high demand for the Great Basin expansion project, with shippers expressing interest in 1.76 billion cubic feet of capacity. This has prompted a capital expenditure estimate for the project ranging between $1.2 billion and $1.6 billion.

Brown also emphasized regulatory progress, including a $600 million increase in authorized rate base in Arizona and approval of the System Integrity Mechanism, albeit with a $50 million cap on qualifying capital.

Robert J. Stefani, CFO, noted that the utility reported higher margins during the second quarter, supported by rate relief and continued customer growth. The utility also recognized increased income from COLI policies.

Outlook and Financial Performance

Management reaffirmed the 2025 utility net income guidance range of $265 million to $275 million. All other guidance metrics for 2025 and beyond were reiterated, with management expecting "the impact of the regulatory cycle to result in nonlinear net income growth over the forecast period."

Long-term capital spending is expected to be about $4.3 billion over the next five years, targeting a compound annual growth rate in rate base of 6% to 8%. This estimate does not yet include possible impacts from the Great Basin expansion or formula rates in Arizona and Nevada.

Stefani reported an increase in utility operating margin by $26.6 million, primarily due to $24 million in rate relief and $2 million in customer growth. O&M expenses rose by $7 million, mainly due to labor and benefit costs, while depreciation and amortization plus other taxes increased by $9.3 million due to capital investment.

Other income increased by $3.6 million, driven by a $4.5 million gain from COLI policy value increases and a $1.6 million one-time nonoperating gain from an asset sale. Interest expense rose by $4.9 million, mainly tied to the over-collected PGA balance.

The company finished the quarter with $323 million in cash at Southwest Gas. The purchased gas adjustment (PGA) balance moved to a $345 million liability as of June 30, 2025. Over $470 million in net proceeds from Centuri stock sales were used to reduce debt, and management reiterated that no equity issuance is expected for the remainder of 2025.

Q&A Session and Analyst Questions

During the Q&A session, analysts asked about the Great Basin expansion range increase to $1.2 billion–$1.6 billion and the drivers for that change. Brown responded that it's simply due to additional shippers asking for incremental capacity, which would result in just additional upsizing.

Analysts also sought clarification on the return profile and AFUDC treatment for the project. Brown confirmed they would anticipate AFUDC on the project, no different than any other project.

Other questions focused on the timing overlap for Nevada rate case and alternative ratemaking, with Brown stating that he doesn't see any advantage to delaying the next rate case. He also mentioned that the two processes are likely to work very much complementary to each other.

Sentiment and Strategic Focus

Analysts maintained a positive and congratulatory tone, focusing on the significant progress with the Great Basin project, Centuri sell-downs, and regulatory advancements. Management sustained a confident and clear tone in both prepared remarks and responses, frequently emphasizing discipline, clarity, and execution.

Compared to the previous quarter, both analysts and management exhibited increased optimism, with analysts expressing more enthusiasm about strategic developments and management reiterating their confidence in guidance and strategic direction.

Risks and Concerns

Management acknowledged the $50 million cap imposed on Arizona's System Integrity Mechanism and is evaluating options, including a potential application for rehearing or accelerating the next rate case. The company also highlighted the over-collected purchased gas cost balance in Nevada and the resulting impact on liquidity, but indicated sufficient cash balances to absorb the accelerated customer refunds.

Regulatory timing and the outcome of rulemaking processes in Nevada and Arizona were identified as areas of uncertainty, with management closely monitoring developments.

Final Takeaway

Southwest Gas Holdings reiterated its confidence in executing its strategy as a fully regulated pure-play natural gas utility. The company's reaffirmed 2025 net income guidance, robust customer and rate base growth, and a major expansion opportunity for the Great Basin pipeline position it for continued growth. The two successful Centuri stake sales have strengthened the balance sheet and removed the need for additional equity issuance this year, while regulatory developments and capital investments further support the company's growth trajectory. Management remains committed to value creation for stockholders and to providing further updates as key projects and regulatory milestones progress.