Southwest Gas Holdings Inc.

08/05/2026 | Press release | Distributed by Public on 08/05/2026 06:36

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southwest Gas Holdings is a holding company that owns all of the shares of common stock of Southwest Gas. Until the deconsolidation of Centuri in August 2025, the Company's businesses were managed within two separate reportable segments, our Natural Gas Distribution segment (Southwest Gas) and our Utility Infrastructure Services segment (Centuri). After the deconsolidation of Centuri in August 2025, our business is solely comprised of our Natural Gas Distribution segment.
Southwest Gas is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. Southwest Gas is the largest regulated distributor of natural gas in Arizona and Nevada, and also distributes and transports natural gas for customers in portions of California. Additionally, through its subsidiaries, Southwest Gas operates two regulated interstate pipelines serving portions of Nevada and California. Southwest Gas makes investments in infrastructure to support customer demand associated with population growth and economic development activity, and the safe and reliable operation of its system through adherence to pipeline integrity management programs.
As of June 30, 2026, Southwest Gas had approximately 2,293,000 residential, commercial, industrial, and other natural gas customers, of which 1,231,000 customers were located in Arizona, 854,000 in Nevada, and 208,000 in California. Residential and small commercial customers represented over 99% of the total customer base. During the twelve months ended June 30, 2026, approximately 52% of Operating margin (Regulated operations revenues less the net cost of gas sold) was earned in Arizona, approximately 34% in Nevada, and approximately 14% in California. During this same period, Southwest Gas earned approximately 85% of its Operating margin from residential and small commercial customers, approximately 4% from other sales customers, and approximately 11% from transportation customers. These patterns are expected to remain
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
materially consistent for the foreseeable future subject to the ultimate outcome of the Great Basin 2028 expansion project. Refer to Great Basin 2028 Expansion Project discussion below.
Southwest Gas recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating margin is a financial measure defined by management as Regulated operations revenues less the net cost of gas sold. However, Operating margin is not specifically defined in U.S. GAAP. Thus, Operating margin is considered a non-GAAP measure. Management uses this financial measure because Regulated operations revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under PGA mechanisms. Fluctuations in the net cost of gas sold impact revenues on a dollar-for-dollar basis, but do not impact Operating margin or operating income. Therefore, management believes Operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest Gas' financial performance in a rate-regulated environment. The principal factors affecting changes in Operating margin are generally the timing and amount of updated rates (to better align with Southwest Gas' cost of service and capital investments, including impacts of infrastructure trackers) and customer growth. Public utility commission decisions on the amount and timing of relief may impact our earnings. Refer to the Summary Operating Results table below for a reconciliation of Utility gross margin to Operating margin, and refer to Rates and Regulatory Proceedings, below for details of various rate proceedings.
Southwest Gas' revenues and cost of gas sold can change depending on natural gas cost included in customer rates. These changes, however, do not directly affect the company's profits, as regulatory commissions in the states in which Southwest Gas operates have set up mechanisms that allow Southwest Gas to adjust customer rates to reflect fluctuations in natural gas cost.
If the actual cost of gas differs from what is recovered through customer rates, the difference is recorded as a deferred amount.
•If Southwest Gas has under-recovered costs, it records a regulatory asset on the Condensed Consolidated Balance Sheets as deferred purchase gas costs and interest income on the Condensed Consolidated Statements of Income within the Other income (deductions) line item.
•If Southwest Gas has over-recovered costs, it records a regulatory liability on the Condensed Consolidated Balance Sheets as deferred purchased gas costs and interest expense on the Condensed Consolidated Statements of Income within the Net interest deductions line item.
These deferred amounts are either refunded to or recovered from customers during periods approved by the regulatory commissions. The rates are designed to be refunded or collected over a 12-month period.
The demand for natural gas is seasonal, with greater demand in the colder winter months and decreased demand in the warmer summer months. All of Southwest Gas' service territories have decoupled rate structures (alternative revenue programs), which are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of weather variability and conservation on Operating margin, allowing Southwest Gas to pursue energy efficiency initiatives. Nearly all of our customers, and resulting revenue and margin, are included as part of mechanisms that reduce the impact of weather and volume variability on our earnings.
Our business may be impacted by economic conditions that impact businesses generally, such as inflationary impacts on goods and services consumed in the business, rising or sustained high interest rates, labor markets and costs (including in regard to contracted or professional services), and the availability of those resources.
This MD&A of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto, as well as the MD&A, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025, in addition to the Risk Factors included in these documents as may be updated from time to time.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
Executive Summary
The items discussed in this Executive Summary are intended to provide an overview of the results of the Company's and Southwest Gas' operations and are covered in greater detail in later sections of this MD&A.
Summary Operating Results
Period Ended June 30,
Three Months Six Months
(In thousands, except per share amounts) 2026 2025 2026 2025
Contribution to net income
Natural Gas Distribution
$ 40,757 $ 45,646 $ 178,528 $ 188,588
Corporate and administrative (1)
1,365 (46,377) 1,968 (55,031)
Income (loss) from continuing operations 42,122 (731) 180,496 133,557
Loss from discontinued operations, net of taxes
- (39,423) - (59,841)
Net income (loss) attributable to Southwest Gas Holdings $ 42,122 $ (40,154) $ 180,496 $ 73,716
Weighted average common shares 72,516 72,088 72,479 72,050
Basic earnings (loss) per share
Continuing operations $ 0.58 $ (0.01) $ 2.49 $ 1.85
Discontinued operations - (0.55) - (0.83)
Net earnings (loss) per share - basic $ 0.58 $ (0.56) $ 2.49 $ 1.02
Natural Gas Distribution Segment
Reconciliation of Utility gross margin to Operating margin (Non-GAAP measure)
Utility gross margin $ 158,398 $ 140,480 $ 457,288 $ 427,864
Plus:
Operations and maintenance (excluding Admin. & General) expense 83,629 84,764 162,101 165,527
Depreciation and amortization expense 77,685 68,940 177,288 162,630
Operating margin $ 319,712 $ 294,184 $ 796,677 $ 756,021
Southwest Gas Corporation(2)
Reconciliation of Utility gross margin to Operating margin (Non-GAAP measure)
Utility gross margin $ 158,398 $ 140,480 $ 457,288 $ 429,964
Plus:
Operations and maintenance (excluding Admin. & General) expense 83,629 84,764 162,101 165,527
Depreciation and amortization expense 77,685 68,940 177,288 162,630
Operating margin $ 319,712 $ 294,184 $ 796,677 $ 758,121
(1) In connection with the deconsolidation of Centuri, certain amounts in Corporate and administrative that relate to the Centuri separation have been reclassified to discontinued operations for all periods presented as applicable.
(2) Historically, Southwest Gas Corporation's operating results have corresponded to the operating results of the Natural Gas Distribution Segment. The amounts reported in the table above differ from the Natural Gas Distribution segment for the six months ended June 30, 2025 due to the revision described in our 2025 Annual Report on Form 10-K.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
2nd Quarter 2026 overview and other recent developments
Southwest Gas Holdings Inc.:
•Finished the second quarter of 2026 with $270.5 million of Cash and cash equivalents on a consolidated basis and nearly $1.0 billion in available liquidity; the Company does not expect to issue equity in 2026.
•Invested $211.5 million into Southwest Gas for capital projects.
Southwest Gas Corporation:
•Year-to-date Utility gross margin of $457.3 million and Operating margin of $796.7 million.
•$506.9 million capital investment year-to-date.
•ACC approved and Southwest Gas implemented its first SIM surcharge in June 2026, enabling recovery of eligible infrastructure investments.
•PUCN approved Southwest Gas' first triennial resource plan, supporting approximately $186 million in safety and infrastructure investments and future energy resource initiatives.
•California General Rate Case: Received CPUC approval for a $39.5 million revenue increase and final cost-of-capital decisions expected in the third quarter of 2026.
•Great Basin completed an open season in April 2026 for available capacity in its 2028 expansion project. Precedent Agreements were executed for 322,000 mcf per day for 2028, for a project total of 948,876 mcf per day. Great Basin received interest of an additional 1.8 billion cubic feet a day with requested in-service dates ranging from 2029 through 2035.
Results of Operations
Historically, the Natural Gas Distribution segment operating results have corresponded to the operating results of Southwest Gas Corporation. The amounts reported in the table below differ from Southwest Gas Corporation for the three months ended June 30, 2025 period due to the revision described in Note 6 - Previously Issued Condensed Consolidated Financial Statement.
Results of Natural Gas Distribution Segment
Three Months Ended
June 30, 		Six Months Ended
June 30,
(Thousands of dollars) 2026 2025 2026 2025
Regulated operations revenues $ 358,154 $ 396,318 $ 943,273 $ 1,142,734
Net cost of gas sold 38,442 102,134 146,596 386,713
Operating margin 319,712 294,184 796,677 756,021
Operations and maintenance expense 132,952 136,652 264,455 266,059
Depreciation and amortization 77,685 68,940 177,288 162,630
Taxes other than income taxes 23,747 23,250 48,762 47,011
Operating income 85,328 65,342 306,172 280,321
Other income 8,420 17,806 14,135 27,108
Net interest deductions 43,987 44,737 89,667 89,368
Income before income taxes 49,761 38,411 230,640 218,061
Income tax expense (benefit) 9,004 (7,235) 52,112 29,473
Contribution to consolidated results $ 40,757 $ 45,646 $ 178,528 $ 188,588
In the three months ended June 30, 2026 compared to the same period in 2025, the decrease in net income of $4.9 million was primarily due to:
•$16.2 million higher Income tax expense primarily due to a $12.0 million state income tax benefit recognized in the prior year's quarter related to a change in state apportionment rates that did not reoccur in the current quarter. The increase was also driven by higher pre-tax income differences and lower amortization of excess accumulated deferred income taxes in the current quarter.
•$9.4 million lower Other income, which is net of other deductions, primarily driven by lower interest income earned on money market accounts of $2.7 million, lower net periodic benefit gain related to pension non-service components of $2.2 million, lower COLI policies gains of $1.9 million largely driven by lower market performance compared to the prior year's quarter, and the absence of a prior year gain on the sale of certain miscellaneous assets of $1.6 million.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
Additionally, contributions to the Southwest Gas Foundation were $1.6 million higher in the current period, primarily due to timing of the contributions as the 2025 contribution was made in 2024. These decreases were partially offset by an increase in Equity AFUDC of $0.9 million related to the commencement of the Great Basin 2028 expansion project.
•$8.7 million, or 13%, higher Depreciation and amortization expense reflecting a $726.7 million, or 7%, increase in gas plant in service since the corresponding second quarter of 2025, in addition to $4.9 million in higher amortization related to regulatory account balances noted below. The increase in plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure.
Partially offset by:
•$25.5 million higher Operating margin primarily driven by updated rates that better align with Southwest Gas' cost of service and capital investments across California adding approximately $19.5 million of incremental margin, the majority of which was attributable to the revenue recognized in connection with final approval of the All-Party Settlement, before adjustments to cost of capital, associated with the California general rate case, and $1.4 million attributable to customer growth for all territories. Also contributing to the increase was $4.9 million related to the combined impacts of increases in recovery/return, offset by a comparable increase in depreciation and amortization expense in regulatory account balances noted above.
•$3.7 million lower Operations and maintenance expense primarily due to lower net insurance cost of $2.5 million, outside services costs of $1.7 million, and bad debt expense. These decreases were partially offset by increases in employee-related labor costs and leak survey and line locating expense.
In the six months ended June 30, 2026 compared to the same period in 2025, the decrease in net income of $10.1 million was primarily due to:
•$22.6 million higher Income tax expense due to a $12.0 million state income tax benefit recognized in the prior year's period related to a change in state apportionment rates that did not reoccur in the current period . The increase was also driven by higher pre-tax income differences, lower amortization of excess accumulated deferred income taxes, and lower nondeductible executive compensation in the current period when compared to the prior year's period.
•$14.7 million, or 9%, higher Depreciation and amortization expense reflecting a $726.7 million, or 7%, increase in gas plant in service since the corresponding period of 2025, in addition to $6.0 million in higher amortization related to regulatory account balances noted below. The increase in plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled pipe replacement activities, and new infrastructure.
•$13.0 million lower Other income, which is net of other deductions, primarily driven by lower interest income earned on money market accounts of $5.9 million, lower net periodic benefit gain related to pension non-service components of $4.3 million, the absence of a prior year gain on the sale of certain miscellaneous assets of $1.6 million, and higher contributions to the Southwest Gas Foundation of $1.9 million primarily due to timing differences as the 2025 contribution was made in 2024. These decreases were partially offset by an increase in Equity AFUDC of $1.6 million related to the commencement of the Great Basin 2028 expansion project.
•$1.8 million higher Taxes other than income taxes due primarily to increase in property taxes across all of Southwest Gas' jurisdictions.
Partially offset by:
•$40.7 million higher Operating margin primarily driven by updated rates that better align with Southwest Gas' cost of service and capital investments across all territories adding approximately $32.7 million of incremental margin, approximately $20.2 million of which was attributable to the revenue recognized in connection with final approval of the All-Party Settlement, before adjustments to cost of capital, associated with the California general rate case, and $4.5 million attributable to customer growth for all territories. Also contributing to the increase were $4.9 million attributable to nondecoupled billed margin across Arizona and Nevada and $6.0 million related to the combined impacts of increases in recovery/return, offset by a comparable increase in depreciation and amortization expense in regulatory account balances noted above. Partially offsetting the increase is $4.7 million attributable to the absence of recovery in the current period, as recovery under the Vintage Steel Pipeline Program was concluded during the first quarter of 2025.
•$1.6 million lower Operations and maintenance expense primarily due to lower net insurance cost and bad debt expense. These decreases were partially offset by increases in employee-related labor costs, including incentive compensation costs, and leak survey and line locating expense.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026

Corporate and Administrative
In the three months ended June 30, 2026, net income improved by $47.7 million compared to a net loss in the same period in 2025; the improvement was primarily due to:
•$36.7 million lower Income tax expense due a $39.2 million state income tax expense recognized in the prior year's quarter related to a change in state apportionment rates that did not reoccur in the current quarter. The decrease was partially offset by higher pre-tax income differences in the current quarter when compared to the prior year's quarter and changes to state net operating losses to reflect expected utilization.
•$8.6 million lower Net interest deductions primarily driven by the repayment of the $550.0 million term loan in the summer of 2025 as well as the decrease in the balance that was previously outstanding on the revolving credit facility.
•$2.6 million higher Other income, which is net of other deductions, primarily driven by an increase in interest income earned on money market accounts.
In the six months ended June 30, 2026, net income improved by $57.0 million compared to a net loss in the same period in 2025; the improvement was primarily due to:
•$31.1 million lower Income tax expense due a $39.2 million to state income tax expense recognized in the prior year's period related to a change in state apportionment rates that did not reoccur in the current period. The decrease was partially offset by higher pre-tax income differences in the current period when compared to the prior year's period and changes to state net operating losses to reflect expected utilization.
•$18.3 million lower Net interest deductions primarily driven by the repayment of the $550.0 million term loan in the summer of 2025 as well as the decrease in the balance that was previously outstanding on the revolving credit facility.
•$8.0 million higher Other income, which is net of other deductions, primarily driven by an increase in interest income earned on money market accounts.
Discontinued Operations
In the three months ended June 30, 2026, compared to the same period in 2025, the decrease in net loss of $39.4 million reflects the absence of Centuri's operating results in the current period following the completion of its disposition, compared to a full quarter of Centuri's results included in the prior year period.
In the six months ended June 30, 2026, compared to the same period in 2025, the decrease in net loss of $59.8 million reflects the absence of Centuri's operating results in the current period following the completion of its disposition, compared to a full six months of Centuri's results included in the prior year period.
Results of Southwest Gas Corporation
Three Months Ended June 30, Six Months Ended
June 30,
(Thousands of dollars) 2026 2025 2026 2025
Regulated operations revenues $ 358,154 $ 396,318 $ 943,273 $ 1,144,834
Net cost of gas sold 38,442 102,134 146,596 386,713
Operating margin 319,712 294,184 796,677 758,121
Operations and maintenance expense 132,952 136,652 264,455 266,059
Depreciation and amortization 77,685 68,940 177,288 162,630
Taxes other than income taxes 23,747 23,250 48,762 47,011
Operating income 85,328 65,342 306,172 282,421
Other income 8,420 17,806 14,135 27,108
Net interest deductions 43,987 44,737 89,667 89,368
Income (loss) before income taxes 49,761 38,411 230,640 220,161
Income tax expense (benefit) 9,004 (7,235) 52,112 31,920
Contribution to consolidated results $ 40,757 $ 45,646 $ 178,528 $ 188,241
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
In the three months ended June 30, 2026, compared to the same period in 2025, the decrease in net income of $4.9 million was consistent with the Natural Gas Distribution segment.
In the six months ended June 30, 2026, compared to the same period in 2025, the decrease in net income of $9.7 million was consistent with the Natural Gas Distribution segment except for:
•$38.6 million higher Operating margin consistent with the Natural Gas Distribution segment explanation combined with a decrease in Operating margin of $2.1 million due to revisions. See Note 6 - Previously Issued Condensed Consolidated Financial Statement for additional information.
•$20.2 million higher Income tax expense consistent with the Natural Gas Distribution segment explanation combined with a decrease in income taxes of $2.4 million related to the prior year adjustments described in our 2025 Annual Report on Form 10-K.
Rates and Regulatory Proceedings
Southwest Gas operates in a regulated environment across Arizona, Nevada, and California subject to the regulation of the ACC, the PUCN, and the CPUC, respectively, and through interstate pipeline operations at two of Southwest Gas' subsidiaries that are subject to regulation by the FERC. Regulatory proceedings generally endeavor to allow for the timely recovery of infrastructure investments, reducing regulatory lag, and managing the cash-flow impacts of natural gas price volatility. While mechanisms vary by jurisdiction, they are generally designed to stabilize earnings and primarily affect the timing of cash flows, rather than long-term returns.
Arizona Jurisdiction
Arizona Overview. Arizona is Southwest Gas' largest contributor to Operating margin. Regulatory frameworks in the state emphasize decoupled rate design and targeted mechanisms that support infrastructure investment while reducing earnings volatility.
Arizona General Rate Case. On February 27, 2026, Southwest Gas filed a general rate case application seeking an increase of approximately $101.0 million, or 10.4%, of incremental annual revenues, to reflect infrastructure investments and operating costs through November 30, 2025, with a requested twelve-month post-test year adjustment for non-revenue producing plant. The filing requests a return on common equity of 10.25% and a fair value increment of 0.20% based on an actual equity layer of 50.08% and maintains Arizona's existing decoupled rate design and existing basic service charges.
The application also proposes a formula-based RAM, which is an annual adjustment intended to reduce regulatory lag by more closely aligning customer rates with authorized returns between rate cases. The proposed RAM contemplates an approved formula to adjust customer rates based on Southwest Gas' earned return on common equity compared with its authorized return on common equity, subject to a Deadband. Approval of the RAM would eliminate the need for certain existing regulatory tracker mechanisms, including the TEAM and the SIM. New rates from this filing are expected to become effective by April 2027, subject to regulatory approval.
Existing rates are the result of Southwest Gas' 2024 rate case application filed in February 2024. The ACC's final decision was approved and implemented in March 2025, authorizing an overall annual rate increase of approximately $80.2 million and a return on common equity of 9.84% relative to a 48.5% equity ratio.
Arizona Regulatory Mechanisms. Southwest Gas uses several regulatory mechanisms in Arizona to address timing differences between costs incurred and recovery through base rates:
•The SIM supports recovery of eligible non-revenue-producing infrastructure investments related to safety, code compliance, and system integrity. Recovery through the SIM is subject to an annual investment cap of $50 million, with surcharge updates occurring annually. The first SIM surcharge application was filed March 2026, with rates effective April 1, 2026, subject to refund. The ACC approved the SIM surcharge as filed by Southwest Gas in June 2026.
•The DCA is Arizona's margin decoupling mechanism and removes the direct relationship between volumes sold and revenue earned. Annual DCA filings return or recover over- or under-collected authorized margins. In August 2025, the ACC approved the Company's 2025 DCA application, as filed, to recover the under-collected balance as of March 31, 2025, of approximately $40.7 million, which is expected to be recovered over 12 months from the time rates become effective. Southwest Gas' most recent filing of the DCA Annual Report was made in April 2026, requesting recovery of the under-collected balance of $107.5 million existing as of March 31, 2026. To mitigate impact on customer bills, Southwest Gas proposed to calculate the DCA rates based on an extended 15-month period, seasonally adjusted, with a higher rate applicable in the summer season of May through October and a lower rate
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
applicable in the winter season of November through April. Southwest Gas' request will be considered by the ACC as soon as practicable.
•On January 27, 2025, Southwest Gas filed a requested modification to the PGA mechanism to increase the GCBA adjustment to allow for a greater credit rate to be implemented than otherwise allowed under existing framework to facilitate the more timely return of the existing over-collected balance to customers. The ACC approved Southwest Gas' request to implement a credit rate of $0.08138 per therm effective the first quarter 2025 and terminates when the GCBA balance is reduced to less than $10.0 million. Additionally, Southwest Gas filed a new request in April 2026 for ACC consideration to increase the applicable Deadband within which Southwest Gas may adjust the GCBA rate from the currently authorized 10 cents per therm to a proposed 20 cents per therm with a requested effective date of August 2026.
•The TEAM allows for rate adjustments related to changes in income tax-related revenue requirements resulting from federal or state tax legislation and returns/recovers the revenue requirement impact of changes in amortization of EADIT, including that which resulted from the 2017 Tax Cuts and Jobs Act, between general rate cases. The prior surcharge rate was designed to recover approximately $5.2 million resulting from changes related to the amortization of EADIT was approved and became effective June 1, 2025. These amounts were recovered through May 31, 2026.
In December 2025, Southwest Gas filed its most recent TEAM rate application seeking authority to recover $0.7 million, which includes the current-year TEAM adjustment of approximately $7.9 million, primarily offset by the impact of Southwest Gas' election of the natural gas safe harbor tax method of accounting for determining whether certain natural gas repair and maintenance expenditures are capitalized or expensed for income tax purposes. As a result of this accounting method change, approximately $27.1 million of EADIT associated with historic tax repairs shifts from protected treatment amortized under the Average Rate Assumption Method to unprotected treatment. Southwest Gas proposed the amortization of the $27.1 million in unprotected EADIT over a five-year period, consistent with the approximate remaining amortization period of the unprotected EADIT established in Southwest Gas' 2019 general rate case. The application was approved in February 2026, as filed, with a rate effective date of June 1, 2026.
•The legacy COYL program was discontinued in Southwest Gas' most recent Arizona rate case; however, an application was filed in June 2025 requesting recovery of the associated outstanding revenue requirement of approximately $5.2 million for work completed through March 2025. Recovery of the outstanding COYL revenue requirement over three years was approved by the ACC as requested in September 2025.
Collectively, these mechanisms primarily affect the timing of cash flows and are intended to reduce earnings volatility rather than impact long-term returns.
Arizona Affiliate Rules Waiver. In February 2026, Southwest Gas filed an application with the ACC seeking a waiver of certain affiliate rules to allow Southwest Gas Holdings and Southwest Gas to issue financing to Great Basin for the 2028 expansion project. On April 8, 2026, the ACC approved the limited waiver to allow for funding of up to $1.7 billion. Southwest Gas would be required to seek an additional waiver if the project costs are anticipated to exceed this amount.
Nevada Jurisdiction
Nevada Overview. Nevada contributes approximately 34% to Southwest Gas' Operating margin. In Nevada, regulatory frameworks in the state include decoupled rate design and targeted mechanisms that support infrastructure investment while reducing earnings volatility.
Nevada General Rate Case. On March 18, 2026, Southwest Gas filed a general rate case application with the PUCN, seeking an increase of approximately $71.3 million, or 10.8% of incremental annual revenues to reflect infrastructure investments and operating costs through November 30, 2025. The initial request was updated to seek an increase of approximately $74 million, to update plant in service and adjust for known changes in labor and pension costs for the certification period ended May 31, 2026. The filing requests a 10.0% return on common equity and an actual equity layer of 51.35% at the end of the certification period and proposes to maintain the existing decoupled rate design and basic service charges along with the continuation of the regulatory accounting treatment approved in 2025 to track the actual costs incurred for line location expenses to the level of expense to be established in the general rate case. New rates are expected to become effective in October 2026, subject to regulatory approval.
Existing rates are the result of Southwest Gas' 2023 Nevada general rate case application filed in September 2023 and updated with a certification filing primarily for plant placed in service, and incremental annual leak survey costs, through November 2023. Rates became effective in April 2024, authorizing an overall annual settled rate increase of approximately $59.1 million and a return on common equity of 9.5% relative to a target 50.0% equity ratio. Included in the settled items were a continuation
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
of full revenue decoupling; authority to continue tracking incremental annual leak survey costs in a regulatory asset; and refreshed depreciation rates.
Purchased Gas and Cost Recovery Mechanisms. Southwest Gas uses several regulatory mechanisms in Nevada to address timing differences between costs incurred and recovery through base rates:
•The GRA serves as Nevada's margin decoupling mechanism and is updated through the ARA application. Updated rates for the GRA and other regulatory mechanisms were included in the 2025 ARA application filed in November 2025 requesting to adjust the GRA rates to recover the approximate $28.2 million balance as of September 30, 2025. In May 2026, the PUCN approved an all-party settlement recommending approval of the application as filed, with rates effective July 1, 2026.
•The DEAA currently facilitates the return of previously over-collected purchased gas costs to customers and serves as the mechanism to collect under-collected purchased gas costs from customers. The implementation of a DEAA credit of $0.20000 per therm applicable to southern Nevada customers and a credit of $0.25000 per therm applicable to northern Nevada customers became effective July 1, 2025. Subsequent quarterly adjustments, including those in October 2025, January 2026, April 2026, and July 2026 have been calculated consistently with the statutory rate cap of 2.5 cents per quarter, resulting in an increased credit rate of $0.30000 in southern Nevada and $0.35000 in northern Nevada, as of July 1, 2026. The over-collected PGA balance that existed at December 31, 2025 has been reduced to an over-collected balance of approximately $166.6 million and $31.5 million in southern and northern Nevada, respectively, at June 30, 2026. The most recent modification of the DEAA is expected to impact near-term liquidity at Southwest Gas when compared to earlier projections over 2025-2026 while modestly reducing interest expense on a net basis.
•Line Locate Activity Expenses Application. In January 2025, Southwest Gas filed an application with the PUCN for authority to establish regulatory accounting treatment for line locate activity expenses, allowing Southwest Gas to track the actual level of line locate costs in operation and maintenance expense and to record, in a regulatory asset or liability account, the difference between amounts incurred and the level established in the most recently concluded general rate case. In July 2025, the PUCN approved regulatory accounting treatment beginning January 1, 2025. The proposal did not include carrying charges on the regulatory account balance in order to focus solely on stemming the financial attrition experienced in between rate cases related to this work. Amounts deferred in the regulatory assets are included for consideration in the recently filed general rate case, and continuation of the regulatory accounting treatment is requested.
These mechanisms primarily affect the timing of cash flows and are intended to reduce earnings volatility rather than impact long-term returns.
Resource Plan. In April 2026, Southwest Gas received approval of its first triennial resource plan, filed in September 2025, pursuant to SB 281 (2023). Southwest Gas received a determination of prudency for approximately $186 million of certain significant operational or capital requirements, as defined by SB 281, during the 2026-2028 action plan period, including safety-related and system integrity management investments in southern and northern Nevada, and a proposal to commence a vintage 1984/1985 pipe replacement program in southern Nevada. The PUCN also approved the approximate $4.8 million investment over the action plan period in two new safety-related programs (the natural gas alarm pilot program and the meter protection program), including authority to establish regulatory accounting for the natural gas alarm pilot program. The natural gas alarm pilot program proposed the purchase and installation of approximately 10,000 natural gas alarms in high occupancy facilities across Southwest Gas' southern and northern Nevada service territories. The meter protection program proposed the purchase and installation of meter snow shelters to enhance the protection of existing meters in heavy snow load areas in Southwest Gas' northern Nevada service territory around Lake Tahoe. Southwest Gas received approval to continue its currently authorized COYL replacement program, including the annual statewide capital investment amount of $5.0 million, and associated regulatory accounting treatment beyond the current program sunset date of July 30, 2027, through the end of 2028. Southwest Gas' customer demand forecasting methodology for the applicable three-year action plan period was approved. With respect to gas resources, the PUCN authorized a modification of Southwest Gas' currently authorized price cap of $14/dekatherm to $18/dekatherm for RNG purchases to better align with evolving RNG market conditions and to extend its current contract term length and purchasing authority for RNG beyond the currently approved date of December 31, 2029.
Southwest Gas also received authority to purchase responsibly sourced gas, in the form of carbon capture and storage-enabled natural gas, for incorporation into Southwest Gas' gas supply portfolio to meet up to 5% of its normal weather demand in northern and southern Nevada. Finally, Southwest Gas received approval of a demand-side management plan and proposed activities and programs, with a total statewide budget of $7.2 million over the three-year action plan period, to promote energy efficiency and conservation.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
California Jurisdiction
California Overview. California contributes approximately 14% to Southwest Gas' Operating margin. Regulatory frameworks in the state include decoupled rate design and a future test year with annual attrition adjustments that support infrastructure investment while reducing earnings volatility.
California General Rate Case. Southwest Gas filed its most recent general rate case in September 2024 seeking refreshed rates beginning in January 2026 to reflect infrastructure investments and updated operating costs. The CPUC issued a Decision in May 2026 approving the all-party settlement filed in September 2025 agreeing to a revenue increase of $39.5 million, before consideration of the litigated capital structure and cost of capital. Following the issuance of the Decision, Southwest Gas requested approval to implement rates based on the $39.5 million settlement effective July 1, 2026, pending the issuance of the final decision resolving the outstanding cost of capital-related issues. The CPUC approved Southwest Gas' request, and new rates became effective July 1, 2026. In June 2026, the Administrative Law Judge issued a Proposed Decision addressing the outstanding capital structure and cost of capital, recommending approval of a 10.0% return on equity and Southwest Gas' proposed 50.0% equity layer. Southwest Gas filed comments with the CPUC requesting reconsideration of the proposed 10.0% return on equity. The CPUC held the Proposed Decision from the July agenda and moved it to the August meeting for consideration. Southwest Gas anticipates the issuance of the CPUC's final decision on the capital structure and cost of capital will become effective in the third quarter of 2026. The CPUC previously granted Southwest Gas' motion seeking authority to establish a general rate case memorandum account effective January 1, 2026, through the effective date of the CPUC's final decision allowing Southwest Gas to track changes in the revenue requirement beginning January 1, 2026.
Financing Application. Southwest Gas filed an application with the CPUC in February 2026 seeking incremental financing authority to issue or obtain additional debt securities in an amount not to exceed approximately $1.15 billion, and the application of such proceeds through the five-year period ending December 31, 2030, to facilitate funding for the Great Basin 2028 expansion project. The incremental increase will bring the total authorized debt to $2.1 billion. The CPUC approved Southwest Gas' financing application, as filed, on July 2, 2026.
FERC Jurisdiction
Great Basin Overview. Great Basin, a wholly owned subsidiary of Southwest Gas, is regulated by the FERC. A general rate case settlement approved in 2025 provided an increase of $9.6 million, reflecting an approved increase in rate base to approximately $191.0 million, a 41.0% increase over the amount previously authorized. Rates became effective in April 2025, reflecting a calculated 9.76% pre-tax rate of return, compared with the requested return on common equity of 11.95% relative to a 50.0% equity ratio.
Great Basin 2028 Expansion Project. In response to shipper inquiries regarding available capacity and evolving market needs, Great Basin conducted two binding open seasons in 2025 for a planned 2028 system expansion. The open seasons identified potential incremental demand of up to ~1.76 Bcf/d and allowed existing and prospective shippers to evaluate capacity needs, alternative in-service dates, and the scope of the expansion project to support growing energy demand in northern Nevada. In December 2025, precedent agreements were executed with shippers to accommodate capacity requests totaling approximately 800 million cubic feet per day. Subject to approval from FERC to construct and operate the system expansion, Great Basin estimates a potential capital investment of approximately $1.7 billion in the next three years with an expected in-service date of late 2028.
A Binding Open Season was issued on April 15, 2026 for available capacity in the 2028 expansion project following the evaluation of the system configuration and requirements necessary to meet the demand of the current project shippers. The open season offered the remaining available capacity, in excess of the approximately 0.6 Bcf/d of currently contracted expansion capacity. As a result of demand received, precedent agreements for just under 1 Bcf/d for the Great Basin 2028 Expansion Project with an expected in-service date of late 2028. This could increase capital investment by approximately $0.6 billion above the current estimate of $1.7 billion over the next three years. Great Basin also received further expressions of incremental capacity interest for an additional 1.8 Bcf/d for future in-service dates beyond 2028, which will be included in potential future expansion projects.
PGA Filings
The rate schedules in all of Southwest Gas' service territories contain provisions that permit adjustment to rates as the cost of purchased gas changes. These deferred energy provisions and purchased gas adjustment clauses are collectively referred to as "PGA" clauses. Differences between gas costs recovered from customers and amounts paid for gas by Southwest Gas result in over- or under-collections. Balances are recovered from, or refunded to, customers on an ongoing basis with interest. As of June 30, 2026, over-collections in Southwest Gas' service territories resulted in a liability of approximately $286.8 million on the Company's and Southwest Gas' Condensed Consolidated Balance Sheets. The over-collected balances in the table below
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
reflect the impacts related to specific recovery rates under existing mechanisms, which have exceeded the cost of recent gas supply purchases by Southwest Gas.
Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staff. The operation of the mechanism in California is typically the most responsive to changes in gas supply costs, and maximum rate adjustments for the earlier build-up (positive or negative) apply to Nevada and Arizona; however, refer to the Arizona Regulatory Mechanisms discussion above related to Arizona and the Purchased Gas and Cost Recovery Mechanisms in Nevada. PGA changes impact cash flows but have no direct impact on Operating margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual consolidated income statement components. These include Regulated operations revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).
The following table presents Southwest Gas' outstanding PGA, including accrued purchased gas costs, balances receivable/(payable):
(Thousands of dollars) June 30, 2026 December 31, 2025 June 30, 2025
Arizona $ (88,363) $ (68,423) $ (66,363)
Nevada
(198,074) (241,662) (287,856)
California (378) 5,214 (1,472)
$ (286,815) $ (304,871) $ (355,691)
Capital Resources and Liquidity
Historically, cash on hand and cash flows from operations, and periodically the issuances of debt and equity, have provided a substantial portion of cash used in investing activities (primarily construction expenditures and property additions). In recent years, Southwest Gas has undertaken substantial pipe replacement activities to fortify system integrity and reliability, including on an accelerated basis in association with certain gas infrastructure replacement programs. Southwest Gas Holdings and Southwest Gas' capitalization strategy is to maintain an appropriate balance of equity and debt to preserve investment-grade credit ratings, which helps minimize interest costs. Investment-grade credit ratings have been maintained by Southwest Gas Holdings and Southwest Gas.
Cash Flows
Southwest Gas Holdings, Inc.:
Operating Cash Flows. Cash flows provided by operating activities decreased $109.4 million in the first six months of 2026 compared to the same period of 2025. The decrease was primarily due to a $120.4 million reduction in cash flow from continuing operation, which reflects the transition from prior period when recovery rates resulted in collections that exceeded actual purchased gas costs. As a result, the current period includes the reimbursement of this excess recovery to customers. The remaining difference reflects the impacts of changes in other components of working capital overall. Partially offsetting this decrease was a $11.0 million increase in operating cash flows from discontinued operations. The increase was mainly attributable to the absence of Centuri in the current period following the completion of its disposition.
Investing Cash Flows. Cash flows used in investing activities increased $125.6 million in the first six months of 2026 compared to the same period of 2025. The increase was primarily from the increase in cash flows used in continuing operations of $168.2 million driven by the increased outflows for capital expenditures and property additions compared to 2025. Partially offsetting this increase was a decrease in cash flow used in discontinued operations of $42.6 million that was mainly attributable to the absence of Centuri in the current period following the completion of its disposition.
Financing Cash Flows. Cash flows used in financing activities increased $62.8 million in the first six months of 2026 compared to the same period of 2025. The increase in cash flow used in discontinued operations of $481.3 million was mainly attributable to the absence of Centuri in the current period following the completion of its disposition. Partially offsetting this impact was a decrease of cash flow used in continuing operations of $418.6 million primarily driven by the absence of repayment of short-term debt and borrowings related to the short-term portion of the credit facility in the current period as compared to the same period in 2025.
Our Natural Gas Distribution segment is generally responsible for securing its own debt financing sources. However, Southwest Gas Holdings may raise funds through equity issuances or other external financing sources in support of our Natural Gas Distribution segment.
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
Southwest Gas Corporation:
Operating Cash Flows. Cash flows provided by operating activities decreased approximately $50.2 million in the first six months of 2026 as compared to the same period of 2025. The decrease primarily reflects the transition from prior period when recovery rates resulted in collections that exceeded actual purchased gas costs. As a result, the current period includes the reimbursement of this excess recovery to customers. Partially offsetting this decrease was an increase in receivable from parent which resulted from the tax benefit extended to Southwest Gas Holdings. The remaining difference reflects the impacts of changes in other components of working capital overall.
Investing Cash Flows. Cash used in investing activities increased $168.3 million in the first six months of 2026 as compared to the same period of 2025 primarily attributable to increased outflows for capital expenditures by $166.7 million between periods. See also Natural Gas Distribution Segment Capital Expenditures, Debt Maturities, and Financing below.
Financing Cash Flows. Net cash used in financing activities decreased $209.0 million in the first six months of 2026 as compared to the same period of 2025, primarily driven by the $120.0 million contribution from parent and the absence of dividends paid in the current period as compared to the same period in 2025.
Natural Gas Distribution Segment Capital Expenditures, Debt Maturities, and Financing
During the six-month period ended June 30, 2026, capital expenditures for the Natural Gas Distribution segment were $506.9 million. These expenditures are associated with new construction and other general plant additions, in addition to the replacement of existing transmission and distribution pipeline facilities to fortify system integrity and reliability.
Management estimates capital expenditures during the five-year period ending December 31, 2030 will be approximately $6.3 billion. Of this amount, approximately $1.3 billion is expected to be incurred during calendar year 2026. Southwest Gas plans to continue to request regulatory support to undertake projects, or to accelerate projects as necessary for the improvement of system flexibility and reliability, or to expand, where relevant, to unserved or underserved areas. Southwest Gas may expand existing, or initiate new, programs. Significant replacement activities are expected to continue well beyond the next few years. See also Rates and Regulatory Proceedings. During that same five-year period, cash flows from operating activities of Southwest Gas are expected to provide approximately 60% of the funding for gas operations of Southwest Gas and total capital expenditures and dividend requirements. Any additional cash requirements, including construction-related, and any paydown or refinancing of debt, are expected to be provided by existing credit facilities, parent equity contributions, and/or other external financing sources. The timing, types, and amounts of additional external financings will be dependent on a number of factors, including the cost of gas purchases, conditions in capital markets, timing and amount of rate relief, timing and amount of surcharge collections from, or amounts returned to, customers related to regulatory mechanisms and programs, maturities of long-term debt instruments, as well as growth levels in Southwest Gas' service areas and earnings. External financings may include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing. For Southwest Gas, the $75.0 million current portion of long-term debt matured in August 2026 and was repaid on August 3, 2026, and the $25.0 million current portion of long-term debt will mature in June 2027.
Dividend Policy
Dividends are payable on the Company's common stock at the discretion of the Board. In setting the dividend rate, the Board considers, among other factors, projected capital requirements, the Company's liquidity position and overall financial condition, the competitiveness of the dividend yield, economic conditions, equity dilution, and impacts on credit ratings. The Company has paid dividends on its common stock since 1956. In February 2026, the Board approved an increase to the quarterly dividend from $0.62 to $0.645 per share, effective with the June 2026 payment. No assurances can be provided on our future dividend payments and the actual declarations of dividend payments remain at the discretion of the Board.
Liquidity
Several factors (some of which are out of the control of the Company) that could significantly affect liquidity in future years include: Variability of natural gas prices, changes in ratemaking policies of regulatory commissions, regulatory lag, customer growth in the Natural Gas Distribution segment, the ability to access and obtain capital from external sources, the level of interest rates, changes in income tax laws, pension funding requirements, inflation, the availability and cost of contract labor, supply chain constraints within the compression and steel pipe markets, and the level of earnings. Natural gas prices and related gas cost recovery rates, as well as plant investment and ratemaking activities, have historically had the most significant impact on liquidity, aside from the Company's strategic undertakings, in the recent past, including acquisition and disposition activity.
On an interim basis, Southwest Gas defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest Gas uses this mechanism to either refund amounts over-collected or recoup amounts under-collected as compared to the price paid for natural gas during the period since the last PGA rate change went into effect. At June 30, 2026, the PGA
SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2026
balance was an over-collection of $286.8 million and Southwest Gas' Cash and cash equivalents balance of $58.9 million will be used to provide refunds to customers over future periods along with net cash provided by operating activities and its credit facilities. See PGA Filings for more information.
Southwest Gas Holdings has a $300 million revolving credit facility that matures in August 2029. This facility is intended for short-term financing needs. At June 30, 2026, there were no borrowings outstanding under this facility.
Southwest Gas has a revolving credit facility with a borrowing capacity of $400.0 million, which matures in August 2029. Southwest Gas designates $150.0 million of the facility for long-term borrowing needs and the remaining $250.0 million for working capital purposes. As of June 30, 2026, no borrowings were outstanding on the long-term portion of the credit facility (including no borrowings outstanding under the commercial paper program) and no borrowings were outstanding on the short-term portion. The credit facility has been used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, meeting the refund needs of over-collected balances, or temporarily funding capital expenditures. The credit facility has generally been adequate for Southwest Gas' needs outside of funds raised through operations and other types of external financing.
Southwest Gas has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest Gas' revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program is designated as long-term debt. Interest rates for the commercial paper program are calculated at the current commercial paper rate during the borrowing term. At June 30, 2026, there were no borrowings outstanding under this program. In July 2026, Southwest Gas expanded its commercial paper program from $50 million to $100 million and entered into new dealer agreements in connection with the expanded program.
Labor Relations
Southwest Gas and the Union representing certain Southern California employees entered into an agreement with an effective date of July 1, 2026. The agreement governs through February 28, 2029 and applies only to certain workers in Southwest Gas' Southern California Division located in Victorville, California.
Critical Accounting Policies and Estimates
As of June 30, 2026, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in the MD&A in the Companies' Annual Report on Form 10-K for the year ended December 31, 2025.
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