Southwest Gas Holdings (SWX) Q3 2026 earnings review
Southwest Gas locks in pipeline demand, but regulators trim rate requests
Southwest Gas Holdings, which supplies natural gas to over two million customers across Arizona, Nevada and California, tripled its seasonal third-quarter profit on lower interest bills and tax credits even as utility operating margin barely grew. Chief executive Justin Brown kept the full-year profit outlook unchanged after wrapping up rate cases in Nevada and California. By our math, the plan leaves about 14% profit per share growth for the fourth quarter as new Nevada rates kick in.
| Operating margin (revenue less gas cost) | $278.1M +1.4% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $0.20 $0.06 a year ago |
| Utility 12-month return on equity | 8.0% 9.81% allowed return |
| Full-year profit per share outlook | Unchanged $4.17–$4.32 (+16% at middle) |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because progress on the 2028 Great Basin pipeline and Arizona rate rules balanced out stingy revenue awards from state regulators. Shippers signed binding agreements with financial security for 1 billion cubic feet per day of pipeline capacity, and Arizona regulatory staff backed moving to annual formula rates. The bad news: Nevada approved $48 million of a $74 million revenue request while deferring $50 million of completed plant, California trimmed its allowed return on equity to 10%, and Arizona staff recommended $58 million of a $101 million request.
The question now is whether rate relief and pipeline construction can lift the utility's 8% earned return toward its 9.8% allowed level without straining the balance sheet as the $2.3 billion build ramps up. If Arizona approves formula rates and shippers convert post-2028 pipeline inquiries into contracts, returns will close the gap; if commissioners stick to deep revenue cuts, the gap will persist. December's Arizona hearings, the year-end federal pipeline filing, and February's five-year plan update will decide.
🐂 Bull Case
Great Basin Expansion Locks In Customer Commitments
Great Basin Gas Transmission is the company's interstate pipeline in Nevada, where it plans a 2028 expansion to serve northern Nevada power and industrial demand. However, building a 48-inch pipe capable of carrying nearly 2 billion cubic feet per day (Bcf/d) carries cost and uncontracted capacity risks. This quarter, customers signed binding agreements and posted financial security for 1 Bcf/d of 20-year capacity, while the utility filed draft federal resource and permitting reports.
- Estimated project cost: $2.3 billion, with 15% ($345 million by our math) planned for 2026
- Expected annual operating margin: $270 million to $300 million starting in late 2028
- Spend to date: $148 million in the first nine months of 2026, up $33 million in the third quarter by our math
- Post-2028 interest: 1.8 Bcf/d of non-binding inquiries for 2029 through 2035
Because the pipeline operates under federal cost-of-service rules, the 1 Bcf/d already under contract covers the entire $270 million to $300 million annual margin target. Still, spending only $148 million through September leaves nearly $200 million of project spending for the fourth quarter by our math to hit the 15% target. What to watch: the formal Certificate of Public Convenience and Necessity filing with federal regulators by year-end 2026, which will lock in the construction schedule and updated cost budget.
Arizona Staff Backs Formula Rates For 2027
Arizona is Southwest Gas's largest territory, accounting for $3.18 billion of its $6.09 billion in regulated asset base (rate base). In its active rate case, Arizona Corporation Commission staff recommended a "transition to a formula-rate model", chief executive Justin Brown said, alongside a 9.75% allowed return on equity. Formula rates adjust customer bills annually for new investments, so final approval after December's hearings would reduce the delay between spending capital and earning a return.
What to watch: the Arizona administrative hearing in December 2026 and final commission vote before April 2027, because losing the formula-rate provision would leave over half the utility's asset base exposed to multi-year regulatory delays.
Lower Interest And Tax Credits Lift Profit
Third-quarter profit per share from continuing operations, excluding one-offs, rose from $0.06 a year ago to $0.20, leaving the utility 63% of the way to the middle of its full-year target. Last summer's debt payoff cut corporate interest costs by $2.8 million, while lower regulatory balances and capitalized construction interest saved $4.9 million at the gas utility. A state tax apportionment change also added a $3.4 million utility tax benefit.
What to watch: fourth-quarter interest expense, because the corporate debt payoff happened in the third quarter of 2025, meaning the year-over-year interest savings will shrink in the final quarter.
🐻 Bear Case
Regulators Trim Rate Requests And Allowed Returns
Southwest Gas relies on state rate cases to recover rising pipe costs and close the gap between its earned and allowed returns. Brown said completing the Nevada and California cases added $80 million in combined yearly revenue, "reinforcing regulatory support for infrastructure investments and enhancing earnings visibility." However, the actual rulings approved far less revenue than the utility asked for and lowered its allowed return in California.
- Nevada revenue increase: nearly $48 million approved vs about $74 million requested (65% by our math)
- Nevada deferred assets: $50 million of plant excluded and pushed to a future case
- California allowed return on equity: cut to 10.00% from 11.16%, reducing the company-wide weighted average to 9.81% from 9.89%
- Arizona staff proposal: $58 million revenue increase vs $101 million requested (57% by our math)
Southwest Gas had to file a petition asking Nevada regulators to reconsider the excluded $50 million of plant, which undercuts Brown's claim of clear regulatory support. If Arizona commissioners adopt their staff's $58 million figure, the utility will have received roughly three-fifths of its requested increases across Nevada and Arizona. What to watch: Nevada's ruling on the $50 million reconsideration petition and December's Arizona hearings, which will set the revenue base for 2027.
Earned Utility Return Trails Allowed Level
The gas distribution business earned an 8.0% return on equity over the twelve months ended September 30, unchanged from the prior two quarters and 1.81 percentage points below its 9.81% weighted allowed return. In the third quarter, operating margin (regulated revenue minus gas cost) edged up 1.4% to $278.1 million as lower un-decoupled customer usage in Arizona and Nevada offset $3.2 million of new California rates.
Meanwhile, utility gross margin fell 2.6% to $115.1 million because operations and maintenance costs (the cost of running and maintaining the pipe network) rose 6.6% to $82.1 million, jumping 3.2 percentage points of revenue by our math on higher labor and bad debt, while depreciation rose 2.2 points of revenue. What to watch: twelve-month utility return on equity in the fourth quarter, when the $48 million Nevada rate hike takes effect.
Risks this quarter didn't answer
Three standing operational, financing and accounting concerns received no updated numbers or resolutions in the third-quarter earnings release.
- Customer growth rate: omitted from the release after slowing to 1.0% over the prior two quarters against a 1.4% long-term plan assumption; the quarterly filing or presentation slides will show if growth slipped below 1%.
- Great Basin financing cap: Arizona regulators previously waived affiliate financing rules up to $1.7 billion, and the release did not address when Southwest Gas will seek authority for the updated $2.3 billion cost.
- Tax accounting controls: following last year's multi-year state tax restatements, another state apportionment change drove a $3.4 million utility tax swing this quarter, leaving control remediation checkable only in the 10-Q filing.
💲 Other KPIs
Available cash and credit lines fell by about $300 million from last quarter, down from $1.5 billion a year ago, $1.2 billion in the first quarter, and $1.0 billion in the second. The gas company spent $806 million on capital projects over the first nine months, drawing down cash ahead of planned utility bond sales.
Gas volume moved through the pipe network rose 14.0% from a year ago in the third quarter by our math, reversing declines of 12.7% in the first quarter and 18.2% over the first half. Nine-month volume still sits 2.8% below last year because lower residential heating use offset a 11.0% rise in contract transportation volume.
Average diluted shares rose 0.6% from a year ago (72.82 million vs 72.41 million), matching the 0.6% pace over the past three quarters. Because the utility has not issued external stock this year, dilution comes only from dividend reinvestment and employee stock plans.
🔮 Guidance
Unchanged. Southwest Gas still expects full-year profit per share excluding one-offs to grow 16.3% at the middle of the range ($4.245 vs $3.65 in 2025). With $2.69 earned in the first nine months, the plan leaves $1.48 to $1.63 for the fourth quarter by our math, or 14.3% growth at the middle against $1.36 a year ago, aided by new Nevada rates starting in October.
Unchanged. The full-year spending plan represents a 46.2% increase over 2025's $855 million utility spend. After recording $806 million in the first nine months ($286 million in the third quarter by our math), the plan implies $444 million of capital spending in the fourth quarter as Great Basin pipeline work speeds up.
Unchanged. The five-year compound annual growth target uses 2025's $3.65 per share as its starting base. Footnotes state that long-term targets still assume $1.7 billion of Great Basin expansion capital and "do not reflect the updated $2.3 billion capital estimate", which the utility will fold into its February 2027 plan refresh.
Unchanged. The five-year spending total includes about $190 million recorded in deferred charges and other assets. Because it still embeds $1.7 billion for the Great Basin pipeline rather than the current $2.3 billion estimate, the five-year budget omits roughly $600 million of planned pipeline construction.
Unchanged. The plan calls for regulated asset base to grow 9.5% to 11.5% per year off a $6.7 billion base in 2025. As with the five-year earnings and spending targets, the company will update this figure in February 2027 to include the larger 48-inch Great Basin pipeline design.
❓ Key Questions
What was twelve-month customer growth in the third quarter?
The release dropped the 12-month net customer growth rate after reporting 1.0% in both the first and second quarters, down from 1.8% a year ago. Investors need to know if customer additions fell below 1% against the 1.4% multi-year plan assumption.
When will Southwest Gas seek a higher Arizona financing waiver?
Arizona regulators capped their affiliate financing waiver for the Great Basin expansion at $1.7 billion, while the pipeline's estimated cost sits at $2.3 billion. Management has not said when it will request the extra $600 million of financing authority.
Why does 2026 Great Basin spending imply a fourth-quarter jump?
The company expects to spend 15% of the $2.3 billion Great Basin budget in 2026 ($345 million by our math), but spent only $148 million through September ($33 million in Q3). How will it spend nearly $200 million in the fourth quarter alone?
Will the $50 million Nevada plant deferral hurt 2027 earnings?
Nevada regulators approved $48 million of the $74 million revenue request and pushed $50 million of completed plant into a future proceeding. If the commission denies the utility's petition for reconsideration, how long will those assets go without earning a return?