Unlike its other private-sector utility neighbor, Las Vegas-based Southwest Gas Corp. Monday had its credit ratings affirmed (BBB-) and its outlook improved to “stable” by Standard & Poor’s Ratings Services (S&P), which noted that the natural gas utility has about $1.1 billion in debt outstanding. Nevertheless, it faces the prospect of continued frequent rate increase filings on top of a recently received cumulative $41 million general rate hike in Arizona and Nevada.

Noting adequate liquidity supported by $250 million revolving credit, S&P’s New York-based analyst Rajeev Sharma said the new outlook for Southwest “anticipates steady, gradual improvement in credit measures.”

“It is expected that management will strengthen the strained balance sheet through timely rate relief and periodic equity infusions. As regulation becomes somewhat more accommodating through favorable rate design changes, credit measures for Southwest Gas should improve,” said Sharma, noting that the utility will have to minimize its costs of connecting new customers and reduce its debt leverage to maintain its current ratings.

Growth rates are brisk in two of the three states where Southwest operates (Nevada, 6%; Arizona, 4%), and to a lesser degree in the desert and mountain areas it serves in eastern California. To keep up with this growth, Southwest is projecting about $250 million annually in capital expenditures through 2005, according to the S&P analysis.

However, with debt at the 65% level, Southwest’s credit measures “remain weak for the rating,” S&P said.

While expecting further rate relief in California in the third quarter this year, Southwest “has made concerted efforts to work with regulators to receive rate relief,” S&P said. “As a result of the growth and lagging regulatory mechanisms, frequent rate filings will be necessary to recover costs that contribute to aggressive key financial measures.”

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