Edgar Filing: SOUTHWEST GAS CORP

form10q1stqtr2010.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

Commission File Number 1-7850

SOUTHWEST GAS CORPORATION

(Exact name of registrant as specified in its charter)

California		88-0085720
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

5241 Spring Mountain Road
Post Office Box 98510
Las Vegas, Nevada		89193-8510
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (702) 876-7237

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common Stock, $1 Par Value, 45,371,013 shares as of May 3, 2010.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except par value)
(Unaudited)
	MARCH 31,			DECEMBER 31,
	2010			2009
ASSETS
Utility plant:
Gas plant	$	4,452,297		$	4,418,286
Less: accumulated depreciation		(1,460,799	)		(1,431,106	)
Acquisition adjustments, net		1,406			1,451
Construction work in progress		36,005			45,872
Net utility plant		3,028,909			3,034,503
Other property and investments		114,443			115,860
Restricted cash		49,776			49,769
Current assets:
Cash and cash equivalents		39,005			65,315
Accounts receivable, net of allowances		176,207			157,722
Accrued utility revenue		43,700			71,700
Income taxes receivable, net		-			8,549
Deferred income taxes		23,513			22,410
Deferred purchased gas costs		-			3,251
Prepaids and other current assets		76,780			88,685
Total current assets		359,205			417,632
Deferred charges and other assets		288,657			288,528
Total assets	$	3,840,990		$	3,906,292

CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $1 par (authorized - 60,000,000 shares; issued
and outstanding - 45,334,131 and 45,091,734 shares)	$	46,964		$	46,722
Additional paid-in capital		798,918			792,339
Accumulated other comprehensive income (loss), net		(22,521	)		(22,250	)
Retained earnings		338,470			285,316
Total Southwest Gas Corporation equity		1,161,831			1,102,127
Noncontrolling interest		(229	)		(41	)
Total equity		1,161,602			1,102,086
Subordinated debentures due to Southwest Gas Capital II		-			100,000
Long-term debt, less current maturities		1,121,816			1,169,357
Total capitalization		2,283,418			2,371,443
Current liabilities:
Current maturities of long-term debt		1,344			1,327
Accounts payable		120,328			158,856
Customer deposits		90,487			91,668
Income taxes payable		30,541			-
Accrued general taxes		59,759			40,868
Accrued interest		18,354			19,644
Deferred purchased gas costs		93,344			93,226
Other current liabilities		86,212			68,641
Total current liabilities		500,369			474,230
Deferred income taxes and other credits:
Deferred income taxes and investment tax credits		438,249			436,113
Taxes payable		2,980			3,079
Accumulated removal costs		195,000			189,000
Other deferred credits		420,974			432,427
Total deferred income taxes and other credits		1,057,203			1,060,619
Total capitalization and liabilities	$	3,840,990		$	3,906,292

The accompanying notes are an integral part of these statements.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

	THREE MONTHS ENDED						TWELVE MONTHS ENDED
	MARCH 31,						MARCH 31,
	2010			2009			2010			2009
Operating revenues:
Gas operating revenues	$	614,509		$	635,106		$	1,594,246		$	1,685,201
Construction revenues		54,242			54,756			278,467			335,797
Total operating revenues		668,751			689,862			1,872,713			2,020,998
Operating expenses:
Net cost of gas sold		352,255			395,810			823,075			951,088
Operations and maintenance		86,705			84,662			350,985			338,116
Depreciation and amortization		47,696			48,522			189,256			194,971
Taxes other than income taxes		9,766			10,111			36,973			36,697
Construction expenses		50,597			48,028			245,030			294,220
Total operating expenses		547,019			587,133			1,645,319			1,815,092
Operating income		121,732			102,729			227,394			205,906
Other income and (expenses):
Net interest deductions		(18,175	)		(18,590	)		(74,855	)		(81,641	)
Net interest deductions on subordinated debentures		(1,912	)		(1,933	)		(7,710	)		(7,730	)
Other income (deductions)		(523	)		(1,704	)		7,826			(13,643	)
Total other income and (expenses)		(20,610	)		(22,227	)		(74,739	)		(103,014	)
Income before income taxes		101,122			80,502			152,655			102,892
Income tax expense (benefit)		36,662			30,521			51,058			41,090
Net income		64,460			49,981			101,597			61,802
Net income (loss) attributable to noncontrolling interest		(188	)		-			(552	)		-
Net income attributable to Southwest Gas Corporation	$	64,648		$	49,981		$	102,149		$	61,802

Basic earnings per share	$	1.43		$	1.13		$	2.27		$	1.41
Diluted earnings per share	$	1.42		$	1.12		$	2.26		$	1.40
Dividends declared per share	$	0.2500		$	0.2375		$	0.9625		$	0.9125

Average number of common shares outstanding		45,221			44,424			44,948			43,825
Average shares outstanding (assuming dilution)		45,595			44,680			45,287			44,118

The accompanying notes are an integral part of these statements.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)

	THREE MONTHS ENDED						TWELVE MONTHS ENDED
	MARCH 31,						MARCH 31,
	2010			2009			2010			2009
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	64,460		$	49,981		$	101,597		$	61,802
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		47,696			48,522			189,256			194,971
Deferred income taxes		1,198			9,477			34,519			40,801
Changes in current assets and liabilities:
Accounts receivable, net of allowances		(18,485	)		(4,739	)		(2,639	)		48,754
Accrued utility revenue		28,000			28,100			800			400
Deferred purchased gas costs		3,369			(13,358	)		73,629			3,579
Accounts payable		(38,528	)		(75,316	)		4,210			(34,553	)
Accrued taxes		57,882			40,212			40,167			(23,349	)
Other current assets and liabilities		25,540			60,373			(2,100	)		(5,704	)
Gains on sale		(232	)		(1,065	)		(2,458	)		(2,428	)
Changes in undistributed stock compensation		2,687			2,215			4,414			3,963
AFUDC and property-related changes		(278	)		(470	)		(1,029	)		(706	)
Changes in other assets and deferred charges		(14,045	)		(550	)		(29,048	)		(896	)
Changes in other liabilities and deferred credits		3,356			5,155			8,567			6,971
Net cash provided by operating activities		162,620			148,537			419,885			293,605

CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions		(34,152	)		(52,445	)		(198,692	)		(291,562	)
Change in restricted cash		(7	)		-			(49,776	)		-
Changes in customer advances		(1,264	)		(1,768	)		(1,972	)		(2,461	)
Receipt of exchange fund deposit		-			-			-			28,000
Miscellaneous inflows		957			2,423			6,467			18,736
Miscellaneous outflows		-			(1,172	)		(2,448	)		(3,850	)
Net cash used in investing activities		(34,466	)		(52,962	)		(246,421	)		(251,137	)

CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net		4,006			8,152			14,255			36,130
Dividends paid		(10,742	)		(9,998	)		(42,694	)		(39,449	)
Issuance of long-term debt, net		-			-			49,834			103,797
Retirement of long-term debt		(328	)		(5,346	)		(10,636	)		(200,573	)
Redemption of subordinated debentures		(100,000	)		-			(100,000	)		-
Change in long-term portion of credit facility		(47,400	)		(36,000	)		(69,000	)		64,000
Change in short-term debt		-			(55,000	)		-			-
Net cash used in financing activities		(154,464	)		(98,192	)		(158,241	)		(36,095	)

Change in cash and cash equivalents		(26,310	)		(2,617	)		15,223			6,373
Cash at beginning of period		65,315			26,399			23,782			17,409

Cash at end of period	$	39,005		$	23,782		$	39,005		$	23,782

Supplemental information:
Interest paid, net of amounts capitalized	$	20,676		$	21,325		$	80,122		$	88,751
Income taxes paid (received)		(3,655	)		93			(25,364	)		17,044

The accompanying notes are an integral part of these statements.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Note 1 – Nature of Operations and Basis of Presentation

Nature of Operations. Southwest Gas Corporation and its subsidiaries (the “Company”) are composed of two segments: natural gas operations (“Southwest” or the “natural gas operations” segment) and construction services. Southwest is engaged in the business of purchasing, distributing, and transporting natural gas in portions of Arizona, Nevada, and California. The public utility rates, practices, facilities, and service territories of Southwest are subject to regulatory oversight. The timing and amount of rate relief can materially impact results of operations. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of the results for a full year. Variability in weather from normal temperatures, primarily in Arizona, can materially impact results of operations. Natural gas purchases and the timing of related recoveries can materially impact liquidity. NPL Construction Co. (“NPL” or the “construction services” segment), a wholly owned subsidiary, is a full-service underground piping contractor that provides utility companies with trenching and installation, replacement, and maintenance services for energy distribution systems.

Basis of Presentation. The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair presentation of the results for the interim periods, have been made. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the 2009 Annual Report to Shareholders, which is incorporated by reference into the 2009 Form 10-K.

Intercompany Transactions. NPL recognizes revenues generated from contracts with Southwest (see Note 3 below). Accounts receivable for these services were $5.1 million at March 31, 2010 and $5.3 million at December 31, 2009. The accounts receivable balance, revenues, and associated profits are included in the condensed consolidated financial statements of the Company and were not eliminated during consolidation in accordance with accounting treatment for rate-regulated entities.

Other Income (Deductions). The following table provides the composition of significant items included in Other income (deductions) on the consolidated statements of income (thousands of dollars):

	Three Months Ended						Twelve Months Ended
	March 31						March 31
	2010			2009			2010			2009

Change in COLI policies	$	1,490		$	(1,594	)	$	11,630		$	(11,535	)
Interest income		21			144			148			1,556
Miscellaneous income and (expense)		(2,034	)		(254	)		(3,952	)		(3,664	)

Total other income (deductions)	$	(523	)	$	(1,704	)	$	7,826		$	(13,643	)

Included in the table above is the change in cash surrender values of company-owned life insurance (“COLI”) policies. These life insurance policies on members of management and other key employees are used by Southwest to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. Current tax regulations provide for tax-free treatment of life insurance (death benefit) proceeds. Therefore, the change in the cash surrender value components of COLI policies as they progress toward the ultimate death benefits are also recorded without tax consequences. See the 2009 Annual Report to Shareholders for additional information about the COLI policies.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Note 2 – Components of Net Periodic Benefit Cost

Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all employees and a separate unfunded supplemental retirement plan (“SERP”) which is limited to officers. Southwest also provides postretirement benefits other than pensions (“PBOP”) to its qualified retirees for health care, dental, and life insurance benefits.


	Qualified Retirement Plan
	Period Ended March 31,
	Three Months						Twelve Months
	2010			2009			2010			2009
(Thousands of dollars)
Service cost	$	4,233		$	3,848		$	15,775		$	15,929
Interest cost		8,904			8,631			34,800			33,000
Expected return on plan assets		(9,135	)		(8,805	)		(35,551	)		(34,841	)
Amortization of prior service costs (credits)		-			(1	)		(1	)		(10	)
Amortization of net loss		2,620			1,063			5,810			3,391
Net periodic benefit cost	$	6,622		$	4,736		$	20,833		$	17,469


	SERP
	Period Ended March 31,
	Three Months						Twelve Months
	2010			2009			2010			2009
(Thousands of dollars)
Service cost	$	93		$	49		$	239		$	121
Interest cost		511			516			2,060			2,047
Amortization of net loss		289			227			971			975
Net periodic benefit cost	$	893		$	792		$	3,270		$	3,143


	PBOP
	Period Ended March 31,
	Three Months						Twelve Months
	2010			2009			2010			2009
(Thousands of dollars)
Service cost	$	214		$	182		$	761		$	729
Interest cost		623			593			2,400			2,336
Expected return on plan assets		(523	)		(401	)		(1,725	)		(2,004	)
Amortization of transition obligation		217			217			867			867
Amortization of net loss		122			108			448			108
Net periodic benefit cost	$	653		$	699		$	2,751		$	2,036

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Note 3 – Segment Information

The following tables list revenues from external customers, intersegment revenues, and segment net income (thousands of dollars):

	Natural Gas		Construction
	Operations		Services			Total
Three months ended March 31, 2010
Revenues from external customers	$	614,509	$	42,157		$	656,666
Intersegment revenues		-		12,085			12,085
Total	$	614,509	$	54,242		$	668,751
Segment net income (loss)	$	65,317	$	(669	)	$	64,648

Three months ended March 31, 2009
Revenues from external customers	$	635,106	$	41,595		$	676,701
Intersegment revenues		-		13,161			13,161
Total	$	635,106	$	54,756		$	689,862
Segment net income	$	49,852	$	129		$	49,981



Twelve months ended March 31, 2010
Revenues from external customers	$	1,594,246	$	226,969		$	1,821,215
Intersegment revenues		-		51,498			51,498
Total	$	1,594,246	$	278,467		$	1,872,713
Segment net income	$	94,885	$	7,264		$	102,149

Twelve months ended March 31, 2009
Revenues from external customers	$	1,685,201	$	272,483		$	1,957,684
Intersegment revenues		-		63,314			63,314
Total	$	1,685,201	$	335,797		$	2,020,998
Segment net income	$	54,266	$	7,536		$	61,802

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Note 4 – Derivatives and Fair Value Measurements

Derivatives. In managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. In 2008, Southwest also began utilizing fixed-for-floating swap contracts (“Swaps”) to supplement its fixed-price contracts. The fixed-price contracts, firm commitments to purchase a fixed amount of gas in the future at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business and are exempt from fair value reporting. The variable-price contracts have no significant market value. The Swaps are recorded at fair value.

The fixed-price contracts and Swaps are utilized by Southwest under its volatility mitigation programs to effectively fix the price on approximately 50 percent of its natural gas portfolios. The maturities of the Swaps highly correlate to forecasted purchases of natural gas, during timeframes ranging from April 2010 through October 2011. Under such contracts, Southwest pays the counterparty at a fixed rate and receives from the counterparty a floating rate per MMBtu (“dekatherm”) of natural gas. Only the net differential is actually paid or received. The differential is calculated based on the notional amounts under the contracts (approximately 11.6 million dekatherms at March 31, 2010 and 13.6 million dekatherms at December 31, 2009). Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.

The following table sets forth the gains and (losses) recognized on the Company's Swaps (derivatives) for the three months and twelve months ended March 31, 2010 and 2009 and their location in the income statement (thousands of dollars):

Derivatives not designated as hedging instruments:

	Location of Gain or (Loss) Recognized
	in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
		Three Months Ended								Twelve Months Ended
		March 31								March 31
		2010				2009				2010				2009
Swaps	Net cost of gas sold	$	(16,342	)		$	(8,968	)		$	(11,765	)		$	(27,670	)
Swaps	Net cost of gas sold		16,342		*		8,968		*		11,765		*		27,670		*
Total		$	-			$	-			$	-			$	-

* Represents the impact of regulatory deferral accounting treatment under U.S. GAAP for rate-regulated entities.

In January 2010, Southwest entered into two forward starting interest rate swaps (“FSIRS”) to hedge the risk of interest rate variability during the period leading up to the planned issuance of 10-year fixed-rate debt in December 2010 and March 2012, to replace $200 million of debt maturing in February 2011 and $200 million maturing in May 2012, respectively. The counterparties to both agreements comprise four major banking institutions. The first FSIRS has a notional amount of $125 million (with Southwest as the fixed-rate payer at a rate of 4.26%) and has a mandatory termination date on or before December 7, 2010. The second FSIRS has a notional amount of $100 million (with Southwest as the fixed-rate payer at a rate of 4.78%) and has a mandatory termination date on or before March 20, 2012.

Southwest has designated the FSIRS agreements as cash flow hedges of forecasted future interest payments. At the inception of the hedges, the terms of the derivatives are the same as perfect hypothetical derivatives; thus, there is an expectation that there will be no ineffectiveness, and that the effective portion of unrealized gains and losses on the FSIRS leading up to the forecasted debt issuances will be reported as a component of other comprehensive income. At termination, the final values will be reclassified from accumulated other comprehensive income into earnings over the terms of the debt issuances which is the same period the hedged forecasted transaction affects earnings. However, should conditions occur that indicate the existence of ineffectiveness (e.g., deterioration of counterparty creditworthiness, delay in the forecasted debt issuances, etc.), Southwest will measure ineffectiveness by comparing changes in the fair value of each FSIRS with changes in the fair value of a hypothetical swap (the hypothetical derivative method). Gains and losses due to ineffectiveness will be recognized immediately as part of interest expense. See Note 7 – Equity and

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Comprehensive Income for additional information. At March 31, 2010, the FSIRS were effective hedges. There was no gain or (loss) reclassified from accumulated other comprehensive income (“AOCI”) into income (effective portion) and no gain or (loss) recognized in income (ineffective portion) for the Company’s derivatives designated as hedging instruments.

The following table sets forth the gains and (losses) recognized on the Company's FSIRS (thousands of dollars):

Derivatives Designated as Hedging Instruments:


	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)

Derivatives in cash flow hedging relationships	March 31, 2010


Three months ended:
Interest rate swaps - FSIRS	$	(987	)

Twelve months ended:
Interest rate swaps - FSIRS	$	(987	)

The following table sets forth the fair values of the Company's Swaps and FSIRS and their location in the balance sheets (thousands of dollars):

Derivatives not designated as hedging instruments:

March 31, 2010		Asset		Liability
	Balance Sheet Location	Derivatives		Derivatives			Net Total
Swaps	Other current liabilities	$	-	$	(12,970	)	$	(12,970	)
Swaps	Other deferred credits		4		(366	)		(362	)
Total		$	4	$	(13,336	)	$	(13,332	)

December 31, 2009		Asset		Liability
	Balance Sheet Location	Derivatives		Derivatives			Net Total
Swaps	Deferred charges and other assets	$	85	$	(27	)	$	58
Swaps	Prepaids and other current assets		2,921		(361	)		2,560
Swaps	Other current liabilities		309		(1,730	)		(1,421	)
Swaps	Other deferred credits		25		(100	)		(75	)
Total		$	3,340	$	(2,218	)	$	1,122


Derivatives designated as hedging instruments:

March 31, 2010		Asset		Liability
	Balance Sheet Location	Derivatives		Derivatives			Net Total
FSIRS	Other current liabilities	$	-	$	(792	)	$	(792	)
FSIRS	Other deferred credits		-		(195	)		(195	)
Total		$	-	$	(987	)	$	(987	)

There were no derivatives designated as hedging instruments at December 31, 2009.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

The estimated fair values of the derivatives were determined using future natural gas index prices (as more fully described below). The Company has master netting arrangements with each counterparty that provide for the net settlement of all contracts through a single payment. As applicable, the Company has elected to reflect the net amounts in its balance sheets.

Pursuant to regulatory deferral accounting treatment for rate-regulated entities, Southwest records the unrealized gains and losses in fair value of the Swaps as a regulatory asset and/or liability. When the Swaps settle, Southwest reverses any prior positions held and records the settled position as an increase or decrease of purchased gas under the related purchased gas adjustment (“PGA”) mechanism in determining its deferred PGA balances. During the three months ended March 31, 2010, Southwest paid counterparties $2.7 million and received from counterparties $831,000 in settlements of matured Swaps. Neither changes in the fair value of the Swaps nor settled amounts have a direct effect on earnings or other comprehensive income. At March 31, 2010, regulatory assets/liabilities offsetting the amounts in the balance sheet were recorded in Prepaids and other current assets ($13 million) and Deferred charges and other assets ($362,000). At December 31, 2009, regulatory assets/liabilities offsetting the amounts in the balance sheet were recorded in Prepaids and other current assets ($1.4 million), Other current liabilities ($2.6 million), Other deferred credits ($58,000), and Deferred charges and other assets ($75,000).

Fair Value Measurements. The estimated fair values of Southwest’s Swaps were determined at March 31, 2010 and December 31, 2009 using NYMEX futures settlement prices for delivery of natural gas at Henry Hub adjusted by the price of NYMEX ClearPort basis Swaps, which reflect the difference between the price of natural gas at a given delivery basin and the Henry Hub pricing points. These Level 2 inputs are observable in the marketplace throughout the full term of the Swaps, but have been credit-risk adjusted with no significant impact to the overall fair value measure.

The estimated fair values of Southwest’s FSIRS were determined using a discounted cash flow model that utilizes forecasted interest rate curves. The inputs to the model are the terms of the FSIRS. These Level 2 inputs are observable in the marketplace throughout the full term of the FSIRS, but have been credit-risk adjusted with no significant impact to the overall fair value measure.

The following table sets forth, by level within the three-level fair value hierarchy that ranks the inputs used to measure fair value by their reliability, the Company's financial assets and liabilities that were accounted for at fair value:

Level 2 - Significant other observable inputs

(Thousands of dollars)	March 31, 2010			December 31, 2009

Assets at fair value:
Prepaids and other current assets - Swaps	$	-		$	2,560
Deferred charges and other assets - Swaps		-			58

Liabilities at fair value:
Other current liabilities - Swaps		(12,970	)		(1,421	)
Other deferred credits - Swaps		(362	)		(75	)
Other current liabilities - FSIRS		(792	)		-
Other deferred credits - FSIRS		(195	)		-

Net Assets (Liabilities)	$	(14,319	)	$	1,122

No financial assets or liabilities fell within Level 1 or Level 3 of the fair value hierarchy.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Note 5 – Redemption of Subordinated Debentures

In June 2003, the Company created Southwest Gas Capital II (“Trust II”), a wholly owned subsidiary, as a financing trust for the sole purpose of issuing preferred trust securities for the benefit of the Company. In August 2003, Trust II publicly issued $100 million of 7.70% Preferred Trust Securities (“Preferred Trust Securities”). In connection with the Trust II issuance of the Preferred Trust Securities and the related purchase by the Company for $3.1 million of all of the Trust II common securities (“Common Securities”), the Company issued $103.1 million principal amount of its 7.70% Junior Subordinated Debentures (“Subordinated Debentures”) to Trust II. The Subordinated Debentures became redeemable at the option of the Company in August 2008.

In February 2010, the Company notified holders of the Subordinated Debentures that all of these debentures (and the associated preferred and common securities) would be redeemed (at par) by the Company in March 2010. All of the outstanding Subordinated Debentures were redeemed in March 2010. The Company accomplished the redemption using existing cash and borrowings under the $300 million credit facility.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Note 6 – Long-Term Debt

Carrying amounts of the Company’s long-term debt and their related estimated fair values as of March 31, 2010 and December 31, 2009 are disclosed in the following table. The fair value of the revolving credit facility and the variable-rate IDRBs approximates carrying value. Market values for the debentures, fixed-rate IDRBs, and other indebtedness were determined based on dealer quotes using trading records for March 31, 2010 and December 31, 2009, as applicable, and other secondary sources which are customarily consulted for data of this kind.

	March 31, 2010					December 31, 2009
	Carrying			Market		Carrying			Market
	Amount			Value		Amount			Value
(Thousands of dollars)
Debentures:
Notes, 8.375%, due 2011	$	200,000		$	211,392	$	200,000		$	213,012
Notes, 7.625%, due 2012		200,000			220,922		200,000			219,240
8% Series, due 2026		75,000			91,310		75,000			87,005
Medium-term notes, 7.59% series, due 2017		25,000			28,895		25,000			27,858
Medium-term notes, 7.78% series, due 2022		25,000			29,608		25,000			28,275
Medium-term notes, 7.92% series, due 2027		25,000			30,293		25,000			28,848
Medium-term notes, 6.76% series, due 2027		7,500			8,125		7,500			7,723
Unamortized discount		(2,028	)				(2,196	)
		555,472					555,304
Revolving credit facility and commercial paper, due 2012		45,000			45,000		92,400			92,400
Industrial development revenue bonds:
Variable-rate bonds:
Tax-exempt Series A, due 2028		50,000			50,000		50,000			50,000
2003 Series A, due 2038		50,000			50,000		50,000			50,000
2008 Series A, due 2038		50,000			50,000		50,000			50,000
2009 Series A, due 2039		50,000			50,000		50,000			50,000
Fixed-rate bonds:
6.10% 1999 Series A, due 2038		12,410			11,840		12,410			11,443
5.95% 1999 Series C, due 2038		14,320			13,422		14,320			12,922
5.55% 1999 Series D, due 2038		8,270			7,343		8,270			7,038
5.45% 2003 Series C, due 2038 (rate resets in 2013)		30,000			31,885		30,000			31,422
5.25% 2003 Series D, due 2038		20,000			17,130		20,000			16,701
5.80% 2003 Series E, due 2038 (rate resets in 2013)		15,000			15,701		15,000			15,683
5.25% 2004 Series A, due 2034		65,000			58,309		65,000			55,979
5.00% 2004 Series B, due 2033		31,200			27,237		31,200			26,096
4.85% 2005 Series A, due 2035		100,000			83,214		100,000			79,469
4.75% 2006 Series A, due 2036		24,855			20,078		24,855			19,139
Unamortized discount		(3,608	)				(3,644	)
		517,447					517,411
Other		5,241			5,440		5,569			5,712
		1,123,160					1,170,684
Less: current maturities		(1,344	)				(1,327	)
Long-term debt, less current maturities	$	1,121,816				$	1,169,357

As noted in the table above, the Company has $200 million of 8.375% notes maturing in February 2011. The Company currently intends to issue new debentures in December 2010 to provide funding for this maturing obligation. The Company also has a $300 million credit facility that expires in May 2012 with sufficient current and forecasted capacity to provide funding for the $200 million of maturing debentures. Therefore, the $200 million of debentures due February 2011 continue to be shown as long-term obligations.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Note 7 – Equity and Comprehensive Income

The table below provides details of activity in equity during the first quarter of 2010.

	Southwest Gas Corporation Equity
							Accumulated
					Additional		Other						Non-
	Common Stock				Paid-in		Comprehensive			Retained			controlling
(In thousands, except per share amounts)	Shares		Amount		Capital		Income (Loss)			Earnings			Interest			Total
DECEMBER 31, 2009		45,092	$	46,722	$	792,339	$	(22,250	)	$	285,316		$	(41	)	$	1,102,086
Common stock issuances		242		242		6,579											6,821
Net income (loss)											64,648			(188	)		64,460
Other comprehensive income (loss):
Net actuarial gain (loss) arising during period,
less amortization of unamortized benefit plan cost, net of tax								341									341
FSIRS unrealized gains (losses), net of tax								(612	)								(612	)
Dividends declared
Common: $0.25 per share											(11,494	)					(11,494	)
MARCH 31, 2010		45,334	$	46,964	$	798,918	$	(22,521	)	$	338,470		$	(229	)	$	1,161,602

The tables below are designed to provide details of comprehensive income and year-to-date activity in AOCI. See Note 4 – Derivatives and Fair Value Measurements for additional information on the FSIRS.

Comprehensive Income
	Three Months Ended						Twelve Months Ended
	March 31,						March 31,
	2010			2009			2010			2009
				(Thousands of dollars)

Net income	$	64,460		$	49,981		$	101,597		$	61,802
Net actuarial gain (loss) arising during period,
less amortization of unamortized benefit plan cost, net of tax		341			207			(2,690	)		(6,571	)
FSIRS unrealized gains (losses), net of tax		(612	)		-			(612	)		-
Comprehensive income		64,189			50,188			98,295			55,231
Comprehensive income (loss) attributable to noncontrolling interest		(188	)		-			(552	)		-
Comprehensive income attributable to Southwest Gas Corporation	$	64,377		$	50,188		$	98,847		$	55,231



Tax (expense) benefit associated with net
actuarial gain (loss) arising during period	$	(210	)	$	(126	)	$	1,648		$	4,028

Tax (expense) benefit associated with FSIRS
unrealized gain (loss) recognized in other comprehensive income	$	375		$	-		$	375		$	-

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

AOCI - Rollforward
(Thousands of dollars)
	Defined Benefit Plans										FSIRS
				Tax										Tax						AOCI
	Before-			(Exense)							Before-			(Expense)
	Tax			Benefit			After-Tax				Tax			Benefit		After-Tax
Beginning Balance AOCI December 31, 2009	$	(35,887	)	$	13,637		$	(22,250	)		$	-		$	-	$	-			$	(22,250	)
Current period change		551			(210	)		341		*		(987	)		375		(612	)	**		(271	)
Ending Balance in AOCI March 31, 2010	$	(35,336	)	$	13,427		$	(21,909	)		$	(987	)	$	375	$	(612	)		$	(22,521	)

* Net actuarial gain (loss), less amortization of unamortized benefit plan cost
** FSIRS unrealized gain (loss) recognized in other comprehensive income

Based on the current FSIRS position, an insignificant amount of the FSIRS existing gains (losses) reported in AOCI at March 31, 2010 is expected to be reclassified into earnings within the next twelve months.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Southwest Gas Corporation and its subsidiaries (the “Company”) consist of two business segments: natural gas operations (“Southwest” or the “natural gas operations” segment) and construction services.

Southwest is engaged in the business of purchasing, distributing, and transporting natural gas in portions of Arizona, Nevada, and California. Southwest is the largest distributor in Arizona, selling and transporting natural gas in most of central and southern Arizona, including the Phoenix and Tucson metropolitan areas. Southwest is also the largest distributor of natural gas in Nevada, serving the Las Vegas metropolitan area and northern Nevada. In addition, Southwest distributes and transports natural gas in portions of California, including the Lake Tahoe area and the high desert and mountain areas in San Bernardino County.

On a seasonally adjusted basis as of March 31, 2010, Southwest had 1,830,000 residential, commercial, industrial, and other natural gas customers, of which 990,000 customers were located in Arizona, 658,000 in Nevada, and 182,000 in California. Residential and commercial customers represented over 99 percent of the total customer base. During the twelve months ended March 31, 2010, 54 percent of operating margin was earned in Arizona, 35 percent in Nevada, and 11 percent in California. During this same period, Southwest earned 86 percent of operating margin from residential and small commercial customers, 4 percent from other sales customers, and 10 percent from transportation customers. These general patterns are expected to continue.

Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating margin is the measure of gas operating revenues less the net cost of gas sold. Management uses operating margin as a main benchmark in comparing operating results from period to period. The principal factors affecting operating margin are general rate relief, weather, conservation and efficiencies, and customer growth. Of these, weather is the primary reason for volatility in margin. Variances in temperatures from normal levels, primarily in Arizona, can have a significant impact on the margin and associated net income of the Company. A decoupled rate structure adopted as part of the Nevada general rate case, effective November 2009, is designed to mitigate the impact of weather variability on margin in Nevada service territories. Weather impacts are substantially offset by the margin tracking mechanism in Southwest’s California service territories.

NPL Construction Co. (“NPL” or the “construction services” segment), a wholly owned subsidiary, is a full-service underground piping contractor that provides utility companies with trenching and installation, replacement, and maintenance services for energy distribution systems. NPL operates in 17 major markets nationwide. Construction activity is cyclical and can be significantly impacted by changes in general and local economic conditions, including the housing market, interest rates, employment levels, job growth, the equipment resale market, and local and federal tax rates. Generally, revenues and profits are lowest during the first quarter of the year due to less favorable winter weather conditions. Operating results typically improve as more favorable weather conditions occur during the summer and fall months.

This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the notes thereto, as well as the MD&A, included in the 2009 Annual Report to Shareholders, which is incorporated by reference into the 2009 Form 10-K.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Executive Summary

The items discussed in this Executive Summary are intended to provide an overview of the results of the Company’s operations. As needed, certain items are covered in greater detail in later sections of management’s discussion and analysis. As reflected in the table below, the natural gas operations segment accounted for an average of 91 percent of twelve-month-to-date consolidated net income over the past two years. As such, management’s discussion and analysis is primarily focused on that segment. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of the results for a full year.

Summary Operating Results
	Period Ended March 31,
	Three Months					Twelve Months
	2010			2009		2010		2009
	(In thousands, except per share amounts)

Contribution to net income
Natural gas operations	$	65,317		$	49,852	$	94,885	$	54,266
Construction services		(669	)		129		7,264		7,536
Net income	$	64,648		$	49,981	$	102,149	$	61,802

Average number of common
shares outstanding		45,221			44,424		44,948		43,825

Basic earnings per share
Consolidated	$	1.43		$	1.13	$	2.27	$	1.41

Natural Gas Operations
Operating margin	$	262,254		$	239,296	$	771,171	$	734,113

Consolidated results for the first quarter of 2010 increased compared to the same period in 2009 primarily due to a significant improvement in natural gas segment operating results. The Company achieved net income of $64.6 million, a record for any quarterly period in its history. Basic earnings per share of $1.43 were the highest quarterly total in at least the past 25 years.

1st Quarter 2010 Overview

Natural gas operations highlights include the following:

·	Operating margin increased approximately $23 million, or 10 percent, compared to the prior-year’s quarter primarily due to improved weather ($13 million) and rate relief in Nevada ($9 million) and California ($1 million)

·	$100 million of 7.70% Subordinated Debentures redeemed at par in March 2010

·	Paiute rate case settlement approved by the FERC in April 2010

·	Quarterly dividend increased from 23.75 cents to 25 cents per share, effective with the June 2010 payment

·	Standard & Poor’s revised the Company’s credit rating outlook to positive from stable

·	Liquidity position remains strong

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Weather and Conservation. The rate structures in each of Southwest’s three states provide varying levels of protection from risks that drive operating margin volatility, particularly weather risk and conservation efforts. Southwest’s exposure to these risks on operating margin is largely limited to its Arizona operating areas as both Nevada and California operations are now under decoupled rate structures. During the first quarter of 2010, weather had a positive influence on operating margin as temperatures in Arizona were relatively normal, whereas, in the first quarter of 2009, the estimated weather impact on operating margin was a reduction of $13 million as Arizona experienced one of its warmest winters in 100 years.

Additionally, throughout 2009 Southwest experienced a decline in consumption over and above the more typical impacts of conservation from improvements in new construction practices and energy efficient appliances. This excess decline was attributed to the impact of the difficult economic environment and, in particular, vacant homes. During the first quarter of 2010, Southwest noted an overall increase in average residential customer consumption, but this improvement was largely driven by cooler weather. Southwest continues to note an excessive number of vacant homes as compared to historical levels. Consequently, further economic-related declines are possible. Southwest continues to work with Arizona regulators on decoupling initiatives to mitigate the impacts of declining consumption.

Customer Growth. Southwest completed 17,000 first-time meter sets over the last twelve months. These meter sets led to 9,000 net additional active customers. Southwest continues to project sluggish net customer growth (1% or less) for the year.

FERC General Rate Case. In April 2010, the Federal Energy Regulatory Commission (“FERC”) approved an offer of settlement from Paiute Pipeline Company, a subsidiary of the Company, which resolved all issues related to its general rate case. The settlement provides for an increase of approximately $900,000 in annual operating income. See Rates and Regulatory Proceedings for more information.

Credit Rating – Outlook Revised. In April 2009, Standard & Poor’s Ratings Services (“S&P”) upgraded the Company’s unsecured long-term debt ratings from BBB- (with a positive outlook) to BBB (with a stable outlook). In April 2010, S&P affirmed the BBB rating and revised the Company’s outlook to “positive.” S&P cited the Company’s stronger financial performance and an improved debt to capital ratio. S&P debt ratings range from AAA (highest rating possible) to D (obligation is in default). The S&P rating of BBB indicates the issuer of the debt is regarded as having an adequate capacity to pay interest and repay principal.

Liquidity. Southwest believes its liquidity position remains strong. Southwest has a $300 million credit facility maturing in May 2012, $150 million of which is designated for working capital needs. The facility is provided through a consortium of eight major banking institutions. Usage of the facility in the first quarter of 2010 was minimal. The outstanding balance at March 31 was $45 million leaving $255 million available for long-term and working capital needs. The lower usage was primarily due to improved profitability, natural gas prices that were relatively stable, and gas-cost related rate mechanisms that favorably impacted operating cash flows. In the first quarter of 2010, cash and borrowings under the credit facility were used by the Company to redeem $100 million in subordinated debentures. The current slowdown in housing construction has also allowed Southwest to fund construction expenditures primarily with internally generated cash.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Results of Natural Gas Operations

Quarterly Analysis
	Three Months Ended
	March 31,
	2010			2009
	(Thousands of dollars)
Gas operating revenues	$	614,509		$	635,106
Net cost of gas sold		352,255			395,810
Operating margin		262,254			239,296
Operations and maintenance expense		86,705			84,662
Depreciation and amortization		42,696			42,339
Taxes other than income taxes		9,766			10,111
Operating income		123,087			102,184
Other income (expense)		(531	)		(1,786	)
Net interest deductions		18,024			18,182
Net interest deductions on subordinated debentures		1,912			1,933
Income before income taxes		102,620			80,283
Income tax expense		37,303			30,431
Contribution to consolidated net income	$	65,317		$	49,852

Contribution to consolidated net income from natural gas operations improved $15.5 million in the first quarter of 2010 compared to 2009. The improvement in contribution reflects increased operating margin and improved other income, partially offset by higher operating expenses.

Operating margin increased $23 million in the first quarter of 2010 compared to the first quarter of 2009. Differences in heating demand, caused primarily by weather variations, provided $13 million of the operating margin increase as temperatures in the current quarter were normal, while temperatures were significantly warmer than normal in the first quarter of 2009. Rate relief provided $10 million of the operating margin increase, consisting of $9 million in Nevada and $1 million in California. Customer growth had a negligible impact as 9,000 net new customers were added during the last twelve months.

Operations and maintenance expense increased $2 million, or two percent, principally due to higher employee-related and general costs.

Depreciation expense increased $357,000, or one percent, as a result of additional plant in service, partially offset by lower depreciation rates in the Nevada rate jurisdictions, effective June 2009. Average gas plant in service for the current period increased $153 million, or four percent, compared to the corresponding period a year ago. This was attributable to new business, reinforcement work, franchise requirements, routine pipe replacement activities, and the addition of two new operations centers in southern Nevada in the second quarter of 2009.

Other income improved $1.3 million between quarters as the cash surrender values of COLI policies increased by $1.5 million in the first quarter of 2010 compared to a decrease of $1.6 million in the prior-year quarter, partially offset by a $1.3 million increase in costs associated with certain Arizona non-recoverable pipe replacement work.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Twelve-Month Analysis
	Twelve Months Ended
	March 31,
	2010		2009
	(Thousands of dollars)
Gas operating revenues	$	1,594,246	$	1,685,201
Net cost of gas sold		823,075		951,088
Operating margin		771,171		734,113
Operations and maintenance expense		350,985		338,116
Depreciation and amortization		167,207		168,031
Taxes other than income taxes		36,973		36,697
Operating income		216,006		191,269
Other income (expense)		7,845		(13,729	)
Net interest deductions		73,933		79,926
Net interest deductions on subordinated debentures		7,710		7,730
Income before income taxes		142,208		89,884
Income tax expense		47,323		35,618
Contribution to consolidated net income	$	94,885	$	54,266

Contribution to consolidated net income from natural gas operations increased by $40.6 million in the current twelve-month period as compared to the corresponding period a year ago. The improvement in contribution was a result of increased operating margin, a substantial improvement in other income, and reduced financing costs, partially offset by an increase in operating expenses.

Operating margin increased $37 million between periods. Rate relief and rate changes provided a net $18 million increase, consisting of rate relief of $16 million in Arizona, $11 million in Nevada, and $3 million in California, partially offset by a decrease of $12 million related to the return to a seasonal margin methodology in California in 2009. Differences in heating demand caused primarily by weather variations between periods resulted in a $23 million operating margin increase as warmer-than-normal temperatures were experienced during both periods (during the twelve-month period of 2010, operating margin was negatively impacted by $5 million, while the negative impact in the twelve-month period of 2009 was $28 million). Customer growth contributed $1 million in operating margin. Conservation resulting from current economic conditions and energy efficiency negatively impacted operating margin by an estimated $5 million.

Operations and maintenance expense increased $12.9 million, or four percent, primarily due to general cost increases and higher employee-related benefit costs.

Depreciation expense decreased $824,000 as a result of lower depreciation rates in the California ($3 million annualized reduction) and Nevada ($2.3 million annualized reduction) rate jurisdictions effective in January and June 2009, respectively. Average gas plant in service for the current period increased $178 million, or four percent, compared to the corresponding period a year ago.

Other income improved $21.6 million between the twelve-month periods of 2010 and 2009. This was primarily due to an $11.6 million increase in the cash surrender values of COLI policies in the current period compared to cash surrender value declines in the prior period of $11.5 million, partially offset by a $1.4 million reduction in interest income between the twelve-month periods.

Net financing costs decreased $6 million between the twelve-month periods of 2010 and 2009 primarily due to a reduction in outstanding debt and lower interest rates associated with Southwest’s commercial credit and other variable-rate facilities.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Results of Construction Services

Contribution to consolidated net income from construction services for the three months ended March 31, 2010 decreased $798,000 compared to the same period of 2009. Gains on sales of equipment were $232,000 and $1.1 million for the first quarters of 2010 and 2009, respectively. NPL’s operating results continue to be influenced by the general slowdown in the new housing market. It is anticipated that the current economic environment will continue to impact construction services results in 2010.

Revenues decreased $514,000 primarily due to the impact of poor weather conditions in the majority of NPL’s operating areas during the first quarter of 2010 as compared to the first quarter of 2009. Construction expenses increased $2.6 million due primarily to higher fuel and fuel-related expenses and a decrease in gains on sales of equipment between the current and prior-year first quarters. Depreciation expense declined $1.2 million between the quarters.

Contribution to consolidated net income from construction services for the twelve-month period of 2010 decreased $272,000 compared to the same period of 2009. Gains on sales of equipment were $2.5 million and $2.4 million for the twelve-month periods of 2010 and 2009, respectively.

Revenues decreased $57.3 million due primarily to a reduction in the volume of new construction work resulting from the general slowdown in the new housing market. Construction expenses decreased $49.2 million between the twelve-month periods due to the reduction in work, while depreciation expense declined $4.9 million. Interest expense decreased $791,000 between the twelve-month periods due to a reduction in outstanding debt.

NPL’s revenues and operating profits are influenced by weather, customer requirements, mix of work, local economic conditions, bidding results, and the equipment resale market. Generally, revenues and profits are lowest during the first quarter of the year due to unfavorable winter weather conditions. Operating results typically improve as more favorable weather conditions occur during the summer and fall months.

Rates and Regulatory Proceedings

California General Rate Cases. Effective January 2009, Southwest received general rate relief in California. The California Public Utilities Commission (“CPUC”) decision authorized an overall increase of $2.8 million in 2009 with an additional $400,000 deferred to 2010. In addition, attrition increases were approved to be effective for the years 2010-2013 of 2.95% in southern and northern California and approximately $100,000 per year for the South Lake Tahoe rate jurisdiction. In October 2009, Southwest filed for attrition increases which were approved effective January 2010 in the amount of $2.7 million (including the $400,000 previously deferred).

FERC General Rate Case. Paiute Pipeline Company (“Paiute”), a subsidiary of the Company, filed a general rate case with the FERC in February 2009. The filing fulfilled an obligation from the settlement agreement reached in the 2005 Paiute general rate case. The application requested an increase in operating revenues of approximately $3.9 million. In accordance with FERC requirements, the requested new rates went into effect in September 2009, subject to refund. In April 2010, the FERC approved an offer of settlement from Paiute which resolved all issues related to its general rate case. The settlement provides for an increase of approximately $900,000 in Paiute’s annual operating income. Paiute has been accruing a liability for the difference between the requested rates and the anticipated settlement rates since September 2009. As of March 31, 2010, Paiute has accrued approximately $2 million for refunds to customers.

Arizona energy efficiency and decoupling proceeding. The Arizona Corporation Commission (“ACC”) convened a series of workshops starting in 2009 to evaluate “rate and regulatory incentives” and establish standards to promote energy efficiency and conservation for utility customers. In conjunction with these workshops, Southwest and other interested parties submitted proposed regulations to the ACC in June 2009. Rate designs which would decouple revenues from customer usage were the topic of much discussion in the proceeding, and were incorporated in several of the parties’ draft regulations. Additional workshops directly pertaining to revenue decoupling were recently held and will continue through the second quarter with a final decision outlining the related regulations expected by year-end.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

PGA Filings

The rate schedules in all of Southwest’s service territories contain provisions that permit adjustments 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 result in over- and under-collections. At March 31, 2010, over-collections in all service territories resulted in a liability of $93.3 million on the Company’s balance sheet. Filings to change rates in accordance with PGA clauses are subject to audit by state regulatory commission staffs. PGA changes impact cash flows but have no direct impact on profit margin. However, gas cost deferrals and recoveries can impact comparisons between periods of individual income statement components. These include Gas operating revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).

As of March 31, 2010, December 31, 2009, and March 31, 2009, Southwest had the following outstanding PGA balances payable (millions of dollars):

	March 31, 2010			December 31, 2009			March 31, 2009
Arizona	$	(30.9	)	$	(33.2	)	$	4.3
Northern Nevada		(5.5	)		1.2			1.5
Southern Nevada		(53.1	)		(60.0	)		(20.5	)
California		(3.8	)		2.0			(5.0	)
	$	(93.3	)	$	(90.0	)	$	(19.7	)

Capital Resources and Liquidity

Cash on hand and cash flows from operations have generally been sufficient over the past two years to provide for net investing activities (primarily construction expenditures and property additions). During the past two years, the Company has been able to use cash inflows to reduce the net amount of debt outstanding (including short-term borrowings). The Company’s capitalization strategy is to maintain an appropriate balance of equity and debt (including short-term borrowings).

To facilitate future financings, the Company has a universal shelf registration statement providing for the issuance and sale of registered securities from time to time, which may consist of secured debt, unsecured debt, preferred stock, or common stock. The number and dollar amount of securities issued under the universal shelf registration statement, which was filed with the SEC and automatically declared effective in December 2008, will be determined at the time of the offerings, if any, and presented in the applicable prospectuses.

Cash Flows

Operating Cash Flows. Cash flows provided by consolidated operating activities increased $14.1 million in the first quarter of 2010 as compared to the same period in 2009. The primary drivers of the change were an increase in net income between quarters and temporary fluctuations in working capital components.

Investing Cash Flows. Cash used in consolidated investing activities decreased $18.5 million in the first quarter of 2010 as compared to the same period in 2009. The decrease was primarily due to reductions in construction expenditures and equipment purchases, a result of the new housing market slowdown.

Financing Cash Flows. Cash used in consolidated financing activities increased $56.3 million during the first quarter of 2010 as compared to the same period in 2009 primarily due to debt repayments, including the redemption of the Subordinated Debentures. Dividends paid increased in the first quarter of 2010 as compared to 2009 as a result of a quarterly dividend increase and an increase in the number of shares outstanding.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

The capital requirements and resources of the Company generally are determined independently for the natural gas operations and construction services segments. Each business activity is generally responsible for securing its own financing sources. The capital requirements and resources of the construction services segment are not material to the overall capital requirements and resources of the Company.

Gas Segment Construction Expenditures, Debt Maturities, and Financing

During the twelve-month period ended March 31, 2010, construction expenditures for the natural gas operations segment were $194 million (including the construction of two new operations centers for the Southern Nevada Division completed in the second quarter of 2009). Approximately 49 percent of these expenditures represented new construction and the balance represented costs associated with routine replacement of existing transmission, distribution, and general plant. Cash flows from operating activities of Southwest were $396 million which provided sufficient funding for construction expenditures and dividend requirements of the natural gas operations segment.

Southwest estimates natural gas segment construction expenditures during the three-year period ending December 31, 2012 will be approximately $570 million. Of this amount, approximately $200 million are expected to be incurred in 2010. During the three-year period, cash flows from operating activities of Southwest are expected to provide sufficient funding for the gas operations total construction expenditures and dividend requirements. During the three-year period, the Company expects to raise $8 million to $10 million from its various common stock programs. Any cash requirements not met by operating activities are expected to be provided by existing credit facilities and/or other external financing sources. The timing, types, and amounts of these additional external financings will be dependent on a number of factors, including conditions in the capital markets, timing and amounts of rate relief, growth levels in Southwest service areas, and earnings. These external financings may include the issuance of both debt and equity securities, bank and other short-term borrowings, and other forms of financing.

In March 2010, the Company redeemed the $100 million, 7.70% Subordinated Debentures (Preferred Securities) at par. The Company facilitated the redemption using existing cash and borrowings under the $300 million credit facility.

Southwest has $200 million of long-term debt maturing in February 2011 and $200 million maturing in May 2012. The Company currently intends to issue $250 million of new debentures in December 2010 and $200 million of debentures in March 2012 to provide funding for the maturing obligations (and a portion of the redeemed Subordinated Debentures). In connection with these planned debt issuances, the Company, in January 2010, entered into two forward-starting interest rate swap (“FSIRS”) agreements to hedge the risk of interest rate variability during the period leading up to the planned issuances. See Note 4 – Derivatives and Fair Value Measurements for more information on the FSIRS.

During the quarter ended March 31, 2010, the Company issued shares of common stock through the Dividend Reinvestment and Stock Purchase Plan (“DRSPP”) and for exercised stock options, raising approximately $4 million. Beginning in the second quarter of 2010, the Company plans to cease issuing new common stock under the DRSPP (the DRSPP will purchase shares on the open market as needed).

Dividend Policy

The Company has a common stock dividend policy which states that common stock dividends will be paid at a prudent level that is within the normal dividend payout range for its respective businesses, and that the dividend will be established at a level considered sustainable in order to minimize business risk and maintain a strong capital structure throughout all economic cycles. In February 2010, the Board of Directors increased the quarterly dividend payout from 23.75 cents to 25 cents per share, effective with the June 2010 payment.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

Liquidity

Liquidity refers to the ability of an enterprise to generate sufficient amounts of cash through its operating activities and external financing to meet its cash requirements. Several general 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 the ratemaking policies of regulatory commissions, regulatory lag, customer growth in the natural gas segment’s service territories, Southwest’s ability to access and obtain capital from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of Company earnings. Natural gas prices and related gas cost recovery rates have historically had the most significant impact on Company liquidity.

On an interim basis, Southwest generally defers over- or under-collections of gas costs to PGA balancing accounts. In addition, Southwest 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 March 31, 2010, the combined balance in the PGA accounts totaled an over-collection of $93.3 million. See PGA Filings for more information on recent regulatory filings.

The Company has a $300 million credit facility that expires in May 2012. Southwest has designated $150 million of the $300 million facility as long-term debt and the remaining $150 million for working capital purposes. At March 31, 2010, $45 million was outstanding on the long-term portion and no borrowings were outstanding on the short-term portion of the credit facility. The credit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, if any. This credit facility has been, and is expected to continue to be, adequate for Southwest’s working capital needs outside of funds raised through operations and other types of external financing. Management believes the Company currently has a solid liquidity position.

The following table sets forth the ratios of earnings to fixed charges for the Company. Due to the seasonal nature of the Company’s business, these ratios are computed on a twelve-month basis:

	For the Twelve Months Ended
	March 31,	December 31,
	2010	2009

Ratio of earnings to fixed charges	2.70	2.46

Earnings are defined as the sum of pretax income plus fixed charges. Fixed charges consist of all interest expense including capitalized interest, one-third of rent expense (which approximates the interest component of such expense), and net amortized debt costs.

Forward-Looking Statements

This quarterly report contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“Reform Act”). All statements other than statements of historical fact included or incorporated by reference in this quarterly report are forward-looking statements, including, without limitation, statements regarding the Company’s plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions. The words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” “forecast,” and similar words and expressions are generally used and intended to identify forward-looking statements. For example, statements regarding operating margin earned, customer growth, the composition of our customer base, price volatility, risks and costs associated with having non-performing assets associated with new homes, timing of improvements in the housing market, amount and timing for completion of estimated future construction expenditures, forecasted operating cash flows and results of operations, funding sources of cash requirements, sufficiency of working capital, bank lending practices, the Company’s views regarding its liquidity position, ability to raise funds and receive external financing, the amount and form of any such financing, future financing cost savings, the effectiveness of forward-starting interest rate swap agreements in hedging against changing interest rates, liquidity, the impact of the application of certain accounting standards, statements regarding future gas prices, gas

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

purchase contracts and derivative financial interests, the impact of certain legal proceedings, and the timing and results of future rate hearings and approvals are forward-looking statements. All forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act.

A number of important factors affecting the business and financial results of the Company could cause actual results to differ materially from those stated in the forward-looking statements. These factors include, but are not limited to, the impact of weather variations on customer usage, customer growth rates, conditions in the housing market, our ability to recover costs through our PGA mechanisms, the effects of regulation/deregulation, the timing and amount of rate relief, changes in rate design, changes in gas procurement practices, changes in capital requirements and funding, the impact of conditions in the capital markets on financing costs, changes in construction expenditures and financing, renewal of franchises, easements and rights-of-way, changes in operations and maintenance expenses, effects of pension expense forecasts, accounting changes, future liability claims, changes in pipeline capacity for the transportation of gas and related costs, acquisitions and management’s plans related thereto, competition, and our ability to raise capital in external financings. In addition, the Company can provide no assurance that its discussions regarding certain trends relating to its financing and operations and maintenance expenses will continue in future periods. For additional information on the risks associated with the Company’s business, see Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

All forward-looking statements in this quarterly report are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized. We caution you not to unduly rely on any forward-looking statement(s).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the Company’s 2009 Annual Report on Form 10-K filed with the SEC. No material changes have occurred related to the Company’s disclosures about market risk.

ITEM 4. CONTROLS AND PROCEDURES

The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and benefits of controls must be considered relative to their costs. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Based on the most recent evaluation, as of March 31, 2010, management of the Company, including the Chief Executive Officer and Chief Financial Officer, believe the Company’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.

There have been no changes in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the first quarter of 2010 that have materially affected, or are likely to materially affect, the Company’s internal controls over financial reporting.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is named as a defendant in various legal proceedings. The ultimate dispositions of these proceedings are not presently determinable; however, it is the opinion of management that none of this litigation individually or in the aggregate will have a material adverse impact on the Company’s financial position or results of operations.

ITEMS 1A. through 3. None.

ITEM 4. REMOVED AND RESERVED

ITEM 5. None.

ITEM 6. EXHIBITS

The following documents are filed as part of this report on Form 10-Q:

Exhibit 3(ii)	-	Amended Bylaws of Southwest Gas Corporation.
Exhibit 12.01	-	Computation of Ratios of Earnings to Fixed Charges.
Exhibit 31.01	-	Section 302 Certifications.
Exhibit 32.01	-	Section 906 Certifications.

SOUTHWEST GAS CORPORATION	Form 10-Q
March 31, 2010

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Southwest Gas Corporation
	(Registrant)

Date: May 7, 2010

	/s/ Roy R. Centrella
	Roy R. Centrella
	Vice President/Controller and Chief Accounting Officer