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 June 30, 2009, Southwest had 1,809,000 residential, commercial, industrial, and other natural gas customers, of which 978,000 customers were located in Arizona, 653,000 in Nevada, and 178,000 in California. Residential and commercial customers represented over 99 percent of the total customer base. During the twelve months ended June 30, 2009, 54 percent of operating margin was earned in Arizona, 34 percent in Nevada, and 12 percent in California. During this same period, Southwest earned 86 percent of operating margin from residential and small commercial customers, 5 percent from other sales customers, and 9 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, especially in Arizona where rates are highly leveraged, have a significant impact on the margin and associated net income of the Company.

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 currently operates in 19 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 2008 Annual Report to Shareholders, which is incorporated by reference into the 2008 Form 10-K, and the first quarter 2009 Form 10-Q.

SOUTHWEST GAS CORPORATION Form 10-Q
June 30, 2009

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 88 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 June 30,
                             Three Months                 Six Months                 Twelve Months
                          2009          2008          2009          2008          2009          2008
                                           (In thousands, except per share amounts)

Contribution to net
income (loss)
Natural gas
operations              $  (2,736 )   $  (4,907 )   $  47,116     $  44,426     $  56,437     $  71,147
Construction services       2,142         2,182         2,271         2,001         7,496         9,099
Net income (loss)       $    (594 )   $  (2,725 )   $  49,387     $  46,427     $  63,933     $  80,246

Average number of
common
  shares outstanding       44,730        43,324        44,578        43,168        44,176        42,865

Basic earnings (loss)
per share
Consolidated            $   (0.01 )   $   (0.06 )   $    1.11     $    1.08     $    1.45     $    1.87


Natural Gas
Operations
Operating margin        $ 149,059     $ 148,423     $ 388,355     $ 389,024     $ 734,749     $ 738,976

Contribution to consolidated net income (loss) from natural gas operations improved $2.2 million in the second quarter of 2009 compared to same period in 2008. The improvement in contribution primarily resulted from a $3.7 million increase in the cash surrender values of COLI policies in the second quarter of 2009 compared to a $500,000 decline in the second quarter of 2008. The construction services contribution was relatively consistent between quarters.

2nd Quarter 2009 Overview

Gas operations highlights include the following:
· Operating margin increased approximately $1 million, or less than 1 percent, compared to the prior-year's quarter as the positive impact of rate changes ($4 million) was substantially offset by the negative impacts of conservation/energy efficiencies ($2 million) and weather ($1 million)

· Operating expenses increased three percent between quarters

· Significant increase in COLI cash surrender values

· Net financing costs decreased $2.4 million between quarterly periods

· Liquidity position remains strong

· Nevada general rate case filing progressing on schedule

SOUTHWEST GAS CORPORATION Form 10-Q
June 30, 2009

Customers. During the twelve months ended June 30, 2009, Southwest completed 25,000 first-time meter sets. These meter sets led to just 3,000 net additional active meters between June 2008 and June 2009 on a seasonally adjusted basis. The difference between first-time meter sets and incremental active meters indicates a continuing build-up of unoccupied homes, continuing a trend first experienced during 2007. Southwest is projecting continued sluggish net growth (1% or less) for 2009 as high foreclosure rates and recessionary conditions persist throughout its service territories. Once housing supply and demand come back into balance, Southwest expects to experience a correction in which customer additions exceed first-time meter sets. Although management cannot predict the timing of a turn around, it is not likely to occur in the near term.

Weather. 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. During the first six months of 2009, the estimated weather impact on operating margin was a reduction of $17 million, including $13 million from the first quarter when Arizona experienced one of its warmest winters in 100 years. For comparison purposes, during the first half of 2008, weather resulted in an estimated favorable operating margin impact of $1 million.

In Southwest's California service territories, weather impacts were completely offset by the margin tracking mechanism allowing margin to grow as authorized in its most recent general rate case. In Nevada, the negative impacts were mitigated by a declining block rate structure. Most of the reduction occurred in Arizona, where rates are highly leveraged and a single block rate structure is in effect. In addition, the heating season is fairly condensed in Arizona, therefore variations from "normal" temperatures can cause material volatility in operating margin as over 50 percent of Southwest's annual operating margin is normally earned in Arizona.

Conservation, Energy Efficiencies, and Economic Impacts on Consumption. A significant portion of Southwest's operating margin (primarily in Arizona and partially in Nevada) is recognized based on the volumetric usage of its customers. Historically the impacts of this rate design methodology have been most pronounced when temperatures varied from normal levels. Over the longer-term, average usage has also declined due to new home construction practices and energy efficient appliances. Recently, the continued downturn in the economy and associated pro-active conservation efforts have resulted in an unprecedented drop in average per-customer usage. For the quarter and six months ended June 30, 2009, the estimated impact of these non-weather-related volumetric declines was a reduction to operating margin of $2 million and $8 million, respectively. Management expects this trend to continue until economic conditions improve. The decoupling methodology requested in the recent Nevada rate case, if approved as proposed, would mitigate this impact in Nevada. Management continues to work with regulators in Arizona to establish a decoupling methodology that would allow the Company to support and encourage conservation efforts without jeopardizing the recognition of authorized operating margin.

Company-Owned Life Insurance ("COLI"). Southwest has life insurance policies on members of management and other key employees to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. The COLI policies have a combined net death benefit value of approximately $137 million at June 30, 2009. The net cash surrender value of these policies (which is the cash amount that would be received if Southwest voluntarily terminated the policies) is approximately $51 million at June 30, 2009 and is included in the caption "Other property and investments" on the balance sheet. Policies with approximately $2.3 million of additional cash surrender value were purchased in the second quarter of 2009. Cash surrender values are directly influenced by the investment portfolio underlying the insurance policies. This portfolio includes both equity and fixed income (mutual fund) investments. As a result, generally the cash surrender value (but not the net death benefit) moves up and down consistent with the movements in the broader stock and bond markets. See the Other Income (Deductions) section of Note 1 - Nature of Operations and Basis of Presentation for additional details. Current tax regulations provide for tax-free treatment of life insurance (death benefit) proceeds. Therefore, the changes in the cash surrender value components of COLI policies as they progress toward the ultimate death benefits are also recorded without tax consequences. Currently, the Company intends to hold the COLI policies for their duration and purchase additional policies as necessary.

SOUTHWEST GAS CORPORATION Form 10-Q
June 30, 2009

Liquidity. During 2008, significant attention was paid to companies' liquidity and credit risks. Focus on these risks will likely continue given the current national economic environment. The Company has experienced no significant impacts to its liquidity position from the ongoing credit crisis. Southwest believes its liquidity position remains strong for several reasons. First, Southwest has a $300 million credit facility maturing in May 2012, $150 million of which is designated for working capital needs. The facility is composed of eight major banking institutions. Historically, usage of the facility has been low and concentrated in the first half of the winter heating period when gas purchases require temporary financing. Second, natural gas prices have remained low and beneficial rate mechanisms have resulted in steady gas-cost related operating cash flows. Third, Southwest has no significant debt maturities prior to February 2011. Because of Southwest's strong liquidity position, in December 2008, Southwest was able to take advantage of the current credit market by repurchasing $75 million of IDRBs at a net deferred gain of $14 million.

Credit Ratings. 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). S&P cited the Company's stronger financial performance due to reduced debt leverage and the recent general rate increase in the Company's Arizona service territory as reasons for the upgrade. The change in credit rating will result in an annualized estimated decrease of $200,000 to $300,000 in interest expense and fees on existing variable-rate debt.

SOUTHWEST GAS CORPORATION Form 10-Q
June 30, 2009

Results of Natural Gas Operations


Quarterly Analysis
                                                         Three Months Ended
                                                              June 30,
                                                         2009            2008
                                                       (Thousands of dollars)
Gas operating revenues                               $    316,744      $ 353,003
Net cost of gas sold                                      167,685        204,580
  Operating margin                                        149,059        148,423
Operations and maintenance expense                         86,846         83,603
Depreciation and amortization                              41,873         41,297
Taxes other than income taxes                               9,504          9,616
  Operating income                                         10,836         13,907
Other income (expense)                                      2,423           (636 )
Net interest deductions                                    18,531         20,938
Net interest deductions on subordinated debentures          1,932          1,932
  Income (loss) before income taxes                        (7,204 )       (9,599 )
Income tax expense (benefit)                               (4,468 )       (4,692 )
  Contribution to consolidated net income (loss)     $     (2,736 )    $  (4,907 )

Contribution to consolidated net income from natural gas operations improved $2.2 million in the second quarter of 2009 compared to 2008. The improvement in contribution reflects higher other income and operating margin and the benefit of lower financing costs, partially offset by an increase in operating expenses.

Operating margin increased by approximately $1 million in the second quarter of 2009 compared to the second quarter of 2008. Net rate changes positively impacted margin by approximately $4 million, consisting of rate relief of $6 million in Arizona and $1 million in California, partially offset by a $3 million decrease related to the return to a seasonal margin methodology in California. Conservation resulting from current economic conditions and energy efficiency negatively impacted operating margin by $2 million. Weather changes between quarters resulted in a $1 million margin decrease as somewhat warmer-than-normal temperatures were experienced during both quarters. Customer growth was not a factor as only 3,000 net new customers (on a comparative seasonally adjusted basis) were added during the last twelve months.

Operations and maintenance expense increased $3.2 million, or four percent, principally due to the impact of general cost increases.

Depreciation expense increased approximately $600,000, or one percent, as a result of additional plant in service, partially offset by lower depreciation rates in California in 2009. Average gas plant in service for the current period increased $203 million, or five percent, compared to the corresponding period a year ago. This was attributable to the upgrade of existing operating facilities and the expansion of the system.

Other income increased $3.1 million between quarters as the cash surrender values of COLI policies increased by $3.7 million in the second quarter of 2009 compared to a reduction of $500,000 in the prior-year quarter, partially offset by lower interest income.

Net financing costs decreased $2.4 million between the second quarters of 2009 and 2008 primarily due to lower average debt outstanding, including the redemption of $75 million of long-term debt in December 2008, and reduced interest rates associated with Southwest's commercial credit and other variable-rate facilities.

SOUTHWEST GAS CORPORATION Form 10-Q
June 30, 2009






Six-Month Analysis
                                                          Six Months Ended
                                                              June 30,
                                                        2009            2008
                                                       (Thousands of dollars)
Gas operating revenues                               $   951,850     $ 1,094,303
Net cost of gas sold                                     563,495         705,279
  Operating margin                                       388,355         389,024
Operations and maintenance expense                       171,508         168,809
Depreciation and amortization                             84,212          81,942
Taxes other than income taxes                             19,615          19,810
  Operating income                                       113,020         118,463
Other income (expense)                                       637          (2,162 )
Net interest deductions                                   36,713          42,290
Net interest deductions on subordinated debentures         3,865           3,864
  Income before income taxes                              73,079          70,147
Income tax expense                                        25,963          25,721
  Contribution to consolidated net income            $    47,116     $    44,426

Contribution to consolidated net income from natural gas operations increased $2.7 million in the first six months of 2009 compared to the same period a year ago. The increase in contribution was primarily caused by reduced financing costs and increased other income, partially offset by increased operating expenses.

Operating margin was relatively flat in the first six months of 2009 compared to the first six months of 2008. Positive impacts to operating margin from rate relief and rate changes were nearly $26 million, consisting of rate relief of $15 million in Arizona and $2 million in California and nearly $9 million related to the return to a seasonal margin methodology in California. Differences in heating demand, caused primarily by weather variations, negatively impacted operating margin by approximately $18 million as overall temperatures in the current period were significantly warmer than normal
($17 million), while temperatures were somewhat colder than normal ($1 million)
in the corresponding period in 2008. Energy efficiency and conservation resulting from the sluggish economy negatively impacted operating margin by an estimated $8 million. Customer changes had a nominal impact on operating margin.

Operations and maintenance expense increased $2.7 million, or two percent, principally due to the impact of general cost increases. Labor efficiencies, including those from the conversion to electronic meter reading, mitigated the increase in operations and maintenance expense.

Depreciation expense increased $2.3 million, or three percent, as a result of construction activities, partially offset by lower depreciation rates in California in 2009. Average gas plant in service increased $208 million, or five percent, as compared to the first six months of 2008. The increase reflects ongoing capital expenditures for the upgrade of existing operating facilities and the expansion of the system.

Other income increased $2.8 million between periods as the cash surrender values of COLI policies increased by $2.1 million in the first half of 2009 compared to a reduction of $2.6 million in the first half of 2008, partially offset by a $1.6 million decrease in interest income.

Net financing costs decreased $5.6 million between the first six months of 2009 and the same period in 2008 primarily due to lower average debt outstanding, including the redemption of $75 million of long-term debt in December 2008, and reduced interest rates associated with Southwest's commercial credit and other variable-rate facilities.

SOUTHWEST GAS CORPORATION Form 10-Q
June 30, 2009






Twelve-Month Analysis
                                                         Twelve Months Ended
                                                              June 30,
                                                        2009            2008
                                                       (Thousands of dollars)
Gas operating revenues                               $ 1,648,942     $ 1,837,821
Net cost of gas sold                                     914,193       1,098,845
  Operating margin                                       734,749         738,976
Operations and maintenance expense                       341,359         332,392
Depreciation and amortization                            168,607         161,426
Taxes other than income taxes                             36,585          36,958
  Operating income                                       188,198         208,200
Other income (expense)                                   (10,670 )        (2,336 )
Net interest deductions                                   77,519          86,263
Net interest deductions on subordinated debentures         7,730           7,728
  Income before income taxes                              92,279         111,873
Income tax expense                                        35,842          40,726
  Contribution to consolidated net income            $    56,437     $    71,147

Contribution to consolidated net income from natural gas operations decreased $14.7 million in the current twelve-month period compared to the same period a year ago. The decline in contribution was primarily caused by lower other income, higher operating expenses, and lower operating margin, partially offset by reduced financing costs.

Operating margin decreased a net $4 million between periods. Rate relief and rate changes provided $28 million of operating margin, consisting of rate relief of $17 million in Arizona and $2 million in California, and nearly $9 million of timing differences related to the return to a seasonal margin methodology in California. Customer growth contributed $2 million in operating margin. Differences in heating demand caused primarily by weather variations between periods resulted in a $22 million operating margin decrease as warmer-than-normal temperatures were experienced during both periods (during the twelve-month period of 2009, operating margin was negatively impacted by $29 million, while the negative impact in the twelve-month period of 2008 was $7 million). Conservation resulting from current economic conditions and energy efficiency negatively impacted operating margin by $12 million.

Operations and maintenance expense increased $9 million, or three percent, principally due to the impact of general cost increases. Labor efficiencies, primarily from the conversion to electronic meter reading and other cost containment efforts, mitigated the increase in operations and maintenance expense.

Depreciation expense increased $7.2 million, or four percent, as a result of additional plant in service. Average gas plant in service for the twelve-month period of 2009 increased $223 million, or six percent, as compared to the twelve-month period of 2008. This was attributable to the upgrade of existing operating facilities and the expansion of the system.

Other income decreased $8.3 million between the twelve-month periods of 2009 and 2008. This was primarily due to a $7.4 million decline in the cash surrender values of COLI policies in the current period compared to cash surrender value declines in the prior period of $3.2 million and a $2.7 million reduction in interest income between the twelve-month periods primarily due to the recovery of previously deferred purchased gas cost receivables.

Net financing costs decreased $8.7 million between the twelve-month periods of 2009 and 2008 primarily due to lower average debt outstanding and reduced interest rates associated with Southwest's commercial credit and other variable-rate facilities.

SOUTHWEST GAS CORPORATION Form 10-Q
June 30, 2009

Results of Construction Services

Contribution to consolidated net income from construction services for the three months ended June 30, 2009 decreased $40,000 compared to the same period of 2008. The reduction was primarily due to reduced revenues, partially offset by lower operating and finance costs. Gains on sales of equipment were relatively flat between the comparative quarterly periods.

Revenues decreased $23.4 million due primarily to a reduction in new construction work. The reduced workload resulted in a corresponding decrease in construction expenses ($21.8 million). In addition, lower fuel and fuel-related expenses and cost-saving initiatives contributed to the decline in construction expenses. Interest expense decreased $199,000 between periods due to a reduction in long-term borrowings.

Contribution to consolidated net income from construction services for the six months ended June 30, 2009 increased $270,000 compared to the same period of 2008. The improvement was primarily due to lower financing costs and increased gains on equipment sales between periods. Gains on sales of equipment were $1.9 million for the six months ended June 30, 2009 and $1.7 million for the corresponding period of 2008.

Revenues decreased $40.9 million due primarily to a reduction in new construction work. Construction expenses decreased $39.4 million between periods primarily due to the reduced workload, lower fuel and fuel-related expenses and cost-saving initiatives. Interest expense declined $307,000 between periods due to a reduction in long-term borrowings.

Contribution to consolidated net income from construction services for the twelve-month period of 2009 decreased $1.6 million compared to the same period of 2008. This decrease was due primarily to a reduction in the volume of new construction work. Higher fuel cost and fuel-related expenses in the third quarter of 2008 also contributed to the decrease in contribution. Gains on sales of equipment were $2.3 million for the twelve-month period of 2009 and $2.2 million for the twelve-month period of 2008.

Revenues decreased $42.5 million due primarily to a reduction in the volume of . . .