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 September 30, 2009, Southwest had 1,803,000 residential, commercial, industrial, and other natural gas customers, of which 972,000 customers were located in Arizona, 652,000 in Nevada, and 179,000 in California. Residential and commercial customers represented over 99 percent of the total customer base. During the twelve months ended September 30, 2009, 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, especially in Arizona where rates are highly leveraged, can 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 18 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 and second quarter 2009 reports on Form 10-Q.

SOUTHWEST GAS CORPORATION Form 10-Q
September 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 89 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 September 30,
                             Three Months                 Nine Months                Twelve Months
                          2009          2008          2009          2008          2009          2008
                                           (In thousands, except per share amounts)

Contribution to net
income (loss)
Natural gas
operations              $ (11,367 )   $ (19,678 )   $  35,749     $  24,748     $  64,748     $  64,332
Construction services       3,070         2,992         5,341         4,993         7,574         8,546
Net income (loss)       $  (8,297 )   $ (16,686 )   $  41,090     $  29,741     $  72,322     $  72,878

Average number of
common
  shares outstanding       44,855        43,581        44,671        43,307        44,497        43,150

Basic earnings (loss)
per share
Consolidated            $   (0.18 )   $   (0.38 )   $    0.92     $    0.69     $    1.63     $    1.69


Natural Gas
Operations
Operating margin        $ 130,502     $ 134,420     $ 518,857     $ 523,444     $ 730,831     $ 740,473

Contribution to consolidated net income (loss) from natural gas operations improved $8.3 million in the third quarter of 2009 compared to the same period in 2008. The improvement in contribution primarily resulted from a $4.9 million increase in the cash surrender values of COLI policies in the third quarter of 2009 compared to a $3.7 million decrease in the third quarter of 2008. The construction services contribution was relatively flat compared to the same period in 2008.

3rd Quarter 2009 Overview

Gas operations highlights include the following:
· Operating margin decreased approximately $4 million, or three percent, compared to the prior-year's quarter as the positive impact of Arizona rate relief ($5 million) was more than offset by the negative impact ($9 million) of a return to a seasonal margin methodology in California

· Operations and maintenance expenses decreased two percent between quarters

· Depreciation expense decreased one percent between quarters due to lower depreciation rates in the Nevada and California rate jurisdictions

· COLI cash surrender values significantly increased between quarters

· Net financing costs decreased $1.6 million between quarters

· Liquidity position remains strong
· Nevada general rate increase and decoupling mechanism approved effective November 2009

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2009

Nevada Rate Relief. In October 2009, the Public Utilities Commission of Nevada ("PUCN") authorized general rate relief in Nevada effective November 2009 that is designed to increase annual operating income by approximately $19.1 million. The rate decision also authorized a decoupled rate structure that will help stabilize annual operating margin in Nevada. See Nevada General Rate Case for additional details of the rate decision.

Customers. During the twelve months ended September 30, 2009, Southwest completed 21,000 first-time meter sets. These meter sets led to just 1,000 net additional active meters between September 2008 and September 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, a trend first experienced during 2007. Southwest is projecting net growth will remain sluggish (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 nine 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 nine months 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 significant 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) has been 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 nine months ended September 30, 2009, the estimated impact of these non-weather-related volumetric declines was a reduction to operating margin of $8 million. The decoupling methodology authorized in the recent Nevada rate case, effective November 2009, is designed to 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 September 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 $57 million at September 30, 2009 and is included in the caption "Other property and investments" on the balance sheet. 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
September 30, 2009

Liquidity. During 2008 and 2009, significant attention has been 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.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2009





Results of Natural Gas Operations

Quarterly Analysis
                                                         Three Months Ended
                                                            September 30,
                                                         2009            2008
                                                       (Thousands of dollars)
Gas operating revenues                               $    235,020      $ 268,450
Net cost of gas sold                                      104,518        134,030
  Operating margin                                        130,502        134,420
Operations and maintenance expense                         85,773         87,489
Depreciation and amortization                              41,401         41,623
Taxes other than income taxes                               8,265          8,103
  Operating income (loss)                                  (4,937 )       (2,795 )
Other income (expense)                                      3,952         (4,548 )
Net interest deductions                                    18,904         20,521
Net interest deductions on subordinated debentures          1,933          1,933
  Income (loss) before income taxes                       (21,822 )      (29,797 )
Income tax expense (benefit)                              (10,455 )      (10,119 )
  Contribution to consolidated net income (loss)     $    (11,367 )    $ (19,678 )

Contribution to consolidated net income (loss) from natural gas operations improved $8.3 million in the third quarter of 2009 compared to 2008. The improvement in contribution reflects higher other income and the benefit of lower operating expenses and financing costs, partially offset by lower operating margin.

Operating margin decreased by approximately $4 million in the third quarter of 2009 compared to the third quarter of 2008. The decline resulted from a $9 million decrease related to the return to a seasonal margin methodology in California, partially offset by rate relief of $5 million in Arizona. This completes the seasonal adjustment impacts to margin in California. Customer growth was not a factor as only 1,000 net new customers (on a comparative seasonally adjusted basis) were added during the last twelve months.

Operations and maintenance expense decreased $1.7 million, or two percent, principally due to effectively using technology and being selective in filling employee vacancies.

Depreciation expense decreased $222,000, or one percent, 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 $184 million, or four 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 $8.5 million between quarters as the cash surrender values of COLI policies increased by $4.9 million in the third quarter of 2009 compared to a decrease of $3.7 million in the prior-year quarter, partially offset by lower interest income.

Net financing costs decreased $1.6 million between the third quarters of 2009 and 2008 primarily due to a reduction in outstanding debt, 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
September 30, 2009





Nine-Month Analysis
                                                          Nine Months Ended
                                                            September 30,
                                                        2009            2008
                                                       (Thousands of dollars)
Gas operating revenues                               $ 1,186,870     $ 1,362,753
Net cost of gas sold                                     668,013         839,309
  Operating margin                                       518,857         523,444
Operations and maintenance expense                       257,281         256,298
Depreciation and amortization                            125,613         123,565
Taxes other than income taxes                             27,880          27,913
  Operating income                                       108,083         115,668
Other income (expense)                                     4,589          (6,710 )
Net interest deductions                                   55,617          62,811
Net interest deductions on subordinated debentures         5,798           5,797
  Income before income taxes                              51,257          40,350
Income tax expense                                        15,508          15,602
  Contribution to consolidated net income            $    35,749     $    24,748

Contribution to consolidated net income from natural gas operations increased $11 million in the first nine months of 2009 compared to the same period a year ago. The increase in contribution was primarily due to higher other income and reduced financing costs, partially offset by lower operating margin and increased operating expenses.

Operating margin decreased approximately $4 million between periods. Positive impacts to operating margin from rate relief were approximately $22 million, consisting of $20 million in Arizona and $2 million 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. Conservation resulting from the sluggish economy and energy efficiency negatively impacted operating margin by an estimated $8 million. Customer growth had a nominal effect on operating margin.

Operations and maintenance expense increased $983,000, or less than one percent, principally due to the impact of modest general cost increases, tempered by labor efficiencies.

Depreciation expense increased $2 million, or two percent, as a result of construction activities, partially offset by lower depreciation rates in the Nevada and California rate jurisdictions in 2009. Average gas plant in service increased $201 million, or five percent, as compared to the first nine 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 $11.3 million between periods as the cash surrender values of COLI policies increased by $6.9 million in the first nine months of 2009 compared to a reduction of $6.3 million in the first nine months of 2008, partially offset by a $1.8 million decrease in interest income.

Net financing costs decreased $7.2 million between the first nine 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 on variable-rate debt.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2009





Twelve-Month Analysis
                                                         Twelve Months Ended
                                                            September 30,
                                                        2009            2008
                                                       (Thousands of dollars)
Gas operating revenues                               $ 1,615,512     $ 1,831,523
Net cost of gas sold                                     884,681       1,091,050
  Operating margin                                       730,831         740,473
Operations and maintenance expense                       339,643         336,659
Depreciation and amortization                            168,385         163,275
Taxes other than income taxes                             36,747          37,213
  Operating income                                       186,056         203,326
Other income (expense)                                    (2,170 )        (7,362 )
Net interest deductions                                   75,902          84,781
Net interest deductions on subordinated debentures         7,730           7,729
  Income before income taxes                             100,254         103,454
Income tax expense                                        35,506          39,122
  Contribution to consolidated net income            $    64,748     $    64,332

Contribution to consolidated net income from natural gas operations was relatively flat for the current twelve-month period as compared to the same period a year ago. The slight improvement in contribution was a result of greater other income and reduced financing costs, partially offset by a decline in operating margin and an increase in operating expenses.

Operating margin decreased a net $9 million between periods. Rate relief provided $24 million of operating margin, consisting of $22 million in Arizona and $2 million in California. Customer growth contributed $1 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 an estimated $12 million.

Operations and maintenance expense increased $3 million, or one percent, principally due to the impact of general cost increases. The increase was mitigated by lower staffing levels and labor efficiencies associated with the conversion to electronic meter reading.

Depreciation expense increased $5.1 million, or three percent, as a result of additional plant in service, partially offset by lower depreciation rates in the Nevada and California rate jurisdictions in 2009. Average gas plant in service for the twelve-month period of 2009 increased $210 million, or five 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 improved $5.2 million between the twelve-month periods of 2009 and 2008. This was primarily due to a $1.2 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 $7.3 million, partially offset by a $2.2 million reduction in interest income between the twelve-month periods.

Net financing costs decreased $8.9 million between the twelve-month periods of 2009 and 2008 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
September 30, 2009

Results of Construction Services

NPL's operating results continue to be influenced by the general slow down in the new housing market. Although management cannot predict the timing of a turn around in the new housing market, it is not likely to occur in the near term.

Contribution to consolidated net income from construction services for the three months ended September 30, 2009 was relatively flat compared to the same period of 2008. Gains on sales of equipment were $310,000 for the three months ended September 30, 2009 and $429,000 for the corresponding period of 2008.

Revenues decreased $23.5 million primarily due to a reduction in new construction work resulting from the general slow down in the new housing market. Construction expenses declined $21.7 million primarily due to the reduction in new construction work, lower fuel and fuel-related expenses, and cost-saving initiatives.

Contribution to consolidated net income from construction services for the nine months ended September 30, 2009 increased $348,000 compared to the same period of 2008. The improvement was primarily due to a reduction in construction expenses including fuel and fuel-related expenses and lower financing costs. Gains on sales of equipment were $2.2 million for the nine months ended September 30, 2009 and $2.1 million for the corresponding period of 2008.

Revenues decreased $64.4 million primarily due to a reduction in the volume of new construction work. Construction expenses decreased $61.1 million between periods primarily due to the reduced workload, lower fuel and fuel-related expenses, and cost-saving initiatives. Interest expense declined $406,000 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 $972,000 compared to the same period of 2008. This decrease was due primarily to a reduction in the volume of new construction work. Gains on sales of equipment were $2.2 million for the twelve-month period of 2009 and $2.5 million for the twelve-month period of 2008.

Revenues decreased $75.2 million due primarily to a reduction in the volume of higher-margin new construction work resulting from the general slow down in the new housing market. Construction expenses decreased $69.9 million due primarily to the reduction in new construction work and lower fuel and fuel-related expenses. Interest expense decreased $656,000 between the twelve-month periods due to a reduction in long-term borrowings.

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 . . .